[Federal Register Volume 70, Number 38 (Monday, February 28, 2005)]
[Proposed Rules]
[Pages 9546-9548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-3775]


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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4279

RIN 0570-AA34


Business and Industry Guaranteed Loan Program Annual Renewal Fee

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Business-Cooperative Service (RBS) proposes to amend 
its regulation for Business and Industry (B&I) Guaranteed Loans to 
remove all references to a one-time, specific loan guarantee fee and 
provide the authority for the charging of an annual renewal fee on all 
loans obligated after the publication of the final rule. The intended 
effect of this rule is to reduce the subsidy rate for guaranteed loans 
and its associated budget authority dollar level, which will result in 
a greater level of assistance to the public (i.e., higher supportable 
loan level). A notice will be published in the Federal Register each 
fiscal year that will establish the guarantee fee and any annual 
renewal fees for loans obligated during that fiscal year.

DATES: Written or e-mail comments must be received on or before April 
29, 2005 to be assured of consideration.

ADDRESSES: Submit written comments via U.S. Postal Service, in 
duplicate, to the Regulations and Paperwork Management Branch, 
Attention: Cheryl Thompson, Rural Development, U.S. Department of 
Agriculture, STOP 0742, 1400 Independence Avenue, SW., Washington, DC 
20250-0742. Submit written comments via Federal Express Mail, in 
duplicate, to the Regulations and Paperwork Management Branch, 
Attention: Cheryl Thompson, USDA-Rural Development, 7th Floor, 300 7th 
St., SW., Washington, DC 20546. Also, comments may be submitted via the 
Internet by addressing them to [email protected]. The comment must 
contain the word Fee in the subject line. All comments will be 
available for

[[Page 9547]]

public inspection during regular work hours at the 300 7th St., SW., 
address listed above.

FOR FURTHER INFORMATION CONTACT: Rick Bonnet, Special Projects/Programs 
Oversight Division, Rural Business-Cooperative Service, U.S. Department 
of Agriculture, STOP 3221, 1400 Independence Avenue, SW., Washington, 
DC 20250-3221, telephone (202) 720-1804, or by e-mail to 
[email protected].

SUPPLEMENTARY INFORMATION:

Classification

    This proposed rule has been determined to be significant and has 
been reviewed by the Office of Management and Budget (OMB) under 
Executive Order 12866.

Programs Affected

    The Catalog of Federal Domestic Assistance number for the program 
impacted by this action is 10.768, Business and Industry Loans.

Intergovernmental Review

    Business and Industry Guaranteed Loans are subject to the 
provisions of Executive Order 12372, which require intergovernmental 
consultation with state and local officials. RBS will conduct 
intergovernmental consultation in the manner delineated in RD 
Instruction 1940-J, ``Intergovernmental Review of Rural Development 
Programs and Activities'' and 7 CFR part 3015, subpart V.

Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. In accordance with this rule, (1) all state and 
local laws and regulations that are in conflict with this rule will be 
preempted, (2) no retroactive effect will be given this rule, and (3) 
administrative proceedings of the National Appeals Division (7 CFR part 
11) must be exhausted before bringing suit in court challenging action 
taken under this rule.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' RBS has determined that this 
action does not constitute a major Federal action significantly 
affecting the quality of the human environment, and, in accordance with 
the National Environmental Policy Act of 1969, 42 U.S.C. 4321 et seq., 
an Environmental Impact Statement is not required.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the Agency 
will seek OMB approval of the reporting requirements contained in this 
regulation. These reporting and recordkeeping requirements have been 
previously approved under OMB control number 0570-0017. The estimate of 
burden is as follows:
    Estimate of Burden: Burden per response is 30 minutes.
    Respondents: Lenders and business owners.
    Estimated Number of Respondents: 1,725.
    Estimated Number of Responses per Respondent: 1.
    Estimated Number of Responses: 1,725.
    Estimated Total Annual Burden of Respondents: 863 hours.
    Comments: Comments are invited on (a) whether the proposed 
collection of information is necessary for the proper performance of 
the functions of RBS, including whether the information will have a 
practical utility; (b) the accuracy of RBS's estimate of the burden of 
the proposed collection of information, including the validity of the 
methodology and assumptions used; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (d) ways 
to minimize the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology. Comments may be sent to Cheryl 
Thompson, Regulations and Paperwork Management Branch, Rural 
Development, U.S. Department of Agriculture, STOP 0742, 1400 
Independence Avenue, SW., Washington, DC 20250-0742. All responses to 
this rule will be summarized and included in the request for OMB 
approval. All comments will also become a matter of public record.

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. L 
104-4 establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, RBS 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, or tribal governments, in 
the aggregate, or to the private sector of $100 million or more in any 
one year. When such a statement is needed for a rule, section 205 of 
UMRA generally requires RBS to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective, or least burdensome alternative that achieves the 
objectives of the rule. This rule contains no Federal mandates (under 
the regulatory provisions of Title II of the UMRA) for State, local, 
and tribal governments or the private sector. Thus, this rule is not 
subject to the requirements of sections 202 and 205 of the UMRA.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act, RBS has 
determined that this action would not have a significant economic 
impact on a substantial number of small entities, because the action 
will not affect a significant number of small entities, as defined by 
the Regulatory Flexibility Act (5 U.S.C. 601). RBS made this 
determination based on the fact that this regulation only impacts those 
who choose to participate in the program. Small entity applicants will 
not be impacted to a greater extent than large entity applicants.

Executive Order 13132

    It has been determined that, under Executive Order 13132, 
Federalism, this rule does not have sufficient federalism implications 
to warrant the preparation of a Federalism Assessment. The provisions 
contained in this rule will not have a substantial direct effect on 
states or their political subdivisions or on the distribution of power 
and responsibilities among the various levels of government.

Executive Order 13175

    Executive Order 13175, Consultation and Coordination with Indian 
Tribal Governments, imposes requirements on USDA in the development of 
regulatory policies that have tribal implications or preempt tribal 
law. USDA has determined that the proposed regulation does not have a 
substantial direct effect on one or more Indian tribes or on either the 
relationship or the distribution of powers and responsibilities between 
the Federal Government and the Indian Tribes. Thus, the proposed rule 
is not subject to the requirements of Executive Order 13175.

Discussion of the Proposed Rule

    The cost of the B&I Guaranteed Loan Program has gone up in recent 
years. This is due to higher defaults and lower interest rates. In the 
meantime, there is still an interest in funding this program

[[Page 9548]]

in order to improve, develop, or finance business, industry, and 
employment and improve the economic and environmental climate in rural 
communities. To do that in a cost efficient manner for the taxpayer, 
RBS is proposing to implement an annual renewal fee. This will reduce 
the subsidy but will allow us to maintain the level of assistance that 
has been historically provided for this program at a level or even 
reduced cost to the taxpayers.
    The proposed annual renewal fee is based on Small Business 
Administration (SBA) programs and is adopted for this program to 
provide additional funds to supplement the available funds appropriate 
to the program, thereby allowing the program to reach more potential 
applicants. Additionally, this type of fee is consistent with the 
recently authorized Renewable Energy Systems and Energy Efficiency 
Improvements Guaranteed Loan Program within RBS. The borrower pool for 
the B&I Guaranteed Loan is even more likely to be able to afford this 
type of fee than the other programs mentioned because they are not 
required to lack the ability to get credit elsewhere.
    The SBA 7(a) Loan Guarantee Program and the B&I program are similar 
in that they both require an initial one-time fee; and 7(a) loans have 
an annual fee similar to the one being proposed for the B&I program. In 
fiscal year 1996, SBA made major changes in its 7(a) program by 
lowering the maximum percentage of the loan which could be guaranteed 
and increasing both the initial fee and the annual fee, which made the 
program more expensive and less valuable for borrowers and lenders. We 
examined changes in loan volume and loss levels associated with these 
changes, and found no convincing evidence that the FY96 changes 
decreased demand for the 7(a) program.
    Subsidy rates are established using historic loss data from the 
program and other assumptions. In recent years the subsidy rate has 
increased significantly, resulting in a reduction in the amount of 
loans that could be guaranteed with the same budget authority. In the 
absence of additional budgetary authority, the proposed annual fee is 
necessary to cover expected losses from the program. The effect of the 
fee on the loan demand and program activity over the long term will 
depend on the size of the fee and other factors not related to the fee, 
including interest rates and general economic growth. This proposed 
change is prudent and cost efficient and will allow us to maintain the 
level of assistance going to rural America at a reasonable cost to the 
taxpayer.

List of Subjects in 7 CFR Part 4279

    Loan programs-- Business and industry--Rural development 
assistance, Rural areas.

    Therefore, chapter XLII, title 7, Code of Federal Regulations, is 
proposed to be amended as follows:

PART 4279--GUARANTEED LOANMAKING

    1. The authority citation for part 4279 is revised to read as 
follows:

    Authority: 5 U.S.C 301, 7 U.S.C 1989.

Subpart B--Business and Industry Loans

    2. Section 4279.107 is revised to read as follows:


Sec.  4279.107  Guarantee fee.

    (a) For all new loans there are two types of non-refundable 
guarantee fees to be paid by the borrower to the lender and forwarded 
to the Agency. The fees may be forwarded to the Agency by a check 
payable to USDA/Rural Development, using Agency Form ``Annual Renewal 
Fee Transmittal'' or an USDA-approved electronic funds transfer system. 
The fee rate will be published annually by a notice in the Federal 
Register.
    (1) The initial fee is paid at the time the Loan Note Guarantee is 
issued. The fee may be included as an eligible loan purpose in the 
guaranteed loan. The fee will be the rate (a specified percentage) 
multiplied by the principal loan amount, multiplied by the percent of 
guarantee.
    (2) The annual renewal fee is paid once a year and is required to 
maintain the enforceability of the guarantee as to the lender.
    (i) The annual renewal fee is the rate established by Rural 
Development in the annual notice in the Federal Register, multiplied by 
the outstanding principal loan amount, as of December 31 of each year. 
The rate of the fee is the rate in effect at the time of original 
issuance of the Conditional Commitment for the loan and will remain in 
effect for the life of the loan.
    (ii) Annual renewal fees are due on March 1. Payments not received 
by April 1 are delinquent and will result in cancellation of the 
guarantee to the lender. Holders' rights will continue in effect as 
specified in the Loan Note Guarantee. For loans where the Loan Note 
Guarantee is issued between October 1 and December 31, the first annual 
guarantee fee payment is due March 1 of the second year following the 
date the Loan Note Guarantee was issued.
    (b) Subject to specified annual limits set by the Agency, the 
initial guarantee fee may be reduced to 1 percent if the borrower's 
business supports value-added agriculture and results in farmers 
benefiting financially, or
    (1) Is a high impact business development investment in accordance 
with Sec.  4279.155(b)(5), and
    (2) Is located in a rural community that is:
    (i) Experiencing long-term population decline and job 
deterioration, or
    (ii) Has remained persistently poor over the last 60 years, or
    (iii) Experiencing trauma as a result of natural disaster, or
    (iv) That is experiencing fundamental structural changes in its 
economic base.

    Dated: February 16, 2005.
Gilbert Gonzalez,
Acting Under Secretary, Rural Development.
[FR Doc. 05-3775 Filed 2-25-05; 8:45 am]
BILLING CODE 3410-XY-P