[Federal Register Volume 72, Number 102 (Tuesday, May 29, 2007)]
[Rules and Regulations]
[Pages 29738-29741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-10176]



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Part III





 Department of Housing and Urban Development





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24 CFR Part 1000



Self-Insurance Plans Under the Indian Housing Block Grant Program; 
Final Rule

  Federal Register / Vol. 72, No. 102 / Tuesday, May 29, 2007 / Rules 
and Regulations  

[[Page 29738]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 1000

[Docket No. FR-4897-F-02]
RIN 2577-AC58


Self-Insurance Plans Under the Indian Housing Block Grant Program

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Final rule.

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SUMMARY: This final rule establishes standards for recipients under the 
Indian Housing Block Grant (IHBG) program to purchase insurance through 
nonprofit insurance entities owned and controlled by Indian tribes and 
tribally designated housing entities (TDHEs). This rule follows 
publication of a March 7, 2006, proposed rule, and takes into account 
the public comments received on the proposed rule. This final rule 
provides additional clarifications in the preamble and adopts, with one 
change, the regulations in the March 7, 2006, proposed rule.

DATES: Effective Date: June 28, 2007.

FOR FURTHER INFORMATION CONTACT: Rodger J. Boyd, Deputy Assistant 
Secretary for Native American Programs, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Room 4126, Washington, DC 20410-
5000; telephone (202) 401-7914 (this is not a toll-free number). 
Hearing- and speech-impaired persons may access this number through TTY 
by calling the Federal Information Relay Service at (800) 877-8339 
(this is a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    The Native American Housing Assistance and Self-Determination Act 
of 1996 (NAHASDA) (25 U.S.C. 4101 et seq.) provides, pursuant to 
Congress' constitutional authority over Indian affairs, a comprehensive 
program of housing assistance to Indian tribes and their tribally 
designated housing entities. NAHASDA eliminated several separate 
assistance programs for Indian tribes and replaced them with a single 
block grant program, known as the Indian Housing Block Grant (IHBG) 
program. The regulations for the IHBG program are codified at 24 CFR 
part 1000.
    Section 203(c) of NAHASDA requires recipients of IHBG program 
assistance to ``maintain adequate insurance coverage for housing units 
that are owned and operated or assisted with grant amounts provided 
under this Act.'' (See 25 U.S.C. 4133(c).) Section 102 of NAHASDA 
requires each Indian Housing Plan (IHP) to include a certification that 
``the recipient will maintain adequate insurance coverage for housing 
units that are owned and operated with grant amounts provided under 
this Act, in compliance with such requirements as may be established by 
the Secretary.''
    Current regulatory requirements for housing insurance in the Native 
American housing program are found at 24 CFR 1000.38, 1000.136, and 
1000.138. Section 1000.38 delineates when flood insurance is necessary. 
Section 1000.136(a) requires the funding recipient under the program to 
provide casualty insurance against fire, weather, and liability claims 
for all housing units owned or operated by the recipient. Section 
1000.136(b) allows for cases where the recipient does not have to 
provide insurance. These exceptions apply to non-repayable grants to 
families for housing under the following conditions: there is no risk 
of loss or substantial financial exposure to the recipient, or the 
amount of the assistance is less than $5,000. Section 1000.136(c) 
requires the funding recipient to require that contractors and 
subcontractors have adequate insurance or indemnification coverage to 
cover their activities. Section 1000.136(d) clarifies that the 
insurance requirements of that section are in addition to the flood 
insurance requirements of Sec.  1000.38.
    Section 1000.138 defines what is considered ``adequate insurance.'' 
Insurance must be purchased from an insurance provider or plan of self-
insurance ``in an amount that will protect the financial stability of 
the recipient's IHBG program.'' Insurance may be purchased from 
nonprofit entities without regard to competitive selection if the 
entities are owned and controlled by the recipients under the program 
and have been approved by HUD.

II. The March 7, 2006, Proposed Rule

    On March 7, 2006, HUD published a proposed rule (71 FR 11464) to 
establish specific standards under which IHBG assisted housing units 
may be insured by nonprofit Indian housing risk pools. Historically, 
commercial insurers have been unwilling to provide insurance for Indian 
housing at an affordable rate so HUD encouraged the National American 
Indian Housing Council (NAIHC) to form a risk pool composed solely of 
Indian housing authorities to provide the legally required insurance 
coverage. Current regulations in 24 CFR part 1000 generally address 
required insurance, but do not set specific standards under which IHBG-
assisted housing units may be insured by nonprofit Indian housing risk 
pools. The proposed rule was intended to ensure that the statutory 
requirement of NAHASDA regarding the maintenance of adequate insurance 
is met in a cost-effective manner by regulating the provision of 
insurance for IHBG-assisted properties. A detailed description of the 
proposed rule can be found at 71 FR 11464-11468.

III. This Final Rule

    This final rule follows publication of the March 7, 2006, proposed 
rule and takes into account the six public comments received. After 
careful consideration of the public comments, HUD is making one change 
to Sec.  1000.139(g) concerning the scope of preemption of this rule. 
In the proposed rule, Sec.  1000.139(g) stated, in relevant part, ``The 
[self-insurance] plan shall not be bound by or subject to any state or 
local law that imposed conflicting or additional requirements * * * '' 
At this final rule stage, HUD is amending Sec.  1000.139(g) to more 
closely reflect the scope of preemption discussed in the preamble of 
the proposed rule. In the preamble to the proposed rule, HUD stated 
that its intention in establishing this regulation governing self-
insurance plans is to provide a limited preemption necessary to ensure 
that insurance services for federally assisted housing on tribal lands 
are provided as required by federal law. (See 71 FR 11465.)
    HUD believes that revising paragraph (g) in Sec.  1000.139 to 
preempt conflicting state laws that impose widely varying and costly 
requirements on tribally owned housing entities that provide insurance 
for IHBG-assisted housing best reflects the limited preemption 
contemplated by HUD by this rule. The preemptive effect of this rule 
applies to matters covered in Sec.  1000.139, including, for example, 
the existence, operation, and organization of the self-insurance plan; 
however, this rule is not intended to apply to external matters such 
as, for example, laws governing liability, tort actions, and 
jurisdictional issues.
    As described in further detail in section IV, the issues raised by 
the commenters primarily requested clarifications in the preamble to 
the proposed rule and did not seek the changes to the proposed 
regulatory text. Although the regulatory provisions, with the exception 
as discussed above, are not revised at this final rule stage, HUD is 
providing additional explanation in this preamble to the final rule 
about two matters raised by the commenters.

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    First, this final rule applies to insurance under section 203(c) of 
NAHASDA and 24 CFR 1000.136 and 1000.138, which, among other things, 
require insurance in adequate amounts to indemnify the recipient 
against loss from liability claims. Second, HUD affirms that the phrase 
``tribal lands,'' which was used in the preamble to the proposed rule, 
is ambiguous and should refer to insurance for ``IHBG-assisted 
housing,'' as utilized in the regulation at Sec.  1000.139(g).

IV. Discussion of Public Comments on the March 7, 2006, Proposed Rule

    The public comment period on the proposed rule closed on May 8, 
2006. HUD received six public comments. Comments were received from a 
tribally owned nonprofit Indian housing risk pool, an Indian housing 
authority, a national Indian housing organization, an Indian tribe, an 
inter-tribal council, and a state insurance division.
    In general, all of the commenters expressed general support for the 
proposed rule but requested that HUD make changes to the preamble and, 
in one case, to the rule. The summary of comments that follows presents 
the major issues and questions raised by the public commenters on the 
March 7, 2006, proposed rule.
    Comment: HUD should explain in the preamble to the final rule that 
the regulation applies to liability insurance. Two commenters explained 
that historically, it was nearly impossible for Indian tribes to secure 
liability insurance at reasonable rates, but there was no similar 
difficulty with respect to securing property insurance. Three other 
commenters stated that the proposed rule preamble reference to property 
insurance but not to liability insurance suggested that the preemption 
covers only property insurance.
    HUD Response. HUD agrees with the commenters that the rule's 
applicability to liability insurance should be clear. This rule applies 
to insurance coverage required by section 203(c) of NAHASDA and 24 CFR 
1000.136 and 1000.138. The provisions in Sec.  1000.136 require 
insurance in adequate amounts to indemnify the recipient against loss 
from liability claims.
    Comment: The preamble to the final rule should clarify the scope of 
the limited preemption to ``Indian areas,'' as defined by NAHASDA. 
These commenters suggested that, for purposes of clarity, the rule 
should track the statutory language of NAHASDA and refer to ``Indian 
areas'' rather than ``tribal lands'' when describing the scope of the 
preemption provision.
    HUD Response. HUD agrees with the commenters that the phrase 
``tribal lands'' in the preamble to the proposed rule could be 
ambiguous. Therefore, HUD clarifies that the preemption permitted by 
this final rule is solely for the provision of insurance for ``IHBG-
assisted housing,'' as described in 24 CFR 1000.139(g).
    Comment: HUD should clarify that the scope of the preemption is 
limited to insurance plans providing the coverage required by NAHASDA. 
One commenter objected to any preemption of state insurance law, given 
the statutory grant of jurisdiction provided to the states under the 
McCarran-Ferguson Act (15 U.S.C. 1012-1015). Further, the commenter was 
concerned that the scope of the preemption might be misinterpreted 
broadly, contrary to HUD's stated intent. The commenter suggested that 
the rule be revised to require that self-insurance plans provide 
coverage only for the type of insurance required under Sec.  1000.136.
    HUD Response. One of the purposes of the rule is to clarify that 
limited federal preemption is intended. HUD does not agree that it is 
necessary to amend the rule because the scope of the preemption is 
limited to the types of coverage required in section 203(c) of NAHASDA 
and 24 CFR 1000.136 and 1000.138. HUD does not agree that the McCarran-
Ferguson Act is applicable. The Supreme Court ruled that the McCarran-
Ferguson Act was intended to limit congressional preemption power only 
under the interstate commerce power, such that the anti-preemption rule 
does not apply when Congress acts under another grant of authority (see 
American Ins. Assoc. v. Garamendi, 539 U.S. 396 (2003), which held that 
McCarran-Ferguson does not temper Congress' authority to act under its 
power over foreign affairs). The IHBG program is authorized by NAHASDA, 
which was promulgated under Congress' plenary authority over the field 
of Indian affairs and trust responsibility based on the Indian commerce 
clause, not the interstate commerce clause (see sections 2(2)-(5) of 
NAHASDA, 25 U.S.C. 4101(2)-(5)).
    Comment: In the final rule, HUD should revise the preamble to state 
that the rule does not establish any indemnification or other third-
party rights against a nonprofit insurance entity. One commenter stated 
that this change is necessary to maintain consistency with 24 CFR 
1000.136(a), which requires NAHASDA block grant recipients to provide 
``insurance in adequate amounts to indemnify the recipient against 
loss.''
    HUD Response. The purpose of this rule is to create the regulatory 
framework for the Indian housing self-insurance program. Accordingly, 
Sec.  1000.139(a) specifies the type and amount of insurance that is 
required under the IHBG program. The commenter is asking HUD to opine 
not on what type or amount of insurance is required, but on the rights 
of beneficiaries and nonprofit insurance entities. These types of 
matters are outside the scope of this rulemaking. Accordingly, HUD has 
not revised the rule in response to the comment.

V. Federalism Summary Impact Statement

    In accordance with Executive Order 13132 (Federalism), and the 
Department's own policy on federalism, the Department, by letter dated 
December 16, 2004, notified the attorneys general of each of the 50 
states of its intention to promulgate regulations that would govern the 
insurance of tribal housing under the IHBG program. Because insurance 
is regulated by state law, HUD recognized the necessity to consult and 
solicit the views of state governments on this issue. NAHASDA requires 
tribes and TDHEs to maintain adequate insurance for housing owned and 
operated using funds that the government provides under NAHASDA. Indian 
tribes may meet this statutory requirement through tribally owned and 
operated insurance entities. There is currently one such self-insurance 
entity, although, once the rule is promulgated, Indian tribes could 
establish additional ones.
    The Department's December 16, 2004, letter described the current 
regulatory environment and stated the reason for promulgating the rule. 
While NAHASDA requires IHBG program recipients to maintain adequate 
insurance, HUD investigation, including feedback from IHBG program 
recipients, has determined that in many areas, adequate insurance for 
federally assisted Indian housing is either unavailable from private 
insurance companies or prohibitively expensive. The Department believes 
that the final rule will effectively address this issue by providing 
regulations under which IHBG program recipients can establish new self-
insurance entities, and under which the sole existing IHBG self-
insurance risk pool, AMERIND, can operate. Because state insurance laws 
could potentially conflict with the regulation intended to be 
established by this rulemaking and, thereby, defeat the important 
federal purpose underlying this rulemaking by subjecting tribal housing 
self-insurance entities to widely

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varying and costly requirements, the Department determined it was 
necessary to preempt state law in the area of housing insurance for 
IHBG-assisted housing. The preemptive effect of this rule is limited to 
this one area. HUD requested views and comments from the state 
attorneys general by January 31, 2005. A number of states responded 
with requests for further clarifications, which HUD provided. Other 
states asked for copies of the rule or provided a contact point for 
further information.
    On January 27, 2005, a trade association wrote to HUD on behalf of 
its members seeking an extension of time until February 15, 2005, for 
the association and its members to provide any additional comments they 
might have. HUD agreed to this extension. HUD did not receive further 
correspondence from the association or its members.
    HUD believes that regulatory preemption is appropriate in this 
case, given the limited nature of the preemption, the fact that the 
limited preemption is necessary to ensure that insurance services for 
IHBG-assisted housing are provided as required by federal law, and the 
limited number of self-insurance entities involved.

VI. Tribal Consultation

    HUD's policy is to consult with Indian tribes early in the 
rulemaking process on matters that have tribal implications. 
Accordingly, on April 12, 2005, HUD sent letters to all eligible 
funding recipients under NAHASDA and their TDHEs informing them of the 
nature of the forthcoming rule and soliciting comments. The deadline 
for comments under this informal consultation was June 3, 2005. The 
Department received five responses to the April 12, 2005, consultation 
letter. HUD considered their comments on the proposed changes in the 
preparation of the March 7, 2006, proposed rule for publication. In the 
proposed rule, HUD attempted to address all the issues raised by the 
tribes. In addition, the proposed rule provided Indian tribes with an 
additional opportunity to comment on the proposed regulatory changes.

VII. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this final 
rule have been approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) and assigned OMB control number 2577-0218. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information, unless the collection displays a currently 
valid OMB control number.

Environmental Impact

    This rule does not direct, provide for assistance or loan or 
mortgage insurance for, or otherwise govern or regulate, real property 
acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise, or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this rule 
is categorically excluded from environmental review under the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1531-
1538) establishes requirements for federal agencies to assess the 
effects of their regulatory actions on state, local, and tribal 
governments and on the private sector. This rule does not impose a 
federal mandate on any state, local, or tribal government, or on the 
private sector, within the meaning of UMRA.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This rule governs only the provision of insurance for IHBG-assisted 
housing by entities wholly owned and controlled by IHBG recipients. 
Because there is only one such entity currently in existence, the 
number of entities affected is not substantial. Therefore, the 
undersigned certifies that this rule will not have a significant 
economic impact on a substantial number of small entities, and an 
initial regulatory flexibility analysis is not required.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. HUD has determined that the 
policies contained in this rule have federalism implications and are 
subject to review under the order. Specifically, the rule provides for 
preemption of state regulation of tribal housing self-insurance 
entities in their coverage of federally assisted housing. HUD's 
federalism summary impact statement, as required by section 6(b)(2)(B) 
of the Executive Order, and which discusses this matter in more detail, 
is presented in Section V of this preamble.

Regulatory Planning and Review

    OMB reviewed this rule under Executive Order 12866 (entitled 
``Regulatory Planning and Review''). OMB determined that this rule is a 
``significant regulatory action,'' as defined in section 3(f) of the 
order (although not an economically significant regulatory action under 
the order). The docket file is available for public inspection in the 
Regulations Division, Office of General Counsel, 451 Seventh Street, 
SW., Room 10276, Washington, DC 20410-0500. Due to security measures at 
the HUD Headquarters building, please schedule an appointment to review 
the public comments by calling the Regulations Division at (202) 708-
3055 (this is not a toll-free number).

Catalog of Federal Domestic Assistance: The Catalog of Federal 
Domestic Assistance number is 14.867.

List of Subjects in 24 CFR Part 1000

    Aged, Grant programs--housing and community development, Grant 
programs--Indians, Individuals with disabilities, Low- and moderate-
income housing, Public housing, Reporting and recordkeeping 
requirements.

0
Accordingly, for the reasons stated in the preamble, HUD amends 24 CFR 
part 1000 to read as follows:

PART 1000-NATIVE AMERICAN HOUSING ACTIVITIES

0
1. The authority citation for 24 CFR part 1000 continues to read as 
follows:

    Authority: 25 U.S.C. 4101 et seq.; 42 U.S.C. 3535(d).

Subpart B--Affordable Housing Activities

0
2. Add Sec.  1000.139, to read as follows:


Sec.  1000.139  What are the standards for insurance entities owned and 
controlled by recipients?

    (a) General. A recipient may provide insurance coverage required by 
section 203(c) of NAHASDA and Sec. Sec.  1000.136 and 1000.138 through 
a self-insurance plan, approved by HUD in accordance

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with this section, provided by a nonprofit insurance entity that is 
wholly owned and controlled by IHBG recipients.
    (b) Self-insurance plan. An Indian housing self-insurance plan must 
be shown to meet the requirements of paragraph (c) of this section.
    (c) Application. For a self-insurance plan to be approved by HUD, 
an application and supporting materials must be submitted containing 
the information specified in paragraphs (c)(1) through (c)(9) of this 
section. Any material changes made to these documents after initial 
approval must be submitted to HUD. Adverse material changes may cause 
HUD to revoke its approval of a self-insurance entity. The application 
submitted to HUD must show that:
    (1) The plan is organized as an insurance entity, tribal self-
insurance plan, tribal risk retention group, or Indian housing self-
insurance risk pool;
    (2) The plan limits participation to IHBG recipients;
    (3) The plan operates on a nonprofit basis;
    (4)(i) The plan employs or contracts with a third party to provide 
competent underwriting and management staff;
    (A) The underwriting staff must be composed of insurance 
professionals with an average of at least five years of experience in 
large risk commercial underwriting exceeding $100,000 in annual 
premiums or at least five years of experience in underwriting risks for 
public entity plans of self-insurance;
    (B) The management staff must have at least one senior manager who 
has a minimum of five years of insurance experience at the level of 
vice president of a property or casualty insurance entity; as a senior 
branch manager of a branch office with annual property or casualty 
premiums exceeding five million dollars; or as a senior manager of a 
public entity self-insurance risk pool;
    (ii) Satisfaction of this requirement may be demonstrated by 
evidence such as r[eacute]sum[eacute]s and employment history of the 
underwriting staff for the plan and of the key management staff with 
day-to-day operational oversight of the plan;
    (5) The plan maintains internal controls and cost containment 
measures, as shown by the annual budget;
    (6) The plan maintains sound investments consistent with its 
articles of incorporation, charter, bylaws, risk pool agreement, or 
other applicable organizational document or agreement concerning 
investments;
    (7) The plan maintains adequate surplus and reserves, as determined 
by HUD, for undischarged liabilities of all types, as shown by a 
current audited financial statement and an actuarial review conducted 
in accordance with paragraph (e) of this section;
    (8) The plan has proper organizational documentation, as shown by 
copies of the articles of incorporation, charter, bylaws, subscription 
agreement, business plan, contracts with third-party administrators, 
and other organizational documents; and
    (9) A plan's first successful application for approval under this 
section must also include an opinion from the plan's legal counsel that 
the plan is properly chartered, incorporated, or otherwise formed under 
applicable law.
    (d) HUD consideration of plan. HUD will consider an application for 
approval of a self-insurance plan submitted under this section and 
approve or disapprove that application no later than 90 days from the 
date of receipt of a complete application. If an application is 
disapproved, HUD shall notify the applicant of the reasons for 
disapproval and may offer technical assistance to a recipient to help 
the recipient correct the deficiencies in the application. The 
recipient may then resubmit the application under this section.
    (e) Annual reporting. An approved plan must undergo an audit and 
actuarial review annually. In addition, an evaluation of the plan's 
management must be performed by an insurance professional every three 
years. These audits, actuarial reviews, and management reviews must be 
submitted to HUD within 90 days after the end of the insuring entity's 
fiscal year and be prepared in accordance with the following standards:
    (1) The annual financial statement must be prepared in accordance 
with generally accepted accounting principles (GAAP) and audited by an 
independent auditor in accordance with generally accepted government 
auditing standards. The independent auditor shall state in writing an 
opinion on whether the plan's financial statement is presented fairly, 
in accordance with GAAP;
    (2) The actuarial review of the plan shall be done consistently 
with requirements established by the Association of Governmental Risk 
Pools and conducted by an independent property or casualty actuary who 
is a member of a recognized professional actuarial organization, such 
as the American Academy of Actuaries. The report issued and submitted 
to HUD must include the actuary's written opinion on any over- or 
under-reserving and the adequacy of the reserve maintained for open 
claims and for incurred but unreported claims;
    (3) The management review must be prepared by an independent 
insurance consultant who has received the professional designation of a 
chartered property/casualty underwriter (CPCU), associate in risk 
management (ARM), or associate in claims (AIC), and must cover the 
following:
    (i) The efficiency of the management or third-party administrator 
of the plan;
    (ii) Timeliness of the claim payments and reserving practices; and
    (iii) The adequacy of reinsurance or excess insurance coverage.
    (f) Revocation of approval. HUD may revoke its approval of a plan 
under this section when the plan no longer meets the requirements of 
this section. The plan's management will be notified in writing of the 
proposed revocation of its approval and of the manner and time in which 
to request a hearing to challenge the determination, in accordance with 
the dispute resolution procedures set forth in this part for model 
housing activities (Sec.  1000.118).
    (g) Preemption. In order that tribally owned Indian housing 
insurance entities that provide insurance for IHBG-assisted housing 
will not be subject to conflicting state laws and widely varying and 
costly requirements, any self-insurance plan under this section that 
meets the requirements of this section and that has been approved by 
HUD shall be governed by the regulations of this subpart in its 
provision of insurance for IHBG-assisted housing.

    Dated: May 18, 2007.
Orlando J. Cabrera,
Assistant Secretary for Public and Indian Housing.
 [FR Doc. E7-10176 Filed 5-25-07; 8:45 am]
BILLING CODE 4210-67-P