[Federal Register Volume 72, Number 103 (Wednesday, May 30, 2007)]
[Rules and Regulations]
[Pages 29841-29851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-2636]



[[Page 29841]]

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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1703

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4280

RIN 0570-AA19


Rural Economic Development Loan and Grant Programs

AGENCIES: Rural Business-Cooperative Service and Rural Utilities 
Service, USDA.

ACTION: Final rule.

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SUMMARY: This action modifies the regulations for the Rural Economic 
Development Loan and Grant Programs. This revised regulation is written 
in a format that is simpler in design and should improve ease of use by 
the public and program beneficiaries.

EFFECTIVE DATE: June 29, 2007.

FOR FURTHER INFORMATION CONTACT: Jody Raskind, Director, Specialty 
Lenders Division, Rural Business-Cooperative Service, U.S. Department 
of Agriculture, STOP 3225, 1400 Independence Ave., SW., Washington, DC 
20250-3225, Telephone (202) 720-1400.

SUPPLEMENTARY INFORMATION: 

Classification

    This final 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 
programs impacted by this action is 10.854, Rural Economic 
Development Loans and Grants.

Intergovernmental Review

    Rural Economic Development Loans and Grants are subject to the 
provisions of Executive Order 12372, which requires intergovernmental 
consultation with State and local officials. RBS has conducted 
intergovernmental consultation in the manner delineated in RD 
Instruction 1940-J, ``Intergovernmental Review of Farmers Home 
Administration Programs and Activities,'' and in 7 CFR part 3015, 
subpart V.

Civil Justice Reform

    This final 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 in accordance with the regulations of the 
Department of Agriculture National Appeals Division (7 CFR part 11) 
must be exhausted before bringing suit in court challenging action 
taken under this rule unless those regulations specifically allow 
bringing suit at an earlier time.

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. 4321-4374, an 
Environmental Impact Statement is not required.

Unfunded Mandates Reform Act

    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 
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 1 
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 UMRA.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
602), the Agency has determined that this action would not have a 
significant economic impact on a substantial number of small entities. 
This regulation only impacts those who choose to participate in the 
loan or grant program. Small entity applicants will not be impacted to 
a greater extent than large entity applicants.

Executive Order 13132

    It has been determined under Executive Order 13132, Federalism, 
that this rule does not have sufficient 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.

Paperwork Reduction Act

    The information collection and recordkeeping requirements contained 
in this regulation have been approved by the Office of Management and 
Budget (OMB) under the provisions of 44 U.S.C. chapter 35 and were 
assigned OMB control number 0570-0035, in accordance with the Paperwork 
Reduction Act of 1995. Under the Paperwork Reduction Act of 1995, no 
person is required to respond to a collection of information unless it 
displays a valid OMB control number. The revisions in this rulemaking, 
for 7 CFR part 4280, required an amendment to the burden package and 
this modification has been approved by OMB.

E-Government Act Compliance

    The Rural Business-Cooperative Service is committed to complying 
with the E-Government Act, to promote the use of the Internet and other 
information technologies to provide increased opportunities for citizen 
access to Government information and services, and for other purposes.

Background

    The proposed rule for the Rural Economic Development Loan and Grant 
(REDLG) programs was published on December 15, 1999, in the Federal 
Register, in Vol. 64, No. 240, pages 69937-69946, as 7 CFR part 4280. 
The proposed rule was originally structured in a format consisting of 
questions and answers. To provide for an easier understanding of these 
programs, inasmuch as it includes the participation of three distinct 
parties (the Federal Government, the intermediary, and the third-party 
ultimate recipient), this final rule has been restructured in the 
standardized format utilized by the Agency in its other regulations. 
Consequently, several section numbers and headings of the final rule 
have been modified due to the change in format.
    The existing regulations for the REDLG programs are found at 7 CFR 
part 1703, subpart B, and will be

[[Page 29842]]

removed from Part 1703 upon publication of this final rule.
    The REDLG programs were originally implemented in 1989 as part of 
the rural economic development program of the Rural Electrification 
Administration, predecessor to the Rural Utilities Service (RUS). As a 
result of the United States Department of Agriculture reorganization, 
responsibility for these programs was transferred to Business Programs 
under the Rural Business-Cooperative Service (RBS), which provides 
financing for rural areas. These programs are administered at the State 
level through the Department of Agriculture's Rural Development State 
Offices.
    Since its inception in 1989, these programs have had a substantial 
impact on economic development in rural areas. As of September 30, 
2005, the REDLG programs have provided $217.5 million in loans and 
$92.7 million in grants, leveraged over $2.5 billion, and directly 
created an estimated 35,000 new jobs for rural areas.
    Under these programs, loans or grants are provided to eligible 
electric and telecommunications utilities. The purpose of the programs 
is to encourage these utilities to promote rural economic development 
and job creation projects. The utility, previously referred to as the 
``RUS Borrower'' now referred to as the ``intermediary'' can receive 
loans to help finance projects such as business start-up costs, 
business expansion, community development, and business incubator 
projects. The intermediary must use program loan funds to make a pass-
through loan to an ultimate recipient such as a business. The 
intermediary is responsible for fully repaying its loan to the 
Government even if the ultimate recipient does not repay its loan.
    The intermediary must use program grant funds, along with its 
required contribution, to create a revolving loan fund that the 
intermediary utility will operate and administer. Loans to the ultimate 
recipient are made from the revolving loan fund for a variety of 
projects.

Comments and Responses on the Proposed Rule

    A total of 22 organizations responded within the official 30-day 
comment period. In addition to the comments solicited from the general 
public through the rulemaking process, RBS held a public meeting on 
August 2, 2000, to hear oral presentations on the proposed rule. Four 
public organizations made presentations. All comments, both written and 
oral, were considered and some revisions in the final rule are in 
response to those comments. Some of these revisions include 
clarifications to better explain the programs. The majority of the 
comments centered on the selection factors established in Sec.  
4280.42(b) for Agency use in evaluating and scoring the applications. 
Other comments pertained to the elimination of a previously eligible 
purpose and to supplemental funds use. The comments have been grouped 
into 8 categories and are discussed below based on the applicable 
section number of the final rule.
    Comment. Some comments indicated that intermediaries do not want 
their supplemental contribution applied to the same project as funded 
by the Agency grant, but wanted their contribution available to lend to 
a separate project.
    Response. The Agency is aware that intermediaries have experienced 
difficulty in full utilization of supplemental funds. RBS has 
considered these comments and has amended the final rule to give the 
intermediary the option to use its supplemental contribution for the 
same project the Agency is financing or to fund another eligible 
project. If the intermediary chooses to finance a separate eligible 
project, the matching funds must be used within 3 years from the date 
of the grant agreement or the grant will be terminated. Subsequent use 
of revolved funds will be managed in accordance with the Agency--
approved revolving loan fund plan and the interest rates on those loans 
will be at the discretion of the intermediary as shown in the plan, but 
not to exceed the prevailing prime rate.
    Comment. Some comments opposed the proposed exclusion of 
agricultural production as an eligible purpose. The commenting entities 
believe that agriculture is a vital business component of their state 
economy and providing for both value-added agriculture and priority 
markets for farmers is very important.
    Response. Historically, funding under the REDLG program has not 
been heavily applied for or utilized by agricultural production 
projects. The Agency has decided to allow agricultural production as an 
eligible purpose only where the project benefits farmer-owned 
cooperatives or a similar farmer-owned organization through which 
benefits are passed directly to the farmer members.
    Comment. Some comments stated that applications for advanced 
telecommunications or computer networks to facilitate medical, 
educational, or job training projects should not be eligible for 
priority points under two separate sections of the regulation, that is, 
Sec.  4280.42(b)(1)(iii) and 4280.43(d). The comments stated that this 
type of project should be a priority of the programs since one of the 
ways rural America can be more competitive is to have advanced 
telecommunications systems for health care, job training, and business 
use. They believe, however, that there are other infrastructure and 
business assistance needs that must also be met.
    Response. RBS agrees that advanced telecommunications and computer 
network projects should be a priority. To address this, RBS had 
initially added five points to those projects in addition to those 
added under Sec.  4280.42(b)(1)(iii). RBS now agrees that there are 
other program priorities that must be met and Advanced 
Telecommunications and computer network projects should not receive two 
sets of priority points. Accordingly, Sec.  4280.43(d) will be removed.
    Comment. Some comments stated that using a selection factor that 
measures job creation per $100,000 of project costs is too limiting. 
Another comment supported the existing regulation that awards points 
for job creation under a subjective factor.
    Response. RBS disagrees that a measure of jobs per $100,000 is too 
limiting. We agree that a broader approach to job creation is helpful. 
Therefore, we have maintained the selection factor of jobs per 
$100,000, but have expanded the definitions to include ``direct'', 
``indirect'', ``full-time'', ``part-time'', and ``seasonal'' jobs as 
well as a formula for determining full-time job equivalents. These 
definitions clarify formulaic requirements for correct calculation of 
program job creation statistics in accordance with Agency requirements. 
To calculate full-time equivalent jobs, two part-time jobs are counted 
as one full-time job or three seasonal jobs as one full-time job. If 
the total number of part-time and seasonal jobs adds up to a fraction, 
round up to the next whole number after combining same.
    Comment. Some comments supported the proposed elimination of the 
rural restrictions pointing out the positive regional aspects that 
projects in larger communities have over the rural economy. Other 
comments urged the Agency to retain these restrictions, pointing out 
that the Agency should give priority to very rural locations.
    Response. The Agency has revised its definition of rural to allow 
projects to be funded in areas with a population of 50,000 or less 
which is the statutory limit. However, the Agency will retain

[[Page 29843]]

its historical practice to allow priority points to projects in rural 
areas with a population of less than 2,500.
    Comment. The majority of comments opposed awarding points based on 
the award being an initial one for the intermediary or the county 
rather than focusing funding on the best possible projects.
    Response. RBS has taken into consideration the fact that the 
majority of intermediaries that are active participants in the REDLG 
project are concentrated in a few states and these intermediaries have 
received the highest number of REDLG awards. The intermediaries in 
these states have access to affiliated economic development 
organizations that assist the intermediaries in seeking prospective 
business clients, providing technical assistance in promoting rural 
development, and in packaging applications. Not all intermediaries 
throughout the country have such technical expertise available. This 
discourages their participation in the REDLG program. To ensure that 
the greatest number of intermediaries has access to the benefits of the 
program, RBS will award priority points if the application is a first-
time award for a new intermediary or if it is an award to an existing 
intermediary that will fund a project in a county not previously 
served.
    Comment. Some comments stated that the requirement for a financial 
plan that covers the term of the loan was excessive.
    Response. RBS has changed this section to require a 3-year 
financial plan from the ultimate recipient.
    Comment. One comment stated that the selection of awards should be 
based on points, regardless of the number of previous awards given to 
the intermediary in a fiscal year.
    Response. To ensure that the greatest numbers of intermediaries 
have access to the benefits of the programs, the Agency will retain the 
proposed provision that the Agency may limit an intermediary to one 
selected grant application and two selected loan applications in a 
fiscal year, depending upon availability of funds.

Other Clarifications to Final Rule

    Section 4280.2: the reference to ``loan'' was changed to ``REDG 
Zero-Interest Loan'' and ``REDL Zero-Interest Loan'' to better reflect 
that REDLG encompasses two separate and distinct programs; the 
definition for ``project'' was revised to add ``ultimate recipient 
activity'' for clarification purposes; the nomenclature ``RUS 
Borrower'' was eliminated replaced with ``intermediary.'' A definition 
was provided for ``intermediary'' to meet the requirements of the 
programs. The definition indicates that RUS remains the final 
determinant of an intermediary's eligibility for participation in the 
programs; a definition of ``rural area'' was added; and the definition 
for an ``ultimate recipient'' was revised to list all eligible 
entities.
    Sections 4280.3 and 4280.15(a), are revised to clarify the 
definition of ``start-up venture costs.''
    Section 4280.15(g), clarifies that zero-interest loans are 
allowable for REDG projects in accordance with Sec.  4280.21.
    Section 4280.17, clarifies that payments on zero-interest loans are 
due in monthly installments; and provides guidance regarding 
disposition of partial loan payments made by ultimate recipients.
    Sections 4280.19 and 4280.50, state that administration and 
termination of grants will be subject, where applicable, to 7 CFR parts 
3015 and 3019.
    Section 4280.21, a reference to Federally-recognized Indian tribes 
was inserted to clarify the definition of eligible ultimate recipients 
in connection with Sec.  4280.3.
    Section 4280.23:, clarifies the intended use of the Intermediary's 
contribution to the revolving loan fund and the reasons that will 
result in termination of the fund.
    Provisions previously stated under Section 4280.24 have been 
combined with Section 4280.23 to maintain consistency in subject 
matter. The nomenclature ``Non-Federal Funds'' has been changed to 
``Revolved Funds'' for clarification of the true nature of the funding. 
Section 4280.24 now clarifies ``Revolved Funds.''
    Section 4280.27, clarifies that program funds cannot be used to 
refinance existing indebtedness of the ultimate recipient project; and 
cites those instances where program funds may be eligible for 
agricultural production purposes.
    Section 4280.29, reflects that either the intermediary or the 
ultimate recipient may provide the 20 percent supplemental financing 
required for the Ultimate Recipient Project.
    Section 4280.36: clarifies Equal Employment Opportunity, 
nondiscrimination and civil rights requirements; clarifies that loans 
made from the revolving loan fund, when funds are derived from 
repayments or interest earnings, and not directly from the Government, 
are not subject to the Agency's environmental clearance process; 
clarifies the need to comply with flood hazard insurance requirements; 
and provides audit requirements for assistance under this program.
    Section 4280.42(b)(5), the economic factor used has been changed to 
per capita personal income rather than median household income. Per 
capita personal income is a more appropriate indicator of current wages 
and economic wealth of the county where the project is located and has 
historically been used in the REDLG programs.

List of Subjects

7 CFR Part 1703

    Community development, Grant programs--housing and community 
development, loan programs--housing and community development, 
Reporting and recordkeeping requirements, Rural areas.

7 CFR Part 4280

    Business and industry, Community development, Economic development, 
Grant programs--housing and community development, loan programs--
housing and community programs, Reporting and recordkeeping 
requirements, Rural areas.


0
Therefore, chapters XVII and XLII, title 7, Code of Federal 
Regulations, are amended as follows:

CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE

PART 1703--RURAL DEVELOPMENT

0
1. The authority citation for part 1703 continues to read as follows:

    Authority: 7 U.S.C. 901, et seq. and 950aaa, et seq.

Subpart B--[Removed]

0
2. Subpart B of part 1703 is removed and reserved.

CHAPTER XLII--RURAL BUSINESS--COOPERATIVE SERVICE AND RURAL UTILITIES 
SERVICE, DEPARTMENT OF AGRICULTURE

PART 4280--LOANS AND GRANTS

0
3. Subpart A (Sec. Sec.  4280.1 through 4280.100), is added to part 
4280 to read as follows:

Subpart A--Rural Economic Development Loan and Grant Programs

Sec.
4280.1 Purpose.
4280.2 Policy.
4280.3 Definitions.
4280.4-4280.12 [Reserved]
4280.13 Applicant eligibility.

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4280.14 [Reserved]
4280.15 Ultimate Recipient Projects eligible for Rural Economic 
Development Loan funding.
4280.16 REDL and REDG Loan terms.
4280.17 Additional REDL terms.
4280.18 [Reserved]
4280.19 REDG Grants.
4280.20 [Reserved]
4280.21. Eligible REDG initial Ultimate Recipients and Projects.
4280.22 [Reserved]
4280.23 Requirements for lending from Revolving Loan Fund.
4280.24 Revolved funds.
4280.25 Revolving Loan Fund Plan.
4280.26 Administration and operation of the Revolving Loan Fund.
4280.27 Ineligible purposes.
4280.28 [Reserved]
4280.29 Supplemental financing required for the Ultimate Recipient 
Project.
4280.30 Restrictions on the use of REDL or REDG funds.
4280.31-4280.35 [Reserved]
4280.36 Other laws that contain compliance requirements for these 
Programs.
4280.37 Application forms and filing dates.
4280.38 Maximum amount of loans and Grants.
4280.39 Contents of an application.
4280.40 [Reserved]
4280.41 Environmental review of the application.
4280.42 Application evaluation and selection.
4280.43 Discretionary points.
4280.44 Limitation on the number of loans or Grants to an 
Intermediary.
4280.45-4280.46 [Reserved]
4280.47 Non-selection of applications.
4280.48 Post-selection period.
4280.49 [Reserved]
4280.50 Disbursement of Zero-Interest Loan funds.
4280.51-4280.52 [Reserved]
4280.53 Loan payments.
4280.54 Construction procurement requirements.
4280.55 Monitoring responsibilities.
4280.56 Submission of reports and audits.
4280.57-4280.61 [Reserved]
4280.62 Appeals.
4280.63 Exception authority.
4280.64-4280.99 [Reserved]
4280.100 OMB control number.

    Authority: 5 U.S.C. 301: 7 U.S.C. 940c.

Subpart A--Rural Economic Development Loan and Grant Programs


Sec.  4280.1  Purpose.

    The Rural Economic Development Loan (REDL) and Grant (REDG) 
Programs provide financing to eligible Rural Utilities Service (RUS) 
electric or telecommunications borrowers (Intermediaries) to promote 
rural economic development and job creation projects.


Sec.  4280.2  Policy.

    (a) REDL Program. REDL Zero-Interest Loans are made to 
Intermediaries, to relend, at a zero-interest rate, to Ultimate 
Recipients. Ultimate Recipients are responsible for repayment to the 
Intermediary. The Intermediary must transmit Ultimate Recipient loan 
repayments to Rural Development.
    (b) REDG Program. Grants are made to Intermediaries to establish 
Revolving Loan Funds. REDG Zero-Interest Loans are made by the 
Intermediary from the Revolving Loan Fund to Ultimate Recipients for 
the purpose of financing specific, approved Projects. Ultimate 
Recipients are responsible for repayment to the Intermediary. The 
Ultimate Recipient's loan repayments are to be retained in the 
Revolving Loan Fund, which is maintained by the Intermediary, to 
finance other rural economic development Projects. Only the initial 
loan made by the Intermediary from the Revolving Loan Fund has to be at 
zero interest.


Sec.  4280.3  Definitions.

    The following definitions are applicable to this subpart:
    Advanced Telecommunications. Using communications equipment for 
purposes, such as the simultaneous transmission of images and voice or 
the electronic transmission of data between multiple sites that do not 
consist primarily of providing local exchange voice or other routine 
communications.
    Agricultural Production. The cultivation, production, growing, 
raising, feeding, housing, breeding, hatching, or managing of crops, 
plants, animals, fish, or birds, either for fiber, food for human 
consumption, or livestock feed.
    Business Incubator. A facility in which small businesses can share 
premises, support staff, computers, software or hardware, 
telecommunications terminal equipment, machinery, janitorial services, 
utilities, or other overhead expenses, and where such businesses can 
receive Technical Assistance, financial advice, business planning 
services or other support.
    Community Facilities Project. An eligible community facility under 
the Community Facility Direct or Guaranteed programs.
    Cushion of Credit. The amount contributed by the Intermediary 
pursuant to 7 U.S.C. 940c.
    Direct Job. A job that is created or saved by an Ultimate Recipient 
employer as a result of funding received from these Programs.
    Established Operation. An entity that has engaged in the nature of 
the Project for more than one year.
    Full-Time Job. A job for which a worker is scheduled to work 35 
hours per week, or more, on a regular basis.
    Grant. For the REDG Program only; a transfer of monies other than a 
loan, from Rural Development to an Intermediary for specific use in 
funding a Revolving Loan Fund from which loans are made to Ultimate 
Recipients. Grant funds must be repaid by the Intermediary to Rural 
Development in the event the Fund is unused for more than one year, 
misused, no longer needed for its intended purposes, or the Grant is 
terminated.
    Independent Provider. An entity or individual, other than the 
Intermediary or the Ultimate Recipient that is not owned by a 
subsidiary or an affiliate of the Intermediary or Ultimate Recipient or 
would otherwise have an interest in the Intermediary or Ultimate 
Recipient that would be a conflict of interest or have the appearance 
of a conflict of interest.
    Indirect Job. A job that is created or saved as a result of a 
funded Project, but is not with the Ultimate Recipient.
    Infrastructure. Facilities required to support private sector 
economic activity such as: Highways, streets, roads, and bridges; 
public transit; water supply; wastewater treatment; water resources; 
solid waste; and hazardous waste services.
    Intermediary. An entity that is identified by RUS as an eligible 
borrower under the Rural Electrification Act and obtains a REDG Grant 
or a REDL Loan.
    Part-Time Job. A job for which a worker is scheduled to work less 
than 35 hours per week, on a regular basis.
    Programs. The Rural Economic Development Loan (REDL) and the Rural 
Economic Development Grant (REDG) Programs.
    Project. The facility, equipment, or activity of the Ultimate 
Recipient that is funded under one of the Programs.
    REDG. The Rural Economic Development Grant Program.
    REDL. The Rural Economic Development Loan Program.
    Revolving Loan Fund (or Fund). A revolving loan fund that is 
created with Grant funds and the Intermediary's supplemental 
contribution under the REDG Program that makes loans and uses the loan 
repayments and interest earnings to make subsequent loans until the 
Fund is terminated.
    Revolving Loan Fund Plan. A plan developed by the Intermediary and 
approved by Rural Development that governs the use of the Revolving 
Loan Fund. The plan must at least include a detailed explanation of the 
Intermediary's Fund administration

[[Page 29845]]

policies and procedures and planned Fund use after the funds in the 
Revolving Loan Fund have revolved. Fund administration policies and 
procedures must at least include information regarding the review and 
approval of loans from the Fund.
    Rural Area. This information will be taken from the most recent 
census data. Any area other than:
    (1) A city or town that has a population of greater than 50,000 
inhabitants; and
    (2) The urbanized area contiguous and adjacent to such a city or 
town.
    Rural Business-Cooperative Service (RBS). The Rural Business-
Cooperative Service, an agency within the Rural Development mission 
area of the USDA.
    Rural Development. For purposes of this regulation, The Rural 
Business-Cooperative Service (RBS), an Agency of the United States 
Department of Agriculture, or a successor Agency, will be referred to 
as Rural Development.
    Rural Utilities Service (RUS). The Rural Utilities Service, an 
Agency within the Rural Development mission area of the USDA.
    Seasonal Job. A job whether Part-Time or Full-Time that begins and 
ends in accordance with a specified time period of less than a year and 
generally within a range less than four months.
    Start-Up Venture(s). An entity that has engaged in the nature of 
the Project for less than one year. An entity that has operated in 
excess of one year, but which is about to enter into a new line of 
business, would be considered a Start-Up Venture.
    State. Any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, 
American Samoa, the Commonwealth of the Northern Marianas Islands, the 
Republic of Palau, the Federated States of Micronesia, and the Republic 
of the Marshall Islands.
    Technical Assistance. Managerial, financial and operational 
analysis and consultation by Independent Providers to assist Project 
owners in identifying and evaluating problems or potential problems and 
to provide training that enables Project owners to successfully 
implement, manage, operate and maintain viable Projects.
    Ultimate Recipient. An entity or individual that receives a loan 
from an Intermediary. The Ultimate Recipient may be a for profit or 
not-for-profit entity such as, but not limited to, a sole 
proprietorship, a corporation, a cooperative, a partnership, or a 
Limited Liability Company. The Ultimate Recipient may also be a public 
body, such as, but not limited to, a political subdivision of a State 
or locality, or a Federally-recognized Indian tribe.
    Uniform Act. The Uniform Relocation Assistance and Real Property 
Acquisition Act of 1970 (42 U.S.C. 4601-4655).
    USDA. The United States Department of Agriculture.
    Zero-Interest Loan. A loan made by the Intermediary to the Ultimate 
Recipient with no interest and which will be repaid to the Intermediary 
by the Ultimate Recipient.


Sec. Sec.  4280.4-4280.12  [Reserved]


Sec.  4280.13  Applicant eligibility.

    Applicants that are not delinquent on any Federal debt or otherwise 
disqualified from participation in these Programs are eligible to 
apply. An applicant must be eligible under 7 U.S.C. 940c.


Sec.  4280.14  [Reserved]


Sec.  4280.15  Ultimate Recipient Projects eligible for Rural Economic 
Development Loan funding.

    An Intermediary may receive REDL funds only when it has a pre-
approved Ultimate Recipient and Project that have an immediate need for 
the Zero-Interest Loan. REDL funds may only be used by the Intermediary 
to make a Zero-Interest Loan to the Ultimate Recipient to finance 
financially viable economic development or job creation Projects in a 
Rural Area. Funds may only be used to provide the following assistance:
    (a) Start-Up Venture costs, including, but not limited to financing 
fixed assets such as real estate, buildings (new or existing), 
equipment, or working capital;
    (b) Business expansion;
    (c) Business Incubators;
    (d) Technical Assistance;
    (e) Project feasibility studies;
    (f) Advanced Telecommunications services and computer networks for 
medical, educational, and job training services;
    (g) Other Projects eligible under Sec.  4280.21; or
    (h) Community Facilities Projects.


Sec.  4280.16  REDL and REDG Loan terms.

    REDL and REDG loans made by the Intermediary are governed by the 
following terms:
    (a) The maximum term of a loan is 10 years, including any principal 
deferment period. The Intermediary may choose a shorter term if 
desired.
    (b) Deferments on Zero-Interest Loans will automatically be granted 
by Rural Development upon request of the Intermediary as follows:
    (1) A deferral for up to 1 year for Projects involving an 
Established Operation; or
    (2) A deferral for up to 2 years for Projects involving a Start-Up 
venture or a Community Facilities Project whether or not such Project 
also receives funding under USDA Community Facilities funding programs.
    (c) The Intermediary must provide the Ultimate Recipient with the 
same loan terms as the Intermediary receives from Rural Development.
    (d) The Intermediary is solely responsible for the financial 
approval of Fund loans and all other Fund decisions and actions.


Sec.  4280.17  Additional REDL terms.

    (a) The Intermediary is responsible for fully repaying the Zero-
Interest Loan to RBS even if the Ultimate Recipient does not repay the 
Intermediary.
    (b) The Intermediary is responsible for remitting any partial or 
full payment to RBS at the time the Ultimate Recipient pays the 
Intermediary.
    (c) Unless deferred pursuant to Sec.  4280.16(b) of this subpart, 
loan payments to Rural Development under the REDL Program are due 
monthly.
    (d) If the Intermediary does not have an outstanding loan with RUS, 
the Intermediary must immediately provide, as security for any REDL 
loan it receives, a Rural Development-approved irrevocable letter of 
credit that remains in effect until the loan is repaid.


Sec.  4280.18  [Reserved]


Sec.  4280.19  REDG Grants.

    Intermediaries receiving Grants must partially finance a Revolving 
Loan Fund that the Intermediary will operate and administer, by 
providing supplemental funds of at least 20 percent of the Grant. 
Grants are subject to 7 CFR parts 3015, 3019, and 3052, as applicable.


Sec.  4280.20  [Reserved]


Sec.  4280.21  Eligible REDG Ultimate Recipients and Projects.

    The Intermediary may only make loans from the Revolving Loan Fund 
to entities located in a Rural area of a State. Eligible entities are 
as follows:
    (a) Non-profit entities, public bodies, or Federally-recognized 
Indian tribes Ultimate Recipients for:
    (1) Community development or Community Facility Projects that:
    (i) will create or save employment; and
    (ii) are open to and serve all Rural residents, and are owned by 
the Ultimate Recipient;
    (2) Business Incubators;
    (3) Facilities and equipment to provide education and training to 
residents of Rural Areas that will facilitate economic development;

[[Page 29846]]

    (4) Facilities and equipment to provide medical care to residents 
of Rural Areas. Equipment and facilities may be funded to enable 
eligible entities to provide medical training and related professional 
health care skills to rural health care providers;
    (5) Projects that utilize Advanced Telecommunications or computer 
networks to facilitate medical or educational services or job training; 
or
    (6) Project feasibility studies and Technical Assistance. A 
qualified Independent Provider must perform feasibility studies or 
Technical Assistance.
    (b) For-profit Ultimate Recipients for Projects under paragraphs 
(a)(3), (4), (5), or (6) of this section.


Sec.  4280.22  [Reserved]


Sec.  4280.23  Requirements for lending from Revolving Loan Fund.

    (a) Supplemental contribution. The Intermediary must establish a 
Revolving Loan Fund and contribute an amount equal to at least 20 
percent of the Grant. The supplemental contribution must come from 
Intermediary's funds which may not be from other Federal Grants, unless 
permitted by law.
    (b) Use of supplemental contribution. The Intermediary's 
contribution will only be used to make REDG loans and not other 
investment purposes. The Intermediary's contribution must remain a 
permanent part of the Revolving Loan Fund until the Fund is terminated.
    (c) REDG Zero-Interest Loan Requirements. The Fund is made up of 
Rural Development and Intermediary contributions and must be loaned in 
accordance with one of the following 2 options:
    (1) The contribution may be used to fund the same Project that 
Rural Development is funding. The interest rate on that portion of the 
financing using Rural Development funds will be at zero percent. The 
interest rate on that portion of the financing using the Intermediary's 
contribution may be greater than zero percent but must be less than, or 
equal to, the prevailing prime rate. Using this option, loan security 
and recovery of loan losses must provide for the pro rata recovery and 
distribution between the Intermediary and Rural Development based on 
the respective amounts of each contribution to the total loan amount 
for the Project.
    (2) The Intermediary's contribution may be used to fund Projects 
separate from the Project financed with Rural Development funds, 
provided that the Project is eligible in accordance with Sec.  4280.21.
    (3) Whether the Intermediary chooses the option under paragraph 
(c)(1) or paragraph (c)(2) of this section, its contribution must be 
used to fund an eligible Project within 3 years from the date of the 
Grant agreement. If the Intermediary fails to use its contribution 
within this 3-year period, Rural Development will terminate the Grant.
    (d) Intermediary's supplemental funds. Once revolved, monies from 
the Fund may be loaned at an interest rate called for in the Revolving 
Loan Fund Plan, not to exceed the prevailing prime rate.
    (e) Eligible purposes only. Until the total amount in the Fund has 
been loaned, all loans must be made for eligible purposes as stated in 
Sec.  4280.21. After the Fund has been loaned, in accordance with Sec.  
4280.21 of this subpart, the Intermediary shall make loans to finance 
rural economic development purposes in accordance with the Revolving 
Loan Fund Plan. All loan repayments, including interest earned, must be 
deposited into the Fund.
    (f) Termination for cause. Rural Development will terminate the 
Fund and require repayment of the Grant funds in accordance with 7 CFR 
parts 3015 and 3019 if Rural Development determines that the Fund is 
not being operated according to the approved Revolving Loan Fund Plan, 
this subpart, or for other good cause determined by Rural Development, 
such as questionable prepayment of initial loans.
    (g) All REDG Loans must be made to Rural Ultimate Recipients.


Sec.  4280.24  Revolved funds.

    Rural Development and the Intermediary's supplemental funds will be 
considered revolved after they have been loaned to Ultimate Recipients 
and subsequently repaid. Loans made from revolved funds will not 
require prior approval of Rural Development for creditworthiness or 
environmental clearance purposes. All other Federal compliance 
requirements, including those in this subpart, remain in effect.


Sec.  4280.25  Revolving Loan Fund Plan.

    Each REDG Intermediary must adopt a Rural Development-approved plan 
that specifies that:
    (a) The initial loan made from the Fund will be at zero percent 
interest and have a maximum term of 10 years;
    (b) Loans made from loan repayments may carry an interest rate less 
than, or equal to, the prevailing prime rate. The Intermediary 
determines repayment terms and security arrangements on these loans.
    (c) Loans made from repayments of REDG loans must be for eligible 
Program purposes;
    (d) The Intermediary is solely responsible for the financial 
approval of Fund loans and all other Fund decisions and actions; and
    (e) No changes will be made to a Rural Development-approved 
Revolving Loan Fund Plan without the prior written approval of Rural 
Development.


Sec.  4280.26  Administration and operation of the Revolving Loan Fund.

    (a) The Intermediary will operate and administer the Revolving Loan 
Fund. The Intermediary may contract with a third party for 
administrative services regarding the Fund. However, the Intermediary 
must permanently retain all Project review, approval, and monitoring 
authority and responsibility. This authority and responsibility cannot 
be delegated to any other person or entity.
    (b) Up to 10 percent of Rural Development Grant funds may be 
applied toward operating expenses over the life of the Fund. Operating 
expenses include the costs of administering the Fund and Technical 
Assistance provided to Project owners by Independent Providers.
    (c) In cases where the Intermediary uses its supplemental 
contribution to the Revolving Loan Fund for a Project other than the 
Project that resulted in the Intermediary being awarded the Grant, the 
loan terms must not exceed 10 years and the interest rate must be less 
than, or equal to, the prevailing prime rate.


Sec.  4280.27  Ineligible purposes.

    Zero-Interest Loans may not be used:
    (a) For activities that would adversely affect the environment, or 
activities that limit the choice of reasonable alternatives prior to 
satisfying Rural Development environmental requirements;
    (b) To pay off or refinance any existing indebtedness or costs of 
the Project that were incurred prior to Rural Development receipt of 
the Intermediary's completed application;
    (c) For any electric or telecommunications purpose or for the 
Intermediary's electric or telecommunications operations, for 
affiliated operations of the Intermediary, or for the benefit of other 
Intermediaries or their affiliated operations, except those purposes 
contained in Sec.  4280.15(f);
    (d) To pay the salaries of any employee or owner of the 
Intermediary, its subsidiaries, or affiliates, except for salaries 
incurred in administering a

[[Page 29847]]

Revolving Loan Fund established under the REDG Program;
    (e) For community antenna or cable television systems or 
facilities;
    (f) For residential purposes such as residential dwellings and land 
sites; facilities to provide entertainment television; to transfer 
property between owners without making improvements that will promote 
or sustain economic development in Rural Areas; or for personal, non-
business related vehicles;
    (g) Where there is directly or indirectly a conflict of interest or 
the appearance of a conflict of interest in the Project; for 
Intermediaries this would include a situation in which the 
Intermediary, its officers, managers, Board of Directors, employees, 
their spouses, children, or close relatives, have a financial or 
ownership interest in the Project being funded, including its 
construction or development;
    (h) For any purpose when receipt of loan funds is conditioned upon 
the requirement that the Ultimate Recipient acquire electric or 
telecommunications service from the Intermediary or its affiliates;
    (i) For any gambling activity;
    (j) For a Project that would result in the transfer of existing 
employment or business activity more than 25 miles from its existing 
location;
    (k) For proposed Projects located in areas covered by the Coastal 
Barrier Resources Act (16 U.S.C. 3501-3510);
    (l) For any illegal activity or any activity involving 
prostitution;
    (m) For Agricultural Production, except where the Project is a 
farmer-owned cooperative or similar organization where the benefits of 
the Project are passed on to the farmer-owners, and the Agricultural 
Production is part of an integrated business that processes the 
agricultural products, and the Agricultural Production portion of the 
loan will not exceed 50% of the loan amount;
    (n) For any pass-through Grant funding activity (a Grant by the 
Intermediary to the Ultimate Recipient);
    (o) Provision of only local exchange voice telephone service; or
    (p) for any other purpose announced in a notice by Rural 
Development. This will not affect Grants that have already been 
awarded.


Sec.  4280.28  [Reserved]


Sec.  4280.29  Supplemental financing required for the Ultimate 
Recipient Project.

    (a) For REDL loans, either the Ultimate Recipient or the 
Intermediary must provide supplemental funds for the Project equal to 
at least 20 percent of the loan to the Intermediary. For REDG grants, 
the Intermediary must provide supplemental funds, to capitalize the 
Revolving Loan Fund, equal to at least 20 percent of the Grant to the 
Intermediary.
    (b) Funds provided by the Ultimate Recipient must be:
    (1) Cash or its equivalent;
    (2) Provided after Rural Development receives the completed 
application; and
    (3) Disbursed for an eligible Project within a three year period 
that begins on the day the Intermediary signs the Grant agreement.
    (c) Satisfactory evidence of the Ultimate Recipient's funds must be 
provided to Rural Development before it will advance any funds to the 
Intermediary.


Sec.  4280.30  Restrictions on the use of REDL or REDG funds.

    (a) Conflict of interest. The Intermediary must not own or manage 
any Ultimate Recipient Project, unless the Project is acquired as a 
result of servicing a loan made from the Revolving Loan Fund. Conflicts 
of interest and all appearances of a conflict of interest are not 
permitted.
    (b) Fees. The Intermediary may charge reasonable loan servicing 
fees, which are limited to one percent per year of the principal amount 
outstanding on the loan; reasonable professional service fees that are 
customary for the service being provided and in accordance with any 
standard fee schedules that have been established for the service; and 
reasonable expenses the Intermediary has incurred from Independent 
Providers.
    (c) Interest earnings. Any interest earned by the Intermediary on 
advances of Rural Development REDG or REDL funds prior to the 
disbursement for the Project, must be returned to Rural Development.


Sec. Sec.  4280.31-4280.35  [Reserved]


Sec.  4280.36  Other laws that contain compliance requirements for 
these Programs.

    (a) Equal employment opportunity. For all construction contracts 
and Grants in excess of $10,000, the contractor must comply with 
Executive Order 11246, as amended by Executive Order 11375, and as 
supplemented by applicable Department of Labor regulations (41 CFR part 
60). The applicant is responsible for ensuring that the contractor 
complies with these requirements.
    (b) Equal opportunity and nondiscrimination. Rural Development will 
ensure that equal opportunity and nondiscriminatory requirements are 
met in accordance with the Equal Credit Opportunity Act and 7 CFR part 
15d, conducted by USDA. Rural Development will not discriminate against 
applicants on the bases of race, color, religion, national origin, sex, 
marital status, or age (provided that the applicant has the capacity to 
contract); to the fact that all or part of the applicant's income 
derives from public assistance program; or to the fact that the 
applicant has in good faith exercised any right under the Consumer 
Credit Protection Act.
    (c) Civil rights compliance. Recipients of Grants must comply with 
the Americans with Disabilities Act of 1990, Title VI of the Civil 
Rights Act of 1964, and Section 504 of the Rehabilitation Act of 1973. 
This includes collection and maintenance of data on the race, sex, and 
national origin of the recipient's membership/ownership and employees. 
These data must be available to conduct compliance reviews in 
accordance with 7 CFR part 1901 subpart E, Sec.  1901.204. Initial 
compliance reviews will be conducted with the Intermediary when Form RD 
400-4, ``Assurance Agreement,'' is signed. For each loan or Grant an 
Intermediary receives, a new Form RD 400-4 must be completed. Each 
Ultimate Recipient must go through the same pre-award compliance review 
process and must also sign Form RD 400-4. For loans and Grants, a pre-
award review is required before loan or Grant approval or any 
disbursement of funds. For Intermediaries, a post-award compliance 
review is required 90 days after closing the loan or Grant. This review 
is not required for Ultimate Recipients. Subsequent compliance reviews 
will be conducted 3 years from the date the post-award compliance 
review is completed for Intermediaries and 3 years from the date the 
pre-award compliance review is completed for Ultimate Recipients. Where 
Grant funds are used for a Revolving Loan Fund, compliance reviews are 
required for the Intermediaries for as long as the Fund is in 
operation. For Ultimate Recipients, compliance reviews are conducted 
until the loan is repaid to the Fund.
    (d) Architectural barriers. All facilities financed with Zero-
Interest Loans that are open to the public or in which persons may be 
employed or reside must be designed, constructed, or altered to be 
readily accessible to and usable by disabled persons. Standards for 
these facilities must comply with the Architectural Barriers Act of 
1968 (42 U.S.C. 4151-4157) and the ``Uniform Federal Accessibility 
Standards'', (41 CFR part 101-19.6, Appendix A).
    (e) Uniform relocation assistance. Relocations in connection with 
these

[[Page 29848]]

Programs are subject to 49 CFR part 24 as referenced by 7 CFR part 21 
except that the provisions in title III of the Uniform Act do not apply 
to these Programs.
    (f) Drug-free workplace. Grants made under these Programs are 
subject to the requirements contained in 7 CFR part 3021 which 
implements the Drug-Free Workplace Act of 1988 (41 U.S.C. 701-706). An 
Intermediary requesting a REDG Grant will be required to certify that 
it will establish and make a good faith effort to maintain a drug-free 
workplace program.
    (g) Debarment and suspension. The requirements of 7 CFR part 3017 
are applicable to these Programs.
    (h) Intergovernmental review of Federal programs. These Programs 
are subject to the requirements of Executive Order 12372 (3 CFR 1982 
Comp., p. 197) and 7 CFR part 3015, subpart V which implements 
Executive Order 12372. Proposed Projects are subject to the State and 
local government review process contained in 7 CFR part 3015.
    (i) Restrictions on lobbying. The restrictions and requirements 
imposed by 31 U.S.C. 1352, and 7 CFR part 3018, are applicable to these 
Programs.
    (j) Earthquake hazards. These Programs are subject to the seismic 
requirements of the Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 
7701-7706).
    (k) Environmental requirements. The requirements of 7 CFR part 
1940, subpart G, are applicable to these Programs and to the loans made 
from the Revolving Loan Fund using Rural Development funds. Financial 
assistance from the Revolving Loan Fund, when funds are derived from 
repayments by third parties, is not considered Federal assistance for 
purposes of meeting the compliance requirements of 7 CFR part 1940, 
subpart G.
    (l) Affirmative fair housing. If applicable, the Intermediary will 
be required to comply with the Affirmative Fair Housing Act (42 U.S.C. 
3601-3631).
    (m) Flood hazard insurance. These Programs are subject to the 
National Flood Insurance Act of 1968 and the Flood Disaster Protection 
Act of 1973, as amended by 42 U.S.C. 4001-4129.
    (n) Audits. These Programs are subject to 7 CFR part 3052.


Sec.  4280.37  Application forms and filing dates.

    (a) The Intermediary may obtain forms that supplement the written 
narrative sections of its application from the Rural Development State 
Office for the State where the Intermediary is located.
    (b) An original copy only of the application is to be filed with 
the Rural Development State Office. No other copies are required.


Sec.  4280.38  Maximum amount of loans or Grants.

    During any given fiscal year, Rural Development will publish an 
announcement of available loan and Grant funds and will indicate the 
maximum loan and Grant amounts for which an Intermediary or prospective 
Intermediary may apply. This announcement will also include contact 
information and application deadlines. All pending applications on file 
at RBS, including both loan and Grant applications, from the same 
Intermediary or prospective Intermediary for the same Project will be 
considered to be one application in determining that the maximum size 
of the application is in accordance with this section.


Sec.  4280.39  Contents of an application.

    An application for a loan or a Grant must contain the following:
    (a) Required forms and certifications:
    (1) Standard Form 424, ``Application for Federal Assistance,'' 
signed by an authorized representative of the Intermediary.
    (2) A Resolution of the Board of Directors signed by the directors 
and certified by the Intermediary's board secretary. The board 
resolution must indicate whether the Intermediary is requesting a loan 
or Grant, agree to the provisions of this subpart and the loan or Grant 
agreement including the Intermediary's 20 percent Fund contribution, 
and state that the Intermediary has the legal authority to enter into a 
loan or Grant agreement under these Programs;
    (3) Form AD 1047, ``Certification Regarding Debarment, Suspension, 
and other Responsibility Matters--Primary Covered Transactions,'' and 
Form AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tier Transactions.''
    (4) Assurance statement for the Uniform Act signed by the Ultimate 
Recipient. This statement provides Rural Development with the required 
assurance statement that any relocations of persons or acquisitions of 
real property, as part of completing the Ultimate Recipient Project, 
will be handled in accordance with this statute.
    (5) RD Instruction 1940-Q, Exhibit A-1, applies if the loan is 
greater than $150,000 or the Grant is greater than $100,000;
    (6) SF LLL, ``Disclosure of Lobbying Activities,'' (if the 
Intermediary or the Ultimate Recipient engages in lobbying activities);
    (7) Form AD 1049, ``Certification Regarding Drug-Free Workplace 
Requirements,'' for Grants only;
    (8) Seismic certification if construction of a building is 
proposed. The Project owner certifies that any building constructed 
will comply with standards that reduce the damage caused by 
earthquakes;
    (9) Form RD 1940-20, ``Request for Environmental Information''; and
    (10) RUS Form 7, ``Financial and Statistical Report'' and RUS Form 
7a ``Investments, Loan Guarantees, and Loans,'' or similar information.
    (b) A written narrative section must be provided. This section 
consists of the following:
    (1) A Project description, including details of the work to be 
performed with Rural Development funds, and a business plan, including 
a discussion of management and prior experience of the Ultimate 
Recipient.
    (2) A discussion of how the Project meets each selection factor in 
Sec.  4280.42(b).
    (3) A Revolving Loan Fund Plan is required if the Intermediary is 
applying for a Grant to establish a Revolving Loan Fund.


Sec.  4280.40  [Reserved]


Sec.  4280.41  Environmental review of the application.

    (a) Rural Development will conduct a review for the potential of 
any environmental impacts resulting from the proposed Project 
identified in the application and inform the Intermediary of any 
additional information Rural Development needs and any subsequent 
environmental requirements necessary for Rural Development to make a 
finding.
    (b) Rural Development will conduct all necessary environmental 
reviews as prescribed in 7 CFR part 1940, subpart G. These reviews must 
be completed before the application can be considered for approval.


Sec.  4280.42  Application evaluation and selection.

    (a) Rural Development will evaluate the application and score it 
based on the selection factors in this section. All applications will 
be ranked on a nationwide basis, based on the total points scored.
    (b) The application will be evaluated and scored using the 
information provided in accordance with Sec.  4280.39(b)(2) of this 
subpart.
    (1) Nature of the Project. Rural Development will award up to 60 
points based on whether the Project:

[[Page 29849]]

    (i) Is a for-profit business, Business Incubator, industrial 
building or park, or an infrastructure connection project (such as 
streets or utilities)--20 points;
    (ii) Provides Technical Assistance to rural businesses or rural 
residents, or educates or provides medical care to rural residents--20 
points;
    (iii) Will enhance rural economic development by providing Advanced 
Telecommunications services and computer networks for medical, 
educational, and job training services. This review will be based on 
the application's telecommunications design--20 points.
    (2) Number of direct full-time equivalent jobs created or saved 
within a 3-year period. To calculate full-time equivalent Direct-Jobs, 
count two part-time jobs as one full-time job or three part-time or 
seasonal jobs as one full-time job. If the total numbers of part-time 
and seasonal jobs add up to a fraction, round up to the next whole 
number after combining same. Indirect-Jobs or non-Rural jobs cannot be 
used for this calculation.

------------------------------------------------------------------------
     If the number of Rural full-time
  equivalent direct-jobs jobs created or    Then Rural  Development will
saved per $100,000 of total, Project cost              award:
                   is:
------------------------------------------------------------------------
(i) Greater than five....................  25 points.
(ii) From one to five....................  15 points.
------------------------------------------------------------------------

    (3) Supplemental funds for the Project. Points will be based on a 
calculation of the amount of supplemental funds to be provided to the 
Project. All supplemental funds used in the following calculation must 
be disbursed to the Project between the date of Rural Development 
receipt of the application and 1 year after the first advance of funds 
by Rural Development:

------------------------------------------------------------------------
 If supplemental funds as a percentage of
the Rural Development loan or grant to be   Then Rural  Development will
       provided to the Project are:                    award:
------------------------------------------------------------------------
(i) Greater than 200%....................  20 points.
(ii) From 100% to 200%...................  10 points.
(iii) From 50% to less than 100%.........  5 points.
------------------------------------------------------------------------

    (4) Unemployment rate for the county(ies) where the Project is 
physically located. Rural Development will compare the current 
unemployment rate(s) in the county(ies) to the State and national 
unemployment rates, and, if applicable, award points under the 
following categories, whichever is greater:

------------------------------------------------------------------------
    If the unemployment rate(s) in the
  county(ies) where the Project will be     Then Rural  Development will
                 located:                              award:
------------------------------------------------------------------------
(i) Exceeds the national unemployment      15 points.
 rate by 30% or more.
(ii) Is greater than the national          5 points.
 unemployment rate, but exceeds it by
 less than 30%.
(iii) Exceeds the State unemployment rate  10 points.
 by 30% or more.
(iv) Is greater than the State             5 points.
 unemployment rate but exceeds it by less
 than 30%.
------------------------------------------------------------------------

    (5) Per capita personal income for the county(ies) where the 
Project is physically located. Rural Development will compare the per 
capita personal income in the county(ies) where the Project will be 
located to the national and State per capita personal income levels, 
and, if applicable, award points under the following categories, 
whichever is greater:

------------------------------------------------------------------------
 If the per capita personal income level    Then Rural  Development will
          in the county(ies) is:                       award:
------------------------------------------------------------------------
(i) Less than or equal to 90% of the       15 points.
 national level.
(ii) Between 90 and 100% of the national   5 points.
 level.
(iii) Less than or equal to 90% of the     10 points.
 State level.
(iv) Between 90 and 100% of the State      5 points.
 level.
------------------------------------------------------------------------

    (6) Rural Area location. (i) If the Project is physically located 
in an incorporated city or town or equivalent having a population of 
1,249 or less, or if it is physically located in an unincorporated 
area, Rural Development will award 20 points.
    (ii) If the Project is physically located in an incorporated area 
having a population of 1,250 to 2500, Rural Development will award 10 
points.
    (7) Decline in population for the county where the Project is 
physically located. If there has been a decline in population in the 
county where the Project will be located over the time period covered 
by the two most recent decennial censuses of the United States to the 
present, Rural Development will award 10 points.
    (8) Cushion of Credit Payments. Rural Development will determine 
the level of Cushion of Credit Payments on deposit by the Intermediary, 
as follows:

[[Page 29850]]



------------------------------------------------------------------------
 If the Intermediary's Cushion of Credit    Then Rural  Development will
            account level is:                          award:
------------------------------------------------------------------------
(i) In excess of $300,000, or a dollar     15 points.
 amount in excess of 3 percent of the
 Intermediary's total assets, whichever
 is less.
(ii) Within the range of $100,000 to       10 points.
 $299,999.99, or a dollar amount that is
 within the range of one percent to 2.99
 percent of Intermediary's total assets,
 whichever is less.
(iii) Within the range of $10,000 to       5 points.
 $99,999.99, or a dollar amount that is
 within the range of 0.5 percent to .99
 percent of Intermediary's total assets,
 whichever is less.
------------------------------------------------------------------------

    (9) Initial loan and Grant. If the loan or Grant application will 
result in the first award to an Intermediary under these Programs, 
Rural Development will award 10 points.
    (10) County participation. If the Project will be the first REDLG 
Project financed in a county Rural Development will award 10 points.
    (11) The business plan for the Applicant's Ultimate Recipient will 
be evaluated by Rural Development and must include:
    (i) A description of the business or Project plans, its management, 
and, if applicable, its products and operating plans. (The business 
plan evaluated by Rural Development for Advanced Telecommunications 
will be its telecommunications and engineering design)--up to 15 
points; and
    (ii) An appropriate financial plan, including actual balance sheets 
and income statements covering the most recent 3-year period (for 
applicants who have been in business this long), and projected balance 
sheets, income statements, and cash flow statements for the ensuing 3-
year period, supported by assumptions showing the basis for the 
projections--up to 20 points.


Sec.  4280.43  Discretionary points.

    The RBS Administrator has the discretion to designate up to 25 
points (no more than 5 points for each of the following elements) based 
on whether the Project:
    (a) Is located in a Rural Empowerment Zone, Rural Economic Area 
Partnership Zone, Rural Enterprise Community, or Champion Community;
    (b) Is located in a county that has experienced the loss, removal, 
or closing of a major source or sources of employment in the last 3 
years which causes an increase of 2 percentage points or more in the 
county's most recent unemployment rate compared with the same period 
immediately before the dislocation;
    (c) Is located in a county that has experienced chronic or long-
term economic deterioration;
    (d) Is located in a county that was designated a disaster area by 
the President of the United States that significantly affected rural 
economic development and job creation. The county must have been 
designated within 3 years prior to filing of the completed application 
with Rural Development; or
    (e) Is consistent with the Rural Development State Office's 
approved strategic plan and mission area objectives and is identified 
as a priority area for assistance in the States' plan.


Sec.  4280.44  Limitation on number of loans or Grants to an 
Intermediary.

    Depending on the amount of funds available, Rural Development may 
publish an announcement limiting an Intermediary to one selected Grant 
application and two selected loan applications in a fiscal year.


Sec. Sec.  4280.45-4280.46  [Reserved]


Sec.  4280.47  Non-selection of applications.

    Provided the application requirements have not changed, an 
application not selected will be reconsidered in 3 subsequent funding 
competitions for a total of four funding competitions. If an 
application is withdrawn, it can be resubmitted and will be evaluated 
as a new application.


Sec.  4280.48  Post selection period.

    Rural Development will notify the Intermediary in writing if the 
application is selected. The documents to be executed by the 
Intermediary will include:
    (a) For a loan:
    (1) A Letter of Conditions with Project-specific terms and 
conditions;
    (2) A loan agreement with general terms and conditions;
    (3) A note covering the repayment terms of the loan; and
    (4) A legal opinion concerning the authority of the Intermediary to 
engage in the Project.
    (b) For a Grant:
    (1) A Letter of Conditions with Project-specific terms and 
conditions;
    (2) A Grant agreement with general terms and conditions; and
    (3) A legal opinion concerning the authority of the Intermediary to 
participate in the Revolving Loan Fund and to engage in the Project.


Sec.  4280.49  [Reserved]


Sec.  4280.50  Disbursement of Zero-Interest Loan funds.

    (a) For a REDL loan, Rural Development will disburse Zero-Interest 
Loan funds to the Intermediary in accordance with the terms of the 
executed loan agreement. All loan funds will be disbursed either as an 
advance to the Intermediary, in multiple advances, or as a 
reimbursement for eligible project costs, once the Intermediary has 
complied with Rural Development requirements.
    (b) The Intermediary must provide to the Ultimate Recipient all 
loan funds that the Intermediary receives from Rural Development within 
one year of receiving them. If the Intermediary does not re-lend Rural 
Development funds within one year, the loan funds, and all interest 
earned on the loan funds, must be returned to the Agency.
    (c) For a REDG loan, Rural Development will disburse Grant funds to 
the Intermediary in accordance with 7 CFR parts 3015 and 3019, as 
applicable. Specifically, Rural Development will disburse the Grant 
funds in advance if the following requirements are met:
    (1) The Intermediary has established written procedures that will 
minimize the time elapsing between the transfer of funds from Rural 
Development and their disbursement to the Ultimate Recipient;
    (2) The management system of the Intermediary meets the 
requirements of 7 CFR parts 3015 and 3019, as applicable;
    (3) All necessary supplemental funds for the Project have been 
obligated or committed to the Revolving Loan Fund; and
    (4) The requests for cash advances made by the Intermediary are 
limited to the minimum amounts needed and timed to be in accordance 
with the actual immediate cash needs of the Ultimate Recipient for 
carrying out the Project.


Sec. Sec.  4280.51-4280.52  [Reserved]


Sec.  4280.53  Loan payments.

    The Intermediary must make all REDL payments to Rural Development 
by

[[Page 29851]]

electronic funds transfer or other means as specified in the loan 
documents.


Sec.  4280.54  Construction procurement requirements.

    Construction, including bidding and awarding of contracts, must be 
conducted in a manner that provides maximum open and free competition.


Sec.  4280.55  Monitoring responsibilities.

    (a) The Intermediary must monitor the Project to ensure that:
    (1) Funds are used only for the approved purposes as specified in 
the legal documents;
    (2) Disbursements and expenditures of funds are properly supported 
with certifications, invoices, contracts, bills of sale, or other forms 
of evidence, which are maintained on the premises of the Intermediary;
    (3) Project time schedules are being met, projected work by time 
periods is being accomplished, and other performance objectives are 
being achieved; and
    (4) The Project is in compliance with all applicable regulations.
    (b) Rural Development may inspect and copy records and documents 
that pertain to the Project. The Intermediary must retain these records 
for the term of the Project loan plus 2 years. In addition, Rural 
Development may also perform Project site visits and reviews of the use 
of loan or Grant proceeds.
    (c) Rural Development will review and monitor Grants in accordance 
with 7 CFR parts 3015, 3017, 3018, 3019, 3021, and 3052.


Sec.  4280.56  Submission of reports and audits.

    (a) In addition to any reports required by 7 CFR parts 3015 and 
3019, the Intermediary must submit the following monitoring reports to 
Rural Development:
    (1) Loan. The Intermediary must submit Form RD 4280-1 ``Survey of 
Recipients of Rural Economic Development Loan and Grant Program'' to 
Rural Development on an annual basis until it no longer owes money to 
USDA under the REDLG Program.
    (2) Grant (Revolving Loan Fund). The Intermediary must submit the 
Form RD 4280-1 to Rural Development on an annual basis until all 
projects financed with Rural Development Grant proceeds have been 
repaid or are otherwise retired, whichever occurs last. Thereafter, on 
a triennial basis until the fund is terminated, the Intermediary will 
submit to Rural Development the Form RD 4280-1, reporting on the 
activity of all loans made from the Revolving Loan Fund.
    (b) If the Intermediary does not have an existing loan with RUS, 
the Intermediary will submit a copy of its annual audit to Rural 
Development within 90 days of its completion. All REDL audits must be 
conducted in accordance with Generally Accepted Government Auditing 
Standards or Generally Accepted Accounting Principles and REDG audits 
in accordance with 7 CFR part 3052.
    (c) Rural Development may require Ultimate Recipients that receive 
loans financed with Grant funds provided under the REDG Program to 
submit annual audits to comply with Federal audit regulations. In 
accordance with 7 CFR part 3052, Ultimate Recipients that are nonprofit 
entities, or a State or local government, may be required to submit an 
audit subject to the threshold established in OMB Circular No. A-133.


Sec. Sec.  4280.57-4280.61  [Reserved]


Sec.  4280.62  Appeals.

    An Intermediary may appeal any appealable adverse decision made by 
Rural Development that affects the Intermediary in accordance with 7 
CFR part 11.


Sec.  4280.63  Exception authority.

    Except as specified in paragraphs (a) through (c) of this section, 
the RBS Administrator may, on a case-by-case basis, make exceptions to 
any requirement or provision of this subpart, if such exception is 
necessary to implement the intent of the authorizing statute in a time 
of national emergency or in accordance with a Presidentially-declared 
disaster, or when such an exception is in the best interests of the 
Federal Government and is otherwise not in conflict with applicable 
law.
    (a) Applicant eligibility. No exception to applicant eligibility 
can be made.
    (b) Project eligibility. No exception to project eligibility can be 
made.
    (c) Rural area definition. No exception to the definition of rural 
area, as defined, can be made.


Sec. Sec.  4280.64-4280.99  [Reserved]


Sec.  4280.100  OMB control number.

    The information collection requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0575-0035. A person is 
not required to respond to this collection of information unless it 
displays a currently valid OMB control number.

    Dated: May 17, 2007.
Douglas L. Faulkner,
Deputy Under Secretary, Rural Development.
[FR Doc. 07-2636 Filed 5-29-07; 8:45 am]
BILLING CODE 3410-XY-U