The FDIC is proposing to amend its regulation governing the requirements for a deposit account to be insured as a joint account, 12 CFR 330.9, and specifically, the requirement that each co-owner of a joint account has personally signed a deposit account signature card. The FDIC periodically receives inquiries regarding this requirement. Those inquiries have increased following the issuance of a rule (Recordkeeping Rule)  1 that requires certain large insured depository institutions (covered institutions) to configure their information technology systems to be capable of calculating insurance coverage for deposit accounts in the event of the institution's failure. The Recordkeeping Rule has introduced an element of pre-judgment involving identification of account categories and satisfaction of recordkeeping requirements for the institutions subject to that Rule. 2 In particular, for purposes of that Rule, covered institutions are required to review their records and update missing and erroneous deposit account information (Legacy Data Cleanup). 3 As part of the Legacy Data Cleanup, covered institutions must obtain signature cards for owners of accounts with multiple co-owners that are missing one or more required signature cards (affected joint accounts). Staff at the FDIC has engaged in discussions with these covered institutions as part of the implementation process, and these discussions have brought to light certain issues concerning the application of the signature card requirement, leading the FDIC to reconsider the methods by which joint ownership may be established for purposes of deposit insurance.

The proposed rule is intended to reduce the regulatory burden associated with obtaining deposit account signature cards for all insured depository institutions (IDIs). For covered institutions ( i.e., IDIs subject to the Recordkeeping Rule) discussed above, the proposed rule also would reduce the burden of obtaining signature cards for owners of affected joint accounts. The proposed rule is intended to facilitate the prompt payment of deposit insurance in the event of an IDI's failure by providing alternative methods that the FDIC could use to determine the owners of joint accounts, consistent with its statutory authority. These changes would promote confidence in FDIC-insured deposits. Finally, the proposal embodies a forward-looking approach that would permit the use of new and innovative technologies and processes to meet the FDIC's policy objectives.

The FDIC is authorized to prescribe rules and regulations as it may deem necessary to carry out the provisions of the Federal Deposit Insurance Act (FDI Act). 4 Under the FDI Act, the FDIC is responsible for paying deposit insurance in the event of an IDI's failure up to the standard maximum deposit insurance amount, which is currently set at $250,000. 5 The statute provides that deposits maintained by each depositor in the same capacity and the same right at the same IDI generally must be aggregated and insured up to the standard maximum deposit insurance amount. 6 Because the statute does not define “capacity” or “right,” the FDIC has implemented these terms by issuing regulations recognizing particular categories of accounts, such as single ownership accounts and joint ownership accounts. 7 If a deposit meets the requirements for a particular category, the deposit is insured up to the $250,000 limit separately from deposits held by the depositor in a different category at the same IDI. For example, deposits in the single ownership category will be separately insured from deposits in the joint ownership category held by the same depositor at the same IDI.

Section 330.9 of the FDIC's regulations governs insurance coverage for joint ownership accounts. Joint ownership accounts include deposit accounts held pursuant to various forms of co-ownership under state law. For example, joint tenants could each hold an equal, undivided interest in a deposit account. Section 330.9 provides that only “qualifying joint accounts” (whether owned as joint tenants with the right of survivorship, as tenants in common, or as tenants by the entirety) are insured separately from individually-owned deposit accounts maintained by the co-owners. 8 “Qualifying joint accounts” generally must satisfy three requirements: (1) All co-owners of the funds in the account are “natural persons,” as defined in section 330.1( l ) of the regulations; (2) each co-owner has personally signed a deposit account signature card; and (3) each co-owner possesses withdrawal rights on the same basis. 9 If a joint deposit account is not a qualifying joint account, each co-owner's actual ownership interest in the account is aggregated with other single ownership accounts of such individual or other accounts of such entity. 10 This may result in some uninsured deposits if a depositor's single ownership accounts at the same IDI, including deposits in any non-qualifying joint accounts, exceed $250,000.

The requirement that each co-owner of a joint account has personally signed a deposit account signature card (signature card requirement) in order for the account to be insured as a joint account has been included in the regulation governing insurance coverage since 1967. 11 This requirement was intended to address practices such as the addition of nominal co-owners to an account solely to increase deposit insurance coverage. 12 The FDIC has periodically considered whether the signature card requirement should be eliminated, but retained the requirement, concluding that signature cards are reliable indicators of deposit ownership. 13 The FDIC continues to view the signature card requirement as important to ensuring consistency with the FDI Act, which expressly limits the amount of deposit insurance coverage available to each depositor at a particular IDI based on the right and capacity in which funds are held.

Neither the FDI Act nor the FDIC's regulations define the term “signature card.” FDIC staff has taken the position that section 330.9 does not require any particular format for a deposit account signature card. Therefore, staff has previously concluded that IDIs may satisfy the requirement through various forms of documentation used in their account opening processes. For example, staff has concluded that a deposit account agreement signed by each of an account's co-owners would satisfy the signature card requirement. Published guidance also states that electronic signatures satisfy the requirement. 14

The FDIC is proposing to amend section 330.9 to provide an alternative method to satisfy the signature card requirement. The proposed rule would allow the signature card requirement to be satisfied by information contained in the deposit account records of the IDI establishing co-ownership of the deposit account, such as evidence that the institution has issued a mechanism for accessing the account to each co-owner or evidence of usage of the deposit account by each co-owner. For example, under this proposal, the requirement could be satisfied by evidence that an IDI has issued a debit card to each co-owner of the account or evidence that each co-owner of the account has transacted using the deposit account. These examples, however, are not intended to define the only forms of evidence of co-ownership that could satisfy the signature card requirement.

The proposed rule only would affect a requirement in the FDIC's regulations that must be satisfied for a deposit account to be separately insured as a joint account; it would not affect any other legal requirements applicable to IDIs. IDIs may, for legal or other reasons, find it appropriate or necessary to continue collecting customers' signatures.

The proposed rule also would not affect the general provisions contained in the FDIC's deposit insurance regulations regarding recognition of deposit ownership. 15 These general rules concerning recognition of deposit ownership would continue to apply to all deposit accounts, including joint accounts.

The proposed rule would not introduce new requirements with respect to the requirements for an account to be insured as a joint account, and would not reduce or affect insurance coverage for any account for which the existing joint account requirements are satisfied. The proposed rule simply would provide an alternative method to satisfy the existing signature card requirement. If each co-owner of a joint account signs, or has previously signed, a deposit account signature card in accordance with the existing requirement, the alternative method provided by the proposed rule would be unnecessary. Assuming that the remaining joint account requirements are satisfied—that is, all co-owners of the account are natural persons and possess equal withdrawal rights—the account would be insured as a joint account.

The FDIC is also proposing a conforming amendment to section 330.9 consistent with the Electronic Signatures in Global and National Commerce Act (E-Sign Act). 16 Specifically, the FDIC proposes to amend the regulation to state expressly that the signature card requirement may be satisfied electronically. The current requirement that each depositor has personally signed a deposit account signature card would be amended to require that each depositor has personally signed, which may include signing electronically, a deposit account signature card. This amendment would clarify for IDIs and depositors the manner in which the signature card requirement may be satisfied, and is consistent with published guidance and staff interpretations of section 330.9. 17 It would not substantively alter the regulatory requirements for joint accounts.

The proposed rule would apply to all IDIs and is expected to broaden the types of documentation that would be acceptable to satisfy the signature card requirement at the time of an IDI's failure. In this way, for all IDIs, the proposed rule is intended to reduce the regulatory burden associated with obtaining deposit account signature cards. It would not impose any new recordkeeping requirements for joint accounts.

The proposed rule would, however, have a more immediate regulatory burden relief impact on the covered institutions subject to the Recordkeeping Rule. For purposes of that Rule, as discussed above, covered institutions are currently engaged in Legacy Data Cleanup. As part of the Legacy Data Cleanup, covered institutions must obtain signature cards for owners of affected joint accounts. By providing an alternative method to satisfy the signature card requirement that relies on other information in the institution's deposit account records, the proposed rule should reduce the Legacy Data Cleanup burden associated with obtaining missing signature cards for covered institutions subject to the Recordkeeping Rule.

To estimate the burden reduction of the proposed rule relating to Legacy Data Cleanup, the FDIC estimates: (1) The cost of obtaining signature cards for an affected joint account; and (2) the total number of affected joint accounts held at covered institutions subject to the Recordkeeping Rule. The product of these two figures is the estimated cost burden of collecting missing signatures. The proposed rule would reduce that burden by allowing covered institutions subject to the Recordkeeping Rule to satisfy the signature card requirement using other information in their deposit account records establishing co-ownership of the deposit account.

The FDIC's estimate of the cost of obtaining missing signature cards for an affected joint account is based on cost estimates used in connection with the Recordkeeping Rule. Legacy Data Cleanup costs for the Recordkeeping Rule were estimated at $226 million to address approximately 21 million deposit accounts held in covered institutions. 18 19 This represents an average of approximately $11 per account. Although accounts may require Legacy Data Cleanup for a variety of reasons, the Recordkeeping Rule estimates that “more than 90 percent of the legacy data cleanup costs are associated with manually collecting account information from customers and entering it into the covered institution's systems.”  20 The process of obtaining a missing signature fits this description, and the FDIC believes that $11 per account is a reasonable estimate of the average cost of obtaining signatures for an affected joint account.

The cost estimates used in the Recordkeeping Rule are based on data from the institutions covered by the Recordkeeping Rule at the time that Rule was issued. As of December 31, 2018, 36 covered institutions subject to the Recordkeeping Rule held approximately 418 million deposit accounts. 21 Assuming that 25 percent of those accounts are joint, 22 and assuming that 5 percent of joint accounts are missing at least one required signature, 23 there are a total of approximately 5.2 (= 418 * 25% * 5%) million affected joint accounts. At an estimated cost of $11 per affected joint account, the FDIC estimates a total cost burden of $57 million for covered institutions subject to the Recordkeeping Rule to update deposit account records related to affected joint accounts. The proposed rule would reduce this burden, resulting in an estimated cost savings for these institutions of $57 million.

IDIs that are not subject to the Recordkeeping Rule are not required to perform Legacy Data Cleanup, but some may, nonetheless, choose to do so to provide added certainty regarding deposit insurance coverage to their depositors. As of December 31, 2018, there were approximately 162 million deposit accounts held at 5,379 IDIs not covered by the Recordkeeping Rule. Given the same assumptions outlined in the previous paragraph, the FDIC estimates there are a total of 2.0 (= 162 * 25% * 5%) million affected joint accounts held at these IDIs. The proposed rule would alleviate some of the burden of addressing these affected joint accounts, resulting in estimated cost savings of up to $22 ($11 * 2.0) million.

The total estimated burden reduction for the industry associated with updating deposit account records for joint accounts is estimated to be between $57 and $79 million, depending on the number of IDIs not subject to the Recordkeeping Rule that choose to update their deposit account records. In addition, the proposed rule could alleviate some of the burden of obtaining signature cards for new joint accounts at all IDIs. The FDIC expects this benefit to be de minimis because electronic signatures may be used to satisfy the signature card requirement pursuant to the E-Sign Act.

The rule also provides non-quantifiable benefits to owners of joint accounts. By providing alternative methods that the FDIC could use to determine the owners of joint accounts, the proposed rule would further support a prompt deposit insurance determination in the event of an IDI's failure, alleviating delays in the recognition of account ownership and uncertainty regarding the extent of deposit insurance coverage. These benefits would promote depositor confidence in the nation's banking system and particularly in FDIC-insured deposits.

The FDIC is also proposing a conforming amendment to section 330.9 consistent with the E-Sign Act. This conforming amendment is not expected to result in any discernable economic effect, as current FDIC practice already permits IDIs to use electronic signatures. The effects of the conforming amendment would be limited to eliminating uncertainty regarding the regulation.

The FDIC invites comments on all aspects of the information provided in this section.

The FDIC has considered alternatives to the proposed rule that could achieve its policy objectives. A few of these alternatives are described below.

Alternative 1: Status Quo. The FDIC considered maintaining the current requirements for accounts to be insured as joint accounts. To address burden issues raised by covered institutions currently conducting Legacy Data Cleanup pursuant to the Recordkeeping Rule, the FDIC notes that such institutions may request relief pursuant to that Rule for existing accounts for which the owners seek deposit insurance coverage as a joint account. 24 However, as discussed above, the proposed rule would reduce the burden associated with Legacy Data Cleanup, so the potential cost savings to covered institutions subject to the Recordkeeping Rule would result in a greater benefit. The proposed rule also may result in cost savings for IDIs that are not subject to the Recordkeeping Rule, but nonetheless choose to perform Legacy Data Cleanup.

As a subset of Alternative 1, the FDIC considered whether covered institutions could simply focus on or prioritize accounts with balances of more than $250,000 for purposes of their Legacy Data Cleanup. This approach may address regulatory burden to some degree, but could also be interpreted as introducing a distinction between large IDIs and small IDIs with respect to deposit insurance coverage. Due to this concern, the expected benefits of this alternative are smaller than those of the proposed rule.

Alternative 2: Amend Certification Requirement for Institutions Subject to Part 370. As discussed above, the covered institutions subject to the Recordkeeping Rule are required to collect missing signatures for joint accounts. The FDIC considered amending the Recordkeeping Rule's certification requirements to allow covered institutions to certify their compliance based on substantial or good faith compliance with the deposit insurance rules with respect to their joint deposit accounts. This would allow institutions subject to the Recordkeeping Rule to certify compliance with that Rule while continuing to address data cleanup for affected deposit accounts. Because institutions would still incur costs associated with obtaining missing signatures, however, the expected benefits of this alternative are smaller than the expected benefits of the proposed rule.

Alternative 3: Eliminate Signature Card Requirement for Qualifying Joint Accounts. The FDIC considered amending section 330.9 to eliminate the signature card requirement for joint accounts. As discussed above, however, the FDIC continues to view the signature card requirement as important to ensuring consistency with the FDI Act, particularly, the requirement to insure depositors based on the right and capacity in which funds are held. The signature card requirement is intended to address practices such as the addition of nominal co-owners to a deposit account without their knowledge solely for the purpose of increasing deposit insurance coverage. The proposed rule is intended to retain consistency with the FDI Act while providing a method of satisfying the signature card requirement that reduces regulatory burden. Given the benefits of keeping the signature card requirement, the expected benefits of this alternative are smaller than those of the proposed rule.

Alternative 4: Leverage Bank Secrecy Act/Anti-Money Laundering Processes. The FDIC considered amending section 330.9 to allow IDIs to satisfy the signature card requirement based on existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) processes. This could reduce regulatory burden by leveraging existing compliance processes. However, while BSA/AML processes serve a valuable purpose in identifying the individuals opening accounts, these processes do not address the purpose of the signature card requirement, which is to indicate actual ownership of the funds in the deposit account. This approach would intertwine deposit insurance coverage with a compliance regime that serves a different purpose. Moreover, exceptions to BSA/AML requirements may apply to many of the older deposit accounts for which signature cards are less likely to be available. Thus, it is unclear that compliance with BSA/AML requirements would provide additional assurance that a deposit account's titled co-owners actually own the funds in the account. In addition, this approach could allow weaknesses in BSA/AML compliance to affect deposit insurance coverage for the IDI's customers. Due to the concerns discussed above, the expected benefits of this alternative are smaller than those of the proposed rule.

The FDIC is requesting comment on all aspects of the proposed rule, including the alternatives presented. Comment is specifically invited with respect to the following questions:

• Can IDIs, including IDIs that rely on deposit account systems designed or maintained by third-party vendors, obtain information on account usage or access by the co-owners of an account?

• Would the proposed rule sufficiently address satisfaction of the signature card requirement through electronic methods, given the variety of account opening procedures used by IDIs? If not, what clarifications or changes are necessary?

• Is any data available concerning the cost or effort that might be required for IDIs to obtain deposit account signature cards for co-owners where a signature card is currently not available in the deposit account records of the IDI?

• How should the FDIC approach ensuring that a depositor does not use another person's personally identifiable information to establish a deposit account without the other person's knowledge simply to increase deposit insurance coverage?

• Are there any additional factors that the FDIC should consider in determining whether the alternatives to the proposed rule described above would better satisfy the agency's policy objectives of reducing regulatory burden and promoting the prompt payment of deposit insurance consistent with the FDI Act in the event of an IDI's failure?

• Are there other alternatives that the FDIC should consider that would better satisfy those objectives?

• Does the proposed rule minimize the potential for depositor confusion over the requirements for joint accounts?

The Regulatory Flexibility Act (RFA) generally requires an agency, in connection with a proposed rule, to prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a proposed rule on small entities. 25 However, an initial regulatory flexibility analysis is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. 26 The Small Business Administration (SBA) has defined “small entities” to include banking organizations with total assets of less than or equal to $550 million. 27 For the reasons described below, the FDIC certifies pursuant to section 605(b) of the RFA that the proposed rule will not have a significant economic impact on a substantial number of small entities.

As of September 30, 2018, the FDIC insured 5,486 institutions, of which 4,047 are considered small entities for the purposes of RFA. 28 These small IDIs hold approximately 31 million deposit accounts, with an average of 7,700 deposit accounts and a maximum of approximately 143,000 deposit accounts held at a single small IDI.

The proposed rule would amend section 330.9 to provide an alternative method to satisfy the signature card requirement for joint accounts based on information contained in the deposit account records of the insured depository institution establishing co-ownership of the deposit account. As discussed in Expected Effects section, because no small IDIs are covered by the Recordkeeping Rule, a small IDI would only experience burden relief from the proposed rule if it first chose to update its account records. In this case, the proposed rule is estimated to reduce burden in the amount of $11 per affected joint account. This potential burden reduction is conditional on the IDI's choice to update its records.

Following the burden reduction estimation outlined in the Expected Effects section, the FDIC estimates the burden reduction for each of the 4,047 small IDIs covered by this proposed rule by multiplying the number of deposit accounts held at each small IDI by 25 percent to estimate the number of joint accounts, then by 5 percent to estimate the number of affected joint accounts, and finally by $11 to estimate the cost of addressing those affected joint accounts. The potential burden reduction for each institution ranges from less than a dollar to approximately twenty thousand dollars, with an average of approximately one thousand dollars per small IDI. Expressed as a proportion of assets, the potential burden reduction ranges from less than a millionth of one percent to less than two hundredths of one percent of total assets.

The proposed rule would apply to all IDIs, affecting a substantial number of small entities. However, the economic impact on each small entity is insignificant, with no entity affected by more than two hundredths of one percent of total assets held. Accordingly, the FDIC certifies that the proposal will not have a significant economic impact on a substantial number of small entities.

The FDIC invites comments on all aspects of the supporting information provided in this section, and in particular, whether the proposed rule would have any significant effects on small entities that the FDIC has not identified.

Section 302 of the Riegle Community Development and Regulatory Improvement Act (RCDRIA) requires that the Federal banking agencies, including the FDIC, in determining the effective date and administrative compliance requirements of new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. 29 Subject to certain exceptions, new regulations and amendments to regulations prescribed by a Federal banking agency which impose additional reporting, disclosures, or other new requirements on insured depository institutions shall take effect on the first day of a calendar quarter which begins on or after the date on which the regulations are published in final form. 30

The proposed rule would not impose additional reporting or disclosure requirements on insured depository institutions, including small depository institutions, or on the customers of depository institutions. It would provide an alternative method to satisfy the existing signature card requirement for joint deposit accounts based on information contained in the deposit account records of the insured depository institution. Accordingly, section 302 of RCDRIA does not apply. Nevertheless, the requirements of RCDRIA will be considered as part of the overall rulemaking process, and the FDIC invites comments that will further inform its consideration of RCDRIA.

In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501-3521, the FDIC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The proposed rule would not require any information collections for purposes of the PRA, and therefore, no submission to OMB is required.

The FDIC has determined that the proposed rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, enacted as part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 (Pub. L. 105-277, 112 Stat. 2681).

Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking agencies to use plain language in all proposed and final rulemakings published in the Federal Register after January 1, 2000. The FDIC invites your comments on how to make this proposal easier to understand. For example:

• Has the FDIC organized the material to suit your needs? If not, how could the material be better organized?

• Are the requirements in the proposed regulation clearly stated? If not, how could the regulation be stated more clearly?

• Does the proposed regulation contain language or jargon that is unclear? If so, which language requires clarification?

• Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand?

For the reasons stated in the preamble, the Federal Deposit Insurance Corporation proposes to amend 12 CFR part 330 as follows:

We invite you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2019-0189; Product Identifier 2019-NM-001-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. We will consider all comments received by the closing date and may amend this NPRM because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this NPRM.

Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian AD CF-2018-30, dated November 7, 2018 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Bombardier, Inc., Model DHC-8-102, -103, and -106 airplanes; DHC-8-200 series airplanes; and DHC-8-300 series airplanes. The MCAI states:

You may examine the MCAI in the AD docket on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2019-0189.

Bombardier has issued Service Bulletin 8-55-27, Revision A, dated August 15, 2018. This service information describes procedures for inspecting the two balance weights and the two hinge arms on each elevator spring tab, and corrective actions including inspecting the holes in the hinge arm, inspecting the hinge arm for corrosion and chafing, installing bushings and a solid shim, replacing the hinge arm, repairing damage to the hinge arm, and permanently securing the mass balance.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop on other products of the same type design.

This proposed AD would require accomplishing the actions specified in the service information described previously.

We estimate that this proposed AD affects 47 airplanes of U.S. registry. We estimate the following costs to comply with this proposed AD:

We estimate the following costs to do any necessary on-condition actions that would be required based on the results of any required actions. We have no way of determining the number of aircraft that might need these on-condition actions:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the 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.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

The GLBA was enacted in 1999. 1 The GLBA, among other things, provides a framework for regulating the privacy practices of a broad range of financial institutions. The GLBA requires that financial institutions provide their customers with initial and annual notices regarding their privacy practices, and allow their customers to opt out of sharing their information with certain nonaffiliated third parties.

Rulemaking authority to implement the GLBA's privacy provisions was initially spread among multiple agencies. The Federal Reserve Board (“the Fed”), the Office of Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), and the Office of Thrift Supervision (“OTS”) jointly adopted final rules to implement the notice requirements of the GLBA in 2000. 2 The Commission, the National Credit Union Administration (“NCUA”), the Securities and Exchange Commission (“SEC”), and the Commodity Futures Trading Commission (“CFTC”) were part of the same interagency process, but each issued their rules separately. 3 In 2009, all those agencies jointly adopted a model form that financial institutions could use to provide the required initial and annual privacy disclosures. 4

As originally promulgated, the FTC's Privacy Rule covered a broad range of non-bank financial institutions such as payday lenders, mortgage brokers, check cashers, debt collectors, real estate appraisers, certain motor vehicle dealers, and remittance transfer providers. In 2010, the Dodd-Frank Act  5 transferred the GLBA's privacy notice rulemaking authority from the Fed, NCUA, OCC, OTS, the FDIC, and the Commission (in part) to the Consumer Financial Protection Bureau (“CFPB”). The CFPB then restated the implementing regulations in Regulation P, 12 CFR part 1016, in late 2011 (“Regulation P”). 6 However, under section 1029 of the Dodd-Frank Act, the Commission retained rulemaking authority for certain motor vehicle dealers. 7 Thus, in 2012, the Commission issued a notice that it was retaining the implementing regulations governing privacy notices for motor vehicle dealers at 16 CFR part 313. 8

Despite the transfer of general rulemaking authority for the Privacy Rule to the CFPB, the Commission and other agencies retain their existing enforcement authority under the GLBA. 9 In addition, the SEC and CFTC retain rulemaking authority with respect to securities and futures-related companies, respectively. 10 Accordingly, as part of this rulemaking process, the Commission has consulted and coordinated, or offered to consult, with those agencies that have rulemaking and/or enforcement authority under the GLBA, including the CFPB, SEC, CFTC, and the National Association of Insurance Commissioners (“NAIC”). 11

On December 4, 2015, Congress amended the GLBA as part of the FAST Act. This amendment, titled Eliminate Privacy Notice Confusion, 12 added GLBA subsection 503(f). This subsection provides an exception under which financial institutions that meet certain conditions are not required to provide annual privacy notices to customers.

As noted, the GLBA and the Privacy Rule require that motor vehicle dealers provide consumers with notices describing their privacy policies. Specifically, section 503 of the GLBA and the Privacy Rule require covered entities to provide an initial notice of these policies, 13 and then “provide a clear and conspicuous notice to customers that accurately reflects [their] privacy policies and practices not less than annually during the continuation of the customer relationship.”  14

Section 502 of the GLBA and the Privacy Rule require that initial and annual notices inform customers of their right to opt out of the sharing of nonpublic personal information with some types of nonaffiliated third parties. 15 For example, a customer has the right to opt out of allowing a motor vehicle dealer to sell her name and address to a nonaffiliated auto insurance company. 16 On the other hand, a motor vehicle dealer is not required to allow consumers to opt out of the dealer's sharing involving third-party service providers, joint marketing arrangements, maintenance and servicing of accounts, securitization, law enforcement and compliance, reporting to consumer reporting agencies, and certain other activities that are specified in the statute and regulation. 17 Accordingly, if a motor vehicle dealer limits its sharing to uses that do not trigger opt-out rights, it may provide an annual privacy notice to its customers that does not include information regarding opt-out rights.

Motor vehicle dealers also may include in the annual privacy notice information about certain consumer opt-out rights related to affiliate sharing under the Fair Credit Reporting Act (“FCRA”). First, section 603(d)(2)(A)(iii) of the FCRA allows the sharing of a consumer's information among affiliates, but only if the consumer is notified of such sharing and is given an opportunity to opt out. 18 Section 503(c)(4) of the GLBA and the Privacy Rule generally require motor vehicle dealers to incorporate any notifications and opt-out disclosures provided pursuant to section 603(d)(2)(A)(iii) of the FCRA into their initial and annual privacy notices. 19

Second, section 624 of the FCRA and the FTC's Affiliate Marketing Rule  20 provide that an affiliate of a motor vehicle dealer that receives certain information about a consumer from the dealer may not use that information for marketing purposes, unless the consumer is provided with an opportunity to opt out of that use. 21 This requirement governs the use of information by an affiliate, not the sharing of information among affiliates, and thus is distinct from the affiliate sharing opt-out discussed above. The Affiliate Marketing Rule permits (but does not require) motor vehicle dealers to incorporate any opt-out disclosures provided under section 624 of the FCRA and the Affiliate Marketing Rule into the initial and annual privacy notices required by the GLBA. 22

Finally, section 313.6(a)(8) of the Privacy Rule requires that the initial and annual notices briefly describe how motor vehicle dealers protect the nonpublic personal information they collect and maintain.

In December 2011, the CFPB issued a Request for Information seeking specific suggestions for streamlining regulations that were transferred to the CFPB from other Federal agencies, including the annual privacy notice requirement. 23 After receiving numerous comments, in May 2014, the CFPB issued a proposed rule to amend its Regulation P to allow financial institutions to notify consumers that a privacy notice was available online, in certain enumerated circumstances. 24 The CFPB finalized its rulemaking in October 2014. 25

On June 24, 2015, the Commission published a Notice of Proposed Rulemaking (“2015 NPRM”) proposing revisions to the Privacy Rule. 26 First, the Commission proposed a number of changes to comport with the Dodd-Frank Act revision of GLBA, which transferred rulemaking authority for most financial institutions to the CFPB. The Commission also proposed amending the Rule to allow motor vehicle dealers to notify their customers that a privacy notice is available online, under circumstances identical to those that had been adopted by the CFPB. 27

The Commission received six comments from individuals and entities. 28

As described above, on December 4, 2015, President Obama signed the FAST Act. The FAST Act contains a provision that modified the annual privacy notice requirement under the GLBA. The provision states that a financial institution is not required to provide an annual privacy notice if it: (1) Only shares non-public personal information with non-affiliated third parties in a manner that does not require an opt-out right be provided to customers ( e.g., if the institution discloses nonpublic personal information to a service provider or for fraud detection and prevention purposes), and (2) has not changed its policies and practices with respect to disclosing nonpublic personal information since it last provided a privacy notice to its customers. 29 This modification of the GLBA rendered the Commission's proposed changes to the Privacy Rule moot because those changes, if adopted, would have been in conflict with the revised statute. 30

In light of this history, the Commission is issuing this notice of proposed rulemaking. The Commission now proposes to make three types of changes to the Privacy Rule: (1) Technical changes to the Rule to correspond to the reduced scope of the Rule due to Dodd-Frank Act changes, which primarily consist of removing references that do not apply to motor vehicle dealers; (2) modifications to the annual privacy notice requirements to reflect the changes made to the GLBA by the FAST Act; and (3) a modification to the scope and definition of “financial institution” to include entities engaged in activities that are incidental to financial activities, which would bring the Rule into accord with the CFPB's Regulation P.

The Commission adopted the scope of, and definitions in, the original Privacy Rule at a time when it had rulemaking authority for the Privacy Rule over a broader group of non-bank “financial institutions” as defined by the GLBA. While the Dodd-Frank Act did not change the Commission's enforcement authority for the privacy notice obligations of the GLBA, it did amend the Commission's rulemaking authority under the GLBA such that the Privacy Rule only applies to motor vehicle dealers. 31 The amendments in the Dodd-Frank Act necessitate certain technical revisions to the Privacy Rule to ensure that the regulation is consistent with the text of the amended GLBA. 32 For example, retaining examples that apply to entities other than motor vehicle dealers may lead to confusion about the existing, narrower scope of the Privacy Rule. Accordingly, the Commission proposes to modify the Privacy Rule to provide clearer guidance to financial institutions that are covered motor vehicle dealers. 33

The proposed amendment to section 313.1(b) narrows the description of the scope of the Privacy Rule to those entities set forth in the Dodd-Frank Act  34 that are predominantly engaged in the sale and servicing of motor vehicles or the leasing and servicing of motor vehicles, excluding those dealers that directly extend credit to consumers and do not routinely assign the extensions of credit to an unaffiliated third party. It also removes the reference in the Rule's scope to “other persons”: Although the Commission continues to have enforcement authority over “other persons” covered by the CFPB's Regulation P, the Commission no longer has rulemaking authority for the Privacy Rule over “other persons.”  35 In addition, the Commission proposes to eliminate from section 313.1(b) the note indicating that (1) the Privacy Rule does not modify, limit, or supersede the standards under the Health Insurance Portability and Accountability Act of 1996, and (2) if a financial institution that is an institution of higher education is in compliance with the Federal Educational Rights and Privacy Act (“FERPA”) and its implementing regulations, such institution shall be deemed in compliance with the Privacy Rule. The Commission does not believe these provisions will apply to motor vehicle dealers covered by the Rule and should be removed to improve clarity. The Commission invites comments on whether these provisions are relevant to motor vehicle dealers and should be retained.

The proposed amendments to section 313.3 also remove any examples that are not likely to apply to motor vehicle dealers. To help companies understand whether and how the Rule applies to them, the Rule includes examples of financial institutions in section 313.3(k)(2). The current examples refer to types of activities that motor vehicle dealers typically do not engage in. Therefore, leaving those examples in the Rule may lead to confusion about the Rule's current scope.

The proposed amendments also remove certain examples from the definition of “consumer” in section 313.3(e)(2). These examples do not apply because motor vehicle dealers do not provide the types of services provided in the examples, such as financial, investment, or economic advisory services or serving as the trustee of a trust.

Likewise, the proposed amendments remove certain examples of establishing a customer relationship from section 313.4(c)(3)(i). The removed examples do not apply to customers of motor vehicle dealers, because such activities are not related to the sale or leasing of motor vehicles. These include creating credit card accounts, providing investment advice or tax counseling, providing mortgages, collecting debts from other financial institutions, and providing websites for consumers to review all of their on-line financial accounts with other financial institutions.

Finally, the proposed amendments remove certain examples of termination of customer relationships from section 313.5(b)(2). As with previously discussed proposed amendments, the removed examples concern customer relationships based on services that motor vehicle dealers do not provide. These include credit card accounts, credit counseling services, tax preparation, and real estate settlement. The removal of these inapplicable examples will increase the clarity of the rule by focusing on matters that are relevant to the regulated financial institutions. Removing these examples will not alter the substance of the underlying definitions or provisions of the rule, which will have the same reach and applicability as before the revisions. The changes are intended to improve clarity, not to alter substance. The Commission invites comments on whether any of the omitted examples should be retained.

Although the Dodd-Frank Act altered the Commission's rulemaking authority with respect to the Privacy Rule, it did not alter the Commission's rulemaking authority for the Safeguards Rule. For the Safeguards Rule, the Commission continues to have rulemaking authority over a broad range of non-bank financial institutions. The Safeguards Rule, however, currently incorporates by reference the definitions contained in the Privacy Rule, including all of the examples of financial institutions listed in the existing Privacy Rule. 36 Accordingly, while the Commission proposes to modify the Privacy Rule definitions to include examples applicable only to motor vehicle dealers, the Commission has also proposed in a separate concurrent NPRM to amend the Safeguards Rule to import definitions of relevant terms and examples from the current version of the Privacy Rule. 37

The Commission also proposes changes to the Privacy Rule provisions governing how motor vehicle dealers should deliver annual privacy notices. These changes implement statutory changes resulting from the enactment of the FAST Act and replace those set forth in the 2015 NPRM.

Several commenters opined on the proposed changes to notice delivery in the 2015 NPRM. Those comments have been rendered obsolete by the statutory changes. The current proposed rule implements the changes set forth in the FAST Act.

The proposed section 313.5(a)(1) notes that section 313.5(e) provides an exception to the general rule requiring the delivery of annual notices.

This proposed new section sets forth the exception to the annual privacy notice requirement. The Commission adopts the reasoning and changes set forth by the CFPB in its amendments to Regulation P to adopt the FAST Act changes. 38 First, proposed section 313.5(e)(1)(i) sets forth that the financial institution must share nonpublic personal information only in accordance with the provisions of sections 313.13, 313.14, and 313.15, none of which require an opt-out opportunity be provided to customers. Second, proposed section 313.5(e)(1)(ii) states that the financial institution must also not have changed its disclosure policies and practices that were contained in its most recent privacy notice to customers.

Proposed section 313.5(e)(2) sets forth the timing for delivering an annual notice if a financial institution no longer meets requirements for the exception and must resume delivery of annual notices. There are two scenarios under which a financial institution would need to resume delivering annual notices: (1) Where the change in its policies trigger the existing requirement to issue a revised privacy notice, as required by section 313.8; and (2) where the change does not trigger a need for the financial institution to issue a revised notice under section 313.8. These two situations are addressed by proposed sections 313.5(e)(2)(i) and (ii), respectively. In the first situation, the revised notice issued by the financial institution acts as an initial privacy notice for the purposes of the timing of future annual notices. In the second situation, the financial institution must provide an annual notice to customers within 100 days of the change in policies or practices. Proposed section 313.5(e)(2)(iii) sets forth an example for both scenarios.

Whether a company is a “financial institution” is determined by the types of activities in which the company engages. When first promulgating the Privacy Rule, the Commission determined that companies engaged in activities that are “incidental to financial activities” would not be considered “financial institutions.”  39 The Commission was the only agency to adopt this restrictive definition in its Privacy Rule, while the other agencies included incidental activities. 40 In addition, the Commission decided that activities that were determined to be financial in nature after the enactment of the GLBA would not be automatically included in its Privacy Rule; rather, the Commission would have to take additional action to include them. 41 The effect of these two decisions was to limit the activities covered by the Commission's rules to those set out in 12 CFR 225.28 as it existed in 1999, and to exclude any activities later determined by the Fed to be financial activities or incidental to those activities. 42

The Commission proposes modifying the definition of “financial institution” to harmonize the Privacy Rule with other agencies' rules. The Commission proposes to amend section 313.1(b) to include companies that engage in activities that are financial in nature or incidental to such financial activities. Likewise, it proposes to amend the definition of “financial institution” in section 313.3(k), to include any institution the business of which is engaging in an activity that is financial in nature or incidental to such financial activities. 43 The effect of this proposed amendment would be to cause “finders” to be included in this definition, thereby bringing the Privacy Rule into harmony with the scope of entities covered by other agencies under Regulation P. It would not bring any other activities under the coverage the definition because the Fed has not determined any other activity other than “finding” to be financial in nature or incidental to such activity since the enactment of the GLBA. In practice, the Commission expects that this change to the Privacy Rule will have little to no effect because of the already narrow scope of the Rule: It is not clear that there are any motor vehicle dealers that would be covered by this rule whose only activity that would qualify them as a financial institution is the act of finding, as most motor vehicle dealers are more directly involved in obtaining financing for their customers. Nevertheless, the Commission believes this change is important to keep the Rule consistent with the Safeguards Rule and other agencies' GLBA implementing rules.

The Commission has not previously requested comment on revising the definition of “financial institution” in this way for the Privacy Rule. Through this NPRM, it does so here. Specifically, the Commission seeks information on (1) whether any entities function as “finders” for motor vehicle dealers, and if so how many; (2) whether such finders collect or maintain customer information as defined by the Rule; and (3) the costs and benefits, including the costs and benefits to finders and consumers, of this proposed amendment.

You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before June 3, 2019. Write “Amendment to the Privacy of Consumer Financial Information Rule, 16 CFR part 313, Rulemaking No. R411016” on the comment. Your comment, including your name and your state, will be placed on the public record of this proceeding, including, to the extent practicable, the https://www.regulations.gov website.

Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a result, we encourage you to submit your comment online. To make sure that the Commission considers your online comment, you must file it at https://www.regulations.gov by following the instructions on the web-based form.

If you file your comment on paper, write “Amendment to the Privacy of Consumer Financial Information Rule, 16 CFR part 313, Rulemaking No. R411016,” on your comment and on the envelope, and mail your comment to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex B), Washington, DC 20580, or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex B), Washington, DC 20024. If possible, please submit your paper comment to the Commission by courier or overnight service.

Because your comment will be placed on the publicly accessible website, https://www.regulations.gov/, you are solely responsible for making sure that your comment does not include any sensitive or confidential information. In particular, your comment should not include any sensitive personal information, such as your or anyone else's Social Security number, date of birth, driver's license number or other state identification number or foreign country equivalent, passport number, financial account number, or credit or debit card number. You are also solely responsible for making sure that your comment does not include any sensitive health information, such as medical records or other individually identifiable health information. In addition, your comment should not include any “trade secret or any commercial or financial information which . . . is privileged or confidential,” as provided by section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2), including in particular, competitively sensitive information such as costs, sales statistics, inventories, formulas, patterns, devices, manufacturing processes, or customer names.

Comments containing material for which confidential treatment is requested must be filed in paper form, must be clearly labeled “Confidential,” and must comply with FTC Rule 4.9(c). In particular, the written request for confidential treatment that accompanies the comment must include the factual and legal basis for the request, and must identify the specific portions of the comments to be withheld from the public record. 44 Your comment will be kept confidential only if the FTC General Counsel grants your request in accordance with the law and the public interest. Once your comment has been posted publicly at www.regulations.gov, we cannot redact or remove your comment from the FTC website, unless you submit a confidentiality request that meets the requirements for such treatment under FTC Rule 4.9(c), and the General Counsel grants that request.

Visit the Commission website at https://www.ftc.gov/ to read this document and the news release describing it. The FTC Act and other laws that the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments that it receives on or before June 3, 2019. For information on the Commission's privacy policy, including routine uses permitted by the Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.

Written communications and summaries or transcripts of oral communications respecting the merits of this proceeding, from any outside party to any Commissioner or Commissioner's advisor, will be placed on the public record. 45

Under the Paperwork Reduction Act of 1995 (PRA), 46 Federal agencies are generally required to seek Office of Management and Budget (OMB) approval for information collection requirements prior to implementation. Under the PRA, the Commission may not conduct or sponsor, and, notwithstanding any other provision of law, a person is not required to respond to an information collection, unless the information collection displays a valid control number assigned by OMB.

This proposal would amend 16 CFR part 313. The collections of information related to the Privacy Rule and the FAST Act statutory exceptions to the Rule's annual notice requirement have been previously reviewed and approved by OMB in accordance with the PRA. 47

Under the existing clearance, the FTC has attributed to itself the estimated burden regarding all motor vehicle dealers and then shares equally the remaining estimated PRA burden with the CFPB for other types of financial institutions for which both agencies have enforcement authority regarding the GLBA Privacy Rule. 48

The proposed amendments do not modify or add to information collection requirements that were previously approved by OMB. First, the Commission anticipates that the proposed expansion of the definition of “financial institution” to include entities engaged in activities that are incidental to financial activities will have little to no effect. It is not clear that any finders are in the business of linking consumers with financing through motor vehicle dealers, as opposed to other types of financial institutions such as payday lenders or mortgage lenders.

Second, the proposed removal of certain examples provided in the Rule that are not applicable to motor vehicle dealers will have no impact on existing information collection requirements.

Therefore, the Commission does not believe that the proposed amendments would substantially or materially modify any “collections of information” as defined by the PRA.

The Commission seeks comment on whether there are any finders in existence that would be covered by the proposed Rule. If there are such businesses, the Commission will seek OMB clearance as appropriate.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires an agency to either provide an Initial Regulatory Flexibility Analysis (“IRFA”) with a proposed rule, or certify that the proposed rule will not have a significant impact on a substantial number of small entities. 49 The Commission does not expect that this Rule, if adopted, would have the threshold impact on small entities. First, most of the burdens flow from the mandates of the GLBA, not from the specific provisions of the proposed Rule. Second, the Commission does not expect the proposal to impose costs on small motor vehicle dealers because the amendments are primarily for clarification purposes and should not result in any increased burden on any motor vehicle dealer. Thus, a small entity that complies with current law need not take any different or additional action if the proposal is adopted. Nonetheless, the Commission has determined that it is appropriate to publish an Initial Regulatory Flexibility Analysis in order to inquire into the impact of the proposed Rule on small entities. The Commission does not believe that there are any small entities engaged in finding for motor vehicle financing that would now be covered as a result of the modified definition of “financial institution.” However, the Commission invites comment on this issue.

To address the Dodd-Frank Act and FAST Act changes the Commission proposes to change the Privacy Rule's scope and definition of “financial institution”; change the annual notice requirement; and remove certain examples provided in the Rule that are not applicable to motor vehicle dealers. These changes will make the current, narrow scope of the Rule clearer. Additionally, the Commission proposes modifying the definition of “financial institution” to harmonize the Privacy Rule with other agencies' rules by including “activities incidental to financial activities” as a financial activity. This change would bring “finders” within the scope of the Rule.

The objectives of the proposed Rule are discussed above. The legal basis for the proposed Rule is section 501(b) of the GLBA.

Determining a precise estimate of the number of small entities  50 —including newly covered entities under the modified definition of financial institution—is not readily feasible. Financial institutions covered by the Rule include certain motor vehicle dealers. If the proposed Rule is finalized, finders will also be covered. The Commission requests comment and information on whether there are any finders in existence that would be covered by the proposed Rule.

The Commission does not believe that the proposed Rule would impose any new or substantively revised “collections of information” as defined by the PRA. Rather, the Commission believes that the proposed amendments would have the overall effect of reducing the currently cleared estimated burden for the information collections associated with the Privacy Rule annual notice. The Commission invites comment on the costs to newly covered financial institutions—if there are any—of complying with the Rule.

The Commission's proposal to modify the definition of “financial institution” harmonizes the Privacy Rule with other agencies' rules. The effect of this proposed amendment, as discussed above, would be to cause “finders” to be covered by the Rule, thereby bringing the scope of the Privacy Rule into harmony with the scope of entities covered by other agencies under Regulation P. The Commission believes that this proposal does not create conflicting or duplicative obligations on small entities. As stated previously, the Commission does not believe there are any newly covered financial institutions resulting from the proposed definitional modification. However, the Commission is requesting comment on the extent to which other federal standards involving privacy notices may duplicate and/or satisfy or possibly conflict with the Rule's requirements for any newly covered financial institutions.

As stated previously, the Commission does not believe there are any newly covered financial institutions resulting from the proposed definitional modification. Moreover, the Commission believes that the other proposed amendments would have the overall effect of reducing the burden for all covered entities associated with the Privacy Rule annual notice. The proposed amendments do not reduce the flexibility already present in the existing Rule, which allows notices to be provided in a variety of ways, including electronically in some circumstances. As to the core requirements of the proposed Rule, they come from GLBA itself, as amended by the Dodd-Frank and the FAST Act. The statute prescribes the definition of financial institutions to be covered by the Rule and sets forth the specific requirements, which the Commission cannot modify to ease burdens on small entities. Therefore the Commission does not believe that any alternatives for small entities are required or appropriate. However, the Commission welcomes comment on any significant alternative consistent with the GLBA that would minimize the impact of the proposed Rule on small entities—specifically institutions that would be newly covered financial institutions—if there are any.

For the reasons stated above, the Federal Trade Commission proposes to amend 16 CFR part 313 as follows:

I. Background

The Gramm Leach Bliley Act (“GLB” or “GLBA”) was enacted in 1999. 1 The GLBA provides a framework for regulating the privacy and data security practices of a broad range of financial institutions. Among other things, the GLBA requires financial institutions to provide customers with information about the institutions' privacy practices and about their opt-out rights, and to implement security safeguards for customer information.

Subtitle A of Title V of the GLBA required the Commission and other federal agencies to establish standards for financial institutions relating to administrative, technical, and physical safeguards for certain information. 2 Pursuant to the Act's directive, the Commission promulgated the Safeguards Rule in 2002. The Safeguards Rule became effective on May 23, 2003.

The Safeguards Rule requires a financial institution to develop, implement, and maintain a comprehensive information security program that consists of the administrative, technical, and physical safeguards the financial institution uses to access, collect, distribute, process, protect, store, use, transmit, dispose of, or otherwise handle customer information. 3 The information security program must be written in one or more readily accessible parts. 4 The safeguards set forth in the program must be appropriate to the size and complexity of the financial institution, the nature and scope of its activities, and the sensitivity of any customer information at issue. 5 The safeguards must also be reasonably designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of the information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. 6

In order to develop, implement, and maintain its information security program, a financial institution must identify reasonably foreseeable internal and external risks to the security, confidentiality, and integrity of customer information that could result in the unauthorized disclosure, misuse, alteration, destruction, or other compromise of such information, including in the areas of: 1. Employee training and management; 2. information systems, including network and software design, as well as information processing, storage, transmission, and disposal; and 3. detecting, preventing, and responding to attacks, intrusions, or other systems failures. 7 The financial institution must then design and implement safeguards to control the risks identified through the risk assessment, and must regularly test or otherwise monitor the effectiveness of the safeguards' key controls, systems, and procedures. 8 The financial institution is also required to evaluate and adjust its information security program in light of the results of this testing and monitoring, as well as any material changes in its operations or business arrangements, or any other circumstances that it knows or has reason to know may have a material impact on its information security program. 9 The financial institution must also designate an employee or employees to coordinate the information security program. 10

Finally, the Safeguards Rule requires financial institutions to take reasonable steps to select and retain service providers that are capable of maintaining appropriate safeguards for customer information and require those service providers by contract to implement and maintain such safeguards. 11

When the Commission issued the Rule in 2002, it opted to provide general requirements and guidance for the required information security program, without providing detailed descriptions of what the information security program should contain. 12 It took this approach in order to provide financial institutions with the flexibility to shape the information security programs to their particular business and to allow the programs to adapt to changes in technology and threats to the security and integrity of customer information. 13 While the Commission believes the proposed amendments continue to provide companies with flexibility, they also attempt to provide more detailed guidance as to what an appropriate information security program entails.

On August 29, 2016, the Commission solicited comments on the Safeguards Rule as part of its periodic review of its rules and guides. 14 The Commission sought comment on a number of general issues, including the economic impact and benefits of the Rule; possible conflicts between the Rule and state, local, or other federal laws or regulations; and the effect on the Rule of any technological, economic, or other industry changes. The Commission received 28 comments from individuals and entities representing a wide range of viewpoints. 15 Most commenters agreed that there is a continuing need for the Rule and that it benefits consumers and competition. 16 The Commission also generally asked commenters to weigh in on: 1. Whether the Commission should add more specific requirements for information security programs to the Rule; 2. whether the Rule should require the inclusion of an incident response plan; 3. whether the Rule should reference or incorporate any other information security standards or framework, such as the National Institute of Standards and Technology's Cybersecurity Framework or the Payment Card Industry Data Security Standard; 4. whether the Rule should contain its own definition of “financial institution” rather than cross-reference the definition set forth in the Privacy Rule; and 5. whether the definition of “financial institution” should be expanded.

Several commenters urged the Commission not to add more specific and prescriptive requirements for information security programs. 17 These commenters stated that financial institutions are familiar with the Rule in its current form and have established practices and policies in reliance on it;  18 that preserving the Rule's flexible guidelines for information security plans enables financial institutions to adapt quickly to the rapidly changing cybersecurity landscape;  19 and that additional prescriptive requirements for information security plans would negatively impact innovation. 20

Some commenters asserted that a more prescriptive regulatory approach for information security programs in the Rule would not necessarily make institutions more secure and cautioned that regulation that adopts a checklist approach to information security plans risks creating complacency among companies. 21 A few commenters proposed that rather than amending the Rule to add more specific and prescriptive requirements for information security plans, the Commission should promote self-regulation as an appropriate tool to effectively promote information security. 22

On the other hand, some commenters recommended that the FTC strengthen the Rule by including more detailed security requirements. 23 The Clearing House Association LLC (“The Clearing House”), a banking association and payments company that is owned by the largest commercial banks, argued that the Rule's requirements, at least with respect to large financial technology (“Fintech”) companies, should be more akin to the rules applicable to banks under the Federal Financial Institutions Examination Council (“FFIEC”) Interagency Guidelines. Among other things, these guidelines specify elements that financial institutions should include in a risk assessment; areas a financial institution must consider—such as access controls, encryption, and incident response—in developing security controls; and provisions that financial institutions must include in contracts with service providers. The Electronic Privacy Information Center (“EPIC”) recommended that certain practices set forth in the FTC's Safeguards Rule Guidance, such as employee background checks, authentication requirements, and encryption, should be mandatory. 24

Having considered these comments, the Commission proposes to amend the Rule to include more specific security requirements. While the Commission agrees with those commenters that argued that the flexibility of the current Safeguards Rule is a strength that allows the Rule to adapt to changing technology and threats, the Commission believes that more specific requirements will benefit financial institutions by providing them more guidance and certainty in developing their information security programs, while largely preserving that flexibility. The Commission agrees that a checklist approach is not appropriate, which is why the proposed amendments retain the existing Rule's process-based approach, allowing companies to tailor their programs to their size and to the sensitivity and amount of customer information they collect. As to the commenters that stated that the current Rule works well and that companies have already developed compliance programs under it, the Commission does not believe the proposed new requirements would require an overhaul of existing compliance programs. Because the new requirements build on existing requirements, they will help companies benchmark and improve their current compliance programs, rather than having to start from scratch. Finally, the Commission recognizes that some of the financial institutions to which the Safeguards Rule applies—such as tax preparers or mortgage brokers—may be very small businesses with few customers. Accordingly, the proposed amendment would exempt smaller financial institutions from certain requirements of the amended Rule.

The Commission also agrees that very specific requirements for information security programs could become outdated and require frequent amendments. Accordingly, the proposed amendments provide more detailed requirements as to the issues and threats that must be addressed by the information security program, but do not require specific solutions to those problems. Instead, the proposed amendments retain the process-based approach of the Rule, while providing a more detailed map of what information security plans must address. As discussed in detail below, information security programs under the proposed amendments would still be based on risk assessments performed by the covered financial institutions and would be developed to address the specific risks and needs of the financial institution. The Commission continues to believe that a flexible, non-prescriptive Rule enables covered organizations to use it to respond to the changing landscape of security threats, to allow for innovation in security practices, and to accommodate technological changes and advances. The proposed amendments are designed to preserve that flexibility while doing more to ensure that financial institutions develop information security plans that are appropriate, reasonable, and designed to protect customer information. 25 Although the Commission believes the proposed approach is sufficiently flexible, it seeks comment on whether the approach creates unintended consequences for businesses, may be more stringent than necessary to achieve the objective, and/or unnecessarily modifies language without creating a material benefit to security.

The Commission sought comment on whether the Rule should require an incident response plan. Several commenters were opposed to adding such a requirement. Some of these commenters noted that states already require companies to notify consumers of a breach and that companies effectively must have some sort of incident response plan in place to meet this requirement, so there would be no need to add this requirement to the Rule. 26 Some commenters argued that such a requirement would be burdensome for many businesses. 27 Others stated that there is no need to add such a requirement because, for many financial institutions, in order to satisfy the Rule's current requirement to have a reasonable information security program, a financial institution would necessarily be required to have an incident response plan. 28 On the other hand, The Clearing House noted that an incident response program is “a crucial element of data security hygiene in the increasingly dangerous threat environment” and urged that the Commission impose this requirement on FTC-regulated financial institutions, especially since this is already a requirement for banks under the FFIEC Interagency Guidelines. 29

The Commission agrees that the current Rule already requires many financial institutions to develop an incident response plan as part of their information security program. However, the Commission believes there is value to making such a requirement explicit. Accordingly, the Commission proposes an amendment to the Rule to require covered financial institutions to develop an incident response plan as part of their information security program, as described in greater detail below. The Commission does not agree that a process-based requirement that financial institutions plan for an incident encourages a “check the box” approach. Nor does the Commission agree that such an obligation is generally burdensome, particularly for businesses operating nationwide, given that many institutions already must develop a response plan to comply with state law. 30

The proposed amendment lists several general areas that the plan would need to address, as discussed in greater detail below. The Commission seeks comment about the potential costs and benefits of this proposal. In particular, the Commission is interested in any data, research or case studies that the Commission could use to analyze what commenters advocate. The proposed amendment is designed to ensure that covered financial institutions are prepared in the event of a cybersecurity event, while still giving them ample flexibility to adapt the plan to the needs and resources of their business.

The Commission sought comment on whether the Rule should reference or incorporate any other information security standards or frameworks, such as the National Institute of Standards and Technology's (“NIST”) Cybersecurity Framework (the “Framework”) or the Payment Card Industry Data Security Standard (“PCIDSS”).

The majority of commenters advocated against referring to or incorporating any other information security standard or framework, such as the NIST Framework or PCIDSS, into the Rule. 31 Some commenters argued that the FTC should not adopt the NIST Framework as a binding set of obligations because it would lead to a “check the box” security mandate, and would add a layer of complexity to an already complex regulatory environment where institutions have to comply with numerous preexisting federal and state requirements. 32 The Electronic Transactions Association (“ETA”) argued that the Framework is “not designed to replace an organization's cybersecurity risk management” and that it is not intended to be a standard or checklist. 33

A few commenters wrote in support of incorporating a reference to the NIST Framework in the Rule, while not requiring compliance with the Framework. 34 For example, the Financial Services Roundtable/BITS (“FSR/BITS”) argued that incorporating the NIST Framework in the Rule as an informative reference would help to address “the growing thicket of cybersecurity compliance obligations that are spreading across the financial services sector.”  35 FSR/BITS recommended further that the Commission modify the Rule so that financial institutions that use the NIST Framework would be found in de facto compliance with the Rule. 36

With respect to the PCIDSS, numerous commenters opposed the Rule's reference or incorporation of PCIDSS. 37 Commenters argued such an amendment has the possibility of undermining the Rule's flexibility by imposing a “one-size-fits-all” approach. 38 MasterCard Worldwide, a co-founder and developer of PCIDSS, opposed this amendment to the Rule, highlighting that the PCIDSS was created by major card networks for participants in the card industry. 39 Whereas the PCIDSS may be appropriate for payment card issuers and acquirers, MasterCard argued, it would not necessarily apply well to other financial institutions. 40 Other comments agreed that incorporating PCIDSS would be inappropriate. 41 No commenters wrote in support of referencing or incorporating the PCIDSS into the Rule. Having considered these comments, the Commission declines to propose changing the Rule to incorporate or reference a particular security standard or framework. As noted above, for a variety of reasons, including questions about the applicability of the particular standards at issue to all financial institutions, the majority of commenters opposed referencing or incorporating any specific information security standard or framework into the Rule. Mandating that companies follow a particular security standard or framework would reduce the flexibility built into the current Rule. This proposal does not amend the Rule to allow compliance with such standards to serve as a safe harbor against Commission enforcement, as some commenters sought. The Commission seeks additional comment on how such a program could remain up to date and respond rapidly to changes in the security environment, and the workability of monitoring changing standards and adapting a safe harbor rule as needed.

The Commission also asked whether the Rule should be revised to incorporate a definition of “financial institution” and related examples in the Rule itself, rather than cross-reference reference definitions and examples set forth in the Privacy Rule. 42

The term “financial institution” is defined in the Privacy Rule, and that term is cross-referenced in the Safeguards Rule. 43 Under the Dodd-Frank Act, 44 the majority of the Commission's rulemaking authority for the Privacy Rule was transferred to the Consumer Financial Protection Bureau, with the exception of rulemaking authority pertaining to certain motor vehicle dealers. 45 Accordingly, the Commission's Privacy Rule now applies only to certain motor vehicle dealers. The Safeguards Rule, however, still applies to all financial institutions within the FTC's general enforcement jurisdiction. 46 Thus, currently, the definition of “financial institution” in the Privacy Rule—which governs the scope of the Safeguards Rule—applies to all financial institutions within the Commission's jurisdiction, despite the fact that most types of financial institutions are no longer subject to the Privacy Rule. This creates a confusing situation where the Privacy Rule, on its face, appears to cover types of “financial institutions” that the Privacy Rule no longer covers.

To address this issue, the Commission proposes incorporating the definition of “financial institution” and the accompanying examples from the Privacy Rule into the Safeguards Rule. 47 None of the commenters voiced a view one way or the other on this issue. The Commission notes that this modification would have no substantive effect on the scope of the Rule or its enforcement. 48 This change will only increase the clarity of the Rule.

Finally, the Commission asked about the scope of the definition of “financial institution.” When promulgating the Privacy Rule in 2000, the Commission determined that companies engaged in activities that are “incidental to financial activities” would not be considered “financial institutions.”  49 The Commission was the only agency to adopt this restrictive definition in its Privacy Rule, while the other agencies included incidental activities. 50 In addition, the Commission decided that activities that were determined to be financial in nature after the enactment of the GLBA would not be automatically included in its Privacy Rule; rather, the Commission would have to take additional action to include them. 51 The effect of these two decisions was to limit the activities covered by the Commission's rules to those set out in 12 CFR 225.28 as it existed in 2000, and to exclude any activities later determined by the Federal Reserve Board to be financial activities or incidental to those activities. 52 The definition from the Privacy Rule was incorporated into the Safeguards Rule. 53 Thus, in the Request for Comment, 54 the Commission sought comment on whether it should more closely align with other agencies and amend the Safeguards Rule to include “incidental” activities and activities determined to be financial or incidental after 1999.

In 2000, the Federal Reserve Board determined that acting as a “finder” is an activity that is “incidental to a financial activity.”  55 The Federal Reserve Board defined “finding” as bringing together buyers and sellers of products or services for transactions that the buyers and sellers themselves negotiate and consummate.

The majority of commenters who addressed the definition of “financial institutions” urged the Commission not to amend the definition to include more than those businesses that conduct traditional financial activities or to include activities determined to be financial in nature or incidental after the enactment of the GLBA. 56 For example, the Software & Information Industry Association (“SIIA”) commented that the Rule already has an impact beyond financial institutions themselves in encouraging entities that receive customer information from financial institutions to take measures to secure that data, even though they may not be legally obligated to do so under the Rule. 57 Per SIIA, this is because they are either contractually bound by partnerships with financial institutions, or compete for business on the ability to meet high security requirements. 58 The Securities Industry and Financial Markets Association (“SIFMA”) also opposed this amendment, claiming that the securities industry makes a proactive, regular effort to familiarize itself with other regulatory frameworks' definitions in order to satisfy the Rule's “reasonable” standard. 59 Thus, the Rule already implicitly requires their industry, SIFMA argues, “to understand the Privacy Act, Federal Reserve Board guidance, and the [GLBA's] impact. Creating new, or modifying existing, definitions in the Rule would eliminate the Rule's flexibility in this regard.”  60

In opposition to an expansion of the definition of financial institutions that might include incidental participants in financial transactions, the National Association of Convenience Stores (“NACS”) noted that some incidental participants—such as its members—do not store customer-identifying information, nor do they have continuing information-based relationships with consumers that would justify development and maintenance of a comprehensive security program. 61 Further, according to NACS, its members do not handle some of the most sensitive personal information such as Social Security numbers and driver's license numbers that are more commonly associated with identity theft. 62 Financial institutions, by contrast, do handle such sensitive personal consumer information. 63

On the other hand, EPIC advocated that the Commission expand the scope of the Rule to include “all organizations and companies that collect consumer data,” such as educational institutions and commercial businesses that process student and consumer information. 64 In underscoring the importance of doing so, EPIC noted that such organizations frequently collect the same sensitive information as traditional financial institutions and are subject to the same security threats. 65

Having considered these comments, the Commission proposes amending the definition of “financial institution” to include “incidental” activities and activities determined to be financial or incidental after 1999. This change would bring “finders” within the scope of the Rule. The Commission recognizes that commenters generally opposed revising the definition, but notes that commenters' concerns generally related to issues not presented by the proposed change (e.g., bringing such entities as convenience stores or securities firms within the Rule's ambit).

The Commission is not proposing such a broad expansion, however. The only effect of this proposed amendment would be to cause finders, whose activities often involve collection of financially sensitive personal information, to be covered by the Rule. This modification would ensure that finders adequately protect that information. Because they collect, maintain, and store sensitive consumer information, it is important for them to be subject to requirements to safeguard it. If this sensitive information were to get into the wrong hands, consumers could suffer identity theft, fraud, and other harms.

The Commission's proposed change would not bring any other activities under the coverage of the Rule because the Federal Reserve Board has not determined any activity other than finding to be financial in nature, or incidental to such activity, since the enactment of the GLBA. Further, it would harmonize the Commission's Rule with other regulators' Safeguards Rules—which already cover institutions engaged in activities incidental to financial activities—as well as Regulation P, which applies to all other financial institutions that are not covered by the Privacy Rule. 66 This harmonization will create a more consistent regulatory landscape that will help to treat businesses the same regardless of which agency is regulating them. Accordingly, the Commission's proposed amendment to section 314.1(b) indicates that the Rule's scope includes companies that engage in activities that are financial in nature or incidental to such financial activities. Likewise, the proposed definition of “financial institution” in proposed section 314.2(e)(1) also includes companies engaged in activities that are incidental to financial activities.

In connection with this proposal, the Commission requests comment on the impact of expanding the definition of “financial institutions” to include finders. Specifically, the Commission seeks information on 1. The number of finders in the marketplace that would be included in this definition; and 2. the costs and benefits, including the costs and benefits to finders and consumers, of this proposal.

As discussed above, the Commission proposes to amend the Safeguards Rule to include more detailed requirements for the development and establishment of the information security program required under the Rule. These amendments are based primarily on the cybersecurity regulations issued by the New York Department of Financial Services, 23 NYCRR 500 (“Cybersecurity Regulations”), and the insurance data security model law issued by the National Association of Insurance Commissioners (“Model Law”). 67 The Cybersecurity Regulations were issued in February 2017 after two rounds of public comment. The Model Law was issued in October 2017. The Commission believes that both the Cybersecurity Regulations and the Model Law maintain the balance between providing detailed guidance and avoiding overly prescriptive requirements for information security programs. The proposed amendments do not adopt either law wholesale, instead taking portions from each and adapting others for the purposes of the Safeguards Rule. 68

The Commission is interested in receiving data, research, case studies, or other evidence related to business efforts to comply with the Cybersecurity Regulations or state laws mirroring the Model Law. The Commission is also interested in receiving comments on the extent to which the proposal would preempt existing state laws. Section 507(a) of the GLBA, 15 U.S.C. 6807(a), preserves a state “statute, regulation, order, or interpretation” that is not “inconsistent” with the privacy and security provisions of the GLBA. The Commission is interested in hearing about the effect of the proposal on companies' compliance with state and federal law. Finally, in light of the proposed amendments and the existence of several cybersecurity frameworks that require processes similar to the Proposed Rule, the Commission additionally requests comments on the potential for safe harbors against Commission enforcement of the Safeguards Rule, including evidence on the efficacy and utility of safe harbors in other contexts and perspectives on the viability of a safe harbor in the present context, especially as safe harbors relate to small business.

In addition to the amendments related to the requirements for information security programs, the Commission proposes amendments to the definition of “financial institution” and the addition of examples previously contained in the Privacy Rule, as discussed above. It also adds to the definition of “financial institution” entities that engage in activities incidental to financial activities. The following is a section-by-section analysis of the proposed amendments. The Commission seeks comments on the proposed amendments in general but also seeks comment on specific questions as set forth in the analysis below.

The proposed amendment would add language from section 313.1(b) of the Privacy Rule, relating to the scope of the Rule and definition of financial institution, to section 314.1(b) of the Safeguards Rule. This addition would set forth the scope of the Safeguards Rule, which previously applied to the same entities as the Privacy Rule until the Dodd-Frank Act limited the scope of the Privacy Rule only to certain automobile dealers. As noted above, the Commission is proposing in a concurrent NPRM to amend the Privacy Rule to reflect the narrower scope of that regulation  69 and, in turn, proposes to amend the Safeguards Rule to clarify that it retains its original scope. Section 314.1(b) states that the Safeguards Rule applies to the handling of customer information by all financial institutions over which the Commission has jurisdiction. The proposed amendment sets forth the general definition of “financial institution” and provides examples of financial institutions under the Commission's jurisdiction, such as finance companies and mortgage brokers. The added language is taken largely from the existing Privacy Rule. The new language is not meant to change the scope of the Safeguards Rule, other than to reflect the proposed addition of “finders” to the Rule's scope, as discussed below.

This proposed rule would update the regulations implementing Section 3. The purpose of Section 3 is to ensure that employment, training, contracting, and other economic opportunities generated by certain HUD financial assistance are directed to low- and very low-income persons, particularly those who receive government assistance for housing, and for businesses to provide economic opportunities to low- and very low-income persons. As noted in the summary of this preamble, the regulations for Section 3 have not been updated in over 20 years. HUD's experience in administering Section 3 over time has provided insight as to how HUD could improve the effectiveness of its Section 3 regulations. Additionally, HUD has heard from the public that there is a need for regulatory changes to clarify and simplify the existing requirements. HUD has concluded that regulatory changes are needed to streamline Section 3 and more effectively benefit recipients of HUD financial assistance to achieve the purposes of the Section 3 statute. 1

The following provides an overview of the more significant provisions of this proposed rule.

The new rule includes multiple elements designed to increase Section 3's impact in directing employment opportunities for the people served by HUD financial assistance programs and sustaining employment. The new rule proposes the tracking and reporting of labor hours instead of new hires and solicits public comment on whether to retain tracking and reporting of new hires in some contexts. The current new hire framework, while valuable for measuring entry into employment, does not capture the extent to which new hiring opportunities are created relative to the total work performed, nor whether those opportunities are sustained over time. The proposed focus on labor hours would measure total actual employment and the proportion of the total employment performed by low- and very low-income workers. In addition, the proposed focus on labor hours emphasizes continued employment. For example, an exclusive focus on counting new hires regards five new hires for one-month opportunities as a more valued outcome than one 12-month opportunity, and it does not distinguish between full- and part-time employment. A full-time job sustained over a long period allows a low- or very low-income worker to gain skills and is a strong indicator of progress towards self-sufficiency. A focus on labor hours ensures that the 12-month, full time opportunity is appropriately recognized. To further encourage employers to invest in and retain newly-hired low- and very low-income workers, the proposed rule would determine whether someone qualified as a Section 3 worker at the time of hire and the employer would continue to count that Section 3 hire even if in the future the Section 3 worker is no longer a low- and very low-income worker.

HUD held a number of listening sessions with small Public Housing Agencies (PHAs), large PHAs, and other entities involved with Section 3  2 and heard from some PHAs that they would prefer to keep reporting new hires rather than switch to reporting labor hours. Therefore, while HUD believes tracking labor hours is the best option and would simplify reporting, HUD is proposing alternative regulatory language that would provide for PHAs to report on new hires. After receiving feedback on the labor hours and new hires framework in this proposed rule, HUD will select either Alternative 1, labor hours, or Alternative 2, new hires, for PHAs to use in tracking and reporting on Section 3.

As noted above, the new rule proposes the tracking and reporting of labor hours, rather than new hires. This is more consistent with business practices for most construction contractors working on HUD assisted or insured projects, who already track labor hours in their payroll systems because they have been subject to prevailing wage requirements  3 HUD believes a consistent labor hour tracking mechanism will make compliance with Section 3 easier not only for recipients of HUD assistance, but also for contractors and subcontractors. The rule also provides for employers who do not track hours in detail through a time-and-attendance system, permitting a good faith assessment of the labor hours of a full-time or part-time employee. The proposed rule does not create an obligation to establish a detailed time-and-attendance system.

This proposed rule applies to (1) HUD's Public Housing Program, and (2) Other programs that provide housing and community development assistance. For ease in administration, the rule would provide separate definitions for these types of funding and separate subparts relating to: (1) Public housing financial assistance, which covers (a) development assistance provided pursuant to section 5 of the United States Housing Act of 1937 (the 1937 Act), (b) operations and management assistance provided pursuant to section 9(e) of the 1937 Act (Operating Fund), and (c) development, modernization, and management assistance provided pursuant to section 9(d) of the 1937 Act (Capital Fund); and (2) Section 3 projects, which means HUD program assistance used for housing rehabilitation, housing construction and other public construction projects that generally exceed a $200,000 project threshold or any Section 3 project funding from HUD's Lead Hazard Control and Healthy Homes programs. This proposed rule would clarify that contracts, subcontracts, grants, or subgrants subject to section 7(b) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 5307(b)) or subject to tribal preference requirements as authorized under 101(k) of the Native American Housing Assistance and Self-Determination Act (25 U.S.C. 4111(k)) must provide preferences in employment, training, and business opportunities to Indians and Indian organizations.

All recipients of public housing financial assistance and recipients that fund a Section 3 project would be required to report on whether they have met benchmarks, as explained below. PHAs with fewer than 250 units would only be required to report on Section 3 qualitative efforts and would not be required to report on whether they have met the reporting benchmarks.

HUD's current regulations provide for a safe harbor where recipients may demonstrate compliance with Section 3 by certifying compliance with the Section 3 priorities and meeting numerical goals for the percentage of their new hires that qualify as Section 3 residents. Under the existing regulations, a Section 3 resident is either a public housing resident, or a low- or very low-income person who lives in the metropolitan area or nonmetropolitan county where assistance is expended. However, the Section 3 statute requires recipients of certain financial assistance to target their efforts to direct employment and economic opportunities to specific groups of low- and very low-income individuals. HUD interprets the statutory priorities for the public housing program to be: Residents of the public housing projects for which the public housing financial assistance is expended, residents of other public housing projects managed by the PHA that is expending the assistance or to residents of Section 8-assisted housing managed by the PHA, YouthBuild participants, and then other low- and very low-income persons within the metropolitan area or nonmetropolitan county. For other HUD assistance programs, the statutory priorities are: Residents within the service area or the neighborhood of the project and YouthBuild participants. There is also a statutory contracting priority for businesses that provide economic opportunities for the same priority groups. Previously the contracting metric was based on the cost of the contract awarded to the Section 3 business, and now the hours worked by the Section 3 business employees will be counted consistent with all other reporting.

This proposed rule anticipates that recipients would report the labor hours performed by “Section 3 Workers” as a percentage of the total labor hours on a project, and labor hours performed by “Targeted Section 3 Workers” as a percentage of the total labor hours on a project. The proposed rule would also provide an alternative for public housing financial assistance where reporting would be done by new hires, but with the same three metrics.

Under this proposed rule, “Section 3 Workers” would generally be low- or very low-income individuals, or those employed by a business that generally provides economic opportunities for low- and very low-income individuals. This proposed rule creates the new concept of “Targeted Section 3 Workers” so that HUD can track, and recipients can target, hiring Section 3 workers in selected categories and those who work for Section 3 businesses. A “Targeted Section 3 Worker” is a subset of all Section 3 workers (see graphic), that HUD wishes to specifically track, reflecting both statutory and policy priorities. The Targeted Section 3 worker category also incorporates the statutory requirements pertaining to contracting opportunities for business concerns employing low- and very low-income persons.

Targeted Section 3 Workers for public housing financial assistance would be:

• Residents of public housing projects or Section 8-assisted housing;  4

• Residents of other projects of the PHA that is expending assistance;

• Current YouthBuild participants; or

• Employees of a Section 3 business.

Targeted Section 3 Workers for other HUD financial assistance used on a Section 3 project would be:

• Low- or very low-income workers residing within the service area or the neighborhood of the project (for purposes of this proposed rule, this would include low- or very low-income workers residing within a one-mile radius of the project site; or if fewer than 5,000 people live within one mile of a work site, within a circle centered on the work site that encompass a population of 5,000 people);

• Current YouthBuild participants; or

• Employees of a Section 3 business concern.

A long-standing criticism of local economic development policy is that spatially-targeted subsidies transfer jobs away from other areas without creating job opportunities for the neediest individuals in the targeted area. The proposed Section 3 regulation avoids this pitfall by encouraging the engagement of local firms and low-income workers through the definition of a targeted Section 3 worker.

This proposed rule would establish new benchmark measurements, which will also serve as safe harbors. The primary impact of the Section 3 regulation is not to create new jobs but to redirect the job opportunities that are generated by HUD financial assistance to Section 3 workers and Targeted Section 3 workers, and the proposed benchmark would reflect and monitor grantees' abilities to do so. The new benchmarks will be based on ratios of Section 3 workers and Targeted Section 3 workers in comparison to all workers. These benchmarks would be set by notice and amended periodically to provide for updating of benchmarks where warranted. The benchmarks would align with the reporting data detailed above. As HUD gathers increasing data under the new rule, HUD can increase or decrease benchmark figures over time, or tailor different benchmarks for different geographies and different funding types. If a recipient certifies compliance with the statutory priorities and meets the outcome benchmarks, HUD would presume the recipient is in compliance with Section 3 requirements, absent evidence to the contrary. Otherwise, recipients will be required to submit qualitative reports on their efforts, as they are required to do under the current rule when they do not meet the safe harbor, and HUD may conduct monitoring to review the recipient's compliance. Elsewhere in this issue of the Federal Register , HUD has published a proposed notification for comment that would set initial benchmarks at the final rule.

HUD is seeking to streamline the administrative work for recipients that receive funds through more than one HUD program, and contractors that receive payment from funds under those programs. The rule provides for how to track funding and report benchmarks when there is a project that is funded by public housing financial assistance and also meets the criteria as a Section 3 project. Specifically, that the project must follow the public housing financial assistance requirements for the public housing financial assistance funds and may follow the requirements in subpart B or subpart C for the community development financial assistance funds. It would also provide for how to deal with reporting when a Section 3 project receives housing and community development assistance from two different HUD programs. Specifically, that HUD would designate reporting to one program office.

HUD program office staff are regularly in touch with HUD's funding recipients. Under the proposed rule's framework, HUD's program offices would incorporate Section 3 compliance and oversight into regular program oversight and make Section 3 a more integral part of the program's work. As a result, this proposed rule would eliminate the separate extensive complaint and compliance review procedures in the current rule. Relatedly, it would remove the delegation of authority in the current regulations, as Section 3 requirements, reporting, and compliance would be aligned with those of the applicable HUD program offices.

HUD has prepared a Regulatory Impact Assessment (RIA) that assesses the anticipated costs and benefits of the proposed rule. The purpose of Section 3 is to provide jobs, including apprenticeship opportunities, to public housing residents and other specific low- and very low-income residents of a local area, and contracting opportunities for businesses that substantially employ these persons. However, the Section 3 requirement itself does not create additional jobs or contracts. Instead, Section 3 gives priority for local jobs and contracts created as a result of the expenditure of HUD financial assistance to Section 3 residents and businesses residing and operating in the area in which the HUD financial assistance is expended. A reasonable estimate of the impact of this proposed rule would be a net transfer to Section 3 workers of 3,000 to 14,000 employment opportunities, 2,000 to 4,000 of which would be to Targeted Section 3 workers. In addition, with respect to incomes for tenants of public housing, the Federal rental subsidies provided to those tenants could be reduced as a result of the creation of job opportunities resulting from the expenditure of Federal financial assistance subject to Section 3 requirements.

If implemented as proposed, this proposed rule would result in a reduction in reporting and recordkeeping burden of 64,270 hours and approximately $1.2 million annually. This rule will not have any impact on the level of funding for covered HUD programs. Funding is determined independently by congressional appropriations, authorizing statutes and regulatory formulas that set the amounts of the Federal financial assistance provided by HUD grants. This proposed rule is not an economically significant rule as defined in Executive Order 12866 (Regulatory Planning and Review).

Section 3 of the Housing and Urban Development Act of 1968 (Pub. L. 90-448, approved August 1, 1968) (Section 3) was enacted for the purpose of bringing economic opportunities, generated by the expenditure of certain HUD financial assistance, to the greatest extent feasible, to low- and very low-income persons residing in communities where the financial assistance is expended. Section 3 recognizes that HUD funds are often one of the largest sources of Federal funds expended in low- and very low-income communities and, where such funds are spent on activities such as construction and rehabilitation of housing and other public facilities, the expenditure results in economic opportunities. By directing HUD-funded economic opportunities to residents and businesses in the community where the funds are expended, the expenditure can have the double benefit of creating new or rehabilitated housing and other facilities while providing opportunities for employment and training for the residents of these communities. Section 3 was amended by the Housing and Community Development Act of 1992 (Pub. L. 102-550, approved October 28, 1992), which required the Secretary of HUD to promulgate regulations to implement Section 3, codified at 12 U.S.C. 1701u. HUD's Section 3 regulations were promulgated through an interim rule published on June 30, 1994, at 59 FR 33880, and the regulations are codified in 24 CFR part 135.

In the 24 years since HUD promulgated the current set of Section 3 regulations, significant legislation has been enacted that affects HUD programs that are subject to the requirements of Section 3 and that are not adequately addressed in the current Section 3 regulations. This legislation includes, but is not limited to, the following: reforms made to HUD's Indian housing programs by the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA) (Pub. L. 104-330, approved October 26, 1996); public housing reforms made by the Quality Housing and Work Responsibility Act of 1998 (QHWRA) (Pub. L. 105-276, approved October 21, 1998); reforms made to HUD's supportive housing programs by the Section 202 Supportive Housing for the Elderly Act of 2010 (Pub. L. 111-372, approved January 4, 2011); and the Frank Melville Supportive Housing Investment Act of 2010 (Pub. L. 111-347, approved January 4, 2011).

In 2013, HUD's Office of the Inspector General conducted an audit to assess HUD's oversight of Section 3, in response to concerns about economic opportunities that were provided (or should have been provided) by the expenditure of HUD financial assistance under the American Reinvestment and Recovery Act (Recovery Act) (Pub. L. 111-5, approved February 17, 2009). The audit found that HUD was not fully enforcing the reporting requirements of Section 3 for recipients of Fiscal Year 2009 Recovery Act Public Housing Capital Funds from HUD. 5 In response to the audit and the need to update the outdated regulations, HUD issued a proposed rule on March 27, 2015 entitled “Creating Economic Opportunities for Low- and Very Low-Income Persons and Eligible Businesses Through Strengthened `Section 3' Requirements” which sought to strengthen HUD requirements. See 80 FR 16519. HUD received more than 300 comments on the proposed rule (including duplicate public comments). Comments came from a wide variety of entities, including PHAs, other housing providers, organizations representative of housing providers, governmental jurisdictions and agencies, tenant and other housing advocacy organizations, and individuals. All public comments can be viewed at http://www.regulations.gov/#!docketDetail;D=HUD-2015-0026.

While some commenters supported the rule, many commenters were concerned that the proposed rule would raise the bar for compliance and increase administrative requirements without increasing funding. Based on the multitude of comments, HUD sought additional feedback from the public by hosting a number of Section 3 listening sessions  6 to highlight “best practices” and to discuss barriers to implementation across the country. The sessions provided valuable information on the challenges and barriers for implementation that HUD hopes to address in this new proposed rule.

HUD proposes to revise its Section 3 regulations to better achieve the statute's goals, to make reporting more meaningful and more aligned with statutory requirements, and to simplify compliance for recipients. This proposed rule does this by aligning reporting with desired outcomes and with data already collected by reporting entities; clarifying the applicability and scope of the rule; linking certain statutory prioritization categories to a new notice that sets forth benchmarks; streamlining the rule's reporting and oversight requirements; addressing complexities arising from the use of multiple funding sources; simplifying the requirements for Section 3 contract language; and aligning Section 3 requirements more closely with specific HUD program requirements.

This rule would remove existing Section 3 regulations in 24 CFR part 135 and create a new part 75, which would be organized into four subparts: Subpart A—General Provisions; Subpart B—Additional Provisions for Public Housing Financial Assistance; Subpart C—Additional Provisions for Section 3 projects; and Subpart D—Provisions for Multiple funding sources, recordkeeping and compliance. Subparts A and D apply to all recipients, subrecipients, contractors, and subcontractors subject to Section 3 requirements. Subpart B provides requirements specific to PHAs and other recipients of public housing financial assistance. Subpart C mostly mirrors subpart B, but provides specific requirements for recipients using funds on a Section 3 project. Part 75 would be codified in a section of HUD's CFR that establish requirements that generally apply to HUD's programs.

Throughout this rule, the reader will find amendatory language titled “Alternative 1” and “Alternative 2.” As discussed above, HUD is providing the opportunity for PHAs and other recipients of public housing financial assistance to view the new rule and provide feedback on whether HUD should track labor hours, consistent with what HUD is proposing for Section 3 projects, or maintain the tracking of new hires. The language in “Alternative 1” is what HUD would adopt if the final rule tracks labor hours for all public housing financial assistance and the language in “Alternative 2” is what HUD would adopt if the final rule provides separate tracking and reporting of public housing financial assistance by new hires. At the final rule stage, HUD will decide on either “Alternative 1” or “Alternative 2,” and maintain only one set of regulatory changes and the definitions that apply.

HUD notes that nothing in this proposed rule would supersede the general requirement of 2 CFR 200.319(a) that all procurement transactions be conducted in a competitive manner. In addition, HUD notes that 2 CFR 200.319(b) permits geographical preferences where applicable Federal statutes expressly mandate or encourage geographic preference, such as Section 3.

Subpart A—General Provisions contains four sections: The general purpose of Section 3 (§ 75.1); the applicability of Section 3 requirements on HUD federal assistance (§ 75.3); new and updated definitions applicable to this part (§ 75.5); and the Section 3 requirements applicable to HUD's notices of funding availability (NOFAs) (§ 75.7).

Section 75.1 provides the framework for the regulation and sets forth the purpose of Section 3, which is to ensure that economic opportunities, most importantly employment, generated by certain HUD financial assistance for housing and community development programs shall be directed to low- and very low-income persons. Following the Section 3 statute, this section provides an emphasis on providing opportunities for those who are recipients of Federal financial assistance for housing or residents of the community in which the Federal financial assistance is spent.

Section 75.3 defines the application of Section 3 consistent with the Section 3 statute. There are two categories:

(1) Public housing financial assistance: This term covers the public housing program assistance which includes: (a) Development assistance provided pursuant to section 5 of the United States Housing Act of 1937; (b) operations and management assistance provided pursuant to section 9(e) of the 1937 Act (Operating Fund) and (c) development, modernization, and management assistance provided pursuant to section 9(d) of the 1937 Act (Capital Fund). While the statute also includes a reference to modernization assistance pursuant to section 14 of the Act, which was repealed by the Quality Housing and Work Responsibility Act of 1998 (QHWARA) (Pub. L. 105-276), the former section 14 modernization program was replaced along with the operating, maintenance, development and modernization programs that became the Operating Fund and Capital Fund programs with assistance provided pursuant to section 9. The Section 8 programs were never included in the Section 3 statute and will not be covered in this proposed rule despite being included in the current Section 3 rule.

(2) Section 3 project: This term covers assistance provided by other HUD programs when used for housing rehabilitation, housing construction, and other public construction projects, as described in 12 U.S.C. 1701u(c)(2). A Section 3 project will mean a housing rehabilitation, housing construction, and other public construction projects where the HUD assistance exceeds $200,000, and all projects that receive funding from HUD's Lead Hazard Control and Healthy Homes programs.

The proposed rule's threshold applies on a project basis. HUD proposes using project funding level to define thresholds because the amount of funding spent on the project is directly related to the economic opportunities generated by the project.

HUD arrived at the $200,000 threshold after analyzing data from relevant programs, including HUD's Community Development Block Grant (CDBG) and HOME Investment Partnerships (HOME) programs. HUD considered various thresholds in deciding to propose the $200,000 figure. HUD estimates that of $100,000 in construction spending, $64,000 generally goes to labor costs, and the median annual income for a construction job is $44,730. Thus, a project below $100,000 would not generate more than one salary. On the other hand, HUD data shows that a higher threshold, such as $400,000, could exempt a large portion of housing and community development projects from Section 3 funding. Fiscal year 2015 CDBG data shows that a $400,000 threshold would have exempted 90 percent of construction and rehabilitation activities, and over half of CDBG assistance. A $200,000 threshold would still cover almost three-quarters of CDBG funding, while exempting the smallest three quarters of projects and eliminating administrative burdens from these small efforts that yield relatively few employment opportunities. For the HOME program, at least 90% of HOME funding to projects greater than 1 unit would be covered by any threshold at $400,000 or below. It is HUD's view that $200,000 is a sufficiently high amount that, when expended on construction-related activities, a significant amount of those funds should be used to generate economic opportunities for low- and very low-income persons. An exception applies for lead hazard control and healthy homes mitigation activities, which on a per unit remediation basis would generally involve much less than $100,000 in HUD grant funds, and so applying a per project threshold could effectively exempt lead hazard control and healthy homes grants from Section 3. As a result, this rule proposes to apply Section 3 requirements to all projects that receive funds from HUD's Lead Hazard Control and Healthy Homes grant programs consistent with the current application of Section 3 to all grants above $100,000.

Section 75.3 provides that requirements of this part apply to the entire Section 3 project, regardless of whether the project is fully or partially funded with HUD program assistance.

This section also clarifies that Section 3 does not apply to material supply contracts. As discussed in this preamble, a material supply contract is defined as a contract for the delivery of commercially available materials and products. The proposed rule includes a set of examples to illustrate what is meant by commercially available materials for purchase, such as lumber, drywall, wiring, concrete, pipes, toilets, sinks, carpets, and office supplies. In most cases a material supply contract will include the delivery of the materials and in those cases the delivery is also not subject to Section 3 requirements. However, when a recipient enters into a separate delivery contract for an order of material supplies, that delivery contract would be subject to Section 3 requirements.

The proposed rule also provides that contracts, subcontracts, grants, or subgrants subject to section 7(b) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 5307(b)) or subject to tribal preference as authorized under 101(k) of the Native American Housing Assistance and Self-Determination Act (25 U.S.C. 4111(k)) are not subject to the requirements in this part because they must provide preferences in employment, training, and business opportunities to Indians and Indian organizations. Lastly, § 75.3 indicates that HUD encourages recipients of HUD assistance not covered by Section 3 to support the objectives of Section 3.

Section 75.5 provides the definitions used throughout the new part. The section proposes to use the general HUD definitions at 24 CFR part 5 for HUD, Public Housing, and PHAs and defines Section 3 by reference to section 3 of the Housing and Urban Development Act of 1968, as amended (12 U.S.C. 1701u). The proposed rule also includes several definitions for clarity including: “1937 Act;” “Public housing project;” “Low-income person;” “Qualified Census Tract;” “Section 8-assisted housing;” “Very low-income person;” and “YouthBuild programs.”

HUD proposes contract terms for determining coverage of the rule:

Material supply contracts would be defined as a contract that is made for the purchase of products and materials. HUD provides this definition to clarify that such contracts are not covered by Section 3.

Professional services would be defined as non-construction services, including, but not limited to, contracts for legal services, financial consulting, accounting services, environmental assessment, architectural services, and civil engineering services. This definition is informed by the current separation of Section 3 business concern ratios by building trade versus non-building trade. Professional services will be excluded from the benchmarking requirements, but HUD will allow voluntary reporting of these workers, as discussed below.

HUD also provides definitions for purposes of the new Section 3 reporting requirements:

Contractor would be defined as an entity entering into a contract with a recipient to perform work in connection with the expenditure of public housing financial assistance or for work in connection with a Section 3 project, or a subrecipient for work in connection with a Section 3 project.

Labor hours would be defined to mean the number of paid hours worked by persons on Section 3 projects or employed with funds that include public housing financial assistance. This includes the labor hours of any contractor, subcontractor, or employee of the public housing authority that is being paid in part by the public housing financial assistance. For example, the labor hours performed by an elevator maintenance contractor under a contract with the PHA would be included in the total labor hours performed by the PHA using public housing financial assistance.

New hire would be defined as a full- or part-time employee for permanent, temporary, or seasonal employment opportunities that was not on the payroll of the recipient, or of a recipient's contractor or subcontractor or other entity receiving public housing financial assistance at the beginning of the award. The term also includes a new hire that was hired by a contractor or subcontractor on a per-project basis as a result of receiving public housing financial assistance. This definition is part of Alternative 2 for PHAs to consider in determining if reporting should be completed using labor hours or new hires. If Alternative 1, which uses labor hours for reporting, is chosen, this definition will not be included at the final rule.

Public housing project is defined in 24 CFR 905.108.

Recipient would be defined to mean any entity that receives directly from HUD Section 3 public housing financial assistance or other financial assistance that funds a Section 3 project, including, but not limited to: Any State, local government, instrumentality, PHA, Indian tribe, tribal organization, or other public agency, public or private nonprofit organization. This term excludes the ultimate beneficiary of Federal financial assistance under the HUD program to which Section 3 applies (for example an individual or family receiving a housing rehabilitation grant financed with HOME assistance) and does not include contractors and subcontractors. This term establishes the scope of entities that would be required to report to HUD under this proposed rule. It also defines the entities subject to the requirement to include contractual language requiring the application of Section 3 (See §§ 75.17 and 75.27.).

Small PHA would be defined to mean a public housing authority with fewer than 250 public housing units. This definition allows for these smaller entities to follow a reduced reporting process under § 75.13. This definition is consistent with references to small PHAs in 24 CFR parts 902, 903, 905, 970, and 985.

Subcontractor would mean any entity that has a contract with a contractor to undertake a portion of the contractor's obligation to perform work in connection with the expenditure of public housing financial assistance or a Section 3 project.

Subrecipient would be defined to have the meaning provided in the applicable program regulations, or in 2 CFR 200.93.

Finally, this regulation would propose definitions for a Section 3 business concern, Section 3 worker, and Targeted Section 3 worker for purpose of benchmarking:

Section 3 business concern would be defined to mean a business that is at least 51 percent owned by low- or very low-income persons; over 75 percent of the labor hours performed for the business are performed by low- or very low-income persons; or is at least 25 percent owned by current public housing residents or residents who currently live in Section 8-assisted housing. The Section 3 statute defines a business concern that provides economic opportunities to mean a business concern “that—(A) provides economic opportunities for a class of persons that has a majority controlling interest in the business; (B) employs a substantial number of such persons; or (C) meets such other criteria as the Secretary may establish.” The proposed definition reflects the first two statutory requirements and provides two additional types of business concerns that meet the statutory intent. HUD believes that the 75 percent figure is a reasonable measure for determining whether the business concern provides economic opportunities for a substantial number of low- and very low-income persons. Lastly, to further encourage businesses ownership by public housing residents or residents who live in Section 8-assisted housing, this proposed rule would provide that a Section 3 business concern could be one that is at least 25 percent owned by current public housing residents or residents who currently live in Section 8-assisted housing. HUD also notes that a prior arrest or conviction generally does not impact an individual's status as an owner of a Section 3 business and that meeting the definition of a Section 3 business does not negate the requirement that the business meet the specifications of the particular contract ( e.g., construction, supplies, etc.). However, the requirements for preventing crime in federally assisted housing (denying admission and terminating tenancy for criminal activity or alcohol abuse) in subpart I of 24 CFR part 5 continue to apply to Section 3. Accordingly, subpart I will apply to applicants or tenants who would be under consideration as an owner of a Section 3 business.

Section 3 worker would be defined to mean a worker whose income, before being hired to work on the project, is below the income limit established by HUD; a worker who lives in a qualified census tract; or a worker who is employed by a Section 3 business concern. The program statutes and regulations provide the basis for the income limit for determining eligibility for assisted housing programs, including the Public Housing, Section 8 project-based, Section 8 Housing Choice Voucher, Section 202 Housing for the Elderly, and Section 811 Housing for Persons with Disabilities programs. HUD annually establishes income limits based on Median Family Income estimates and Fair Market Rent area definitions for each metropolitan area, parts of some metropolitan areas, and each non-metropolitan county. The income limits are available at: https://www.huduser.gov/portal/datasets/il.html.

HUD would define qualified census tract as any census tract (or equivalent geographic area defined by the Bureau of the Census) in which at least 50 percent of households have an income of less than 60 percent of Area Median Gross Income (AMGI); or where the poverty rate is at least 25 percent and where the census tract is designated as a qualified census tract by HUD. Qualified census tract data can be found here: https://www.huduser.gov/portal/datasets/qct.html. The definition of Section 3 worker would provide that an individual's prior arrest or conviction shall not negatively impact that individual's status as a Section 3 worker and that meeting the definition of a Section 3 worker does not negate the requirement that the individual be qualified for the job. However, the requirements for preventing crime in federally assisted housing (denying admission and terminating tenancy for criminal activity or alcohol abuse) in subpart I of 24 CFR part 5 continue to apply to individuals identified as Section 3 workers or as owners of a Section 3 business.

Targeted Section 3 worker would be defined as provided in § 75.11 for the public housing financial assistance and as provided in § 75.19 for a Section 3 project. For certain projects receiving funding from multiple sources, the definition is provided in § 75.29.

Section 75.7 would establish requirements applicable to HUD's NOFAs for public housing financial assistance and Section 3 projects. HUD would require that all NOFAs that award funds covered by Section 3 will include notice that the assistance is subject to part 75. This section would also provide that HUD may include, where appropriate, points or bonus points for exceeding Section 3 requirements. This proposed rule would remove the requirements in the currently codified part 135 that require NOFA applicants to submit certifications that the applicant will comply with the Section 3 requirements, require a statement of activities intended by recipients of assistance covered by Section 3, and require that the NOFA give preference for Section 3 requirements. HUD's removal of these requirements is consistent with how HUD implements other applicable program requirements. Further, these additional burdens are unnecessary as recipients already agree to comply with all applicable program requirements, including Section 3 requirements, when they submit a NOFA.

Subpart B—Additional Provisions for Public Housing Financial Assistance contains five sections, which set out the requirements for PHAs and other recipients of public housing financial assistance, as defined in § 75.3. The subpart includes the following: Requirements (§ 75.9); Targeted Section 3 worker definition for public housing financial assistance (§ 75.11); Section 3 safe harbor (§ 75.13); Reporting (§ 75.15); and Contract Provisions (§ 75.17).

Section 75.9 would incorporate the statutory Section 3 requirements for prioritizing categories of Section 3 workers and businesses when using public housing financial assistance defined in § 75.3(a)(1). The statutory prioritization requires that a PHA or other recipient of public housing financial assistance must make its best efforts, consistent with existing Federal, state, and local laws and regulations, to provide employment and training opportunities generated by the public housing financial assistance to Section 3 workers in the following priority order:

(1) To residents of the public housing projects for which the public housing financial assistance is expended;

(2) To residents of other public housing projects managed by the PHA that is expending assistance or to residents of other Section 8-assisted housing managed by the PHA;

(3) To participants in YouthBuild programs; and

(4) To low- and very low-income persons residing within the metropolitan area (or nonmetropolitan county) in which the assistance is expended.

The Section 3 statute also requires that a PHA or other recipient of public housing financial assistance must make its best efforts to award contracts and subcontracts to business concerns that provide economic opportunities to Section 3 workers in the following priority order:

(1) To Section 3 business concerns that provide economic opportunities for residents of the public housing projects for which the assistance is provided;

(2) To Section 3 business concerns that provide economic opportunities for residents of other public housing projects managed by the PHA that is providing the assistance or for residents of Section 8-assisted housing managed by the PHA;

(3) To YouthBuild programs; and

(4) To Section 3 business concerns that provide economic opportunities for Section 3 workers residing within the metropolitan area (or nonmetropolitan county) in which the assistance is provided.

Section 75.11 would establish the definition of a “Targeted Section 3 worker” for PHAs and other recipients of public housing financial assistance. This definition is used for reporting and tracking by HUD and to ensure that PHAs and other recipients use their best efforts to provide employment opportunities to the categories of workers in certain priority categories established by the Section 3 statute, as well as to all residents of public housing projects or Section 8-assisted housing, and to workers employed by Section 3 business concerns. The definition of a “Targeted Section 3 worker” for subpart B has an Alternative 1 definition and Alternative 2 definition to reflect the option of reporting labor hour or new hires.

Alternative 1: Would provide that a Targeted Section 3 worker for subpart B is a worker employed by a Section 3 business concern, or a worker who currently is or who was when hired by the worker's current employer a resident in a public housing project or Section 8-assisted housing; a resident of other projects managed by the PHA that is expending assistance; or a current YouthBuild participant.

Alternative 2: Would provide that a Targeted Section 3 worker for subpart B is a new hire employed by a Section 3 business concern, or a new hire employed by the worker's current employer who is also a resident in a public housing project or Section 8-assisted housing; a resident of other projects managed by the PHA that is expending assistance; or a current YouthBuild participant.

In both alternatives, the definition focuses on certain targeted categories for public housing financial assistance. Additionally, the definition includes all employees of a Section 3 business concern to recognize the statutory requirement for recipients to make best efforts to award contracts to Section 3 business concerns. The definition also includes all residents of public housing projects, as well as residents receiving project-based or tenant-based Section 8 assistance, and YouthBuild participants combining these categories allows for a single, streamlined outcome metric (labor hours) that reflects both the employment and contracting components of the Section 3 statute, as well as HUD's desire to incentivize the employment of all residents who live in public housing or receive Section 8 assistance, and also in the YouthBuild program.

The Targeted Section 3 worker concept is consistent with the goals of expanding employment opportunities for particular individuals that receive federal assistance for housing and of expanding subcontracting opportunities for businesses that are owned by or substantially employ such persons.

The first alternative focuses on labor hours and includes current employees and those recently hired by the employer. HUD believes that counting labor hours for employees who are already employed and qualify as a Targeted Section 3 worker ensures that such workers have continued long-term employment. HUD has also heard from stakeholders that some employers may fire and re-hire people, hire people for very short-term jobs, and engage in other maneuvering to meet the Section 3 requirements. HUD believes counting labor hours is consistent with the statute and mitigates contractors' ability to manipulate their Section 3 outcomes.

Section 75.13 would provide PHAs and other recipients a safe harbor provided they certify to following the prioritization in § 75.9 and meet or exceed the Section 3 benchmarks that HUD will prescribe through notice. The safe harbor proposed by this rule, like the safe harbor provided by the currently codified rule, would allow for recipients that meet this standard to be free from additional Section 3 reporting. However, this proposed rule also provides that the safe harbor exists only to the extent that no evidence to the contrary is presented to HUD, and that meeting the safe harbor does not exempt PHAs and other recipients of public housing financial assistance from maintaining records of compliance for general program review. See §§ 75.31 and 75.33.

This section would also set forth the process of establishing benchmarks. HUD proposes to establish Section 3 benchmarks for Section 3 workers, Targeted Section 3 workers, or both through a document published in the Federal Register . The rule would provide that HUD may establish a single nationwide benchmark or may establish multiple benchmarks based on geography, the type of public housing financial assistance, or other variables. When establishing the Section 3 benchmarks, HUD would consider the industry averages worked by specific categories of workers or in different localities or regions; data reported by PHAs or other recipients of public housing financial assistance pursuant to this section; and any other factors HUD deems important. In establishing the Section 3 benchmarks, HUD would exclude professional service contracts from the benchmark ratios. HUD plans to update the benchmarks through a document published in the Federal Register , subject to public comment, not less frequently than once every three years. Providing the benchmark through Federal Register notice would allow HUD to revise the benchmarks where warranted in response to the data HUD gathers and based on feedback HUD receives from recipients. Over time, the benchmarks can become more tailored and a more reliable indicator for when enforcement efforts should be undertaken, giving the safe harbors more value and creating a greater incentive for recipients, contractors, and subcontractors to exceed the safe harbors. Section 3 benchmarks will consist of the following ratios:

Alternative 1: (1) The number of labor hours worked by Section 3 workers divided by the total number of labor hours worked by all workers employed with public housing financial assistance in the PHA's fiscal year; (2) the number of labor hours worked by Targeted Section 3 workers, as defined in § 75.11(a)  7 divided by the total number of labor hours worked by all workers employed with public housing financial assistance in the PHA's fiscal year; or (3) ratios for both (1) and (2).

Alternative 2: (1) The number of new hires that are Section 3 workers divided by the total number of new hires employed with public housing financial assistance in the PHA's fiscal year; or (2) the number of new hires that are Targeted Section 3 workers, as defined in § 75.11(a), 8 divided by the total number of new hires employed with public housing financial assistance in the PHA's fiscal year; or (3) ratios for both (1) and (2).

Section 75.15 proposes the process for PHAs and other recipients of public housing financial assistance to report to HUD on the data for the benchmarks. Specifically, it requires that the following be reported:

Alternative 1: The total number of total labor hours worked with the public housing financial assistance, labor hours worked by Section 3 workers, and labor hours worked by Targeted Section 3 workers. However, the rule would provide a limited exception where PHAs and other recipients of public housing financial assistance could use the reporting of a good faith assessment of the labor hours of a full-time or part-time employee from contractors and subcontractors that have not been subject to requirements specifying time and attendance reporting, and do not have systems already in place to track labor hours. This small carve-out provides a limited exception for recipients to report on the labor hours from contractors and subcontractors that do not already track labor hours without necessitating any change in time and attendance or payroll systems for the reporting contractors and subcontractors. However, it is not a permanent exemption and if in the future the contractor or subcontractor is required to track labor hours pursuant to some other authority, or begins to voluntarily track labor hours, the exception would no longer apply.

Alternative 2: The total number of new hires with public housing financial assistance, total number of new hires that are Section 3 workers, and total number of new hires that are Targeted Section 3 workers.

Both Alternative 1 and Alternative 2 would provide that reporting may, but is not required to, include professional service jobs. Given the challenges HUD has heard in hiring Section 3 workers and Targeted Section 3 workers in professional service jobs, HUD has decided not to include those jobs in its benchmark ratio and instead proposes to make the reporting of professional services jobs voluntary. Therefore, if a PHA, other recipient of public housing financial assistance, contractor, or subcontractor has professional service employees that are Section 3 workers and Targeted Section 3 workers, the PHA or other recipient of public housing financial assistance may report on those jobs and count them to increase their total numbers. By including labor hours for professional services work in the numerators of these calculations ( i.e., labor hours for the Section 3 workers and Targeted Section 3 workers), but not in the denominators ( i.e., all labor hours worked), HUD is also recognizing the value of this more challenging effort to create opportunities in the professional services context.

Section 75.15 would provide that small PHAs will not be required to report the number of labor hours or new hires. Small PHAs would instead be required to report their qualitative efforts. PHAs and other recipients of public housing financial assistance that do not meet the Section 3 benchmarks described in § 75.11 would also have to provide reports on their qualitative efforts. HUD is considering some of the following to signify qualitative efforts: Outreach efforts to generate job applicants who are Targeted Section 3 workers; direct on-the-job training (including apprenticeships); indirect training such as arranging for, contracting for, or paying tuition for, off-site training technical assistance to help Section 3 workers; and outreach efforts to identify and secure bids from Section 3 business concerns. HUD plans to create a form for tracking and reporting qualitative efforts, to ease burden on recipients.

All reporting either under the general reporting framework or the qualitative reporting requirement would be on an annual basis and reported to HUD in a manner consistent with reporting requirements for the applicable HUD program. HUD believes that requiring reporting annually, but consistent with timeframes that PHAs and other recipients of public housing financial assistance are already using to submit documents to HUD, will relieve existing burden. For example, when an annual plan is completed for a PHA the Section 3 reporting would be done at that time or when a recipient of public housing financial assistance must submit an annual report. HUD is also looking to include reporting into existing systems rather than requiring PHAs and other recipients to log into and report under a separate system, such as HUD's existing Section 3 Performance Evaluation and Registration System (SPEARS).

Section 75.17 would establish requirements for PHAs and other recipients of public housing financial assistance to include language referencing Section 3 in contracts that are subject to Section 3. The proposed rule would provide that PHAs and other recipients of public housing financial assistance include contractual language applying Section 3 to any contractor. PHAs and other recipients of public housing financial assistance would also require that contractors include contractual language applying Section 3 to any subcontract. Lastly, the section would provide that regardless of whether Section 3 language exists in a contract, PHAs and other recipients of public housing financial assistance must ensure the contractors and subcontractors are in compliance with § 75.9. As distinguished from currently codified § 135.38, this proposed rule would not codify the exact contractual language that PHAs and other recipients of public housing financial assistance must include and would no longer require the use of this contract provision below the initial subcontract level. HUD believes this will reduce regulatory burdens. This change does not, however, limit the requirement that public housing financial assistance is used consistent with the statutory requirements in § 75.9.

Subpart C—Additional Provisions for Section 3 Projects sets out the requirements for recipients working on a Section 3 project, as defined in § 75.3. The sections include: Requirements (§ 75.19); Targeted Section 3 worker definition for Section 3 projects (§ 75.21); Section 3 safe harbor (§ 75.23); Reporting (§ 75.25); and Contract Provisions (§ 75.27).

Section 75.19 would incorporate the statutory Section 3 requirements for prioritizing categories of Section 3 workers and businesses under other HUD funds that are used for Section 3 projects, as defined in § 75.3(a)(2). The statutory prioritization ensures that employment and training opportunities arising in connection with Section 3 projects are provided, consistent with existing Federal, state and local laws and regulations, to Section 3 workers within the metropolitan area (or nonmetropolitan county) in which the project is located to the greatest extent feasible to these following groups:

(1) Section 3 workers residing within the service area or the neighborhood of the project; and

(2) To participants in YouthBuild programs.

The Section 3 statute also requires that to the greatest extent feasible contracts and subcontracts awarded in connection with Section 3 projects are provided to Section 3 business concerns that provide economic opportunities to Section 3 workers residing within the metropolitan area (or nonmetropolitan county) in which the project is located. Those efforts should be directed as follows:

(1) Section 3 Business concerns that provide economic opportunities for Section 3 workers residing within the service area or the neighborhood of the project; and

(2) YouthBuild programs.

For the purposes of Section 3 only, HUD would define “Service area or the neighborhood of the project” to mean an area within 1 mile of the Section 3 project or, if fewer than 5,000 people live within one mile of a Section 3 project, within a circle centered on the Section 3 project that is sufficient to encompass a population of 5,000 people according to the most recent U.S. Census. HUD notes above that consistent with existing Federal regulations, Federal procurement requirements at 2 CFR 200.319(a) must continue to be followed, as discussed above.

Section 75.21 would define a “Targeted Section 3 worker” for Section 3 projects. This definition would be used for reporting and tracking by HUD so that recipients will focus on reaching the priority workers in the statute and workers employed by Section 3 business concerns. HUD would define a “Targeted Section 3 worker” for subpart C as a worker employed by a Section 3 business concern, or a worker who is or was when hired by the worker's current employer: (1) A Section 3 worker living within the service area or the neighborhood of the project, as this term is described in § 75.5; or (2) a current YouthBuild participant. As with the definition of “Targeted Section 3 worker” for PHAs and other recipients of public housing financial assistance, this definition would include current YouthBuild participants. Additionally, all employees of Section 3 business concerns would be considered Targeted Section 3 workers to recognize the statutory requirements to award contracts to Section 3 business concerns, to the greatest extent feasible, while providing for a single, streamlined outcome metric (labor hours) that reflects both the employment and contracting components of the Section 3 statute.

HUD believes counting individuals who live within one mile of the worksite or within a circle centered around the worksite that encompasses 5,000 people provides a definitive means of determining who counts as a Targeted Section 3 worker within the service area or the neighborhood of the project. HUD proposes to use this 5,000-person figure because HUD examined current CPD projects and determined that most (77%) had a population of 5,000 people within one mile of the project site, and the median project had 4,627 potential Targeted Section 3 workers. Further, an individual could live across the street from a project and be differently affected by development activities, and still not be considered to be living in the same “neighborhood” as a project because of how the jurisdiction's neighborhood boundaries are drawn. HUD plans to create and provide at the issuance of a final rule a web tool for recipients, subrecipients, contractors, and subcontractors that will help in determining the geographic area that encompasses Targeted Section 3 workers under this definition. The discussion in subpart B of this preamble pertaining to the YouthBuild program and participants applies for subpart C as well.

Section 75.23 would provide a recipient undertaking a Section 3 project a safe harbor provided the recipient certifies to following the prioritization in § 75.19 and meets or exceeds the Section 3 benchmarks that HUD will prescribe through notice. The safe harbor proposed by this rule, like the safe harbor provided by the currently codified rule, would allow for recipients that meet this standard to be free from additional Section 3 reporting. However, this proposed rule provides that the safe harbor exists only to the extent that no evidence to the contrary is presented to HUD, and that meeting the safe harbor does not exempt recipients from maintaining records of compliance for general program review. See §§ 75.31 and 75.33.

This section would also establish the process of establishing benchmarks, consistent with subpart B. Similar to the process for establishing the benchmarks for public housing financial assistance under subpart B, HUD proposes to establish Section 3 benchmarks for Section 3 workers, Targeted Section 3 workers, or both through a document published in the Federal Register .

Section 75.25 would provide the reporting requirements for Section 3 projects by recipients to HUD for the benchmarks. Specifically, § 75.25 would require that the total number of total labor hours, labor hours worked by Section 3 workers, and labor hours worked by Targeted Section 3 workers on a Section 3 project be reported to HUD. However, the rule would provide a limited exception for recipients, and for subrecipients, contractors, and subcontractors that report up to recipients, that are not subject to requirements specifying time and attendance reporting. The rule does not require any change in the time and attendance, or payroll systems used by recipients, subrecipients, contractors, or subcontractors. Where labor hours of a full-time or part-time employee are not already tracked, this proposed rule would allow the recipient to report labor hours of those employees based on a good faith assessment. This small carve-out would apply in a limited situation and was created not to increase burden on recipients, subrecipients, contractors, and subcontractors that are not tracking labor hours. However, if in the future the recipient, subrecipient, contractor, or subcontractor is required to track labor hours, or does so voluntarily, the exception would no longer apply. This section also, consistent with § 75.15 in subpart B, would provide that Section 3 project recipients may, but are not required to, report professional service jobs. Therefore, if a Section 3 project has labor hours for professional service employees that are Section 3 workers and Targeted Section 3 workers, the recipient may, but is not required to, report on those jobs and count them to increase their total numbers. By including labor hours for professional services work in the numerators of these calculations ( i.e., labor hours for the Section 3 workers and Targeted Section 3 workers), but not in the denominators ( i.e., all labor hours worked), HUD is also recognizing the value of this more challenging effort to create opportunities in the professional services context.

Section 75.25 would also provide that a recipient that does not meet the Section 3 benchmarks described in § 75.21 would be required to report on its qualitative efforts. HUD is considering some of the following to signify qualitative efforts: Outreach efforts to generate job applicants who are Targeted Section 3 workers; direct on-the job training (including apprenticeships); indirect training such as arranging for, contracting for, or paying tuition for, off-site training technical assistance to help Section 3 workers; and outreach efforts to identify and secure bids from Section 3 business concerns. HUD plans to provide a form for ease in reporting qualitative reporting. All reporting either under the general reporting framework or the qualitative reporting requirement must be submitted annually to HUD in a manner consistent with reporting requirements for the applicable HUD program. As discussed in this preamble, HUD believes that requiring reporting consistent with existing reports will decrease administrative burden on recipients, and HUD will continue to look for ways to streamline reporting in other ways, such as using existing program-specific reporting systems. The proposed rule further allows projects to be reported on a project-by-project basis, with each annual report reflecting projects completed within the reporting year.

Section 75.27 would establish contract requirements for Section 3 project recipients. Specifically, the proposed rule would require that a recipient of a Section 3 project include language applying Section 3 to any subrecipient agreement, program regulatory agreement, or contract for a Section 3 project. The proposed rule would also require that recipients of Section 3 projects ensure that subrecipients, contractors, and subcontractors meet the requirements in § 75.19. As noted in this preamble, HUD is not codifying the language that recipients and contractors working on Section 3 projects are required to include in subrecipient agreements and subcontracts and is limiting the requirement to include language only to the contract level. HUD believes these changes will reduce the burden on the regulated entity, but HUD notes that it does not change the requirement that Section 3 project hiring must be consistent with the statutory requirements in § 75.19.

Subpart D sets out the requirements for recipients of multiple types of HUD financial assistance subject to Section 3. The sections include compliance requirement for recipients when in receipt of multiple funding sources (§ 75.29); recordkeeping requirements (§ 75.31); and compliance requirements (§ 75.33).

Section 75.29 would provide requirements for recipients to follow when in receipt of multiple funding sources. Section 75.29(a) would provide that if a housing rehabilitation, housing construction, or other public construction project is subject to Section 3 requirements pursuant to both § 75.3, paragraphs (a)(1) and (2), the recipient must follow subpart B of this proposed rule for the public housing financial assistance funds and may follow either subpart B or subpart C for the housing and community development financial assistance funds. For example, when a PHA receives public housing financial assistance and a community development block grant for a project to build a playground, the PHA can follow either option in paragraph (a) for the community development block grant funds to comply with Section 3 requirements. For the funding under § 75.3(a)(2), a Targeted Section 3 worker is any worker who meets the definition of a Targeted Section 3 worker in either subpart B or subpart C of this part. As with other sections in the rule, § 75.29 provides two different alternatives depending on whether PHAs will be required in a final rule to report using labor hours or new hires. If the final rule provides for the use of new hires for public housing financial assistance, when multiple funding sources are used PHAs would be required to report both labor hours and new hires.

The section also proposes in paragraph (b) that if a housing rehabilitation, housing construction, or other public construction project is subject to Section 3 pursuant to multiple housing and community development financial assistance programs, the recipient or recipients must follow subpart C of this part and report to one HUD program office, as prescribed by HUD. This section will make the application of Section 3 requirements easier for recipients that work with multiple funding sources and ease reporting burden. For example, when CDBG funds and a Lead Hazard Control grant are combined, the recipients would follow the paragraph (b) requirements to comply with Section 3 requirements. In this case, HUD would designate reporting to only one program office.

Section 75.31 would require that HUD be provided access to records, reports, and other documents or items that are maintained to demonstrate compliance with the requirements of this part, or that are maintained in accordance with the regulations governing the specific HUD program. This section also provides directions on what documentation must be maintained for Section 3 workers and Targeted Section 3 workers. For a Section 3 worker, the recipient would be required to maintain certification, or ensure that a subrecipient, contractor, or subcontractor that employs the worker maintains certification that the worker either meets the income limit established by HUD, the worker participates in a means-tested program such as public housing or Section-8 assisted housing, that the worker's residency is in a qualified census tract or that the worker is employed by a Section 3 business.

For a Targeted Section 3 worker, the recipient subject to subpart B must maintain certification, or ensure that a contractor or subcontractor that employs the worker maintains certification that the worker resides in public housing or Section-8 assisted housing or the worker is employed by a Section 3 business. A third option under Alternative 1 and 2 is a certification that the employee is a YouthBuild participant.

For a Targeted Section 3 worker, the recipient subject to subpart C would be required to maintain a certification, or ensure that a subrecipient, contractor, or subcontractor that employs the worker maintains certification that the worker's residence is within 1 mile of the work site or, if fewer than 5,000 people live within 1 mile of a work site, within a circle centered on the work site that is sufficient to encompass a population of 5,000 people according to the most recent U.S. Census; that the worker is employed by a Section 3 business; or that the worker is a YouthBuild participant. This section also requires that documentation is maintained for the time period required for record retentions in accordance with applicable program regulations, or in the absence of applicable program regulations, 2 CFR part 200.

Section 75.33 proposes the compliance requirements for recipients. It would require that records demonstrating compliance be maintained and provides that HUD would conduct compliance and enforcement actions in conjunction with normal program oversight. It also notes that complaints alleging failure of compliance with part 75 may be reported to the HUD program office responsible for the public housing financial assistance or Section 3 project. HUD believes that the Section 3 requirements should be handled consistent with other program requirements that a recipient is subject to when accepting HUD funds. As result, this proposed rule provides that while HUD would monitor compliance with the requirements, the applicable HUD program office would determine appropriate methods by which to oversee Section 3 compliance. HUD would be able to impose appropriate remedies and sanctions in accordance with the laws and regulations for the program under which the violation was found. HUD would continue to compile the information in a report on all expenditures subject to Section 3 for release to the public, and HUD believes providing for a program-specific implementation, while maintaining consistent review processes across programs, will ease burden on the entities subject to the Section 3 requirements.

While HUD welcomes comments on all aspects of this proposed rule, HUD specifically requests comments on the following:

1. HUD seeks comments on the use of the statutory terms “best efforts” and “greatest extent feasible” in this proposed rule. Specifically, HUD seeks comments on whether this proposed rule should define these terms, whether the two terms should be considered interchangeable, whether only one term should be used, how the proposed rule should apply these terms relative to HUD's efforts to increase employment and training opportunities for low- and very low-income persons, and how recipients can most effectively/efficiently demonstrate they have satisfied these definitions in reporting to HUD. In accordance with the Section 3 statute, both HUD's existing Section 3 rule and this proposed rule do not provide an absolute mandate that employers hire Section 3 workers or that HUD funding recipients provide contracting opportunities to Section 3 businesses. Such a mandate would be infeasible, as there could be situations where no Section 3 workers or businesses are available or are qualified. However, HUD emphasizes its intention that the terms “best efforts” and “greatest extent feasible” should be read as very narrow qualifiers and seeks comment on how to best convey that.

As background, HUD's existing Section 3 rule provides that employment and other economic opportunities generated by certain HUD financial assistance must be directed to low and very low-income persons to the greatest extent feasible. The term “best efforts” is not used in the existing rule. This proposed rule contains requirements that more closely track the language of the Section 3 statute. Under this proposed rule, PHAs and other recipients receiving public housing financial assistance and their contractors and subcontractors must make their “best efforts” to provide employment and training opportunities generated by the public housing financial assistance to Section 3 workers in the statutorily-mandated order of priority, and must make their “best efforts” to award contracts and subcontracts to business concerns that provide economic opportunities to Section 3 workers in the statutorily-mandated order of priority. Also, following the Section 3 statute, this proposed rule would provide that: To the “greatest extent feasible,” recipients of funds in other HUD programs that provide housing and community development assistance must ensure that employment and training opportunities arising in connection with Section 3 projects are provided to Section 3 workers within the metropolitan area (or nonmetropolitan county) in which the project is located, and where feasible, priority should be given to specific categories of Section 3 workers; and contracts for work awarded in connection with Section 3 projects should be provided to Section 3 business concerns that provide economic opportunities to Section 3 workers residing within the metropolitan area (or nonmetropolitan county) in which the project is located, to the “greatest extent feasible.”

2. HUD specifically requests comments on the proposal to move to labor hours or retain new hires for public housing financial assistance reporting and tracking. As discussed above, HUD believes that tracking labor hours consistent with existing tracking for prevailing wage requirements would reduce burden on recipients. HUD also believes that tracking labor hours will better allow HUD to determine if long-term employment opportunities are being generated. Unlike a labor hours measure, the new hire measure does not consider the share of actual work done by low- and very low-income workers, and new Section 3 hires may not be given the opportunity to work a substantial number of hours. By using a new hire measure, the Section 3 obligation is fulfilled by hiring Section 3 workers for jobs of any duration, rather than prioritizing opportunities for sustained employment. Additionally, using a new hire measure explicitly values entry rather than retention of workers, and thus provides an incentive for high turnover. While HUD believes that using labor hours for all financial assistance subject to Section 3 requirements will reduce burden, HUD has heard from some PHAs that they may prefer to maintain the use of new hires. HUD requests those PHAs provide feedback on why maintaining the new hire framework is a benefit. HUD seeks comments from PHAs on alternative 2 regulatory language that would retain the new hire framework for tracking public housing financial assistance, but with the same benchmarking requirements that are in this proposed rule. HUD also seeks comments on how retaining new hires for public housing financial assistance while using labor hours for Section 3 projects will work for recipients, contractors, and subcontractors, especially for those who work with multiple funding sources.

3. As discussed in this preamble, this proposed rule would set the threshold for applicability of Section 3 requirements for Section 3 projects to when the amount of the assistance to the project exceeds $200,000. HUD also provides that all projects that receive funding from HUD's Lead Hazard Control and Healthy Homes programs are covered, and notes that Section 8 programs were not included in the Section 3 statute and are not covered in this rule. HUD seeks comment on whether an alternate threshold would be more appropriate or equally effective to the proposed $200,000 per project threshold. HUD also seeks comment on the inclusion of all projects under the HUD's Lead Hazard Control and Healthy Homes programs and exclusion of Section 8 programs.

In addition to seeking comments on an appropriate per project threshold, HUD seeks comments on whether the threshold for Section 3 projects should be established by project, total funding received by the recipient, or whether the threshold should be based on total funds expended by a recipient. Establishing a project threshold has advantages in that it ties Section 3 obligations to the specific projects that are generating economic opportunities. However, HUD understands that there may be disadvantages to using a threshold based on project size. The term “project” is defined differently by different HUD programs, which could make a uniform application of this rule difficult. Also, recipients might be able to change the scope of what would be considered a “project” to avoid compliance with Section 3.

If HUD were to use a threshold based on total funding a recipient receives, rather than a per-project threshold, HUD seeks comment on whether the $200,000 threshold included in this proposed rule should be maintained, or whether the rule should adopt a different threshold. Using the $200,000 threshold as proposed in this rule, HUD estimates that less than 4 percent of grantees receiving funds from HUD's Office of Community Planning and Development Program will be exempt from Section 3, and less than 0.1 percent of total awards will be exempt. Applying a larger recipient threshold, such as $400,000, would increase the number of recipients exempted from Section 3 requirements to 20 percent and only increase the amount of funding exempt from Section 3 coverage to 1.5 percent. This would significantly reduce compliance burden from the current rule for smaller grantees without significantly reducing the funds subject to Section 3.

4. HUD seeks comment on HUD's proposal to include hours worked by Section 3 business employees in the Targeted Section 3 Worker definitions as a way to report all Section 3 activities in a single metric rather than reporting on Section 3 business concern participation separately through the existing aggregate dollars spent calculation. HUD also seeks comment on whether the changes to the Section 3 business concern definition are appropriate to the proposed new framework, especially the change that to qualify as a Section 3 business over 75 percent of the labor hours performed for the business must be performed by low- or very low-income persons versus the current requirement that 30 percent of permanent, full-time employee, include persons who are currently Section 3 residents, or within 3 years of the date of first employment with the business concern were Section 3 residents.

5. As explained by this preamble, this proposed rule would provide that small PHAs would not be required to report labor hour or new hire figures to HUD. HUD seeks comment on whether small PHAs should be required to report as other PHAs are if they put out a bid for a single procurement that exceeds the project threshold discussed in the above paragraph.

6. HUD seeks comments on whether Section 3 requirements, as it applies to Section 3 projects, should apply to all subcontractors, and whether at a certain level HUD should consider reducing the reporting or compliance burden for subcontractors.

7. HUD requests comment on whether its initial and future benchmarks should include benchmarks for both the number of labor hours worked by Section 3 workers divided by the total number of labor hours for all workers and the number of labor hours worked by Targeted Section 3 workers divided by the total number of labor hours for all workers. Alternatively, HUD seeks comment on limiting the benchmark to include Targeted Section 3 workers only.

8. For Section 3 projects, the statute requires that “where feasible, priority should be given to low- and very low-income persons residing within the service area of the project or the neighborhood in which the project is located.” The statute does not define “neighborhood” or “service area” for purposes of how recipients determine where they should focus their prioritization. The lack of definitions complicates compliance for contractors, subcontractors, and grantees receiving multiple types of HUD financial assistance. HUD proposes to provide a definition for recipients to use when prioritizing and reporting workers for Section 3 projects. The definition differs from existing regulatory definitions and local or state definitions, and HUD specifically requests comment on whether the definition works for recipients or if a different definition for “neighborhood” or “service area” is needed for purposes of Section 3. HUD also asks whether the 1 mile and 5,000 population radius is an appropriate geographic size of a `neighborhood' or `service area'.

9. HUD provides that a Targeted Section 3 worker includes current YouthBuild participants and asks whether that definition should be expanded to include previous YouthBuild workers that are under 24 years of age or those who are still eligible to participate in YouthBuild, but may have graduated out of the program.

Under Executive Order 12866 (Regulatory Planning and Review), a determination must be made whether a regulatory action is significant and, therefore, subject to review by the Office of Management and Budget (OMB) in accordance with the requirements of the order. Executive Order 13563 (Improving Regulations and Regulatory Review) directs executive agencies to analyze regulations that are “outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.” Executive Order 13563 also directs that, where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, agencies are to identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public.

This rule was determined to be a “significant regulatory action” as defined in Section 3(f) of the order (although not an economically significant regulatory action under the order). Consistent with Executive Order 13563, this rule creates new part 75 regulations that would replace the part 135 regulations, with the intention to make compliance with Section 3 more effective and less burdensome, and therefore, help to contribute to job creation for low- and very low-income persons. As noted earlier in this preamble, HUD has prepared an initial Regulatory Impact Analysis (RIA) that addresses the costs and benefits of the proposed rule. HUD's RIA is part of the docket file for this rule.

The docket file is available for public inspection in the Regulations Division, Office of the General Counsel, Room 10276, 451 7th Street SW, Washington, DC 20410-0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the docket file by calling the Regulations Division at 202-402-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at toll-free 800-877-8339.

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

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

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. As has been discussed in this preamble, this rule proposes to update HUD's Section 3 regulations and replace them with a new 24 CFR part 75, for which the objective is to increase employment opportunities for low- and very low-income persons and businesses that are owned by or employ such persons. These entities generally are small and therefore strengthening the requirements of Section 3 should benefit small businesses that are Section 3 businesses. This rule also considers the burden on small PHAs, defined in this proposed rule as a public housing authority that manages or operates fewer than 250 public housing units, and reduces the burden on them through a new streamlined reporting process that would not require them to report labor hours or new hires. There are approximately 2,950 PHAs, of which approximately 2,250 are small.

As more fully discussed in the accompanying RIA, the number of economic opportunities generated for Section 3 residents and businesses will not increase to the degree that this rule would have a significant economic impact on a substantial number of small entities. In addition, for those small entities that must comply with this proposed rule, the changes made by this proposed rule are designed to reduce burden on them, as well as all recipients. The current recordkeeping and reporting requirements for Section 3 is 90,180 hours with a cost of $1,817,000. HUD estimated that this new rule will reduce the number of hours by 68 percent to 25,910 hours. The biggest reduction will be for small PHAs that will no longer need to do quantitative analysis with a total estimated time saving of 12,375 hours with a cost of $281,036, or approximately $125 for small PHAs. HUD also anticipates an across the board savings in recordkeeping given the time savings resulting from less time reporting new hires as a separate metric. For these reasons, HUD has determined that this rule would not have a significant economic impact on a substantial number of small entities. Notwithstanding HUD's determination that this rule will not have a significant effect on a substantial number of small entities, HUD specifically invites comments regarding any less burdensome alternatives to this rule that will meet HUD's objectives as described in this preamble.

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either: (1) Imposes substantial direct compliance costs on State and local governments and is not required by statute, or (2) preempts State law, unless the agency meets the consultation and funding requirements of Section 6 of the Executive Order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments nor preempt state law within the meaning of the Executive Order.

Currently, 24 CFR part 135 requires that all recipients track and report Section 3 information to HUD, includes prescriptive contractual language, requires compliance by contractors of the Section 3 requirements, contains reporting and recordkeeping requirements, and provides for the filing of Section 3 complaints. Section 3 Performance Evaluation and Registration System (SPEARS) is the main site in which HUD captures the number of Section 3 residents hired and the amount of contracts awarded to Section 3 businesses. The existing information collection requirement for these requirements has been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control number 2529-0043.

The proposed rule would change the existing reporting requirement to decrease qualitatively those who need to report, excluding small PHAs and recipients of Section 3 projects under the $200,000 threshold, and require reporting only once a year by recipients of completed projects. HUD provides in §§ 75.15 and 75.25 that recipients would be required to submit reports to HUD annually either in a qualitative form or quantitative form. HUD includes all the large PHAs in the § 75.15(a) reporting number for reporting on the Section 3 benchmarks and estimates 2 hours to track and report annually given the amount of funds handled by these PHAs. HUD also estimates that a PHA will employ approximately seven contractors or subcontractors each fiscal year that would need to track and report up to the PHA, each at one-half an hour for reporting time. Lastly, HUD estimates that 5 percent of the 700 large PHAs may fail the Section 3 benchmarks and would need to report on their qualitative efforts along with the 2,250 small PHAs and estimates that such reporting would take one-half an hour.

As for § 75.25(a), HUD estimates that 66 percent of most program recipients would complete projects in a fiscal year that need to be reported except that for the HOME program, HUD estimates that 90 percent of HOME recipients would complete projects in a fiscal year, at an estimate of 3,600 recipients. Given these projects are more diverse in size, HUD estimates that the average time to report on the Section 3 benchmarks for recipients would be 1 hour. HUD also estimates that a Section 3 project will engage approximately five contractors or subcontractors each fiscal year that would also need to track and report up to the Section 3 project recipient, each at one-half an hour for reporting time. Lastly, HUD estimates that 5 percent of the 3,600 recipients may fail the Section 3 benchmarks and would need to report on their qualitative efforts and estimates that such reporting would take one-half an hour.

HUD also notes that the rule no longer requires the inclusion of prescriptive contractual language. See §§ 75.17 and 75.27. HUD believes that this change will result in a de minimis upfront burden related to updating contracts, if recipients, subrecipients and contractors chose to do so, but that removing the requirement will actually reduce burden on recipients, subrecipients, and contractors on a sustained basis by giving them flexibility to use alternative or existing contractual language. HUD also provides for recordkeeping requirements at § 75.31 and believes that the maintaining of records by recipients will take a recipient approximately 2 hours. However, HUD notes that some programs, such as HOME, already have recordkeeping requirements that are part of existing approved Information Collection Requests and, thus, excludes those programs from the burden matrix. Lastly, HUD maintains the option for individuals to file complaints and retains the frequency number that was in the existing Section 3 reporting burden.

In accordance with the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information, unless the collection displays a currently valid OMB control number. The current recordkeeping requirements for Section 3 is 90,180 hours with a cost of $1,817,000. HUD estimates that this new rule will reduce the number of hours by 68 percent to 25,910 hours for a total cost savings of approximately $1.2 million. The overall reporting and recordkeeping burden is estimated as follows:

In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments from members of the public and affected agencies concerning the information collection requirements in the proposed rule regarding:

(1) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(2) The accuracy of the agency's estimate of the burden of the proposed collection of information;

(3) Whether the proposed collection of information enhances the quality, utility, and clarity of the information to be collected; and

(4) Whether the proposed information collection minimizes the burden of the collection of information on those who are to respond; including through the use of appropriate automated collection techniques or other forms of information technology ( e.g., permitting electronic submission of responses).

Interested persons are invited to submit comments regarding the information collection requirements in this rule. The proposed information collection requirements in this rule have been submitted to OMB for review under section 3507(d) of the Paperwork Reduction Act. Under the provisions of 5 CFR part 1320, OMB is required to make a decision concerning this collection of information between 30 and 60 days after the publication date. Therefore, a comment on the information collection requirements is best assured of having its full effect if OMB receives the comment within 30 days of the publication. This time frame does not affect the deadline for comments to the agency on the proposed rule, however. Comments must refer to the proposed rule by name and docket number (FR-6085) and must be sent to:

Interested persons may submit comments regarding the information collection requirements electronically through the Federal eRulemaking Portal at http://www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available to the public. Comments submitted electronically through the http://www.regulations.gov website can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically.

Accordingly, for the reasons described in the preamble, HUD proposes to amend 24 CFR parts 5, 14, 75, 91, 92, 93, 135, 266, 570, 576, 578, 905, 964, 983, and 1000 as follows:

The addition reads as follows:

The addition reads as follows:

Section 3 of the Housing and Urban Development Act of 1968 (Pub. L. 90-448, approved August 1, 1968) (Section 3) (12 U.S.C. 1701u) was enacted for the purpose of ensuring, to the greatest extent feasible, that economic opportunities generated by the expenditure of certain HUD financial assistance are directed to low- and very low-income persons, particularly those who receive Federal financial assistance for housing and those residing in communities where the financial assistance is expended. HUD issued Section 3 regulations through an interim rule published on June 30, 1994, at 59 FR 33880, and the regulations are codified in 24 CFR part 135. The Section 3 regulations at 24 CFR 135.30 currently require that Section 3 covered public and Indian housing programs and other HUD programs that are covered by Section 3 meet a numerical goal of 30 percent of the aggregate number of new hires for a 1-year period in order to meet a compliance safe harbor. For contracts awarded in connection with Section 3 projects and activities, the current rule also applies the following goals for each recipient, contractor, and subcontractor to commit to award to Section 3 business concerns: (1) At least 10 percent of the total dollar amount of all Section 3 covered contracts for building trades work for maintenance, repair, modernization, or development of public or Indian housing, or for building trades work arising in connection with housing rehabilitation, housing construction, and other public construction; and (2) at least 3 percent of the total dollar amount of all other Section 3 covered contracts. Based on HUD's experience with implementing the program over the 24 years that have passed since HUD promulgated the currently codified Section 3 regulations, HUD is proposing to issue new regulations to strengthen and streamline the Section 3 requirements.

HUD issued a proposed rule, found elsewhere in this issue of the Federal Register , that would replace the current 24 CFR part 135 regulations with new Section 3 regulations in 24 CFR part 75. The new regulations aim to make Section 3 goals and reporting more meaningful and more aligned with statutory requirements, and to make compliance easier for recipients. This proposed rule also includes new metrics for compliance safe harbors and provides that these benchmarks will be set by notification in the Federal Register . The rule separates out the new requirements and benchmarks by the type of funding, as follows:

(1) Public housing program: Subpart B, Additional Provisions for Public Housing Financial Assistance, covers development assistance provided pursuant to section 5 of the U.S. Housing Act of 1937 (1937 Act) and Operating Fund and Capital Fund assistance provided pursuant to section 9 of the 1937 Act, collectively; these are defined as public housing financial assistance in the proposed rule.

(2) Other HUD programs: Subpart C, Additional Provisions for Section 3 Projects, covers housing rehabilitation, housing construction, and other public construction projects assisted under HUD programs that provide housing and community development financial assistance when the amount of assistance to the project exceeds a threshold of $200,000, and is defined as a Section 3 project. This threshold will not apply to assistance from HUD's Lead Hazard Control and Healthy Homes programs.

As for new metrics, the rule provides that HUD will establish, through a Federal Register notification, Section 3 benchmarks by setting forth one or both of the following:

(1) The number of labor hours worked by Section 3 workers divided by the total number of labor hours worked by all workers in the recipient's fiscal year.

(2) The number of labor hours worked by Targeted Section 3 workers divided by the total number of labor hours worked by all workers in the recipient's fiscal year.

HUD also provides an alternative, titled Alternative 2, in the proposed rule that would provide for using new hires, as opposed to labor hours, to track Section 3 workers and Targeted Section 3 workers for public housing financial assistance ( i.e., public housing authorities (PHAs) and other recipients of public housing financial assistance). In the final rule, HUD will adopt either the use of labor hours, Alternative 1, or new hires, Alternative 2, for public housing financial assistance.

The proposed rule explains how HUD plans to determine these benchmarks, noting that it may establish a single nationwide benchmark for work performed by Section 3 workers and a single nationwide benchmark for work performed by Targeted Section 3 workers, or may establish multiple benchmarks based on geography, the type of public housing financial assistance, or other variables. The proposed rule also notes that in establishing the benchmarks, HUD may consider the industry averages worked by specific categories of workers or in different localities or regions; prior Section 3 reports by recipients; and any other factors HUD deems important. In establishing the Section 3 benchmarks, HUD would exclude professional services, which would be defined as non-construction services, including, but not limited to, contracts for legal services, financial consulting, accounting services, environmental assessment, architectural services, and civil engineering services. Lastly, HUD commits to updating the benchmarks no less frequently than once every three years through notice, subject to public comment, in the Federal Register .

HUD created the concept of a Section 3 worker and Targeted Section 3 worker so that HUD could track and set benchmarks to target selected categories of workers and to recognize the statutory requirements pertaining to contracting opportunities for business concerns employing low- and very-low income persons.

HUD would define a Section 3 worker for both public housing financial assistance and Section 3 projects as a worker that meets one of the following:

• The worker's income is below the income limit established by HUD;

• The worker lives in a qualified census tract; or

• The worker is employed by a Section 3 business concern.

HUD would define a Targeted Section 3 worker differently for public housing financial assistance and Section 3 projects. For public housing financial assistance, Targeted Section 3 workers would be:

• Workers employed by a Section 3 business concern;

• Current residents of public housing or Section 8 assisted housing;

• Residents of other projects managed by the PHA that is expending assistance; or

• Current YouthBuild participants.

For Section 3 projects, Targeted Section 3 workers would be:

• Workers employed by a Section 3 business concern;

• Section 3 workers living within the service area or neighborhood of the project; or

• Current YouthBuild participants.

HUD proposes to define a Section 3 business concern as a business concern that meets one of the following requirements:

• It is at least 51 percent owned by low- or very low-income persons;

• Over 75 percent of the labor hours performed for the business are performed by low- or very low-income persons; or

• It is a business at least 25 percent owned by current public housing residents or residents who currently live in Section 8-assisted housing.

For more information about the proposed rule, HUD refers readers to the proposed rule published elsewhere in this issue of the Federal Register .

This document proposes the benchmarks for both public housing financial assistance and Section 3 projects consistent with the proposed rule. HUD is seeking comment on both the benchmarks numbers themselves and the methodology for determining the benchmarks. HUD is proposing the same benchmarks for all public housing financial assistance and Section 3 projects. Once HUD has more data, it may determine whether different benchmarks are appropriate. The following benchmarks would apply:

For meeting the safe harbor in proposed § 75.13, PHAs and other recipients that certify to following the prioritization of effort in proposed § 75.9 and meet or exceed the following Section 3 benchmarks will be considered to have complied with requirements in proposed 24 CFR part 75, subpart B, in the absence of evidence to the contrary:

(1) Twenty-five (25) percent or more of the total number of labor hours worked by all workers employed with public housing financial assistance in the PHA's or other recipient's fiscal year are Section 3 workers;

and

(2) Five (5) percent or more of the total number of labor hours worked by all workers employed with public housing financial assistance in the PHA's or other recipient's fiscal year are Targeted Section 3 workers, as defined at proposed § 75.11.

For meeting the safe harbor in proposed § 75.13, PHAs and other recipients that certify to following the prioritization in proposed § 75.9 and meet or exceed the following Section 3 benchmarks will be considered to have complied with requirements in proposed 24 CFR part 75, subpart B, in the absence of evidence to the contrary:

(1) Thirty (30) percent or more of the total number of new hires employed with public housing financial assistance in the PHA's or other recipient's fiscal year are Section 3 workers;

and

(2) Five (5) percent or more of the total number of new hires employed with public housing financial assistance in the PHA's or other recipient's fiscal year are Targeted Section 3 workers, as defined at proposed § 75.11.

Invitation to Comment: We invite you to submit comments regarding the proposed priorities, requirements, definitions, and selection criteria. To ensure that your comments have maximum effect in developing the notice of final priorities, requirements, definitions, and selection criteria, we urge you to identify clearly the proposed priority, requirement, definition, or selection criterion that each comment addresses.

We invite you to assist us in complying with the specific requirements of Executive Orders 12866, 13563, and 13771 and their overall requirement of reducing regulatory burden that might result from these proposed priorities, requirements, definitions, and selection criteria. Please let us know of any further ways we could reduce potential costs or increase potential benefits while preserving the effective and efficient administration of this program.

During and after the comment period, you may inspect all public comments about the proposed priorities, requirements, definitions, and selection criteria by accessing Regulations.gov . You may also inspect the comments in person at 400 Maryland Avenue SW, Room 3E207, Washington, DC, between the hours of 8:30 a.m. and 4:00 p.m., Eastern Time, Monday through Friday of each week except Federal holidays.

Assistance to Individuals with Disabilities in Reviewing the Rulemaking Record: On request, we will provide an appropriate accommodation or auxiliary aid to an individual with a disability who needs assistance to review the comments or other documents in the public rulemaking record for the proposed priorities, requirements, definitions, and selection criteria. If you want to schedule an appointment for this type of accommodation or auxiliary aid, please contact the person listed under FOR FURTHER INFORMATION CONTACT .

Purpose of Program: The major purposes of the CSP are to expand opportunities for all students, particularly traditionally underserved students, to attend charter schools and meet challenging State academic standards; provide financial assistance for the planning, program design, and initial implementation of public charter schools; increase the number of high-quality charter schools available to students across the United States; evaluate the impact of charter schools on student achievement, families, and communities; share best practices between charter schools and other public schools; encourage States to provide facilities support to charter schools; and support efforts to strengthen the charter school authorizing process.

Developer grants are intended to support charter schools that serve early childhood, elementary school, or secondary school students by providing grant funds to eligible applicants for the opening of new charter schools (CFDA number 84.282B) and for the replication and expansion of high-quality charter schools (CFDA number 84.282E).

Program Authority: Title IV, part C of the Elementary and Secondary Education Act of 1965, as amended (ESEA) (20 U.S.C. 7221-7221j).

This document contains seven proposed priorities.

Background: Created under the Tax Cuts and Jobs Act (Pub. L. 115-97), opportunity zones are intended to promote economic development and job creation in distressed communities through preferential tax treatment for investors. Specifically, if an individual invests capital gains in an opportunity fund— i.e., a vehicle established for the purpose of investing in property in an opportunity zone—the taxes the individual owes on those gains can be deferred and reduced.

Through this proposed priority, the Administration seeks to harness the power of opportunity zones to help increase the educational choices available to students in these communities. The Department would use this priority to encourage the opening of new charter schools and the replication and expansion of high-quality charter schools in opportunity zones and to reward charter school developers that are partnering with an opportunity fund, especially for the purpose of acquiring or constructing school facilities.

The Department would have flexibility to use either the priority's first area only or both of the priority's areas in a given competition and, with respect to the second area, may give applicants additional time prior to making an award to provide evidence of receipt of financial assistance from an opportunity fund. The Department recognizes that such additional time may be needed to enable an applicant to formalize a relationship with an opportunity fund. We anticipate, however, that we would provide additional time for this purpose only if the priority area is used in an absolute priority.

Proposed Priority: Under this priority, an applicant must address one or both of the following priority areas—

(a) Propose to open a new charter school or to replicate or expand a high-quality charter school in a qualified opportunity zone as designated by the Secretary of the Treasury under section 1400Z-1 of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act (Pub. L. 115-97); and

(b) Provide evidence in its application that it has received or will receive financial assistance from a qualified opportunity fund under section 1400Z-2 of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act, for one or more of the following, as needed to open or to replicate or expand the school:

(1) The acquisition (by purchase, lease, donation, or otherwise) of an interest (including an interest held by a third party for the benefit of the school) in improved or unimproved real property;

(2) The construction of new facilities, or the renovation, repair, or alteration of existing facilities;

(3) The predevelopment costs required to assess sites for purposes of subparagraph (1) or (2); and

(4) The acquisition of other tangible property.

In addressing paragraph (a) of this priority, an applicant must provide the census tract number of the qualified opportunity zone in which it proposes to open a new charter school or replicate or expand a high-quality charter school. A list of qualified opportunity zones, with census tract numbers, is available at www.cdfifund.gov/Pages/Opportunity-Zones.aspx.

In addressing paragraph (b) of this priority, an applicant must identify the qualified opportunity fund from which it has received or will receive financial assistance. The Department may, at its discretion, give applicants additional time to provide evidence of such assistance after the deadline for transmittal of applications. If the Department elects to give applicants additional time, we will announce in the notice inviting applications (NIA) the deadline by which such evidence must be provided.

Background: The CSP authorizing statute includes a priority under the CMO grant competition for eligible entities that demonstrate success in working with schools identified by the State for comprehensive support and improvement under section 1111(c)(4)(D)(i) of the ESEA. In 2018, the Department undertook rulemaking to develop a final priority under the CMO grant competition that is based on that grant competition's statutory priority but would require that, in order to meet the priority, the applicant also would be required to use grant funds to support school improvement efforts by restarting an academically poor-performing public school. The priority included in this competition is almost identical to the final priority under the CMO grant competition.

We believe that the restart model ( i.e., reopening a low-performing traditional public school under the management of a charter school developer, or reopening a low-performing public charter school under the management of a different charter school developer) holds promise as a school improvement strategy, but data suggest that it has been underutilized. 1 Accordingly, the proposed priority is intended to help increase the frequency of implementation of the restart model. Like the CMO grant competition's final priority, the proposed priority also would require applicants to demonstrate past success through work with one or more academically poor-performing schools or schools previously designated as persistently lowest-achieving schools or priority schools ( i.e., schools identified for interventions under the former School Improvement Grant program or in States that exercised “ESEA flexibility,” respectively, under the ESEA, as amended by the No Child Left Behind Act of 2001 (NCLB)), including but not limited to direct experience reopening academically poor-performing public schools as charter schools.

In future Developer grant competitions that include this priority, we would encourage applicants to review CSP technical assistance materials pertaining to how an applicant may design an admissions lottery for an academically poor-performing public school that the applicant is proposing to restart. Under the most recent version of the CSP nonregulatory guidance, for example, a charter school receiving CSP funds could, if permissible under applicable State law, exempt from its lottery students who are enrolled in the academically poor-performing public school at the time it is restarted.

Proposed Priority: Under this priority, applicants must—

(a) Demonstrate past success working with one or more academically poor-performing public schools or schools that previously were designated as persistently lowest-achieving schools or priority schools under the former School Improvement Grant program or in States that exercised ESEA flexibility, respectively, under the ESEA, as amended by NCLB, including but not limited to direct experience reopening academically poor-performing public schools as charter schools; and

(b) Propose to use grant funds under this program to reopen an academically poor-performing public school as a charter school during the project period by—

(1) Replicating a high-quality charter school based on a successful charter school model for which the applicant has provided evidence of success; and

(2) Targeting a demographically similar student population in the replicated charter school as was served by the academically poor-performing public school, consistent with nondiscrimination requirements contained in the U.S. Constitution and Federal civil rights laws.

Background: The CSP authorizing statute includes a priority under the CMO grant competition for eligible applicants that propose to expand or replicate high-quality charter schools that serve high school students. In addition, section 4310(2)(M) of the ESEA authorizes charter schools that serve postsecondary students to receive CSP funds. In 2018, the Department went through the rulemaking process to develop a final priority for the CMO grant competition based on that competition's statutory priority. The priority expanded upon that priority by also requiring that applicants replicate or expand charter high schools that offer programs and activities designed to prepare high school students for enrollment in postsecondary education institutions, which include those that offer one-year training programs that prepare students for gainful employment in a recognized occupation (as described in section 101(b)(1) of the Higher Education Act of 1965, as amended (HEA)) and support such students after high school graduation in persisting in college and attaining degrees and certificates.

The proposed priority included in this notice is almost identical to the CMO grant competition priority, as the Department believes the priority would complement broader efforts to increase postsecondary participation, attendance, persistence, and degree attainment among our Nation's high school graduates. In order to meet the priority, an applicant must describe how it will prepare students for postsecondary education and, drawing from the authority provided in section 4310(2)(M) of the ESEA, provide support for its graduates who enroll in institutions of higher education and certain one-year training programs that prepare students for gainful employment in a recognized occupation. In addition, applicants must establish one or more project-specific performance measures that will provide reliable information about the grantee's progress in meeting the objectives of the project.

Proposed Priority: (a) Under this priority, applicants must propose to—

(1) Open a new charter school or replicate or expand a high-quality charter school to serve high school students, including educationally disadvantaged students;

(2) Prepare students, including educationally disadvantaged students, in that school for enrollment in postsecondary education institutions through activities such as, but not limited to, accelerated learning programs (including Advanced Placement and International Baccalaureate courses and programs, dual or concurrent enrollment programs, and early college high schools), college counseling, career and technical education programs, career counseling, internships, work-based learning programs (such as apprenticeships), assisting students in the college admissions and financial aid application processes, and preparing students to take standardized college admissions tests; and

(3) Provide support for students, including educationally disadvantaged students, who graduate from that school and enroll in postsecondary education institutions in persisting in, and attaining a degree or certificate from, such institutions, through activities such as, but not limited to, mentorships, ongoing assistance with the financial aid application process, and establishing or strengthening peer support systems for such students attending the same institution.

(b) Applicants must propose one or more project-specific performance measures, including aligned leading indicators or other interim milestones, that will provide valid and reliable information about the applicant's progress in preparing students, including educationally disadvantaged students, for enrollment in postsecondary education institutions and in supporting those students in persisting in and attaining a degree or certificate from such institutions. An applicant addressing this priority and receiving a Developer grant must provide data that are responsive to the measure(s), including performance targets, in its annual performance reports to the Department.

(c) For purposes of this priority, postsecondary education institutions include institutions of higher education, as defined in section 8101(29) of the ESEA, and one-year training programs that meet the requirements of section 101(b)(1) of the HEA.

Background: We propose this priority to enable the Department to provide incentives for applicants to propose to open a new charter school or to replicate or expand a high-quality charter school in a rural community. There is too often a relative dearth of high-quality educational options for students in rural communities, and our experience implementing this and other discretionary grant programs has taught us that students in these communities often face unique obstacles to educational success. This proposed priority would allow the Department flexibility to provide an incentive for applicants proposing to open a new charter school or to replicate or expand a high-quality charter school in a rural community, including by evaluating such applications separately from applications proposing to open new charter schools or to replicate or expand high-quality charter schools in non-rural communities, thereby allowing for an “apples-to-apples” comparison.

To meet this priority, an applicant would need to propose to open a new charter school or to replicate or expand a high-quality charter school in a rural community or such a school in a non-rural community, depending on the Department's policy objectives in a given year and which prong of the priority the applicant is addressing.

This proposed priority would help ensure that students in rural communities have access to a range of educational options similar to that available to their peers in suburban and urban areas, and from which parents can select an option that best meets their child's needs.

Proposed Priority: Under this priority, applicants must propose to open a new charter school or to replicate or expand a high-quality charter school in—

(a) A rural community; or

(b) A community that is not a rural community.

Background: We propose this priority to enable the Department to provide an incentive for applicants that propose to open a new charter school or to replicate or expand a high-quality charter school by conducting targeted outreach and recruitment in order to serve a high proportion of Native American students. We propose to define “high proportion” in a way that would enable the Department to determine whether a new, replicated, or expanded charter school serves a high proportion of Native American students on a case-by-case basis, taking into consideration the unique factual circumstances of that school. The priority would allow applicants to receive priority for proposing to open a new charter school, or to replicate or expand a high-quality charter school, that serves Native Hawaiian and Native American Pacific Islander students, as well as students who are Indians (including Alaska Natives).

In order to meet the priority, an applicant would be required to provide a letter of support from one or more Indian Tribes or Native American organizations located within the area to be served by the new, replicated, or expanded charter school, and to meaningfully collaborate with the Indian Tribes or Native American organizations in a timely, active, and ongoing manner. In addition, the applicant would have to demonstrate that the new, replicated, or expanded charter school's mission and educational program will address the unique educational needs of students who are Native Americans, and that such school's governing board will have a substantial percentage of members who are members of Indian Tribes or Native American organizations located within the area to be served by the charter school. Generally, a school board with a percentage of members of Indian Tribes or Native American organizations that is comparable to the percentage of Native American students to be served would satisfy the substantial percentage requirement in this priority; however, there may be circumstances where a smaller or larger percentage of members from an Indian Tribe or Native American organization is appropriate.

Proposed Priority: Under this priority, applicants must—

(a) Propose to open a new charter school, or replicate or expand a high-quality charter school, that—

(1) Utilizes targeted outreach and recruitment in order to serve a high proportion of Native American students, consistent with nondiscrimination requirements contained in the U.S. Constitution and Federal civil rights laws;

(2) Has a mission and focus that will address the unique educational needs of Native American students, such as through the use of instructional programs and teaching methods that reflect and preserve Native American language, culture, and history; and

(3) Has or will have a governing board with a substantial percentage of members who are members of Indian Tribes or Native American organizations located within the area to be served by the new, replicated, or expanded charter school;

(b) Submit a letter of support from at least one Indian Tribe or Native American organization located within the area to be served by the new, replicated, or expanded charter school; and

(c) Meaningfully collaborate with the Indian Tribe(s) or Native American organization(s) from which the applicant has received a letter of support in a timely, active, and ongoing manner with respect to the development and implementation of the educational program at the charter school.

Background: This proposed priority is for applicants with experience serving concentrations of students who are individuals from low-income families and is intended to support efforts to increase the number of high-quality educational options available to such students, particularly in the Nation's high-poverty areas. We propose three subparts to this proposed priority, each of which would require that the schools the applicant operates or manages serve a specific minimum percentage of students who are individuals from low-income families over the course of the Developer grant project period. The Secretary would have flexibility to choose one or more of the subparts of this priority in a given competition. We believe such flexibility is necessary to enable the Secretary to accommodate the range of eligible applicants and schools that may need support in a given year.

Under the proposed priority, a charter school proposed to be opened, replicated, or expanded by an applicant would serve, for the duration of the grant period, a percentage of students who are individuals from low-income families that is comparable to the minimum percentage of such students established under the priority for a given year. While the priority is written in a manner that gives the Department flexibility to apply one, two, or all three poverty standards in a single competition, we do not anticipate applying more than one poverty standard in a single competition.

Proposed Priority: Under this priority, applicants must demonstrate one of the following—

(a) That at least 40 percent of the students across all of the charter schools the applicant operates or manages are individuals from low-income families, and that the applicant will maintain the same, or a substantially similar, percentage of such students across all of its charter schools during the grant period;

(b) That at least 50 percent of the students across all of the charter schools the applicant operates or manages are individuals from low-income families, and that the applicant will maintain the same, or a substantially similar, percentage of such students across all of its charter schools during the grant period; or

(c) That at least 60 percent of the students across all of the charter schools the applicant operates or manages are individuals from low-income families, and that the applicant will maintain the same, or a substantially similar, percentage of such students across all of its charter schools during the grant period.

Background: Under this priority, we would give preference to applicants that currently operate a single charter school. We are including this priority to encourage applications from developers that currently operate a single charter school but seek to replicate or expand it. Through this priority, we hope to support successful single school operators to grow into charter management organizations that, in the future, can continue to replicate and expand their successful school models. This proposed priority also would allow the Department to evaluate applicants from single school operators separately from applicants that already operate more than one school, thereby allowing for an “apples-to-apples” comparison.

Proposed Priority: Under this priority, applicants must provide evidence that—

(a) The applicant currently operates one, and only one, charter school; or

(b) The applicant currently operates more than one charter school.

When inviting applications for a competition using one or more priorities, we designate the type of each priority as absolute, competitive preference, or invitational through a notice in the Federal Register . The effect of each type of priority follows:

Absolute priority: Under an absolute priority, we consider only applications that meet the priority (34 CFR 75.105(c)(3)).

Competitive preference priority: Under a competitive preference priority, we give competitive preference to an application by (1) awarding additional points, depending on the extent to which the application meets the priority (34 CFR 75.105(c)(2)(i)); or (2) selecting an application that meets the priority over an application of comparable merit that does not meet the priority (34 CFR 75.105(c)(2)(ii)).

Invitational priority: Under an invitational priority, we are particularly interested in applications that meet the priority. However, we do not give an application that meets the priority a preference over other applications (34 CFR 75.105(c)(1)).

Background: Section 4305(a)(2) of the ESEA includes specific requirements applicable to the Developer grant competition. In addition to those requirements, section 4305(c) of the ESEA requires grants awarded to Developers to have the “same terms and conditions as grants awarded to State entities under section 4303.” As applicable, we intend to apply the requirements in section 4303(f) of the ESEA to Developer grants, in addition to the proposed application requirements, eligibility restrictions, and funding restrictions.

In general, the Department believes, based on past experience administering this program, that these proposed requirements are necessary for the proper consideration of applications for Developer grants and would increase the likelihood of success of applicants' proposed projects, thereby contributing to the efficient use of taxpayer dollars in expanding the high-quality educational options available to our Nation's students. In accordance with section 4305(c), these proposed requirements would not preclude the Department from applying other terms and conditions applicable to State entity grants to Developer grants in FY 2019 or future years.

Proposed Requirements: We propose the following requirements for this program. We may apply one or more of these requirements in any year in which this program is in effect.

Applicants for funds under this program must address one or more of the following application requirements:

(a) Describe the applicant's objectives in running a quality charter school program and how the program will be carried out.

(b) Describe the educational program that the applicant will implement in the charter school receiving funding under this program, including—

(1) Information on how the program will enable all students to meet the challenging State academic standards;

(2) The grade levels or ages of students who will be served; and

(3) The instructional practices that will be used.

(c) Describe how the applicant will ensure that the charter school that will receive funds will recruit, enroll, and retain students, including educationally disadvantaged students, which include children with disabilities and English learners, including the lottery and enrollment procedures that will be used for the charter school if more students apply for admission than can be accommodated, and, if the applicant proposes to use a weighted lottery, how the weighted lottery complies with section 4303(c)(3)(A) of the ESEA.

(d) Provide a complete logic model (as defined in 34 CFR 77.1) for the grant project. The logic model must include the applicant's objectives for implementing a new charter school or replicating or expanding a high-quality charter school with funding under this competition.

(e) Provide a budget narrative, aligned with the activities, target grant project outputs, and outcomes described in the logic model, that outlines how grant funds will be expended to carry out planned activities.

(f) If the applicant proposes to open a new charter school (CFDA number 84.282B) or proposes to replicate or expand a charter school (CFDA number 84.282E) that provides a single-sex educational program, demonstrate that the proposed single-sex educational programs are in compliance with title IX of the Education Amendments of 1972 (20 U.S.C. 1681, et seq. ) (“Title IX”) and its implementing regulations, including 34 CFR 106.34.

(g) Provide the applicant's most recent available independently audited financial statements prepared in accordance with generally accepted accounting principles.

(h) For each charter school currently operated or managed by applicants under CFDA 84.282E for replication and expansion, provide—

(1) Information that demonstrates that the school is treated as a separate school by its authorized public chartering agency and the State, including for purposes of accountability and reporting under title I, part A of the ESEA;

(2) Student assessment results for all students and for each subgroup of students described in section 1111(c)(2) of the ESEA;

(3) Attendance and student retention rates for the most recently completed school year and, if applicable, the most recent available four-year adjusted cohort graduation rates and extended-year adjusted cohort graduation rates; and

(4) Information on any significant compliance and management issues encountered within the last three school years by the existing charter school being operated or managed by the eligible entity, including in the areas of student safety and finance.

(i) Provide—

(1) A request and justification for waivers of any Federal statutory or regulatory provisions that the eligible entity believes are necessary for the successful operation of the charter school to be opened or to be replicated or expanded; and

(2) A description of any State or local rules, generally applicable to public schools, that will be waived or otherwise not apply to the school that will receive funds.

(j) A description of how each school that will receive funds meets the definition of charter school under section 4310(2) of the ESEA.

Eligibility: Eligibility for a grant under this competition is limited to charter school developers in States that do not currently have a CSP State Entity grant (CFDA number 84.282A) under the ESEA. Eligibility in a State with a CSP State Educational Agency (SEA) grant (CFDA 84.282A) under the ESEA, as amended by NCLB, is limited to grants for replication and expansion  2 (CFDA 84.282E) and only if the Department has not approved an amendment to the SEA's approved grant application authorizing the SEA to make subgrants for replication and expansion. 3

Funding Restriction: An applicant may only propose to support one charter school per grant application.

We propose the following definitions for this program. We may apply one or more of these definitions in any year in which this program is in effect.

Background: In order to ensure a common understanding of the proposed priorities, requirements, and selection criteria, we propose definitions that are critical to the policy and statutory purposes of the Developer grant program. We propose these definitions in order to clarify expectations for eligible entities applying for Developer grants and to ensure that the review process for applications for Developer grants remains as transparent as possible. The proposed definition for educationally disadvantaged students is based on section 1115(c)(2) of the ESEA, and the proposed definition for Indian Tribe is from section 6132(b)(2) of the ESEA. In addition, we are particularly interested in receiving feedback on the proposed definition of rural community.

Academically poor-performing public school means:

(a) A school identified by the State for comprehensive support and improvement under section 1111(c)(4)(D)(i) of the ESEA; or

(b) A public school otherwise identified by the State or, in the case of a charter school, its authorized public chartering agency, as similarly academically poor-performing.

Educationally disadvantaged student means a student in one or more of the categories described in section 1115(c)(2) of the ESEA, which include children who are economically disadvantaged, children with disabilities, migrant students, English learners, neglected or delinquent students, homeless students, and students who are in foster care.

High proportion, when used to refer to Native American students, means a fact-specific, case-by-case determination based upon the unique circumstances of a particular charter school or proposed charter school. The Secretary considers “high proportion” to include a majority of Native American students. In addition, the Secretary may determine that less than a majority of Native American students constitutes a “high proportion” based on the unique circumstances of a particular charter school or proposed charter school, as described in the application for funds.

Indian Tribe means a federally recognized or a State-recognized Tribe.

Individual from a low-income family means an individual who is determined by a State educational agency or local educational agency to be a child from a low-income family on the basis of (a) data used by the Secretary to determine allocations under section 1124 of the ESEA, (b) data on children eligible for free or reduced-price lunches under the Richard B. Russell National School Lunch Act, (c) data on children in families receiving assistance under part A of title IV of the Social Security Act, (d) data on children eligible to receive medical assistance under the Medicaid program under title XIX of the Social Security Act, or (e) an alternate method that combines or extrapolates from the data in items (a) through (d) of this definition.

Institution of higher education means an educational institution in any State that—

(a) Admits as regular students only persons having a certificate of graduation from a school providing secondary education, or the recognized equivalent of such a certificate, or persons who meet the requirements of section 484(d) of the HEA;

(b) Is legally authorized within such State to provide a program of education beyond secondary education;

(c) Provides an educational program for which the institution awards a bachelor's degree or provides not less than a two-year program that is acceptable for full credit toward such a degree, or awards a degree that is acceptable for admission to a graduate or professional degree program, subject to review and approval by the Secretary;

(d) Is a public or other nonprofit institution; and

(e) Is accredited by a nationally recognized accrediting agency or association, or if not so accredited, is an institution that has been granted preaccreditation status by such an agency or association that has been recognized by the Secretary for the granting of preaccreditation status, and the Secretary has determined that there is satisfactory assurance that the institution will meet the accreditation standards of such an agency or association within a reasonable time.

Native American means an Indian (including an Alaska Native), as defined in section 6132(b)(2) of the ESEA, Native Hawaiian, or Native American Pacific Islander.

Native American language means the historical, traditional languages spoken by Native Americans.

Native American organization means an organization that—

(a) Is legally established—

(1) By Tribal or inter-Tribal charter or in accordance with State or Tribal law; and

(2) With appropriate constitution, by-laws, or articles of incorporation;

(b) Includes in its purposes the promotion of the education of Native Americans;

(c) Is controlled by a governing board, the majority of which is Native American;

(d) If located on an Indian reservation, operates with the sanction or by charter of the governing body of that reservation;

(e) Is neither an organization or subdivision of, nor under the direct control of, any institution of higher education; and

(f) Is not an agency of State or local government.

Rural community means a community that is served by a local educational agency that is eligible to apply for funds under the Small Rural School Achievement (SRSA) program or the Rural and Low-Income School (RLIS) program authorized under title V, part B of the ESEA. Applicants may determine whether a particular local educational agency is eligible for these programs by referring to information on the following Department websites. For the SRSA program: www2.ed.gov/programs/reapsrsa/eligible16/index.html. For the RLIS program: www2.ed.gov/programs/reaprlisp/eligibility.html.

Background: Based on past experience implementing the Developer grant competition and its predecessor competition, we believe that these additional criteria will be valuable tools for peer reviewers to evaluate the quality of Developer applications in future years.

Proposed selection criterion (a) “Quality of the eligible applicant” would only apply to applicants under CFDA number 84.282E for replication and expansion. Under this proposed selection criterion, the Department would consider the degree to which an applicant has demonstrated success in increasing student academic achievement, the degree to which the academic achievement results for educationally disadvantaged students served by the charter schools operated or managed by the applicant have exceeded the average academic achievement results for such students in the State, whether charter schools operated or managed by the applicant have been closed or have encountered statutory or regulatory compliance issues, and the strength of the applicant's non-academic results such as parent satisfaction, school climate, student mental health, civic engagement, and crime prevention and reduction. Further, we propose to incorporate into this criterion language from the ESEA definition of “high-quality charter school” that would enable reviewers also to consider any significant issues that an applicant's charter schools have encountered in the areas of financial or operational management and student safety. The Department believes that these proposed selection factors would align with the intent of the authorizing statute and would bolster our ability to select high-quality Developer applicants that propose to replicate or expand a high-quality charter school.

Proposed selection criterion (b) “Significance of contribution in assisting educationally disadvantaged students” would focus on the contribution the proposed project would make in expanding educational opportunities for educationally disadvantaged students and enabling those students to meet challenging State academic standards. This proposed criterion would allow the Department to assess the extent to which each proposed project aligns with a major statutory purpose of the CSP: To expand opportunities for educationally disadvantaged students. This criterion would encourage applicants to discuss their plans for opening a new charter school, or replicating or expanding a high-quality charter school, that will recruit and enroll educationally disadvantaged students.

Proposed selection criterion (c) “Quality of the continuation plan” would focus on the applicant's plan for continuing to operate the charter school that would receive grant funds once those funds are no longer available. This criterion will enable reviewers to assess the strength of applicants' continuation plans and the extent to which the applicant is prepared to operate the charter school in a way that is consistent with the eligible applicant's application even after the grant performance period ends.

Proposed Selection Criteria: We propose the following selection criteria for evaluating an application under this program. We may apply one or more of these criteria in any year in which this program is in effect. In the NIA, we will announce the maximum possible points assigned to each criterion.

The Secretary will select eligible entities to receive grants under this program on the basis of the quality of such applications, after taking into consideration one or more of the following selection criteria:

(a) Quality of the eligible applicant.

In determining the quality of the eligible applicant, the Secretary considers the following factors:

(1) The extent to which the academic achievement results (including annual student performance on statewide assessments and annual student attendance and retention rates and, where applicable and available, student academic growth, high school graduation rates, postsecondary enrollment and persistence rates, including in college or career training programs, employment rates, earnings, and other academic outcomes) for educationally disadvantaged students served by the charter school(s) operated or managed by the applicant have exceeded the average academic achievement results for such students served by other public schools in the State.

(2) The extent to which one or more charter schools operated or managed by the applicant have closed; have had a charter revoked due to noncompliance with statutory or regulatory requirements; or have had their affiliation with the applicant revoked or terminated, including through voluntary disaffiliation.

(3) The extent to which one or more charter schools operated or managed by the applicant have had any significant issues in the area of financial or operational management or student safety, or have otherwise experienced significant problems with statutory or regulatory compliance that could lead to revocation of the school's charter.

(4) The extent to which the schools operated or managed by the applicant demonstrate strong results on measurable outcomes in non-academic areas such as, but not limited to, parent satisfaction, school climate, student mental health, civic engagement, and crime prevention and reduction.

(b) Significance of contribution in assisting educationally disadvantaged students.

In determining the significance of the contribution the proposed project will make in expanding educational opportunity for educationally disadvantaged students and enabling those students to meet challenging State academic standards, the Secretary considers the quality of the plan to ensure that the charter school the applicant proposes to open, replicate, or expand will recruit, enroll, and effectively serve educationally disadvantaged students, which include children with disabilities and English learners.

(c) Quality of the continuation plan.

In determining the quality of the continuation plan, the Secretary considers the extent to which the eligible applicant is prepared to continue to operate the charter school that would receive grant funds in a manner consistent with the eligible applicant's application once the grant funds under this program are no longer available.

Final Priorities, Requirements, Definitions, and Selection Criteria: We will announce the final priorities, requirements, definitions, and selection criteria in a document in the Federal Register . We will determine the final priorities, requirements, definitions, and selection criteria after considering public comments and other information available to the Department. This document does not preclude us from proposing additional priorities, requirements, definitions, or selection criteria, subject to meeting applicable rulemaking requirements.

Note: This document does not solicit applications. In any year in which we choose to use one or more of these priorities, requirements, definitions, and selection criteria, we invite applications through a notice in the Federal Register .

Under Executive Order 12866, it must be determined whether this regulatory action is “significant” and, therefore, subject to the requirements of the Executive order and subject to review by the Office of Management and Budget (OMB). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action likely to result in a rule that may—

(1) Have an annual effect on the economy of $100 million or more, or adversely affect a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or Tribal governments or communities in a material way (also referred to as an “economically significant” rule);

(2) Create serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles stated in the Executive order.

This proposed regulatory action is not a significant regulatory action subject to review by OMB under section 3(f) of Executive Order 12866.

Under Executive Order 13771, for each new rule that the Department proposes for notice and comment or otherwise promulgates that is a significant regulatory action under Executive Order 12866, and that imposes total costs greater than zero, it must identify two deregulatory actions. For FY 2019, any new incremental costs associated with a new regulation must be fully offset by the elimination of existing costs through deregulatory actions. Because the proposed regulatory action is not significant, the requirements of Executive Order 13771 do not apply.

We have also reviewed this proposed regulatory action under Executive Order 13563, which supplements and explicitly reaffirms the principles, structures, and definitions governing regulatory review established in Executive Order 12866. To the extent permitted by law, Executive Order 13563 requires that an agency—

(1) Propose or adopt regulations only upon a reasoned determination that their benefits justify their costs (recognizing that some benefits and costs are difficult to quantify);

(2) Tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives and taking into account—among other things and to the extent practicable—the costs of cumulative regulations;

(3) In choosing among alternative regulatory approaches, select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity);

(4) To the extent feasible, specify performance objectives, rather than the behavior or manner of compliance a regulated entity must adopt; and

(5) Identify and assess available alternatives to direct regulation, including economic incentives—such as user fees or marketable permits—to encourage the desired behavior, or provide information that enables the public to make choices.

Executive Order 13563 also requires an agency “to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” The Office of Information and Regulatory Affairs of OMB has emphasized that these techniques may include “identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes.”

We are issuing these proposed priorities, requirements, definitions, and selection criteria only on a reasoned determination that their benefits would justify their costs. In choosing among alternative regulatory approaches, we selected those approaches that would maximize net benefits. Based on the analysis that follows, the Department believes that this regulatory action is consistent with the principles in Executive Order 13563.

We also have determined that this regulatory action would not unduly interfere with State, local, and Tribal governments in the exercise of their governmental functions.

In accordance with both Executive orders, the Department has assessed the potential costs and benefits, both quantitative and qualitative, of this regulatory action. The potential costs are those resulting from statutory requirements and those we have determined as necessary for administering the Department's programs and activities.

We believe that the benefits of this regulatory action outweigh any associated costs, which we believe would be minimal. While this action would impose cost-bearing requirements on participating Developers, we expect that Developer applicants would include requests for funds to cover such costs in their proposed project budgets. We believe this regulatory action would strengthen accountability for the use of Federal funds by helping to ensure that the Department awards CSP grants to Developers that are most capable of expanding the number of high-quality charter schools available to our Nation's students.

The proposed priorities, requirements, and selection criteria contain information collection requirements that are approved by OMB under OMB control number 1894-0006; the proposed priorities, requirements, and selection criteria do not affect the currently approved data collection.

Regulatory Flexibility Act Certification: The Secretary certifies that this proposed regulatory action would not have a significant economic impact on a substantial number of small entities. The U.S. Small Business Administration (SBA) Size Standards define proprietary institutions as small businesses if they are independently owned and operated, are not dominant in their field of operation, and have total annual revenue below $7,000,000. Nonprofit institutions are defined as small entities if they are independently owned and operated and not dominant in their field of operation. Public institutions are defined as small organizations if they are operated by a government overseeing a population below 50,000.

Participation in this program is voluntary and limited to charter school developers seeking funds to help open a new charter school or replicate or expand a high-quality charter. The Department anticipates that approximately 50 developers will apply for Developer grants in a given year and estimates that approximately half of these developers will be small entities. For this limited number of small entities, any cost-bearing requirements imposed by this regulatory action can be defrayed with grant funds, as discussed in the Regulatory Impact Analysis.

Intergovernmental Review: This program is subject to Executive Order 12372 and the regulations in 34 CFR part 79. One of the objectives of the Executive order is to foster an intergovernmental partnership and a strengthened federalism. The Executive order relies on processes developed by State and local governments for coordination and review of proposed Federal financial assistance.

This document provides early notification of our specific plans and actions for this program.

Accessible Format: Individuals with disabilities can obtain this document in an accessible format ( e.g., braille, large print, audiotape, or compact disc) on request to the program contact person listed under FOR FURTHER INFORMATION CONTACT .

Electronic Access to This Document: The official version of this document is the document published in the Federal Register . You may access the official edition of the Federal Register and the Code of Federal Regulations at www.govinfo.gov. At this site you can view this document, as well as all other documents of this Department published in the Federal Register , in text or Portable Document Format (PDF). To use PDF you must have Adobe Acrobat Reader, which is available free at the site.

You may also access documents of the Department published in the Federal Register by using the article search feature at www.federalregister.gov. Specifically, through the advanced search feature at this site, you can limit your search to documents published by the Department.

This is a summary of the Commissions Fourth Further Notice of Proposed Rulemaking in PS Docket No. 07-114, released on March 18, 2019. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 12th Street SW, Washington, DC 20554, or online at www.fcc.gov.

This document does not contain proposed information collection requirements subject to the Paperwork Reduction Act of 1995, Public Law 104-13. In addition, therefore, it does not contain any proposed information collection burden for small business concerns with fewer than 25 employees, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS). See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

Electronic Filers: Comments may be filed electronically using the internet by accessing the ECFS: http://apps.fcc.gov/ecfs/.

Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number.

Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St. SW, Room TW-A325, Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building.

Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9050 Junction Drive, Annapolis Junction, MD 20701.

U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street SW, Washington DC 20554.

People with Disabilities: To request materials in accessible formats for people with disabilities (braille, large print, electronic files, audio format), send an email to fcc504@fcc.gov or call the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

The proceeding this Notice initiates shall be treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules. Persons making ex parte presentations must file a copy of any written presentation or a memorandum summarizing any oral presentation within two business days after the presentation (unless a different deadline applicable to the Sunshine period applies). Persons making oral ex parte presentations are reminded that memoranda summarizing the presentation must (1) list all persons attending or otherwise participating in the meeting at which the ex parte presentation was made, and (2) summarize all data presented and arguments made during the presentation. If the presentation consisted in whole or in part of the presentation of data or arguments already reflected in the presenter's written comments, memoranda or other filings in the proceeding, the presenter may provide citations to such data or arguments in his or her prior comments, memoranda, or other filings (specifying the relevant page and/or paragraph numbers where such data or arguments can be found) in lieu of summarizing them in the memorandum. Documents shown or given to Commission staff during ex parte meetings are deemed to be written ex parte presentations and must be filed consistent with rule 1.1206(b). In proceedings governed by rule 1.49(f) or for which the Commission has made available a method of electronic filing, written ex parte presentations and memoranda summarizing oral ex parte presentations, and all attachments thereto, must be filed through the electronic comment filing system available for that proceeding, and must be filed in their native format ( e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this proceeding should familiarize themselves with the Commission's ex parte rules.

1. Since the Commission first adopted its wireless Enhanced 911 (E911) location accuracy rules in 1996, the wireless landscape has undergone major changes. In 2018 the number of Americans with smartphones rose to 77%, up from just 35% in Pew Research Center's first survey of smartphone ownership conducted in 2011. As the adoption of cellphones and smartphones has skyrocketed, they have become an indispensable tool to protect consumers' health, property, and wellbeing, and many Americans are now relying on mobile phones as their only phones. Consumers make 240 million calls to 911 each year, and in many areas 80% or more of these calls are from wireless phones. For both first responders and consumers, the capability to locate wireless 911 callers quickly and accurately is of critical importance regardless of where the call originates.

2. To ensure that first responders and Public Safety Answering Points (PSAPs) can find 911 callers quickly and accurately when a consumer calls from a multi-story building, we propose a vertical, or z-axis, location accuracy metric of plus or minus 3 meters relative to the handset for each of the benchmarks and geographic requirements previously established in the Commission's E911 wireless location accuracy rules. This proposed metric will more accurately identify the floor level for most 911 calls, reduce emergency response times, and save lives.

3. In the 2014 Third Further Notice of Proposed Rulemaking in this proceeding, the Commission proposed measures and timeframes to improve location accuracy for wireless E911 calls originating indoors, including, among others, a 3-meter z-axis metric for 80% of such calls. In the 2015 Fourth Report and Order in this proceeding, the Commission established benchmarks and timetables for the deployment of z-axis technology or dispatchable location (which includes a vertical location component) in the top 50 Cellular Market Areas, but deferred a decision on a specific z-axis metric until it received additional testing data. Specifically, the Commission required the four nationwide Commercial Mobile Radio Service (CMRS) providers to establish a test bed to develop a proposed z-axis accuracy metric and to submit the proposed metric to the Commission for approval within 3 years ( i.e., by August 3, 2018). The Commission stated that the proposal would be placed out for public comment.

4. On August 3, 2018, CTIA submitted the “Stage Z Test Report” (Report or Stage Z Test Report) on behalf of the four nationwide CMRS providers. According to the Report, Stage Z testing sought to assess the accuracy of solutions that use barometric pressure sensors in the handset for determining altitude in support of E911. Two vendors, NextNav LLC (NextNav) and Polaris Wireless, Inc. (Polaris), participated in Stage Z. The test results showed that in 80% of NextNav test calls, vertical location was identified to a range of 1.8 meters or less, while 80% of Polaris test calls yielded a vertical accuracy range of 4.8 meters or less. The Report noted that Polaris' performance “could likely be significantly improved should a more robust handset barometric sensor calibration approach [than that used in the test bed] be applied.”

5. In its August 3, 2018, cover letter submitting the Report, CTIA stated that the test results provided “helpful insight” into the state of z-axis technologies, but that “significant questions remain about performance and scalability in live wireless 9-1-1 calling environments.” On behalf of the four nationwide wireless providers, CTIA therefore proposed a z-axis metric of “+/− 5 meters for 80% of fixes from mobile devices capable of delivering barometric pressure sensor-based altitude estimates.” CTIA also stated that further testing of vertical location technologies could yield results to validate adoption of a more accurate z-axis metric.

6. On September 10, 2018, the Public Safety and Homeland Security Bureau (Bureau) released a Public Notice seeking comment on the Report and the carriers' proposed z-axis metric. The Public Notice sought to gather information that would inform the Bureau's recommendations to the Commission concerning next steps in the development of the z-axis accuracy metric contemplated by the Fourth Report & Order. Fourteen entities filed comments and reply comments.

7. Public safety organizations unanimously opposed CTIA's proposed 5-meter metric as too imprecise to identify a caller's floor level. Some public safety organizations expressed support for a 3-meter metric, while others encouraged the Commission to adopt a 2-meter metric. NextNav and Polaris asserted that they could meet a 3-meter metric for 80% of wireless indoor calls within the prescribed timeframes.

8. In their initial comments, CTIA and some nationwide CMRS providers argued that the Commission should defer setting a more aggressive z-axis metric than 5 meters pending further testing. In a December 2018 ex parte filing, however, CTIA and all four nationwide CMRS providers revised their recommendation. These parties recognized “that public safety representatives have encouraged the Commission to adopt a more aggressive Z-Axis metric of ±3 meters in the near term.” While continuing to stress the importance of further testing, CTIA and the four providers stated that “certainty as to the Z-Axis metric in the near term, whether via an Order or expeditiously seeking public comment, may help advance the development process necessary to meet the 2021 and 2023 vertical location accuracy benchmarks in the Fourth Report & Order.”

9. Herein, we take steps to build on the Commission's adoption of the Fourth Report and Order by proposing a metric for the z-axis compliance standard for wireless 911 calls that is available to those providers that do not choose the dispatchable location compliance standard for vertical location accuracy.

10. Given the current state of the record, we believe it is appropriate to propose a z-axis metric based on a 3-meter standard. This will provide the final element of the Commission's existing indoor location accuracy regime, which already includes a timetable for CMRS providers to deliver vertical location information by deploying either dispatchable location or z-axis technology in specific geographic areas. Our proposed z-axis metric will provide certainty to all parties and establish a focal point for further testing, development, and implementation of evolving z-axis location technologies. To ensure a complete and comprehensive record on this issue, we seek comment on our proposal as discussed below.

11. We propose a z-axis metric of 3 meters relative to the handset for 80% of wireless E911 calls for each of the benchmarks and geographic requirements previously established in the Commission's E911 wireless location accuracy rules. To certify compliance with this proposed requirement, the caller's handset should be located within 3 meters above or below the vertical location provided by the phone for 80% of indoor wireless calls to 911, as demonstrated in the test bed. Under our proposal, we would amend Section 20.18 of the Commission's rules to require that by April 3, 2021, nationwide CMRS providers must deploy in each of the top 25 Cellular Market Areas either dispatchable location or z-axis technology in compliance with the 3-meter metric. In Cellular Market Areas where z-axis technology is used, nationwide CMRS providers must deploy z-axis technology to cover 80% of the Cellular Market Area population. By April 3, 2023, these requirements would be expanded to cover each of the top 50 Cellular Market Areas. Non-nationwide CMRS providers that serve any of the top 25 or 50 Cellular Market Areas would continue to have an additional year to meet each of these benchmarks in the relevant Cellular Market Area.

12. We seek comment on our proposed 3-meter metric. We tentatively agree with commenters responding to the Stage Z Test Report who assert that 3 meters will provide sufficient accuracy to identify the caller's floor level in most cases. For example, IAFF comments that the Commission should require vertical location information that provides true floor level accuracy, “ i.e., no more than 3 meters.” NENA states that “[c]itizens and public safety require, in the absence of a dispatchable location solution, a z-axis accuracy benchmark of +/−3 meters.” The Texas 911 Entities assert that a metric greater than 3 meters for 80% of calls “would not satisfy the critical requirements of public safety.” We acknowledge that a 3-meter metric is not always certain to yield floor level accuracy. If the indoor wireless caller's handset is located at the vertical center of a floor with an average height of 3.1 to 3.9 meters, the margins of a 3-meter metric allow for a variance of up to six meters, which would extend the search range to one floor above and one floor below the location of the handset. Nevertheless, we believe this search range will significantly narrow the scope of the search and can provide a reasonable basis for identifying the correct floor in most cases. We seek comment on this tentative conclusion. Do commenters agree that the metric should be set at 3 meters? If not, what vertical location metric should the Commission adopt, and why?

13. We also tentatively conclude that a 5-meter metric should not be adopted because the record indicates it would not yield the floor level accuracy that first responder commenters consider necessary. APCO states that a 5-meter metric “translates to a range of up to two floors below, or up to two floors above, the actual floor where a 911 caller may be located, and some lesser degree of accuracy for one in five calls to 911.” APCO and NENA also assert that adopting a metric of 5 meters would undermine incentives for CMRS providers to invest in the development of more accurate z-axis solutions. We seek comment on our tentative conclusion.

14. We also seek comment on other elements of the proposed metric. Should the metric apply to 80% of wireless calls? If not, what percentage of calls is appropriate? CTIA's proposed metric would apply only to “mobile devices capable of delivering barometric pressure sensor-based altitude estimates.” Should the z-axis metric apply only to calls from such devices, only devices manufactured after a date certain, or should it apply to wireless calls from all mobile devices, as we propose? Additionally, NPSTC asserts that reporting vertical location information as height above ground level (AGL) would be preferable to height above mean sea level (MSL) which is how carriers' data would otherwise be provided by default. Should the Commission specify that CMRS providers must report z-axis information as AGL, as NPSTC suggests, or are there advantages to keying height estimates to MSL? Should the Commission require CMRS providers to identify the floor level when reporting z-axis information, as suggested by APCO? What would be the technical and/or operational issues in requiring CMRS providers to provide either AGL height or floor level information? Should the Commission require all CMRS providers to provide the same type of z-axis information ( e.g., MSL, AGL, or floor level) to avoid potential confusion at the PSAP? Alternatively, should we decline to specify this level of detail so that entities developing z-axis solutions have more flexibility?

15. We tentatively conclude that our proposed 3-meter z-axis metric is technically feasible under the timeframes established in the Fourth Report and Order.

16. The test bed results show that in 80% of NextNav test calls, vertical location was identified to a range of 1.8 meters or less. NextNav achieved a vertical accuracy within 2 meters for 67% of test calls and within 3 meters for 90% of test calls in the dense urban, urban, and suburban morphologies. NextNav also achieved a vertical accuracy within 2 meters for 80% of test calls for every handset tested. According to NextNav, these results “were consistent across age of handsets, with the oldest devices (2016 models) performing identically to the newest (2018).” NextNav asserts that the results demonstrate reasonable consistency between handsets, weather, building types, environments, and time of day and that they demonstrate “the efficacy of the overall altitude determination system (<1m @ 80%).”

17. In addition, Polaris states that it was able to achieve aggregate accuracy performance of 2.8 meters for 80% of test calls by using additional available location data to recalibrate and refine its Stage Z data. This also supports our tentative conclusion in favor of a 3-meter metric. Polaris also indicates that in a real-world deployment its solution would use an active compensation correction model that operates in an application running continuously in the background of the device. As stated by Dr. R. Michael Buehrer of Virginia Tech, we also expect that this calibration process would be at least as accurate as the limited (once per month) calibration process Polaris used in reprocessing its Stage Z data. Accordingly, we tentatively conclude that Polaris' reprocessing of the data presents a reasonably accurate picture of the capabilities of its solution. We seek comment on this view.

18. Additionally, we are encouraged that entities outside the test bed have reported on technologies that may be able to achieve an equivalent degree of vertical location accuracy, and in this respect, we note that our rules do not require the use of a particular technology to achieve the necessary metric. For instance, on September 18, 2018, Google announced the launch of its Emergency Location Service in the United States. According to Google, Emergency Location Service is “a supplemental service that sends enhanced location directly from Android handsets to emergency services when an emergency call is placed.” Emergency Location Service works on “99 percent of Android devices (version 4.0 and above).” Emergency Location Service is part of the Android operating system and does not require any special hardware or updates. Regarding vertical location accuracy, Google states that it is working to provide accurate altitude and floor location and “improve [Emergency Location Service] location quality, especially for challenging locations, such as urban canyons and indoors.”

19. We recognize that some public safety commenters urge us to adopt a 2-meter metric, which would increase the likelihood of providing floor-level accuracy. However, we believe it is not yet established that such a metric is technically achievable on a consistent basis, although it may become achievable in the long term as technology continues to evolve. While NextNav's test bed results demonstrate that its solution can achieve an accuracy of 1.8 meters or less for 80% of test calls overall, it could only achieve an accuracy of 2.5 meters or less for 80% of test calls in the dense urban morphology, where calls from multi-story buildings are most likely to occur. Similarly, even after reprocessing its data, Polaris' solution yielded only 2.8 meters or less for 80% of test calls. Because the existing record does not indicate that 2-meter accuracy is currently achievable by either vendor in the dense urban morphology, we tentatively conclude that it would be premature to adopt a 2-meter metric. We believe, however, that our proposed 3-meter metric will encourage CMRS providers to work with NextNav, Polaris, and emerging location and device vendors to achieve more precise vertical location accuracy solutions. We seek comment on this view.

20. We propose to adopt a 3-meter z-axis metric instead of deferring the matter for further testing. Although CTIA initially maintained that additional testing was needed before a metric could be adopted, it has since taken the opposite view. Additionally, vendors' comments suggest that the 3-meter metric is technically feasible, and public safety commenters acknowledge that such a metric, while not as precise as they might like, would nevertheless be a worthwhile step to take. Although we tentatively conclude that the benefits of further testing are insufficient to warrant any more delay in the progress of this proceeding, to the extent that the proponents of additional testing conduct tests or studies that yield more accurate and efficient vertical location solutions, we encourage these stakeholders to file them in this docket. We observe that CTIA recently announced that in July 2019, the test bed will begin the next round of z-axis testing, which CTIA has designated as “Stage Za.” We encourage all technology vendors that are developing potential z-axis solutions to participate in Stage Za. We note, however, that in the interest of providing certainty in the near term to all parties, the Commission envisions proceeding on this rulemaking while additional testing occurs.

21. We also tentatively conclude based on our own assessment of the Report that the limitations on testing described therein do not preclude us from adopting a 3-meter metric without requiring additional testing. We seek comment on this tentative conclusion.

22. For example, in Stage Z, Chicago was added as a test region to provide a more extreme cold-weather environment for evaluating z-axis technologies, but NextNav was unable to test there. NextNav also did not test its solution in rural morphologies. We do not believe that the lack of NextNav test data in either environment is a sufficient reason to delay consideration of a z-axis metric.

23. In particular, with respect to extreme cold-weather testing, the Report states that very cold weather was not available during testing and that this is likely because the test campaign started in late February. Accordingly, the test results would not have been conclusive even if NextNav had participated. In addition, if we were to require additional cold-weather testing, it could not be scheduled before next winter, which would entail at least a year's delay in adopting a metric.

24. Similarly, we do not believe that the absence of NextNav test data in rural morphologies warrants a delay in our consideration of a z-axis metric. The Report notes that the rural morphology is “the sparsest environment overall” and is mostly residential, with most structures between 1 and 2 stories high. Moreover, the Commission's vertical location accuracy requirements apply only to the top 50 Cellular Market Areas, which are most likely to feature the urban and dense urban morphologies. In these morphologies, the test bed shows that NextNav's solution would meet a 3-meter metric. Additionally, NextNav's technology was tested for vertical accuracy in rural areas during the original CSRIC Test Bed conducted in 2012, and NextNav's results from that testing fell within 3 meters for 80% of all calls.

25. We also do not believe that testing of additional devices, such as older and lower-end devices, is needed prior to adoption of a z-axis metric. NextNav and Polaris each tested six handsets, for a total of twelve handsets, in Stage Z. The Report states that handsets were selected “to ensure variety between sensor manufacturers, the age of handsets (within limits) and their overall use characteristics,” and that the handsets used in testing were “the same production-ready handsets sold by wireless carriers and available to the general public” and did not contain any hardware modification that would favor these handsets over any commercially available handsets. NextNav points out that the Stage Z results showed a high level of consistency between different models of handsets and that these results were consistent with the results of prior independent tests conducted on its technology. Although we encourage additional testing on a greater variety of devices, we believe that a sufficient variety of devices have been tested to support moving forward with our proposed 3-meter metric at this time. We seek comment on this assessment. We seek comment on whether the proposed 3-meter z-axis metric will provide adequate vertical location accuracy protection for consumers who participate in the Commission's Lifeline program. We seek comment on the extent to which mobile phones provided to consumers as part of the Lifeline program have the capability, through barometric pressure sensors or other means, to be located within a 3-meterz-axis metric. We also seek comment on how to ensure that vertical location protections extend to and include users of the Lifeline program. We also seek comment on the potential turnover rates for wireless handsets and the features of devices likely to be available and in use by the compliance dates established in our rules. Those data points would influence the extent to which difficulties in achieving the metric over older and lower-end devices may pose an impediment to meeting the proposed requirements.

26. We believe our proposed 3-meter z-axis metric will support the development of scalable vertical location solutions that can be deployed in time to meet the carriers' 2021 and 2023 deadlines. To the extent that CMRS providers elect to use solutions that rely on barometric pressure readings, nearly all smartphones on the market appear to be equipped with barometric pressure sensors. In addition, both NextNav and Polaris state that calibration of the barometric sensors in their z-axis solutions would be software-based and thus would scale readily for widespread use. Polaris and NextNav also state that industry standards necessary to implement the barometric sensor-based solutions tested in Stage Z are already adopted and that implementation of these standards is in the hands of carriers and device manufacturers. Based on these comments, we believe barometric sensor-based solutions are likely to be scalable and can be made readily available to wireless consumers within the timeframes required by the rules. We seek comment on this assessment and its underlying factual assumptions.

27. We also seek comment on the potential for development and deployment of other new or emerging vertical location solutions that could be used to meet the proposed z-axis metric. The Commission has previously recognized that no single technological approach will solve the challenge of indoor location, and it adopted requirements applicable to CMRS providers that are technically feasible and technologically neutral “so that providers can choose the most effective solutions from a range of options.” We continue to believe that this approach should guide the adoption of any metric in this proceeding. CTIA states that other vertical location technologies and vendors will likely be ready for testing in 2019. We seek comment on the potential for widespread deployment and adoption of these or other alternatives within the timeframes required by the rules, as well as their likely performance in real-world conditions. Are there issues associated with implementing these solutions into wireless network systems and production mobile devices, or scaling them for widespread use?

28. We also seek comment on whether we should consider accelerating or otherwise altering the deployment timelines within the rules. Is a 3-meter metric achievable more quickly than the current 2021 and 2023 deadlines? If so, when should these deadlines be set? These deadlines also pertain to the carriers' option of using dispatchable location for vertical location accuracy. Must the timetables be adjusted for both options? Can CMRS providers achieve dispatchable location and complete work on the NEAD on an accelerated timeframe? If not, should the Commission decouple the choice of deploying z-axis technology from dispatchable location, and how would bifurcating CMRS providers' technology choice impact CMRS providers' incentives to deploy dispatchable location and complete work on the NEAD? If the Commission adopts a more stringent metric such as floor level or a +/− 2-meter vertical location standard, is it achievable within the current timeframes or would it take longer than the current timetable in the rules? Is it feasible to adopt both a more precise metric and to shorten compliance timetables? How should the Commission address the timeframes applicable to non-nationwide CMRS providers? How would changing the existing timeframes impact the compliance regime for vertical location accuracy?

29. We seek comment on the appropriate data privacy and security framework for z-axis data. In 2015 the Commission established rules governing CMRS provider usage of the National Emergency Address Database (NEAD). In doing so, the Commission stated that “certain explicit requirements on individual CMRS providers are necessary to ensure the privacy and security of NEAD data and any other information involved in the determination and delivery of dispatchable location.” In the same Order the Commission required that, “as a condition of using the NEAD or any information contained therein to meet our 911 location requirements, and prior to use of the NEAD, CMRS providers must certify that they will not use the NEAD or associated data for any purpose other than for the purpose of responding to 911 calls, except as required by law.” We seek comment on whether use of z-axis data should be limited to 911 calls except as otherwise required by law and if such a limitation should be implemented and codified in a manner similar to the limitations applicable to the NEAD described above.

30. We now seek comment on which z-axis metric would allow us to achieve the anticipated level of benefits in the most cost-effective manner. Specifically, because the alternative metrics have an effect on both costs and benefits, we seek comment on how the benefits and costs of the proposed z-axis metric of 3 meters for 80% of calls compares to the benefits and costs of alternativemetrics. We seek comment on the expected number of lives saved by adopting a 3-meter metric, versus a 2-meter or 5-meter metric. We also seek comment on the expected number of lives that would be saved if we required CMRS providers to identify floor level when reporting z-axis information. In the Fourth Report and Order, the Commission concluded that the location accuracy rules, including the z-axis accuracy metric, would improve emergency response times, which, in turn, would improve patient outcomes and save lives. The Commission found that the location accuracy improvements that it adopted had the potential to save approximately 10,120 lives annually at a value of $9.1 million per statistical life, for an annual benefit of approximately $92 billion or $291 per wireless subscriber. The Commission characterized this $92 billion as an annual benefit floor value because it also expected substantial, unquantifiable benefits from the reduction of human suffering and loss of property. The Commission further found that the costs of implementing the available solutions to achieve the indoor wireless location accuracy standards were far less than the $92 billion benefit floor, with the costs further declining as demand grew.

31. We now seek comment on how the benefits and costs of the proposedz-axis metric of 3 meters for 80% of calls compares to the benefits and costs of alternative metrics. We tentatively conclude that a z-axis metric of 3 meters for 80% of calls strikes the best balance between benefits and costs. As noted above, some public safety commenters identify a 3-meter metric as providing sufficient accuracy to identify the caller's floor level in most cases. Accordingly, a 3-meter metric would manifest the benefits of location accuracy described in the Fourth Report and Order. The record contains evidence that supports a finding that the costs of implementing a 3-meter metric are themselves low, at least on a per-handset basis. NextNav asserts that its z-axis solution, which requires only software changes to be made to each handset, could be made available for a nominal cost that amounts to significantly less than a penny per month per handset and would impose no incremental cost burdens on new handsets. Polaris states that its z-axis solution is “objectively affordable” because it is software-based, does not require hardware in networks or markets, and “does not require anything special in devices beyond implementation of adopted 3GPP and OMA standards.” Polaris' solution also is “instantly available and deployable throughout a carrier's nationwide network.” As the Commission noted in the Fourth Report and Order, we continue to expect that these costs will decline as demand grows.

32. We tentatively conclude that the value of a 3-meter metric exceeds that of a 5-meter standard because a 5-meter metric would result in a significant reduction in the benefits described above. As commenters have indicated, a 5-meter metric could indicate a location up to 2 floors below, or up to 2 floors above, the actual floor where a 911 caller may be located. This large search range would make it far more likely that first responders would need to search 2 or more additional floors, significantly increasing average emergency response times and consequently degrading patient outcomes. Due to the likely degradation of patient outcomes with a 5-meter metric, we tentatively conclude that a 3-meter metric provides greater value. We seek comment on this tentative conclusion, including on the marginal benefits and costs of a 3-meter metric versus a 5-meter metric.

33. We also tentatively conclude that, at this time, the value of a 3-meter metric exceeds that of a 2-meter metric. We acknowledge that a 2-meter metric would further improve the accuracy of 911 calls by increasing the likelihood that the caller's floor level could be identified with certainty, which would further improve emergency response times and patient outcomes. In other words, while the margins of both the 2-meter and 3-meter search ranges could extend one level above and below a caller's floor level, a greater portion of the 2-meter search range is likely to be concentrated at the correct floor level. However, because we tentatively conclude that existing solutions are unlikely to achieve 2-meter accuracy for 80% of E911 calls prior to the deadlines established by our rules, we expect that adopting a 2-meter metric would likely cause developers of z-axis solutions to incur substantial development, testing, and implementation costs, without any guarantee of achieving the 2-meter metric before the deadline. Rather than force these expenditures in pursuit of additional benefits that may not materialize on-schedule, we tentatively conclude that there is greater value in adopting the certain benefits of the achievable 3-meter metric. In addition, we observe that any delay in deployment of z-axis solutions necessitated by a 2-meter metric would also delay realization of the benefits of improved location accuracy— i.e., improved emergency response times, better patient outcomes, and lives saved. We seek comment on this tentative conclusion, including on the marginal benefits and costs of a 2-meter metric versus a 3-meter or 5-meter metric. We also seek comment on how the benefits and costs of requiring CMRS providers to identify floor level when reporting z-axis information would compare to the benefits and costs of providing z-axis information as AGL or MSL height. Are these costs and benefits any different for non-nationwide providers as opposed to nationwide providers?

34. We seek comment on our analysis and tentative conclusions as to the comparative value of these z-axis metrics. Are there ways to more precisely quantify the differences in patient outcomes that would arise from the adoption of 2-, 3-, and 5-meter metrics? For example, under each of these metrics, in what percentage of calls would the floor reported to first responders be the correct one? How much additional time is necessary for first responders to search additional floors of a building if the 911 caller is not on the first floor that they search? How much more time would be required for a first responder to find a 911 caller if a 5-meter metric were adopted, as compared to adoption of a 3-meter metric? How much less time would be required for a first responder to find a 911 caller if a 2-meter metric were adopted? What costs would arise from implementing z-axis solutions to meet a 3-meter metric that would not exist when implementing a 5-meter metric? What is the projected amount of those costs? Are there z-axis solutions for which the cost of satisfying a 3-meter metric is the same or negligible when compared to the costs of implementing a 5-meter metric? Are there any alternative z-axis metrics that have not been addressed that we should consider?

35. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Commission has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on a substantial number of small entities by the policies and rules proposed in the Fourth Further Notice of Proposed Rule Making (Notice). Written public comments are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines in this Notice. The Commission will send a copy of the Notice, including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (SBA). In addition, the Notice and IRFA (or summaries thereof) will be published in the Federal Register .

36. The Notice advances the Commission's goal of ensuring “that all Americans using mobile phones—whether they are calling from urban or rural areas, from indoors or outdoors—have technology that is functionally capable of providing accurate location information so that they receive the support they need in times of an emergency.” In the Notice, the Commission proposes to adopt a metric to more precisely identify the location of a 911 wireless caller located in a multi-story building. More specifically, we propose to require the provisioning of vertical location (z-axis) information that would enable first responders to identify the caller's floor level for most wireless calls to 911 from multi-story buildings, which represents a critical element to achieving the Commission's indoor location accuracy objectives. Consistent with the regulatory framework established in the last major revision of the Commission's wireless location accuracy rules in 2015 and the information developed in the associated docket, this Notice proposes a z-axis location accuracy metric of 3 meters above or below a handset for 80 percent of wireless Enhanced 911 (E911) indoor calls. As alternatives, we seek comment on different metrics of two or five meters, as well as potentially revised time frames depending on the precision of the metric adopted. Our proposed metric, if adopted, could augment the ability of Public Safety Answering Points (PSAPs) and first responders to more accurately identify the floor level for most 911 calls made from multi-story buildings, reduce emergency response times, and, ultimately, save lives. It also implements the final element of the Commission's existing indoor location accuracy regime, which already includes a timetable for Commercial Mobile Radio Service (CMRS) providers to deliver vertical location information by deploying either dispatchable location or z-axis technology in specific geographic areas. Our proposed z-axis metric will provide certainty to all parties and establish a focal point for further testing, development, and implementation of evolving z-axis location technologies.

37. The proposed action is authorized under Sections 1, 2, 4(i), 7, 10, 201, 214, 222, 251(e), 301, 302, 303, 307, 309, 316, and 332, of the Communications Act of 1934, 47 U.S.C. 151, 152(a), 154(i), 157, 160, 201, 214, 222, 251(e), 301, 302, 303, 307, 309, 316, 332; the Wireless Communications and Public Safety Act of 1999, Public Law 106-81, 47 U.S.C. 615 note, 615, 615a, 615b; and Section 106 of the Twenty-First Century Communications and Video Accessibility Act of 2010, Public Law 111-260, 47 U.S.C. 615c.

38. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

39. Small Businesses, Small Organizations, Small Governmental Jurisdictions. Our actions, over time, may affect small entities that are not easily categorized at present. We therefore describe here, at the outset, three broad groups of small entities that could be directly affected herein. First, while there are industry specific size standards for small businesses that are used in the regulatory flexibility analysis, according to data from the SBA's Office of Advocacy, in general a small business is an independent business having fewer than 500 employees. These types of small businesses represent 99.9% of all businesses in the United States which translates to 28.8 million businesses.

40. Next, the type of small entity described as a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of August 2016, there were approximately 356,494 small organizations based on registration and tax data filed by nonprofits with the Internal Revenue Service (IRS).

41. Finally, the small entity described as a “small governmental jurisdiction” is defined generally as “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” U.S. Census Bureau data from the 2012 Census of Governments indicate that there were 90,056 local governmental jurisdictions consisting of general purpose governments and special purpose governments in the United States. Of this number there were 37,132 General purpose governments (county, municipal and town or township) with populations of less than 50,000 and 12,184 Special purpose governments (independent school districts and special districts) with populations of less than 50,000. The 2012 U.S. Census Bureau data for most types of governments in the local government category show that the majority of these governments have populations of less than 50,000. Based on this data we estimate that at least 49,316 local government jurisdictions fall in the category of “small governmental jurisdictions.”

42. Pursuant to 47 CFR § 20.18(a), the Commission's 911 service requirements are only applicable to Commercial Mobile Radio Service (CMRS) “[providers], excluding mobile satellite service operators, to the extent that they: (1) Offer real-time, two way switched voice service that is interconnected with the public switched network; and (2) Utilize an in-network switching facility that enables the provider to reuse frequencies and accomplish seamless hand-offs of subscriber calls. These requirements are applicable to entities that offer voice service to consumers by purchasing airtime or capacity at wholesale rates from CMRS licensees.”

43. Below, for those services subject to auctions, we note that, as a general matter, the number of winning bidders that qualify as small businesses at the close of an auction does not necessarily represent the number of small businesses currently in service. Also, the Commission does not generally track subsequent business size unless, in the context of assignments or transfers, unjust enrichment issues are implicated.

44. All Other Telecommunications. The “All Other Telecommunications” category is comprised of establishments primarily engaged in providing specialized telecommunications services, such as satellite tracking, communications telemetry, and radar station operation. This industry also includes establishments primarily engaged in providing satellite terminal stations and associated facilities connected with one or more terrestrial systems and capable of transmitting telecommunications to, and receiving telecommunications from, satellite systems. Establishments providing internet services or voice over internet protocol (VoIP) services via client-supplied telecommunications connections are also included in this industry. The SBA has developed a small business size standard for All Other Telecommunications, which consists of all such firms with annual receipts of $32.5 million or less. For this category, U.S. Census Bureau data for 2012 shows that there were 1,442 firms that operated for the entire year. Of those firms, a total of 1,400 had annual receipts less than $25 million and 42 firms had annual receipts of $25 million to $49,999,999. Thus, the Commission estimates that the majority of “All Other Telecommunications” firms potentially affected by our action can be considered small.

45. AWS Services (1710-1755 MHz and 2110-2155 MHz bands (AWS-1); 1915-1920 MHz, 1995-2000 MHz, 2020-2025 MHz and 2175-2180 MHz bands (AWS-2); 2155-2175 MHz band (AWS-3)). For the AWS-1 bands, the Commission has defined a “small business” as an entity with average annual gross revenues for the preceding three years not exceeding $40 million, and a “very small business” as an entity with average annual gross revenues for the preceding three years not exceeding $15 million. For AWS-2 and AWS-3, although we do not know for certain which entities are likely to apply for these frequencies, we note that the AWS-1 bands are comparable to those used for cellular service and personal communications service. The Commission has not yet adopted size standards for the AWS-2 or AWS-3 bands but proposes to treat both AWS-2 and AWS-3 similarly to broadband PCS service and AWS-1 service due to the comparable capital requirements and other factors, such as issues involved in relocating incumbents and developing markets, technologies, and services.

46. Competitive Local Exchange Carriers (Competitive LECs). Competitive Access Providers (CAPs), Shared-Tenant Service Providers, and Other Local Service Providers. Neither the Commission nor the SBA has developed a small business size standard specifically for these service providers. The appropriate NAICS Code category is Wired Telecommunications Carriers and under that size standard, such a business is small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2012 indicate that 3,117 firms operated during that year. Of that number, 3,083 operated with fewer than 1,000 employees. Based on these data, the Commission concludes that the majority of Competitive LECS, CAPs, Shared-Tenant Service Providers, and Other Local Service Providers, are small entities. According to Commission data, 1,442 carriers reported that they were engaged in the provision of either competitive local exchange services or competitive access provider services. Of these 1,442 carriers, an estimated 1,256 have 1,500 or fewer employees. In addition, 17 carriers have reported that they are Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 or fewer employees. Also, 72 carriers have reported that they are Other Local Service Providers. Of this total, 70 have 1,500 or fewer employees. Consequently, based on internally researched FCC data, the Commission estimates that most providers of competitive local exchange service, competitive access providers, Shared-Tenant Service Providers, and Other Local Service Providers are small entities.

47. Incumbent Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed a small business size standard specifically for incumbent local exchange services. The closest applicable NAICS Code category is Wired Telecommunications Carriers. Under the applicable SBA size standard, such a business is small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2012 indicate that 3,117 firms operated the entire year. Of this total, 3,083 operated with fewer than 1,000 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses that may be affected by our actions. According to Commission data, one thousand three hundred and seven (1,307) Incumbent Local Exchange Carriers reported that they were incumbent local exchange service providers. Of this total, an estimated 1,006 have 1,500 or fewer employees. Thus, using the SBA's size standard, the majority of incumbent LECs can be considered small entities.

48. Narrowband Personal Communications Services. Two auctions of narrowband personal communications services (PCS) licenses have been conducted. To ensure meaningful participation of small business entities in future auctions, the Commission has adopted a two-tiered small business size standard in the Narrowband PCS Second Report and Order. Through these auctions, the Commission has awarded a total of 41 licenses, out of which 11 were obtained by small businesses. A “small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $40 million. A “very small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $15 million. The SBA has approved these small business size standards.

49. Offshore Radiotelephone Service. This service operates on several UHF television broadcast channels that are not used for television broadcasting in the coastal areas of states bordering the Gulf of Mexico. The closest applicable SBA size standard is for Wireless Telecommunications Carriers (except Satellite), which is an entity employing no more than 1,500 persons. U.S. Census Bureau data in this industry for 2012 show that there were 967 firms that operated for the entire year. Of this total, 955 firms had employment of 999 or fewer employees and 12 had employment of 1000 employees or more. Thus, under this SBA category and the associated small business size standard, the majority of Offshore Radiotelephone Service firms can be considered small. There are presently approximately 55 licensees in this service. However, the Commission is unable to estimate at this time the number of licensees that would qualify as small under the SBA's small business size standard for the category of Wireless Telecommunications Carriers (except Satellite).

50. Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. This industry comprises establishments primarily engaged in manufacturing radio and television broadcast and wireless communications equipment. Examples of products made by these establishments are: Transmitting and receiving antennas, cable television equipment, GPS equipment, pagers, cellular phones, mobile communications equipment, and radio and television studio and broadcasting equipment. The SBA has established a small business size standard for this industry of 1,250 employees or less. U.S. Census Bureau data for 2012 shows that 841 establishments operated in this industry in that year. Of that number, 828 establishments operated with fewer than 1,000 employees, 7 establishments operated with between 1,000 and 2,499 employees and 6 establishments operated with 2,500 or more employees. Based on this data, we conclude that a majority of manufacturers in this industry are small.

51. Rural Radiotelephone Service. The Commission has not adopted a size standard for small businesses specific to the Rural Radiotelephone Service. A significant subset of the Rural Radiotelephone Service is the Basic Exchange Telephone Radio System (BETRS). The closest applicable SBA size standard is for Wireless Telecommunications Carriers (except Satellite), which is an entity employing no more than 1,500 persons. For this industry, U.S. Census Bureau data for 2012 show that there were 967 firms that operated for the entire year. Of this total, 955 firms had employment of 999 or fewer employees and 12 had employment of 1000 employees or more. Thus, under this category and the associated size standard, the Commission estimates that the majority of Rural Radiotelephone Services firm are small entities. There are approximately 1,000 licensees in the Rural Radiotelephone Service, and the Commission estimates that there are 1,000 or fewer small entity licensees in the Rural Radiotelephone Service that may be affected by the rules and policies proposed herein.

52. Wireless Communications Services. This service can be used for fixed, mobile, radiolocation, and digital audio broadcasting satellite uses. The Commission defined “small business” for the wireless communications services (WCS) auction as an entity with average gross revenues of $40 million for each of the three preceding years, and a “very small business” as an entity with average gross revenues of $15 million for each of the three preceding years. The SBA has approved these small business size standards. In the Commission's auction for geographic area licenses in the WCS there were seven winning bidders that qualified as “very small business” entities, and one that qualified as a “small business” entity.

53. Wireless Telecommunications Carriers (except Satellite). This industry comprises establishments engaged in operating and maintaining switching and transmission facilities to provide communications via the airwaves. Establishments in this industry have spectrum licenses and provide services using that spectrum, such as cellular services, paging services, wireless internet access, and wireless video services. The appropriate size standard under SBA rules is that such a business is small if it has 1,500 or fewer employees. For this industry, U.S. Census Bureau data for 2012 show that there were 967 firms that operated for the entire year. Of this total, 955 firms had employment of 999 or fewer employees and 12 had employment of 1000 employees or more. Thus, under this category and the associated size standard, the Commission estimates that the majority of wireless telecommunications carriers (except satellite) are small entities.

54. Wireless Telephony. Wireless telephony includes cellular, personal communications services, and specialized mobile radio telephony carriers. The closest applicable SBA category is Wireless Telecommunications Carriers (except Satellite) and the appropriate size standard for this category under the SBA rules is that such a business is small if it has 1,500 or fewer employees. For this industry, U.S. Census Bureau data for 2012 show that there were 967 firms that operated for the entire year. Of this total, 955 firms had fewer than 1,000 employees and 12 firms had 1000 employees or more. Thus, under this category and the associated size standard, the Commission estimates that a majority of these entities can be considered small. According to Commission data, 413 carriers reported that they were engaged in wireless telephony. Of these, an estimated 261 have 1,500 or fewer employees and 152 have more than 1,500 employees. Therefore, more than half of these entities can be considered small.

55. 700 MHz Guard Band Licensees. In 2000, in the 700 MHz Guard Band Order, the Commission adopted size standards for “small businesses” and “very small businesses” for purposes of determining their eligibility for special provisions such as bidding credits and installment payments. A small business in this service is an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $40 million for the preceding three years. Additionally, a very small business is an entity that, together with its affiliates and controlling principals, has average gross revenues that are not more than $15 million for the preceding three years. SBA approval of these definitions is not required. An auction of 52 Major Economic Area licenses commenced on September 6, 2000 and closed on September 21, 2000. Of the 104 licenses auctioned, 96 licenses were sold to nine bidders. Five of these bidders were small businesses that won a total of 26 licenses. A second auction of 700 MHz Guard Band licenses commenced on February 13, 2001 and closed on February 21, 2001. All eight of the licenses auctioned were sold to three bidders. One of these bidders was a small business that won a total of two licenses.

56. Lower 700 MHz Band Licenses. The Commission previously adopted criteria for defining three groups of small businesses for purposes of determining their eligibility for special provisions such as bidding credits. The Commission defined a “small business” as an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $40 million for the preceding three years. A “very small business” is defined as an entity that, together with its affiliates and controlling principals, has average gross revenues that are not more than $15 million for the preceding three years. Additionally, the lower 700 MHz Service had a third category of small business status for Metropolitan/Rural Service Area (MSA/RSA) licenses—“entrepreneur”—which is defined as an entity that, together with its affiliates and controlling principals, has average gross revenues that are not more than $3 million for the preceding three years. The SBA approved these small size standards. An auction of 740 licenses (one license in each of the 734 MSAs/RSAs and one license in each of the six Economic Area Groupings (EAGs)) commenced on August 27, 2002 and closed on September 18, 2002. Of the 740 licenses available for auction, 484 licenses were won by 102 winning bidders. Seventy-two of the winning bidders claimed small business, very small business or entrepreneur status and won a total of 329 licenses. A second auction commenced on May 28, 2003, closed on June 13, 2003, and included 256 licenses: 5 EAG licenses and 476 Cellular Market Area licenses. Seventeen winning bidders claimed small or very small business status and won 60 licenses, and nine winning bidders claimed entrepreneur status and won 154 licenses. On July 26, 2005, the Commission completed an auction of 5 licenses in the Lower 700 MHz band (Auction No. 60). There were three winning bidders for five licenses. All three winning bidders claimed small business status.

57. In 2007, the Commission reexamined its rules governing the 700 MHz band in the 700 MHz Second Report and Order. An auction of 700 MHz licenses commenced January 24, 2008, and closed on March 18, 2008, which included: 176 Economic Area licenses in the A-Block, 734 Cellular Market Area licenses in the B-Block, and 176 EA licenses in the E-Block. Twenty winning bidders, claiming small business status (those with attributable average annual gross revenues that exceed $15 million and do not exceed $40 million for the preceding three years) won 49 licenses. Thirty-three winning bidders claiming very small business status (those with attributable average annual gross revenues that do not exceed $15 million for the preceding three years) won 325 licenses.

58. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and Order, the Commission revised its rules regarding Upper 700 MHz licenses. On January 24, 2008, the Commission commenced Auction 73 in which several licenses in the Upper 700 MHz band were available for licensing: 12 Regional Economic Area Grouping licenses in the C Block, and one nationwide license in the D Block. The auction concluded on March 18, 2008, with 3 winning bidders claiming very small business status (those with attributable average annual gross revenues that do not exceed $15 million for the preceding three years) and winning five licenses.

59. Wireless Resellers. The SBA has not developed a small business size standard specifically for Wireless Resellers. The SBA category of Telecommunications Resellers is the closest NAICS code category for wireless resellers. The Telecommunications Resellers industry comprises establishments engaged in purchasing access and network capacity from owners and operators of telecommunications networks and reselling wired and wireless telecommunications services (except satellite) to businesses and households. Establishments in this industry resell telecommunications; they do not operate transmission facilities and infrastructure. Mobile virtual network operators (MVNOs) are included in this industry. Under the SBA's size standard, such a business is small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2012 show that 1,341 firms provided resale services for the entire year. Of that number, all operated with fewer than 1,000 employees. Thus, under this category and the associated small business size standard, the majority of these resellers can be considered small entities. According to Commission data, 213 carriers have reported that they are engaged in the provision of local resale services. Of these, an estimated 211 have 1,500 or fewer employees. Consequently, the Commission estimates that the majority of Wireless Resellers are small entities.

60. Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. This industry comprises establishments primarily engaged in manufacturing radio and television broadcast and wireless communications equipment. Examples of products made by these establishments are: Transmitting and receiving antennas, cable television equipment, GPS equipment, pagers, cellular phones, mobile communications equipment, and radio and television studio and broadcasting equipment. The SBA has established a size standard for this industry of 1,250 employees or less. U.S. Census data for 2012 shows that 841 establishments operated in this industry in that year. Of that number, 828 establishments operated with fewer than 1,000 employees, 7 establishments operated with between 1,000 and 2,499 employees and 6 establishments operated with 2,500 or more employees. Based on this data, we conclude that a majority of manufacturers in this industry can be considered small.

61. Semiconductor and Related Device Manufacturing. This industry comprises establishments primarily engaged in manufacturing semiconductors and related solid state devices. Examples of products made by these establishments are integrated circuits, memory chips, microprocessors, diodes, transistors, solar cells and other optoelectronic devices. The SBA has developed a small business size standard for Semiconductor and Related Device Manufacturing, which consists of all such companies having 1,250 or fewer employees. U.S. Census Bureau data for 2012 show that there were 862 establishments that operated that year. Of this total, 843 operated with fewer than 1,000 employees. Thus, under this size standard, the majority of firms in this industry can be considered small.

62. The Notice proposes and seeks comment on a z-axis (vertical) location accuracy metric that will, if adopted, affect the reporting, recordkeeping and/ or other compliance requirements of nationwide and non-nationwide CMRS providers, including small businesses. Under the current rules, by 2021, nationwide CMRS providers must deploy either (1) dispatchable location, or (2) z-axis technology that achieves the Commission-approved z-axis metric, which metric is yet to be adopted, in each of the top 25 Cellular Market Areas. CMRS providers must deploy z-axis technology to cover 80 percent of the Cellular Market Areas population if z-axis technology is used. By 2021, nationwide CMRS providers must deploy dispatchable location or z-axis technology pursuant to the metric that will be adopted by the Commission in each of the top 50 Cellular Market Areas. Non-nationwide carriers, including resellers, that serve any of the top 25 or 50 CMAs will have an additional year to meet the two benchmarks ( i.e., until 2022 for the top 25 Cellular Market Areas and 2024 for the top 50 Cellular Market Areas). Thus, under the Commission's proposal, CMRS nationwide and non-nationwide CMRS providers that deploy z-axis technology will be required to provide vertical location information within 3 meters under the Commission's existing timelines. As alternatives, we seek comment on different metrics of two or five meters, as well as potentially revised time frames depending on the precision of the metric adopted.

63. We have tentatively concluded, based on the z-axis solution test results and other comments, that a metric of 3 meters for 80% of indoor calls is technically achievable and that z-axis solutions capable of meeting this metric can be deployed within the timeframes established in the rules. As described further below, we also have tentatively concluded that the cost of compliance with the 3-meter metric is relatively low. Small entities may incur costs associated with software and/or hardware changes and may need to employ engineers or other experts in order to comply with the proposal in the Notice. However, the technology solution a small entity chooses to implement the requirement will determine the nature of the costs it incurs.

64. We anticipate that small entities would have a choice of vendors with z-axis technology solutions, which will lessen their costs to comply with the proposed rule, if adopted. One of the vendors that participated in Stage Z testing, NextNav, asserts that its z-axis solution requires only software changes to be made to each handset could be made available for a nominal cost that amounts to significantly less than a penny per month per handset. Another test vendor, Polaris, asserts that its solution is instantly available and deployable throughout a carrier's nationwide network. Polaris also asserts that its solution is “objectively affordable” because it is software-based, does not require hardware in networks or markets, and “does not require anything special in devices beyond implementation of adopted 3GPP and OMA standards.” Further, with the addition of vertical location technologies and vendors into the market, small entities will have more implementation options, which could further reduce their cost of compliance. As noted above, Google has announced that it has developed and is deploying its Emergency Location System (ELS) in the U.S. for Android devices. Google states that ELS is “a supplemental service that sends enhanced location directly from Android handsets to emergency services when an emergency call is placed.” Google also states that ELS is part of the Android operating system and does not require any special hardware or updates. Moreover, as the Commission noted in the Fourth Report and Order, we continue to expect that these technology costs will decline as demand grows.

65. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

66. Based on a comparison of the benefits and costs to alternatives metrics, the Commission believes that the 3-meter metric that it proposes to adopt is the most cost-effective option for achieving the Commission's objectives in this proceeding while avoiding undue burdens on all entities. The metric should benefit all entities by giving certainty in selecting an option for complying with the Commission's rules. While the rule proposed in the Notice would apply to all nationwide and non-nationwide CMRS in the same manner, the Commission has already taken steps to accommodate smaller non-nationwide CMRS providers by supplying additional time to comply with any vertical location accuracy benchmarks ultimately adopted by the Commission. The rules also already establish that nationwide and non-nationwide CMRS providers may choose to provide dispatchable location or deploy z-axis technology; and they give non-nationwide CMRS providers an additional year to comply with the Commission's z-axis benchmarks. In addition, the proposed rule gives small entities the freedom to choose a solution that best fits their financial situation, rather than imposing a specific z-axis technology solution, which should minimize the economic impact on these entities. The Commission does not believe that the costs and/or administrative burdens associated with the proposed rule would unduly burden small entities and expects to more fully consider the economic impact and alternatives for small entities following the review of comments filed in response to the Notice. The metric the Commission proposes to adopt should benefit all entities by giving certainty in selecting an option for complying with the Commission's rules. Many CMRS providers likely would be able to avoid unnecessary costs by knowing that the Commission has chosen an accuracy metric of 3 meters, which means they don't have to make an expensive attempt to satisfy a 2-meter metric by the implementation date specified in the rules. All CMRS providers, including small entities, should benefit from the scale economies provided to phone manufacturers who would be able to provision all phones to the same 3-meter standard adopted by the Commission. As alternatives, we seek comment on different metrics of two or five meters, as well as potentially revised time frames depending on the precision of the metric adopted.

67. None.

68. Accordingly, it is ordered , pursuant to Sections 1, 2, 4(i), 7, 10, 201, 214, 222, 251(e), 301, 302, 303, 307, 309, 316, and 332, of the Communications Act of 1934, 47 U.S.C. 151, 152(a), 154(i), 157, 160, 201, 214, 222, 251(e), 301, 302, 303, 307, 309, 316, 332; the Wireless Communications and Public Safety Act of 1999, Public Law 106-81, 47 U.S.C. 615 note, 615, 615a, 615b; and Section 106 of the Twenty- First Century Communications and Video Accessibility Act of 2010, Public Law 111-260, 47 U.S.C. 615c, that this Fourth Further Notice of Proposed Rulemaking, is hereby adopted.

69. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Fourth Further Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 CFR part 20 as follows:

I. Background

Federal Motor Vehicle Safety Standard (FMVSS) No. 205, “Glazing materials,” (49 CFR 571.205), specifies performance requirements for the types of glazing that may be installed in motor vehicles. It also specifies the vehicle locations in which the various types of glazing may be installed. The purpose of FMVSS No. 205 is to reduce injuries ( e.g., lacerations) resulting from impact to glazing surfaces, to ensure a necessary degree of transparency in motor vehicle windows for driver visibility, and to minimize the possibility of occupants being thrown through the vehicle windows in collisions. FMVSS No. 205 applies to passenger cars, multipurpose passenger vehicles, trucks, buses, motorcycles, slide-in campers, pickup covers designed to carry persons while in motion and low speed vehicles, and to glazing materials for use in those vehicles.

GTR No. 6, “Safety Glazing Materials for Motor Vehicles and Motor Vehicle Equipment,” was adopted under the United Nations/Economic Commission for Europe (UN/ECE) 1998 Agreement, which is administered by World Forum for Harmonization of Vehicle Regulation (WP.29). At the one-hundred-and-thirty-second session of the WP.29 in March 2004, the formal proposal to develop a GTR on safety glazing was adopted, and at that time restricted the scope of the glazing GTR to glass safety glazing, thereby excluding other materials, such as plastics. The objective of GTR No. 6 is to develop an internationally harmonized standard regarding the safety of glass automotive glazing materials. GTR No. 6 includes requirements and tests to ensure that the mechanical properties, optical qualities and environmental resistance of glazing are satisfactory; it does not include type approval, plastic glazing and installation requirements.

On June 21, 2012, NHTSA published a NPRM  1 as part of the agency's ongoing effort to harmonize vehicle safety standards under the UN/ECE 1998 agreement when, and to the extent, appropriate to do so. The agency stated in the NPRM that harmonization with GTR No. 6 would modernize the test procedures for tempered glass, laminated glass, and glass-plastic glazing used in front windshields and rear and side windows. The GTR proposed an upgraded fragmentation test for testing the tempering of curved tempered glass, and a new procedure for testing an optical property of the windshield at the angle of installation, to more accurately reflect real world driving conditions than the current procedure used in Standard No. 205. The agency said further that most of the proposals were minor amendments that would harmonize differing measurements and performance requirements for similar test procedures. Many of the tests in the GTR were said to be substantially similar to tests currently included in FMVSS No. 205.

In the NPRM, the agency requested public comment on whether the proposed amendments reflecting provisions of the GTR are suitable for being adopted into the Federal glazing standard. NHTSA received comments from 14 entities in response to the NPRM to adopt GTR provisions in FMVSS No. 205. 2 These comments came from trade associations, glazing manufacturers, automobile manufacturers, a glazing industry expert, and a safety technology company. Overall, most of the comments supported the harmonization efforts, though several suggested revisions or requested clarification. A few commenters were opposed to certain aspects of the proposed harmonization of glazing standards, with one respondent completely opposing the NPRM. NHTSA also received comments for definitions, markings, and cost.

Crash data indicates that current glazing materials are performing acceptably. Since the 1960s, the magnitude of the safety problem for glazing has been substantially reduced. 3 The increased availability of automatic occupant protection systems has resulted in a substantial reduction in the numbers of occupants impacting the windshield and thus being exposed to lacerative injuries from broken glass. The current glazing standard ensures that emerging and evolving glazing technologies produce commensurate benefits and that glazing remains a safety concern rather than becoming a safety problem.

According to agency crash data, occupant ejection, particularly during rollover events, is a much larger safety problem than lacerations from broken glass. NHTSA addressed this safety problem by issuing FMVSS No. 226, “Ejection mitigation,” in 2011. The standard became fully phased-in in 2017. While glazing materials may be one component of an ejection mitigation countermeasure system, the scope of FMVSS No. 205 is focused on material performance in terms of the glazing mechanical strength, optical properties, and environmental durability. The tests described in FMVSS No. 205 assure conformance with minimum required glazing equipment performance levels.

Based on the results of our review and of available data and analysis of the technically substantive comments, the agency is unable to conclude at this time that harmonizing FMVSS No. 205 with GTR No. 6 would, on balance, increase or decrease safety. While some of the proposed changes would be expected to improve safety as they more accurately reflect real world driving conditions, others may result in a decrease in safety. NHTSA has determined that it does not have sufficient data to evaluate the safety implications of harmonizing FMVSS No. 205 with GTR No. 6. Therefore, NHTSA has determined that the most appropriate path forward at this time is to withdraw the 2012 NPRM.

In order to better inform future agency decisions, NHTSA is planning a glazing research study. NHTSA is also monitoring SAE International's efforts to publish a new Glazing Standard, SAE Standard J3097 “Standard for Safety Glazing Materials for Glazing Motor Vehicles and Motor Vehicle Equipment Operating on Land Highways.” If this study is undertaken as planned, it may enable the agency to reach clearer conclusions about the impact of harmonizing FMVSS No. 205 with GTR No. 6. Depending on the outcome of that study and SAE's progress, NHTSA would consider those data in potential next steps.

The agency notes that this document does not represent a decision whether or not to adopt GTR No. 6. NHTSA voted in favor of establishing a global technical regulation (GTR) on automotive glazing and considered adopting the regulations by issuing an NPRM in 2012. However, after considering public comments received in response to the proposal, the agency is withdrawing the NPRM to reconsider its next steps. Accordingly, NHTSA withdraws the 2012 proposed glazing GTR harmonization rulemaking.

Information Requested Public Comments

We intend that any final action resulting from this proposed rule will be based on the best scientific and commercial data available and be as accurate and as effective as possible. Therefore, we request comments or information from other concerned governmental agencies, Native American tribes, the scientific community, industry, or any other interested parties concerning this proposed rule. We particularly seek comments concerning:

(1) The eastern hellbender's biology, range, and population trends in Missouri, including:

(a) Biological or ecological requirements of the DPS, including habitat requirements for feeding, breeding, and sheltering;

(b) Genetics and taxonomy;

(c) Historical and current range, including distribution patterns;

(d) Historical and current population levels, and current and projected trends; and

(e) Past and ongoing conservation measures for the DPS, its habitat, or both.

(2) Factors that may affect the continued existence of the DPS, which may include habitat modification or destruction, overutilization, disease, predation, the inadequacy of existing regulatory mechanisms, or other natural or manmade factors.

(3) Biological, commercial trade, or other relevant data concerning any threats (or lack thereof) to this DPS and existing regulations that may be addressing those threats.

(4) Additional information concerning the historical and current status, range, distribution, and population size of this DPS, including the locations of any additional populations of this DPS.

Please include sufficient information with your submission (such as scientific journal articles or other publications) to allow us to verify any scientific or commercial information you include. Please note that submissions merely stating support for or opposition to the action under consideration without providing supporting information, although noted, will not be considered in making a determination, as section 4(b)(1)(A) of the Act (16 U.S.C. 1531 et seq. ) directs that determinations as to whether any species is an endangered or threatened species must be made “solely on the basis of the best scientific and commercial data available.”

You may submit your comments and materials concerning this proposed rule by one of the methods listed in ADDRESSES . We request that you send comments only by the methods described in ADDRESSES .

If you submit information via http://www.regulations.gov, your entire submission—including any personal identifying information—will be posted on the website. If your submission is made via a hardcopy that includes personal identifying information, you may request at the top of your document that we withhold this information from public review. However, we cannot guarantee that we will be able to do so. We will post all hardcopy submissions on http://www.regulations.gov.

Comments and materials we receive, as well as supporting documentation we used in preparing this proposed rule, will be available for public inspection on http://www.regulations.gov, or by appointment, during normal business hours, at the U.S. Fish and Wildlife Service, Missouri Ecological Services Field Office (see FOR FURTHER INFORMATION CONTACT ).

Section 4(b)(5) of the Act provides for a public hearing on this proposal, if requested. Requests must be received within 45 days after the date of publication of this proposed rule in the Federal Register (see DATES , above). Such requests must be sent to the address shown in FOR FURTHER INFORMATION CONTACT . We will schedule a public hearing on this proposal, if requested, and announce the date, time, and place of the hearing, as well as how to obtain reasonable accommodations, in the Federal Register and local newspapers at least 15 days before the hearing.

In accordance with our joint policy on peer review published in the Federal Register on July 1, 1994 (59 FR 34270), and our August 22, 2016, memorandum updating and clarifying the role of peer review of listing actions under the Act, we sought the expert opinions of five appropriate specialists regarding the species status assessment (SSA) report that supports this proposed rule; we received responses from two of the five peer reviewers. These peer reviewers have expertise in hellbender biology, ecology, and genetics. The purpose of peer review is to ensure that our listing determinations are based on scientifically sound data, assumptions, and analyses. Comments from the peer reviewers will be available along with other public comments in this proposed rule's Docket No. FWS-R3-ES-2018-0056 on http://www.regulations.gov.

We identified the hellbender ( Cryptobranchus alleganiensis ) as a Category 2 candidate species in our December 30, 1982, Candidate Notice of Review (CNOR) (47 FR 58454). Category 2 candidates were defined as species for which we had information that proposed listing was possibly appropriate, but conclusive data on biological vulnerability and threats were not available to support a proposed rule at that time. The species remained so designated in subsequent annual CNORs (50 FR 37958, September 18, 1985; 54 FR 554, January 6, 1989; 56 FR 58804, November 21, 1991; 59 FR 58982, November 15, 1994). In the February 28, 1996, CNOR (61 FR 7596), we discontinued the designation of Category 2 candidates; therefore, the hellbender was no longer a candidate species.

In 2001, the Ozark hellbender subspecies ( C. a. bishopi ) was added to the candidate list (66 FR 54808, October 30, 2001). Candidates are those fish, wildlife, and plants for which we have on file sufficient information on biological vulnerability and threats to support preparation of a listing proposal, but for which development of a listing rule is precluded by other higher priority listing activities. The Ozark hellbender was included in seven subsequent annual CNORs (67 FR 40657, June 13, 2002; 69 FR 24876, May 4, 2004; 70 FR 24870, May 11, 2005; 71 FR 53756, September 12, 2006; 72 FR 69034, December 6, 2007; 73 FR 75176, December 10, 2008; and 74 FR 57804, November 9, 2009).

In April of 2010, the Center for Biological Diversity (CBD) petitioned the Service to list 404 aquatic, riparian, and wetland species from the southeastern United States under the Act. The hellbender ( C. alleganiensis ) was among these 404 species. On September 27, 2011, we published a substantial 90-day finding for 374 of the 404 species, including the hellbender, soliciting information about, and initiating status reviews for, those species (76 FR 59836).

Prior to the publication of that 90-day finding, we had already been evaluating the status of Ozark hellbender and had published a proposed rule to list the Ozark hellbender subspecies as endangered (75 FR 54561; September 8, 2010). On October 6, 2011, we published final rules listing the Ozark hellbender as endangered under the Act (76 FR 61956) and listing the hellbender ( C. alleganiensis ), including its two subspecies, the eastern hellbender ( C. a. alleganiensis ) and the Ozark hellbender ( C. a. bishopi ), in Appendix III of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), which addresses native species that need regulation to prevent or restrict exploitation (76 FR 61978).

On June 17, 2014, CBD filed a complaint against the Service for failure to complete a 12-month finding for the hellbender within the statutory timeframe. On September 22, 2014, the Service entered into a settlement agreement with CBD to address the complaint; the court-approved settlement agreement specified that a 12-month finding for the hellbender would be delivered to the Federal Register by March 31, 2019. This document serves as our 12-month finding on the April 2010 petition.

The species belongs to the Order Caudata, family Cryptobranchidae. The genus Cryptobranchus is monotypic (having only one species) and currently contains two recognized subspecies: C. alleganiensis alleganiensis (eastern hellbender) and C. alleganiensis bishopi (Ozark hellbender).

Because the Ozark hellbender is already listed under the Act, we conducted an SSA for the eastern hellbender. A thorough review of the taxonomy, life history, and ecology of the eastern hellbender ( C. a. alleganiensis ) is presented in the SSA report (U.S. Fish and Wildlife Service 2018, entire). The full SSA report can be found on the Service's Midwest Region website at https://www.fws.gov/midwest/es/ and at http://www.regulations.gov under Docket No. FWS-R3-ES-2018-0056.

The eastern hellbender is a large, entirely aquatic salamander found in perennial streams across 15 States from northeastern Mississippi, northern Alabama, northern Georgia, Tennessee, western North Carolina, western Virginia, West Virginia, Kentucky, southern Illinois, southern Indiana, Ohio, Pennsylvania, western Maryland, and southern New York, with disjunct populations occurring in east-central Missouri.

Eastern hellbender streams are usually fast-flowing, cool, and highly oxygenated (Green 1934, p. 28; Bishop 1941, pp. 50-51; Green and Pauley 1987, p. 46). Eastern hellbenders respire through their skin, aided by prominent, highly vascularized skin folds (Guimond 1970, pp. 287-288; Nickerson and Mays 1973, pp. 26-27), and are not well adapted to low-oxygen conditions (Ultsch and Duke 1990, p. 255). In addition, low water conductivity is an important habitat requirement (Bodinof Jachowski and Hopkins 2018, pp. 220-221).

Boulders provide cover and breeding sites, and are the most important indicator of adult eastern hellbender habitat (Lipps 2009, p. 9; Humphries 2005, p. 10; Bothner and Gottlieb 1991, p. 45). Hellbender nests are typically excavations beneath partially embedded, large (greater than 30 centimeters), flat rocks with a single opening facing downstream or perpendicular to streamflow (Smith 1907, p. 7). Females deposit eggs under a nest rock, and males externally fertilize the egg clutch (Nickerson and Mays 1973, p. 45), after which a single male defends the nest from other hellbenders (Smith 1907, pp. 24-25). Larvae are typically found within the interstices of cobble and gravel, and occasionally under large rocks (Nickerson et al. 2003, p. 624; Keitzer 2007, pp. 16-17; Foster et al. 2008, p. 184).

Larvae lose their gills about 1.5 to 2 years after hatching (Bishop 1941, p. 49; Nickerson and Mays 1973, p. 53); juveniles sexually mature at an age of approximately 5 or 6 years (Bishop 1941, p. 50). Maximum age is not known with certainty, but estimates suggest that eastern hellbenders can live at least 25 to 30 years in the wild (Taber et al. 1975, p. 635; Peterson et al. 1988, p. 298).

Adults are primarily nocturnal and eat crayfish and, to a lesser degree, small fish (Smith 1907, p. 12; Swanson 1948, p. 363; Peterson et al. 1989, p. 440). Other occasional food items include insects and larval and adult frogs (Green 1935, p. 36; Pfingsten 1990, p. 49; Foster 2006, p. 74). The diet of larval eastern hellbenders consists mainly of aquatic insects (Pitt and Nickerson 2005, p. 69; Hecht et al. 2017, p. 159). Eastern hellbenders occupy relatively small home ranges of approximately 30 square meters (m 2 ) (322 square feet (ft 2 )) to approximately 2,212 m 2 (23,810 ft 2 ) (Hillis and Bellis 1971, p. 124; Coatney 1982, p. 23; Peterson and Wilkinson 1996, p. 126; Humphries and Pauley 2005, p. 137; Burgmeier et al. 2011a, p. 139) but are also capable of long distance movements, which have been documented up to 12.9 kilometers (km) (8 miles (mi)) (Petokas 2011, pers. comm.; Foster 2012, pers. comm.).

Section 4 of the Act (16 U.S.C. 1533) and its implementing regulations (50 CFR part 424) set forth the procedures for determining whether a species is an “endangered species” or a “threatened species.” The Act defines an endangered species as a species that is “in danger of extinction throughout all or a significant portion of its range,” and a threatened species as a species that is “likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range.” The Act requires that we determine whether any species is an “endangered species” or a “threatened species” because of any of the following factors: (A) The present or threatened destruction, modification, or curtailment of its habitat or range; (B) Overutilization for commercial, recreational, scientific, or educational purposes; (C) Disease or predation; (D) The inadequacy of existing regulatory mechanisms; or (E) Other natural or manmade factors affecting its continued existence. These factors represent broad categories of natural or human-caused actions or conditions that could have an effect on a species' continued existence. In evaluating these actions and conditions, we look for those that may have a negative effect on individuals of the species, as well as other actions or conditions that may ameliorate any negative effects or may have positive effects.

We use the term “threat” to refer in general to actions or conditions that are known to or are reasonably likely to negatively affect individuals of a species. The term “threat” includes actions or conditions that have a direct impact on individuals (direct impacts), as well as those that affect individuals through alteration of their habitat or required resources (stressors). The term “threat” may encompass—either together or separately—the source of the action or condition or the action or condition itself. However, the mere identification of any threat(s) does not necessarily mean that the species meets the statutory definition of an “endangered species” or a “threatened species.” In determining whether a species meets either definition, we must evaluate all identified threats by considering the expected response by the species, and the effects of the threats—in light of those actions and conditions that will ameliorate the threats—on an individual, population, and species level. We evaluate each threat and its expected effects on the species, then analyze the cumulative effect of all of the threats on the species as a whole. We also consider the cumulative effect of the threats in light of those actions and conditions that will have positive effects on the species—such as any existing regulatory mechanisms or conservation efforts. The Secretary determines whether the species meets the definition of an “endangered species” or a “threatened species” only after conducting this cumulative analysis and describing the expected effect on the species now and in the foreseeable future.

We completed a comprehensive assessment of the biological status of the eastern hellbender, and prepared a report of the assessment (SSA report), which provides a thorough account of the subspecies' overall viability. In the SSA, we define viability as the ability of a species to persist over the long term and to avoid extinction. To assess the viability of the eastern hellbender, we used the conservation biology principles of resiliency, redundancy, and representation (Shaffer and Stein 2000, pp. 306-310) in our analysis. Briefly, resiliency refers to the ability of the species to withstand stochastic events (arising from random factors), such as fluctuations in birth rates (demographic stochasticity) or variations in rainfall or temperature (environmental stochasticity). Representation refers to the ability of the species to adapt over time to long-term changes in the environment (natural or human-caused) and is a function of a species' breadth of diversity: Genetic diversity within and among populations and the ecological diversity (also called environmental variation or diversity) of populations across the species' range. Redundancy refers to the ability of the species to withstand catastrophic events (for example, droughts or hurricanes). In general, the more redundant and resilient a species is and the more representation it has, the more likely it is to sustain populations over time, even under changing environmental conditions. The following is a summary of the key results and conclusions from the SSA report.

Historically, 570 healthy eastern hellbender populations are known to have existed across 15 States. Currently, 345 (61 percent) are extant, and 225 populations (39 percent) are presumed or functionally extirpated. Of the 345 extant populations across the range, 127 (37 percent) are likely healthy (stable, recruiting), and 218 (63 percent) are declining.

Eastern hellbender abundance has decreased in many parts of the range, with reduced numbers observed as early as 1948 (Swanson 1948, p. 363). Eastern hellbender survey effort has increased substantially over the last 5 to 10 years. Of the extant populations, 125 were discovered since 2012. Most of the new populations discovered since 2000 were observations of a single individual or detection via environmental DNA (genetic material collected from environmental samples). A lack of data regarding abundance or size class structure in these populations precludes assessments of population trends.

We identified four geographical units (referred to in the SSA report as adaptive capacity units (ACUs)), based on Hime et al.' s (2016, entire) evaluation of genetic markers, to delineate variation in genetic and ecological traits within the eastern hellbender's historical range ( i.e., evolutionary lineages). The units are: (1) Missouri River drainage (MACU), (2) Ohio River-Susquehanna River drainages (OACU), (3) Tennessee River drainage (TACU), and (4) Kanawha River drainage (KACU).

Since 2000, the eastern hellbender has been documented from these four geographic units across 15 States. The number of populations varies among ACUs, with 1 percent of the extant populations occurring in MACU, 39 percent in OACU, 51 percent in TACU, and 9 percent in KACU. Within the ACUs, the number of healthy populations also varies, with 0 in MACU, 42 in OACU, 68 in TACU, and 16 in KACU.

In consultation with species' experts, we identified the past and current negative and beneficial factors that have led to the eastern hellbender's current conditions and which may influence population dynamics into the future. Factors having a negative impact on eastern hellbender individuals are referred to as risk factors (also as stressors), while factors having a beneficial effect are referred to as conservation factors. We referred to risk and conservation factors collectively as “influences.” A brief summary of the most influential factors is presented below; for a full description of these factors, refer to chapter 5 of the SSA report (Service 2018, pp. 26-48).

Across the range, sedimentation was identified as the factor most impacting the status of the eastern hellbender. Sedimentation is the addition of fine soil particles ( e.g., sands, silts, clays) to streams. These sediments bury shelter and nest rocks (Blais 1996, p. 11; Lipps 2009, p. 10; Hopkins and DuRant 2011, p. 112), suffocate eggs (Nickerson and Mays 1973, pp. 55-56), alter habitat for crayfish (the primary food source of adult eastern hellbenders) (Santucci et al. 2005, pp. 986-987; Kaunert 2011, p. 23), and degrade habitat for larval and juvenile hellbenders, as well as habitat for macroinvertebrates, which are an important food source for larval hellbenders (Cobb and Flannagan 1990, pp. 35-37; Nickerson et al. 2003, p. 624). Because sedimentation affects all life stages of the eastern hellbender, impairs or prevents successful reproduction, and is pervasive throughout the subspecies' range, it has specifically been implicated as a cause of eastern hellbender declines and as a continuing threat throughout much of the species' range.

Degraded water quality was estimated as having the second highest impact on the eastern hellbender's status in all ACUs because it can cause direct mortality of eastern hellbenders and, at sub-lethal levels, can alter physiological processes and increase vulnerability to other threats (Maitland 1995, p. 260). Major sources of aquatic pollutants include domestic wastes, agricultural runoff, coal mining activities, road construction, and unpermitted industrial discharges. While it is unlikely that a chemical spill could cause catastrophic loss of an entire ACU, it is possible if multiple spills occur in an ACU with low redundancy.

Destruction of habitat from impoundments, channelization, and instream gravel mining was also ranked relatively high as a factor impacting the eastern hellbender's status due to the extent of these stressors throughout the subspecies' range. Impoundments reduce upstream streamflow, increasing sedimentation and subsequently lowering dissolved oxygen. Dams have been constructed in every major stream system in the range of the eastern hellbender and have contributed to population declines and local extirpations, especially in large streams used for navigation ( e.g., Ohio, Cumberland, and Tennessee rivers) (Echternacht 2009, pers. comm.; Gentry 1955, p. 169; Graham et al. 2011, p. 246; Mount 1975, p. 109; Nickerson and Mays 1973, pp. 58, 63, 66; Pfingsten 1990, p. 49; L. Williams 2012, pers. comm.), and are currently restricting movement among some populations and into some previously occupied habitats. Channelization (typically conducted for drainage improvements) and instream gravel mining remove the coarse substrates ( e.g., gravel, cobble, and boulder) and often the associated riparian vegetation, and result in accelerated erosion, decreased habitat diversity, and channel instability (Hartfield 1993, p. 131; Hubbard et al. 1993, pp. 136-145).

Large numbers of eastern hellbenders have historically been removed from some streams for scientific and educational purposes, for the pet trade, and for eradication efforts. These removals likely contributed to the population declines seen in some streams. The current rate of permanent removal of eastern hellbenders is likely significantly lower than it has been historically. However, collection and sale of eastern hellbenders continues to be a threat, with internet advertisements as recent as 2010 soliciting purchase of wholesale lots of eastern hellbenders (Briggler 2010, pers. comm.). Killing of eastern hellbenders by some anglers and the removal of individuals for personal use and the pet trade also continues in some areas. Even though many eastern hellbenders targeted by scientists and nature enthusiasts are returned to the stream, the act of searching for eastern hellbenders can result in increased egg and larval mortality. Eastern hellbenders are typically captured by lifting large shelter rocks and catching individuals by hand. Many researchers have speculated that rock lifting to collect eastern hellbenders results in adverse impacts, especially when done during the breeding season (Lindberg and Soule 1991, p. 8; Williams et al. 1981b, p. 26; Williams 2012, pers. comm.).

As a long-lived species, removing adult eastern hellbenders from stream populations may be particularly detrimental, as stable populations of long-lived species typically have high adult survival rates, which compensates for correspondingly low rates of recruitment into the adult populations (Miller 1976, p. 2). In eastern hellbender populations with low densities and little evidence of recent recruitment into the adult population, the removal of any individuals from a population may be deleterious (Pfingsten 1988, p. 16). Because many eastern hellbender populations are already stressed by habitat degradation, compensation for high adult mortality through high recruitment of juveniles is even less likely. Although the magnitude of this threat is not known with certainty, its occurrence is commonly noted by field researchers, suggesting that it is a relatively common occurrence in some portions of the subspecies' range. Furthermore, as the number of populations decline and become concentrated on public lands, locations and animals might be easier to find, especially if artificial nest box use increases in the future.

Disease can act as a stressor on eastern hellbender populations and has the potential to cause catastrophic loss of hellbender populations. Emerging infectious diseases (EIDs), especially fungal EIDs in wildlife, are on the rise, and salamanders are especially susceptible given the high magnitude of legal and illegal trade in herpetofauna.

Batrachochytrium dendrobatidis ( Bd ) is a fungal pathogen that can cause chytridiomycosis, a highly infectious amphibian disease associated with mass die-offs, population declines and extirpations, and potentially species extinctions on multiple continents (Berger et al. 1998, pp. 9031-9036; Bosch et al. 2001, pp. 331-337; Lips et al. 2006, pp. 3165-3166). Bd infection of eastern hellbenders has been confirmed in every State where testing has occurred ( i.e., New York, Pennsylvania, West Virginia, Ohio, Kentucky, Indiana, North Carolina, Tennessee, Georgia, and Missouri) (Greathouse 2007, p. 42; Briggler et al. 2008, p. 444; Burgmeier et al. 2011b, p. 845; Gonynor et al. 2011, pp. 58-59; Regester et al. 2012, p. 20; Roblee 2012, pers. comm.; Souza et al. 2012, p. 562; Williams and Groves 2014, p. 457; Wolfe 2012, pers. comm.). The earliest known record of an infected eastern hellbender is from Missouri in 1975; Bd infection rates in eastern hellbenders collected in Missouri between 1896 and 1994 was 5.4 percent (Bodinof et al. 2011, p. 3). Even mild chronic Bd infections may negatively impact eastern hellbenders and may increase susceptibility of eastern hellbenders to other infection. While Bd currently does not appear to be causing large-scale mortality events in wild populations of eastern hellbenders, other stressors, such as environmental contaminants or rising water temperatures, can weaken animals' immune systems, leading to outbreaks of clinical disease and cause mortality events in the future (Briggler et al. 2007, p. 18; Regester et al. 2012, p. 19).

Batrachochytrium salamandrivorans ( Bsal ) is a fungal pathogen that invaded Europe from Asia around 2010 and has caused mass die-offs of fire salamanders ( Salamandra salamandra ) in northern Europe (Martel et al. 2014, p. 631; Fisher 2017, pp. 300-301). Given extensive unregulated trade and the discovery of Bsal in Europe in 2010, the introduction of this novel pathogen could cause extirpations of naïve salamander populations in North America (Yap et al. 2017, entire) were Bsal to be introduced here. Regions with a high risk of introduction of Bsal include portions of the southeastern and northeastern United States, two regions that comprise a substantial portion of the eastern hellbender's range (Richgels et al. 2016, p. 5; Yap et al. 2017, pp. 857-858). Given the high risk of Bsal invasion, on January 13, 2016, the Service published in the Federal Register (81 FR 1534) an interim rule to list 20 amphibian genera known to carry Bsal as injurious under the Lacey Act to limit importation into the United States. Despite this protection, it is possible that an unknown carrier or illegal import could introduce this pathogen into eastern hellbender populations.

Anthropogenic disturbance in the form of rock-moving by people recreating on rivers is becoming an increasing stressor on eastern hellbenders and can cause mortality. Large shelter rocks are removed to reduce obstructions to recreational canoeing or tubing. Additionally, collection of boulders, rocks, and cobble for landscaping has been suspected in some areas in Missouri (Briggler et al. 2007, p. 62). Because large rocks serve as shelter and nesting habitat for adults, and smaller rocks and cobble provide larval and juvenile habitat, moving rocks of any size has the potential to lead to mortality of some life stage. Unger et al. (2017, entire) documented direct mortality to eastern hellbenders as a result of shelter rock disturbance.

Many eastern hellbender populations are small and isolated from one another by impoundments and large reaches of unsuitable habitat. This isolation restricts movement among populations and precludes natural recolonization from source populations (Dodd 1997, p. 178; Benstead et al. 1999, pp. 662-664; Poff and Hart 2002, p. 660).

Some native predators of the eastern hellbender, such as raccoons, have increased in abundance due to anthropogenic influences, while others have recently been reintroduced into hellbender streams ( e.g., river otters). Nonnative predators are also present within a large portion of the eastern hellbender's range and include predatory fish stocked for recreation, such as rainbow trout ( Oncorhynchus mykiss ) and brown trout ( Salmo trutta ) (Mayasich et al. 2003, p. 20). Nonnative trout species are thought to directly impact eastern hellbenders by predating on eggs, larvae, sub-adults, and adults, and by impacting hellbenders indirectly through competition for resources.

Average temperatures are expected to rise throughout the range of the eastern hellbender, along with more frequent heat waves and increased periods of drought punctuated by intense rainstorms, likely resulting in elevated stream temperature regimes and lower summer base-flows (Karl et al. 2009, pp. 44, 107, 111-112, 117-118), which may affect the subspecies. Migration of eastern hellbenders as an adaptation to climate change is unlikely, due to their limited mobility, high site fidelity, restriction to defined stream systems, and the extensive network of impoundments throughout their range.

In some instances, effects from one threat may increase effects of another threat, resulting in what is referred to as synergistic effects. Synergistic effects often include an increased susceptibility to predation (Moore and Townsend 1998, pp. 332-333), disease (Kiesecker and Blaustein 1995, pp. 11050-11051; Taylor et al. 1999, pp. 539-540), or parasites (Kiesecker 2002, pp. 9902-9903; Gendron et al. 2003, pp. 472-473). In addition, chronic, increased levels of stress hormones have been shown to inhibit immune response (Rollins-Smith and Blair 1993, pp. 156-159; Romero and Butler 2007, pp. 93-94). Other stressors present in the eastern hellbender's environment ( e.g., habitat modification, degraded water quality) could reduce immune response and thereby increase vulnerability to disease and parasites.

Beneficial efforts, primarily of population augmentation, were also ranked by species' experts as an important influence on the eastern hellbender's status. Captive rearing increases the survival rate of young by raising them in captivity to 2 to 4 years of age. Once reared, young are released into the wild to augment existing populations or reintroduced into areas where the species has been extirpated. However, we currently have no data on whether released individuals have successfully reproduced or can successfully reproduce, or the survival rates of any resulting offspring.

In addition, artificial nest boxes have been successfully used for reproduction by hellbenders in Ohio, West Virginia, Missouri, Virginia, and New York. However, the survival of fertilized eggs and larvae from these nest boxes is unknown. Because nest boxes may present a curiosity to stream recreationists, hellbenders occupying the nests are susceptible to disturbance, persecution, and collection if the nest boxes are not properly camouflaged.

To assess the future number, health, and distribution of eastern hellbender populations, we asked species' experts for their predictions of the changes in the numbers of stable recruiting, declining, functionally extirpated, and presumed extirpated populations at 10-year, 25-year, and 50-year timeframes under three scenarios: Reasonable worst plausible, reasonable best plausible, and “most likely” future plausible scenarios. Most experts had little confidence in predictions beyond 25 years. Using these expert-elicited estimates, we forecast the health and distribution of populations at 10- and 25-year increments for the three future scenarios. The reasonable worst plausible and reasonable best plausible scenarios provide the range of plausible outcomes while the “most likely” predictions provide insights to whether the future scenarios are likely to be closer to the upper (reasonable best) or the lower (reasonable worst) predictions.

Projections of the numbers of healthy and extant populations vary between the reasonable worst plausible and reasonable best plausible scenarios, and among the ACUs. For the number of healthy populations, the “most likely” scenario is not skewed toward the reasonable best or reasonable worst plausible scenarios for each ACU, but for the number of extant populations, the “most likely” scenario varies by ACU. First, we summarize these projections by ACU and then provide a summary across the eastern hellbender's range.

In MACU, future projections indicate there may be 3 to 5 extant populations by year 25, with 4 extant populations under the “most likely” scenario. MACU currently has no healthy populations, and this condition would continue under the reasonable worst plausible scenario. Two healthy populations are predicted under the reasonable best plausible scenario. The most important influences affecting eastern hellbender's future status and trends in MACU are sedimentation, water quality degradation, augmentation, disease and pathogens, and habitat disturbance. MACU has a low to moderate risk of Bsal introduction (Richgels et al. 2016, p. 5) and other potential EIDs. In the event of a disease outbreak, ACU-wide extirpation is likely under the reasonable worst plausible scenario and is about as likely as not under the reasonable best plausible scenario. ACU-wide extirpation is unlikely due to one or more catastrophic chemical pollution events under both scenarios.

In OACU, future projections indicate that there may be 30 to 108 extant populations by year 25, with 88 extant populations under the “most likely” scenario prediction. Of those extant populations, 15 (65 percent less than current) to 71 (69 percent more than current) healthy populations are predicted to persist across spatially heterogeneous environmental conditions. The most important influences affecting the eastern hellbender's future status and trends in OACU are sedimentation, water quality degradation, augmentation, small population effects, destruction of habitat, and climate change. Given the predicted future geographic spread of populations within OACU, disease is the only reasonably foreseeable catastrophic event. OACU is at moderate risk of introduction of Bsal (Richgels et al. 2016, p. 5) and other potential EIDs. In the event of a disease outbreak, the number and spatial extent of populations likely provide sufficient redundancy to protect against extirpation in OACU over the next 25 years under the reasonable best plausible scenario. However, ACU-wide extirpation due to a catastrophic disease is likely under the reasonable worst plausible scenario.

In TACU, future projections indicate that there may be 112 to 154 extant populations by year 25, with the “most likely” scenario prediction skewed toward the reasonable worst plausible scenario. Of those extant populations, 40 (41 percent less than current) to 91 (34 percent more than current) healthy populations are predicted to persist across spatially heterogeneous environmental conditions. The most important influences affecting eastern hellbender's future status and trends in TACU are sedimentation, water quality degradation, mortality, overabundance of predators, and augmentation. Given the predicted future geographic extent of populations within TACU, disease is the only reasonably foreseeable catastrophic event. TACU is at moderate risk of introduction of Bsal (Richgels et al. 2016, p. 5) and other potential EIDs. In the event of a disease introduction, the number and spatial extent of populations likely provide sufficient redundancy to protect against extirpation in TACU over the next 25 years under the reasonable best plausible scenario. However, ACU-wide extirpation due to a catastrophic disease is likely under the reasonable worst plausible scenario.

In KACU, future projections indicate that there may be 4 to 35 extant populations at year 25, with 13 extant populations under the “most likely” scenario prediction. Under the reasonable worst plausible scenario, no healthy populations remain, while under the reasonable best plausible scenario, 13 (19 percent less than current) healthy populations are predicted to persist. The most important influences affecting eastern hellbender future status and trends in KACU are sedimentation, water quality degradation, mortality, augmentation, and small population effects. KACU has a low to moderate risk of introduction of Bsal (Richgels et al. 2016, p. 5) and other potential EIDs. ACU-wide extirpation due to a disease outbreak is likely under the reasonable worst plausible scenario, but the risk of catastrophic loss under the reasonable best plausible scenario is lower, as there is a greater number and spatial extent of populations predicted. ACU-wide extirpation is unlikely due to one or more catastrophic chemical pollution events under both scenarios.

Rangewide, the number of extant populations is predicted to decrease by 2 to 52 percent over the next 10 years, and then slightly decrease from year 10 to year 25 under both scenarios (see figure 1, below), with the “most likely” scenario skewed toward the reasonable worst plausible scenario. Despite these overall losses, multiple healthy populations over a broad geographic range are predicted to persist over the next 25 years (55 to 178 healthy populations, representing a 57-percent decrease to a 40-percent increase from current conditions).

In summary, stressors are pervasive across the eastern hellbender's range, but the magnitude varies across populations. The primary stressors affecting the eastern hellbender rangewide include sedimentation, water quality degradation, and direct mortality. Although augmentation has the potential to influence the eastern hellbender's status, little data exist as to whether successful sustained reproduction and recruitment can be achieved and whether augmentation is logistically possible at a broad scale. Rangewide, healthy populations are predicted to persist, although with a reduction in geographic range. Across its range, eastern hellbender has a low to moderate risk of exposure to catastrophic events (disease or chemical spills). There is greater vulnerability for ACU-wide extirpation in MACU and KACU due to the low number and reduced distribution of populations. Loss of two ACUs would lead to reductions in genetic and ecological diversity, both of which are potential sources of adaptive diversity. However, the geographically wide distribution of populations in OACU and TACU guard against catastrophic losses rangewide.

Section 4 of the ESA (16 U.S.C. 1533), and its implementing regulations at 50 CFR part 424, set forth the procedures for determining whether a species is an endangered species or threatened species and should be included on the Federal Lists of Endangered and Threatened Wildlife and Plants. The ESA defines an endangered species as any species that is “in danger of extinction throughout all or a significant portion of its range” and a threatened species as any species “that is likely to become endangered throughout all or a significant portion of its range within the foreseeable future.”

Under section 4(a)(1) of the ESA, we determine whether a species is an endangered species or threatened species because of any of the following factors: (A) The present or threatened destruction, modification, or curtailment of its habitat or range; (B) overutilization for commercial, recreational, scientific, or educational purposes; (C) disease or predation; (D) the inadequacy of existing regulatory mechanisms; or (E) other natural or manmade factors affecting its continued existence. These same factors apply whether we are analyzing the species' status throughout all of its range or throughout a significant portion of its range.

The first step in our analysis of the status of a species is to determine its status throughout all of its range. We subsequently examine whether, in light of the species' status throughout all of its range, it is necessary to determine its status throughout a significant portion of its range.

Stressors are pervasive across the eastern hellbender's range, but the magnitude varies across populations. The primary stressors identified for the eastern hellbender include sedimentation (Factor A), water quality degradation (Factor A), and direct mortality (Factor E). In considering the foreseeable future, we forecast the future viability of the species by predicting the responses of the ACUs to conditions under three future scenarios 10 and 25 years into the future. Predictions of the subspecies' response to threats, based on elicitation of species' experts, are reasonably reliable out to 25 years; therefore, we have concluded that 25 years is the foreseeable future for the eastern hellbender.

Our analysis indicates that numerous healthy (resilient) populations will persist over the next 25 years across a broad geographic range, including multiple representation units (ACUs). Although our analysis predicts a population decline over the next 10 years, populations are predicted to be level from year 10 to year 25 under the future scenarios. The risk of exposure to catastrophic events varies across the eastern hellbender's range. While the subspecies' redundancy is lower than in the past, the geographically wide distribution of populations, as well as the low to moderate risk of a catastrophic event, guards against catastrophic losses rangewide. We find that the predicted persistence of healthy populations across multiple ACUs provides redundancy, resiliency, and representation levels that are likely sufficient to sustain the subspecies now and into the future, and we conclude that the eastern hellbender has a low risk of extirpation.

Based on our review of the best available scientific and commercial information pertaining to the five factors, we find that the stressors acting on the eastern hellbender and its habitat, either singly or in combination, are not of sufficient imminence, intensity, or magnitude to indicate that the subspecies is in danger of extinction (an endangered species), or likely to become endangered within the foreseeable future (a threatened species), throughout all of its range.

Under the Act and our implementing regulations, a species may warrant listing if it is in danger of extinction or likely to become so in the foreseeable future throughout all or a significant portion of its range (SPR). Having determined that the eastern hellbender is not in danger of extinction now or likely to become so in the foreseeable future throughout all of its range, we next consider whether it may be in danger of extinction or likely to become so in the foreseeable future in an SPR. The range of a species can theoretically be divided into portions in an infinite number of ways, so we first screen the potential portions of the species' range to determine if there are any portions that warrant further consideration. To do this we look for portions of the species' range for which there is substantial information indicating that: (1) The portion may be significant, and (2) the species may be in danger of extinction or likely to become so in the foreseeable future in that portion. No portion would warrant further consideration if, for that portion, either one of these initial elements is not present. Therefore, if we determine that either of the initial elements is not present for a particular portion of the species' range, then the species does not warrant listing because of its status in that portion of its range.

We emphasize that the presence of both of the initial elements is not equivalent to a determination that the species should be listed—rather, it is a determination that a portion warrants further consideration. If we identify any portions that meet both of the initial elements, we conduct a more thorough analysis to determine whether the portion does indeed meet both of the SPR standards: (1) The portion is significant and (2) the species is in danger of extinction or likely to become so in the foreseeable future in that portion. Confirmation that a geographic area does indeed meet one of these standards (either the portion is significant or the species is endangered or threatened in that portion of its range) does not create a presumption, prejudgment, or other determination as to whether the species is endangered or threatened in a significant portion of its range. Rather, we must then undertake a more detailed analysis of the other standard to make that determination. If the portion does indeed meet both SPR standards, then the species is endangered or threatened in that significant portion of its range.

At both stages in this process—the stage of screening potential portions to identify whether any portions warrant further consideration and the stage of undertaking the more-detailed analysis of any portions that do warrant further consideration—it might be more efficient for us to address first the “significance” question or the “status” question. Our selection of which question to address first for a particular portion depends on the biology of the species, its range, and the threats it faces. Regardless of which question we address first, if we reach a negative answer with respect to the first question that we address, we do not need to evaluate the second question for that portion of the species' range.

For this species, we chose to evaluate the status question ( i.e., identifying portions where the eastern hellbender may be in danger of extinction or likely to become so in the foreseeable future) first. The best available information indicates that eastern hellbender populations in MACU and KACU may have lower viability and greater vulnerability to potential future stressors than the other two ACUs. We therefore evaluated whether these two units could be considered “significant.”

The Service's most-recent definition of “significant” has been invalidated by the courts (for example, Desert Survivors v. Dep't of the Interior, No. 16-cv-01165-JCS (N.D. Cal. Aug. 24, 2018)). Therefore, we identify portions that may be significant by looking for portions of the species' range that could be significant under any reasonable definition of “significant.” To do this, we look for any portions that may be biologically important in terms of the resiliency, redundancy, or representation of the species.

Historically and currently, these two units represent a small proportion (10% currently) of the total populations and have a small spatial extent. Because these two units collectively have few healthy populations, they are not currently contributing in an important way to the subspecies' overall resiliency. If both of these units were extirpated, the subspecies would lose some representation and redundancy, but the loss of this portion of the subspecies' range would still leave sufficient resiliency, redundancy, and representation in the remainder of the subspecies' range such that it would not notably reduce the viability of the subspecies. Therefore, these two ACUs do not represent a significant portion of the subspecies' range, and we conclude that the eastern hellbender is not in danger of extinction or likely to become so in the foreseeable future in a significant portion of its range. Our understanding of “significance” in this finding has been arrived at independently and is not precedential. Further, our approach to analyzing SPR in this determination is consistent with the court's holding in Desert Survivors.

We have carefully assessed the best scientific and commercial information available regarding the past, present, and future threats to the eastern hellbender. Because the subspecies is neither in danger of extinction now nor likely to become so in the foreseeable future throughout all or any significant portion of its range, the subspecies does not meet the definition of an endangered species or threatened species. Therefore, we find that listing the eastern hellbender as an endangered or threatened species under the Act is not warranted at this time. This constitutes the conclusion of the Service's 12-month finding on the 2010 petition to list the hellbender as an endangered or threatened species. A detailed discussion of the basis for this finding can be found in the SSA report and other supporting documents (available on the internet at http://www.regulations.gov under Docket No. FWS-R3-ES-2018-0056).

We ask the public to submit to us any new information that becomes available concerning the taxonomy, biology, ecology, status of, or stressors to the eastern hellbender outside of Missouri whenever it becomes available. Please submit any new information, materials, comments, or questions concerning this finding to Patrice Ashfield, Field Supervisor, U.S. Fish and Wildlife Service, Ohio Ecological Services Field Office, 4625 Morse Road, Suite 104, Columbus, OH 43230; telephone 614-416-8993.

Under the Act, we have the authority to consider for listing any species, subspecies, or, for vertebrates, any distinct population segment (DPS) of these taxa if there is sufficient information to indicate that such action may be warranted. To guide the implementation of the DPS provisions of the Act, we and the National Marine Fisheries Service (National Oceanic and Atmospheric Administration—Fisheries), published the Policy Regarding the Recognition of Distinct Vertebrate Population Segments Under the Endangered Species Act (DPS Policy) in the Federal Register on February 7, 1996 (61 FR 4722). Under our DPS Policy, we use two elements to assess whether a population segment under consideration for listing may be recognized as a DPS: (1) The population segment's discreteness from the remainder of the species to which it belongs, and (2) the significance of the population segment to the species to which it belongs. If we determine that a population segment being considered for listing is a DPS, then the population segment's conservation status is evaluated based on the five listing factors established by the Act to determine if listing it as either endangered or threatened is warranted.

MACU consists of Big Piney River, Gasconade River, Meramec River, Niangua River, and their watersheds (see figure 2, below). Meramec River flows directly to Mississippi River, rather than directly to Missouri River, as do the other three rivers. For the purposes of the SSA, we referred to the grouping as the Missouri River drainage. The entirety of MACU occurs within the State of Missouri, and within this proposed rule, we also refer to MACU as the Missouri portion of the eastern hellbender's range. Below, we evaluate the Missouri portion of the eastern hellbender's range to determine whether it meets the definition of a DPS under our DPS Policy.

Under our DPS Policy, a population segment of a vertebrate taxon may be considered discrete if it satisfies either one of the following conditions: (1) It is markedly separated from other populations of the same taxon as a consequence of physical, physiological, ecological, or behavioral factors. Quantitative measures of genetic or morphological discontinuity may provide evidence of this separation; or (2) it is delimited by international governmental boundaries within which differences in control of exploitation, management of habitat, conservation status, or regulatory mechanisms exist that are significant in light of section 4(a)(1)(D) of the Act.

The Missouri populations of the eastern hellbender are markedly separate from other populations of the subspecies both genetically and by geographic separation. A recent evaluation of genetic markers spread throughout the Cryptobranchus genome indicates that the eastern hellbender subspecies consists of four evolutionary lineages that are distinct from each other (Hime et al. 2016, pp. 4-13): The Ohio River drainage, the Kanawha River drainage, the Tennessee River drainage, and the Missouri River drainage. More information on the genetic difference between the Missouri River populations and the remainder of the subspecies is discussed below under “Significance.”

The populations in the Missouri River drainage, referred to here as the Missouri “population,” are disjunct from populations of eastern hellbender in the other three drainages. The distance of the geographic separation from other eastern hellbender populations in the other genetic lineages is about 320 river kilometers (200 river miles). Eastern hellbenders occupy small home ranges, and a long distance movement for an eastern hellbender is 13 km (8 mi); therefore, eastern hellbender populations in Missouri do not and will never naturally interact with populations in the other three river drainages.

Based on our review of the available information, we conclude that the Missouri population of the eastern hellbender is markedly separate from other populations of the species due to genetic separation and geographic (physical) isolation from eastern hellbender populations in the eastern United States (see figure 3, below). Therefore, we have determined that the Missouri population of the eastern hellbender meets the condition for discreteness under our DPS policy.

Under our DPS Policy, once we have determined that a population segment is discrete, we consider its biological and ecological significance to the larger taxon to which it belongs. This consideration may include, but is not limited to: (1) Evidence of the persistence of the discrete population segment in an ecological setting that is unusual or unique for the taxon, (2) evidence that loss of the population segment would result in a significant gap in the range of the taxon, (3) evidence that the population segment represents the only surviving natural occurrence of a taxon that may be more abundant elsewhere as an introduced population outside its historical range, or (4) evidence that the discrete population segment differs markedly from other populations of the species in its genetic characteristics.

Hime et al. (2016, p. 12) found that genetic variation within the separate lineages is up to four orders of magnitude lower than the variation among the lineages. These genetic divergences within eastern hellbender lineages may be millions of years old (Hime et al. 2016, p. 12) and are likely the result of ancient geologic and climatic events (Sabatino and Routman 2009, p. 1,242). Each of the evolutionary lineages represents a substantial amount of the subspecies' genetic diversity, as well as diverse ecological and physical conditions, which may provide important sources of adaptive diversity for the subspecies. We have substantial evidence that the Missouri population of the eastern hellbender differs markedly in its genetic characteristics, and loss of this genetic diversity would result in loss of the subspecies' adaptive capacity. Thus, this population meets the criteria for significance under our DPS Policy.

Our DPS policy directs us to evaluate the significance of a discrete population in the context of its biological and ecological significance to the remainder of the species to which it belongs. Based on an analysis of the best available scientific and commercial data, we conclude that the Missouri population segment of the eastern hellbender is discrete due to genetic separation and geographic (physical) isolation from the remainder of the taxon. Furthermore, we conclude that the Missouri discrete population segment of the eastern hellbender is significant because it meets the following criterion to establish significance in the DPS policy: (1) This population differs markedly from the rest of the species because there are genetic characteristics present in this population that are not observed in the remainder of the taxon. Therefore, we conclude that the Missouri population of the eastern hellbender is both discrete and significant under our DPS policy and is, therefore, a listable entity under the Act.

Based on our DPS policy (61 FR 4722; February 7, 1996), if a population segment of a vertebrate species is both discrete and significant relative to the taxon as a whole ( i.e., it is a distinct population segment), its evaluation for endangered or threatened status will be based on the Act's definition of those terms and a review of the factors enumerated in section 4(a) of the Act. Having found that the Missouri population of eastern hellbender meets the definition of a distinct population segment, we now evaluate the status of this population to determine whether it meets the definition of endangered or threatened under the Act.

Section 4 of the Act (16 U.S.C. 1533), and its implementing regulations at 50 CFR part 424, set forth the procedures for adding species to the Federal Lists of Endangered and Threatened Wildlife and Plants. Under section 4(a)(1) of the Act, we may list a species based on (A) The present or threatened destruction, modification, or curtailment of its habitat or range; (B) overutilization for commercial, recreational, scientific, or educational purposes; (C) disease or predation; (D) the inadequacy of existing regulatory mechanisms; or (E) other natural or manmade factors affecting its continued existence.

We have carefully assessed the best scientific and commercial information available regarding the past, present, and future threats to the eastern hellbender in Missouri. Our analysis of this information indicates that the most important risk factors affecting the eastern hellbender's current and future status and trends in Missouri are habitat destruction and modification from sedimentation and water quality degradation (Factor A), disease and pathogens (Factor C), and habitat disturbance (Factor A), and these factors are the primary causes of the decrease in eastern hellbender populations in Missouri now and into the future. The unauthorized collection of eastern hellbenders, especially for the pet trade (Factor B), remains a concern despite regulatory mechanisms, such as listing under CITES (Factor D), to reduce or eliminate overexploitation. Other factors, such as an overabundance of predators (Factor C) or population isolation (Factor E), are also affecting eastern hellbenders in Missouri but to a lesser degree. Although conservation efforts, such as population augmentation and artificial nest boxes, are being implemented in Missouri, we have no evidence that they will improve population viability in the long term.

The threats described above have already resulted in the extirpation of one of only five populations (20 percent) of the eastern hellbender in Missouri and the declining condition of the remaining four populations (80 percent). The lack of healthy populations and the limited spatial extent of the Missouri DPS greatly reduce the DPS's resiliency and redundancy (the ability of eastern hellbenders to withstand normal environmental variation, periodic disturbances, stressors, and catastrophes currently and into the future).

The Act defines an endangered species as any species that is “in danger of extinction throughout all or a significant portion of its range” and a threatened species as any species that “is likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range.” We find that the Missouri DPS of the eastern hellbender is presently in danger of extinction throughout its entire range based on the immediacy of threats currently impacting the species. None of the remaining populations is healthy, and all are threatened by a variety of factors acting in combination to reduce the overall viability of the DPS. The lack of healthy populations and their limited spatial extent, coupled with the current and ongoing threats, put the eastern hellbender in Missouri in danger of extinction. Therefore, on the basis of the best available scientific and commercial information, we propose to list the Missouri DPS of the eastern hellbender as endangered in accordance with sections 3(6) and 4(a)(1) of the Act. We find that a threatened species status is not appropriate for the Missouri DPS of the eastern hellbender because of its contracted range, because the threats are occurring rangewide and are not localized, and because the threats are ongoing and expected to continue into the future.

Under the Act and our implementing regulations, a species may warrant listing if it is in danger of extinction or likely to become so in the foreseeable future throughout all or a significant portion of its range. Because we have determined that the Missouri DPS of the eastern hellbender is in danger of extinction throughout all of its range, we find it unnecessary to proceed to an evaluation of potentially significant portions of the range. Where the best available information allows the Services to determine a status for the species rangewide, that determination should be given conclusive weight because a rangewide determination of status more accurately reflects the species' degree of imperilment and better promotes the purposes of the Act. Under this reading, we should first consider whether the species warrants listing “throughout all” of its range and proceed to conduct a “significant portion of its range” analysis if, and only if, a species does not qualify for listing as either an endangered or a threatened species according to the “throughout all” language. We note that the court in Desert Survivors v. Department of the Interior, No. 16-cv-01165-JCS, 2018 WL 4053447 (N.D. Cal. Aug. 24, 2018), did not address this issue, and our conclusion is therefore consistent with the opinion in that case.

Therefore, on the basis of the best available scientific and commercial information, we propose to list the Missouri DPS of the eastern hellbender as an endangered species throughout all of its range in accordance with sections 3(20) and 4(a)(1) of the Act.

Conservation measures provided to species listed as endangered or threatened species under the Act include recognition, recovery actions, requirements for Federal protection, and prohibitions against certain practices. Recognition through listing results in public awareness, and conservation by Federal, State, Tribal, and local agencies; private organizations; and individuals. The Act encourages cooperation with the States and other countries, and calls for recovery actions to be carried out for listed species. The protection required by Federal agencies and the prohibitions against certain activities are discussed, in part, below.

The primary purpose of the Act is the conservation of endangered and threatened species and the ecosystems upon which they depend. The ultimate goal of such conservation efforts is the recovery of these listed species, so that they no longer need the protective measures of the Act. Subsection 4(f) of the Act calls for the Service to develop and implement recovery plans for the conservation of endangered and threatened species. The recovery planning process involves the identification of actions that are necessary to halt or reverse the species' decline by addressing the threats to its survival and recovery. The goal of this process is to restore listed species to a point where they are secure, self-sustaining, and functioning components of their ecosystems.

Recovery planning includes the development of a recovery outline shortly after a species is listed and preparation of a draft and final recovery plan. The recovery outline guides the immediate implementation of urgent recovery actions and provides interim guidance for the management and conservation of newly listed species during the time between the final listing and completion of a recovery plan. The recovery plan identifies recovery criteria that indicate when a species may be ready for downlisting ( i.e., reclassification from endangered status to threatened status) or delisting ( i.e., removal from the Lists of Endangered and Threatened Wildlife and Plants), actions necessary to achieve recovery and their estimated costs, and methods for monitoring recovery progress. The recovery plan may be revised to address continuing or new threats to the species, as new substantive information becomes available. When completed, the recovery outline, draft recovery plan, and the final recovery plan will be available on our website ( http://www.fws.gov/endangered ), or from our Missouri Ecological Services Field Office (see FOR FURTHER INFORMATION CONTACT ).

Implementation of recovery actions generally needs the participation of a broad range of partners, including other Federal agencies, States, Tribes, nongovernmental organizations, businesses, and private landowners. Examples of recovery actions include habitat restoration ( e.g., restoration of native vegetation), research, captive propagation and reintroduction, and outreach and education. The recovery of many listed species cannot be accomplished solely on Federal lands because their range may occur primarily or solely on non-Federal lands. To achieve recovery of these species requires cooperative conservation efforts on private, State, and Tribal lands. If we list the Missouri DPS of the eastern hellbender, funding for recovery actions would be available from a variety of sources, including Federal budgets, State programs, and cost share grants for non-Federal landowners, the academic community, and nongovernmental organizations. In addition, pursuant to section 6 of the Act, the State of Missouri would be eligible for Federal funds to implement management actions that promote the protection or recovery of the Missouri DPS of the eastern hellbender. Information on our grant programs that are available to aid species recovery can be found at: http://www.fws.gov/grants.

Although the Missouri DPS of the eastern hellbender is only proposed for listing under the Act at this time, please let us know if you are interested in participating in recovery efforts for this DPS. Additionally, we invite you to submit any new information on this DPS whenever it becomes available and any information you may have for recovery planning purposes (see FOR FURTHER INFORMATION CONTACT ).

Section 7(a) of the Act requires Federal agencies to evaluate their actions with respect to any species that is proposed or listed as an endangered or threatened species and with respect to its critical habitat, if any is designated. Regulations implementing this interagency cooperation provision of the Act are codified at 50 CFR part 402. Section 7(a)(4) of the Act requires Federal agencies to confer with the Service on any action that is likely to jeopardize the continued existence of a species proposed for listing or result in destruction or adverse modification of proposed critical habitat. If a species is listed subsequently, section 7(a)(2) of the Act requires Federal agencies to ensure that activities they authorize, fund, or carry out are not likely to jeopardize the continued existence of the species or destroy or adversely modify its critical habitat. If a Federal action may affect a listed species or its critical habitat, the responsible Federal agency must enter into consultation with the Service.

Federal agency actions within the DPS' habitat that may require conference or consultation or both as described in the preceding paragraph include management and any other landscape-altering activities, particularly those affecting water quality or instream habitat, on Federal lands administered by the U.S. Forest Service and Department of Defense; issuance of section 404 Clean Water Act (33 U.S.C. 1251 et seq. ) permits by the U.S. Army Corps of Engineers; and construction and maintenance of roads or highways by the Federal Highway Administration.

The Act and its implementing regulations set forth a series of general prohibitions and exceptions that apply to endangered wildlife. The prohibitions of section 9(a)(1) of the Act, codified at 50 CFR 17.21, make it illegal for any person subject to the jurisdiction of the United States to take (which includes harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect; or to attempt any of these) endangered wildlife within the United States or on the high seas. In addition, it is unlawful to import; export; deliver, receive, carry, transport, or ship in interstate or foreign commerce in the course of commercial activity; or sell or offer for sale in interstate or foreign commerce any listed species. It is also illegal to possess, sell, deliver, carry, transport, or ship any such wildlife that has been taken illegally. Certain exceptions apply to employees of the Service, the National Marine Fisheries Service, other Federal land management agencies, and State conservation agencies.

We may issue permits to carry out otherwise prohibited activities involving endangered wildlife under certain circumstances. Regulations governing permits are codified at 50 CFR 17.22. With regard to endangered wildlife, a permit may be issued for the following purposes: For scientific purposes, to enhance the propagation or survival of the species, and for incidental take in connection with otherwise lawful activities. There are also certain statutory exemptions from the prohibitions, which are found in sections 9 and 10 of the Act.

It is our policy, as published in the Federal Register on July 1, 1994 (59 FR 34272), to identify to the maximum extent practicable at the time a species is listed, those activities that would or would not constitute a violation of section 9 of the Act. The intent of this policy is to increase public awareness of the effect of a proposed listing on proposed and ongoing activities within the range of the species proposed for listing.

Based on the best available information, the following actions are unlikely to result in a violation of section 9, if these activities are carried out in accordance with existing regulations and permit requirements; this list is not comprehensive:

(1) Activities authorized, funded, or carried out by Federal agencies, when such activities are conducted in accordance with an incidental take statement issued by us under section 7 of the Act;

(2) Any action carried out for scientific research or to enhance the propagation or survival of the Missouri DPS of the eastern hellbender that is conducted in accordance with the conditions of a permit issued by the Service under 50 CFR 17.22; and

(3) Any incidental take of Missouri eastern hellbenders resulting from an otherwise lawful activity conducted in accordance with the conditions of an incidental take permit issued by the Service under 50 CFR 17.22. Non-Federal applicants may design a habitat conservation plan (HCP) for the DPS and apply for an incidental take permit. HCPs may be developed for listed species and are designed to minimize and mitigate impacts to the species to the maximum extent practicable.

We will review other activities not identified above on a case-by-case basis to determine whether they may be likely to result in a violation of section 9 of the Act. We do not consider these lists to be exhaustive and provide them as information to the public.

Based on the best available information, the following activities may potentially result in a violation of section 9 of the Act; this list is not comprehensive:

(1) Unauthorized killing, collecting, handling, or harassing of individual eastern hellbenders at any life stage in Missouri;

(2) Sale or offer for sale of any Missouri eastern hellbender, as well as delivering, receiving, carrying, transporting, or shipping any Missouri eastern hellbender in interstate or foreign commerce and in the course of a commercial activity;

(3) Unauthorized destruction or alteration of the DPS' habitat (for example, instream dredging, channelizing, impounding of water, streambank clearing, removing large rocks from or flipping large rocks within streams, discharging fill material) that actually kills or injures individual eastern hellbenders in Missouri by significantly impairing their essential behavioral patterns, including breeding, feeding, or sheltering;

(4) Violation of any discharge or water withdrawal permit within the DPS' occupied range that results in the death or injury of individual eastern hellbenders by significantly impairing their essential behavioral patterns, including breeding, feeding, or sheltering; and

(5) Discharge or dumping of toxic chemicals or other pollutants into waters supporting the DPS that actually kills or injures individual eastern hellbenders by significantly impairing their essential behavioral patterns, including breeding, feeding, or sheltering.

Questions regarding whether specific activities might constitute a violation of section 9 of the Act should be directed to the Missouri Ecological Services Field Office, 101 Park DeVille Drive, Suite A, Columbia, MO 65203; telephone 573-234-2132.

Critical habitat is defined in section 3 of the Act as:

(1) The specific areas within the geographical area occupied by the species, at the time it is listed in accordance with the Act, on which are found those physical or biological features (a) essential to the conservation of the species and (b) which may require special management considerations or protection; and

(2) Specific areas outside the geographical area occupied by the species at the time it is listed, upon a determination that such areas are essential for the conservation of the species.

Conservation, as defined under section 3 of the Act, means to use and the use of all methods and procedures that are necessary to bring an endangered or threatened species to the point at which the measures provided pursuant to the Act are no longer necessary. Such methods and procedures include, but are not limited to, all activities associated with scientific resources management such as research, census, law enforcement, habitat acquisition and maintenance, propagation, live trapping, and transplantation, and, in the extraordinary case where population pressures within a given ecosystem cannot be otherwise relieved, may include regulated taking.

Critical habitat receives protection under section 7 of the Act through the requirement that Federal agencies ensure, in consultation with the Service, that any action they authorize, fund, or carry out is not likely to result in the destruction or adverse modification of critical habitat. The designation of critical habitat does not affect land ownership or establish a refuge, wilderness, reserve, preserve, or other conservation area. Such designation does not allow the government or public to access private lands. Such designation does not require implementation of restoration, recovery, or enhancement measures by non-Federal landowners. Where a landowner seeks or requests Federal agency funding or authorization for an action that may affect a listed species or critical habitat, the consultation requirements of section 7(a)(2) of the Act would apply, but even in the event of a destruction or adverse modification finding, the obligation of the Federal action agency and the landowner is not to restore or recover the species, but to implement reasonable and prudent alternatives to avoid destruction or adverse modification of critical habitat.

Section 4 of the Act requires that we designate critical habitat on the basis of the best scientific data available. Further, our Policy on Information Standards Under the Endangered Species Act (published in the Federal Register on July 1, 1994 (59 FR 34271)), the Information Quality Act (section 515 of the Treasury and General Government Appropriations Act for Fiscal Year 2001 (Pub. L. 106-554; H.R. 5658)), and our associated Information Quality Guidelines, provide criteria, establish procedures, and provide guidance to ensure that our decisions are based on the best scientific data available. They require our biologists, to the extent consistent with the Act and with the use of the best scientific data available, to use primary and original sources of information as the basis for recommendations to designate critical habitat.

Section 4(a)(3) of the Act, as amended, and implementing regulations (50 CFR 424.12), require that, to the maximum extent prudent and determinable, the Secretary designate critical habitat at the time the species is determined to be endangered or threatened. Our regulations (50 CFR 424.12(a)(1)) state that the designation of critical habitat is not prudent when one or both of the following circumstances exist: (1) The species is threatened by taking or other human activity, and identification of critical habitat can be expected to increase the degree of threat to the species, or (2) such designation of critical habitat would not be beneficial to the species.

Designation of critical habitat requires the publication of maps and a narrative description of specific critical habitat areas in the Federal Register . The degree of detail in those maps and boundary descriptions is greater than the general location descriptions provided in this proposal to list the Missouri DPS as endangered. We are concerned that designation of critical habitat would more widely announce the exact locations of eastern hellbenders to collectors. We believe that the publication of maps and descriptions outlining the locations of eastern hellbenders will further facilitate unauthorized collection and trade, as collectors will know the exact locations where eastern hellbenders occur.

The unauthorized collection of eastern hellbenders for the pet trade is a factor contributing to hellbender declines and remains a threat today. Eastern hellbenders are easily collected because they are slow moving and have extremely small home ranges. Therefore, publishing specific location information would provide a high level of assurance that any person going to a specific location would be able to successfully locate and collect specimens given the subspecies' site fidelity and ease of capture once located. For a detailed discussion on the threat of commercial collection, refer to the SSA report (Service 2018, pp. 40-42).

In conclusion, we find that the designation of critical habitat is not prudent for the Missouri DPS of the eastern hellbender, in accordance with 50 CFR 424.12(a)(1), because the eastern hellbender faces a threat of unauthorized collection and trade, and designation can reasonably be expected to increase the degree of these threats to the subspecies.

We are required by Executive Orders 12866 and 12988 and by the Presidential Memorandum of June 1, 1998, to write all rules in plain language. This means that each rule we publish must:

(1) Be logically organized;

(2) Use the active voice to address readers directly;

(3) Use clear language rather than jargon;

(4) Be divided into short sections and sentences; and

(5) Use lists and tables wherever possible.

If you feel that we have not met these requirements, send us comments by one of the methods listed in ADDRESSES . To better help us revise the rule, your comments should be as specific as possible. For example, you should tell us the numbers of the sections or paragraphs that are unclearly written, which sections or sentences are too long, the sections where you feel lists or tables would be useful, etc.

We have determined that environmental assessments and environmental impact statements, as defined under the authority of the National Environmental Policy Act (NEPA; 42 U.S.C. 4321 et seq. ), need not be prepared in connection with listing a species as an endangered or threatened species under the Endangered Species Act. We published a notice outlining our reasons for this determination in the Federal Register on October 25, 1983 (48 FR 49244).

In accordance with the President's memorandum of April 29, 1994 (Government-to-Government Relations with Native American Tribal Governments; 59 FR 22951), Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments), and the Department of the Interior's manual at 512 DM 2, we readily acknowledge our responsibility to communicate meaningfully with recognized Federal Tribes on a government-to-government basis. In accordance with Secretarial Order 3206 of June 5, 1997 (American Indian Tribal Rights, Federal-Tribal Trust Responsibilities, and the Endangered Species Act), we readily acknowledge our responsibilities to work directly with tribes in developing programs for healthy ecosystems, to acknowledge that tribal lands are not subject to the same controls as Federal public lands, to remain sensitive to Indian culture, and to make information available to tribes. We have no records of the Missouri DPS of the eastern hellbender occurring on tribal lands.

A complete list of references cited in this proposed rule is available on the internet at http://www.regulations.gov and upon request from the Missouri Ecological Services Field Office (see FOR FURTHER INFORMATION CONTACT ).

The primary authors of this proposed rule are the staff members of the Service's Midwest Regional Office.

Accordingly, we propose to amend part 17, subchapter B of chapter I, title 50 of the Code of Federal Regulations, as set forth below: