[Federal Register Volume 70, Number 96 (Thursday, May 19, 2005)]
[Rules and Regulations]
[Pages 28786-28791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-10003]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1776

RIN 0572-AC00


Household Water Well System Grant Program

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS) issues regulations to 
establish the Household Water Well System (HWWS) Program. This action 
establishes a grant program as authorized by Section 306E of the 
Consolidated Farm and Rural Development Act (CONACT). The HWWS Program 
will provide grants to private non-profit organizations, which, in 
turn, will use the funds to set up a loan program, making loans to 
eligible individuals for household water well systems. Eligible 
individuals may use the loans to construct, refurbish, and service 
individual household water well systems that they own or will own in 
rural areas. Additionally, the rule outlines the process by which 
applicants can apply for the program and describes how RUS will 
administer the grant program.

DATES: This rule will become effective June 20, 2005.

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

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be not significant under 
Executive Order 12866, Regulatory Planning and Review. Therefore, it 
has not been reviewed by the Office of Management and Budget (OMB).

Executive Order 12372

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

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. RUS has determined that this rule meets the applicable 
standards provided in section 3 of the Executive Order. In accordance 
with the Executive Order and the 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 to the rule; and (3) administrative 
appeal procedures, if any, must be exhausted before litigation against 
the Department or its agencies may be initiated in accordance with 
section 212(e) of the Department of Agriculture Reorganization Act of 
1994 (7 U.S.C. 6912).

Regulatory Flexibility Act Certification

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

Information Collection and Recordkeeping Requirements

    The information collection and recordkeeping requirements contained 
in this rule have been cleared under OMB control number 0572-0139 in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 
35).

National Environmental Policy Act Certification

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

Catalog of Federal Domestic Assistance

    The program described by this rule is listed in the Catalog of 
Federal Domestic Assistance Programs under number 10.862. This catalog 
is available electronically through the free CFDA website on the 
Internet at http://www.cfda.gov. The print edition may be purchased by 
calling the Superintendent of Documents at 202-512-1800 or toll free at 
866-512-1800, or ordering it online at http://bookstore.gpo.gov.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory

[[Page 28787]]

provision of Title II of the Unfunded Mandates Reform Act of 1995) for 
State, local, and tribal governments or the private sector. Thus, this 
rule is not subject to the requirements of section 202 and 205 of the 
Unfunded Mandates Reform Act of 1995.

Executive Order 13132, Federalism

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

Background

    On May 13, 2002, the Farm Security and Rural Investment Act of 2002 
(Farm Bill) was signed into law as Public Law 107-171. Section 6012 of 
the Farm Bill amended the CONACT by adding a grant program of which the 
proceeds would be used to establish a lending program. Under the 
Household Water Well System Program, the Secretary may make grants to 
private non-profit organizations to establish a revolving loan program. 
Loans may be made to eligible individuals to construct, refurbish, and 
service individual household water well systems that they own or will 
own in rural areas. The loans will be serviced through the USDA 
Centralized Servicing Center to enhance standardized servicing and 
minimize related servicing fees.
    The CONACT defines an ``eligible individual'' to mean ``an 
individual who is a member of a household the members of which have a 
combined income (for the most recent 12-month period for which the 
information is available) that is not more than 100 percent of the 
median nonmetropolitan household income for the State or territory in 
which the individual resides, according to the most recent decennial 
census of the United States.''
    This program is authorized to be appropriated $10,000,000 for each 
of the fiscal years (FY) 2003 through 2007. There was no funding 
appropriated in FY 2003, but $1,000,000 was appropriated in each fiscal 
year 2004 and 2005. The appropriations were authorized by the 
Consolidated Appropriations Act, 2004, Public Law 108-199 (Jan. 23, 
2004; 118 Stat.3); and the Consolidated Appropriations Act, 2005, 
Public Law 108-447 (Dec. 8, 2004, 118 Stat. 2809).
    To reduce duplicative promulgation of specific rules regarding 
grants and loans hereunder, RUS has referenced existing USDA rules to 
the extent practicable, including references to specific regulations 
and standard forms.
    RUS published a notice of inquiry, requesting comments on the grant 
program, in the Federal Register on February 10, 2004 (69 FR 6251). It 
published regulations for the HWWS Program in a direct final rule on 
October 6, 2004 (69 FR 59764). The direct final rule would have been 
effective on November 22, 2004. However, since RUS received written 
adverse comments by November 5, 2004, the rule was withdrawn. RUS 
published a notice of withdrawal in the Federal Register on November 
17, 2004 (69 FR 67263). Based on the parallel proposed rule also 
published on October 6, 2004 (69 FR 59836), RUS stated that it would 
publish this final rule and address the adverse comments made. RUS will 
not institute a second comment period on this action.
    The adverse comments primarily challenged the program's matching or 
cost sharing requirements and the agency's position to not permit in-
kind contributions to count towards satisfying the requirements. The 
following paragraphs briefly summarize and respond to the comments 
received.
    Comment: Either eliminate the requirement that grant applicants 
must provide matching funds in order to be considered eligible for 
consideration or modify the requirement.
    Response: A matching requirement is in the best interests of the 
HWWS program. It is an essential support mechanism in establishing the 
loan program. A cash match combined with the HWWS grant will make more 
funds available to start up the revolving loan fund so that a greater 
number of rural residents may benefit from the program. RUS has lowered 
the minimum eligibility percentage from 26 percent to 10 percent of the 
total project costs. Any applicant that does not offer at least a 10 
percent match will be ineligible for the HWWS Program.
    Comment: Eliminate the 26 percent match requirement for eligibility 
and establish a new scale to award priority points for matching funds 
as one criterion to consider in selecting grant recipients.
    Response: The minimum level of matching funds for which an 
applicant receives priority points has been revised downward to 10 
percent. Compared to the minimum matching levels of other Rural 
Development programs which range from 5 to 20 percent, the level is 
reasonable. The smaller percentage will allow small non-profits to 
compete with large national non-profit organizations. The priority 
points will be awarded as follows:

----------------------------------------------------------------------------------------------------------------
                     Revised regulation                                      Withdrawn regulation
----------------------------------------------------------------------------------------------------------------
                  Percentages                      Points                  Percentages                  Points
----------------------------------------------------------------------------------------------------------------
0-9...........................................        (\1\)  0-24..................................        (\1\)
10-25.........................................            5  26-30.................................            5
26-30.........................................           10  31-50.................................           10
31-50.........................................           15  51 or more............................           20
51 or more....................................          20
----------------------------------------------------------------------------------------------------------------
\1\Ineligible.

    Comment: Permit in-kind contributions to qualify as matching funds 
and broadly define them.
    Response: The RUS water and waste programs that use in-kind 
contributions to supplement federal funds are technical assistance 
programs that do not have a revolving loan fund component to them. The 
thrust of the HWWS Program is to provide low interest loans to the 
greatest number of eligible individuals possible, using a grant 
recipient as an intermediary for the loans. The most effective way to 
realize that goal is to have a revolving loan fund that is capitalized 
with as much money as possible. Consequently, RUS is requiring a 
matching cash contribution, which may include funds contributed by 
grant recipients, funds donated from third parties, or other federal 
grant funds specifically authorized by law to be used to match funds. 
In-kind contributions will not be considered in satisfying the HWWS 
Program's matching requirement. This policy is in line with other Rural

[[Page 28788]]

Development programs that feature a re-lending program but do not allow 
in-kind contributions as a matching requirement.
    Comment: Allow the grant recipient discretion in the use of 
matching funds. The requirement that each loan recipient's project be 
made up of HWWS grant funds and matching funds should be changed. HWWS 
grant funds and any matching funds should go into the revolving loan 
fund and that fund should be used to issue loans and to pay for 
administrative costs related to the HWWS purpose, without distinction 
as to whether those payments are from HWWS grant or matching funds.
    Response: The grant recipient has discretion in using matching 
funds the same as federal funds as long as they are for authorized 
grant purposes. Authorized grant purposes include establishing a loan 
program for household water well systems, making loans to eligible well 
owners, and paying for administrative expenses related to operating the 
loan program. The expenses must be allowable costs in accordance with 
federal cost principles. There is no requirement that an individual 
loan recipient's project be made up entirely of HWWS grant funds and 
matching funds.
    Grant funds and matching funds must be placed into the revolving 
loan fund. The recipient may transfer additional assets into the fund 
where they would become part of the fund and be available for 
authorized grant purposes. Loans may be made and the administrative 
expenses may be paid from the revolving loan fund as authorized grant 
purposes. As long as any part of the HWWS grant remains available for 
lending and loans made from the revolving loan fund have an outstanding 
balance, the grant recipient must use funds in the revolving loan fund 
for authorized grant purposes.
    Comment: Maintain the character of purpose of the revolved funds.
    Response: The HWWS regulation places enough controls on the 
revolved funds so that they are not subject to non-programmatic uses. 
First, section 1776.17(g) states that the revolved funds are a part of 
the revolving loan fund. Second, under section 1776.17(h), the revolved 
funds would be used for authorized purposes before any grant funds that 
might be in the revolving loan fund would be used. Third, section 
1776.17(k), requires that cash in the revolving fund from any source 
must be available for additional loans if the cash is not required for 
debt service, approved administrative costs, or reasonable reserves. 
Since the revolved funds would be repayments of loans and the loans 
would have a balance, any funds in the revolving loan fund must be used 
for programmatic purposes in accordance with the opening paragraph of 
section 1776.17.
    Comment: Delay application process until the final rule is revised 
to reflect the above comments, and start a new application process 
based on the revised rule.
    Response: Because the direct final rule was withdrawn, the deadline 
for the application process was extended until a final rule is 
published. A new deadline will be set at the time of publication.

List of Subjects in 7 CFR Part 1776

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

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

PART 1776--HOUSEHOLD WATER WELL SYSTEM GRANT PROGRAM

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

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

Subpart A--General


Sec.  1776.1  Purpose.

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


Sec.  1776.2  Uniform Federal Assistance Provisions.

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


Sec.  1776.3  Definitions.

    Administrative expenses means expenses incurred by a grant 
recipient that are of the type more particularly described in Section 
13 of this part.
    Applicant means a private, non-profit organization that applies for 
a HWWS grant under this part.
    Centralized Servicing Center (CSC) means the centralized loan 
servicing center within the United States Department of Agriculture, 
Rural Development. CSC provides nationwide services for borrowers that 
have received financing from Rural Development programs.
    Construction means building or assembling a water well system or 
portion thereof, that is not a water well system or portion thereof 
being constructed in connection with a new building.
    Eligible individual means an individual who is a member of a 
household the members of which have a combined income (for the most 
recent 12-month period for which the information is available) that is 
not more than 100 percent of the median nonmetropolitan household 
income for the State or territory in which the individual resides, 
according to the most recent decennial census of the United States.
    Grant agreement means the contract between RUS and the grant 
recipient which sets forth the terms and conditions governing a 
particular grant awarded under this part.
    Grant recipient means an applicant that has been awarded a HWWS 
grant under this part.
    HWWS means household water well system.
    HWWS grant means a grant awarded by RUS to a grant recipient under 
this part.

[[Page 28789]]

    HWWS loan means a loan made by a grant recipient to a loan 
recipient using the direct or indirect proceeds of a HWWS grant awarded 
under this part.
    Loan recipient means an eligible individual who has received a HWWS 
loan.
    Refurbishing means to renovate or to restore a water well system or 
portion thereof to near new condition.
    Revolved funds means the cash portion of the revolving loan fund 
that is not composed of HWWS grant funds, including repayments of 
revolving HWWS loans, fees, and interest collected on HWWS loans.
    Revolving loan fund means the loan fund established by the grant 
recipient to carry out the purposes of this part, such fund comprising 
the proceeds of a HWWS grant and other related assets.
    Rural area means any area other than a city or town that has a 
population of greater than 50,000 inhabitants; and the urbanized area 
contiguous and adjacent to such city or town.
    RUS means the Rural Utilities Service, a Federal agency delivering 
the United States Department of Agriculture's Rural Development 
Utilities Program.
    Servicing means making repairs or performing maintenance on a water 
well system or portion thereof.
    USDA means the United States Department of Agriculture.


Sec.  1776.4  [Reserved]

Subpart B--HWWS Grants


Sec.  1776.5  Eligibility to receive a HWWS grant.

    (a) The applicant must be a private organization.
    (b) The applicant must be organized as a non-profit organization.
    (c) The applicant must have legal capacity and lawful authority to 
perform the obligations of a grant recipient under this part. Example 
1: If the organization is incorporated as a non-profit corporation, it 
must have corporate authority under state law and its corporate charter 
to engage in the practice of making loans to individuals. Example 2: if 
the organization is an unincorporated association, state law may 
prevent the organization from entering into binding contracts, such as 
a grant agreement.
    (d) The applicant must have sufficient expertise and experience in 
lending and in promoting the safe and productive use of individually-
owned household water well systems and ground water to assure the 
likelihood that the objectives of this part can be achieved.


Sec.  1776.6  Notice of availability of funds.

    (a) In Fiscal Year 2005, applications will be accepted for this 
program from May 19, 2005, until July 18, 2005, at which time the 
application period will close. An applicant may withdraw, substitute, 
amend or supplement its application at any time before the application 
period closes. Once the application period has closed, all applications 
will be final.
    (b) For subsequent fiscal years, if any funds for this program are 
available, the Secretary will publish a notice to that effect. The 
notice will establish the period during which applications for such 
funds may be submitted for consideration.


Sec.  1776.7  HWWS Grant application process.

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


Sec.  1776.8  Methods for submitting applications.

    (a) Applications may be filed in either paper or electronic format. 
RUS will not accept applications by fax or e-mail.
    (b) Paper applications for HWWS grants may be delivered by the U.S. 
Postal Service (USPS) or courier delivery services. Applications 
submitted by mail or courier must be postmarked no later than the 
filing deadline to be considered for the grant period. Applications 
delivered by mail or courier must be addressed to the attention of the 
Assistant Administrator, Water and Environmental Programs as follows: 
ATTN: Assistant Administrator, WEP, Rural Utilities Service, Stop 1548 
Room 5145 South, 1400 Independence Ave. SW., Washington, DC 20250-1548.
    (c) Electronic applications may be filed through Grants.gov, the 
official Federal Government Web site at http://www.grants.gov. The 
applicant must be registered with Grants.gov before they can submit a 
grant applicant. The applicant should refer to instructions found on 
the Grants.gov Web site for procedures for registering and using this 
facility. An applicant who is not registered on Grants.gov should allow 
a sufficient number of business days to complete the process. 
Applications submitted electronically must be show an electronic date 
and time stamp on or before the filing deadline to be considered for 
the grant period.
    (d) The methods of submitting applications may be changed from time 
to reflect changes in addresses and electronic submission procedures. 
The applicant should refer to the most recent notice of funding 
availability for notice of any such changes. In the event of any 
discrepancy, the notice must be followed.


Sec.  1776.9  Scoring applications.

    (a) Applications that are incomplete or ineligible will be returned 
to the applicant, accompanied by a statement explaining why the 
application is being returned.
    (b) Promptly after an application period closes, all applications 
that are complete and eligible will be ranked competitively based on 
the following scoring criteria:
    (1) Degree of expertise and experience in promoting the safe and 
productive use of individually-owned household water well systems and 
ground water. Up to 30 points
    (2) Degree of expertise and successful experience in making and 
servicing loans to individuals. Up to 20 points
    (3) Percentage of applicant contributions. Points allowed under 
this paragraph will be based on written

[[Page 28790]]

evidence of the availability of funds from sources other than the 
proceeds of a HWWS grant to pay part of the cost of a loan recipient's 
project. In-kind contributions will not be considered. Funds from other 
sources as a percentage of the HWWS grant and points corresponding to 
such percentages are as follows:
    (i) 0 to 9 percent--ineligible;
    (ii) 10 to 25 percent--5 points;
    (iii) 26 to 30 percent--10 points;
    (iv) 31 to 50 percent--15 points; and
    (v) 51 percent or more--20 points
    (4) Extent to which the work plan demonstrates a well thought out, 
comprehensive approach to accomplishing the objectives of this part, 
clearly defines who will be served by the project, and appears likely 
to be sustainable. Up to 20 points
    (5) Extent to which the goals and objectives are clearly defined, 
tied to the work plan, and measurable. Up to 10 points
    (6) Lowest ratio of projected administrative expenses to loans 
advanced. 10 points
    (7) Administrator's discretion, considering such factors as 
creative outreach ideas for marketing HWWS loans to rural residents, 
the amount of funds requested in relation to the amount of needs 
demonstrated in the work plan, previous experiences demonstrating 
excellent utilization of a revolving loan fund grant, and optimizing 
the use of agency resources. Up to 10 points
    (c) All qualifying applications under this part will be scored 
based on the criteria contained in this section. Awards will be made 
based on the highest ranking applications and the amount of financial 
assistance available for HWWS grants. All applicants will be notified 
in writing of the score each application receives.


Sec.  1776.10  Grant agreement.

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


Sec.  1776.11  Revolving loan fund.

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


Sec.  1776.12  Use of HWWS grant proceeds.

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


Sec.  1776.13  Administrative expenses.

    (a) Subject to the limitations provided in paragraphs (b), (c) and 
(d) of this section, the grant recipient may use grant funds to pay 
administrative expenses associated with providing HWWS loans.
    (b) Administrative expenses incurred in any calendar year which 
exceed 10 percent of the HWWS loans made by the grant recipient during 
that same period do not qualify for reimbursement.
    (c) Administrative expenses incurred prior to the execution of the 
grant agreement by RUS do not qualify for reimbursement.
    (d) Allowability of administrative expense costs shall be 
determined in accordance with 7 CFR 3019.27.

Subpart C--HWWS Loans


Sec.  1776.14  Eligibility to receive a HWWS loan.

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


Sec.  1776.15  Terms of loans.

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


Sec.  1776.16  Loan servicing.

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


Sec.  1776.17  Revolving loan fund maintenance.

    As long as any part of the HWWS grant remains available for 
lending, and loans made from the revolving loan fund have an 
outstanding balance due, the grant recipient must maintain the 
revolving loan fund for the purposes set forth in Sec.  1776.13.
    (a) All HWWS grant funds received by a grant recipient must be 
deposited into the revolving loan fund.

[[Page 28791]]

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

    Dated: May 12, 2005.
Curtis M. Anderson,
Acting Administrator, Rural Utilities Service.
[FR Doc. 05-10003 Filed 5-18-05; 8:45 am]
BILLING CODE 3410-15-P