18 U.S.C. 207(c) prohibits a former “senior employee,” for a period of one year, from knowingly making, with the intent to influence, any communication to or appearance before an employee of the department or agency in which he served in any capacity during the one-year period prior to termination from senior service, if that communication or appearance is made on behalf of any other person, except the United States. For purposes of 18 U.S.C. 207, a “senior employee” is any individual whose rate of basic pay is equal to or greater than 86.5 percent of the rate for level II of the Executive Schedule.

The representational bar of 18 U.S.C. 207(c) usually extends to the whole of any department or agency in which a former senior employee served in any capacity during the year prior to termination from a senior employee position. However, 18 U.S.C. 207(h) provides that whenever the Director of OGE determines that an agency or bureau within a department or agency in the executive branch exercises functions which are distinct and separate from the remaining functions of the department or agency and there exists no potential for use of undue influence or unfair advantage based on past Government service, the Director shall by rule designate such agency or bureau as a separate department or agency. As a result, a former senior employee who served in a “parent” department or agency is not barred by 18 U.S.C. 207(c) from making communications to or appearances before any employee of any designated component of that parent, but is barred as to employees of that parent or of other components that have not been designated. Moreover, a former senior employee who served in a designated component of a parent department or agency is barred from communicating to or making an appearance before any employee of that component, but is not barred as to any employee of the parent or of any other component.

Under 18 U.S.C. 207(h)(2), component designations do not apply to persons employed at a rate of pay specified in or fixed according to subchapter II of 5 U.S.C. chapter 53 (the Executive Schedule). Component designations are listed in appendix B of 5 CFR part 2641.

The Director of OGE regularly reviews the component designations and determinations and, in consultation with the department or agency concerned, makes such additions and deletions as are necessary. As specified in 5 CFR 2641.201(e)(3)(iii), the Director “shall by rule make or revoke a component designation after considering the recommendation of the designated agency ethics official.” Section 2641.201(e)(6) further provides that, before designating an agency component as distinct and separate for purposes of 18 U.S.C. 207(c), the Director must find that there exists no potential for use by former senior employees of undue influence or unfair advantage based on past Government service, and that the component is an agency or bureau within a department or agency that exercises functions which are distinct and separate from the functions of the parent department or agency and from the functions of other components of that parent.

Pursuant to the procedures prescribed in 5 CFR 2641.201(e), several departments have forwarded written requests to OGE that their department's listing in appendix B be amended. After carefully reviewing the requested changes in light of the criteria in 18 U.S.C. 207(h) as implemented in 5 CFR 2641.201(e)(6), the current Acting Director of OGE has determined to grant all the requests and amend appendix B to 5 CFR part 2641 as explained below.

The Department of Commerce (DOC) has advised that the name of one DOC component currently listed in appendix B of part 2641 has been changed. According to DOC, the “Bureau of Export Administration” is now the “Bureau of Industry and Security.” Therefore, the OGE Acting Director is amending the DOC listing in appendix B to reflect the current name of this component.

The Department of Defense (DOD) has advised that the name of one DOD designated component currently listed in appendix B of part 2641 has been changed. According to DOD, the “National Imagery and Mapping Agency” is now the “National Geospatial-Intelligence Agency.” Therefore, the Acting Director is amending the DOD listing in appendix B to reflect the current name of this component.

The Department of Homeland Security (DHS), which was created in the Homeland Security Act of 2002, Public Law No. 107-296, 116 Stat. 2135, has requested that the Director designate seven distinct and separate components in DHS for purposes of 18 U.S.C. 207(c). DHS has requested such designations for its Directorates of “Emergency Preparedness and Response” (EPR), Information Analysis and Infrastructure Protection (IAIP), and “Science and Technology” (S&T), as each was created by separate statutory provision under the Homeland Security Act of 2002. Largely composed of the Federal Emergency Management Agency (FEMA), the EPR was established to ensure that the nation is prepared for catastrophes, including natural disasters and terrorist assaults. The IAIP was established to merge the capability to identify and to assess a broad range of intelligence information from Federal, State, and local authorities concerning threats to the homeland. The S&T functions to serve as the primary research and development arm of DHS to organize the scientific and technological resources of the nation to prevent or mitigate the effects of catastrophic terrorism.

In addition to these Directorates, DHS has requested the following distinct and separate component designations: the “Federal Law Enforcement Training Center” (FLETC), the “Transportation Security Administration” (TSA), the “United States Coast Guard” (USCG), and the “United States Secret Service” (USSS), all four of which were previously designated as distinct and separate components at other departments. The Homeland Security Act of 2002 established that each of these four entities shall be maintained as a distinct and separate entity within DHS.

The Acting Director is granting the requests of DHS and amending appendix B to part 2641 to add a listing for DHS as a parent department and to designate the requested seven distinct and separate components in the DHS listing.

The Department of Justice (DOJ) has requested revocation of the “Immigration and Naturalization Service” (INS) currently listed in appendix B of part 2641 as a designated component of DOJ, because the functions of INS have been transferred to the Department of Homeland Security. In addition, in accordance with the Homeland Security Act of 2002, the “Bureau of Alcohol, Tobacco, Firearms and Explosives” (ATF) has been established as a new distinct entity within DOJ. Therefore, DOJ has also requested that this bureau be designated a distinct and separate component of DOJ. The Acting Director is granting the DOJ requests and therefore is amending the DOJ listing in appendix B to part 2641 to revoke the component designation of INS and to designate ATF as a new component.

The Department of Labor (DOL) has advised that the name of one DOL designated component currently listed in appendix B of part 2641 has been changed. According to DOL, the “Pension and Welfare Benefits Administration” is now the “Employee Benefits Security Administration.” Therefore, the Acting Director is amending the DOL listing in appendix B to part 2641 to reflect the current name of this component.

The Department of Transportation (DOT) has advised that the functions of the Transportation Security Administration (TSA) and the United States Coast Guard (USCG) have been transferred to the Department of Homeland Security in accordance with the Homeland Security Act of 2002, and has therefore requested that the component designations of TSA and USCG be revoked. The Acting Director is granting the DOT requests and is accordingly revising the DOT listing in appendix B to part 2641 to revoke the component designations of TSA and USCG.

In connection with the changes pursuant to the Homeland Security Act of 2002, the Department of the Treasury (Treasury) has requested that the following four component designations be revoked, since these components no longer are a part of Treasury: “Bureau of Alcohol, Tobacco and Firearms” (BATF), “Federal Law Enforcement Training Center” (FLETC), “United States Customs Service” (USCG), and “United States Secret Service” (USSS). The Acting Director is granting Treasury's requests and is accordingly revising the Treasury listing in appendix B to part 2641 to revoke the component designations of BATF, FLETC, USCG and USSS.

Further, Treasury has requested that the recently-established Treasury bureau, the “Alcohol and Tobacco Tax and Trade Bureau” (TTB) be designated a distinct and separate component of Treasury. TTB was established under the Homeland Security Act of 2002. TTB has all the authorities related to the administration and enforcement of the provisions of the tax code relative to alcohol, tobacco, firearms and certain other excise taxes. The Acting Director is granting this additional Treasury request and is accordingly amending the Treasury listing in appendix B to part 2641 to add TTB as a designated component.

As indicated in 5 CFR 2641.201(e)(4), a designation “shall be effective as of the effective date of the rule that creates the designation, but shall not be effective as to employees who terminated senior service prior to that date.” Initial designations were effective as of January 1, 1991. The effective date of subsequent designations is indicated by means of parenthetical entries in appendix B to part 2641. The new component designations made by this rulemaking document, as well as the component name changes being reflected herein (which do not affect their underlying component designation dates), are effective November 23, 2004.

As also provided in 5 CFR 2641.201(e)(4), a revocation is effective 90 days after the effective date of the rule that revokes the designation. Accordingly, the component designation revocations made in this rulemaking will take effect February 22, 2005. Revocations are not effective as to any individual terminating senior service prior to the expiration of the 90-day period.

Pursuant to 5 U.S.C. 553, as the Acting Director of the Office of Government Ethics, I find that good cause exists for waiving the general requirements for notice of proposed rulemaking, opportunity for public comment, and, except as to the component revocations (see the preamble discussion above), a 30-day delayed effective date. It is important and in the public interest that the designation or revocation herein by OGE of the specified separate departmental components, as well as the component name changes, all of which reflect the current organization of the concerned departments and, as to the new component designations, relieve a restriction, be published in the Federal Register and take effect as promptly as possible.

As Acting Director of the Office of Government Ethics, I certify under the Regulatory Flexibility Act (5 U.S.C. chapter 6) that this rule will not have a significant economic impact on a substantial number of small entities because it affects only Federal departments and agencies and current and former Federal employees.

The Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply to this rule because it does not contain information collection requirements that require the approval of the Office of Management and Budget.

For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. chapter 25, subchapter II), the final rule will not significantly or uniquely affect small governments and will not result in increased expenditures by State, local and tribal governments, in the aggregate, or by the private sector, of $100 million or more (as adjusted for inflation) in any one year.

The Office of Government Ethics has determined that this rulemaking involves a nonmajor rule under the Congressional Review Act (5 U.S.C. chapter 8) and will submit a report thereon to the U.S. Senate, House of Representatives and General Accounting Office in accordance with that law at the same time this rulemaking document is sent to the Office of the Federal Register for publication in the Federal Register

In promulgating this final rule, the Office of Government Ethics has adhered to the regulatory philosophy and the applicable principles of regulation set forth in section 1 of Executive Order 12866, Regulatory Planning and Review. This rule has not been reviewed by the Office of Management and Budget under that Executive order since it deals with agency organization, management, and personnel matters and is not “significant” under the order.

As Acting Director of the Office of Government Ethics, I have reviewed this rule in light of section 3 of Executive Order 12988, Civil Justice Reform, and certify that it meets the applicable standards provided therein.

The Commission published a Notice of Proposed Rulemaking on March 11, 2004. See Notice of Proposed Rulemaking on Political Committee Status, 69 FR 11736 (Mar. 11, 2004) (“NPRM”). Written comments were due by April 5, 2004 for those commenters who wished to testify at the Commission hearing on these proposed rules, and by April 9, 2004 for commenters who did not wish to testify. The NPRM addressed a number of proposed changes to 11 CFR parts 100, 102, 104, 106 and 114. The Commission received over 100,000 comments from the public with regard to the various issues raised in the NPRM. The comments are available at http://www.fec.gov/register.htm under “Political Committee Status.” The Commission held a public hearing on April 14 and 15, 2004, at which 31 witnesses testified. A transcript of the public hearing is also available at http://www.fec.gov/register.htm under “Political Committee Status.” For the purposes of this document, the terms “comment” and “commenter” apply to both written comments and oral testimony at the public hearing.

Under the Administrative Procedure Act, 5 U.S.C. 553(d), and the Congressional Review of Agency Rulemaking Act, 5 U.S.C. 801(a)(1), agencies must submit final rules to the Speaker of the House of Representatives and the President of the Senate and publish them in the Federal Register at least 30 calendar days before they take effect. The final rules that follows were transmitted to Congress on November 18, 2004.

The Commission is adopting one addition to the regulatory definition of “contribution” in 11 CFR part 100, subpart B. This addition comports with the statutory standard for “contribution” by reaching payments “made * * * for the purpose of influencing any election for Federal office.” 2 U.S.C. 431(8)(A)(i); 11 CFR 100.51 and 100.52. This addition has several exceptions to avoid sweeping too broadly.

Section 100.57 is a new rule that explains when funds received in response to certain communications by any person must be treated as “contributions” under FECA. Paragraph (a) sets out the general rule, paragraphs (b) and (c) create two specific exceptions: Paragraph (b) addresses certain allocable solicitations, and paragraph (c) addresses joint fundraisers. These rules in new 11 CFR 100.57 apply to all political committees, corporations, labor organizations, partnerships, organizations and other entities that are “persons” under the Federal Election Campaign Act of 1971, as amended (“FECA”). See 2 U.S.C. 431(11). The rules apply without regard to tax status, so they reach all FECA “persons,” including, for example, entities described in or operating under section 501(c)(3), 501(c)(4), and 527 of the Internal Revenue Code.

New section 100.57(a) classifies all funds provided in response to a communication as contributions under the FECA if the communication indicates that any portion of the funds received will be used to support or oppose the election of a clearly identified Federal candidate.

Most political committees and other organizations pay careful attention to communications with potential donors. These communications are commonly the cornerstone of the relationship between a group and its donors, and their effectiveness is vital to almost all organizations. Many groups' fundraising solicitations will say nothing of an electoral objective regarding the use of funds ( i.e. , that any funds provided in response to the solicitation will be used to support or oppose the election of clearly identified Federal candidates). Communications that do so, however, plainly seek funds “for the purpose of influencing Federal elections.” Thus, the new rule appropriately concludes that such funds are “contributions” under FECA.

The standard in new section 100.57 draws support from a 1995 decision of the United States Court of Appeals for the Second Circuit. FEC v. Survival Education Fund, Inc., 65 F.3d 285 (2d Cir. 1995). In the Second Circuit case, the court found that a July 1984 letter from two nonprofit issue advocacy groups solicited “contributions” under FECA because it included a statement “[t]hat * * * leaves no doubt that the funds contributed would be used to advocate President Reagan's defeat at the polls, not simply to criticize his policies during the election year.” Id. at 295. According to the court, the critical statement from the mailing was: “your special election-year contribution today will help us communicate your views to hundreds of thousands of members of the voting public, letting them know why Ronald Reagan and his anti-people policies must be stopped.” Id. at 289 and 295 (first emphasis added by court, second in original). The mailing described in FEC v. Survival Education Fund, if used following the effective date of these rules and modified to identify clearly a current Federal candidate, would trigger new section 100.57(a) and would require the group issuing the mailing to treat all the funds received in response to the mailing as “contributions” under FECA.

The following are examples of solicitations based on the one that Survival Education Fund used that illustrate how a variation in the text of a solicitation would change the result of whether a solicitation is subject to new section 100.57. A solicitation might state the following:

In contrast, a solicitation that would trigger the new rule might read as follows:

The rule's focus on the planned use of funds leaves the group issuing the communication with complete control over whether its communications will trigger new section 100.57. After determining that a clearly identified candidate is mentioned, new section 100.57 requires an examination of only the text of a communication. The regulation turns on the plain meaning of the words used in the communication and does not encompass implied meanings or understandings. It does not depend on reference to external events, such as the timing or targeting of a solicitation, nor is it limited to solicitations that use specific words or phrases that are similar to a list of illustrative phrases.

It is important to note that if a solicitation indicates that any portion of the funds received will be used to support or oppose the election of a clearly identified candidate, new section 100.57(a) applies even if the solicitation states that funds received would be used for other purposes too, subject to the exceptions in new 11 CFR 100.57(b)(2) and (c), discussed below. In addition, a disclaimer stating that any funds received that cannot be treated as contributions, or that cannot be accepted by a political committee or cannot be deposited in a committee's Federal account, will be deposited in the organization's non-Federal account does not negate the application of new section 100.57(a). Thus, an organization that sends out a solicitation that is subject to new section 100.57(a) or (b)(1) with a disclaimer similar to the one described above cannot accept any funds that are not Federal funds (funds that comply with the amount limitations, source prohibitions and reporting requirements of FECA) in response to that solicitation unless it satisfies one of the exceptions in new section 100.57(b)(2) or (c), discussed below.

Further examples of communications that solicit contributions under new section 100.57(a) are:

1. “ Electing Joe Smith is crucial to our efforts to preserve the environment. Please send money to us so that we can be successful in this cause.”

2. “Our group strives to preserve Social Security, and Representative Jones has a great plan to protect this vital program. The Congressman needs our help to stay in Washington and implement his plan to save Social Security. Give now to help us fight to save Social Security.”

3. “Senator Jane Doe voted against a tax package that would have helped working families. Your generous gift will enable us to make sure Californians remember in November .”

Because the italicized language in each of these solicitations indicates that the funds received will be used to support the election or defeat of a Federal candidate, any funds received in response to these solicitations are “contributions” under the new rule.

In the NPRM, the proposed regulation text for section 100.57 took a different approach. See NPRM at 11757. However, new section 100.57(a) is similar to an approach that the Commission sought comment on in the narrative of the NPRM. See NPRM at 11743. The commenters did not address the approach discussed in the NPRM's narrative, but some addressed the proposed regulation text for this provision. Those commenters raised objections to proposed section 100.57 based on some of the exemptions from the “expenditure” definition for certain communications, as discussed below. The exemption from the “expenditure” definition for the costs of internal communications by corporations, labor organizations and membership organizations in 2 U.S.C. 431(9)(B)(iii) and 11 CFR 100.134 is not affected by the Commission's promulgation of new section 100.57.

New section 100.57 does not address when the costs of communications are expenditures under FECA. Instead, it specifies when funds received in response to certain communications must be treated as contributions under FECA. Thus, a corporation, labor organization or membership organization that issues an internal communication of the type described in new section 100.57 may consider the costs of the communication to be disbursements not subject to FECA requirements under section 100.134, but it must treat any funds received in response as FECA contributions under new section 100.57. If the corporation, labor organization, or membership organization maintains a separate segregated fund (“SSF”), treating the funds received in response to the communication as contributions to the SSF will satisfy new section 100.57.

Section 100.141 exempts from the “expenditure” definition any payments made by corporations or labor organizations that are permissible under 11 CFR part 114. Part 114 authorizes the use of non-Federal funds for the costs of various corporate, labor organization, and membership organization communications under certain conditions. See, e.g. , 11 CFR 114.3 to 114.8; 2 U.S.C. 441b(b)(2)(A), (b)(2)(B), (b)(4)(B). New section 100.57 does not make the costs of these communications expenditures; instead, it concerns the treatment of funds received in response to certain communications without regard to how the costs of those communications were paid.

One commenter argued that its status as an MCFL-type corporation (a qualified nonprofit corporation allowed to make independent expenditures pursuant to 11 CFR 114.10) means its communications that inform potential contributors of the organization's ability to advocate in connection with a Federal election must be immune from FECA consequences. The Supreme Court holding in FEC v. Massachusetts Citizens for Life, 479 U.S. 238 (1986) (“ MCFL ”), is not so broad. Indeed, the Court twice has recognized that an MCFL -type corporation's independent spending can have FECA consequences. See id. at 262 (noting: “should MCFL's independent spending become so extensive that the organization's major purpose may be regarded as campaign activity, the corporation would be classified as a political committee”); see also FEC v. Beaumont, 539 U.S. 146, 149 (2003) (holding that the ban on corporate contributions directly to Federal candidates applies to MCFL -type corporations). Independent expenditures were the core of the MCFL holding, yet the opinion expressly notes that the independent expenditures can trigger political committee status. Nonetheless, the commenter claims that an MCFL corporation's ability to explain to potential contributors that it will make independent expenditures on behalf of particular Federal candidates must be immune from consequences under new section 100.57. Just as an MCFL corporation's independent expenditures can make it a political committee, an MCFL corporation's solicitations can make it the recipient of contributions under the FECA. These contributions will not transform an MCFL corporation into a political committee unless its expenditures and contributions become so extensive as to lead to a conclusion that the organization's major purpose is campaign activity. Therefore, new section 100.57 is not inconsistent with MCFL.

Some commenters addressed the interplay between this regulation and other proposed rules that the Commission is not adopting, which renders these comments moot.

New section 100.57 provides one example of communications that can generate contributions; it is not an exhaustive list. The rule addresses communications that indicate that the funds received in response will be used to support or oppose the election of a clearly identified Federal candidate. Other communications that do not include such an indication may also generate contributions under FECA. A solicitation that states that the funds received will be used to influence Federal elections will generate FECA contributions, see 11 CFR 102.5(a)(2)(ii), even though such a communication would not be subject to new section 100.57 because it does not mention a clearly identified Federal candidate.

Any funds that are “contributions” by operation of new section 100.57 are contributions for purposes of the “political committee” definition in 2 U.S.C. 431(4)(A) and 11 CFR 100.5(a), which defines a “political committee” as any group that makes $1,000 of expenditures or receives $1,000 of contributions during a calendar year. In Buckley v. Valeo, 424 U.S. 1, 79 (1976), the Supreme Court narrowed the “political committee” definition with a “major purpose” test, which is discussed further below. The “major purpose” test applies in the same way to groups that make or receive $1,000 of contributions and groups that make $1,000 of expenditures.

New section 100.57(b)(1) states that a solicitation that meets section 100.57(a) and refers to a political party so that its costs are allocable under 11 CFR 106.6 or 106.7 is nonetheless subject to the rule that all of its proceeds are “contributions” under FECA. This approach is consistent with the “candidate-driven” approach in the revised allocation rules, discussed below. See, e.g., Explanation and Justification for new 11 CFR 106.6(f)(1).

New section 100.57(b)(2) provides that where the costs of a solicitation are allocable under 11 CFR 106.1, 106.6 or 106.7, if the solicitation also refers to at least one clearly identified non-Federal candidate, at least fifty percent of the proceeds of the solicitation must be treated as contributions under FECA. See new 11 CFR 100.57(b)(2). The funds that satisfy the requirement that fifty percent of the funds received must be contributions under the FECA under new section 100.57(b)(2) must also comply with FECA's amount limitations and source prohibitions and must be reported as contributions if the recipient is a political committee. Thus, if such a solicitation does not yield at least fifty percent in funds that meet the FECA's amount limitations and source prohibitions, then the organization must refund some of the donations to comply with new section 100.57. For example, a political committee might raise a total of $30,000 for its Federal and non-Federal accounts with a fundraising event where the invitation includes a solicitation that is subject to both new section 100.57 and allocation under section 106.6(d). Under new section 100.57(b)(2), the political committee must consider at least fifty percent of the proceeds to be contributions. If the $30,000 total receipts include only $12,000 that are in compliance with FECA's limitations and prohibitions, then the committee may retain only $12,000 in non-Federal funds. The political committee must then refund $6,000 of donations so that fifty percent of the proceeds from this solicitation are contributions.

New section 100.57 does not change the allocation of direct costs of fundraising under current 11 CFR 106.6(d) or 106.7(d)(4). These costs are subject to allocation according to the funds received method. New section 100.57, however, does affect the nature of the funds received from a solicitation and requires that either 100% or at least 50% of the funds received must be contributions. The amount of contributions received, in turn, impacts how the funds received method operates when the fundraising includes a solicitation that is subject to new section 100.57. For example, consider again the situation described above where a political committee raised $30,000 for its Federal and non-Federal accounts and spent $2,000 in direct costs of fundraising. After the $6,000 refund, the funds received from that event were 50% Federal and 50% non-Federal, so the political committee must use at least $1,000 in Federal funds to pay for direct costs of fundraising under section 106.6(d). In accordance with 11 CFR 106.6(d)(2), the final allocation of the direct costs of fundraising must result in the Committee using at least $1,000 of Federal funds to pay those costs, and prior payments based on an estimated allocation ratio under section 106.6(d)(1) must be adjusted to match the final allocation ratio.

New section 100.57(c) concerns joint fundraising. It provides that funds received in response to solicitations conducted between or among the authorized committees of Federal and non-Federal candidates are excepted from being treated entirely as contributions under the new rule in section 100.57. Nevertheless, when a Federal candidate's authorized committee participates in a joint fundraiser, all funds solicited are subject to restrictions imposed on Federal candidates by BCRA. See 2 U.S.C. 441i(e)(1) and either 11 CFR 300.61 or 300.62. When a Federal candidate conducts a joint fundraiser with a State candidate, the candidates must divide the receipts according to the written joint fundraising agreement under 11 CFR 102.17. All funds raised for the Federal candidate are subject to 11 CFR 300.61 and all funds raised for the State candidate are subject to 11 CFR 300.62 because of the Federal candidate's participation in the joint fundraiser.

All other joint fundraising pursuant to section 102.17 is subject to new section 100.57(a) and (b). Thus, section 100.57 applies to solicitations for joint fundraisers involving unauthorized political committees or other organizations that are not political committees where the solicitations indicate that any portion of the funds received will be used to support or oppose the election of a clearly identified Federal candidate. If the communication is subject to new section 100.57(a) or (b)(1), then the entire amount of the proceeds of the joint fundraiser must be treated as contributions. Alternatively, if the solicitation is subject to new section 100.57(b)(2) (includes at least one clearly identified Federal candidate and at least one clearly identified non-Federal candidate), then at least fifty percent of the proceeds must be treated as FECA contributions, without regard to which entity receives those contributions. Any joint fundraising agreement must reflect the appropriate division of proceeds and costs in order for the joint fundraising entities to comply with new section 100.57 and in 11 CFR 102.17.

For example, two political committees, called A and B, each with a Federal and non-Federal account, sign a joint fundraising agreement stating that A will receive 75% of the proceeds and B will receive 25% of the proceeds. In accordance with the agreement, they jointly raise $100,000 with a solicitation subject to new section 100.57(b)(2), with A receiving $75,000 and B receiving $25,000. The $100,00 raised by the two committees must be distributed among their Federal and non-Federal accounts in any way that results in at least 50% of the $100,000 total proceeds being deposited in the Federal accounts. For example, A may deposit one third of its $75,000 in proceeds ($25,000) in its Federal account and the remaining two thirds ($50,000) in its non-Federal account. B would then treat all of its $25,000 in proceeds as Federal funds, deposit $25,000 in its Federal account, and nothing in its non-Federal account. All funds deposited in Federal accounts must comply with the amount limitations, source prohibitions, and reporting requirements of the Act. Furthermore, at least 50% of the direct costs of fundraising must be paid for with Federal funds.

The Commission is adopting final rules at 11 CFR 106.6 to change the allocation regime for SSFs and nonconnected committees. These final rules establish a simpler bright-line rule providing that administrative expenses, generic voter drives, and certain public communications that refer to a political party must be paid for with at least 50% Federal funds. Under the previous regulations, SSFs and nonconnected committees applied a complex “funds expended” formula to arrive at a ratio of Federal funds to total Federal and non-Federal disbursements and then paid for these expenses with allocated amounts from Federal and non-Federal accounts. The previous rules were a source of confusion for some SSFs and nonconnected committees and resulted in time-consuming reporting.

These final rules also establish candidate-driven allocation rules for voter drives and public communications that refer to clearly identified Federal or non-Federal candidates regardless of whether the voter drive or public communication refers to a political party. When the voter drive or public communication refers to clearly identified Federal candidates, but no clearly identified non-Federal candidates, the costs must be paid for with 100% Federal funds. Similarly, when the voter drive or public communication refers to clearly identified non-Federal candidates, but no clearly identified Federal candidates, the costs may be paid 100% from a non-Federal account. Any voter drives or public communications that refer to both clearly identified Federal and non-Federal candidates are subject to the time/space method of allocation under 11 CFR 106.1. The final rules do not change the allocation methods in 11 CFR 106.1, which are based on the benefit reasonably expected to be derived by each candidate. Minor changes are being made in 11 CFR 102.5 and 104.10 to conform to the changes in 11 CFR 106.6.

Section 102.5(a)(1)(i) regulates how political committees, other than national committees, that finance political activity in connection with both Federal and non-Federal elections set up accounts and transfer monies between Federal and non-Federal accounts to pay for these activities. As explained below in the Explanation and Justification for revised 11 CFR 106.6, the Commission is revising the rules for SSFs and nonconnected committees regarding allocation of administrative and generic voter drive expenses, and adding rules regarding the payment of costs of certain voter drives and public communications. In order to conform to revised 11 CFR 106.6, the Commission is revising section 102.5(a)(1)(i) to add references to sections 106.6(c) and 106.6(f), which govern transfers from non-Federal to Federal accounts under 11 CFR 102.5(a) to pay for allocable activities.

Section 104.10 specifies how SSFs and nonconnected committees must report expenses allocated among candidates and activities pursuant to 11 CFR 106.1 and 106.6. Previously, section 104.10(b)(1) established the reporting requirements for allocation of administrative and generic voter drive expenses under the former “funds expended” method in section 106.6. As explained in greater detail below ( see Explanation and Justification for revised 11 CFR 106.6), the Commission is revising the rules for SSFs and nonconnected committees and removing the “funds expended” method of allocation. In order to conform to the revised 11 CFR 106.6, the Commission is deleting the requirements for reporting allocated expenditures and disbursements under the “funds expended” method in section 104.10(b)(1). Instead, revised paragraph (b)(1) states that in each report disclosing a disbursement for administrative expenses, generic voter drives, or public communications that refer to a political party, but do not refer to any clearly identified candidates, the committee shall state the allocation ratio used for these categories of expenses under revised 11 CFR 106.6(c). The committee must report whether it is using the 50% minimum Federal funds required under section 106.6(c) or another percentage of Federal funds (greater than 50%). Because of the simplified approach under the revised allocation provisions of section 106.6 explained below, the reporting obligations for SSFs and nonconnected committees should be easier to meet than the obligations under former section 104.10.

This section specifies how SSFs and nonconnected committees must pay for certain activities that are in connection with Federal elections, non-Federal elections, or both, using Federal and non-Federal accounts established pursuant to 11 CFR 102.5. As noted in section 106.6(a), political committees required to allocate under this section do not include party committees and the authorized committees of any candidate for Federal election. The NPRM included several proposals to amend the allocation provisions in 11 CFR 106.6, which are discussed in greater detail below. NPRM at 11753-55 and 11759-60. Approximately ten commenters provided substantive comments regarding these proposals. In general, the commenters were divided as to the impact of the U.S. Supreme Court decision in McConnell v. FEC, 540 U.S. 93 (2003), on the allocation rules for SSFs and nonconnected committees. One commenter argued that McConnell reaffirmed that allocation between Federal and non-Federal accounts is appropriate for SSFs and nonconnected committees. Other commenters believed that McConnell's statements regarding the circumvention of the FECA permitted under the former party committee allocation rules could just as easily be said of the allocation regime for SSFs and nonconnected committees.

After carefully considering these public comments and examining information regarding how the allocation system under former 11 CFR 106.6 has worked over the past ten years, the Commission adopts the following amendments to 11 CFR 106.6: (1) Deleting the “funds expended” ratio from 11 CFR 106.6(c) and replacing it with a 50% flat minimum Federal percentage; (2) applying this new 50% Federal minimum to administrative and generic voter drive expenses, as well as to a newly added category of allocable expenses—public communications that refer to a political party but do not refer to any clearly identified Federal or non-Federal candidates; (3) providing for allocation of certain voter drives and public communications that may refer to political parties and do refer to clearly identified candidates, based upon whether the candidates are Federal, non-Federal, or both; and (4) directing SSFs and nonconnected committees to use the time/space allocation method for certain voter drives and public communications that refer to at least one clearly identified Federal candidate, and to at least one clearly identified non-Federal candidate, regardless of whether there is a reference to a political party. Through these final rules, the Commission seeks to enhance compliance with the FECA, to simplify the allocation system, and to make it easier for SSFs and nonconnected committees to comprehend and for the Commission to administer these requirements.

Previous 11 CFR 106.6(b)(1) listed disbursements that must be allocated by SSFs, and previous 11 CFR 106.6(b)(2) listed disbursements that must be allocated by nonconnected committees. Because the allocation method is very similar for both SSFs and nonconnected committees, it is unnecessary to create separate lists for them. Rather, the distinction in the final rules concerning allocation is between the types of disbursements that are subject to allocation and the types of disbursements that are not. Thus, revised 11 CFR 106.6(b)(1) lists the disbursements that SSFs and nonconnected committees must allocate in accordance to revised 11 CFR 106.6(c). Revised 11 CFR 106.6(b)(2) lists the disbursements that are not subject to allocation but must be paid for in accordance with new 11 CFR 106.6(f).

Proposed 11 CFR 106.6(b)(1) would have applied the allocation rules to public communications that promote or support a political party or promote, support, attack or oppose a clearly identified candidate. NPRM at 11759. The final rules do not adopt this approach. Rather, revised section 106.6(b) lists public communications that refer to a political party or a clearly identified candidate. The Commission is adopting the standard in the final rules because it is an objective standard that is easy to administer.

The four types of disbursements in revised 11 CFR 106.6(b)(1) that are subject to allocation are: administrative expenses, direct costs of fundraising, generic voter drives and public communications that refer to a political party. The final rules retain the former descriptions of administrative expenses, direct costs of fundraising, and generic voter drives in new paragraphs (b)(1)(i), (ii) and (iii) in section 106.6, respectively. New paragraphs (b)(1)(i) and (ii) still make clear that SSFs may have the costs of administrative expenses and fundraising programs paid by their connected organization. “Generic voter drives” is a defined term used prior to BCRA and goes beyond the limited activities defined under “Federal election activity.” For example, a television ad urging the general public to vote for candidates associated with a particular issue, without mentioning a specific candidate, would be considered allocable as a generic voter drive activity under 11 CFR 106.6(b)(1)(iii). The final rules add a fourth type of disbursement that must be allocated—public communications, as defined in 11 CFR 100.26, that refer to a political party but do not refer to any Federal or non-Federal candidate. See 11 CFR 106.6(b)(1)(iv). To illustrate, public communications that use phrases such as “the Democratic team,” “the Minnesota Democratic Committee,” “the GOP,” “Democrats,” and “Republicans in Congress,” would fall under new paragraph (b)(1)(iv) of section 106.6 because they refer to a political party. See also 11 CFR 106.6.(b)(2)(iii) and (iv) discussed below.

Revised 11 CFR 106.6(b)(2) lists the four types of disbursements that are not subject to allocation between Federal and non-Federal accounts, but are subject to the payment requirements in new paragraph (f) of section 106.6. Two of the four types of disbursements concern voter drives and the other two types concern public communications.

The Commission recognizes that the allocation regulation for generic voter drives in new 11 CFR 106.6(b)(1)(iii) does not apply to voter drives that mention a specific Federal or non-Federal candidate. Without an additional regulatory clarification, some voter drive activity may have fallen into the gap between the regulation of generic voter drives in 11 CFR 106.6(b)(1)(iii) and the candidate-specific public communications provisions in new 11 CFR 106.6(b)(2)(iii) and (iv), discussed below. To prevent such a gap, the Commission is issuing new rules for voter drives that refer to a clearly identified Federal or non-Federal candidate.

New paragraph (b)(2)(i) of section 106.6 describes voter drives in which the printed materials or scripted messages refer to one or more clearly identified Federal candidate, or any voter drives which include written instructions that direct the committee's employee or volunteer to refer to a clearly identified Federal candidate (including voter drives that also generally refer to candidates of a particular party or those associated with a particular issue), but do not refer to any clearly identified non-Federal candidates. New paragraph (b)(2)(ii) also addresses voter drives that similarly refer to one or more clearly identified non-Federal candidates, including voter drives that generally refer to candidates of a particular party or candidates associated with a particular issue, but do not refer to any clearly identified Federal candidates.

In both paragraphs, the reference to the clearly identified candidate must be contained in printed materials, scripted messages, or written instructions. Only written instructions that direct the employee or volunteer to refer to a clearly identified Federal or non-Federal candidate will satisfy these paragraphs. 1 The Commission included these limitations to avoid converting an allocable generic voter drive into an unallocable candidate-specific voter drive based solely upon “off script” or unauthorized oral comments by an employee or volunteer. The regulation seeks to capture only authorized statements; an SSF or nonconnected committee is not required to treat an otherwise generic voter drive as a candidate-specific one based on unauthorized comments by committee employees or volunteers. SSFs and nonconnected committees should be maintaining sufficient control over their printed materials, scripts and written instructions to be on notice whether or not the voter drive would qualify as a candidate-specific voter drive in new paragraphs (b)(2)(i) or (ii) of section 106.6.

Revised 11 CFR 106.6(b)(2) also includes two types of public communications, as defined in 11 CFR 100.26. First, paragraph (b)(2)(iii) describes public communications that refer to one or more clearly identified Federal candidates, regardless of whether there is reference to a political party, but do not refer to any clearly identified non-Federal candidates. Second, paragraph (b)(2)(iv) of section 106.6 describes public communications that refer to a political party and one or more clearly identified non-Federal candidates, but do not refer to any clearly identified Federal candidates. References to clearly identified Federal or non-Federal candidates that come within new 11 CFR 106.6(b)(2)(iii) and (iv) include “the President,” “your Senators,” and “the Republican candidate for Senate in the State of Georgia.” See also 11 CFR 100.17 (definition of “clearly identified”).

In the NPRM, the Commission set forth several proposals to amend the allocation regulations in 11 CFR 106.6 that apply to SSFs and nonconnected committees other than state and local party committees. Those included a number of proposals where minimum Federal percentages would be added to the funds expended method. One alternative in the proposed rules would have required SSFs and nonconnected committees to use the greatest percentage applicable in any of the States in which the committee conducted its activities as the minimum Federal percentage applied to all allocations under the funds expended method. See NPRM at 11754. A competing alternative would have allowed committees to choose between allocating costs on a State-by-State basis according to the percentage applicable in each State, or using the highest applicable percentage across the board. See id.

The NPRM also discussed other possible minimums including a “two tier” system where SSFs and nonconnected committees that operate in fewer than 10 States would have used a lower minimum Federal percentage (such as 25%), while any committees operating in more than 10 States would have been subject to a higher percentage (such as 50%). See id. The NPRM also proposed the alternative of a fixed minimum Federal percentage as a replacement for the “funds expended” method. Finally, the NPRM also sought comment on eliminating the allocation scheme and requiring SSFs and nonconnected committees to use 100% Federal funds for partisan voter drives and public communications listed in proposed 11 CFR 106.6(b).

Little attention was focused on allocation issues during the public comment period. Fewer than 10 comments provided a substantive response to the allocation issues raised in the NPRM. One commenter wanted to eliminate allocation altogether and require 100% Federal funds for almost all activities, and two commenters recommended revamping the allocation scheme by eliminating the funds expended method.

The commenters differed regarding whether it was appropriate to add a Federal minimum percentage into the “funds expended” method in former section 106.6(c). One commenter supported revision of the section 106.6 allocation scheme to avoid “absurd results” under the former system by requiring a “significant minimum hard money share” for allocated expenses. Another commenter noted that the new bookkeeping, reporting, and calculations required for the proposed “funds expended method plus a minimum percentage” approach in the NPRM would be burdensome for political committees. Some commenters supported 100% Federal funds for certain expenditures, others supported a State-by-State approach, one supported a modified “two tier” approach to minimums, and others expressed concern that any number chosen as a minimum would be arbitrary.

The commenters also differed with regard to the proposals for allocation of public communications and voter drives. One commenter noted that if a communication promotes, supports, attacks, or opposes (“PASOs”)  2 a Federal candidate, then it should be paid for with 100% Federal funds. Likewise, this commenter noted that if a communication only includes non-Federal candidates, then the committee should be allowed to use 100% non-Federal funds to pay its costs. Some commenters supported a minimum Federal percentage for both PASO communications and partisan voter drives. One commenter asserted that allocation based on the PASO standard would be vague. Another commenter argued that adding PASO communications to the “funds expended” ratio would be unenforceable, arbitrary, and unbalanced. In addition, some commenters suggested also revising 11 CFR 106.1 to include a minimum Federal percentage under the time/space methodology of allocation. The Commission is not able to adopt this latter suggestion because the NPRM did not seek public comment on amending section 106.1.

In examining public disclosure reports filed by SSFs and nonconnected committees over the past ten years, the Commission discovered that very few committees chose to allocate their administrative and generic voter drive expenses under former section 106.6(c). Anecdotal evidence suggested that many committees, including those that allocated, were confused as to how the funds expended ratio should be calculated and adjusted throughout the two-year election cycle. Committees have consistently requested guidance on the proper application of the allocation methods under former section 106.6 at various Commission conferences, roundtables and education events. Audit experience has also shown that some committees were not properly allocating under the complicated funds expended method. See Final Report of the Audit Division on Volunteer PAC (Sept. 21, 2004) (improper application of flat state ballot composition ratio instead of calculating ratio under funds expended method in section 106.6) and Final Report of the Audit Division on Republicans for Choice PAC (Dec. 2, 1999) (apparent confusion between calculation of funds received ratio and funds expended ratio in section 106.6). In addition, calculating and adjusting the funds expended ratio may have posed an administrative burden to some committees, particularly those with limited resources, because compliance required committees to monitor their Federal expenditures and non-Federal disbursements, compare their current spending to the ratio reported at the start of the election cycle, and then adjust the ratio to reflect their actual behavior. The confusion and administrative burden associated with the funds expended method may at least partly explain why, historically, SSFs and nonconnected committees have not adjusted their allocation ratios during an election cycle, or from one election cycle to the next election cycle.

Given the complexity of former section 106.6(c), the confusion regarding the proper application of this rule exhibited by some SSFs and nonconnected committees, and the administrative burden of compliance, the Commission seeks to simplify, not further complicate, the allocation system. Thus, the Commission is not retaining the funds expended method in any form.

A flat minimum percentage makes the allocation scheme easier to understand and apply, while preserving the overall rationale underlying allocation. The flat minimum percentage eliminates the requirement—and, thus, the accompanying burdens—of calculating the ratio and monitoring it continuously for accuracy. Furthermore, the Commission's recent experience with State and local party allocation ratios in 11 CFR 106.7 and 300.33 indicates that flat minimum allocation ratios are easier for committees to understand and for the Commission to administer. A flat minimum Federal percentage will also result in less complex, less intrusive, and speedier enforcement actions, thereby enhancing compliance with the law. Finally, SSFs and nonconnected committees will retain the flexibility to allocate more than the flat minimum percentage of these expenses to their Federal account if they wish to do so. Accordingly, the Commission has decided to replace the funds expended method of allocation with a flat minimum allocation percentage.

Neither FECA nor any court decision dictates how the Commission should determine appropriate allocation ratios. In fact, at least one court has recognized that the Commission has the discretion to establish the Federal funds percentage it deems best for administrative and generic voter drive expenses. See Common Cause v. FEC, 692 F. Supp. 1391, 1396 (D.D.C. 1987).

A flat 50% allocation minimum recognizes that SSFs and nonconnected committees can be “dual purpose” in that they engage in both Federal and non-Federal election activities. These committees have registered as Federal political committees with the FEC; consistent with that status, political committees should not be permitted to pay for administrative expenses, generic voter drives and public communications that refer to a political party with a greater amount of non-Federal funds than Federal funds. However, the 50% figure also recognizes that some Federal SSFs and nonconnected committees conduct a significant amount of non-Federal activity in addition to their Federal spending. The Commission has concluded that this approach is preferable to importing percentages used in other contexts for dissimilar entities, such as the former national party committee ratios repealed by BCRA or the current ratios applicable to State and local party committees, as suggested in the NPRM.

Public communications that refer to a political party without referring to any clearly identified Federal or non-Federal candidates are subject to the new 50% flat minimum percentage in revised 11 CFR 106.6(c). Like the administrative expenses and generic voter drives (which may refer to a political party), which are also allocated under section 106.6(c), these references solely to a political party inherently influence both Federal and non-Federal elections. Therefore, the 50% Federal funds requirement reflects the dual nature of the communication. As with other expenses under revised section 106.6(c), an SSF or nonconnected committee may choose to allocate more than 50% of the costs of any such public communication to its Federal account, if it wishes to do so.

The past decade of reports filed with the FEC indicate that most SSFs and nonconnected committees do not allocate under section 106.6(c). In fact, fewer than 2% of all registered non-party political committees filed H1 and H4 schedules allocating administrative and generic voter drive expenses under former section 106.6(c) in each election cycle since these regulations were made effective in 1991. Any SSF or nonconnected committee that was not allocating under section 106.6 was presumably already using 100% Federal funds for these expenses, except where those expenses were paid by other entities in accordance with the Act and Commission regulations, such as an SSF's connected organization paying its administrative expenses. Thus, removing the funds expended method and replacing it with a flat minimum percentage in section 106.6 should only affect a small fraction of all SSFs and nonconnected committees.

Even for those SSFs and nonconnected committees that were allocating, the impact of the final rules should not be substantial. A review of past reports filed with the FEC shows that almost half of these committees were already paying for these expenses with at least 50% Federal funds under the former system. These committees will not need to adjust their payments under the 50% flat percentage method in revised 11 CFR 106.6(c). Moreover, the actual dollar amounts of non-Federal funds that were spent in past cycles on administrative and generic voter drive expenses under former section 106.6(c), and which will have to be partially replaced with Federal funds under the final rules, is relatively low. With the exception of one or two committees per election cycle whose spending was out of line with other SSFs and nonconnected committees, the final rules affect each committee by requiring only a minimal increase in Federal funds expended. Additionally, these amounts were not high compared to total disbursements from these committees' Federal accounts in an election cycle (and would have been even smaller if disbursements from non-Federal accounts were taken into consideration). Thus, revised 11 CFR 106.6(c) should not impose a significant fundraising burden on these committees.

The final rules add new paragraph (f) to 11 CFR 106.6 to address payments for voter drives that refer to clearly identified Federal or non-Federal candidates, as described in new 11 CFR 106.6(b)(2)(i) and (ii), and public communications that refer to clearly identified Federal or non-Federal candidates, with or without a reference to a political party, as described in new 11 CFR 106.6(b)(2)(iii) and (iv). The final rules also direct SSFs and nonconnected committees to use the time/space allocation method for voter drives and public communications that refer to at least one clearly identified Federal candidate and to at least one clearly identified non-Federal candidate, without regard to any references to a political party.

The Commission views voter drives and public communications that refer to a political party and either Federal or non-Federal candidates, but not both, as “candidate-driven.” The Federal or non-Federal nature of the political party reference is determined by whether the clearly identified candidates in the communication are Federal or non-Federal. Thus, voter drives and public communications that refer to a political party and also refer only to clearly identified Federal candidates must be paid for with 100% Federal funds from the Federal account under new 11 CFR 106.6(f)(1). Permitting these voter drives and communications to be paid for with some non-Federal funds based on a cursory reference to a political party would invite circumvention of the intent of the allocation scheme. Voter drives and public communications that refer to clearly identified Federal candidates, without any reference to political parties or non-Federal candidates, similarly must be paid for with 100% Federal funds from the Federal account. 3

On the other hand, voter drives and public communications that refer to a political party and also refer only to clearly identified non-Federal candidates may be paid for entirely by the non-Federal account under new 11 CFR 106.6(f)(2). SSFs and nonconnected committees may pay for these communications referring to non-Federal candidates partly or entirely with Federal funds, but are not required to do so. Finally, voter drives and public communications that refer to both Federal and non-Federal candidates, regardless of whether there is also a reference to a political party are subject to a time/space allocation method in new 11 CFR 106.6(f)(3), which is similar to the method outlined in 11 CFR 106.1. See new 11 CFR 106.6(f)(3). 4 SSFs and nonconnected committees must comply with section 106.6(f) when allocating public communications and voter drive activities, but must comply with 11 CFR 106.1 for allocation of any other expenditures made on behalf of more than one clearly identified Federal candidate.

The final rules are simpler than the approach taken in Advisory Opinion 2003-37 and proposed in the NPRM at proposed 11 CFR 106.6(f) and (g). These required a combined application of the time/space allocation method under 11 CFR 106.1 and the funds expended method under former 11 CFR 106.6 for public communications that refer to a party and to specific Federal candidates. Advisory Opinion 2003-37 is hereby superseded. The candidate-driven approach for these voter drives and public communications, coupled with the removal of the funds expended method in favor of a flat percentage method, reduces the amount of recordkeeping, tracking, and calculating that SSFs and nonconnected committees must do to allocate properly administrative expenses, and to pay properly for voter drives, and public communication costs under 11 CFR 106.6.

The revised 11 CFR 106.6 allocation regulations should reduce the burden of compliance on SSFs and nonconnected committees. Incorporation of certain voter drives and public communications into 11 CFR 106.6 provides more specific guidance to committees that conduct such activity. The Commission believes that these final rules best resolve the problems with the former allocation scheme revealed through reviewing past FEC reports and the issues raised by the commenters on the NPRM.

Many commenters on the NPRM argued that any changes made effective before the general election on November 2, 2004 would cause great disruption to political committees and other organizations. Taking into account the statutorily mandated waiting period before a regulation may be effective under the Administrative Procedure Act, these regulations could not be effective until after the November 2, 2004 general election. To provide an orderly phase-in of the new rules and transition from one election cycle to the next election cycle, the Commission is establishing January 1, 2005 as the effective date for all amendments and additions to 11 CFR parts 100, 102, 104 and 106. This effective date allows affected political committees to “close out” the 2003-2004 election cycle by making final adjustments to their section 106.6(c) ratios and any final transfers of money between Federal, non-Federal, and allocation accounts. It also provides sufficient time for all those affected to make whatever internal changes necessary to comply with the new rules.

The NPRM proposed several additional new and revised rules, including changes to the definitions of “political committee” and “expenditure.” Other than the Final Rules that follow, the Commission is not promulgating any of the proposed rules. The NPRM also raised many issues in the narrative describing the proposed rules. The Commission cautions that no inferences should be made as to the Commission's position on any of the issues that are not discussed in this document or on any of the proposed rules that are not adopted as final rules. Discussed below are some of the proposals from the NPRM that the Commission did not adopt. As noted above, the Commission received many comments on the NPRM. The comments related to proposed rules that the Commission did not adopt are not specifically described and addressed in this document.

Under current law, any committee, club, association, or other group of persons that receives contributions aggregating in excess of $1,000 or which makes expenditures aggregating in excess of $1,000 during a calendar year is a political committee. See 2 U.S.C. 431(4)(A); 11 CFR 100.5(a). Nearly three decades ago, the Supreme Court narrowed the Act's references to “political committee” in order to prevent their “reach [to] groups engaged purely in issue discussion.” Buckley v. Valeo, 424 U.S. 1, 79 (1976). The Court concluded that “[t]o fulfill the purpose of the Act [the words “political committee'] need only encompass organizations that are under the control of a candidate or the major purpose of which is the nomination or election of a candidate.” Id.

The NPRM proposed four alternatives for revisions to the definition of a “political committee” in 11 CFR 100.5(a). NPRM at 11743-49 and 11756-57. The proposed alternatives differed mainly in whether, and if so, how, the definition of “political committee” should include a test to determine an organization's “major purpose.”

The Commission received tens of thousands of comments addressing these proposals and the various individual components of the proposed “major purpose” tests. Many commenters supported the idea of incorporating a major purpose test into the definition of “political committee” and offered a variety of alternatives for what the test should be. In contrast, many other commenters opposed all of the proposals set forth in the NPRM and expressed concerns about the potential impact of the proposed rules on non-electoral speech. Several provisions in BCRA, such as those barring the use of corporate funds for electioneering communications but permitting the use of unlimited individual funds for that purpose, were cited for the proposition that an overly broad rule defining “political committee” would conflict with the structure Congress established in BCRA.

Many commenters questioned whether new rules were necessary or appropriate at this time and suggested that Buckley's “major purpose” language might be better addressed by Congress or the Supreme Court. A joint comment from hundreds of 501(c) organizations contended that the Commission has not obtained access to the types of comprehensive reports that Congress has at its disposal, and the Commission is therefore poorly positioned at this time to assess properly the operations of the variety of organizations that might be affected by new regulations.

Some observed that Congress did not address political committee status in BCRA even though Congress appeared to be fully aware that some groups were operating outside FECA's registration and reporting requirements as well as its limitations and prohibitions. These commenters found it significant that Congress had recently focused on 527 organizations in 2000 and 2002 when it added and revised IRS-based reporting requirements for many of these organizations. According to the commenters, Congress consciously did not require 527 organizations to register with the Commission as political committees.

There were additional concerns raised about the constitutional and practical issues relating to the “major purpose” test. Some commenters noted that the “major purpose” test is not a statutory trigger for political committee status, but rather a court-created protection to avoid over-reach of the triggers for political committee status actually contained in the FECA. Many commenters argued that a “major purpose” test would chill constitutionally protected speech, some expressing the view that the boundaries of the test would be inherently vague and thus force organizations to curtail permissible activities. Other commenters expressed concern about the practical difficulties they perceived in implementing a test intended to ascertain a group's “purpose.” For instance, a number of commenters similarly expressed concern that the “major purpose” test set out in the NPRM might unfairly categorize organizations as political committees based on a few statements or organizational documents where those statements and documents might not accurately convey the actual purpose of the organization. Other commenters also asserted that the Commission's determinations of an organization's purpose would often result in intrusive investigations into the private internal workings of an organization. Another commenter feared that any definition of “political committee” potentially encompassing nonprofit organizations would force them to choose between accepting foundation funds or corporate donations and advocating ballot questions as a part of the organization's overall activity.

In addition, arguments were made that the Commission would be in a better position to address the issue of political committee status after monitoring the behavior of various organizations during at least one election cycle following the enactment of BCRA. A number of commenters asserted that it would be improper for the Commission to add a new “major purpose” test without sufficient data demonstrating the existence of corruption or the appearance of corruption to justify the new regulations.

After evaluating these comments, the Commission considered two separate draft Final Rule approaches that would have revised the definition of “political committee.” Each of these approaches incorporated modified portions of the rules proposed in the NPRM. Each approach included a “major purpose” test, but the tests were different in purpose and operation. See draft 11 CFR 100.5(a), Agenda Document 04-75, at 37-41, and draft 11 CFR 100.5(a), Agenda Document 04-75-A, at 2-3 (Aug. 19, 2004 meeting).

The draft Final Rules in Agenda Document 04-75 would have incorporated one construction of the Buckley test into the definition of “political committee” in 11 CFR 100.5(a) by requiring an organization to have “as its major purpose the nomination or election of one or more candidates for Federal office. ” See draft 11 CFR 100.5(a)(1)(ii) of Agenda Document 04-75 (emphasis added); see also Buckley, 424 U.S. at 79. Draft paragraph (a)(2) presented three ways in which any organization could have satisfied that test: (1) By publicly declaring that the purpose of the group is to influence Federal elections; (2) by spending more than 50% of its funds on certain specified activities; or (3) by receiving more than 50% of its funding through “contributions,” as defined in 2 U.S.C. 431(8) and 11 CFR Part 100, Subpart B. These draft Final Rules would have also established an additional test whereby 527 organizations could satisfy the “major purpose” test through the application of a broader 50% disbursements test.

The other set of draft Final Rules that the Commission considered, but did not adopt, would have incorporated a different construction of Buckley's major purpose test into the definition of “political committee” in 11 CFR 100.5(a). This test would have focused on whether an organization's major purpose was the “election of one or more Federal or non-Federal candidates.” See draft 11 CFR 100.5(a)(1)(ii) of Agenda Document 04-75-A (emphasis added). Coupled with the Commission rule allowing a political committee to report only its Federal activity, this was designed to prevent groups from avoiding political committee status altogether because a majority of the campaign activity is non-Federal. The major purpose test would have been satisfied in one of two ways. Under draft 11 CFR 100.5(a)(2), an organization described in section 527 of the Internal Revenue Code (a “527 organization”) would have satisfied the “major purpose” test just by virtue of its having registered with the Internal Revenue Service under 26 U.S.C. 527, unless covered by one of five enumerated exceptions. All other organizations would have been subject to the previously existing standards for determining their major purpose. See draft 11 CFR 100.5(a)(4) of Agenda Document 04-75-A.

The comments raise valid concerns that lead the Commission to conclude that incorporating a “major purpose” test into the definition of “political committee” may be inadvisable. Thus, the Commission has decided not to adopt any of the foregoing proposals to revise the definition of “political committee.” As a number of commenters noted, the proposed rules might have affected hundreds or thousands of groups engaged in non-profit activity in ways that were both far-reaching and difficult to predict, and would have entailed a degree of regulation that Congress did not elect to undertake itself when it increased the reporting obligations of 527 groups in 2000 and 2002 and when it substantially transformed campaign finance laws through BCRA. Furthermore, no change through regulation of the definition of “political committee” is mandated by BCRA or the Supreme Court's decision in McConnell. The “major purpose” test is a judicial construct that limits the reach of the statutory triggers in FECA for political committee status. The Commission has been applying this construct for many years without additional regulatory definitions, and it will continue to do so in the future.

The NPRM proposed to define a new term, “partisan voter drive,” in proposed 11 CFR 100.34, to revise the exemption from the “expenditure” definition for nonpartisan voter drives in proposed 11 CFR 100.133, and to specify that the costs for partisan voter drives are “expenditures” in proposed 11 CFR 100.115. Corresponding changes were also proposed for 11 CFR 100.149 and 114.4. See NPRM at 11740-41, 11757, and 11760.

In its consideration of Final Rules, the Commission considered a different version of these rules. Under this proposal, draft 11 CFR 100.115 would have specified that costs for certain Federal election activities would have been “expenditures” when incurred by political committees or a 527 organization. See draft 11 CFR 100.115, Agenda Document No. 04-75-A, at 4 (Aug. 19, 2004 meeting). The exemption from the “expenditure” definition for nonpartisan voter drives also would have been revised to state that voter drives that PASO a Federal candidate, a non-Federal candidate, or a political party can not be considered “nonpartisan” exempt voter drives. See draft 11 CFR 100.133, Agenda Document No. 04-75-A, at 4-5 (Aug. 19, 2004 meeting). The Commission rejected a motion to approve draft 11 CFR 100.115 and revisions to current 11 CFR 100.133. The Commission determined that the changes and additions to the allocation rules in 11 CFR 106.6 related to voter drives that are described above sufficiently address these issues at this time, and therefore the new and revised voter drive rules in proposed sections 100.34, 100.115, 100.133, 100.149, and 114.4 are not needed.

FECA defines “expenditure” to include a payment for a communication that is “made * * * for the purpose of influencing any election for Federal office.” 2 U.S.C. 431(9)(A)(i). The NPRM proposed to include in the definition of “expenditure” payments for communications that PASO any candidate for Federal office or that promote or oppose any political party. See proposed 11 CFR 100.116, NPRM at 11741-42 and 11757.

In its consideration of Final Rules, the Commission considered and rejected two different versions of this rule. One version of this rule would have applied to public communications that PASO a clearly identified candidate for Federal office or that PASO a political party, but only when made by a political committee or 527 organizations. See draft 11 CFR 100.116, Agenda Document No. 04-75-A, at 4 (Aug. 19, 2004 meeting). The second version of this rule would have been limited to communications that PASO a clearly identified candidate, but only when made by Federal political committees and unregistered groups that meet Buckley's “major purpose” test, which was the subject of another draft rule discussed above. See draft 11 CFR 100.115, Agenda Document No. 04-75, at 19-23 and 42 (Aug. 19, 2004 meeting).

The Commission did not adopt a rule addressing this subject. Without the “major purpose” rules, the rules addressing PASO communications could not have been adopted in the forms considered by the Commission.

The NPRM proposed a new regulation that would have specifically stated that when costs are properly allocable between a Federal account and a non-Federal account, the costs that must be paid by a Federal account are “expenditures” under FECA, and the costs that may and in fact are paid by a non-Federal account are not “expenditures” under FECA. The proposed regulation was linked to proposed 11 CFR 100.115 and 100.116 regarding PASO communications and voter drives. See NPRM at 11757. The Commission considered a version of this regulation that was broader than the version in the NPRM, in that it would have extended this principle to any non-Federal funds disbursed pursuant to allocation rules at 11 CFR 106.1, 106.6, 106.7, or 300.33. See draft 11 CFR 100.155, Agenda Document No. 04-75-A, at 5 (Aug. 19, 2004 meeting). For the reasons that the Commission did not adopt draft 11 CFR 100.115 and 100.116 in Agenda Document No. 04-75-A, it also did not adopt draft 11 CFR 100.155.

The NPRM included proposed rules to address how organizations that become political committees after operating for some time as non-political committee organizations would demonstrate that they used Federally permissible funds to pay for expenditures made before becoming political committees. The proposed rules would have included a new subpart A in 11 CFR part 102. See NPRM at 11749-53, 11757-59. The proposed rules would have required a new political committee to convert funds received during the two years prior to the time the organization became a political committee into Federal funds in an amount equal to the amount of its expenditures during the same time period. To do so, the new political committee would have been required to contact recent donors, make certain disclosures, and seek the donors' consent to use the funds for the purpose of influencing Federal elections. See NPRM at 11757-59.

The Commission received numerous comments in response to these proposed changes. Although one commenter supported the proposed rules, most commenters who addressed this topic expressed broad opposition to the proposals. Several commenters especially disagreed with the proposed rules that would have required political committees to look back at past activity and repay debts of Federal money for activities completed up to two years before the organizations became political committees. Some commenters also opposed the specific two-step conversion process in the proposed rules, including the requirement to contact and obtain permission from past donors and the 60-day deadline for converting funds to Federal funds.

In response to these comments and the Commission's further consideration of the issued raised by the proposed rules, the Commission has decided not to promulgate final rules establishing subpart A of 11 CFR part 102.

The Commission certifies that the final rules do not have a significant economic impact on a substantial number of small entities.

The final rules amend the Commission's definition of “contribution” to include funds received in response to certain communications that are not expressly included in the Commission's prior definition of “contribution.” For political committees, whether a receipt qualifies as a “contribution” determines whether it is subject to amount limitations and source prohibitions for Federal funds imposed by FECA. For organizations that are not political committees, whether a receipt is a “contribution” may affect whether the organization is a political committee. New section 100.57 does not, however, limit the overall amount of money that may be raised or spent on electoral activity. The rule in new section 100.57 is carefully tailored to reach communications that seek funds “for the purpose of influencing Federal elections,” and includes a limited exception for communications that refer to a non-Federal candidate, and a complete exception for joint fundraising efforts between or among authorized committees of Federal and non-Federal candidates. Therefore, any economic impact on Federal and non-Federal candidate committees, some of which might qualify as small entities, is not significant.

The final rules also revise the Commission's rules regarding the allocation of certain disbursements between a political committee's Federal account and non-Federal account. Thus, these revisions affect only some political committees. As discussed in the Explanation and Justification for revised 11 CFR 106.6(c), a review of the past ten years of public disclosure reports filed with the FEC revealed that few current political committees allocate their administrative expenses and generic voter drives under former 11 CFR 106.6, and among those political committees, many already use 50% or more as their Federal allocation ratio. Although the new section 106.6(f) requires Federal funds be used for certain public communications and voter drive activities by political committees, the final rule does not limit the overall amount of money that political committees may raise and spend on such activity. Consequently, the final rules' changes are unlikely to have a significant economic impact on substantial number of small entities.

On June 8, 2004, the FDIC published in the Federal Register , for a 60-day comment period, a notice of proposed rulemaking with request for comment on the proposed amendments to section 327.2, the certified statement regulation. (69 FR 31922). The comment period closed on August 9, 2004. The FDIC received 22 comment letters, one from a trade organization (Independent Community Bankers of America) and 21 from depository institutions. Seventeen of the commenters generally supported the proposal and the remaining five generally opposed, although in varying degrees. Eleven commenters addressed the question of e-mail notice, all of them favoring the courtesy notification suggested by the FDIC. An alternative form of delivery for institutions without Internet access was requested by four commenters. The following is a discussion of the amendments to section 327.2 and the comments received.

Under section 7(c) of the Federal Deposit Insurance Act (FDI Act or Act) (12 U.S.C. 1817(c)) insured depository institutions are required to file a certified statement with the FDIC for each semiannual deposit insurance assessment period, containing such information as the FDIC “may require for determining the institution's semiannual assessment.” 12 U.S.C. 1817(c)(1)(A). The FDI Act also provides that the certified statement “shall * * * be in such form and set forth such supporting information as the Board of Directors shall prescribe * * *” 12 U.S.C. 1817(c)(1)(B)(i). In this way, the Act vests in the FDIC discretion to prescribe the information contained in, as well as the form of, semiannual certified statements. As a result of the FDIC's exercise of this discretion over a period of years, the certified statement process has evolved in response to advances in collection procedures and data processing technology.

Prior to 1995, the FDIC mailed a blank certified statement form to every insured depository institution every semiannual period. Each institution was required to transcribe manually on this form the deposit data culled from its two prior Call Reports/Thrift Financial Reports (TFRs) and to calculate its assessment payment. The assessment was paid for the entire semiannual period one month after the beginning of the semiannual period ( i.e. , January 31 and July 31). An officer of the institution was required to certify the accuracy of that information by signing the form, which was then returned to the FDIC along with the institution's check for the assessment amount. Under this system almost all of the certified statements were returned to the FDIC each semiannual period, but about 10 percent of the certified statements received contained mistakes, due in part to simple transpositions of figures and mathematical errors that required correction and revision.

The FDIC revised the process for collecting deposit insurance assessments—adopting the system of quarterly payments in 1994 and implementing it in March of 1995. 59 FR 67153 (Dec. 29, 1994). As part of this changeover to the automated invoicing and collection system, the FDIC assumed responsibility for “filling out” the certified statement and calculating each institution's deposit insurance assessment. The information used by the FDIC in completing certified statements is derived from institutions' Call Reports/TFRs, and is stored by the FDIC electronically. Because the June and December Call Report/TFR data was not available electronically until after the next semiannual payment date, 1 the FDIC instituted the practice of collecting semiannual assessments in two quarterly installments to facilitate FDIC preparation of assessment forms for insured institutions.

Accordingly, since 1995, the semiannual assessment has been collected in two quarterly installments; the sum of these installments equals an institution's semiannual assessment. Each quarterly installment is based on deposit data contained in one of the two quarterly Call Reports/TFRs submitted by the institution during the previous semiannual period. Under section 7(a)(3) of the FDI Act (12 U.S.C. 1817(a)(3)), reports of condition must contain a declaration by an officer of the institution, and a signed attestation by two other institution officers, that the information set forth is true and correct.

The FDIC computes the amount of each quarterly installment by retrieving the relevant electronic data from the Call Report/TFR for each institution. Under the present system, the FDIC sends each insured institution an invoice for the first semiannual installment, and, three months later, a certified statement for the second installment. The invoice and the certified statement  2 are each mailed about two weeks prior to the actual collection of each respective installment. 3

The invoice and the certified statement differ in two essential respects. The invoice contains the data, assessment computation, and amount due for the first installment of the semiannual period only. The certified statement, however, contains more than just the data, assessment computation, and amount due for the second installment of the semiannual period. It also restates the first installment information and combines the two sets of information into a semiannual presentation. In addition, the second installment invoice—the certified statement—contains a signature block. Institutions are required to sign and return the certified statement to the FDIC, while the first installment invoice was subject to neither requirement.

Under the present process, if an institution agrees with the information on the first installment invoice, it takes no action other than to fund the designated assessment account sufficiently to allow the direct debit of the account. At most institutions, an officer reviews the first installment invoice before authorizing payment by comparing the deposit data on the invoice to the amounts reported by the institution on its corresponding Call Report/TAR, reconciling any adjustments from prior assessment periods as noted on the back of the invoice, verifying the rate multiplier used and the ACH account information, and spot checking mathematical calculations. If the institution disagrees with the information on the first installment invoice, the institution is required by regulation (12 CFR 327.3(h)), to file a request for revision of its assessment computation if it wished to change its assessment payment, which in practice was usually done to obtain a refund.

If an institution agrees with the second installment invoice (the certified statement), in addition to ensuring that the designated account is adequately funded and payment is authorized, an officer of the institution is required to certify the accuracy of the statement and return it to the FDIC. Generally, this process involves checking the restated first invoice data again, as well as checking the data for the second half of the semiannual period. The institution has to return its certified statement (usually by mail) signed by an officer, not later than the second quarterly payment date of the semiannual period ( i.e. , certified statements must be returned by March 30 for the January- June semiannual period and by September 30 for the July-December semiannual period). 4 If the institution disagrees with the certified statement, the institution has to annotate changes on the statement, certify by signing, and return the form to the FDIC. As with the first installment, the institution is also required under section 327.3(h) to file a request for revision of its assessment computation if it wishes to change its assessment payment, which in practice is usually done to obtain a refund.

Under the automated invoicing and collection system, over a period of years, the certified statement has evolved from a semiannual form used by insured institutions to report their deposit data and calculate their assessment payments, into a form designed to confirm the accuracy of information previously provided by the institution (via Call Reports/TFRs) and the accuracy of the FDIC's assessment calculations based on that information.

The existing certified statement process imposes significant and unnecessary burdens on insured institutions and the FDIC. The FDIC mails out over 9,000 first installment invoices and an equal number of certified statements each semiannual period. Institution officials must review and accept the first installment assessment calculation twice: once in reviewing the first installment invoice and then a second time, when reviewing the certified statement. Institutions return their certified statements to the FDIC, even if no discrepancies are found, a process prone to recurrent errors. For example, some institutions return the wrong form (the first installment invoice rather than the certified statement), or the certified statement is lost in transit. Further, the FDIC does not receive approximately 1,000 certified statements each semiannual period, necessitating significant follow-up efforts by FDIC staff through letters and telephone calls, which in turn imposes significant burdens on the insured institutions that must respond.

In addition, institutions filing corrected certified statements or invoices are required under section 327.3(h) to file a separate request for revision of that payment with the FDIC within 60 days from the date of the quarterly assessment invoice. The request for revision sets in motion the process of FDIC review of the validity of the certified statement amendment, the accuracy of the corresponding assessment payment, and the potential for a refund or additional charges based on the FDIC's determination.

Finally, the return of certified statements to the FDIC was important when institutions themselves filled out the certified statement and computed the assessment owed to the FDIC. Since 1995, however, the information used to complete the certified statement is drawn from Call Reports/TFRs previously attested to by officers of the insured depository institutions and stored electronically by the FDIC. In effect, the information on the certified statements that institutions are required to certify and return is already certified and transmitted to the FDIC when the Call Reports/TFRs are filed. Unlike the certified statement, however, institutions are not required to return the completed Call Report/TFR signature and attestation page to the appropriate Federal banking agency. Instead, the attestation page is signed and attached to the hard-copy record of the completed Call Report/TFR, which the institution retains in its own files.

For these reasons, return of certified statements to the FDIC has been identified under the FDIC's ongoing EGRPRA program as an outdated, redundant, and burdensome process, both for the industry and for the FDIC.

Under the final rule, the two quarterly assessment invoices issued during a semiannual period will each be a component of the required semiannual certified statement. The two quarterly certified statement invoices combined will reflect an institution's total assessment payment for each semiannual period, just as the invoice and certified statement do now. The FDIC, however, will no longer mail out paper copies of certified statement invoices to insured institutions. Instead, insured institutions will access their quarterly certified statement invoices each quarter via the FDIC's transaction-based e-business website, FDIC connect. In addition, Notices of Assessment Risk Classification, formerly mailed with the first quarterly invoice each semiannual period ( see 12 CFR 327.4(a)), will be provided with the first quarterly certified statement invoice each semiannual period on FDIC connect.

FDIC connect access to quarterly certified statement invoices was expressly supported by a majority (12) of the commenters. One bank stated its desire to “eliminate as many paper processes as possible.” Another appreciated “the regulatory effort under the Economic Recovery and Regulatory Paperwork Reduction Act (EGRPRA) to reduce our filing and compliance burdens.” A third pronounced Internet access to quarterly certified statement invoices “an excellent move.” Others expressed “favor” for the proposal, saw “no problem” with it, agreed in principle with the FDIC's goal, and were “supportive” of the amendments. This group of twelve commenters included institutions of various sizes, plus the Independent Community Bankers of America.

In addition, two other institutions supported the amendments by inference, asking for e-mail notification of the availability of the quarterly certified statement invoices on FDIC connect. A third did not have Internet access yet and inquired about alternative notice; a fourth favored the proposal albeit incorrectly describing FDIC connect as receipt of quarterly certified statement invoices “via e-mail''; and one other commenter opposed downloading of the quarterly certified statement invoices, for security reasons, but favored e-mailing them. Overall, 17 of the 22 comment letters were generally supportive of the change to FDIC connect.

Five of the comment letters expressed an overall negative opinion, but in varying degrees. The five negative comments were based largely on opposition to the requirement that institutions retrieve their invoices electronically through FDIC connect. However, none of these comments opposed the concepts of quarterly certified statement invoices, eliminating return of correct quarterly certified statement invoices to the FDIC, or treating amendments as automatic requests for review of the corresponding assessment payments. One commenter favored the prior system of mailed certified statements, arguing that it was uncomplicated and required only a pen and a 37 cent stamp. Another objected that the FDIC should not “force” institutions to access their own quarterly certified statement invoices on FDIC connect. A third observed: “It would be just as efficient, if not more efficient, to e-mail the certification to a bank's president with a 2nd copy to be e-mailed to the individual responsible for compiling the Call Reports.” Two commenters, however, based their opposition on the fear that institutions would forget to download the invoice every quarter. One of these complained that electronic retrieval “Makes it really easy to overlook, the receiving of the assessment prompts us to reply.” The other urged that “Your proposal adds another level of burden on the banks by way of them having one more thing they have to remember to do, without the benefit of receiving a notice, statement or bill.” The FDIC's courtesy e-mail notification of quarterly certified statement invoice availability each quarter may substantially relieve these two commenters' concerns.

The FDIC believes that the benefits of Internet access to quarterly certified statements inure to insured institutions and the FDIC. FDIC connect access to quarterly certified statement invoices is another step toward providing business processes between insured institutions and the FDIC electronically. With the advent of electronic business practices, the effort and expense inherent in mailing out and returning over 9,000 paper certified statement invoices each quarter can be eliminated. Further, most insured institutions already have Internet service and regard access to quarterly certified statements as another favorable step in the direction of increasing electronic business practices. As one bank noted “We have already researched FDIC connect and plan to sign up.” A bank CFO was “pleased that the FDIC continues to progress towards providing regulatory burden relief to insured depository institutions under the EGRPRA. I believe that these changes * * * will reduce time and effort by my institution and others required to comply with the assessment and certified statement process.”  5

Two of the commenters requested that quarterly certified statement invoices be e-mailed to institutions rather than downloaded from FDIC connect. The FDIC, however, believes that the security infrastructure built into FDIC connect makes retrieval by insured institutions superior to e-mailing invoices directly to institutions. For this reason, the FDIC has determined that FDIC connect is the better approach to electronic dissemination of insured institutions' quarterly certified statement invoices. 6 In addition, quarterly certified statement invoices will be provided as PDF files, as one commenter requested, a secure format less vulnerable to manipulation.

Eleven comment letters specifically requested that the FDIC remind institutions each quarter to download the invoices and pay the assessment amounts. Several of the comments supporting the amendments specifically requested that the FDIC include a notification element in the final rule. One commenter (a small bank—assets less than $100 million) suggested that “an e-mail be sent to [the] registered recipient for each bank. It should be sent when the assessments are available on the FDIC connect site.” A medium-size thrift ($500 million assets) urged: “e-mail notification is the first thing I thought of when I began reading the proposed changes. Thus, I find the considered e-mail notification desirable and would be most appreciative of such a service.” Another commenter, a very large institution (assets greater than $10 billion) said: “Notification would serve as a reminder, making daily searches around notice time unnecessary. It would also ensure timely payments of assessment amounts.” The Independent Community Bankers of America also advocated for e-mail notification: “Such email notification would ensure that banks do not neglect to check their certified statements online or overlook funding their account in a timely manner for the FDIC's direct debit.”

The FDIC agrees that it would be beneficial to remind institutions to retrieve their assessment invoices each quarter. The final rule states that the FDIC will send e-mail notification to all individuals at insured institutions who have FDIC connect access to quarterly certified statement invoices each quarter when the invoices are available to download (no less that 15 days prior to the ACH payment date). In addition, the final rule also provides that the FDIC may communicate with insured institutions by e-mail regarding quarterly certified statement invoices and other assessment-related matters as well.

Four commenters requested that the FDIC provide an alternative invoice delivery method. One commenter indicated that it would be a burden for institutions to get Internet access and maintain the hardware necessary to retrieve invoices electronically. Another commenter—a small thrift (assets less than $100 million)—observed: “As we do not have internet access, we are concerned whether these proposals will include some sort of alternative method to obtain our assessments and invoices.” In addition, the Independent Community Bankers of America commented that “some banks may not have ready access to the Internet” and urged the FDIC to offer an alternative delivery method for those banks, suggesting either fax or mail. The FDIC recognizes that some institutions may not yet have Internet access. Accordingly, the final rule includes a process for institutions without Internet access to request a renewable exemption for up to one year, during which they will continue to receive their quarterly certified statement invoices through the mail. Any quarterly certified statement invoice mailed to an insured institution will be treated in all respects as if it had been downloaded from FDIC connect. Under this provision, exemptions may be requested in writing from the Chief of the Assessments Section, FDIC Division of Finance.

Once institutions have obtained their quarterly certified statement invoices via FDIC connect, return of those statements to the FDIC—if the institution believes the invoice is correct—will no longer be required. If an institution agrees with its quarterly certified statement invoice, an officer of the institution will simply retain it in the institution's files for the five-year record retention period established in the FDI Act. See 12 U.S.C. 1817(b)(5). 7 Because the data used to complete the quarterly certified statement invoice has been previously attested to on the institution's Call Report/TFR, signing the quarterly certified statement invoice will no longer be required. Instead, the institution will simply pay the assessment indicated on the quarterly certified statement invoice—by funding its designated account and permitting the FDIC's direct debit—and the invoice data will be deemed certified by the institution in conformity with both the final rule and the FDI Act.

If an institution disagrees with the Call Report/TFR data used to compute the assessment amount listed on a quarterly certified statement invoice, the institution will simply amend its Call Report/TFR data (as it has in the past), return it to the FDIC, and the FDIC will automatically treat the amendment as a request for revision of assessment computation under 12 CFR 327.3(h). Similarly, if an institution disagrees with the calculation of the assessment amount (with no change required to Call Report/TFR data), the institution will simply annotate the quarterly certified statement invoice with the correct information, certify its accuracy by signing, and return it to the FDIC within the specified timeframe. The FDIC will automatically treat the amended invoice as a request for revision of assessment computation under section 327.3(h). In either case, no separately filed request for revision will be needed. 8 In the event of an assessment dispute, the FDIC can request from an insured institution the quarterly certified statement invoice retained in the institution's files.

Under the final rule, quarterly certified statement invoices from prior semiannual periods will still be subject to change should an institution discover errors and seek to amend its Call Report/TFR. The FDIC considers such requests for assessment changes for the full five-year statute of limitations period for assessments. Institutions, however, must in every case ensure that the debit to the institution's designated ACH account is adequately funded and authorized.

The final rule provides several benefits to the industry and the FDIC. By accessing FDIC connect, institutions will obtain their assessment invoice data more quickly, more reliably, and at less cost to the FDIC. Lowered costs to the FDIC will ultimately benefit financial institutions because the FDIC is funded by assessments from the industry. The official(s) delegated with the responsibility for an institution's FDIC assessments will retrieve quarterly certified statement invoices at his or her convenience 24 hours a day (allowing limited downtime for maintenance during off hours) without mail or internal routing delays. Institutions may facilitate internal distribution by authorizing more than one person to access FDIC connect. Signing and returning correct quarterly certified statement invoices will be eliminated. Because each quarterly certified statement invoice is a component of the institution's semiannual certified statement, the payment and certification processes become synchronized, and the confusion caused by the prior requirement that institutions return every other invoice will be eliminated. In addition, insured institutions' officers will benefit from fewer steps in their review process. Under the prior system, institutions were required to review their first invoice data twice—once on the first invoice and again when it was reiterated on the certified statement. This needless repetition will be eliminated, reducing the regulatory burden imposed by the certified statement process. Finally, the amendment will simplify and streamline the FDIC's review process for assessment payment changes; when an amended quarterly certified statement invoice is returned to the FDIC, a separately filed request for revision of assessment computation will not be required.

The final rule will become effective on March 1, 2005. Quarterly certified statement invoices for the quarter beginning April 1, 2005, will be available on FDIC connect on or about March 15, 2005. The delayed effective date will allow time for insured institutions that have not already registered with FDIC connect to do so.

This final rule results in a reduction in burden for a collection of information entitled “Certified Statement for Semi-annual Deposit Insurance Assessment,” subject to the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq. No person is required to respond to, nor shall any person be subject to a penalty for a failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid Office of Management and Budget (OMB) control number. The FDIC solicited public comment on the change in burden for the information collection in accordance with 44 U.S.C. 3506(c)(2)(B). No comments were received. The FDIC also submitted the change in burden resulting from this final rule to OMB for review in accordance with 44 U.S.C. 3507(d). The OMB has approved the change in burden to the collection of information under control number 3064-0057.

Pursuant to 5 U.S.C. 605(b) the FDIC certifies that the final rule will not have a significant economic impact on a substantial number of small businesses within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). The final rule affects all insured depository institutions (there are approximately 9,700 at present). Of the total number of insured institutions, approximately 60% are small business entities (assets of $150 million or less). The final rule slightly reduces the regulatory burden (from an estimated 30 minutes per response to an estimated 20 minutes per response) imposed by the certified statement process, and therefore does not have a significant economic impact on any insured depository institution.

The final rule changes the manner in which insured institutions file certified statements. Under the final rule, institutions will access their quarterly certified statement invoices via the FDIC's e-business Web site, FDIC connect , rather than by mail. No significant burden is anticipated in this requirement because the FDIC believes that very few institutions do not already have Internet access or cannot readily obtain it (the final rule provides for an exemption for up to one year). Return of correct invoices is eliminated. An insured institution reviews each quarterly certified statement invoice only once, unlike the prior system. Only quarterly certified statement invoices that the institution believes are not correct are returned to the FDIC, amended to show corrections. The FDIC will treat amended certified statement invoices as requests for review, eliminating the need for institutions to make a separate filing under 12 CFR 327.3(h). The final rule requires that institutions retain a copy of the quarterly certified statement invoice for their records, but no significant burden is anticipated in this requirement because insured institutions already retain copies of their certified statements and invoices. Access to quarterly certified statement invoices via FDIC connect will be more secure than the mail, will eliminate much internal routing of statements within institutions, will permit 24-hour access to quarterly certified statement invoices (with minimal maintenance downtime), and will eliminate significant FDIC tracking and processing. In short, the final rule will reduce the regulatory burden on insured institutions.

The FDIC has determined that the final rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, enacted as part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 (Public Law 105-277, 112 Stat. 2681).

Section 722 of the Gramm-Leach-Bliley Act (GLBA), 15 U.S.C. 6801 et seq. , requires banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The proposed rule requested comments on how the rule might be changed to reflect the requirements of GLBA. No GLBA comments were received.

The Office of Management and Budget has determined that the final rule is not a “major rule” within the meaning of the relevant sections of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) (5 U.S.C. 801 et seq. ). As required by SBREFA, the FDIC will file the appropriate reports with Congress and the General Accounting Office so that the final rule may be reviewed.

On June 28, 2004, the FAA proposed to amend Title 14 Code of Federal Regulations part 71 (CFR part 71) to establish Class D airspace at Provo, UT, (69 FR 36030). An Airport Traffic Control Tower (ATCT) is under construction at Provo Municipal Airport, Provo, UT, which will meet criteria for Class D airspace. The current Class E2 surface area airspace will be revoked in a separate rulemaking action. The Class D airspace area will be effective during periods that the ATCT is open.

Interested parties were invited to participate in this rule making proceeding by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9M dated August 30, 2004, and effective September 16, 2004, which is incorporated by reference in 14 CFR part 71.1. The Class D airspace designation listed in this document will be published subsequently in that Order.

The Rule: This amendment to 14 CFR part 71 establishes Class D airspace at Provo Municipal Airport, Provo, UT. An Airport Traffic Control Tower (ATCT) is under construction at Provo Municipal Airport, Provo, UT, which will meet criteria for Class D airspace.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

History

On October 21, 2003, the FAA proposed to amend Title 14 Code of Federal Regulations part 71 (CFR part 71) to modify Class E airspace at Sunriver, OR, (69 FR 19317). A new RNAV GPS SIAP at Sunriver Airport, Sunriver, OR, makes it necessary to increase the Class E airspace. This additional controlled airspace is necessary for the containment and safety of IFR aircraft transitioning to/from the en route environment and executing this SIAP procedure.

Interested parties were invited to participate in this rule making proceeding by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9M dated August 30, 2004, and effective September 16, 2004, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designations listed in this document will be published subsequently in that Order.

The Rule: This amendment to 14 CFR part 71 revises Class E airspace at Sunriver Airport, Sunriver, OR. A new RNAV GPS SIAP at Sunriver Airport makes it necessary to increase the Class E airspace. This additional controlled airspace extending upward from 700 feet or more above the surface of the earth is for the containment and safety of IFR aircraft transitioning to/from the en route environment and executing this SIAP procedure.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

On February 25, 2004, the airspace manager for the 45th Space Wing, Cape Canaveral AFS, FL, requested a change to the using agency information for R-2932, R-2933, R-2934, and R-2935 to reflect the current organizational structure. This action responds to this request.

The FAA is amending Title 14 Code of Federal Regulations (14 CFR) part 73 (part 73) by modifying R-2932, R-2933, R-2934, and R-2935, Cape Canaveral AFS, FL. Specifically, this action changes the using agency name from “U.S. Air Force, Eastern Space and Missile Center/RRS, Cape Canaveral AFS, FL,” to “Commander, 1st Range Operations Squadron, Cape Canaveral AFS, FL.” This action is an administrative change to reflect the current organization name of the using agency. This action does not alter the boundaries, altitudes, time of designation, or activities conducted within the restricted areas. Therefore, notice and public procedure under 5 U.S.C. 553(b) are unnecessary.

Section 73.29 of part 73 of the Federal Aviation Regulations was republished in FAA Order 7400.8L, dated October 7, 2003.

This regulation is limited to an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. It has been determined that this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This action is a minor administrative change to update the using agency name for existing restricted areas. There are no changes to air traffic procedures or routes as a result of this action. Therefore, the FAA determined that this action qualifies for a categorical exclusion from further environmental analysis under the National Environmental Policy Act in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures,” paragraph 311d.

In July 2000, BIS published a regulation (65 FR 42565) that required the licensee to communicate specific license conditions to applicable parties. The Export Administration Regulations (EAR) state, in § 750.7(d), that “it is the licensee's responsibility to communicate the specific license conditions to the parties to whom those conditions apply. In addition, when required by the license condition, the licensee is responsible for obtaining written acknowledgment(s) of receipt of the conditions from the party(ies) to whom those conditions apply.”

The purpose of this rule is to ensure that license conditions are communicated to the parties to whom they apply, and to clarify the manner in which the conditions should be communicated. Such communication must be in writing (which includes recorded and retrievable media, such as e-mail). This revision is in accordance with the Government Accountability Office's (GAO) post-shipment verification recommendations to the Bureau of Industry and Security (BIS) (found in GAO-04-357). This revision will not increase the burden to the public, as license conditions generally are typically communicated in writing, ( e.g. , via e-mail or facsimile).

The written communication of the text of license conditions (not the manner in which the writing is formatted) is the most important aspect of this requirement. For example, if a licensee communicates the conditions via a sales contract, then the sales contract must specifically state that the conditions continue beyond any stated validity period of the contract.

Export licenses may include several different types of conditions, including restrictions on end-use, requirements to keep records or submit reports, or requirements to return certain items to the United States. Some licenses may be subject to several conditions, each of which may affect a different party to the export transaction. Pursuant to the requirements set forth in this rule, the licensee bears the responsibility of ensuring that the terms and text of the conditions are clearly conveyed to the appropriate involved parties.

In addition to the above provisions, this rule also makes a technical correction to the title of Part 750 of the EAR. Currently, that part is entitled “Application Processing, Issuance or and Denial.” The “or and” in the title is in reverse order. This rule changes the title to read “Application Processing, Issuance and Denial.”

Although the Export Administration Act expired on August 20, 2001, Executive Order 13222 of August 17, 2001 (3 CFR, 2001 Comp., p. 783 (2002)), as extended by the Notice of August 6, 2004, 69 FR 48763 (August 10, 2004) continues the EAR in effect under the International Emergency Economic Powers Act.

1. This interim rule has been determined to be not significant for purposes of E.O. 12866.

2. Notwithstanding any other provision of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This rule involves a collection of information subject to the PRA. This collection has been approved by OMB under control number 0694-0122, “Multi-Purpose Application,” which carries a burden hour estimate of 10 minutes for a manual or electronic submission. Send comments regarding these burden estimates or any other aspect of this collection of information, including suggestions for reducing the burden, to David Rostker, Office of Management and Budget (OMB), by e-mail to David_Rostker@omb.eop.gov, or by fax to (202) 395-7285; and to the Office of Administration, Bureau of Industry and Security, Department of Commerce, 14th and Pennsylvania Avenue, NW., Room 6883, Washington, DC 20230.

3. This rule does not contain policies with federalism implications as that term is defined under E.O. 13132.

4. The Department finds under 5 U.S.C. 553(b)(B) that good cause exists to waive prior notice and opportunity for public comment. This rule revises the EAR to require licensees to communicate in writing specific license conditions to the parties to whom they apply. By requiring such notice to be in writing, BIS merely clarifies the form in which the notice must be provided. The previously existing EAR requirement to provide such notice is unchanged by this rule. Because this revision is not a substantive change to the EAR, it is unnecessary to provide prior notice and opportunity for public comment. Therefore, this rule is being issued in interim form.

Although there is no formal comment period, public comments on this regulation are welcome on a continuing basis. Comments should be submitted to Jeffrey Lynch, Regulatory Policy Division, Office of Exporter Services, Bureau of Industry and Security, P.O. Box 273, Washington, DC 20044, e-mailed to: jlynch@bis.doc.gov, or faxed to (202) 482-3355.

The public record concerning this regulation will be maintained in the Bureau of Industry and Security Freedom of Information Records Inspection Facility, Room 6881, Department of Commerce, 14th Street and Pennsylvania Avenue, NW., Washington, DC 20230. Records in this facility may be inspected and copied in accordance with regulations published in part 4 of Title 15 of the Code of Federal Regulations. Information about the inspection and copying of records at the facility may be obtained from the Bureau of Industry and Security Freedom of Information Officer, at the above address or by calling (202) 482-0500.

The final regulations (TD 9130) that are the subject of these corrections are under sections 401 and 403 of the Internal Revenue Code.

As published, TD 9130 contains errors that may prove to be misleading and are in need of clarification.

MSHA published a final rule in the Federal Register on March 11, 2002 (67 FR 10972) that mandated electrical safety standards for the installation, use, and maintenance of high-voltage longwall mining systems used in underground coal mines. The final rule also included design approval requirements for high-voltage equipment operated in longwall face areas of underground mines. These provisions allow the use of high-voltage longwall face equipment with enhanced safety protection from fire, explosion, and shock hazards.

These technical corrections are to two typographical errors contained in the formula in paragraphs 18.53(o)(1)(i) and (ii) found at the top of page 11001 (67 FR). The second closed parenthesis should be placed after the (C) and not the (t) in the numerator of paragraphs (o)(1)(i) and (o)(1)(ii). Discussion of the formula requirements can be found in the final rule for Electric Motor-Driven Mine Equipment and Accessories and High-Voltage Longwall Equipment Standards for Underground Coal Mines; Final Rule (67 FR 10972, 10979). That rule can be found on MSHA's Web site at: http://www.msha.gov/REGS/FEDREG/FINAL/2002finl/02-4863.pdf.

Correcting these inadvertent errors in the final rule is not an action to which the procedural requirements of 5 U.S.C. 553, or the various statutes and executive orders relating to rulemaking, apply. However, if these corrections were deemed a rule, 5 U.S.C. 553(b)(B) permits an agency to issue a final rule without notice and comment procedures when it finds that notice and comment procedures would be impracticable, unnecessary, and contrary to the public interest. MSHA finds that providing notice and comment procedures on this action is unnecessary and contrary to the public interest. MSHA is merely correcting typographical errors to a formula. Without these corrections, the formula is unusable as codified. Further, the public was advised of MSHA's intention regarding the formula in paragraph 18.53(o)(1) in the preamble to the final rule and this action does not change that intention. Consequently, MSHA finds good cause not to provide notice and comment procedures for this action.

In addition, 5 U.S.C. 553(d)(3) allows an agency, upon a finding of good cause, to make a rule effective immediately. Because MSHA is only correcting typographical errors in the formula and these changes do not add any requirements necessitating additional time for compliance, MSHA finds good cause to make this action effective immediately.

The final rule published on March 11, 2002, contained information collection provisions that require an OMB Control Number. OMB has approved the information collection requirements and assigned OMB Control Number 1219-0065 to the information collection requirements of the final rule. This notice does not change these requirements. These corrections contain no additional information collection requirements.

In addition, this action is not a “significant regulatory action” within the meaning of Executive Order 12866. Furthermore, this action is not a “major rule” within the meaning of the Small Business Regulatory Enforcement Act, or an “unfunded mandate” within the meaning of Title II of the Unfunded Mandates Reform Act of 1995. Finally, the action will not have Federalism implications within the meaning of Executive Order 13132, and a regulatory flexibility analysis is not required by the Regulatory Flexibility Act.

The AMTRAK Portal Bridge has a vertical clearance in the closed position of 23 feet at mean high water and 28 feet at mean low water. The existing drawbridge operation regulations are listed at 33 CFR § 117.723(c).

The bridge owner, National Railroad Passenger Corporation (AMTRAK) requested a temporary deviation from the drawbridge operation regulations to test for a period of 90 days, an alternate drawbridge operation schedule. This temporary 90-day deviation will expand the two time periods in the morning and afternoon Monday through Friday when the bridge may remain closed to vessel traffic.

Rail traffic during the morning and afternoon commuter periods have increased. Additionally, bridge openings during the two commuter time periods have caused delays to rail traffic prompting the bridge owner to request the expansion of the bridge closure periods during week days.

The existing drawbridge operation regulations allow the bridge to remain closed to vessel traffic, Monday through Friday, from 7:20 a.m. to 9:20 a.m. and from 4:30 p.m. to 6:50 p.m., daily.

Under this 90-day temporary deviation, effective from December 13, 2004 through March 12, 2005, the AMTRAK Portal Bridge need not open for vessel traffic, Monday through Friday, from 6 a.m. to 10 a.m. and from 4 p.m. to 8 p.m., daily.

Additional bridge openings shall be provided for commercial vessels from 6 a.m. to 7:20 a.m., from 9:20 a.m. to 10 a.m., from 4 p.m. to 4:30 p.m. and from 6:50 p.m. to 8 p.m., if at least a one-hour advance notice is given by calling the number posted at the bridge.

This deviation from the operating regulations is authorized under 33 CFR 117.43.

The Metropolitan Avenue Bridge has a vertical clearance in the closed position of 10 feet at mean high water and 15 feet at mean low water. The existing drawbridge operation regulations are listed at 33 CFR 117.801(e).

The owner of the bridge, New York City Department of Transportation (NYCDOT), requested a temporary deviation from the drawbridge operation regulations to facilitate rehabilitation repairs at the bridge. The bridge must remain in the closed position to perform these repairs.

Under this temporary deviation the NYCDOT Metropolitan Avenue Bridge may remain in the closed position from 6 a.m. through midnight on the following days: December 6 through December 8; December 15 through December 17; and December 20 through December 22, 2004.

This deviation from the operating regulations is authorized under 33 CFR 117.35, and will be performed with all due speed in order to return the bridge to normal operation as soon as possible.

On March 11, 2004 (69 FR 11580), EPA published a notice of proposed rulemaking (NPR) for the Commonwealth of Pennsylvania. The NPR proposed approval of a Pennsylvania regulation pertaining to the control of VOC from AIM coatings. The formal SIP revision was submitted by the Pennsylvania Department of Environmental Protection (PADEP) on December 3, 2003. The specific requirements of Pennsylvania's SIP revision for AIM coatings and the rationale for EPA's proposed action are explained in the NPR and will not be restated here. On April 12, 2004, EPA received timely comments from two parties on the March 11, 2004 NPR. Some of the timely comments were adverse to EPA's March 11, 2004 proposed rulemaking. EPA also received late comments from one party. While EPA is not obligated to consider late comments, EPA has elected to do so in this instance. A summary of the comments submitted and EPA's responses are provided in Section II of this document.

On October 19, 2004, the PADEP submitted a supplement to its December 3, 2003 SIP revision. The supplement includes a nonsubstantive correction notice published in the Pennsylvania Bulletin, 33 Pa. B. 5618 (November 15, 2003) which corrects numbering and typographical errors that appeared at 33 Pa. B. 5297 (October 25, 2003) in the adoption of Chapter 130, Subchapter C. (relating to architectural and maintenance coatings). The subsections in Subchapter C. Architectural and Industrial Maintenance Coatings have been corrected to number as subsections 130.601—130.611. The supplement also includes the codified version of the Pennsylvania AIM coating regulation, 25 Pa. Code, Subchapter C. Subsections 130.601-130.611, effective October 25, 2003.

EPA is aware that concerns have been raised about the achievability of VOC content limits of some of the product categories under the Pennsylvania AIM coatings rule. EPA understands that under the Commonwealth's rule these concerns may be addressed through a variance process, which we support, that may result in changes to the limits for certain categories. Although we are approving this rule today, the Agency is concerned that if the rule's limits make it impossible for manufacturers to produce coatings that are desirable to consumers, there is a possibility that users may misuse the products by adding additional solvent, thereby circumventing the rule's intended VOC emission reductions. We intend to work with the Commonwealth and manufacturers to explore ways to ensure that the rule achieves the intended VOC emission reductions, and we intend to address this issue in evaluating the amount of VOC emission reduction credit attributable to the rule.

A. Comment: Request for Clarification —One commenter, the Department of the Navy on behalf of the Department of Defense (DOD), compliments PADEP and EPA for their effort to ensure that Pennsylvania attains and maintains compliance with the National Ambient Air Quality Standards (NAAQS). The DOD requests clarification of the Applicability subsection of Pennsylvania's rule (citing to 25 Pa. Code subsection 130.601). The DOD states that in response to the difficulty military installations have had with managing hazardous materials, the military services adopted and implemented an innovative approach to managing hazardous materials, including AIM coatings that are used in the military installations. The DOD explains that this approach establishes a single point of control and accountability over the purchase, receipt and distribution of hazardous materials to the various organizations around a military installation. This “single point of control” receives, approves, and processes all requests for hazardous materials submitted by the various organizations on an installation. The DOD goes on to state that once the materials are ordered, purchased and obtained by this “single point of control,” this unit “supplies” the various organizations with requested amounts of particular hazardous material for use. The DOD requests that a definition be added to Pennsylvania's regulation that would state that the term “Supply” or “Supplied” does not include internal transactions within a business or government entity, and that the term only applies to transactions between manufacturers/commercial distributors that sell, or otherwise provide AIM coating products to businesses/governmental entities/individuals. Alternatively, the DOD requests that either PADEP provide a written reply clarifying whether the terms “supply or “supplied” apply to “the single point of contact” at military installations, or that EPA clarify this issue in its response to comments.

Response: Throughout its comments to EPA, the DOD refers to the Pennsylvania AIM coatings rule as a proposed regulation. In fact, this AIM coatings regulation has been fully adopted by the Commonwealth of Pennsylvania ( see 33 Pa. B. 5297, October 25, 2003, 33 Pa. B. 5618, November 15, 2003 and 25 Pa. Code Subsections 130.601-130.611) and was submitted to EPA for approval as revision to the Pennsylvania SIP on December 3, 2003. EPA's March 11, 2004 NPR proposed approval of Pennsylvania's request that its fully adopted AIM coatings regulation be made part of the SIP. EPA can only take action on a SIP revision as it is submitted by a state, and cannot, through its rulemaking action, alter the state's submission. EPA, however, does hereby clarify that it interprets that the “single point of control” system that the military services have developed to manage hazardous materials does not subject military installations to the rule in as much as they do not sell, offer for sale or manufacture architectural coating products. The DOD does have the obligation under section 130.601 of the rule to ensure that the products a person “applies or solicits” meet the requirements of the rule.

B. Comment: Paperwork Requirements for End Users —The DOD comments that a few scattered references to the “end user” in Pennsylvania's AIM coatings rule subject the end user of AIM coatings to additional reporting and monitoring requirements (e.g., prove that every time a coating is used, it is not thinned beyond allowable limits). The DOD goes on to state that as it is DOD's practice to use coatings as specified by the manufacturer, as an end user it will be subjected to additional burdensome paperwork requirements without any demonstrable reductions in VOC emissions. The DOD, therefore request that 25 Pa. Code subsection 130.603 (c) Thinning and (d) Rust Preventative Coatings be deleted from Pennsylvania's AIM coatings rule. (From its context, it is clear that the DOD's comment is in reference to 130.603(d) Thinning and (e) Rust Preventative Coatings in Pennsylvania's AIM coatings regulation.)

Response: Pennsylvania's AIM coatings rule does not use the term “end user” but rather the term “the person who solicits and applies.” As indicated in EPA's response to Comment A, EPA's March 11, 2004 NPR proposed approval of Pennsylvania's request that its fully adopted AIM coatings rule be made part of the SIP. EPA can only take action on a SIP revision as it is submitted by a state, and cannot, through its rulemaking action, alter the state's submission. EPA, cannot, therefore, delete paragraphs (d) Thinning and (e) Rust Preventative Coatings from section 130.603 of the Pennsylvania AIM coatings rule by its rulemaking on the SIP revision submission. EPA, however, does hereby clarify that it does not interpret 130.603 (d) and (e) to require the person who solicits and applies to keep records “to prove that every time a coating is used, it is not thinned beyond allowable limits.” Rather each manufacturer is to comply with subsection 130.604(a)(2) Thinning Recommendations, and indicate on the label or lid its recommendations regarding thinning of the coating or specify that the coating is to be applied without thinning. So long as the person who solicits and applies coatings (or end user) does so in accordance with the VOC limits found in Table 1 of Pennsylvania's AIM coatings rule, that person would be in compliance.

C. Comment: Container Labeling Requirements —In its final comment, the DOD states that while manufacturers of any architectural coatings are required to display certain information, such as VOC content, on the container, they are not required to identify the applicable coating category on the container. The DOD comments that for easy verification of VOC compliance by the user, 25 Pa. Code subsection 130.604 should be amended to require the coating category be listed next to VOC content.

Response: For the purposes satisfying the requirements for approval as a SIP revision, EPA has determined that the container labeling requirements found at section 130.604 of Pennsylvania's AIM coatings rule are adequate.

D. Comment: The Pennsylvania AIM Coatings Rule is Based on Flawed Data —Additional comments on EPA's March 11, 2004 NPR proposing approval of Pennsylvania's AIM coatings rule have been submitted on behalf of the Sherwin Williams Company and from the National Paint and Coatings Association (NPCA), hereafter referred to as the commenters. The comments from NPCA reference and endorse the comments submitted on behalf of the Sherwin Williams Company and reiterate the comments made to the Commonwealth by NPCA during Pennsylvania's rule adoption process. The commenters assert that the Pennsylvania AIM coatings rule is based on flawed data and that the use of this data violates the Data Quality Objectives Act (“DQOA”) (Section 515(a) of the Treasury and General Government Appropriations Act for Fiscal Year 2001 (Public Law 106-554; H.R. 5658)). The data at issue is contained in what the commenters characterize as a “study prepared by E.H. Pechan & Associates” (“Pechan Study”) in 2001. The alleged flaws relate to emissions reductions calculated in the Pechan Study; certain of the underlying data and data analyses are allegedly “unreproduceable.” Further, the commenters assert that if better data were used, the OTC model AIM coatings rule would achieve greater VOC emissions reductions, relative to the Federal AIM coatings rule, than was calculated in the Pechan Study (51 percent reduction versus 31 percent reduction), even if certain source categories were omitted from regulation under the OTC rule. For these reasons, the commenters state that EPA must not approve the proposed Pennsylvania AIM coatings rule as a revision to the SIP. 1

Response: EPA disagrees with this comment. What the commenters characterize as the Pechan Study is not at issue in this rulemaking. The Pechan Study was not submitted to EPA by the Commonwealth in support of its AIM coatings rule. Further, even if the Pechan Study had been submitted by the Commonwealth the validity of that data would not be at issue because, at this time, Pennsylvania is not asking for approval of any quantified amount of VOC emission reduction from the enactment of its regulation. Rather, this regulation has been submitted by the Commonwealth, and is being considered by EPA, on the basis that it strengthens the existing Pennsylvania SIP. The commenters do not dispute that the Pennsylvania AIM coatings rule will, in fact, reduce VOC emissions.

Section 110 of the Act provides the statutory framework for approval/disapproval of SIP revisions. Under the Act, EPA establishes NAAQS for certain pollutants. The Act establishes a joint Federal and state program to control air pollution and to protect public health. States are required to prepare SIPs for each designated “air quality control region” within their borders. The SIP must specify emission limitations and other measures necessary for that area to meet and maintain the required NAAQS. Each SIP must be submitted to EPA for its review and approval. EPA will review and must approve the SIP revision if it is found to meet the minimum requirements of the Act. See Section 110(k)(3) of the Act; see also Union Elec. Co. v. EPA, 427 U.S. 246, 265, 96 S.Ct. 2518, 49 L.Ed.2d 474 (1976). The Act expressly provides that the states may adopt more stringent air pollution control measures than the Act requires with or without EPA approval. See Section 116 of the Act. EPA only has power to disapprove state plans, and revisions thereto, that are less stringent than a standard or limitation provided by Federal law. See Section 110(k) of the Act; see also Duquesne Light v. EPA, 166 F.3d 609 (3d Cir. 1999).

The Pechan Study is not part of the Commonwealth's submission in support of its AIM coatings rule. Because the Commonwealth's December 3, 2003 submission is not claiming a specific amount of emissions reductions, the level of emissions reductions that might be calculable using data contained in the Pechan Study is irrelevant to whether EPA can approve this SIP revision. 2 The only relevant inquiry at this time is whether this SIP revision meets the minimum criteria for approval under the Act, including the requirement that the Commonwealth's AIM coatings rule be at least as stringent as the Federal AIM coatings rule set forth at 40 CFR 59.400, subpart D.

As set forth herein, EPA has concluded that the Pennsylvania AIM coatings rule meets the criteria for approvability. It is worth noting that EPA agrees with the commenters' conclusion that the Pennsylvania AIM coatings rule is more stringent than the Federal AIM coatings rule, though not for the reasons given by the commenters, i.e., that the commenters' “better” data demonstrates that OTC Model AIM coatings Rule achieves a 51 percent, as opposed to the Pechan Study's 31 percent reduction in VOC emissions beyond that required by the Federal AIM coatings rule. Rather, the Pennsylvania AIM coatings rule is, on its face, more stringent than the Federal AIM coatings rule. The preamble of the Pennsylvania AIM coatings rule states: “This final-form rulemaking sets specific VOC content limits, in grams per liter, for 48 AIM coating categories and requires more stringent VOC content limits than the Federal rule.” 33 Pa. B. 5297 (October 25, 2003). Examples of where Pennsylvania's AIM coatings rule is facially more stringent than the Federal AIM coatings rule include, but are not limited to, the VOC content limit for non-flat high gloss coatings and antifouling coatings. The Federal AIM coatings rule VOC content limit for non-flat high gloss coatings is 380 grams/liter while the Pennsylvania AIM coatings rule's limit is 250 grams/liter, and the Federal AIM coatings rule's VOC content limit for anti-fouling coatings is 450 grams/liter while the Pennsylvania AIM coatings rule's is 400 grams/liter. Examples of where Pennsylvania AIM coatings rule is as stringent, but not more stringent, than the Federal AIM coatings rule include, but are not limited to, the VOC content limit for antenna coatings and low-solids coatings. In both rules the VOC content limits for these categories are 530 grams/liter and 120 grams/liter, respectively. Thus, on a category by category basis, the Pennsylvania AIM coatings rule is as stringent or more stringent than the Federal AIM coatings rule. Further, EPA has received no comments that the Pennsylvania AIM coatings rule is less stringent than the Federal rule.

E. Comment: Approval of the Pennsylvania AIM Coatings rule as a SIP Revision Violates Clean Air Act Sections 110(a)(2)(A) and 110(a)(2)(E) —With respect to Sections 110(a)(2)(A) and 110(a)(2)(E) of the Act, the commenters assert that Pennsylvania cannot give the assurances required by these provisions of the Act since each provision requires that a state be able to assure that SIP revisions “meet applicable requirements” of the Act, and that no “Federal or State law” prohibits the state from “carrying out such implementation plan or portion thereof.” Such assurance cannot be given, the commenters allege, because the Pennsylvania AIM coatings rule violates the DQOA, Sections 183(e)(9) and 184(c) of the Act, and Sections 4004.2 and 4005 of the Pennsylvania Air Pollution Control Act (PAPCA).

Response: For the reasons set forth herein and in responses to comments D. and F.-J., EPA disagrees that the Pennsylvania AIM coatings rule violates the DQOA, the provisions of the CAA or the PAPCA. Therefore, nothing prevents Pennsylvania from giving the assurances contemplated by Sections 110(a)(2)(A) and (a)(2)(E) of the Act.

Section C. of the preamble of Pennsylvania's rule states: “ The final form rulemaking is being made under section 5 of the Air Pollution Control Act ( 35 P.S. subsection 4005), which grants the [Pennsylvania Environmental Quality Board (the EQB)] the authority to adopt regulations for the prevention, control, reduction and abatement of air pollution.” See C. Statutory Authority, 33 Pa. B. 5297 (October 25, 2003). The EQB made the Finding that “This rulemaking is necessary and appropriate for administration and enforcement of the authorizing acts identified in Section C of this preamble.” See J. Findings, paragraph (4), 33 Pa. B. 5306 (October 25, 2003).

Under 4004.2 of the PAPCA, in order for the Commonwealth to adopt a rule for the State Implementation Plan that is more stringent than its comparable Federal requirement, the EQB must find that the rule is reasonably necessary to achieve and maintain the NAAQS or find the rule is necessary to avoid the impositions of sanctions under the Act. For the Pennsylvania AIM coatings rule, the EQB made those Findings. See J. Findings, paragraphs (5) and (6), 33 Pa. B. 5306 (October 25, 2003). The EQB, acting under the authorizing statutes, ordered that the regulations of the PADEP are amended by adding Subsections 130.601-130.611 (as correctly renumbered 33 Pa. B. 5618, November 18, 2003) as set forth in Annex A, which has been codified as 25 Pa. Code Chapter 130, Subchapter C—the Pennsylvania AIM coatings rule—that is the subject of this SIP revision. Further the EQB ordered that its Chairperson submit the Order and Annex A to the Office of the General Counsel and the Office of the Attorney General for review and approval as to legality and form, as required by law. The EQB also ordered that its Chairperson submit its Order and Annex A to the Independent Regulatory Review Committee (IRRC) and the Senate and House Environmental Resources and Energy Committees as required by Pennsylvania's Regulatory Review Act. The EQB also ordered that its Chairperson certify the Order and Annex A and deposit them with the Legislative Reference Bureau as required by law. Finally the EQB ordered that its Order shall take effect immediately upon publication in the Pennsylvania Bulletin. See K. Order, paragraphs (a)-(e), 33 Pennsylvania Bulletin 5306 (October 25, 2003). The Order was adopted by the Board at its July 15, 2003 meeting. Between the July 15, 2003 adoption date of the Order and the October 25, 2003 date of its publication in the Pennsylvania Bulletin, the reviews as to legality and form of 25 Pa. Code Chapter 130, Subchapter C—the Pennsylvania AIM coatings rule were performed. The PADEP Office of General Counsel approved 25 Pa. Code, Chapter 130, Subchapter C as to its legality and form on July 24, 2003. The IRRC approved 25 Pa. Code, Chapter 130, Subchapter C as to its legality and form on September 12, 2003. The Office of the Attorney General for the Commonwealth of Pennsylvania approved 25 Pa. Code, Chapter 130, Subchapter C as to its legality and form on October 3, 2003. EPA, in its review of the SIP revision submission of the Pennsylvania AIM coatings rule, has found no reason to indicate that the review performed by PADEP's Office of the General Counsel, the IRRC and the Office of the Attorney General for the Commonwealth of Pennsylvania as to the legality of its AIM coatings rule under State law, is insufficient. (Documentation of the approvals by the Office of General Counsel, the IRRC and the Office of the Attorney General have been made part of the administrative record of this final rulemaking).

F. Comment: The PA AIM Coatings Rule Was Adopted in Violation of Clean Air Act Section 183(e)(9) —The commenters state that in 1998, after a seven-year rule development process, EPA promulgated its nationwide regulations for AIM coatings pursuant to Section183(e) of the Act. The commenters note that Pennsylvania's AIM coatings rule imposes numerous VOC emission limits that will be more stringent than the corresponding limits in EPA's regulation. The commenters assert that Section 183(e)(9) of the Act requires that any state which proposes regulations to establish emission standards other than the Federal standards for products regulated under Federal rules shall first consult with the EPA Administrator. The commenters believe that Pennsylvania failed to engage in that required consultation, and, therefore (1) Pennsylvania violated Section 183(e)(9) in its adoption of the Pennsylvania AIM coatings rule, and (2) approval of the AIM coatings rule by EPA would violate, and is, therefore, prohibited by Sections 110(a)(2)(A) and (a)(2)(E) of the Act.

Response: EPA disagrees with this comment. Contrary to the implication of the commenters, Section 183(3)(9) does not require states to seek EPA's permission to regulate consumer products. By its explicit terms, the statute contemplates consultation with EPA only with respect to “whether any other state or local subdivision has promulgated or is promulgating regulations or any products covered under [section 183(e)].” The commenters erroneously construe this as a requirement for permission rather than informational consultation. Further, the final Federal architectural coatings regulations at 40 CFR 59.410 explicitly provides that States and their political subdivisions retain authority to adopt and enforce their own additional regulations affecting these products. See also, 63 FR 48848, 48884. In addition, as stated in the preamble to the final rule for architectural coatings, Congress did not intend Section 183(e) to preempt any existing or future State rules governing VOC emissions from consumer and commercial products. See 63 FR 48848, 48857. Accordingly, PADEP retains authority to impose more stringent limits for architectural coatings as part of its SIP, and its election to do so is not a basis for EPA to disapprove the SIP. See, Union Elec Co. v. EPA, 427 U.S. at 265-66 (1976). Although national uniformity in consumer and commercial product regulations may have some benefit to the regulated community, EPA recognizes that some localities may need more stringent regulation to combat more serious and more intransigent ozone nonattainment problems.

Further, there was ample consultation with EPA prior to the Commonwealth's adoption of its AIM coatings rule. On March 28, 2001 the OTC adopted a Memorandum of Understanding (MOU) on regional control measures, signed by all the member states of the OTC, including Pennsylvania, which officially made available the OTC model rules, including the AIM coatings model rule. See the discussion of this MOU in the Report of the Executive Director, OTC, dated July 24, 2001, a copy of which has been included in administrative record of this final rulemaking.

That MOU includes the following text, “WHEREAS after reviewing regulations already in place in OTC and other States, reviewing technical information, consulting with other States and Federal agencies, consulting with stakeholders, and presenting draft model rules in a special OTC meeting, OTC developed model rules for the following source categories * * * architectural and industrial maintenance coatings * * *” (a copy of the signed March 28, 2001 MOU has been placed in the administrative record of this final rulemaking).

EPA Region III and the Commonwealth of Pennsylvania negotiated the adoption of the OTC model rules in the FY 2003 Work Plan for PADEP's annual State Assistance Grant under Section 105 of the Act. The commitment included in the Grant Work Plan (which was approved and funded by EPA under Section 105 of the Act) stated that the PADEP would continue to submit outstanding rules developed in accordance with the March 28, 2001 OTC MOU as SIP revisions by September 9, 2003. The relevant page of the FY 2003 Grant Work Plan has been placed in the administrative record of this final rulemaking.

Therefore, there is no validity to the commenters' assertion that Pennsylvania failed to consult with EPA in the adoption of its AIM coatings rule. EPA was fully cognizant of the requirements of the Pennsylvania AIM coatings rule before its formal adoption by the Commonwealth. 3 For all these reasons, EPA disagrees that Pennsylvania violated Section 183(e)(9) in its adoption of the its AIM coatings rule, and disagrees that approval of the Pennsylvania AIM coatings rule by EPA is in violation of or prohibited by Section 110(a)(2)(A) and (a)(2)(E) of the Act.

G. Comment: The PA AIM Coatings Rule Was Adopted in Violation of Clean Air Act Section 184(c), and Approval of the SIP Revision Would, Itself, Violate That Section —The commenters believe the OTC violated Section 184(c)(l) of the Act by failing to “transmit” its recommendations to the Administrator, and that the OTC's violation was compounded by the Administrator's failure to review the Model Rule through the notice, comment and approval process required by CAA Sections 184(c)(2)-(4). These alleged violations of the Act should have prevented Pennsylvania from adopting the Pennsylvania AIM coatings Rules, and now prevent EPA from validly approving them as a revision to the Pennsylvania SIP.

Response: EPA disagrees with this comment. Section 184(c)(1) of the Act states that “the [OTC] may, after notice and opportunity for public comment, develop recommendations for additional control measures to be applied within all or a part of such transport region if the commission determines such measures are necessary to bring any area in such region into attainment by the dates provided by this subpart.” It is important to note that the OTC model AIM coatings rule was not developed pursuant to Section 184(c)(1), which provision is only triggered “[u]pon petition of any State within a transport region established for ozone * * *.” No such petition preceded the development of the model AIM coatings rule. Nor, for that matter, was development of a rule upon State petition under Section 184(e)(1) meant to be the exclusive mechanism for development of model rules within the OTC. Nothing in Section 184 prevents the voluntary development of model rules without the prerequisite of a state petition. This provision of the Act was not intended to prevent OTC's development of model rules which states may individually choose to adapt and adopt on their own, as Pennsylvania did, basing its AIM coatings rule on the model developed within the context of the OTC. In developing its State rule from the OTC model, Pennsylvania was free to adapt that rule as it saw fit (or to leave the OTC model rule essentially unchanged), so long as its rule remained at least as stringent as the Federal AIM coatings rule.

As previously stated, on March 28, 2001, the OTC member states signed a MOU on regional control measures, including the AIM coatings model rule. The OTC did not develop recommendations to the Administrator for additional control measures. The MOU stated that implementing these rules will help attain and maintain the 1-hour standard for ozone and were therefore made available to the states for use in developing their own regulations.

Even though the OTC did not develop the model AIM coatings rule pursuant to Section 184(c)(1) of the Act, nevertheless it provided ample opportunity for OTC member and stakeholder comment by holding several public meetings concerning the model rules including the AIM coatings model rule. The sign-in sheets or agenda for four meetings held in 2000 and 2001 at which the OTC AIM coatings model was discussed (some of which reflect the attendance of a representative of the EPA and/or the commenters), have been placed in the administrative record for this final rulemaking.

H. Comment: The PA AIM Coatings Rule Was Adopted in Violation of the Pennsylvania Air Pollution Control Act (PAPCA) —The commenters assert that the General Assembly of the Commonwealth of Pennsylvania, when it amended the PAPCA in 1992, addressed the issue of consumer product regulation, not by delegating rulemaking authority to the EQB, but by conferring limited enforcement authority upon PADEP. The commenters state that the Legislature authorized PADEP to enforce the Federal standards, not to promulgate its own more stringent standards. The commenters cite to a provision of the PAPCA which confers upon the PADEP the power and duty to develop and submit to EPA procedures to implement and enforce the regulations which EPA adopts under Section 183(e) of the Act to reduce emissions from consumer and commercial products, provided the PADEP will receive the credits attributed to the Federal consumer and commercial products regulations under Section 182 of the CAA regulations, and that the PADEP has the resources to implement and enforce the program. 35 P.S. subsection 4004. The commenters also cite to the PAPCA subsection 4005 for the proposition that the EQB's rulemaking authority powers are specifically enumerated in thirteen explicit subsections, none of which mention consumer products (with a footnote to an exception in 4005(a)(13) related to aerospace coatings). The commenters also point to PAPCA subsection 4004.2 to note that it is the Legislature's expressed intent that delegated rulemaking authority not be broadly construed but is limited by a requirement that any rule adopted by the EQB under the PAPCA be no more stringent than a specific Federal rule. The commenters conclude, therefore, that if Pennsylvania chooses to regulate AIM coatings beyond the levels set by EPA, that choice must be made by the Pennsylvania General Assembly in the form of a specific statute or by delegating additional specific rulemaking authority to the EQB, and as such delegation is absent, the Pennsylvania AIM coatings rule is unlawful as a matter of Pennsylvania law.

Response: EPA disagrees with this comment. The commenters' citations to the PAPCA are incomplete with regard to the ability of the Commonwealth to adopt air pollution control regulations that are more stringent than comparable Federal requirements. The commenters fail to note the provisions under PAPCA subsection 4004.2(b) whereby the Commonwealth may adopt a rule for the State Implementation Plan that is more stringent than its comparable Federal requirement, if the EQB finds that the rule is reasonably necessary to achieve and maintain the NAAQS or necessary to avoid the impositions of sanctions under the Act. Pennsylvania adopted its AIM coatings rule to achieve additional VOC reductions from AIM coatings. The Pennsylvania AIM coatings rule is a part of the Commonwealth's strategy to achieve and maintain the ozone standard throughout the Commonwealth. The Federal AIM coatings rule was promulgated in 1998. To capture additional VOC emission reductions, the Commonwealth adopted its more stringent AIM coatings rule in October of 2003. As EPA notes in its response to Comment B., the Pennsylvania AIM coatings rule sets specific VOC content limits, in grams per liter, for 48 AIM coating categories and requires, for certain categories, more stringent VOC content limits than the Federal Rule. As indicated in EPA's response to Comment D., EPA acknowledges that under the PAPCA, in order for the EQB to adopt a rule for the State Implementation Plan that is more stringent than its comparable Federal requirement, the EQB must find that the rule is reasonably necessary to achieve and maintain the NAAQS or to avoid the imposition of sanctions. For the Pennsylvania AIM coatings rule, the EQB made those Findings. See J. Findings, paragraphs (5) and (6), 33 Pennsylvania Bulletin 5306 (October 25, 2003). Consequently, EPA believes that the EQB has made the requisite findings for the adoption of rules and regulations more stringent than those required by the Act. Moreover, the Office of General Counsel for PADEP, the Commonwealth's IRRC, and the Office of the Attorney General for the Commonwealth of Pennsylvania have each approved the Pennsylvania AIM coatings rule with regard to its legality and form under Pennsylvania law. See EPA's response to Comment E. EPA, in its review of the SIP revision submission of the Pennsylvania AIM coatings rule, has found no reason to indicate that the review performed by PADEP's Office of the General Counsel, the IRRC and the Office of the Attorney General for the Commonwealth of Pennsylvania as to the legality of its AIM coatings rule under State law, is insufficient. EPA has, therefore, determined pursuant to Section 110(a)(2)(E) of the Clean Air Act and 40 CFR section 51, appendix V, that Pennsylvania has provided the necessary assurances that it has adequate authority to implement the SIP revision and that it has followed all the procedural requirements of Pennsylvania's laws and constitution in adopting the SIP revision submitted to EPA.

I. Comment: The Pennsylvania AIM Coatings Rule Violates the Commerce Clause of the U.S. Constitution —The commenters claim that the Pennsylvania AIM coatings rule violates the Commerce Clause of Article I, Section 8, of the U.S. Constitution, because it imposes an unreasonable burden on interstate commerce. The commenters assert that because the Pennsylvania AIM coatings rule contains VOC limits and other provisions that differ from the Federal AIM coatings rule in 40 CFR 59.400, the rule causes an unreasonable restriction on coatings in interstate commerce. The commenters further assert that the burdens of the Pennsylvania AIM coatings rule are excessive and outweigh the benefits of the rule. The commenters suggest that EPA should disapprove the SIP revision on this basis.

Response: EPA agrees with this comment only to the extent that it acknowledges that AIM coatings are products in interstate commerce and that state regulations on coatings therefore have the potential to violate the Commerce Clause. EPA understands the commenters' practical concerns caused by differing state regulations, but disagrees with the commenters' view that the Pennsylvania AIM coatings rule impermissibly impinges on interstate commerce. A state law may violate the Commerce Clause in two ways: (i) By explicitly discriminating between interstate and intrastate commerce; or (ii) even in the absence of overt discrimination, by imposing an incidental burden on interstate commerce that is markedly greater than that on intrastate commerce. The Pennsylvania AIM coatings rule does not explicitly discriminate against interstate commerce because it applies evenhandedly to all coatings manufactured or sold for use within the state. At most, therefore, the Pennsylvania AIM coatings rule could have an incidental impact on interstate commerce. In the case of incidental impacts, the Supreme Court has applied a balancing test to evaluate the relative impacts of a state law on interstate and intrastate commerce. See, Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). Courts have struck down even nondiscriminatory state statutes when the burden on interstate commerce is “clearly excessive in relation to the putative local benefits.” Id. at 142.

At the outset, EPA notes that it is unquestionable that the Commonwealth has a substantial and legitimate interest in obtaining VOC emissions for the purpose of attaining the ozone NAAQS. The adverse health consequences of exposure to ozone are well known and well established and need not be repeated here. See, e.g., National Ambient Air Quality Standards for Ozone: Final Response to Remand, 68 FR 614, 620-25 (January 6, 2003). Thus, the objective of the Commonwealth in adopting the Pennsylvania AIM coatings rule is to protect the public health of the citizens of Pennsylvania. The courts have recognized a presumption of validity where the state statute affects matters of public health and safety. See, e.g., Kassel v. Consolidated Freightways Corp. of Delaware, 450 U.S. 662, 671 (1980). Moreover, even where the state statute in question is intended to achieve more general environmental goals, courts have upheld such statutes notwithstanding incidental impacts on out of state manufacturers of a product. See, e.g, Minnesota v. Clover Leaf Creamery, et al., 449 U.S. 456 (1981)(upholding state law that banned sales of milk in plastic containers to conserve energy and ease solid waste problems).

The commenters assert, without reference to any facts, that the Pennsylvania AIM coatings rule imposes burdens and has impacts on consumers that are “clearly excessive in relation to the purported benefits * * *” By contrast, EPA believes that any burdens and impacts occasioned by the Pennsylvania AIM coatings rule are not so overwhelming as to trump the state's interest in the protection of public health. First, the Pennsylvania AIM coatings rule does not restrict the transportation of coatings in commerce itself, only the sale of nonconforming coatings within the state's own boundaries. The state's rule excludes coatings sold or manufactured for use outside the state or for shipment to others. 25 Pa. Code. 130.601(1). The Pennsylvania AIM coatings rule cannot be construed to interfere with the transportation of coatings through the state en route to other states. As such, EPA believes that the cases concerning impacts on the interstate modes of transportation themselves are inapposite. See, e.g., Bibb v. Navajo Freight Lines, 359 U.S. 520 (1938).

Second, the Pennsylvania AIM coatings rule is not constructed in such as way that it has the practical effect of requiring extraterritorial compliance with the state's VOC limits. The Pennsylvania AIM coatings rule only governs coatings manufactured or sold for use within the state's boundaries. The manufacturers of coatings in interstate commerce are not compelled to take any particular action, and they retain a range of options to comply with the rule, including, but not limited to: (1) Ceasing sales of nonconforming products in Pennsylvania; (2) reformulating nonconforming products for sale in Pennsylvania and passing the extra costs on to consumers in that state; (3) reformulating nonconforming products for sale more broadly; (4) developing new lines of conforming products; or (5) entering into production, sales or marketing agreements with companies that do manufacture conforming products. Because manufacturers or sellers of coatings in other states are not forced to meet Pennsylvania's regulatory requirements elsewhere, the rule does not impose the type of obligatory extraterritorial compliance that the courts have considered unreasonable. See, e.g., NEMA v. Sorrell, 272 F.3d 104 (2nd Cir. 2000) (state label requirement for light bulbs containing mercury sold in that state not an impermissible restriction). It may be that the Pennsylvania AIM coatings rule will have the effect of reducing the availability of coatings or increasing the cost of coatings within the State, but courts typically view it as the prerogative of the state to make regulatory decisions with such impacts upon its own citizens. NPCA v. City of Chicago, 45 F.3d 1124 (7th Cir. 1994), cert. denied, 515 U.S. 1143 (1995) (local restriction on sales of paints used by graffiti artists may not be the most effective means to meet objective, but that is up to the local government to decide).

Third, the burdens of the Pennsylvania AIM coatings rule typically do not appear to fall more heavily on interstate commerce than upon intrastate commerce. The effect on manufacturers and retailers will fall on all manufacturers and retailers regardless of location if they intend their products for sale within Pennsylvania, and does not appear to have the effect of unfairly benefitting in-state manufacturers and retailers. The mere fact that there is a burden on some companies in other states does not alone establish impermissible interference with interstate commerce. See, Exxon Corp. v. Maryland, 437 U.S. 117, 126 (1978).

In addition, EPA notes that courts do not typically find violations of the Commerce Clause in situations where states have enacted state laws with the authorization of Congress. See, e.g., Oxygenated Fuels Assoc., Inc. v. Davis, 63 F. Supp. 1182 (E.D. Cal. 2001) (state ban on MTBE authorized by Congress); NEMA v. Sorell, 272 F.3d 104 (2nd Cir. 2000) (RCRA's authorization of more stringent state regulations confers a “sturdy buffer” against Commerce Clause challenges). Section 183(e) of the Act governs the Federal regulation of VOCs from consumer and commercial products, such as coatings covered by the Pennsylvania AIM coatings rule. EPA has issued a Federal regulation that provides national standards, including VOC content limits, for such coatings. See 40 CF 59.400 et seq. Congress did not, however, intend Section 183(e) to pre-empt additional state regulation of coatings, as is evident in Section 183(e)(9) which indicates explicitly that states may regulate such products. EPA's regulations promulgated pursuant to the Act recognized that states might issue their own regulations, so long as they meet or exceed the requirements of the Federal regulations. See, e.g. , the National Volatile Organic Compound Emission Standards for Architectural Coatings, 40 CFR 59.410, and the Federal Register which published the standards, 63 FR 48848, 48857 (September 11, 1998). Thus, EPA believes that Congress has clearly provided that a state may regulate coatings more stringently than other states.

In Section 116 of the Act, Congress has also explicitly reserved to states and their political subdivisions the right to adopt local rules and regulations to impose emissions limits or otherwise abate air pollution, unless there is a specific Federal preemption of that authority. When Congress intended to create such Federal preemption, it does so through explicit provisions. See, e.g., Section 209(a) of the Act, which pertains to state or local emissions standards for motor vehicles; and Section 211 of the Act which pertains to fuel standards. Moreover, the very structure of the Act is based upon “cooperative federalism,” which contemplates that each state will develop its own state implementation plan, and that states retain a large degree of flexibility in choosing which sources to control and to what degree in order to attain the NAAQS by the applicable attainment date. Union Electric Co. v. EPA, 427 U.S. 246 (1976). Given the structure of the Act, the mere fact that one state might choose to regulate sources differently than another state is not, in and of itself, contrary to the Commerce Clause.

Finally, EPA understands that there may be a practical concern that a plethora of state regulations could create a checkerboard of differing requirements would not be the best approach to regulating VOCs from AIM coatings or other consumer products. Greater uniformity of standards does have beneficial effects in terms of more cost effective and efficient regulations. As EPA noted in its own AIM coatings rule, national uniformity in regulations is also an important goal because it will facilitate more effective regulation and enforcement, and minimize the opportunities for undermining the intended VOC emission reductions. 63 FR 48856-48857. However, EPA also recognizes that Pennsylvania and other states with longstanding ozone nonattainment problems have local needs for VOC reductions that may necessitate more stringent coatings regulations. Under Section 116 of the Act, states have the authority to do so, and significantly, many states in the Northeast have joined together to prepare and promulgate regulations more restrictive than the Federal AIM coatings rule to apply uniformly across that region. This regional collaboration provides regional uniformity of standards. Pennsylvania may have additional burdens to insure compliance with its rule, but for purposes of this action EPA presumes that the Commonwealth take appropriate actions to enforce it as necessary. The EPA has no grounds for disapproval of the SIP revision based upon the commenters' Commerce Clause comment.

J. Comment: The Emission Limits and Compliance Schedule in the Pennsylvania AIM Coatings Rule are Neither Necessary nor Appropriate to Meet Applicable Requirements of the Clean Air Act —The commenters claim that the Pennsylvania AIM coatings rule is not “necessary or appropriate” for inclusion in the Pennsylvania SIP, because EPA did not direct Pennsylvania to achieve VOC reductions through the AIM coatings rule, but left it to the State to decide how such reduction can be achieved. The commenters further assert that the Pennsylvania AIM coatings rule is not necessary or appropriate for inclusion in the Pennsylvania SIP because of the numerous procedural and substantive failings on the part of PADEP in promulgating the rule.

Response: EPA disagrees with this comment. If fulfillment of the “necessary or appropriate” condition of Section 110(a)(2)(A) required EPA to determine that a measure was necessary or appropriate and require a state to adopt that measure, this condition would present a “catch 22” situation. EPA does not generally have the authority to require the State to enact and include in its SIP any particular control measure, even a “necessary” one. 4 However, under Section 110(a)(2)(a) a control measure must be either “necessary or appropriate” (emphasis added); the use of the disjunctive “or” does not provide that a state must find that only a certain control measure and no other measure will achieve the required reduction. Rather, a state may adopt and propose for inclusion in its SIP any measure that meets the other requirements for approvability so long as that measure is at least as appropriate, though not exclusive, means of achieving emissions reduction. See also, Union Elec. Co. v. EPA , 427 U.S. 246, 264-266 (1976) (holding that “necessary” measures are those that meet the “minimum conditions” of the Act, and that a state “may select whatever mix of control devices it desires,” even ones more stringent than Federal standard, to achieve compliance with a NAAQS, and that “the Administrator must approve such plans if they meet the minimum requirements” of Section 110(a)(2) of the Act). Clearly, in light of the Act and the case law, EPA's failure to specify the state adoption of a specific control measure cannot dictate whether a measure is necessary or appropriate.

In this particular instance, EPA identified an emission reduction shortfall associated with Pennsylvania's 1-hour ozone attainment demonstration SIP, and required Pennsylvania to address the shortfall ( See , 64 FR 70428 and 66 FR 54143). It is the Commonwealth's prerogative to develop whatever rule or set of rules it deems necessary or appropriate such that the rule or rules will collectively achieve the additional emission reductions for attainment of the 1-hour ozone standard as identified by EPA.

As stated previously, the Commonwealth's December 3, 2003 SIP revision submittal, supplemented by further documentation added to the administrative record by EPA to respond to comments submitted on its March 11, 2004 NPR, provides evidence that it that it has the legal authority to adopt its AIM rule and that it has followed all of the requirements in the Commonwealth law and constitution that are related to adoption of the plan.

K. Comment: The Written Comments Submitted by the Commenters to the Pennsylvania EQB, the Pennsylvania IRRC and the PADEP on Pennsylvania's Proposed Version of its AIM Coatings Rule Are Incorporated by Reference into the Comments Submitted to EPA on its March 11, 2004 NPR Proposing Approval of the Final, Adopted Pennsylvania AIM Coatings Rule —In their letters submitted to EPA as comment to EPA's proposed approval of the Pennsylvania AIM coatings rule, the commenters incorporate by reference a letter from Madelyn K. Harding, Sherwin Williams Company to the Pennsylvania EQB dated February 20, 2002 and its attachments; a letter from W. Lance H. Hernsarth, Sherwin Williams Company to Kathleen McGinty, Secretary of the Pennsylvania DEP, dated April 21, 2003 and its attachment; a letter from Harvey P. Sass, Sherwin Williams Company to Commissioner John R. McGinley, Jr., IRRC, dated September 5, 2003 and its attachment; and NPCA's Statement Before Pennsylvania Independent Regulatory Review Commission, dated September 12, 2003. The following summarizes the comments presented to Pennsylvania and incorporated by reference by the commenters:

(1) The commenters have significant concerns with the proposed standards for certain paints and coatings, e.g., interior wood clear and semi-transparent stains, interior wood vanishes, interior wood sanding sealers, exterior wood primers, and floor coatings. The commenters assert that Pennsylvania's proposed AIM coatings regulation is based upon the inaccurate assumption that compliant coatings are available or can be developed which will satisfy customer requirements and meet all of the performance requirements of these categories. The commenters contend that such coatings are not effectively within the limits of current technology and that this inaccurate assumption will result in increased and earlier repainting which can damage floors in Pennsylvania due to seasonal variations in temperature and humidity.

(2) The commenters contend that PADEP has not considered the increase in emissions resulting from the performance issues and consequential repainting.

(3) The commenters suggest changes to the VOC standards for only a few of the product categories proposed by Pennsylvania in its AIM coatings regulation, and claim that the version of the AIM coatings rule it counter-proposes will achieve significant reductions beyond the Federal AIM coatings rule (26.5 tons/day) which is very close to the amount of emission reductions determined by PADEP for the Pennsylvania proposed regulation.

(4) The commenters state that Pennsylvania's proposed AIM coatings rule is unreasonably stringent and unnecessary for the protection of public health, welfare and safety, and it is arbitrary and capricious as the record does not support the emission reduction claims.

(5) The commenters contend that Pennsylvania's proposed AIM coatings rule will have a significant adverse impact on the commenters, and that the PADEP can issue a regulation that achieves substantial VOC reductions beyond the Federal AIM coatings rule without causing serious adverse impact on potential sales of certain products. A further comment contends that due to Pennsylvania's climate, the added costs of heating trucks and warehouses to transport and store coatings will adversely impact manufacturers, shippers, end users and on society in the form of more energy consumption.

(6) The commenters assert that the economic analysis of Pennsylvania's proposed AIM coatings rule is inaccurate because it uses a cost figure of $6400 per ton of emissions reduced based upon an economic analysis done for California. The commenters contend that the cost figure is inappropriate given the differences in the stringency of the current requirements for AIM coatings in Pennsylvania versus California, and therefore, Pennsylvania needs to make an independent determination of the cost of VOC reductions from its proposed AIM coatings regulation.

(7) The commenters indicate that both the Consumer Products regulation and AIM coatings rule proposed by Pennsylvania are based on rule developments in California. However, Pennsylvania's proposal includes the California averaging provision for consumer products but does not do so for AIM. The commenters assert that the failure to include the California averaging provision in the Pennsylvania AIM coatings rule is arbitrary and capricious, and places an unequal burden on the architectural coating industry.

(8) The commenters also submitted comments to the Commonwealth of Pennsylvania regarding its proposed AIM coatings rule asserting that the EQB and PADEP do not have authority under the Commerce Clause and the Pennsylvania Air Pollution Control Act (PAPCA) to adopt the proposed AIM coatings rule.

Response: As previously stated in this document, EPA disagrees with the commenter's assertion that the adoption of the AIM coatings regulation by the Commonwealth is in violation of the PAPCA. Please see EPA's response to Comment H. With regard to the comments regarding the Commerce Clause, please see EPA's response to Comment I.

With regard to the other comments submitted by the commenters to the Commonwealth on its proposed AIM coatings rule that they have incorporated by reference in their comments to EPA on EPA's March 11, 2004 proposed approval, EPA's response is that it is important to understand EPA's role and responsibilities with regard to the review and approval, or disapproval, of rules submitted as SIP revisions. Prior to approving a SIP revision request submitted by a state, EPA reviews the submission to ensure that the state provided the opportunity for comment and held a hearing(s) on the proposed state regulation that is at issue in the SIP revision pursuant to Section 110(a) of the Act. In this case, the Commonwealth of Pennsylvania's December 3, 2003 submission of its AIM coatings rule to EPA includes the necessary documentation to demonstrate that it met these requirements. The Commonwealth's December 3, 2003 SIP revision submission is included in docket of this rulemaking. A complete SIP revision submission from a state includes copies of timely comments properly submitted to the state on the proposed SIP revision and the state's responses to those comments. The Commonwealth of Pennsylvania's December 3, 2003 submission of its AIM coatings rule as a SIP revision to EPA properly includes both the comments submitted on its proposed AIM coatings rule and the Commonwealth's responses to those comments. (See both the document entitled, Architectural and Industrial Maintenance (AIM) Coatings, Comment and Response Document prepared by the DEP, dated February 27, 2003 and 33 Pennsylvania Bulletin 5297 (October 25, 2003)).

The Commonwealth of Pennsylvania's SIP revision submission of its AIM coatings rule does not request that EPA approve a specific amount of VOC emission reduction credit. As such, the comments regarding the Commonwealth's emission reduction calculations are not germane to EPA's rulemaking to approve Pennsylvania's requested SIP revision. The Commonwealth's responses to the timely comments on the proposed Pennsylvania AIM coatings rule made by the commenters to Pennsylvania are included in the Commonwealth's December 3, 2003 submission to EPA for approval of the SIP revision.

The cost per ton figure determined by the Commonwealth in its economic analysis, its decision to rely upon information from California and its decision whether to include averaging provisions in its final AIM coatings rule are all decisions which fall within a state's purview, and issues regarding those decisions are rightfully raised by interested parties to the State during its regulatory adoption process. Therefore, it was appropriate that the commenters commented to the Commonwealth on these matters during the adoption of its AIM coatings rule. EPA has reviewed the SIP revision submitted and has determined that the commenters' comments on those issues they have incorporated by reference on this rulemaking, along with the Commonwealth's responses to those issues, are included therein. In the context of a SIP approval, EPA's review of these state decisions is limited to whether the SIP revision meets the minimum criteria of the Act. Provided that the rule adopted by the state satisfies those criteria, EPA must approve such a SIP revision. See, Union Elec Co. v. EPA .

With regard to the comments concerning the availability of complying coatings and the ability to develop complying coatings that can meet customer requirements and performance requirements, EPA notes (as did the Commonwealth in its responses to such comments) that the final version of the Pennsylvania AIM coatings regulation includes variance provisions at 130.606-130.610. These provisions allow for variances from the VOC standards found in 130.603 to be granted by the PADEP to applicants which demonstrate technological infeasibility. EPA finds that the Commonwealth's approach to address demonstrated technological infeasibility in its AIM coatings rule by the variance provisions of 130.606-130.610 is both reasonable and within its purview, and therefore approvable as a SIP revision.

EPA is approving the Pennsylvania SIP revision for the control of VOC emissions from AIM coatings submitted on December 3, 2003 and supplemented on October 19, 2004. The Pennsylvania AIM coatings rule is part of the Commonwealth's strategy to achieve and maintain the 1-hour ozone standard throughout the Commonwealth.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4). This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant. In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

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

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by January 24, 2005. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action, pertaining to Pennsylvania's AIM coatings rule, may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

Each year titles 46 and 49 of the Code of Federal Regulations are updated on October 1. That rule, which became effective September 30, 2004, corrected organization names and addresses, revised authority citations for certain parts to reflect our move to the Department of Homeland Security (DHS) in March 2003, and made other technical and editorial corrections throughout titles 46 and 49. Neither that rule nor this rule makes any substantive change to the existing regulations.

The final rule that was published on September 30, 2004, contains errors which may prove to be misleading and need to be clarified. This rule makes those clarifications.

The United States Atlantic swordfish and tuna fisheries are managed under the Fishery Management Plan for Atlantic Tunas, Swordfish, and Sharks (HMS FMP). Implementing regulations at 50 CFR part 635 are issued under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), 16 U.S.C. 1801 et seq. and the Atlantic Tunas Convention Act (ATCA), 16 U.S.C. 971 et seq. Regulations issued under the authority of ATCA carry out the recommendations of ICCAT. The June 20, 2003, proposed rule (68 FR 36967) contains the background information for the management measures in this final rule; the background information is not repeated in this final rule.

NMFS held three public hearings in July and August 2003 in Gloucester, MA; Madeira Beach, FL; and Silver Spring, MD. Comments were received from fishery participants and other members of the public regarding the proposed regulations. In addition, written comments were submitted to NMFS during the 45-day comment period. Written and oral comments are summarized below with NMFS' responses.

Comment 1: One commenter supports opportunities for U.S. fishermen to land more swordfish as long as it is done in a manner that does not compromise the full rebuilding of the population and long-term sustainability of the resource.

Response: NMFS agrees that ensuring sustainability and rebuilding the population are important aspects of providing long term opportunities for fishermen to harvest the resource. The selected alternatives are consistent with the objectives of the ICCAT rebuilding program, Magnuson-Stevens Act, ATCA, and the HMS FMP and will ensure the sustainability of the stock.

Comment 2: To facilitate harvest of the United States allocated quota, the United States should make a limited number of new handgear permits available for distribution.

Response: Making a limited number of new handgear permits available is one option for addressing the underharvest occurring in recent years. Since this would require a plan amendment, NMFS solicited comments regarding this and other options during the scoping process for Amendment 2 to the HMS FMP and may consider those options in Amendment 2 or other future rulemaking.

Comment 3: If the United States is unable to catch its quota, there will be efforts by other ICCAT countries to permanently reduce the U.S. quota share and allocate that quota to other fishing nations. This will have conservation ramifications given that U.S. fisheries are better managed than fisheries in other ICCAT nations.

Response: This rule implements recommendations agreed to at the 2002 meeting of ICCAT. The North Atlantic swordfish quota levels are established through 2005. ICCAT will reevaluate the current quotas and recommend new ones at that time. NMFS will continue to evaluate the need for all current regulations with regard to the effect on harvest rates and will work with fishermen to preserve the U.S. quota share while ensuring consistency with the Magnuson-Stevens Act, the Endangered Species Act (ESA), and other domestic laws.

Comment 4: U.S. underharvests are primarily a result of the premature closures of the directed fishery in 1997 and 1998 and the overly restrictive time/area closures currently in place. Scientific data shows swordfish recovering before implementation of the time/area closures. Because of current management, this once thriving domestic fishery has exhibited reduced effort and profitability.

Response: NMFS implemented the current time and area closures and other restrictions to reduce bycatch in the pelagic longline fishery. This bycatch included juvenile swordfish, billfish, sharks, and sea turtles. NMFS will evaluate the impact and effectiveness of the closures in Amendment 2 to the HMS FMP or other future rulemaking and will modify them if necessary to meet management objectives and legislative requirements.

Comment 5: One commenter opposed an increase in the North Atlantic swordfish quota. Even though the stock assessment indicates improvement, the stock is still overfished. Any increase in quota will slow down or reverse the improvement and lead to an increase in dead discards of juvenile swordfish, marlin, and sharks. Increasing the quota goes against NMFS' stated goal of risk-averse management. The increase is hard to understand given the United States has not landed the quota since 1995.

Response: At its 2002 meeting, ICCAT conducted a North Atlantic swordfish stock assessment and determined that the population had nearly recovered to a level that will support maximum sustainable yield and that an increase will still allow the stock to rebuild by 2009, the established goal for rebuilding Atlantic swordfish. Based on this finding, ICCAT recommended an increase in swordfish quota and will hold another stock assessment in 2005 to monitor its results. NMFS does not expect the increase in U.S. quota to result in an increase in dead discards. Further, based on current regulations and the level of effort in the U.S. fishery, it is unlikely that catch rates of target and bycatch species will increase.

Comment 6: The United States should force ICCAT to reduce the overall quota and refuse to accept increases in quota for overfished stocks.

Response: ICCAT is currently comprised of 38 contracting parties that cooperate to formulate management recommendations. The United States is not in a position to force ICCAT to adopt a particular quota because the organization works primarily by consensus. In this case, the stock assessment demonstrated that the swordfish population has nearly recovered to a level that will support maximum sustainable yield and that an increase in allowable harvest would not prevent rebuilding within the originally agreed timeframe. The North Atlantic swordfish quota was increased based on this scientific advice.

Comment 7: One commenter asked NMFS to explain why the United States lost South Atlantic swordfish quota despite quota increases for other nations fishing in that area.

Response: The United States South Atlantic swordfish quota was reduced due to its lower catches in that area in recent years. However, up to 200 mt ww of swordfish landed between 5 degrees North and 5 degrees South latitude may be applied against the North Atlantic swordfish quota. Because most of the historical U.S. catch of South Atlantic swordfish has been harvested from that area, this should mitigate most impacts from the reduction of the South Atlantic swordfish quota.

Comment 8: One commenter opposed the proposed increase in South Atlantic quota to over 100 mt because it would increase pressure on a stock for which data are incomplete.

Response: The Standing Committee on Research and Statistics (SCRS) conducted a stock assessment of South Atlantic swordfish in 2002. Due to discrepancies between several of the data sets, reliable stock assessment results could not be produced. In general, the SCRS noted that the total catches have decreased since 1995, as recommended. As a result, ICCAT increased the total allowable catch (TAC) for South Atlantic swordfish from 14,620 mt ww to 15,631 mt ww. The new ICCAT recommendation lowered the U.S. quota for South Atlantic swordfish from 384 mt ww in 2002 to 100 mt ww in 2003-2005. ICCAT further recommended that up to 200 mt ww of swordfish landed between 5 degrees North and 5 degrees South latitude be applied against the North Atlantic swordfish quota.

Comment 9: One commenter stated that the transfer of 25 mt ww of North Atlantic swordfish quota to Canada is an industry initiative to keep from losing part of the U.S. quota allocation if it is not likely to be harvested in the near future. Another commenter stated that the United States should keep control of this quota and not transfer it to Canada because any uncaught quota will help the stock rebuild faster and reduce bycatch.

Response: If the quota transfer to Canada did not transpire and there was a 25 mt ww underharvest, the remaining quota would be incorporated into the next year's U.S. North Atlantic swordfish quota. While keeping the 25 mt ww may help the stock rebuild in the short term (because neither the United States nor Canada would catch it), the quota would likely be harvested in the future. Transferring the quota to Canada may help maintain the U.S. allocation, but due to the current level of underharvests, more measures may be necessary to facilitate harvest of the full U.S. allocation.

Comment 10: Quota transfers and rulemaking concerning ICCAT recommendations should be conducted in a more timely manner. The start of the fishing year was changed to June 1 to give NMFS the opportunity to propose and finalize any actions needed as a result of ICCAT recommendations. Untimely actions can negatively impact U.S. fishermen with respect to foreign competitors.

Response: NMFS attempts to conduct rulemaking in as timely a manner as possible. However, compliance with other applicable laws, such as the Endangered Species Act, may require the preparation of additional analyses and consultations, which can cause delays.

Comment 11: Because the dead discard allowance is slated to be phased out in 2004, NMFS should develop a rule to eliminate the waste resulting from the strict implementation of the minimum size. U.S. pelagic longline vessels should not be required to discard undersized swordfish that cannot be returned to the sea alive and that are caught outside the closed areas. The minimum size should be enforced for other gear types within the closed areas.

Response: Currently, the minimum size restriction is a component of an ICCAT management recommendation. The U.S. adoption of the alternative minimum size with no tolerance is designed to reduce dead discards while still avoiding excess mortality of juvenile fish. Until ICCAT changes the minimum size, and NMFS implements the changes via a rulemaking process, NMFS will continue to enforce it for all gear types in all areas.

Comment 12: Commenters oppose the 80 mt ww dead discard allowance over and above the increase in quota. Dead discards should be counted against the existing quota.

Response: Previously, ICCAT recommended that the dead discard allowance for North Atlantic swordfish be phased out by 2004. At that time, a dead discard target was not provided for the 2003 fishing year. ICCAT corrected this omission in the 2002 recommendation and maintained the established schedule for the elimination of the dead discard allowance. Starting in 2004, dead discards will be counted against the applicable quotas for the harvesting nations.

The adjusted 2002 fishing year landings quota was 3,363.5 mt dressed weight (dw). Directed and incidental fishery landings of North Atlantic swordfish during the 2002 fishing year were reported to be 1747.2 mt dw, with a total underharvest of 1,616.3 mt dw. In addition to the landings quota, ICCAT allocated to the United States a 2002 dead discard allowance of 120.3 mt dw, of which an estimated 261.6 mt dw were discarded. The 141.3 mt dw excess dead discards are required to be deducted from quota available to be harvested in the subsequent fishing year. Thus, from the 2002 fishing year 1,475.0 mt dw is available as carryover (1,616.3 - 141.3).

In addition, the dead discards from 2001 were not accounted for at the beginning of the 2002 fishing year because the estimates were not available at that time. The total dead discard allowance in 2001 was 180.4 mt dw, and the United States discarded an estimated 306.8 mt dw. The 126.4 mt dw excess dead discards are required to be deducted from quota available to be harvested in the subsequent fishing year. However, due to the fact that the 2002-2003 fishing years have been completed, it is necessary to deduct this amount from 2004.

The 2003 fishing year base landings quota established by ICCAT was 2,915 mt dw, not adjusted for underharvests. NMFS is adjusting this quota by the carryover available from 2002 and the excess dead discards in 2001. Thus, the adjusted total landings quota for 2003 is 4,263.6 mt dw (2,915 + 1,475 - 126.4).

Although the 2003 fishing year for North and South Atlantic swordfish ended on May 31, 2004, NMFS is including the ICCAT established quotas and landings for 2003 in this rule in order to provide a complete accounting of underharvests in 2003 which were used to establish the 2004 adjusted quotas. Thus, the directed and incidental fishery landings of North Atlantic swordfish during the 2003 fishing year were reported to be 1,509 mt dw. Under this rule, NMFS is also transferring 18.8 mt dw out of the reserve category to Canada. In 2003, 2,735.8 mt dw of the available quota was not harvested (4,263.6 - 1,509 - 18.8). In addition to the landings quota, ICCAT allocated to the United States a 2003 dead discard allowance of 60.0 mt dw, of which an estimated 278 mt dw were discarded. The 218 mt dw excess dead discards are required to be deducted from quota available to be harvested in the subsequent fishing year. Therefore, a net total of 2,517.8 mt dw (2,735.8 - 218) of unharvested swordfish quota may be carried over to 2004 from the 2003 fishing year.

For 2004, the fishing year base landings quota established by ICCAT is 2,937.6 mt dw, not adjusted for underharvests. NMFS is adjusting this quota based on underharvest from 2003, and the excess discards from 2002. Thus, the new adjusted quota for 2004 is 5,455.4 mt dw (2,937.6 + 2,517.8), of which 5,035.1 mt dw is for the directed category, 300 mt dw is for the incidental category, and 120.3 mt dw is for the reserve category. In addition, 18.8 mt dw of the reserve category quota will be transferred to Canada for the 2004 fishing year.

Beginning June 1, 2003, through May 31, 2005, the annual ICCAT established quota for the South Atlantic swordfish stock is 75.2 mt dw. Beginning June 1, 2006, the annual directed fishery quota for the South Atlantic swordfish stock is 90.2 mt dw. ICCAT recommended that the U.S. underharvest from 2000 be carried over to 2003. Underharvests from 2001 and 2002 were ineligible for carryover because individual country quota levels for those years were not agreed to by ICCAT, but established autonomously.

For 2000, the landings quota was set at 289 mt dw of which 93.8 mt dw were landed, leaving an underharvest of 195.2 mt dw. This underharvest is added to the base 2003 fishing year quota for an adjusted 2003 fishing year quota of 270.4 mt dw (75.2 + 195.2). In 2003, only 11.3 mt dw was harvested during the fishing year, leaving 259.1 mt dw available for carryover to the subsequent fishing year (270.4 - 11.3).

For 2004, the base fishing year landings quota established by ICCAT was 75.2 mt dw. NMFS is adjusting this base quota to account for the underharvest from 2003. Thus, the new adjusted quota for 2004 is 334.3 mt dw (75.2 + 259.1).

The final rule contains no significant changes from the proposed rule published on June 20, 2003 (68 FR 36967).

This final rule is published under the authority of the Magnuson-Stevens Act, 16 U.S.C. 1801 et seq. , and ATCA, 16 U.S.C. 971 et seq. The Assistant Administrator (AA) for Fisheries, NOAA, has determined that the regulations contained in this rule are necessary to implement the recommendations of ICCAT and to manage the domestic Atlantic highly migratory species fisheries.

NMFS prepared an Environmental Assessment (EA) for this final rule, and the AA has concluded that there would be no significant impact on the human environment. The EA presents analyses of the anticipated impacts of these final actions and the alternatives considered. A copy of the EA, and other analytical documents prepared for this rule, are available from NMFS (see ADDRESSES ).

This final rule has been determined to be not significant for purposes of Executive Order 12866.

Based on the management measures in several proposed rules, including the proposed rule for these regulations, a new Biological Opinion (BiOp) on the Atlantic pelagic longline (PLL) fishery was issued on June 1, 2004. The 2004 BiOp found that the continued operation of the fishery was not likely to jeopardize the continued existence of loggerhead, green, hawksbill, Kemp's ridley, or olive ridley sea turtles, but was likely to jeopardize the continued existence of leatherback sea turtles. The 2004 BiOp identified Reasonable and Prudent Alternatives (RPAs) necessary to avoid jeopardizing leatherbacks, and listed the Reasonable and Prudent Measures (RPMs) and terms and conditions necessary to authorize continued take as part of the revised incidental take statement. On July 6, 2004, NMFS published a final rule (69 FR 40734) implementing additional sea turtle bycatch and bycatch mortality mitigation measures for all Atlantic vessels with PLL gear onboard. NMFS is implementing the other RPMs in compliance with the BiOp. On August 12, 2004, NMFS published an Advance Notice of Proposed Rulemaking (69 FR 49858) to request comments on potential regulatory changes to further reduce bycatch and bycatch mortality of sea turtles, as well as comments on the feasibility of framework mechanisms to address unanticipated increases in sea turtle interactions and mortalities, should they occur. NMFS will undertake additional rulemaking and non-regulatory actions, as required, to implement any management measures that are required under the 2004 BiOp. The majority of the measures that will be implemented by this current rule are not expected to have adverse impacts. The annual swordfish quota is being increased to 3,877 mt ww from 2,951 mt ww which, if effort increases, could potentially increase the number of protected species interactions. However, since 2000, U.S. fishermen have not caught either the North or South Atlantic swordfish quotas. For example, in 2003, there was a 1,348.6 mt dw underharvest of North Atlantic swordfish and a 195.2 mt dw underharvest of South Atlantic swordfish. Based on existing regulations, including time/area closures, minimum size, and permit restrictions, NMFS feels it is unlikely that there will be an increase in effort in the fishery. Thus, interactions with sea turtles should remain stable. Accordingly, no irreversible or irretrievable commitments of resources are expected from this action as the measures to be implemented by this final rule are not expected to adversely affect endangered species.

In examining the potential impact of these regulations, NMFS has determined that the only measure that could adversely affect stocks of protected species is the increase in the base North Atlantic swordfish quota from 2,951 mt ww to 3,877 mt ww and then to 3,907 mt ww in the upcoming fishing years. The increase in available quota could trigger an increase in fishing effort which could then increase the incidental catch of protected species. However, an increase in the incidental take of protected species by the PLL fleet due to an increase in effort is unlikely. For the past several years, the level of effort in the PLL fishery has been steadily declining and a number of restrictions such as limited access and time/area closures have been placed on the PLL fleet. This declining effort has led to underharvests of 1,025.4 mt dw in the 2001 fishing year (68 FR 14167 March 24, 2003, correction 68 FR 16216, April 3, 2003), 1,475 mt dw in 2002, and 2,517.8 mt dw in 2003 (the latter two estimates include dead discard overharvests from 2002 and 2003).

In addition, NMFS has implemented regulations requiring PLL vessels to use only 18/0 hooks with whole mackerel and/or squid in the Northeast Distant (NED) Statistical Reporting Area, and 16/0 hooks and/or 18/0 hooks everywhere outside the NED using whole finfish or squid, and to possess and use sea turtle release equipment with specified sea turtle handling and release protocols. Handling and release guidelines are also required to be posted in the wheelhouse. Because this final rule does not relieve any of these restrictions, the level of effort in the fleet is unlikely to increase despite the change in quota level. Thus, the current level of incidental takes of protected species will remain at current levels or will decrease.

NMFS determined that this rule will be implemented in a manner that is consistent to the maximum extent practicable with the enforceable policies of the approved coastal zone management programs of coastal states in the Atlantic, Gulf of Mexico, and Caribbean. All of the states that replied to the letter regarding compliance of the proposed rule with the Coastal Zone Management Act found NMFS' proposed actions to be consistent with their coastal zone management programs. NMFS presumes that the states that did not respond also concur.

At the proposed rule stage, NMFS conducted an Initial Regulatory Flexibility Analysis (IRFA) as required by the Regulatory Flexibility Act (RFA). NMFS received no comments regarding the potential economic impact of the proposed rule or on the IRFA. In preparing this final rule, NMFS has conducted a final EA and a final regulatory impact review that examines the impacts of the selected alternatives, discussed previously in this rulemaking. These analyses indicate that this rule would have negligible economic impacts on small entities. Therefore, in compliance with the RFA, the Chief Counsel for Regulation of the Department of Commerce has certified to the Chief Counsel for Advocacy of the Small Business Administration that this final rule will not have a significant economic impact on a substantial number of small entities. The factual basis for this certification is stated below.

As required by ATCA, this rule implements the recommendations of the 2002 meeting of the International Commission for the Conservation of Atlantic Tunas (ICCAT) regarding swordfish. The final rule adjusts the quota for North and South Atlantic swordfish, establishes the 2003 dead discard allowance, transfers 25 mt ww of North Atlantic swordfish quota to Canada, and allows up to 200 mt ww of swordfish caught in the area between 5 degrees North and 5 degrees South to be applied to the North Atlantic swordfish quota. These actions are necessary to ensure continued progress toward the conservation goals of ICCAT, the Magnuson-Stevens Act, ATCA, and the FMP for all tunas, swordfish, and sharks.

There are currently 397 commercial permit holders of which fewer than 200 have reported swordfish landings; most commercial permit holders use pelagic longline gear. There are also approximately 20,000 permit holders who could land swordfish recreationally (i.e., not for profit). Other sectors of highly migratory species fisheries such as dealers, processors, bait houses, and gear manufacturers might be affected by the final regulations, however, the final rule does not apply directly to them.

The overall result of the final rule would be to increase the 2004 North Atlantic swordfish quota by approximately 2,500 mt dw and the 2004 South Atlantic swordfish quota by 259.1 mt dw. These increases could potentially result in revenue increases, however, U.S. fishermen have not met either the North or South Atlantic swordfish quotas since 2000. For example, in 2003, there was a 1,348.6 mt dw underharvest of North Atlantic swordfish and a 195.2 mt dw underharvest of South Atlantic swordfish. The net impact of the of the final actions results in a quota level that is greater than current catches. Thus, NMFS does not believe that the net benefits and costs will change significantly as a result of the implementation of the selected alternatives compared to the baseline of no action.

Criteria used to evaluate potential impacts include analysis of gross revenues in recent years from pelagic longline logbook data. In future fishing years, the present value of gross and net revenues for the swordfish fishery at the ex-vessel level could be increased, but that would depend on the extent to which fishermen can expand their effort to catch the quota. For example, increasing the North Atlantic swordfish quotas could increase ex-vessel grows revenues by $4.9 million if the entire quota is caught. Currently, based on existing regulations, including time/area closures, minimum size, and permit restrictions, NMFS feels it is unlikely that there will be an increase in effort in the fishery. Thus, the economic impacts of the rule should be negligible. If effort is increased, U.S. fishermen would likely experience positive benefits as a result of this final rule. As a result, a FRFA was not prepared.

Regulations implemented under the authority of the ATCA (16 U.S.C. 971 et seq. ) and the Magnuson-Stevens Act (16 U.S.C. 1801 et seq. ) governing the harvest of BFT by persons and vessels subject to U.S. jurisdiction are found at 50 CFR part 635. Section 635.27 subdivides the U.S. BFT quota recommended by ICCAT among the various domestic fishing categories, and together with General category effort controls are specified annually under 50 CFR 635.23(a) and 635.27(a). The proposed initial 2004 BFT Quota and General category effort controls will be published in the Federal Register in the near future.

Based on anticipated quotas and concern over potential overharvest, the most recent General category and Angling category BFT landing estimates, previous fishing years landing estimates, availability of BFT on the fishing grounds, physical oceanographic conditions, and social and economic aspects of these two fishing categories, NMFS has determined that a closure in both the General and Angling quota categories is warranted at this time. Therefore, fishing for, retaining, possessing, or landing BFT by persons aboard vessels permitted in the Atlantic tunas General, HMS Angling, and HMS Charter/Headboat categories, must cease at 11:30 p.m. local time November 19, 2004, in all areas. The intent of these closures is to ensure that the overall U.S. BFT harvest is consistent with ICCAT recommendations.

When more precise quota and landings estimates are available these fisheries may be reopened to provide Angling, General and Charter/Headboat category fishermen fishing opportunities off south Atlantic states during the December/January time frame when BFT are expected to be available as in recent prior years. NMFS will announce any re-openings and/or quota transfers in separate Federal Register notices. Atlantic tunas General, HMS Angling, and HMS Charter/Headboat category permit holders may tag and release BFT of all sizes while the General and Angling quota categories are closed, subject to the requirements of the tag-and-release program at § 635.26.

NMFS is required, under § 635.28(a)(1), to file with the Office of the Federal Register for publication, notification of closure when a BFT quota is reached, or is projected to be reached. On and after the effective date and time of such closure notification, for the remainder of the fishing year, or for a specified period as indicated in the notification, fishing for, retaining, possessing, or landing BFT under that quota category is prohibited until the opening of the subsequent quota period, or until such date as specified in the notification.

The Assistant Administrator for Fisheries, NOAA (AA), finds that it is impracticable and contrary to the public interest to provide prior notice of, and an opportunity for public comment on, this action. Based on anticipated BFT quotas, recent landings reports, availability of BFT on the fishing grounds, and current fishing effort, these closures are necessary to ensure sufficient quota remains available to ensure overall 2004 fishing year landings are consistent with ICCAT recommendations and the HMS FMP. NMFS provides notification of closures by publishing the closure notice in the Federal Register , faxing notification to individuals on the HMS FAX Network and know fishery representatives, announcing the notice on the Atlantic Tunas Information Lines, and posting the closure notice on the internet at http://www.nmfspermits.com .

These fisheries are currently underway and delaying this action would be contrary to the public interest as it could result in excessive BFT landings that would preclude planned recreational and commercial fishing opportunities off south Atlantic states later in the season. To provide sufficient quota for this late season fishery and to remain within ICCAT recommended quotas, NMFS must close these fisheries before additional landings accumulate. Therefore, the AA finds good cause under 5 U.S.C. 553(b)(B) to waive prior notice and the opportunity for public comment. For all of the above reasons, there is good cause under 5 U.S.C. 553(d) to waive the delay in effectiveness of this action.

This action is being taken under 50 CFR 635.23(a)(4) and is exempt from review under Executive Order 12866.

The groundfish fisheries in the exclusive economic zone (EEZ) of the GOA are managed under the FMP. The FMP was prepared by the North Pacific Fishery Management Council (Council) under the authority of the Magnuson-Stevens Act, 16 U.S.C. 1801, et seq. Regulations governing U.S. fisheries and implementing the FMP appear at 50 CFR parts 600 and 679.

One of the species groups managed under the FMP is DSR, an assemblage of seven rockfish species: Canary rockfish ( Sebastes pinniger ), China rockfish ( S. nebulosus ), copper rockfish ( S. caurinus ), quillback rockfish ( S. maliger ), rosethorn rockfish ( S. helvomaculatus ), tiger rockfish ( S. nigrocinctus ), and yelloweye rockfish ( S. ruberrimus ).

The State of Alaska (State) manages all fisheries occurring within State waters, i.e., within three nautical miles of Alaska's coastline. The FMP defers to the State some management responsibility for the DSR fishery in the SEO, subject to Council and Federal oversight. The State management regime must be consistent with the goals of the FMP. Commercial harvests of DSR are managed within the total allowable catch (TAC) specified annually by NMFS in consultation with the Council. NMFS published the DSR TAC for 2004 in the Federal Register on February 27, 2004 (69 FR 9261).

Existing State regulations for DSR establish fishing seasons (5 AAC 28.111(a)) and gear restrictions (5 AAC 28.130), set harvest guidelines for directed DSR fishing based on the TAC (5 AAC 28.160), and limit the amount of DSR that can be retained as bait (5 AAC 28.190). Also, the State has a full retention requirement for DSR caught in State waters (5 AAC 28.171). The Council and NMFS establish the annual TAC for DSR (see 50 CFR 679.20), regulate the catch of prohibited species in the DSR directed fishery (see 50 CFR 679.21), set recordkeeping and reporting requirements (see 50 CFR 679.5), and impose a maximum retention requirement for DSR caught incidentally in Federal fisheries (see 50 CFR 679.20(d)-(e); Table 10 to part 679).

The existing management background and explanation of the need for this action were described in the preamble to the proposed rule published in the Federal Register on January 21, 2004 (69 FR 2875). The Council and NMFS have designed this action to achieve the following four objectives:

1. Improve data collection on the incidental catch of DSR in the halibut and groundfish hook-and-line fisheries in the SEO to more accurately estimate DSR fishing mortality, improve DSR stock assessments, and evaluate whether current maximum retainable amounts (MRAs) are the appropriate levels for DSR in the SEO;

2. Minimize waste to the extent practicable;

3. Avoid increasing incentives either to target DSR or to discard DSR that is caught in excess of the amount that can legally be sold for profit; and

4. Maintain a consistent approach within State and Federal regulations that govern the retention and disposition of DSR.

The preamble to the proposed rule (January 21, 2004, 69 FR 2875) contains additional explanation as to how this action will achieve these objectives.

This rule has two main provisions that are added as paragraph (j) to § 679.20. The first provision addresses retention and landing requirements. The operator of a federally-permitted catcher vessel using hook-and-line or jig gear is required to retain and land all DSR that is caught while fishing for groundfish or IFQ halibut in the SEO. Landed fish must be reported under Federal and State regulations.

The second provision addresses disposal of retained amounts of DSR. Under this rule, a fisherman is limited to selling an amount of retained DSR that is no more than 10 percent of the aggregate round weight equivalent of IFQ halibut and groundfish, other than IFQ sablefish, that he or she retained onboard the vessel. For IFQ sablefish, a fisherman is limited to selling an amount of retained DSR that is no more than 1 percent of the aggregate round weight equivalent of IFQ sablefish he or she retained onboard the vessel. Fishermen could use amounts of retained DSR in excess of these sale limits for other purposes, including personal consumption or donation, but amounts of DSR in excess of the sale limits are prohibited from entering commerce through sale, barter, or trade.

Additionally, the MRA table for the GOA groundfish fisheries (Table 10 to 50 CFR part 679) is amended to remove the DSR MRA for catcher vessels in the SEO. A footnote is added to the DSR entry cross referencing the requirements specified in § 679.20(j).

NMFS solicited public comments on the proposed rule (January 21, 2004, 69 FR 2875) through February 20, 2004. One letter containing six separate comments was received during this comment period. The comments are summarized and responded to below.

Comment 1: NMFS is overemphasizing the collection of fisheries information and neglecting the value of marine sanctuaries to re-establish fish populations. No marine sanctuaries have been created which should be an immediate first priority.

Response: The primary purpose of this regulatory amendment is not to re-establish DSR populations, but to improve information on the incidental catch of these rockfish species while not increasing incentives to either target or discard them. NMFS has no data that indicate DSR is overfished or that overfishing is occurring, hence, no need is apparent to re-establish DSR populations. In addition, areas of the GOA have been closed to fishing for conservation purposes, such as the Sitka Pinnacles Marine Reserve. This and other closed areas are specified in the groundfish regulations at § 679.22(b). The January 2004 draft environmental impact statement (EIS) for essential fish habitat discusses the effects of fishing on sensitive habitat features and evaluates a range of options for minimizing adverse effects, such as closing areas of rockfish habitat to bottom trawling. Further information on the draft EIS may be found at the NMFS Alaska Region website at www.fakr.noaa.gov .

Comment 2: Days at sea should be cut by 50 percent this year, and cut by 10 percent each year thereafter. It is time to prevent overfishing that is obviously going on.

Response: NMFS has identified no overfished stocks in the SEO District, or in the GOA as a whole, and has seen no evidence of overfishing of groundfish in this area. A reduction in days at sea is a management tool that has been used in other areas of the United States. In Alaska, however, NMFS has found that strict adherence to managing harvests at or below TAC levels makes the use of such a management tool unnecessary.

Comment 3: The use of hook-and-line gear to target Pacific halibut should be prohibited. Enforcement is practically non-existent. When fishermen are found in violation of the halibut fishery regulations, their fishing privileges should be permanently revoked.

Response: As part of an international agreement between the U.S. and Canada, hook-and-line gear is the only gear type authorized for use in the commercial harvest of halibut. Prohibiting its use would, in effect, close the commercial fishery for halibut. Enforcement of the halibut fishing regulations is conducted by NMFS Office of Enforcement and the U.S. Coast Guard, and compliance with these regulations is considered acceptable. The Office of Enforcement examines each violation of the fisheries regulations on a case by case basis. Penalties for violations can range from a written warning to the revocation of fishing privileges, forfeiture of fishing vessels, fines, and imprisonment.

Comment 4: NMFS, to the detriment of the American public, is too slow to react to problems. NMFS has taken no action to address issues raised since 1996 and nothing has been done about overfishing issues and anti-environmental actions.

Response: The groundfish fisheries in the GOA and off Alaska generally are among the best managed and most sustainable fisheries in the world. None of the groundfish stocks off Alaska are overfished or experiencing rates of harvest that are causing overfishing. Working closely with the Council since 1996, NMFS has implemented more than 25 amendments to the FMP which have led to improvements in the conservation and management of the GOA groundfish fisheries. In considering any FMP or regulatory change, the Council and NMFS carefully consider a broad range of alternatives to address biological, environmental, and economic concerns. Preparation of these analyses and receiving public comment on them may take a period of months or years, but this is done to assure that fishery management programs are well justified and in compliance with all applicable law.

Comment 5: Fishery quotas should be cut by 50 percent this year and by 10 percent each year thereafter. Too many vessels are allowed to fish; government agencies act as if fisheries resources are infinite, when they are not.

Response: Fishery quotas or TACs are based upon the best scientific information available which is reviewed annually by the Council, its committees and NMFS. The Council often sets TACs at levels below the Acceptable Biological Catch (ABC) levels in response to social, economic, and environmental concerns. The establishment of TACs on an annual basis is implicit recognition that fisheries resources are not infinite. Additionally, the Council has recommended and NMFS has implemented several programs to reduce the number of vessels participating in the groundfish fisheries of Alaska, including the groundfish and crab License Limitation Program, the pollock fishing co-operatives under the American Fisheries Act, and the IFQ program for the halibut and sablefish fisheries. Development of management programs to rationalize fisheries or provide market-based incentives to reduce excessive fishing capital currently is underway in the Bering Sea crab fisheries and the GOA groundfish fisheries.

Comment 6: Once DSR are caught, they should be consumed. Markets could be found. The best ways to save fish stocks are to reduce quotas and to reduce fishing vessel days at sea. Fishermen found in violation of fishery regulations should have their vessels confiscated and fishing privileges permanently revoked.

Response: This final rule will require an operator of a federally permitted catcher vessel using hook-and-line or jig gear in the SEO to retain and land all DSR caught while fishing for groundfish or for Pacific halibut under the IFQ program in the SEO. Amounts of DSR species landed that are in excess of the maximum amount that may be sold may not enter commerce, but may be retained for personal consumption or donation to charity. Responses to concerns about conservation of fish stocks are given in the responses to comments 2 and 5. See the response to comment 3 regarding fisheries enforcement.

No substantive changes are made in this final rule from the proposed rule. The headings of paragraphs at § 679.20(j)(2)(i), (j)(2)(ii), and (j)(2)(iii) are removed, however, to simplify the regulatory text.

To reflect the changes made by Amendment 63 to the FMP, Table 10 in the final rule is changed from Table 10 in the proposed rule. Amendment 63 separated skates from the “other species” category to the target species category to allow for management of skates as a separate target species. The final rule for Amendment 63 was published May 12, 2004 (69 FR 26313). Because the proposed rule for DSR retention (January 21, 2004, 69 FR 2875) was published before the final rule for Amendment 63, the proposed rule for DSR did not include the changes to Table 10 that became effective with the final rule for Amendment 63. To ensure this final rule for DSR reflects changes made to Table 10 by the final rule for Amendment 63, Table 10 in the DSR final rule is changed from the DSR proposed rule to include the separation of skates from the “other species” category.

A typographical error in Table 10 is also corrected by this final rule. A “na9” is added to the cell at the intersection of the sablefish column and row. This addition shows that the incidental catch of sablefish in the sablefish directed fishery is not applicable.

This final rule has been determined to be not significant for purposes of Executive Order 12866.

NMFS prepared a FRFA which incorporates the IRFA and a summary of the analyses completed to support the action. Copies of these analyses are available from NMFS (see ADDRESSES ). The FRFA did not reveal any Federal rules that duplicate, overlap, or conflict with the action. The following summarizes the FRFA.

A description of the need for and objectives of this action is contained in the preamble to the proposed rule published in the Federal Register on January 21, 2004 (69 FR 2875), and in the preamble of this final rule.

No comments were received specifically on the IRFA. Several comments were received on the proposed rule that were largely irrelevant to the action, and none focused on the potential economic impacts of the action.

The directly regulated entities are those vessels taking DSR as incidental catch in halibut and groundfish fisheries in Federal waters of the SEO district and the processors buying the DSR from them. NMFS estimates that 423 vessels participated in these fisheries in 2000. Most of these vessels were less than 60 feet (18.3 m) in length, fishing with hook-and-line gear and jig gear. Average gross revenues for these vessels from the Alaskan halibut and groundfish fisheries were about $262,000. Average gross revenues from all fisheries for these entities are undoubtedly higher, because these vessels participate in other fisheries in Alaska. In the years from 1996 to 2001, between 17 and 26 plants bought groundfish in Southeast Alaska. In 2000, the average gross revenues for these plants were about $12 million. NMFS estimates that these fishing and processing operations were all “small entities” within the meaning of the Regulatory Flexibility Act.

This rule will impose no new recordkeeping requirements on regulated entities. NMFS has not been able to identify any relevant Federal rules that may duplicate, overlap, or conflict with the preferred alternative.

The FRFA evaluated four alternatives: (1) the status quo, (2) full retention allowing all retained DSR to enter the stream of commerce, (3) full retention prohibiting certain amounts of DSR from entering the stream of commerce, and (4) use of an observer program. Alternative 3 is the preferred alternative. Alternative 1 imposes no adverse impacts on small entities, but fails to advance the action objectives of providing new information on DSR, reducing DSR wastage, and maintaining consistency between State and Federal regulations. Alternative 2 may be less costly than Alternative 3 in that fishermen could allow processors to sell the excess DSR and relinquish the proceeds to the State. However, regulation of the disposition of the proceeds from the sale of DSR under Alternative 2 appears to exceed the authority granted to NMFS under the Magnuson-Stevens Act. Alternative 3, the preferred alternative, is discussed in detail in the preamble to the proposed rule and summarized in this final rule. Under Alternative 4, fishermen face additional costs for observer coverage, including travel and logistical expenses for observers, and an additional cost of about $330/day for 30 percent of days at sea. This alternative would provide new information on the status of DSR stocks, but would not reduce DSR waste or reduce the inconsistency between State and Federal regulations. Using observers for the DSR incidental catch fishery might become more feasible in the future in the context of a comprehensive restructuring of the observer program that would include funding for the observers so that the entire cost did not fall on fishermen.

The Council considered but rejected several other alternatives because they did not appear to be effective solutions to the stated goals. Those mentioned in the EA include: (1) open the directed DSR fishery during halibut IFQ seasons and require full retention, (2) defer all management of DSR to the State, and (3) implement an IFQ fishery for DSR. The EA also discussed the option of an exempted fishing permit (EFP) conducted in order to obtain bycatch data. However, although such a program might allow more flexibility in design, it would depend on voluntary participation, and would therefore not enable the State to obtain a full census.