[Federal Register Volume 81, Number 129 (Wednesday, July 6, 2016)]
[Rules and Regulations]
[Pages 43927-43937]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16005]



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  Federal Register / Vol. 81, No. 129 / Wednesday, July 6, 2016 / Rules 
and Regulations  

[[Page 43927]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1942

RIN 0575-AD05


Community Facility Loans

AGENCY: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, Farm Service Agency, USDA.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: The Rural Housing Service (RHS) is amending regulations on 
Community Facility Direct Loans to enable the Agency to make loans to 
eligible lenders who would then in turn re-loan those funds to 
applicants for projects that are eligible under the Community 
Facilities Direct Loan program.

DATES: Effective date: This interim rule is effective July 6, 2016.
    Comments due date: Written comments on this rule must be received 
on or before September 6, 2016. The comment period for information 
collections under the Paperwork Reduction Act of 1995 continues through 
September 6, 2016.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions on Regulations.gov for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or another mail courier service requiring a street address 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street SW., 7th Floor, Suite 701, 
Washington, DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street SW., address listed above.

FOR FURTHER INFORMATION CONTACT: Kristen Grifka, Rural Housing Service, 
U.S. Department of Agriculture, 1400 Independence Avenue SW., 
Washington, DC 20250-3225; telephone: (202) 720-1504. Email contact: 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Executive Summary

A. Overview

    This rulemaking adds provisions to the Community Facility (CF) 
Direct Loan program that allow the Agency to make direct loans to 
eligible lending institutions (referred to as ``re-lenders'') who then 
will re-loan the funds to eligible applicants for eligible community 
facility projects. The rulemaking identifies the types of lending 
institutions that are eligible to become re-lenders as described in an 
annual Notice that the Agency will publish in the Federal Register to 
exercise this authority. The annual Notice will set out application 
procedures in more detail to supplement the regulation requirements. 
All applicants and projects must meet the eligibility requirements 
found at 7 CFR part 1942, subpart A or any successor regulation.
    Re-lenders are responsible for all loan origination and servicing. 
Re-lenders must obtain Agency approval of applicant and project 
eligibility. The Agency will obligate aggregated funds to each approved 
eligible re-lender, but will disburse funds to such re-lenders for 
eligible projects on a project-by-project basis after making limited 
eligibility reviews. The re-lender is responsible for providing the 
Agency with status and servicing reports on each re-loan according to 
its Re-lender Agreement with the Agency. The Agency will use the 
information to monitor portfolio performance on the re-loans and to 
assess the risk to the Agency on the re-lender's portfolio of re-loans.
    Because this rule concerns a loan program, it is not subject to the 
requirements of notice and comment rulemaking pursuant to 5 U.S.C 
552(a)(2); however, the Agency is very interested in receiving comments 
regarding the re-lender activities authorized under this rule and their 
impacts on the ability of the Agency to make CF direct loan funds 
available, especially in areas of economic development need. Therefore, 
this rule is being promulgated as an interim rule to provide interested 
parties and the public with the opportunity to provide comments to the 
rule before it becomes final.
    The rule will be effective immediately. The 30 day effective date 
policy is exempt for ``good cause.'' USDA has determined, consistent 
with the APA that making these funds available through re-lenders is 
necessary to provide CF funding to the hardest to reach and most needy 
areas this fiscal year. The Agency intends to test the new program this 
year with available funds and implement a final rule based on its 
findings.
    The Agency is soliciting comments on this interim rule and will 
consider them in the final rule. The Agency is particularly interested 
in whether the public believes the re-lender structure is the best way 
to reach more persistent and high poverty areas or whether there are 
alternate proposals.

B. Costs and Benefits

    The action is not expected to result in significant costs to the 
public. Generally speaking, the re-lenders will have a proven track 
record of successful lending for community infrastructure development 
in high poverty communities. Additionally, the Agency will continue to 
perform its due diligence in reviewing and determining applicant and 
project eligibility for each loan made by the re-lender. Therefore, 
loans will be made only to strong, viable, mission driven lending 
institutions for CF eligible projects. These risk mitigation strategies 
should provide protection to the mission and portfolio of the CF Direct 
Loan program.
    The costs associated with these new provisions will be incurred 
mainly by

[[Page 43928]]

the lending institutions who participate in the re-lending of CF direct 
loans. Re-lenders will incur costs associated with the application 
process as well as originating, processing, and servicing loans to 
applicants. Re-lenders will also incur costs associated with reporting 
to USDA. Applicants will work directly with re-lenders for processing 
and servicing loans. Applicants may incur additional upfront costs 
working with a re-lender versus obtaining a loan directly from the 
Agency. However, the applicant will likely obtain other benefits 
working with a re-lender that may offset these costs in the long-term. 
The end result will be a more financially viable project providing an 
essential community facility or service to the community for years to 
come.
    With the re-lending provision it is expected that re-lenders will 
leverage these Federal funds with other private and philanthropic 
funding so that applicants do not incur additional costs. By obtaining 
private sector support in the form of grants or guarantees, a community 
re-lender could reduce the cost of structuring the transaction, 
providing technical assistance to the borrowers, and servicing the 
loan.
    In addition, there may be instances where the applicant incurs 
higher financing costs. In instances where the borrower receives higher 
financing costs than he/she would have received through a direct loan, 
the Agency believes that those costs may be outweighed by other 
benefits such as the ability to receive funding more quickly and the 
projects may be able to receive additional technical assistance. There 
may also be instances where a re-lender could use private grants to 
offer a lower interest rate to the applicant. For example, if the 
community lender obtained a grant of $1 million paired with a loan from 
the CF program of $10 million, the grant could cover not only the re-
lenders cost of doing business but subsidize the interest rate to the 
ultimate recipient even below the CF program market rate. The Agency is 
not able to estimate how often this would occur though, if at all.
    Most importantly, this provision provides re-lenders with capital 
that they currently lack thereby enhancing their lending capacity so 
that they can make loans to applicants that otherwise may go unserved, 
especially in places with high or persistent poverty.
    Ultimately, the benefit of the new provision is expected to be an 
increase in the number of projects that receive funds under the CF 
Direct Loan program, especially in communities that have historically 
been economically underserved. There are three factors that work 
together to achieve this goal: (1) Working with mission driven re-
lenders, who already work in the targeted high poverty communities, to 
deploy CF loan funds in those places, (2) providing those re-lenders 
with additional capital so they can increase their capacity to make 
investments in community infrastructure projects, and (3) re-lenders 
can leverage the CF funds they receive with other private and 
philanthropic sources of funds in order to provide the right mix of 
affordable credit with the necessary technical assistance.
    First, the re-lenders have proven track records of mission driven 
lending in high poverty places. The aim of these institutions is to 
pull together capital to meet a range of community needs as such they 
typically combine financial return with a social return. Further, the 
history of working in the community and longstanding relationships 
means they have the ability to tap different resources and expertise, 
have boots on the ground and are already visible and working in these 
areas we want to reach. The existing relationships between re-lenders 
and community leaders would facilitate and expedite project development 
that is supported by the community-at-large, resulting in the applicant 
benefitting from the improved service/facility sooner than under 
traditional CF lending. Also because of the longstanding work in the 
community the re-lenders traditionally have technical resources/
complimentary programs available to assist applicants. Examples: assist 
a local nonprofit write a business plan for a daycare facility; assist 
a local nonprofit with a capital campaign; assist a local community 
with a strategic plan. Each of these ancillary services will likely 
result in a project that the re-lender can assist with. By relying on 
this network of re-lenders, the Agency will not only increase the 
number of projects funded through the CF Direct Loan program overall it 
will also increase the number of projects funded in high poverty and 
persistently poor communities.
    Second, re-lenders often lack capital to support all of the much 
needed community infrastructure projects in the communities they serve. 
This change will enable a system of lenders who will originate, 
structure, underwrite, and finance sustainable rural community 
infrastructure projects. By providing these lenders with additional 
capital they will be able to grow, achieve organizational capacity, and 
fund more projects that will improve access to health care, education 
and other critical services, which will help ensure that rural 
communities are strong, viable and economically well off.
    Lastly, this provision will encourage greater leveraging of private 
and philanthropic investments in rural community infrastructure. The 
re-lenders have established relationships with other private and 
philanthropic funders. Thus the addition of CF funds could unlock 
additional capital to support community infrastructure development such 
as grant funding, as previously mentioned, to CF re-lenders. These 
grant dollars will give community lenders more flexibility and strength 
as they borrow from the USDA. This will help the re-lenders:
     Develop critically needed community facilities in 
America's most persistently poor rural communities that would not 
otherwise be feasible.
     Strengthen community lenders with deep and lasting ties to 
the local market so they can be enduring resources in economically 
distressed areas.
     Take advantage of community re-lenders' development 
expertise and knowledge of the local markets to identify the best 
community facilities investments.
     Establish partnerships that enable government, private 
foundations and mission investors to efficiently leverage and 
effectively target funding to the neediest rural areas.
    If the Agency does not make this change the CF Direct Loan program 
will continue operating as it currently does. In FY15, CF invested 70% 
of its direct loan funds in facilities that serve high poverty areas. 
However, there are still some rural places with high poverty areas and 
persistent poverty counties that remain underserved. These communities 
need technical and financial support in order to develop an 
infrastructure project and secure adequate and affordable financing and 
ensure facilities are built and essential services are provided to some 
of the most vulnerable rural populations. This change seeks to partner 
with re-lenders who are positioned to provide the technical assistance 
to help these communities develop and fund community infrastructure 
projects.
    To better understand the nature of persistent poverty and to help 
the USDA determine the way to reach those areas, Rural Development (RD) 
worked with a partner through a cooperative agreement, to learn more 
about persistent poverty and increasing the impact of RD dollars in 
these areas. Efforts included holding focus groups with key 
stakeholders in persistent poverty counties and high poverty areas, and 
analyzing data. In total, five (5) focus groups were convened with

[[Page 43929]]

numerous national and regional players in the community development 
organizations (CDOs) field. The purpose was to understand the needs 
that exist in areas of persistent poverty, what programs are 
successfully addressing these challenges, and how these stakeholders 
think RD could increase its impact and build on effective approaches. 
Four of the focus groups were held in the regions of concentrated 
persistent poverty including Appalachia, the Colonias, the Mississippi 
Delta, and in Indian Country, and one was held with RD officials.
    In addition to the focus groups, a listening session with key 
national players or CDOs was held in Washington, DC on November 30, 
2015 as well as various individual conversations were also held with 
other high-performing CDOs and regional Federal Reserve Banks to gain 
their perspectives as well. Several common themes emerged from the 
regional focus groups. These themes included challenges persistent 
poverty regions encounter and common solutions that have demonstrated 
success in these regions, which include:
    Common Challenges:
     Limited access to mainstream financial products and 
services--Residents of all regions are often turned down for checking 
and savings accounts, or are found ineligible for loans or are extended 
loan instruments with unfavorable terms.
     Banking Deserts--They often have few if any traditional 
banking entities in or near their communities.
     Insufficient Private Investment and Lack of Reinvestment--
The financial institutions that do exist in these communities are often 
hesitant to extend services to low-income clients, and there is a 
perception that much of the local money that is held at these banks is 
reinvested elsewhere.
     Mission-Driven Banking and the Need for Scale--Credit 
unions and other non-traditional financing entities fill the gap 
created by inadequate private investment, but these entities need more 
equity and human capital to have more expansive impact.
     Scattered Geographies and Expensive Services--These 
regions are largely rural, and residences and services can be a great 
distance from one another. The further communities are from utilities 
and other technologies, the more costly they are, if they are available 
at all.
     Social Distress--Substance abuse and fragmented families 
are not uncommon in these communities. People also need help 
envisioning a positive future.
     Outmigration--Many of the most highly educated residents 
have a tendency to move away for better job opportunities.
     Poor Quality Education--It was universally agreed that the 
school systems in these communities are not preparing students for a 
productive future.
     Infrastructure--These regions have sub-standard roads and 
require much-needed infrastructure improvements ranging from water 
systems to broadband to make them more competitive.
    Common Solutions:
     Value of Nonprofits--Areas of persistent poverty rely 
heavily on nonprofits and other mission-driven institutions to meet 
their social and economic needs (capital access, loan packaging 
services, etc.), but these organizations need more financial and human 
capacity.
     Technical Assistance--High performing mentorships, 
training opportunities, internships and other forms of information-
sharing can boost human capacity.
     Multi-Sectoral Partnerships--Everyone agreed that 
strategically partnering with a variety of different organizations with 
similar overall missions is always valuable. It builds capacity, and 
leverages different skill sets and resources for greater impact.
     Streamlining--When it comes to implementing a program, 
applying for funding, or assisting residents, finding ways to simplify 
the process as much as possible increases efficiency and effectiveness.
     Strategic Planning--Programs are more likely to get funded 
and be successful in the long-term if the groundwork is carefully laid 
before building partnerships and seeking funding.
     Employing Locals--All regions were supportive of finding 
ways to incentivize businesses to hire locally for community and 
infrastructure projects or business relocations and expansions.
    In persistent poverty communities such as Appalachia, the Colonias, 
the Mississippi Delta, and in Indian Country, there is a rich and 
successful history of community development. Poverty produces a 
multitude of social and economic stressors that compromise the growth 
and health of affected communities and their residents, particularly 
those saddled with high levels of disinvestment over prolonged periods 
of time.
    The USDA's Economic Research Service (ERS) has classified 353 
counties in the U.S. as `persistently poor.' These chronically 
impoverished communities have sustained poverty rates above 20 percent 
for more than 30 years, and account for approximately 11 percent of all 
counties nationwide. While dispersed across the U.S., these communities 
are largely rural and concentrated in Central Appalachia, the Deep 
South (largely in the Mississippi Delta), the Texas-Mexico border 
(Colonias), and American-Indian reservations. The social and economic 
challenges that have handicapped progress in these communities have a 
number of dimensions.
    High-impact CDOs, distinct from banks, investment funds, and other 
economic development organizations, have a demonstrated track record of 
implementing the kinds of creative and time-intensive activities that 
are necessary to create jobs, provide affordable housing, build 
necessary infrastructure, and strengthen the financial security of 
millions of lower-income Americans. The focus groups revealed that the 
problems faced by these communities are complex and multi-layered. 
Essential community facilities provide high poverty areas with critical 
services through hospitals, schools, community centers, and fire and 
police stations. It is not uncommon for distressed areas to be some 
distance away from the nearest high quality grocery store or health 
care facility, or for school buildings to be in need of updating. 
Building hospitals, rehabilitating educational institutions, or 
providing space for other core social and human services can enhance 
the quality and quantity of services needed to address the social and 
economic strains faced by these counties.
    This rulemaking adds provisions to the CF Direct Loan program that 
allows the Agency to make direct loans to re-lenders who then re-loan 
the funds to eligible applicants for eligible projects. The action will 
not change the underlying provisions of the included programs (e.g., 
eligibility, applications, award decisions, scoring, and servicing 
provisions). The primary benefit associated with the new provisions is 
expected to be an increase in the number of projects that receive funds 
under the CF Direct Loan program, especially in persistent poverty 
counties and high poverty areas in rural America. The costs are 
minimal. Ultimately, this approach provides an innovative public 
private partnership that will enable the Federal government to more 
effectively serve its rural constituents and stakeholders and bolster 
rural community viability.

[[Page 43930]]

II. Discussion of Interim Rule

    The following paragraphs discuss each change being made to the CF 
Direct Loan program regulations.

A. General (Sec.  1942.1)

    The Agency is modifying this section by including language in 
paragraph (a) of the section indicating that 7 CFR part 1942, subpart 
A, contains policies and procedures that allow the Agency to make CF 
direct loans to approved eligible re-lenders who then in turn re-lend 
those funds to eligible applicants for eligible projects. The Agency is 
also re-paragraphing Sec.  1942.1(a) for clarity.

B. Re-Lending (Sec.  1942.30)

    This new section contains the basic policies and procedures 
associated with the Agency making loans to re-lenders (i.e., those 
eligible lenders to whom the Agency will make direct loans for purposes 
of re-lending those funds to eligible applicants for eligible 
projects). Under these provisions, re-lenders will be responsible for 
all loan origination and servicing of re-lender loans, and for repaying 
its loan to the Agency even if the ultimate borrower(s) does not repay 
the re-lender. The Agency will obligate aggregated funds to approved 
eligible re-lenders for the purpose of making CF loans, but will 
disburse loan funds to these re-lenders only on a project-by-project 
basis. This structure will ensure that only eligible applicants and 
projects will receive Federal dollars and allow re-lenders to lock in 
low interest rates and reduce their interest costs with Agency loan 
disbursements over 5 years.
    1. Re-lender eligibility (paragraph a). This paragraph identifies 
the conditions under which a lender would be eligible to be a re-lender 
for CF direct loans. Re-lenders eligible for these loans must possess 
the legal authority necessary to make and service loans involving 
community infrastructure and development similar to the type of 
projects listed in 7 CFR 1942.17(d); meet federal, state and local 
requirements in accordance with 7 CFR 1942.17(k); have a history of 
making loans to community infrastructure projects located in or serving 
persistent poverty counties or high poverty areas; provide adequate 
collateral; provide a Letter of Intent; provide an irrevocable letter 
of credit (or performance guarantee) acceptable to the Agency, prior to 
receiving loan disbursements; demonstrate that they are regulated and 
supervised by a Federal or State Banking regulatory agency that is 
subject to credit examination or demonstrate they meet outlined 
standards for required financial strength, be a legal non-governmental 
entity at the time of application (with the exception of Tribal 
government entities); be a member of a national organization that 
provides training, technical assistance and credit evaluation of member 
organizations, agree to loan a majority of funds to applicants whose 
projects are located in or serve Persistent Poverty County(ies) and 
High Poverty Area(s); and meet any other criteria specified by the 
Agency in a Notice published in the Federal Register.
    2. Applicant and project eligibility (paragraph b). The purpose of 
this paragraph is to identify the types of applicants and the types of 
projects eligible to receive a CF direct loan through an eligible re-
lender. In brief, both the applicant and the project must meet the 
eligibility requirements currently associated with receiving a CF 
direct loan directly from the Agency.
    3. Application submission requirements (paragraph c) This paragraph 
outlines that in order to apply for funds under this section, a Re-
lender must timely submit all items as specified in the annual Federal 
Register notice.
    4. Evaluation criteria (paragraph d).
    This paragraph outlines that an Agency will score and rank all 
eligible and complete Re-lender applications based upon the evaluation 
factors set out in the annual Federal Register which will include, but 
not be limited to: Lending experience and strength of the re-lender, 
poverty and project service area, and Administrator's discretionary 
points.
    5. Other Re-lender requirements (paragraph e). This paragraph 
specifies that, prior to receiving a direct loan from the Agency, the 
re-lender must enter into a Re-lender's agreement in accordance with 
the applicable Federal Register notice, execute a promissory note, 
provide an irrevocable letter of credit (or performance guarantee) 
acceptable to the Agency, provide adequate security, and meet any other 
loan conditions outlined in the annual Federal Register notice.
    4. Loan origination and servicing (paragraph f). This paragraph 
identifies the basic responsibilities of both the re-lender and the 
Agency for re-lending loans.
    a. Re-lenders. The re-lender is responsible for all underwriting 
(loan origination) and loan servicing of each loan it makes under the 
re-lending provisions. For each loan a re-lender makes under the re-
lending provisions, the Agency expects that each re-lender generally 
will use its own policies and procedures for loan origination and 
servicing for all loans it makes.
    With regard to loan origination, however, the re-lender is 
responsible for presenting to the Agency each eligible CF direct loan 
application and any other documentation to demonstrate that both the 
applicant and the project meet the eligibility requirements of the CF 
direct loan regulation. If necessary, the Agency may request the re-
lender to submit additional information about the applicant or the 
project. The Agency may identify in the applicable annual Notice 
published in the Federal Register, any additional specific information 
and documentation to be provided by the re-lender.
    After the loan to the re-lender is made, the re-lender must submit 
reports to the Agency after any loan disbursement as specified in the 
annual Federal Register notice, certify that the applicant has met all 
planning, bidding, contracting and construction requirements as 
specified in the annual Federal Register notice, comply with agency 
requirements concerning NEPA, Civil Rights laws and other applicable 
Federal, state, and local law, and obtain disbursement of loan funds 
within 5 years.
    b. Agency. The basic responsibilities of the Agency are spelled out 
and cover four basic areas:
    i. Re-lender Eligibility. The Agency will evaluate the eligibility 
of the re-lender based on documentation submitted to meet the criteria 
outlined in the annual Federal Register Notice.
    ii. Applicant Eligibility. Re-lenders will submit to the Agency for 
Agency review and approval only those applications that the re-lender 
has determined meet the applicant and project eligibility requirements 
of 7 CFR part 1942, subpart A and any additional requirements that may 
be outlined in an annual Notice published in the Federal Register. For 
each CF direct loan application presented by the re-lenders, the Agency 
will evaluate all information provided by the re-lender to confirm the 
eligibility of both the applicant and the project. Once the Agency 
concludes its evaluation, the Agency will notify the re-lender of its 
determination. Applicants and re-lenders have administrative appeal or 
review rights for Agency decisions made under this subpart. 
Programmatic decisions based on clear and objective statutory or 
regulatory requirements are not appealable; however, such decisions are 
reviewable for appealability by the National Appeals Division (NAD). 
The applicant and re-lender may appeal any Agency decision that 
directly and adversely impacts them. For an adverse

[[Page 43931]]

decision that impacts the applicant, the re-lender and applicant must 
jointly execute a written request for appeal for an alleged adverse 
decision made by the Agency. An adverse decision that only impacts the 
re-lender may be appealed by the re-lender only. A decision by a re-
lender adverse to the interest of the borrower or applicant is not a 
decision by the Agency, whether or not concurred in by the Agency. 
Appeals will be conducted by USDA NAD and will be handled in accordance 
with 7 CFR part 11.
    ii. Funding. For each re-lender the Agency determines to be 
eligible, the Agency will obligate aggregated funds based on the re-
lender's application for funds and in compliance with additional 
criteria, if any, published in the annual Federal Register Notice. For 
each applicant/project that the Agency determines eligible, the Agency 
will disburse from the re-lender's aggregated loan funds the 
appropriate amount of funds to that re-lender for the approved project. 
The Agency will require adequate security and compliance with all 
applicable National Environmental Policy Act provisions prior to making 
any re-lender loan and disbursing any loan funds.
    The Agency will specify any terms and conditions associated with 
each loan from the Agency to a re-lender in the Re-lender's Agreement.
    iii. Monitoring. The Agency expects each re-lender to service each 
loan it makes under these provisions as it would any other loan it 
makes. Nevertheless, the Agency will require the re-lender to submit 
reports, as will be specified in the Re-lender's agreement that enable 
the Agency to evaluate the status of the loans made under these re-
lending provisions. The Agency may suspend further disbursements and 
pursue any other available and appropriate remedies, if any of the 
ultimate loans become troubled, delinquent or otherwise in default 
status.

III. Regulatory Information

Executive Order 12866--Classification

    This interim rule has been reviewed under Executive Order (EO) 
12866 and has been determined significant by the Office of Management 
and Budget (OMB) designated this rule as significant under Executive 
Order 12866 and, therefore, OMB has reviewed this interim rule.

Catalog of Federal Domestic Assistance

    The affected programs are listed in the Catalog of Federal Domestic 
Assistance Program under 10.766, Community Facilities Loans and Grants.

Executive Order 12372--Intergovernmental Review

    This program is subject to the provisions of Executive Order 12372, 
which requires intergovernmental consultation with State and local 
officials. The re-lender conducts intergovernmental consultations on 
behalf of the Agency for individual loans to borrowers in the manner 
delineated in 2 CFR part 415, subpart C and at RD Instruction 1970 
Subpart I--Intergovernmental Review. Note that not all States have 
chosen to participate in the intergovernmental review process. A list 
of participating States is available at the following Web site: http://www.whitehouse.gov/omb/grants/spoc.html.

Executive Order 13175--Consultation and Coordination With Indian Tribal 
Governments

    This rule has been reviewed in accordance with the requirements of 
Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments.'' Executive Order (EO) 13175 requires Federal 
agencies to consult and coordinate with tribes on a government-to-
government basis on policies that have tribal implications, including 
regulations, legislative comments or proposed legislation, and other 
policy statements or actions that have substantial direct effects on 
one or more Indian tribes, on the relationship between the Federal 
Government and Indian tribes or on the distribution of power and 
responsibilities between the Federal Government and Indian tribes.
    The Agency has assessed the impact of this rule on Indian tribes 
and determined that this rule does not, to our knowledge, have tribal 
implications that require tribal consultation under EO 13175. If a 
Tribe requests consultation, the Agency will work with the USDA's 
Office of Tribal Relations to ensure meaningful consultation is 
provided where changes, additions and modifications identified herein 
are not expressly mandated by Congress.

Executive Order 12988--Civil Justice Reform

    This 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 to this rule; and 
(3) administrative proceedings of the National Appeals Division (7 CFR 
part 11) must be exhausted before bringing suit in court challenging 
action taken under this rule unless those regulations specifically 
allow bringing suit at an earlier time.

Environmental Impact Statement

    The document has been reviewed in accordance with 7 CFR part 1970, 
``Environmental Policies and Procedures.'' The Agency 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 (NEPA) of 1969, 
42 U.S.C. 4321 et seq., an Environmental Impact Statement is not 
required. Individual loans will be subject to 7 CFR part 1970 for NEPA 
compliance.

Unfunded Mandates Reform Act

    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the Unfunded Mandates Reform Act of 1995) for 
State, local, and Tribal governments or the private sector. Thus, this 
rule is not subject to the requirements of sections 202 and 205 of the 
Unfunded Mandates Reform Act of 1995.

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 whenever an agency is required by the 
Administrative Procedure Act (5 U.S.C. 553) or any other law to publish 
a proposed rule, unless the agency certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities. None of the borrowers under the Community Facility Loan 
program are small businesses. Thus, this rule will not have a 
significant impact on a substantial number of small businesses.

Executive Order 13132--Federalism

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

E-Government Act Compliance

    The Agency is committed to complying with the E-Government Act, to 
promote the use of the Internet and

[[Page 43932]]

other information technologies to provide increased opportunities for 
citizen access to Government information and services, and for other 
purposes.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the Agency 
is now seeking the Office of Management and Budget (OMB) approval of 
the reporting and recordkeeping requirements contained in this rule. 
With the permission of OMB, the Agency will be temporarily using these 
forms and recordkeeping requirements while seeking comments on the 
information collection.
    Title: Community Facility Loans.
    OMB Number: 0575--new.
    Type of Request: New collection.
    Abstract: This is a new information collection. This information is 
vital to the Agency to make wise decisions regarding the eligibility of 
certain qualified lenders to be ``re-lenders'' under the Community 
Facility Loan program to ensure that funds obtained from the Government 
are used appropriately. This collection of information is necessary in 
order to implement the re-lender provisions of the modified Community 
Facility Loan program.
    The following estimates are based on the average over the first 
three years the re-lender provisions are in place.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 67 hours per response. This 
submission is for 20 respondents with 790 responses and 1,462 burden 
hours. Rural Development estimates 20 re-lender applications, 10 re-
lenders approved for funding and 50 applicant loans among the 10 re-
lenders on an annual basis. The estimated number of total man-hours on 
an annual basis is 1,462 for a total cost of $121,346 ($83 x 1,462). 
The cost of the regulations as a burden to the public was computed on 
the basis of $83.00 per hour. This is the wage class most comparable to 
what eligible nonprofit employee compensation would be to process the 
information requested. This is the same wage class used in the 
Intermediary Relending Program which has a similar type of re-lender 
(0570-0021 dated February 2016).
    Respondents: Lending institutions.
    Estimated Number of Respondents: 20.
    Estimated Number of Responses: 790.
    Estimated Total Annual Burden on Respondents: 1,462.
    Rural Development is amending its CF Direct Loan regulation to 
enable the Agency to make loans to qualified re-lenders. Information 
collected from the re-lender is necessary to determine re-lender 
eligibility which includes legal authority, compliance with federal, 
state, and local requirements, experience, and financial strength. Upon 
OMB approval, this collection package and burden will be merged into 
the existing Community Facility Loans burden package--OMB No. 0575-
0015.
    The information will be collected by the RD national office and 
field offices from re-lenders. This information is used to determine 
re-lender eligibility to participate in the Community Facilities 
program, to document that re-lenders have adequate security to protect 
the financial interest of the Government and to provide on-going 
reporting data to ascertain re-lenders operate on a sound basis 
including adhering to civil rights requirements.
    To participate in the CF re-lender provision, re-lenders must make 
application to RD, provide financial information, certifications and 
other documentation to support their eligibility and priority to 
receive funding. Documents or documentation in this category include 
the following:
    Reporting Requirements--Non Forms:
     Documentation of Legal Powers: Only re-lenders with legal 
authority to make and service loans involving community infrastructure 
and development will be eligible. Documentation may come in the form of 
a legal opinion or a copy of the re-lenders organizational documents.
     Certification of compliance with federal, state and local 
requirements: Re-lenders responsible for administering a loan fund need 
to understand and be in compliance with laws impacting their operations 
and the operations of the clients they serve. Examples include local 
building requirements, state laws regarding certificates of need for 
health care facilities, Equal Credit Opportunity Act, and environmental 
compliance.
     Documentation of Serving Persistent Poverty County(ies) or 
High Poverty Areas: Re-lenders are required to provide documentation of 
their current portfolio or experience providing loans in Persistent 
Poverty County(ies) or High Poverty Area(s) to determine eligibility 
and priority. This documentation is also used in the evaluation factors 
and does not need to be duplicated.
     Documentation from a Financial Institution that an 
Irrevocable Letter of Credit (or a performance guarantee) acceptable to 
the Agency will be issued if re-lender is approved for funding: Re-
lenders will provide this documentation at the time of application for 
eligibility. The purpose of this documentation (also referred to as a 
``Letter of Intent'') is to insure Rural Development that the re-lender 
is creditworthy for the amount of financial assistance requested.
     Documentation Regulated and Supervised by a Federal or 
State Banking Regulatory Agency, Subject to Credit Examination, Not on 
a Watch List, and No Regulatory Actions Outstanding: We estimate 
approximately 45% of re-lenders will provide this documentation for 
eligibility. The documentation insures Rural Development that the re-
lender has the requisite capital, asset quality, management, earnings, 
liquidity, and sensitivity to market risk to operate a federally 
financed loan fund.
     Documentation of strong Financial Strength and Performance 
rating: We estimate approximately 20% of re-lenders will provide this 
documentation for eligibility. The assessment, conducted by an 
independent third party, evaluates overall creditworthiness based on an 
analysis of past financial performance, current financial strength, and 
apparent risk factors. The documentation insures Rural Development that 
the re-lender has the requisite capital, asset quality, management, 
earnings, liquidity, and sensitivity to market risk to operate a 
federally financed loan fund.
     Documentation of being a financially sound institution: We 
estimate approximately 35% of re-lenders will need to undergo an 
assessment by Rural Development to assess their capital adequacy, 
adequate liquidity, management capabilities, repayment ability, credit 
worthiness, balance sheet equity & other financial factors. To conduct 
the assessment, Rural Development requires the following documentation:
    A. 3 years audited financial statements.
    B. Interim financial statements as of most recent quarter end.
    C. Auditor's most recent management letter and management's 
response.
    D. Operating Budget versus Actual for last completed fiscal year 
and most recent quarter-end.
    E. Schedule of outstanding debt (name of creditor, balance, 
origination and maturity dates, note rate, collateralization), and 
attach covenants.
    F. Schedule of 5 largest sources of grant funding over each of the 
last 3 fiscal years (including grantor name, amount granted, 
description of allowable uses or any restrictions).
    G. Schedule of 5 largest investors over each of the last 3 fiscal 
years (including investor name, total investment, form of investment, 
description of allowable uses or any restrictions).

[[Page 43933]]

    H. Schedule of any other funding sources, including off-balance 
sheet financing, for the last completed fiscal year and most recent 
quarter-end.
    I. List and description of any contingent liabilities.
    J. Schedule of loans receivable (including borrower, loan type, 
description of collateral, original and maturity dates, note rate, 
current status e.g. delinquency or nonaccrual).
    K. Schedule of loans restructured and modified in each of the last 
3 fiscal years and most recent YTD (including borrower, pre and post-
mod loan terms, and current payment status).
    L. Schedule of loans charged off in each of the last 3 fiscal years 
and most recent YTD, with any recoveries realized.
    M. Any external loan reviews performed over the last 3 years.
    N. Bylaws.
    O. Credit policies and procedures (loan underwriting, servicing, 
portfolio management).
    P. Loan risk grading and assessment system.
    Q. Enterprise risk management policies and procedures.
    R. Disaster recovery plan.
    S. Accounting policies (including loss reserve policies).
    T. Staff organizational chart, including names and titles for 
senior staff.
    U. Organizational chart showing relationships to any parents, 
subsidiaries, or affiliates.
    V. Management Team resumes.
    W. Succession plans for key leadership and staff.
    X. Board roster, with affiliations.
    Y. Board meeting minutes for past year.
    Z. Board meeting packets for last year.
    AA. Most recent strategic plan.
    BB. Most recent annual report.
    CC. Description of programs, financial and non-financial products 
and services.
     Documentation of Legal, Non-governmental Status (except 
for Tribal governments): Only non-governmental organizations (except 
for Tribal governments) will be eligible to participate as a re-lender. 
Documentation may come in the form of a legal opinion or a copy of the 
re-lenders organizational documents. This documentation is also used to 
determine legal powers and does not need to be duplicated.
     Documentation of Membership in a National Organization 
that provides training, technical assistance and credit evaluation or 
certified by a Government agency as having a primary mission of 
promoting development in low-income target markets and performs 
training and technical assistance as part of that mission: This 
documentation is used to determine re-lender eligibility. The purpose 
of the information is to provide Rural Development with assurances of 
the re-lender's basic credentials and professional standing in their 
industry and that their mission is aligned with the goals of the re-
lending provision.
     Certification to loan a majority of funds to applicants 
whose projects are located in or serve Persistent Poverty County(ies) 
or High Poverty Area(s): This certification for eligibility will 
provide to Rural Development the re-lender's commitment to providing 
economic benefit in areas of greatest need in rural America. Rural 
Development will review the re-lender's loan disbursements to determine 
that this eligibility criteria is met.
     RD Instruction 1970-A, Exhibit H, ``Multi-tier Action 
Environmental Compliance Agreement'': This agreement is signed by the 
re-lender (primary recipient of the loan funds) before Rural 
Development moves forward with obligation of the initial aggregated 
funds. The agreement stipulates the re-lender's environmental 
compliance requirements for applicant loans.
     Documentation of Assistance Provided to Rural Development 
Employees (written): Re-lenders must identify and report any known 
relationship or association with an RD employee such as close personal 
association, immediate family, close relatives, or business associates. 
This includes any assistance provided to employees.
     Documentation of each evaluation factor (written): Re-
lender applications will be prioritized for funding based on years of 
loan fund experience, lending history in Persistent Poverty County(ies) 
or Poverty Areas, and discretionary points for geographic distribution, 
emergency conditions, and natural disasters.
     Workers Compensation Insurance, if applicable: This form 
of insurance is normal in any organization and Rural Development 
requires it to be available at the time of application. However, 
insurance requirements will not normally exceed those proposed by the 
re-lender.
     Irrevocable Letter of Credit: This document (or a 
performance guarantee) acceptable to the Agency serves as security for 
the loan between the re-lender and Rural Development and will be 
required by all re-lenders prior to loan disbursement. This document is 
issued by a financial institution.
     Loan Origination and Servicing--applicant eligibility: 
Applicants will apply directly to re-lenders for financial assistance. 
Re-lenders will be responsible for insuring applicants and the 
applicant's projects are eligible under 7 CFR 1942 Subpart A, Community 
Facilities Loan program and underwriting the loans for financial 
feasibility. Applicants applying to re-lenders will meet the same 
application requirements as applicant's applying to Rural Development 
including all environmental review requirements of 7 CFR 1970. No 
additional burden by Rural Development will be placed on the applicant. 
Re-lenders will pass through to Rural Development certain applicant 
documents to obtain Rural Development concurrence in applicant 
eligibility, project eligibility and eligible rural area.
     Loan Origination and Servicing--reporting: Rural 
Development will monitor the re-lender's portfolio on a quarterly and 
annual basis to insure the re-lender remains a financially sound 
institution in compliance with its Re-lender's Agreement.
    Reporting Requirements--Forms:
     RD 1942-46, ``Letter of Intent to Meet Conditions'' (OMB 
Control No. 0575-0015: The re-lender completes this form to indicate 
the intent to meet the conditions of the loan closing(s). This 
information is necessary for Rural Development to continue further 
processing of the loan application.
     RD 1942-55 ``Re-lender's Agreement'': This agreement is 
necessary to insure the re-lender is informed about its 
responsibilities and agrees to comply. The agreement covers among other 
things the following information: loan terms; disbursement procedures; 
responsibilities related to compliance with 7 CFR 1942, Subpart A with 
respect to eligible applicants and projects, Civil Rights, 
environmental, security, planning, bidding, contracting, construction 
and servicing; collateral, insurance and reporting requirements; and 
default provisions.
     RD 1942-56, ``Promissory Note'': This document is executed 
by the re-lender as evidence of its indebtedness to Rural Development.
     RD 1942-57, ``Loan Resolution Security Agreement'': This 
document is executed by the re-lender to attest to its legal authority 
as an organization to enter into the specific loan transaction, and 
provides for the pledging of certain assets to secure Rural 
Development's loan to the re-lender.
     RD 440-11, ``Estimate of Funds needed for 30-day Period 
Commencing'' (OMB Control No. 0575-0015): This form is a request used 
by the re-lender

[[Page 43934]]

to indicate the amount of funds required for a 30-day period. It is 
concurred in by Rural Development as to the reasonableness of the 
amount.
     RD 440-24, Position Fidelity Schedule Bond Declarations of 
other evidence of coverage (OMB Control No. 0575-0015: This form may be 
used by organizations (where permitted by state law) to provide 
fidelity bond coverage for certain officials entrusted with funds. It 
is required at application and thereafter annually as a reporting 
requirement.
     RD 442-7, ``Operating Budget'' (OMB Control No. 0575-
0015): The form is used by the re-lender to project income and expense 
items and a complete cash flow through the first full year of the loan 
proceeds. These projections are necessary in determining the source and 
reliability of the projected income and the adequacy of resources to 
repay the loan in a timely manner.
     RD 400-1, ``Equal Opportunity Agreement'' (OMB Control No. 
0575-0018): The form is completed by the re-lender when construction 
work is subject to the provisions of the Civil Rights compliance 
requirements that contractors cannot discriminate against any employee 
or applicant for employment because of race, color, religion, sex, or 
national origin.
     RD 400-4, ``Assurance Agreement'' (OMB Control No. 0575-
0018): The form is completed by the re-lender and used to confirm that 
recipients of Rural Development loans have been reminded of their 
obligation to comply with all provisions of the Civil Rights Act of 
1964 and regulations of Rural Development.
     AD-1047, ``Certification Regarding Debarment, Suspension & 
Other Responsibility Matters--Primary Covered Transactions (OMB Control 
No. 0505-0027): USDA regulations published at 2 CFR parts 180 and 417 
implement the government-wide debarment and suspension system for 
USDA's non procurement transactions. Applicants and re-lenders are 
required to provide certification under these regulations. Form AD-1047 
may be used to obtain the required certification.
     SF 424, ``Application for Federal Assistance'' (OMB 
Control No. 4040-0004): Re-lenders use this form to apply under the re-
lending provision. This is a common form, and as such, the numbers have 
been accounted for through the Request for Common Forms.
     SF 424A, ``Budget Information--Non-Construction Programs 
(OMB Control No. 4040-0006): Re-lenders use this form to project costs 
and expenses for the re-lending provision. The form also provides Rural 
Development information on matching funds.
     SF 424B, ``Assurances--Non-Construction Programs (OMB 
Control No. 4040-0007): Re-lenders read and sign this form to indicate 
the organization's intent to comply with the laws, regulations, and 
policies to which a loan is subject.
     AD 3030, ``Representations Regarding Felony Convictions 
and Tax Delinquency Status for Corporate Applicants'' and AD 3031, 
``Assurances Regarding Felony Convictions and Tax Delinquency Status 
for Corporate Applicants'' (OMB Control No. 0505-0025): Completed by 
the re-lender once at the time of application. These two forms are 
required by Public Law 114-113.
     SF LLL, ``Certification of Non-Lobbying Activities or 
Disclosure of Lobbying Activities'' (OMB Control No. 4040-0013): Re-
lenders who are awarded loans over $100,000 and/or lobby are required 
to complete this form.
     SF 3881, ACH Vendor/Miscellaneous Payment Enrollment Form 
(OMB Control No. 1510-0056): The re-lender and its financial 
institution will complete this form and provide it to Rural 
Development. The information contained in the form will be used to 
establish an electronic transfer of loan funds to the re-lender.
    Recordkeeping Requirements:
     Quarterly Financial Statements: Re-lenders will be 
required to submit financial statements quarterly to Rural Development. 
Rural Development will use the information to monitor the credit 
worthiness and paying capacity of the re-lender. Financial statements 
will include a verification by an official of the re-lender's 
organization.
     Quarterly report of re-lent loans: Re-lenders will provide 
a report that includes the following: Borrower name, outstanding 
principal and interest balance, status, amount and due date of the next 
installment due, and servicing actions conducted for any delinquent 
loan. Rural Development will use the information to monitor the current 
credit worthiness and paying capacity of the borrowers and to insure 
that re-lenders are adequately servicing the loan accounts in 
compliance with the Re-lender's Agreement.
     Annual Audit: Annual audits are required from all re-
lenders. The audits help Rural Development determine if the operations 
are sound and the intended services are being provided to the public. 
Often Rural Development can use the audits to predict developing 
financial problems and suggest corrective steps before the problems 
become serious.
     Financial Strength and Performance Rating: Re-lenders will 
provide Rural Development with their most recent Financial Strength and 
Performance Rating, not more than 3 years old, as conducted by an 
independent third party. The assessment includes overall 
creditworthiness based on an analysis of past financial performance, 
current financial strength, and apparent risk factors. The 
documentation insures Rural Development that the re-lender continues to 
have the requisite capital, asset quality, management, earnings, 
liquidity, and sensitivity to market risk to operate a federally 
financed loan fund.
     Certification Re-lender and Borrower have met requirements 
of 7 CFR 3575.42 and 7 CFR 3575.43: Re-lenders are required to inform 
Borrowers of their responsibility for planning, bidding, contracting 
and construction and certify at the end of construction that all funds 
were utilized for authorized purposes.
     Civil Rights data: Re-lenders are required to comply with 
Title VI of the Civil Rights Act of 1964. They will collect and 
maintain data on Applicants by race, sex, and national origin, and 
ensure that Applicants also collect and maintain the same data on 
beneficiaries. Rural Development will use the information to conduct a 
compliance review once every three years.
     Documentation of providing funds to Persistent Poverty 
County(ies) and High Poverty Area(s): Re-lenders will provide this 
documentation to meet the additional terms specified in the annual 
Notice so Rural Development can monitor the re-lender's agreement to 
loan a majority of funds to applicants whose projects are located in 
these areas. Documentation is accessible to the re-lender at public Web 
sites identified by Rural Development in the annual Notice.
    Information needed is specific to each re-lender. The Agency has 
many requirements that involve certifications from the re-lender as 
well as other parties involved. The Agency could not comply with 
legislative mandates without these certifications. All of the public 
use forms have been automated and put on the internet to comply with 
the Government Paperwork Elimination Act; however, at this time, the 
Agency is not collecting any of this information through an electronic 
application system. Based on the eGov initiative, all efforts will be 
made to comply with the migration of federal forms into web-

[[Page 43935]]

based fillable format consistent with the Agency's timeline.
    The Agency has reviewed all loan programs it administers to 
determine which programs may be similar in intent and purpose. The 
Agency has other programs that are similar. If there were simultaneous 
participation in more than one Agency's programs, the Agency would make 
every effort to accommodate the requests within the same set of 
applications and processing forms. This effort is presently facilitated 
by assignment of management of these programs to the same program area 
of responsibility. If a re-lender is applying for or receiving a loan 
from another Federal agency, forms and documents furnished by the other 
agency would be utilized to the extent possible.
    Information to be collected is in a format designed to minimize the 
paperwork burden on small businesses and other small entities. The 
information collected is the minimum needed by the Agency to approve 
loans and monitor re-lender performance.
    The information collected under this program is considered to be 
the minimum necessary to conform to the requirements of the program 
regulations established by law. Information is collected only when 
needed, and we believe no reduction of collection is possible. Failure 
to collect proper information could result in improper determinations 
of eligibility, improper use of funds, and/or unsound loans.

Non-Discrimination Policy

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, gender identity (including 
gender expression), sexual orientation, disability, age, marital 
status, family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs). Remedies and complaint filing 
deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (e.g., Braille, large print, 
audiotape, American Sign Language, etc.) should contact the responsible 
Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or 
contact USDA through the Federal Relay Service at (800) 877-8339. 
Additionally, program information may be made available in languages 
other than English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at http://www.ascr.usda.gov/complaint_filing_cust.html and at any USDA office or 
write a letter addressed to USDA and provide in the letter all of the 
information requested in the form. To request a copy of the complaint 
form, call (866) 632-9992. Submit your completed form or letter to USDA 
by:
    (1) Mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW., Washington, 
DC 20250-9410;
    (2) Fax: (202) 690-7442; or
    (3) Email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

Invitation To Comment

    The Agency is interested in receiving comments on all aspects of 
the interim rule. Thus, the Agency encourages interested persons and 
organizations to submit written comments, which may include data, 
suggestions, or opinions. Commenters should include their name, 
address, and other appropriate contact information. If persons with 
disabilities (e.g., deaf, hard of hearing, or have speech difficulties) 
require an alternative means of receiving this notice (e.g., Braille, 
large print, audiotape) in order to submit comments, please contact 
USDA's TARGET Center at (202) 720-2600 (voice and TDD).
    Comments may be submitted by any of the means identified in the 
ADDRESSES section. If comments are submitted by mail or hand delivery, 
they should be submitted in an unbound format, no larger than letter-
size, suitable for copying and electronic filing. If confirmation of 
receipt is requested, a stamped, self-addressed, postcard or envelope 
should be enclosed. RD will consider all comments received during the 
comment period and will address comments in the preamble to the final 
regulation.

List of Subjects in 7 CFR Part 1942

    Business and industry, Community development, Community facilities, 
Grant programs--Housing and community development, Industrial park, 
Loan programs--Housing and community development, Loan security, Rural 
areas, Waste treatment and disposal--Domestic, Water supply--Domestic.

    For the reasons stated in the preamble, Chapter XVIII, Title 7 of 
the Code of Federal Regulations is amended as follows:

PART 1942--ASSOCIATIONS

0
1. The authority citation for part 1942 continues to read as follows:

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

Subpart A--Community Facility Loans

0
2. Amend Sec.  1942.1 by revising paragraph (a) to read as follows:


Sec.  1942.1  General.

    (a) This subpart outlines the policies and procedures for making 
and processing direct loans for Community Facilities except fire and 
rescue and other small essential community facility loans and water and 
waste disposal facilities. This subpart applies to Community Facilities 
loans for fire and rescue and other small essential community facility 
loans only as specifically provided for in subpart C of this part. 
Water and waste loans are provided for in part 1780 of this title.
    (1) The policies and procedures in this subpart address both loans 
between the Agency and the applicant and between the Agency and an 
approved eligible re-lender who then relends the funds to eligible 
applicants for eligible projects under this subpart.
    (2) The Agency shall cooperate fully with State, Tribal and local 
agencies in making loans to assure maximum support to the State and 
Tribal strategies for rural development. State Directors and their 
staffs shall maintain coordination and liaison with State agency and 
substate planning districts. Funds allocated for use under this subpart 
are also for the use of Indian tribes within the State, regardless of 
whether State development strategies include Indian reservations within 
the State's boundaries. Indians residing on such reservations must have 
equal opportunity to participate in the benefits of these programs as 
compared with other residents of the State.
    (3) Federal statutes provide for extending Agency financial 
programs without regard to race, color, religion, sex, national origin, 
marital status, age, or physical/mental handicap. The participants must 
possess the capacity to enter into legal contracts under State and 
local statutes.
    (4) Any processing or servicing activity conducted pursuant to this 
subpart involving authorized assistance to Agency employees, members of 
their families, known close relatives, or business or close personal 
associates, is

[[Page 43936]]

subject to the provisions of subpart D of part 1900 of this chapter. 
Applicants for this assistance are required to identify any known 
relationship or association with an Agency employee.
* * * * *
0
3. Add Sec.  1942.30 to read as follows:


Sec.  1942.30  Re-lending.

    The provisions in this section establish the process by which the 
Agency may make loans to eligible re-lenders who then in turn re-loan 
the funds to eligible applicants for eligible projects under this 
subpart. This section may be supplemented by provisions in annual 
notices published in the Federal Register. In such notices, the Agency 
may impose, among other things, limits on the total amount of funds to 
be used through this process and the amount of the loan funding that 
will be provided to each re-lender.
    (a) Re-lender eligibility. Re-lenders must meet each of the 
following requirements:
    (1) Demonstrate the legal authority necessary to make and service 
loans involving community infrastructure and development similar to the 
type of projects listed in Sec.  1942.17(d);
    (2) Meet federal, state and local requirements in accordance with 
Sec.  1942.17(k);
    (3) As specified in the annual Federal Register notice, demonstrate 
that a percent of its portfolio is for projects located in or serving 
Persistent Poverty County(ies) or High Poverty Areas, or that the Re-
lender has a minimum amount of experience making loans for projects 
located in or serving Persistent Poverty County(ies) or High Poverty 
Area(s);
    (4) Agree to provide adequate collateral, as determined by the 
Agency, to support the loan request;
    (5) Provide a Letter of Intent from a financial institution that an 
Irrevocable Letter of Credit (or performance guarantee) acceptable to 
the Agency will be issued by the financial institution if the Re-lender 
is approved for funding;
    (6) As specified in the annual Federal Register notice, agree to 
provide an Irrevocable Letter of Credit (or performance guarantee) 
acceptable to the Agency in the minimum amount equal to the principal 
and interest installments due the Agency during the first five (5) 
years of the loan, prior to receiving loan disbursements;
    (7) Demonstrate one of the following, as provided in the annual 
Federal Register notice:
    (i) Re-lender is regulated and supervised by a Federal or State 
Banking Regulatory Agency that is subject to credit examination, AND 
the institution, its subsidiaries, holding companies, and affiliates 
are not on their respective regulatory agency's watch list and have no 
regulatory actions outstanding against them;
    (ii) Re-lender has a strong Financial Strength and Performance 
Rating as specified in the annual Federal Register notice. The achieved 
rating must indicate financial strength, performance, and risk 
management practices that consistently provide for safe and sound 
operations; or
    (iii) At the time of application, Re-lender provides written 
documentation, acceptable to the Agency, from a financial institution 
that an Irrevocable Letter of Credit (or performance guarantee) 
acceptable to the Agency will be issued by the financial institution, 
if the Re-lender is approved for funding; and the Re-lender:
    (A) Obtains a strong Financial Strength and Performance Rating as 
specified in the Annual Federal Register notice prior to any funds 
being advanced; or
    (B) Proves to be a financially sound institution as determined by 
the Agency in accordance with the annual Federal Register notice;
    (8) Be a legal, non-governmental entity at the time of application 
(with the exception of Tribal governmental entities);
    (9) Be a member of a national organization that provides training, 
technical assistance and credit evaluation of member organizations, 
such as FDIC, NCUA or other similar organizations; or be certified by a 
Government agency as having a primary mission of promoting community 
development in low-income target markets and perform training and 
technical assistance as part of that mission;
    (10) Agrees to loan a majority of Agency funds, as specified in the 
annual Federal Register notice, to applicants whose projects are 
located in or serve Persistent Poverty County(ies) or High Poverty 
Area(s); and
    (11) Meet any other criteria specified by the Agency in the annual 
Notice published in the Federal Register.
    (b) Applicant and project eligibility. To be eligible for a CF 
Direct loan from a re-lender under this section,
    (1) The applicant must meet the eligibility requirements found in 
this subpart, including but not limited to those in Sec.  1942.2(a)(2) 
regarding the inability to obtain credit elsewhere and Sec.  1942.17(b) 
and (k);
    (2) The applicant must comply with any other criteria specified by 
the Agency in the annual Program Notice published in the Federal 
Register; and
    (3) The project must:
    (i) Meet all of the eligibility requirements for a project found in 
this subpart, including but not limited to Sec.  1942.17(b)(2), (d), 
(e), and (g) and all environmental review requirements as specified in 
Sec.  1942.2(b) and 7 CFR part 1970; and
    (ii) Meet any additional requirements that may be specified in the 
program's annual Notice published in the Federal Register.
    (c) Application submission requirements. To apply for funds under 
this section, a Re-lender must timely submit all items as specified in 
the annual Federal Register notice.
    (d) Evaluation criteria. The Agency will score and rank all 
eligible and complete Re-lender applications based upon the evaluation 
factors set out in the annual Federal Register notice, including but 
not limited to: Lending experience and strength of the re-lender, 
poverty and project service area, and Administrator's discretionary 
points.
    (e) Other Re-lender requirements. Prior to receiving a direct loan 
from the Agency, the eligible re-lender must:
    (1) Enter into a Re-lender's agreement provided by the Agency;
    (2) Execute a promissory note;
    (3) Provide an Agency approved Irrevocable Letter of Credit (or 
performance guarantee) acceptable to the Agency in the minimum amount 
equal to the principal and interest installments due during the first 
five (5) years of the loan, prior to receiving any loan disbursements;
    (4) Provide adequate collateral satisfactory to the agency; and
    (5) Meet any other loan conditions as described in the annual 
Notice published in the Federal Register.
    (f) Loan origination and servicing--(1)Re-lenders. After the Agency 
loan is made to the Re-lender, the Re-lender is responsible for:
    (i) Presenting to the Agency eligible CF direct loan applications 
in accordance with this subpart and any additional terms established in 
the applicable annual Notice published in the Federal Register;
    (ii) Underwriting and servicing each loan reviewed and approved by 
the Agency under this section;
    (iii) Submitting reports to the Agency after any loan disbursement 
as specified in the annual Federal Register notice;
    (iv) Certifying to the Agency that the Re-lender and Borrower have 
met the requirements of 7 CFR 3575.42 and 3575.43 for planning, 
bidding, contracting and construction, as specified in the annual 
Federal Register Notice;
    (v) Complying with other Agency requirements as specified in the 
annual

[[Page 43937]]

Federal Register notice concerning environmental, civil rights, and 
other applicable Federal state, and local law;
    (vi) Obtaining disbursement of loan funds according to this section 
and the annual Federal Register notice within 5 years. Any loan funds 
not disbursed within that time will be deobligated and become 
unavailable for disbursement.
    (2) Agency responsibilities. (i) Based on the information presented 
by the Re-lender and any additional information that may be requested 
by the Agency, the Agency will determine the eligibility of the 
applicant and project under this subpart.
    (ii) The Agency will notify the re-lender of its determination and 
any administrative review or appeal rights for Agency decisions made 
under this subpart. Programmatic decisions based on clear and objective 
statutory or regulatory requirements are not appealable; however, such 
decisions are reviewable for appealability by the National Appeals 
Division (NAD). The applicant and re-lender may appeal any Agency 
decision that directly and adversely impacts them. For an adverse 
decision that impacts the applicant, the re-lender and applicant must 
jointly execute a written request for appeal for an alleged adverse 
decision made by the Agency. An adverse decision that only impacts the 
re-lender may be appealed by the re-lender only. A decision by a re-
lender adverse to the interest of an applicant or borrower is not a 
decision by the Agency, whether or not concurred in by the Agency. 
Appeals will be conducted by USDA NAD and will be handled in accordance 
with 7 CFR part 11.
    (iii) For approved eligible borrowers and projects, the Agency will 
confirm that all environmental requirements as specified in this 
subpart and 7 CFR part 1970 have been met and that the Re-lender has 
provided adequate security for its loan, before the Agency will 
disburse funds to the Re-lender;
    (iv) The Agency will service each re-lender's loan in accordance 
with 7 CFR part 1951, subpart E. The Agency may suspend further 
disbursements, and pursue any other available and appropriate remedies, 
if any of the re-lender loans become troubled, delinquent, or otherwise 
in default status, or if the re-lender is not meeting the terms of its 
Relender's Agreement.

    Dated: June 29, 2016.
Lisa Mensah,
Under Secretary, Rural Development.
    Dated: June 29, 2016.
Alexis Taylor,
Deputy Under Secretary, Farm and Foreign Agricultural Services.
[FR Doc. 2016-16005 Filed 7-5-16; 8:45 am]
 BILLING CODE 3410-XV-P