[Federal Register Volume 77, Number 102 (Friday, May 25, 2012)]
[Proposed Rules]
[Pages 31220-31226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-12685]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 77, No. 102 / Friday, May 25, 2012 / Proposed
Rules
[[Page 31220]]
DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Parts 761 and 764
RIN 0560-AI17
Microloan Operating Loans
AGENCY: Farm Service Agency, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Farm Service Agency (FSA) proposes to modify Operating
Loan (OL) application, eligibility, and security requirements for
microloans (ML) that would serve the unique operating needs of very
small family farm operations. The intended effect of this proposed rule
is to make the OL Program more widely available and attractive to
smaller operators through reduced application requirements, more timely
application processing, and added flexibility in meeting the managerial
ability eligibility requirement. This proposed rule also would remove
provisions for the low documentation (Lo-Doc) application process for
OLs from the existing direct loan regulations.
DATES: We will consider comments that we receive by July 24, 2012.
ADDRESSES: We invite you to submit comments on this rule and the new
information collection request. In your comments, include the
Regulation Identifier Number (RIN), and volume, date, and page number
of this issue of the Federal Register. You may submit comments by any
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the online instructions for submitting comments.
Mail: Director, Loan Making Division (LMD), FSA, USDA,
1400 Independence Avenue SW., Stop 0522, Washington, DC 20250-0522.
Comments will be available for inspection online at
www.regulations.gov and at the mail address listed above between 8 a.m.
and 4:30 p.m., except holidays. A copy of this proposed rule is also
available through the FSA home page at http://www.fsa.usda.gov/.
FOR FURTHER INFORMATION CONTACT: Connie Holman; telephone: (202) 690-
0756. Persons with disabilities or who require alternative means for
communication (Braille, large print, audio tape, etc.) should contact
the USDA Target Center at (202) 720-2600 (voice and TDD).
SUPPLEMENTARY INFORMATION:
Background
FSA has a long history of providing agricultural credit to the
Nation's farmers and ranchers through its OL Program. Throughout this
rule, any reference to ``farm'' or ``farmer'' also includes ``ranch''
or ``rancher,'' respectively; in this document, the word ``operator''
refers to farmers who operate a farm. FSA's OL Program is designed to
finance the farm operating needs of family farms for operators who meet
the program eligibility requirements. Among other things, eligible
applicants must be unable to obtain sufficient credit from other
sources; have sufficient applicable education, on-the-job training, or
farming experience; have an acceptable credit history; and have
adequate collateral for the proposed loan. (See 7 CFR 764.101 and
764.252 for a full explanation of OL eligibility requirements.) OL
funds may be used for such things as annual or term operating purposes
to refinance certain debts; pay normal farm operating and family living
expenses; purchase livestock, equipment, and other materials essential
to a farm operation, and may also be used for some minor improvements
to farm real estate, such as wells and essential repairs to buildings.
(See 7 CFR 764.251 for a complete list of OL funds uses.) OL funds
cannot be used to finance the purchase of real estate. The maximum loan
amount for OLs is $300,000, and repayment can be amortized up to 7
years depending on the specific loan purpose and expected useful life
of the collateral. (See 7 CFR 761.8(a)(2) and 764.254(b)(1)(ii).) For
example, an annual OL used to finance crop input costs such as seed,
fertilizer, and chemicals, will generally be due in 1 year, while a
term OL to finance equipment, livestock, or grape vines may be extended
up to 7 years. As specified in 7 CFR 764.254(a)(3), the interest rate
charged is the OL rate in effect at the time of loan approval or at the
time of loan closing, whichever is lower. FSA's direct loan interest
rates are adjusted as often as monthly and are available on the FSA Web
site at: http://www.fsa.usda.gov/daflp.rates.htm and from any FSA
office.
In on-going efforts to improve the OL Program, FSA evaluated the
unique needs of small farm operations and identified unintended
barriers to their applying for OLs, and is proposing to simplify the
application process and add flexibility for meeting loan eligibility
and security requirements to encourage their participation. FSA is
proposing an ML process within the existing OL Program and using
existing OL appropriations that would focus on the financing needs of
small farm operations. These small farms, including non-traditional
farm operations, currently have limited financing options, as explained
below.
With increased awareness among consumers regarding the sources,
affordability, and quality of their food, and the wider occurrence of
community supported agriculture (CSA) the small specialty producer has
increasing opportunities to raise and sell locally. Additionally, low-
income neighborhoods with high concentrations of people who are far
from a grocery store and have limited access to healthy food choices.
These areas (sometimes called ``food deserts'') have gained attention
and support from the USDA, the United States Department of the
Treasury, the United States Department of Health and Human Services
(HHS), and the Obama Administration's Lets Move initiative, offering
opportunities for niche-type urban farms to market directly to the city
neighborhoods.
Operators of these types of small farms are not typically served by
agricultural lenders, and may have difficulty obtaining financing from
conventional commercial lenders. Consequently, these farmers often rely
on credit cards or personal loans, which carry high interest rates and
less flexible payment schedules, to finance their operations. Though
their specialty produce may not be well known to ag-lending community
at-large, there can be a viable market within cultural or ethnic
communities.
The 2007 Census of Agriculture shows that 71 percent of all farm
[[Page 31221]]
operations gross less than $25,000 per year. Therefore, these
operations require smaller financial investments for initial start-up
expenses such as hoop houses to extend the growing season, essential
tools, irrigation, delivery vehicles, and annual expenses such as seed,
fertilizer, utilities, land rents, marketing, and distribution
expenses. These expenses are examples of some of the operational needs
that may be financed using the ML funds. Minor improvements to farm
real estate such as well drilling costs, modest shed and storage
structures, and underground irrigation may also be financed using ML
funds.
An ML is a type of OL with abbreviated streamlined application
process and modified security and eligibility requirements. The major
components of the proposed ML process are the application process and
flexibility in meeting some of the eligibility and security
requirements. These components have been specially designed to make the
ML process appeal to small farm operations. The proposed ML application
process simplifies the information required to apply by reducing the
level of documentation required to more appropriately align with the
less complex structure and needs of smaller operations. Additionally,
the eligibility requirement for managerial ability, and the loan
security requirements for an ML have been modified to be more
appropriate for smaller family farms.
With the proposed ML application process, FSA can provide credit to
these farmers with reasonable rates and terms. Applicants that
otherwise may have chosen credit card financing in lieu of an FSA OL
due to the application process or certain eligibility requirements may
choose to seek assistance from FSA to start and continue their
operations as a result of the simplified application process and
eligibility and security requirements. Additionally, the flexibility
FSA gives farmers to make loan payments when they sell their products
allows them to more efficiently manage their income and resources.
Participation in FSA's loan programs provides eligible farms advantages
over credit card financing and this is significant because financing
costs have a greater impact on smaller start-up operations, which
typically have tighter cashflows. These benefits will help small
operations progress through the start-up years, build capacity,
increase equity, expand their use of FSA's loan programs, and
eventually graduate to commercial credit.
The ML application process would significantly streamline
requirements compared to FSA's existing OL process. As a result, it
would provide an option for farmers who may be intimidated by the
documentation requirements that are often perceived as a deterrent to
participation in FSA's loan programs. Additionally, FSA believes that
the proposed ML application process would provide a financial bridge
for many of its successful Youth Loan Program borrowers as they move
toward more complex operations. Youth Loans are made to borrowers
between the ages of 10 to 20 to finance income producing agriculture-
related projects. The maximum amount of a youth loan is $5,000. (See 7
CFR part 764, subpart H for a further description and explanation of
the requirements for youth loans.) FSA also views the ML application
process as a catalyst for other small farmers to move forward in their
farming ventures.
FSA has the responsibility of providing credit counseling and
supervision to its direct loan borrowers. While the ML requirements
will reduce the burden on loan applicants, it will not reduce the level
of counseling and supervision provided by FSA. In fact, the reduced
documentation will allow FSA personnel to devote more time to loan
analysis and to provide technical assistance to borrowers.
Though MLs are not limited to beginning farmers, they will benefit
from the modified alternatives for meeting the managerial experience
eligibility requirement by allowing applicants to gain experience while
managing their own farm or through a past association with an
agricultural-related organization. In the application, the applicant
will provide a written description of their apprenticeship relationship
(planned or current), or will provide a written description of their
past affiliations with an agriculture-related organization explaining
how the experience will contribute to the success of managing their own
farm operation.
Since the majority of small farms gross $25,000 or less in farm
sales, as discussed below, a maximum of $35,000 for an ML should be
ample for many beginning farmers starting out. As their financing needs
expand, applicants can apply for an OL up to direct maximum loan amount
of $300,000 or obtain financing from a commercial lender under the
Guaranteed Loan Program.
FSA performed a preliminary analysis of the proposed ML process and
evaluated its potential to impact loan losses and program costs. Actual
losses will ultimately depend on the demand by, and the risk profile
of, the ML borrowers. These variables are currently unknown; however,
historical borrower data on OL originations was used to approximate
participation. Past demand for smaller OLs provides a baseline
indication of potential ML demand. ML baseline demand and associated
costs were forecast by varying the maximum ML amount from $15,000 to
$35,000 and applying these criteria to historical OL data. In fiscal
year 2011, FSA made 14,628 direct operating loans to 10,927 applicants.
Slightly less than 31 percent of all these applicants received loans
totaling less than $35,000. This indicates the number of MLs made might
be quite high, although the potential for increased losses could be
minimized as these same applicants received just under 10 percent of
the total dollar amount loaned under the direct OL Program, or $103
million out of the $1.037 billion loan portfolio. Because of expected
similarities between the operations managed by ML applicants and Youth
Loan applicants, such as new operations and operators, loan rates,
small amounts of operating expenses, and small loan volume compared to
the regular OL Program, an assumption was made that ML borrowers will
have the same risk profile as Youth Loan Program participants.
Furthermore, exposure to losses would also be partially offset by
administrative savings achieved as a result of reductions in workload
during the application process.
To implement ML, FSA is proposing changes to the regulations and to
the information collection requirements as discussed below. The changes
to the regulations are discussed in the same order in which the
regulations appear in the Code of Federal Regulations.
Abbreviations and Definitions
Abbreviations and definitions used throughout FSA Farm Loan
Programs (FLP) are in 7 CFR 761.2. This rule proposes to add
abbreviations and definitions to that section that will be used for
loans made through the ML application process. FSA is proposing to add
an abbreviation for ``microloan'' and definitions for ``microloan'' and
``apprentice.''
Farm Assessment Requirements
Proposed farm assessment requirements for ML applicants will be
significantly reduced. A farm assessment for FSA's direct loan programs
is a collaborative effort between FSA and the applicant and currently,
it addresses the farm organization and key personnel qualifications,
type of farming operation, goals for the operation, adequacy of real
estate and chattel
[[Page 31222]]
property to conduct the farming operation, historical performance, farm
operating plan, loan evaluation, supervisory plan, and training plan.
The initial assessment under 7 CFR 761.103 is completed during the
application process and is then updated annually with the borrower. As
the ML application will require less information to be submitted by the
applicant, the farm assessment will also be pared down to a level more
proportional to the smaller operations being financed by ML funds. This
is expected to benefit both the applicant and the loan staff in terms
of time savings and speed of processing the application. The initial
assessment for an ML applicant will be in the form of a narrative that
will address the type of operation, assistance needed, goals of the
operation, marketing plan, supervisory plan, financial viability of the
plan, and training plan. These elements reflect the less complicated
organizational structure and smaller farm asset base that we would
expect to encounter with ML applicants. FSA will still conduct an
annual review, but believes that these elements will better evaluate
the probability of success for the small farm operations expected to be
typical of ML applicants.
ML Application Requirements and Application Processing
A complete ML application would consist of the following:
An application form;
A description of the applicant's farm training and
experience;
A balance sheet;
An annual cash flow budget;
Applicable environmental information;
Verification of non-farm income relied upon for loan
repayment;
Past income, expenses, and yields for the most recent
production cycle, to the extent practicable; and
Credit report fee.
A new application form will be available for ML applicants. This
form is intended to capture most of the information needed to process
an ML, including sections for the applicant to describe their farm
training and experience. It will also reduce and simplify the financial
statement. For example, no itemization will be required for the ML cash
flow budget, which differs from the more detailed farm operating plan
and similar income and expense projections as required by the existing
OL programs.
Environmental information will still be handled through the county
office process, involving FSA staff and NRCS staff as applicable. This
will not change from the current process followed for regular OLs.
Verification of non-farm income will only be required if that
income is necessary for a feasible plan and sufficient cash flow for
debt repayment. This is a change over the existing OL application
process, as income is always verified as specified in 7 CFR
764.51(b)(8). If it is necessary to verify debt, debts will be verified
through the credit bureau reporting system.
There also are proposed changes to the requirement for reporting of
past yields as currently specified in 7 CFR 761.104. Applicants can
provide other forms of documentation such as operator's sales receipts,
financial statements, contracts, and tax returns. This change will be
helpful for operations where past yields have little bearing on the
projected plan, such as vegetable operators who plan short term and
grow different crops to meet current demand, operators who produce
crops using measures such as rows or partial rows versus acres, or
operators who grow crops that sell in volumes such as bunches. In some
of these cases it will be impracticable, burdensome, and often
irrelevant for the farmer to demonstrate accurate yields, especially if
a variety of produce is harvested and then sold to the public only
hours later. In such cases, past reliable history of income and
expenses or cash receipts may be more useful in projecting the future
production revenue of a field, greenhouse, or operation. Also, if an
operator is changing crop from year to year to meet changing market
demands, then production for the past 2 or 3 years may not be
applicable to their production model. This modification allows FSA to
assist operations that otherwise may have difficulty meeting or
documenting production and yield history and will provide sufficient
information for a loan official to determine eligibility and
feasibility. FSA believes the lower loan limit will mitigate much of
the risk of losses.
For incomplete applications, FSA proposes to follow existing direct
loan processing procedures. Following current procedures, FSA will
inform the applicant, through written correspondence, of any missing
items needed to complete the application prior to established
regulatory deadlines.
Eligibility
Since MLs are OLs, applicants will be subject to existing OL
eligibility requirements. However, FSA proposes to add flexibility in
meeting the managerial ability requirement. Current regulations in 7
CFR 764.101(i) require that an OL applicant show managerial ability
through the following:
Has obtained a 4-year college degree in agricultural
business, horticulture, animal science, agronomy, or other
agricultural-related field;
Has on-the-job training, such as currently working on a
farm as part of an apprenticeship program;
Has farming experience, such as be an owner, manager, or
operator of a farm business for at least one entire production cycle;
or
Have obtained and successfully repaid one FSA Youth-OL.
For ML applicants FSA proposes to add flexibility that will allow
applicants to meet the eligibility requirement through either (1) a
past association with an agriculture-related organization, such as 4-H
Club or Future Farmers of America (FFA), that demonstrates experience
in a related enterprise; or (2) by seeking, receiving, and applying
guidance on how to manage their own start-up farm operation under an
apprenticeship relationship. Only a written description of the current
or future apprenticeship will be required in order to determine
eligibility.
Meeting the managerial requirement through the agriculture-related
organization experience will require the applicant to self certify on
the application their involvement, detailing how that experience
provides them with the ability to succeed with the operation they seek
to finance with ML funds.
The apprenticeship relationship will allow an ML applicant to
receive applied guidance and direction from an individual with the
skills and knowledge pertinent to the successful operation of the farm
enterprise being operated by the applicant. FSA expects that the
applicant will consult with the mentor over the course of the
production cycle (including issues of crop planning, purchasing from
vendors, crop culture or animal husbandry, pest and disease management,
networking groups and associations, harvest, marketing, etc.) while
operating their own farm and take the initiative to seek and apply
advice as appropriate to their needs. Successful completion of the
apprenticeship through the first operating cycle will be required as a
condition of the loan. FSA loan officials will monitor the borrower's
progress and work with the borrower to ensure successful completion of
the apprenticeship program during the first operating cycle. If
unforeseen circumstances prevent successful completion, FSA loan
officials will provide additional guidance to assist the borrower in
[[Page 31223]]
successfully completing the requirement.
This expansion of management ability offers the opportunity for ML
borrowers to gain the minimum of 3 years farm and management experience
needed as part of eligibility for FSA's Farm Ownership (FO) Program, a
loan program for the purchase of farm real estate. For those applicants
who were not raised in a farming background, or do not have the
educational experience necessary to meet the farm managerial ability
requirements, or do not have the opportunity to gain management
experience while working for someone else's farm operation, the ML
process can provide a path to eventual ownership of a family farm.
Limitations
FSA is proposing that the ML application process can be used for an
annual or term OL up to a maximum of $35,000. ML applicants would be
required to have an outstanding OL principal balance to FSA of no more
than $35,000 after the loan is closed. Since the gross value of farm
production is usually less than $25,000 for the majority of small
income producing farming operations, financing needs for annual
production cost are expected to be below the $35,000 maximum loan
amount. FSA believes that this loan limit would provide sufficient
levels of capital to small operations, which can include beginning
farmers, truck farms, niche operations, CSA operations, and operations
owned by immigrants who may need assistance establishing themselves in
the farming community. Through this proposed rule, FSA is requesting
comments on all aspects of the proposed ML process and is specifically
interested in comments regarding the limitation of the loan amount.
Security Requirements
FSA is proposing that MLs must be secured by collateral worth at
least 100 percent of the loan amount. This differs from the current
requirement in 7 CFR 764.104(c) that requires collateral worth at least
150 percent of the loan amount if available. Loans for improvements to
farm real estate, such as well drilling, small barn or shed
construction, or underground irrigation, may be secured by equipment,
foundation livestock, or similar chattel security, if available, as an
alternative to a lien on real estate, provided the 100 percent security
requirement is met. A lien on real estate will only be required when
other security is not available to meet the 100 percent security
requirement. For an ML applicant, FSA can take a lien on equipment, or
other available security, instead of taking a lien on real estate.
Crops and livestock products will be taken as security for annual
operating MLs only when other security available does not provide the
minimum 100 percent security requirement. For example, when an ML is
used to finance cash crops such as vegetables that are marketed at a
farmers market, or when produce is grown in measures such as rows, the
applicant may choose to offer a tractor as security instead of a lien
on the crop. Some start-up or small family farms may not have
sufficient equity in equipment or may be renting equipment and,
therefore, a cash crop is all that is available to secure an annual ML.
In this case, a lien on the crop produced with loan funds may provide
security for the loan. FSA believes that flexibility in security
requirements is another tool in meeting the needs of small family farms
by providing affordable credit alternatives to credit card and high
interest financing.
Applicability of Other Regulatory Requirements
Other existing and applicable regulatory requirements pertaining to
development of operating plans, loan processing and closing, use of
loan funds, loan servicing, and environmental requirements not
specifically amended by this proposed rule will apply to MLs, like
other OLs.
Lo-Doc OLs
The Lo-Doc OL application process is not widely used, for example
only 3 percent of OLs obligated in FY 2010 were Lo-Doc loans. As a
result of the Lo-Doc application process not being used, FSA has
determined that a new program that changes not only the application
process but also some eligibility and security requirements would be
more appropriate rather than attempting to revise the Lo-Doc process. A
large percentage of applicants that could have applied for a Lo-Doc OL
will be able to apply for an ML. Therefore, FSA proposes to remove the
Lo-Doc provisions from the Code of Federal Regulations. Removal of the
Lo-Doc Program is not expected to have a significant impact on the
public.
Executive Orders 12866 and 13563
Executive Order 12866, ``Regulatory Planning and Review,'' and
Executive Order 13563, ``Improving Regulation and Regulatory Review,''
direct agencies to assess all costs and benefits of available
regulatory alternatives and, if regulation is necessary, to select
regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety effects, distributive
impacts, and equity). Executive Order 13563 emphasized the importance
of quantifying both costs and benefits, of reducing costs, of
harmonizing rules, and of promoting flexibility.
The Office of Management and Budget (OMB) designated this rule as
not significant under Executive Order 12866 and, therefore, OMB has not
reviewed this proposed rule.
Clarity of the Regulation
Executive Order 12866, as supplemented by Executive Order 13563,
requires each agency to write all rules in plain language. In addition
to your substantive comments on these proposed rules, we invite your
comments on how to make them easier to understand. For example:
Are the requirements in the rule clearly stated? Are the
scope and intent of the rule clear?
Does the rule contain technical language or jargon that is
not clear?
Is the material logically organized?
Would changing the grouping or order of sections or adding
headings make the rule easier to understand?
Could we improve clarity by adding tables, lists, or
diagrams?
Would more, but shorter, sections be better? Are there
specific sections that are too long or confusing?
What else could we do to make the rule easier to
understand?
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by
the Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA), generally requires an agency to prepare a regulatory
flexibility analysis of any rule subject to the notice and comment
rulemaking requirements under the Administrative Procedure Act (5
U.S.C. 553) or any other statute, unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. FSA has determined that this rule will not
have a significant impact on a substantial number of small entities for
the reasons explained below. Consequently, FSA has not prepared a
regulatory flexibility analysis.
The term small entities include small businesses, small
organizations, and small governmental jurisdictions. For the purposes
of assessing the impacts of this rule on small entities, a small
business will be as described in the Small Business Administration's
Table of Small Business Size Standards by North American Industry
Classification System (NAICS) Category (13 CFR
[[Page 31224]]
121.201). This includes the following categories and the relative size
standards that will apply to the entities requesting microloans. All of
the entities that would request a microloan would be small businesses
that produce crops and livestock in subsectors 111 and 112 listed under
13 CFR 121.201. These categories cover all primary agricultural
production. Under the SBA Small Business Size Standard for these two
NAICS subsector categories, the majority of businesses are considered
small when they receive less than $750 thousand in annual receipts, the
threshold is higher for two subcategories of animal production. (See 13
CFR 121.201, subsectors 112112 and 112310.) This standard does not
exclude any of the potential farm loan borrowers who will make use of
the proposed modifications to the OL Program. Nevertheless, even if the
applicants under the proposed ML Program were considered small
entities, there would not be a substantial number affected by the rule.
Overall, this is a new application process and greater options for
eligibility and security for small loans within the existing OL
Program, so theoretically some of the loans could be made under the
existing program. Therefore, small entities in two credit segments have
to be considered for this analysis. One segment is the number of
existing borrowers who might take advantage of the modifications in
eligibility for future loans. The other segment is the number of new
borrowers who might never have applied for an FSA operating loan
without the modifications. The number of existing borrowers who might
make use of the application, eligibility, and security modifications
for future loans can be precisely estimated using fiscal year 2011
direct operating loan data. Given that the maximum borrowing limit is
$35,000 as proposed in the rule, it is estimated there would be at most
3,340 borrowers with $102.7 million in loans in this segment. However
since these are existing borrowers with the same credit needs, this
segment will have no additional economic impact. Only the demand by
additional borrowers will have an incremental economic impact. This
additional demand is more difficult to estimate. Preliminary estimates
assume the new borrowers will be younger, below the age of 35, and have
relatively low annual sales, less than $10,000 annually. Using data
from the 2007 Census of Agriculture, this segment of producers consists
of about 14,434 primary operators. Historically FSA direct operating
loans have captured only 2 percent of the agricultural credit market,
so fewer than 300 borrowers will probably be added. Therefore, about
4,000 entities could be affected by this rule with an economic impact
of only about $10.5 million (300 new borrowers times $35,000 in loans
per borrower).
Furthermore, the minimal regulatory requirements will impact large
and small businesses equally as part of the loan making process since
MLs are distinguished based on the size of the loan. ML applicants will
have a lower paperwork burden that will be commensurate with the
smaller loan amount due to a reduction in documentation required for
these loans. Therefore, in accordance with the Regulatory Flexibility
Act, FSA is certifying that there would not be a significant economic
impact on a substantial number of small entities. Due to the limited
number of entities, the economic effects from any additional lending
are unlikely to have a substantial impact on entities of any size.
Environmental Review
The environmental impacts of this proposed rule have been
considered in a manner consistent with the provisions of the National
Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations
of the Council on Environmental Quality (40 CFR parts 1500-1508), and
the FSA regulations for compliance with NEPA (7 CFR 799 and 7 CFR part
1940, subpart G). FSA concluded that simplifying the application
process and adding flexibility for meeting loan eligibility and
security requirements to encourage small farm operation participation
in its OL program explained in this proposed rule are administrative in
nature and will not have a significant impact on the quality of the
human environment either individually or cumulatively. The
environmental responsibilities for each prospective applicant will not
change from the current process followed for all FLP actions (7 CFR
1940.309). Therefore, FSA will not prepare an environmental impact
statement on this proposed rule.
Executive Order 12372
Executive Order 12372, ``Intergovernmental Review of Federal
Programs,'' requires consultation with State and local officials. The
objectives of the Executive Order are to foster an intergovernmental
partnership and a strengthened Federalism, by relying on State and
local processes for State and local government coordination and review
of proposed Federal Financial assistance and direct Federal
development. For reasons set forth in the Notice to 7 CFR part 3015,
subpart V (48 FR 29115, June 24, 1983), the programs and activities
within this rule are excluded from the scope of Executive Order 12372.
Executive Order 12988
This proposed rule has been reviewed in accordance with Executive
Order 12988, ``Civil Justice Reform.'' The provisions of this proposed
rule will not have preemptive effect with respect to any State or local
laws, regulations, or policies that conflict with such provision or
which otherwise impede their full implementation. The rule will not
have retroactive effect.
Executive Order 13132
This rule has been reviewed under Executive Order 13132,
``Federalism.'' The policies contained in this rule would not have any
substantial direct effect on States, on the relationship between the
Federal Government and the States, or on the distribution of power and
responsibilities among the various levels of government. Nor would this
rule impose substantial direct compliance costs on State and local
governments. Therefore, consultation with the States is not required.
Executive Order 13175
This rule has been reviewed for compliance with Executive Order
13175, ``Consultation and Coordination with Indian Tribal
Governments.'' The Executive Order imposes requirements on the
development of regulatory policies that have tribal implications or
preempt tribal laws. The USDA Office of Tribal Relations has concluded
that the policies contained in this rule do not, to our knowledge,
preempt Tribal law.
As part of an ongoing collaboration, FSA provided government-to-
government consultation with Tribal governments to discuss this
proposed rule. In February, 2012, the Farm Service Agency (FSA) held
three teleconference sessions for all federally recognized Tribal
governments. The teleconference session was also offered to intertribal
organizations, and individual Native Americans and Alaska Natives. The
purpose of these teleconferences was to present information about
important program changes and the new Microloan Program. FSA also
provided an overview of the subjects to be discussed with the
invitation letter prior to the teleconferences. These Tribal
Consultation conversations and presentations were held to help guide
[[Page 31225]]
USDA in understanding any challenges that may be associated with the
implementation of the new Microloan program among Tribal communities
and within Tribal governments. A question and answer period was held
immediately following each topic presentation by the FSA Administrator
and staff from FSA's Farm Loan Programs. This proposed rule
incorporates the information FSA received during these Tribal
Consultations. In addition, comments from the general public are being
requested on this proposed rule for 60 days following its publication
in the Federal Register and FSA encourages individual Native Americans
and Alaska Natives, Tribal governments, and intertribal organizations
to provide additional comments during this comment period.
FSA will continue to respond in a timely and meaningful manner to
all Tribal government requests for Tribal consultation about this rule
and its implementation and will provide additional avenues, such as
webinars and teleconferences, to periodically host collaborative
conversations with Tribal leaders and their representatives about ways
to improve this program and rule in Indian Country.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995, the
following new information collection request that supports the new ML
program is being submitted to OMB. FSA is requesting comments from
interested individuals and organizations on the information collection
activities related to the ML application process as described in this
proposed rule. FSA is currently modifying the loan application process
in order to provide loans to eligible borrowers through the ML process.
This information collection request will be incorporated into FSA's
approved information collection of the same title and OMB control
number 0560-0237.
Title: Direct Loan Making.
OMB Control Number: 0560-New.
Type of Request: New Collection.
Abstract: This information collection is required to support the
regulation changes in 7 CFR 764, ``Direct Loan Making,'' which
establishes the requirements for most of FSA's direct loan programs
including the new ML application process. The information collection
established in this proposed rule is necessary for FSA to evaluate the
applicant's request and determine if eligibility, loan repayment, and
security requirements can be met.
Estimate of Burden: Public reporting for this collection of
information is estimated to average 4.27 hours.
Type of Respondents: Individuals or households, businesses or other
for profit, and farms.
Estimated Number of Respondents: 5,142.
Estimated Average Number of Responses per Respondent: 5.71.
Estimated Total Annual Number of Responses: 29,372.
Estimated Total Annual Burden on Respondents: 21,938 hours.
We are requesting comments on all aspects of this information
collection and to help us:
(1) Evaluate whether the collection of information is necessary for
the proper performance of the functions of FSA, including whether the
information will have practical utility;
(2) Evaluate the accuracy of FSA's estimate of burden including the
validity of the methodology and assumptions used;
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the collection of information on those
who are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology.
All comments received in response to this notice, including names
and addresses when provided, will be a matter of public record.
Comments will be summarized and included in the submission for OMB
approval.
E-Government Act Compliance
FSA 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.
List of Subjects
7 CFR Part 761
Accounting, Loan programs-agriculture, Rural areas.
7 CFR Part 764
Agriculture, Disaster assistance, Loan programs-agriculture.
For reasons discussed above, FSA proposes to amend 7 CFR chapter
VII as follows:
PART 761--FARM LOAN PROGRAMS; GENERAL PROGRAM ADMINISTRATION
1. The authority citation for part 761 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
2. Amend Sec. 761.2 as follows:
a. In paragraph (a), remove the abbreviation ``Lo-Doc'' and add an
abbreviation, in alphabetical order, for ``ML Microloan'';
b. In paragraph (b), add definitions, in alphabetical order, for
``Apprentice'' and ``Microloan''; and
c. In paragraph (b), remove the definition of ``Low-Documentation
Operating loan.''
The additions read as follows:
Sec. 761.2 Abbreviations and definitions.
* * * * *
(a) * * *
ML Microloan.
* * * * *
(b) * * *
Apprentice means an individual who receives applied guidance and
input from an individual with the skills and knowledge pertinent to the
successful operation of the farm enterprise being financed.
* * * * *
Microloan is a type of OL of $35,000 or less made under reduced
application, eligibility and security requirements.
* * * * *
3. Amend Sec. 761.103 as follows:
a. Revise paragraph (b), introductory text;
b. Redesignate paragraphs (c) through (e) as paragraphs (d) through
(f); and
c. Add paragraph (c).
The revision and addition read as follows:
Sec. 761.103 Farm assessment.
* * * * *
(b) Except for ML, the initial assessment must evaluate, at a
minimum, the:
* * * * *
(c) For ML, the Agency will complete a narrative that will
evaluate, at a minimum, the:
(1) Type of farming operation and adequacy of resources;
(2) Amount of assistance necessary to cover expenses to carry out
the proposed farming plan, including building an adequate equity base;
(3) The goals of the operation;
(4) The financial viability of the plan, including a marketing plan
and available production history, as applicable;
(5) Supervisory plan; and
(6) Training plan.
* * * * *
4. Amend Sec. 761.104 by redesignating paragraphs (e) and (f) as
(f) and (g), and adding paragraph (e) to read as follows:
Sec. 761.104 Developing the farm operating plan.
* * * * *
[[Page 31226]]
(e) For MLs, when projected yields and unit prices cannot be
determined as set forth in paragraphs (c) and (d) of this section
because the data is not available or practicable, documentation from
other reliable sources may be used.
* * * * *
PART 764--DIRECT LOAN MAKING
4. The authority citation for part 764 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Sec. 764.1 [Amended]
5. Amend Sec. 764.1 paragraph (b)(2) by adding the words ``ML
and'' immediately following the word ``including''.
6. Revise Sec. 764.51 paragraph (c) to read as follows:
Sec. 764.51 Loan application.
* * * * *
(c) For an ML request, all of the following criteria must be met:
(1) The loan requested is:
(i) To pay annual or term operating expenses, and
(ii) $35,000 or less and the applicant's total outstanding Agency
OL debt at the time of loan closing will be $35,000 or less;
(2) The applicant must submit the following:
(i) Items (1), (2), (3), (6), (7), (9), and (11) of paragraph (b)
of this section;
(ii) Financial and production records for the most recent
production cycle, if available, and practicable to project the cash
flow of the operating cycle, and
(iv) Verification of all non-farm income relied upon for repayment;
and
(3) The Agency may require an ML applicant to submit any other
information listed in paragraph (b) of this section upon request when
specifically needed to make a determination on the loan application.
* * * * *
7. Amend Sec. 764.101 as follows:
a. In paragraph (i)(3) at the end of the first sentence add the
text ``or the applicant may have obtained and successfully repaid one
FSA Youth-OL''; and
b. Add paragraph (i)(4).
The addition reads as follows:
Sec. 764.101 General eligibility requirements.
* * * * *
(i) * * *
(4) Alternatives for ML. ML applicants also may demonstrate
managerial ability by one of the following:
(i) Certification of a past association with an agriculture-related
organization, such as 4-H Club or FFA, that demonstrates experience in
a related enterprise; or
(ii) A written description of a self directed apprenticeship for
the first operating cycle. The applicant will agree as a condition of
the loan to seek, receive, and apply guidance, during the first
production cycle of production and marketing typical to the applicant's
specific operation, with an individual who is knowledgeable of
production and marketing practices that are pertinent to the
applicant's operation and will provide a developmental partnership to
share knowledge, skills, information, and perspective of agriculture to
foster professional growth. The intent of this apprenticeship is to
provide the applicant with the skills and knowledge necessary to manage
their operation on their own. They may continue the apprenticeship
beyond the first operating cycle, but they are not required to do so.
Sec. 764.103 [Amended]
8. Amend Sec. 764.103 as follows:
a. Amend paragraph (c), by adding ``ML'' after the words
``downpayment loans''; and
b. Amend the last sentence of paragraph (e) by removing the words
``conservation loans'' and adding, in their place, the words ``CL,
ML''.
9. Amend Sec. 764.251 as follows:
a. Revise paragraph (a), introductory text; and
b. Revise paragraph (b).
The revisions read as follows:
Sec. 764.251 Operating loan uses.
(a) OL funds may only be used for:
* * * * *
(b) ML funds may be used for any OL purpose.
10. Amend Sec. 764.255 as follows:
a. Revise paragraph (b), introductory text; and
b. Add paragraph (c).
The revision and addition read as follows:
Sec. 764.255 Security requirements.
* * * * *
(b) Except for MLs, by a:
* * *
(c) For MLs:
(1) All loans must be secured by assets having a security value of
at least 100 percent of the loan amount.
(2) A lien is required on foundation livestock or equipment
purchased with term ML funds.
(3) Improvements to farm real estate (such as, well drilling, small
barns, storage sheds, or underground irrigation) may be secured by
equipment, foundation livestock, or similar chattel security if
available and adequate to meet the 100 percent security requirement. A
lien on real estate will only be taken if other security is not
available to adequately meet 100 percent security requirement.
(4) Crops and livestock products may be taken as security for
annual operating MLs only when other available security does not meet
the 100 percent security requirement.
Signed on April 27, 2012.
Bruce Nelson,
Administrator, Farm Service Agency.
[FR Doc. 2012-12685 Filed 5-23-12; 8:45 am]
BILLING CODE P