The Office of Personnel Management (OPM) is proposing revisions to regulations governing probation on initial appointment to a competitive position; performance-based reduction in grade and removal actions; and adverse actions under statutory authority vested in it by Congress in 5 U.S.C. 3321, 4305, 4315, 7504, 7514 and 7543. The regulations will assist agencies in carrying out, consistent with law, certain of the President's directives to the Executive Branch in Executive Order 13839 that are not currently enjoined, and update current procedures to make them more efficient and effective. The proposed regulations also will update references and language due to statutory changes; and clarify procedures and requirements to support managers in addressing unacceptable performance and promoting employee accountability for performance-based reduction-in-grade, removal actions and adverse actions. The proposed regulations support agencies in implementing their plans to maximize employee performance as required by Office of Management and Budget (OMB) M-17-22 (April 12, 2017) and elements of the President's Management Agenda relating to the Workforce for the 21st Century.

OPM is aware of the judicially-imposed limitations on implementing other portions of Executive Order 13839. OPM has and will continue to comply fully with the injunction, and will not issue regulations implementing the invalidated parts of the Executive Order as long as the judicial injunction is in place. OPM will heed the court's reaffirmation that “Congress has clearly vested OPM with the authority to `execut[e], administer [ ], and enforc[e] the civil service rules and regulations of the President and the Office and the laws governing the civil service . . .” and with the authority to `aid [ ] the President, as the President may request, in preparing such civil service rules as the President prescribes.' ” OPM further relies upon the court's statement that, “given the wellsprings of authority that OPM enjoys in this area, OPM can surely receive directions from the President to promulgate regulations that are consistent with the rights and duties that the FSLMRS or CSRA prescribe, and setting aside the invalidity of some of the underlying substantive mandates.” American Federation of Government Employees, AFL-CIO v. Trump, 318 F. Supp. 3d 370, 438 (D.D.C. 2018). OPM is proposing these regulations under its congressionally-granted authority to regulate the Parts that it proposes to revise subject to the notice-and-comment process set forth in the Administrative Procedure Act, and mindful of the President's expressed policy direction.

With that statement on January 29, 2018, President Trump set a new direction for promoting efficient and effective use of the Federal workforce—reinforcing Federal employees should be both rewarded and held accountable for performance and conduct. Merit system principles provide a framework for responsible behavior that is aligned with the broader responsibility Federal government employees agree to when they take the oath to preserve and defend the Constitution. In keeping with merit system principles, the President's Management Agenda (PMA) recognizes that Federal employees underpin nearly all the operations of the Government, ensuring the smooth functioning of our democracy. The Federal personnel system needs to keep pace with changing workplace needs and return to its root principles. Notably, as demonstrated in the Federal Employee Viewpoint Survey, a majority of both employees and managers agree that the performance management system fails to reward the best and address unacceptable performance. Finally, the PMA calls for agencies to establish processes that help agencies retain top employees and efficiently remove those who fail to perform or to uphold the public's trust.

Prior to establishment of the PMA, the Office of Management and Budget (OMB) issued a memorandum to agencies on April 12, 2017 entitled “M-17-22—Comprehensive Plan for Reforming the Federal Government and Reducing the Federal Civilian Workforce.” M-17-22 called on agencies to take near-term actions to ensure that the workforce they hire and retain is as effective as possible. OMB called on agencies to determine whether aspects of their current policies and practices present barriers to hiring and retaining the workforce necessary to execute their missions as well as appropriately managing it and, if necessary, removing poor performers and employees who commit misconduct. Notably, M-17-22 directed agencies to ensure that managers have the tools and support they need to manage performance and conduct effectively to achieve high-quality results for the American people.

More recently, E.O. 13839 notes that merit system principles call for holding Federal employees accountable for performance and conduct. The merit system principles state that employees should maintain high standards of integrity, conduct, and concern for the public interest, and that the Federal workforce should be used efficiently and effectively. They further state that employees should be retained based on the adequacy of their performance, inadequate performance should be corrected, and employees should be separated who cannot or will not improve their performance to meet required standards. E.O. 13839 further notes that implementation of America's civil service laws has fallen far short of these ideals. It acknowledged that the Federal Employee Viewpoint Survey has consistently found that less than one-third of Federal employees believe that the Government deals with poor performers effectively. E.O. 13839 finds that failure to address unacceptable performance and misconduct undermines morale, burdens good performers with subpar colleagues, and inhibits the ability of executive agencies to accomplish their missions.

E.O. 13839 requires executive agencies (as defined in section 105 of title 5, U.S. Code, excluding the Government Accountability Office) to facilitate a Federal supervisor's ability to promote civil servant accountability while simultaneously recognizing employee's procedural rights and protections. Agencies should recognize and reward good performers, while unacceptable performers should be separated if they do not improve their performance to meet the required standards. A probationary period is one effective tool to evaluate a candidate's potential to be an asset to an agency before the candidate's appointment becomes final. Therefore, probationary periods, as the final step in the hiring process of new employees, should be used to the greatest extent possible to assess how well they are performing the duties of their jobs; and instances of poor performance and misconduct should be dealt with promptly.

OPM is proposing changes to regulations to implement those requirements of E.O. 13839 not judicially enjoined as well as to implement the vision of the PMA and the objectives of M-17-22. These proposed changes not only support agency efforts in implementing E.O. 13839, the PMA, and M-17-22, but also will facilitate the ability of agencies to deliver on their mission and on providing service to American people. Ultimately, these changes support President Trump's goal of effective stewardship of taxpayers' money by our government.

Section 6 of E.O. 13839 outlines certain types of data for agencies to collect and report to OPM as of fiscal year 2018. To enhance public accountability of agencies, OPM will collect and, consistent with applicable law, publish the information received from agencies aggregated at a level necessary to protect personal privacy. OPM may withhold particular information if publication would unduly risk disclosing information protected by law, including personally identifiable information. Section 6 requires annual reporting of various categories of data, including: (1) The number of civilian employees in a probationary period or otherwise employed for a specific term who were removed by the agency; (2) the number of civilian employees reprimanded in writing by the agency; (3) the number of civilian employees afforded an opportunity period by the agency under section 4302(c)(6) of title 5, United States Code, breaking out the number of such employees receiving an opportunity period longer than 30 days; (4) the number of adverse actions taken against civilian employees by the agency, broken down by type of adverse action, including reduction in grade or pay (or equivalent), suspension, and removal; (5) the number of decisions on proposed removals by the agency taken under chapter 75 of title 5, United States Code, not issued within 15 business days of the end of the employee reply period; (6) the number of adverse actions by the agency for which employees received written notice in excess of the 30 days prescribed in section 7513(b)(1) of title 5, United States Code; (7) the number and key terms of settlements reached by the agency with civilian employees in cases arising out of adverse actions; and (8) the resolutions or outcomes of litigation about adverse actions involving civilian employees reached by the agency.

On July 5, 2018, OPM issued guidance for implementation of E.O. 13839. This guidance included instructions for each department or agency head to coordinate the collection of data from their components and compile one consolidated report for submission to OPM using the form attached to the guidance memo. Forms must be submitted electronically to OPM via email at employeeaccountability@opm.gov generally no later than 60 days following the conclusion of each fiscal year. In lieu of outlining the data collection requirements in OPM regulations, OPM will issue reminders of this requirement annually and provide periodic guidance consistent with the requirements of E.O. 13839.

Section 2(i) of E.O. 13839 provides that a probationary period should be used as the final step in the hiring process of a new employee. The E.O. further notes that supervisors should use that period to assess how well an employee can perform the duties of a job. OPM guidance has stated previously that the probationary period is the last and crucial step in the examination process. The probationary period is intended to give the agency an opportunity to assess, on the job, an employee's overall fitness and qualifications for continued employment and permit the termination, without Chapter 75 procedures, of an employee whose performance or conduct does not meet acceptable standards to deliver on the mission. Thus it provides an opportunity for supervisors to address problems in an expeditious manner and avoid long-term problems inhibiting effective service to the American people. Employees may be terminated from employment during the probationary period for reasons including demonstrated inability to perform the duties of the position, lack of cooperativeness, or other unacceptable conduct or poor performance. To achieve the objective of maximizing the effectiveness of this probationary period, OPM believes that timely notifications to supervisors regarding probationary periods can be a useful tool for agencies and should be used. OPM is proposing amendments to regulations at Subpart H of 5 CFR part 315 to require agencies to notify supervisors that an employee's probationary period is ending, at least three months or 90 days prior to expiration of the probationary period, and then again one month or 30 days prior to expiration of the probationary period, and advise a supervisor to make an affirmative decision regarding the employee's fitness for continued employment or otherwise take appropriate action. OPM believes this requirement will assist agencies in making more effective use of the probationary period. Agencies have discretion to determine the method for making this communication, but are encouraged to make use of existing automated tools to facilitate timely notifications.

Part 432 applies to reduction in grade and removal of covered employees based on performance at the unacceptable level. Congress enacted chapter 43, in part, to create a simple, dedicated, though not exclusive, process for agencies to use in taking adverse actions based on unacceptable performance. Since that time however, chapter 43 has not worked as well as Congress intended. In particular, interpretations of chapter 43 have made it difficult for agencies to take actions against unacceptable performers and to have those actions upheld.

The proposed rule at § 432.104 clarifies that, other than those requirements listed, there is no specific requirement regarding the nature of any assistance provided during an opportunity period, and is not determinative of the ultimate outcome with respect to reduction in grade or pay, or a removal.

The proposed rule also states that no additional performance improvement period or similar informal period to demonstrate acceptable performance to meet the required performance standards shall be provided prior to or in addition to the opportunity period under this part. This change supports the stated principles of E.O. 13839 which provide that removing unacceptable performers should be a straightforward process furthering effective stewardship of taxpayer money. Establishing limits on the opportunity to demonstrate acceptable performance by precluding additional opportunity periods beyond what is required by law encourages efficient use of the procedures under chapter 43 and furthers effective delivery of agency mission while still providing employees sufficient opportunity to demonstrate acceptable performance as required by law.

The proposed rule is intended to clarify the requirements in chapter 43 of title 5 of the United States Code. The goal of these amendments, consistent with E.O. 13839, is to streamline civil service removal procedures related to unacceptable performance. Nothing in the proposed amendments to 5 CFR part 432 should be construed to relieve agencies of their continuing obligations under Federal law, e.g., 5 U.S.C. 6384 and 29 U.S.C. 791(g). Finally, we note that 5 U.S.C. 2301(b)(2) provides that employees should receive fair and equitable treatment without regard to political affiliation, race, color, religion, national origin, sex, marital status, age, and handicapping condition, and with proper regard for their privacy and rights. All personnel actions must meet this statutory requirement.

5 U.S.C. 4302(c)(5) provides for “assisting employees in improving unacceptable performance;” and 5 U.S.C. 4302(c)(6) provides for “reassigning, reducing in grade, or removing employees who continue to have unacceptable performance but only after an opportunity to demonstrate acceptable performance.” The proposed rule de-links 5 U.S.C. 4302(c)(5) and (6) by clarifying in § 432.105 that the opportunity to demonstrate acceptable performance required prior to initiating an action pursuant to 5 U.S.C. 4303 may include any and all performance assistance measures taken during the performance appraisal period to assist employees pursuant to 5 U.S.C. 4302(c)(5), not just those taken during the formal opportunity period.

Section 5 of E.O. 13839 establishes a new requirement that an agency shall not agree to erase, remove, alter, or withhold from another agency any information about a civilian employee's performance or conduct in that employee's official personnel records, including an employee's Official Personnel Folder and Employee Performance File, as part of, or as a condition to, resolving a formal or informal complaint by the employee or settling an administrative challenge to an adverse action. Such agreements have traditionally been referred to as “clean record” agreements. This new requirement is intended to promote the high standards of integrity and accountability within the Federal workforce by requiring agencies to maintain personnel records that reflect complete information, and not to alter the information contained in those records in connection with a formal or informal complaint or adverse action. It is further intended to ensure that those records are preserved so that agencies can make appropriate and informed decisions regarding an employee's qualification, fitness, and suitability as applicable to future employment.

Section 5 requirements should not be construed to prevent agencies from correcting records of an action taken by the agency illegally or in error. In such cases, an agency has the authority—unilaterally or by agreement—to modify an employee's personnel file to remove inaccurate information or the record of an erroneous or illegal action. Specifically, the proposed rule states that the Section 5 requirements of E.O. 13839 should not be construed to prevent agencies from taking corrective action should it come to light, including during or after the issuance of an adverse personnel action, that the information contained in a personnel record is not accurate or records an action taken by the agency illegally or in error. In such cases, an agency would have the authority, unilaterally or by agreement, to modify an employee's personnel file to remove inaccurate information or the record of an erroneous or illegal action. An agency may take such action even if an appeal/complaint has been filed relating to the information that the agency determines to be inaccurate or to reflect an action taken illegally or in error. In all events, however, the agency must ensure that it removes only information that the agency itself has determined to be inaccurate or to reflect an action taken illegally or in error. An agency should report any agreements relating to removal of such information as part of its annual report to the OPM Director, as required by Section 6 of E.O. 13839. Documents subject to withdrawal or modification could include, for example, an SF-50 issuing a disciplinary or performance-based action, a decision memorandum accompanying such action, or an employee performance appraisal. See discussion above concerning “Data Collection of Adverse Actions.” Section 5 requirements should also not be construed to prevent agencies from entering into partial clean record settlements with regard to information provided to non-Federal employers. Finally, to the extent that an employee's personnel file or other agency records contain a proposed action that is subsequently cancelled, an agency would have the authority to remove that action from the employee's personnel file or other agency files. The proposed rule states that when persuasive evidence comes to light prior to the issuance of a final agency decision on an adverse personnel action casting doubt on the validity of the action or the ability of the agency to sustain the action in litigation, an agency may decide to cancel or vacate the proposed action. Additional information may come to light at any stage of the process prior to final agency decision including during an employee response period. To the extent an employee's personnel file or other agency records contain a proposed action that is subsequently cancelled, an agency would have the authority to remove that action from the employee's personnel file or other agency files. However, the requirements described in Section 5 would continue to apply to any accurate information about the employee's performance or conduct which comes to light prior to issuance of a final agency decision on an adverse action. Based on the foregoing, the proposed rule at § 432.108 reflects E.O. 13839's restrictions on settlement agreements arising from chapter 43 actions.

The proposed rule corrects the spelling of the word “incumbents” within § 432.103(g) and the word “extension” at § 432.105(a)(4)(i)(B)(3). OPM proposes to replace the term “handicapping condition” with “disability” at § 432.105(a)(4)(i)(B)(4) to bring the definition into conformance with 29 U.S.C. 705. In this rule, OPM also revises § 432.105(a)(4)(i)(C) to correctly identify the office that an agency shall contact if it believes that an extension of the advance notice period is necessary for a reason other than those listed in § 432.105(a)(4)(i)(B). OPM proposes to revise § 432.106(b)(1) to replace “i.g.” with “i.e.” within the parenthetical concerning non-exclusion by the parties to a collective bargaining agreement. Finally, OPM corrects the use of the word “affected” versus “effected” within § 432.107(b).

5 U.S.C. 7515 provides agencies the ability to deal with retaliation by supervisors for whistleblowing. The regulations reinforce the responsibility of agencies to protect whistleblowers from retaliation. These requirements are significant because of the essential protections they provide. Prohibited personnel actions are not consistent with the notion of a system based on merit and failure to observe these prohibitions must be addressed promptly and resolutely.

Based on this need, OPM is proposing a new addition to the current adverse action system. We are revising our regulations to incorporate the changes created by the statute and ensure that agencies understand how to meet the additional requirements in connection with prohibited personnel actions. This new proposed rule falls under subpart A of 5 CFR part 752 as “Discipline of supervisors based on retaliation against whistleblowers.” The proposed language implements the statutory authority and procedures of 5 U.S.C. 7515 which require that certain actions be taken against a supervisor who retaliates against a whistleblower. These provisions reinforce the principle that increased accountability is warranted in situations where a supervisor commits a prohibited personnel action against an employee of an agency, in violation of paragraph (8), (9), or (14) of 5 U.S.C. 2302(b). The proposed rule subjects an action taken under subpart A to many of the same procedural requirements as an action taken under subparts B, D, and F of this chapter. For example, Subpart A incorporates the standard for action from each of the related subparts in this chapter. However, the proposed rule also includes some key exceptions. These proposed regulations help to undergird and support agencies in meeting their requirements to take action against any supervisor who retaliates against whistleblowers. The following section identifies the major additions proposed by this subpart and briefly describes the purpose of each addition.

The proposed rule describes the adverse actions covered and defines key terms used throughout the subchapter. The proposed rule includes a definition for the term “business day.” This addition is necessary to implement the 15 business day decision period described in E.O. 13839. The proposed rule also includes a definition for “insufficient evidence.” OPM defines this new term as evidence that fails to meet the substantial evidence standard described in 5 CFR 1201.4(p).

5 U.S.C. 7515 incorporates many of the procedural elements of 5 U.S.C. 7503, 7513 and 7543, to include the standards of action applied to each type of adverse action. For supervisors not covered under subchapter V of title 5, the proposed rule applies the efficiency of the service standard. For supervisors who are members of the Senior Executive Service, the proposed rule defines the standard of action as misconduct, neglect of duty, malfeasance, or failure to accept a directed reassignment, or to accompany a position in a transfer of function.

5 U.S.C. 7515 enhances statutory protection for whistleblowers through the creation of proposed mandatory penalties. Specifically, for the first incident of a prohibited personnel action, an agency is required to propose the penalty at a level no less than a 3-day suspension. Further, the agency may propose an additional action, including a reduction in grade or pay. For the second incident of a prohibited personnel action, an agency is required to propose that the supervisor be removed.

The proposed rule establishes the procedures to be utilized for actions taken under this subpart. The procedures in the subpart are the same as those described in 5 U.S.C. 7503, 7513 and 7543, with the exception of provisions concerning advance notice and the reply period. Agencies must implement the related procedures on taking action, which have a shortened time period and require agencies to issue a final decision on a proposed action against a supervisor after the end of the 14-day advance notice period. Under this subpart, supervisors against whom an action is proposed are entitled to no more than 14 days to answer after receipt of the proposal notice. At the conclusion of the 14-day reply period, the agency shall carry out the proposed action if the supervisor fails to provide evidence or provides evidence that the head of the agency deems insufficient. Notably, the proposed rule also includes the requirement that, if the head of an agency is responsible for determining whether a supervisor has committed a prohibited personnel action, that responsibility may not be delegated.

Finally, the proposed rule at § 752.103 (d) includes language that, to the extent practicable, an agency should issue the decision on a proposed removal under this subpart within 15 business days of the conclusion of the employee's opportunity to respond.

The proposed language in this section establishes the same requirement that is detailed in the proposed rule changes at § 432.108, Settlement agreements. Please see discussion in § 432.108.

This subpart addresses the procedural requirements for suspensions of 14 days or less for covered employees.

Pursuant to the creation of subpart A within the proposed rule, § 752.201(c) reflects an exclusion for actions taken under 5 U.S.C. 7515.

While the standard for action under this subpart remains unchanged, the proposed rule makes clear that an agency is not required to use progressive discipline under this subpart. Further, OPM has decided to adopt formally by regulation in this section the standard applied by MSPB in Douglas v. Veterans Administration, 5 M.S.P.R. 280 (1981) to removals, suspensions and demotions, including suspensions of fewer than 15 days. Specifically, the proposed rule adopts the requirement to propose and impose a penalty that is within the bounds of tolerable reasonableness. This is a principle that is embedded deeply in Federal civil-service law. Arbitrators are required to defer to an agency decision, and may not mitigate a penalty unless it is beyond the bounds of tolerable reasonableness. We now make it clear that this standard applies not only to those actions taken under 5 U.S.C. 7513, but apply as well to those taken under 5 U.S.C. 7503. Any collective-bargaining proposal in conflict with this government-wide regulation will be contrary to law and non-negotiable. There is no legal principle in the Federal Government that requires agencies to impose the least penalty to rehabilitate an employee. A proposed penalty is in the sole and exclusive discretion of the proposing official, and the penalty decision is in the sole and exclusive discretion of the deciding official, subject to appellate or other review procedures prescribed in law and cannot be the subject of collective bargaining.

The penalty for an instance of misconduct should be tailored to the facts and circumstances of each case. Further, employees should be treated equitably. Nevertheless, conduct that justifies discipline of one employee at one time by a particular deciding official does not necessarily justify the same or similar disciplinary decision for a different employee at a different time. So agencies should consider appropriate comparators when evaluating a potential disciplinary action. The Court of Appeals for the Federal Circuit has held that an agency need only provide “proof that the proffered comparator was in the same work unit, with the same supervisor, and was subjected to the same standards governing discipline.” Miskill v. Social Security Administration, 863 F.3d 1379 (Fed. Cir. 2017). It should not tie the hands of a different deciding official at a different time or in a different context, or under different circumstances. We are proposing adoption of the Miskill test. This reinforces the key principle that each case stands on its own factual and contextual footing. Finally, among other relevant factors, an agency should consider an employee's disciplinary record and past work record, including all prior misconduct, when taking an action under this subpart. These guidelines reflect established principles, but stress management discretion to promote efficient Government while protecting the interests of all involved.

With respect to penalty determination, it is also noteworthy that some agencies develop and use tables of penalties to assist supervisors in identifying the level of discipline that may be appropriate to an individual case. The creation and use of a table of penalties is not required by statute, case law or OPM regulation, and OPM does not provide written guidance on this topic. The applicable standard, “to promote the efficiency of the service,” is broad and supple enough to encompass all occurrences that may occasion an adverse action. Thus, agencies have the ability to address misconduct appropriately without a table of penalties, and with sufficient flexibility to determine the appropriate penalty for each instance of misconduct. Tables of penalties may create significant drawbacks to the viability of a particular action and to effective management. Specifically, tables of penalties, by creating a range of penalties for an offense, limit the scope of management's discretion to tailor the penalty to the facts and circumstances of a particular case by excluding certain penalties along the continuum. Agencies that specify a range of penalties should expect that adjudicators may be, and have been, impervious to agency pleas that someone who holds a particular position may not be restored to the workplace. Although the law permits the agency to impose the maximum reasonable penalty, some adjudicators have responded that the existence of an agency promulgated range of penalties belies this claim. Although such adjudications are contrary to and undermine settled legal principles, they resist further administrative or judicial review of penalty decisions.

Further, OPM encourages managers to think carefully and coherently about when and how to impose discipline in a way that fosters an effective and efficient workplace, in the best interests of all employees and the agency's mission. By contrast, tables of penalties can foster a “by-the-numbers” approach in which managers may hide behind a chart imposed from above rather than take direct responsibility for their workplace.

A further risk of having an agency table of penalties is that a supervisor may apply it so inflexibly as to impair consideration of other factors relevant to an individual case. This type of rigid application of a table of penalties runs counter to the overall directive of Douglas to consider all of the criteria that may apply to an individual set of factual circumstances. A table of penalties does not, and should not, replace supervisory judgment. It is vital that supervisors use independent judgment, take appropriate steps in gathering facts, and conduct a thorough analysis to decide the appropriate penalty. However, once an agency establishes a table of penalties, it will be held accountable for striking a balance between ensuring that supervisors use their best judgment in applying the full spectrum of Douglas factors, with accountability for ensuring a level of consistency with the range of penalties described for a particular charge within the agency's table. For that reason, the proposed amendments to this section emphasize that an agency is not required to use progressive discipline and that the penalty for an instance of misconduct should be tailored to the facts and the circumstances, in lieu of the type of formulaic and rigid penalty determination that frequently results from agency publication of tables of penalties.

Finally, there is a significant body of decisional law concerning elucidating required manners of labelling and charging misconduct with attendant proof of an employee's state of mind. See for example, Nazelrod v. Department of Justice, 43 F.3d 663 (Fed. Cir. 1994). This type of common-law pleading is unusual in American law and is burdensome on agencies, spawning reams of costly training material and charging guides. It also slows the charging and decision making process. A table of penalties can exacerbate these problems further by implying that if an employee acts in a way that does not appear in a table of penalties' list of “offenses,” the behavior is beyond the agency's capacity to charge and penalize.

In short, there is no substitute for managers thinking independently and carefully about each incident as it arises, and, as appropriate, proposing or deciding the best penalty to fit the circumstances. Progressive discipline and table of penalties are inimical to good management principles. Finally, the proposed rule at § 752.202(f) adds language stating that a suspension should not be a substitute for removal in circumstances in which removal would be appropriate. Agencies should not require that an employee have previously been suspended or demoted before a proposing official may propose removal, except as may be appropriate under applicable facts.

Section 752.203(b) discusses the requirements for a proposal notice issued under this subpart. This section provides that the notice of proposed action must state the specific reason(s) for the proposed action, and inform the employee of his or her right to review the material which is relied on to support the reasons for action given in the notice. The proposed rule includes language that the notice must also provide detailed information with respect to any right to appeal the action pursuant to Public Law 115-91 section 1097(b)(2)(A); specifically, the forum in which the employee may file an appeal, and any limitations on the rights of the employee that would apply because of the forum in which the employee decides to file. This additional language implements the requirement within Public Law 115-91 section 1097(b)(2)(A), which mandates that information on whistleblower appeal rights be included in any notice provided to an employee under 5 U.S.C. 7503(b)(1), 7513(b)(1), or 7543(b)(1).

Finally, the proposed language in § 752.203(h) establishes the same requirement that is detailed in the proposed rule changes at § 432.108, Settlement agreements. See discussion in § 432.108.

This subpart addresses the procedural requirements for removals, suspensions for more than 14 days, including indefinite suspensions, reductions in grade, reductions in pay, and furloughs of 30 days or less for covered employees.

Pursuant to the creation of subpart A within the proposed rule, § 752.401(b)(14) reflects an exclusion for actions taken under 5 U.S.C. 7515.

Section 752.401(c) identifies employees covered by this subpart. The proposed rule at § 752.401(c)(2) updates coverage to include an employee in the competitive service who is not serving a probationary or trial period under an initial appointment or, except as provided in section 1599e of title 10, United States Code, who has completed 1 year of current continuous service under other than a temporary appointment limited to 1 year or less. This language has been updated to align with 5 U.S.C. 7511(a)(1)(A)(ii).

The proposed rule includes a definition for the term “business day.” This addition is necessary to implement the 15 business day decision period described in E.O. 13839.

As with the rule changes proposed for § 752.202, the standard for action under this subpart remains unchanged and incorporates a penalty determination based on the principles of E.O. 13839. Please see discussion in § 752.202. In addition, the proposed rule at § 752.403 adds paragraph (f) which states that a suspension or a reduction in pay or grade should not be a substitute for removal in circumstances in which removal would be appropriate. Agencies should not require that an employee have previously been suspended or reduced in pay or grade before a proposing official may propose removal, except as may be appropriate under applicable facts.

Section 752.404(b) discusses the requirements for a notice of proposed action issued under this subpart. Specifically, § 752.404(b)(1) provides that, to the extent an agency, in its sole and exclusive discretion deems practicable, agencies should limit written notice of adverse actions taken under this subpart to the 30 days prescribed in 5 U.S.C. 7513(b)(1). Any notice period greater than 30 days must be reported to OPM. The proposed rule also includes the requirement that the notice must provide detailed information with respect to any right to appeal the action pursuant to Public Law 115-91 section 1097(b)(2)(A); specifically, the forum in which the employee may file an appeal, and any limitations on the rights of the employee that would apply because of the forum in which the employee decides to file. This additional language implements the requirement in Public Law 115-91 section 1097(b)(2)(A), which mandates that information on whistleblower appeal rights be included in any notice provided to an employee under 5 U.S.C. 7503(b)(1), 7513(b)(1), or 7543(b)(1).

The proposed rule at § 752.404(b)(3)(iv) also incorporates by reference the provisions of 5 U.S.C. 6329b, the Administrative Leave Act of 2016, related to placing an employee in a paid non-duty status during the advance notice period. Until OPM has published the final regulation for 5 U.S.C. 6329b, and after conclusion of the agency implementation period, in those rare circumstances where the agency determines that the employee's continued presence in the workplace during the notice period may pose a threat to the employee or others, result in loss of or damage to Government property, or otherwise jeopardize legitimate Government interests, an agency will continue to have as an alternative the ability to place an employee in a paid, nonduty status for such time to effect the action. Thereafter, an agency may use the provisions of 5 U.S.C. 6329b as applicable.

Finally, the proposed rule at § 752.404(g) discusses the requirements for an agency decision issued under this subpart. Specifically, the proposed rule at § 752.404(g)(3) includes new language that, to the extent practicable, an agency should issue the decision on a proposed removal under this subpart within 15 business days of the conclusion of the employee's opportunity to respond to reflect a key principle of E.O. 13839. These proposed changes facilitate timely resolution of adverse actions while preserving employee rights.

The proposed language in this section establishes the same requirement that is detailed in the proposed rule changes at § 432.108, Settlement Agreements. See discussion regarding § 432.108 above.

This subpart addresses the procedural requirements for suspensions for more than 14 days and removals from the civil service as set forth in 5 U.S.C. 7542.

Pursuant to the creation of subpart A within the proposed rule, § 752.601(b)(2) reflects an exclusion for actions taken under 5 U.S.C. 7515.

The proposed rule includes a definition for the term “business day.” This addition is necessary to implement the 15 business day decision period described in E.O. 13839.

As with the rule changes proposed for §§ 752.202 and 752.403, the standard for action under this subpart remains unchanged and incorporates a penalty determination based on the principles of E.O. 13839. Please see discussion in § 752.202. In addition, the proposed rule at § 752.603 adds paragraph (f) which states that a suspension or a reduction in pay or grade should not be a substitute for removal in circumstances in which removal would be appropriate. Agencies should not require that an employee have previously been suspended or reduced in pay or grade before a proposing official may propose removal, except as may be appropriate under applicable facts.

Section 752.604(b) discusses the requirements for a notice of proposed action issued under this subpart. We have revised the language in this subpart to be consistent with the advance notice period for general schedule employees. Specifically, § 752.604(b)(1) provides that, to the extent an agency, in its sole and exclusive discretion deems practicable, agencies should limit written notice of adverse actions taken under this subpart to the 30 days prescribed in 5 U.S.C. 7543(b)(1). Any notice period greater than 30 days must be reported to OPM.

The proposed rule also includes additional language that the notice must provide detailed information with respect to any right to appeal the action pursuant to Public Law 115-91 section 1097(b)(2)(A); specifically, the forum in which the employee may file an appeal, and any limitations on the rights of the employee that would apply because of the forum in which the employee decides to file. This additional language implements the requirement within Public Law 115-91 section 1097(b)(2)(A), which mandates that information on whistleblower appeal rights be included in any notice provided to an employee under 5 U.S.C. 7503(b)(1), 7513(b)(1), or 7543(b)(1).

The proposed rule at § 752.604(b)(2)(iv) also incorporates by reference the provisions of 5 U.S.C. 6329b, The Administrative Leave Act of 2016, related to placing an employee in a paid non-duty status during the advance notice period. However, as noted above, until OPM has published the final regulation for 5 U.S.C. 6329b, and after conclusion of the agency implementation period, in those rare circumstances where the agency determines that the employee's continued presence in the workplace during the notice period may pose a threat to the employee or others, result in loss of or damage to Government property, or otherwise jeopardize legitimate Government interests, an agency will continue to have as an alternative the ability to place an employee in a paid, nonduty status for such time to effect the action. Thereafter, an agency may use the provisions of 5 U.S.C. 6329b as applicable.

Finally, the proposed rule at § 752.604(g) discusses the requirements for an agency decision issued under this subpart. Specifically, the proposed rule at § 752.604(g)(3) includes new language that, to the extent practicable, an agency should issue the decision on a proposed removal under this subpart within 15 business days of the conclusion of the employee's opportunity to respond to reflect one of the key principles of E.O. 13839.

The proposed language in this section establishes the same requirement that is detailed in the proposed rule changes at §§ 432.108, 752.203 and 752.407. Please see discussion regarding § 432.108 above.

I certify that this regulation will not have a significant impact on a substantial number of small entities because it applies only to Federal agencies and employees.

Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action,” under Executive Order 12866.

This proposed rule is not expected to be subject to the requirements of E.O. 13771 (82 FR 9339, February 3, 2017) because this proposed rule is expected to be related to agency organization, management, or personnel.

This regulation will not have substantial direct effects on the States, on the relationship between the National Government and the States, or on distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant preparation of a Federalism Assessment.

This regulation meets the applicable standard set forth in section 3(a) and (b)(2) of Executive Order 12988.

This rule will not result in the expenditure by State, local or tribal governments of more than $100 million annually. Thus, no written assessment of unfunded mandates is required.

This action pertains to agency management, personnel and organization and does not substantially affect the rights or obligations of non-agency parties and, accordingly, is not a `rule' as that term is used by the Congressional Review Act (Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)). Therefore, the reporting requirement of 5 U.S.C. 801 does not apply.

This regulatory action will not impose any additional reporting or recordkeeping requirements under the Paperwork Reduction Act.

Accordingly, for the reasons stated in the preamble, OPM proposes to amend 5 CFR parts 315, 432 and 752 as follows:

I. Background

The SBA 7(a) Loan Program includes three financing options for U.S. small business exporters, or businesses adversely affected by import competition: The Export Express Program, the Export Working Capital Program, and the International Trade Loan Program. The purpose of these programs is to provide access to capital for U.S. small business concerns to support expansion into international markets and the growth of U.S. small business exports. Details on the features and requirements of each program are described below.

Established as a pilot program in 1998, the Export Express Program (Export Express) was made permanent by the Small Business Jobs Act of 2010 (Pub. L. 111-240). The statutory provisions for Export Express are in Section 7(a)(34) of the Small Business Act, as amended (15 U.S.C. 636(a)(34)). SBA's Standard Operating Procedures 50 10 5(K), Lender and Development Company Loan Programs, and 50 57 2, 7(a) Loan Servicing and Liquidation (SOPs), as amended, describe in detail the policies and procedures governing Export Express. On September 28, 2018, SBA published a Proposed Rule regarding, in part, Export Express (83 FR 49001). The original comment period for the Proposed Rule was scheduled to end on November 27, 2018 but was extended to December 18, 2018 (83 FR 57693). A Final Rule is under development.

The maximum loan amount for an Export Express loan is $500,000. The maximum SBA guaranty on an Export Express loan of $350,000 or less is 90 percent, and for an Export Express loan over $350,000 and up to $500,000, the maximum guaranty is 75 percent. Under Export Express, designated lenders (Export Express Lenders) are permitted to use, to the maximum extent practicable, their own analyses, procedures, and documentation in making, closing, servicing, and liquidating Export Express loans. They also have reduced requirements for submitting documentation to SBA and obtaining the SBA's prior approval. These loan analyses, procedures, and documentation must meet prudent lending standards; be consistent with those the Export Express Lender uses for its similarly sized, non-SBA guaranteed commercial loans; and conform to all requirements imposed upon 7(a) Lenders generally and Export Express Lenders in particular by Loan Program Requirements (as defined in 13 CFR 120.10), as such requirements are issued and revised by SBA from time to time. As with all 7(a) loans, the Export Express Lender must demonstrate that credit is not available elsewhere to the applicant on reasonable terms from non-federal, non-state, or non-local government sources, including the lender. In addition to the eligibility criteria applicable to all 7(a) loans, an Export Express borrower must have been in operation, although not necessarily in exporting, for at least 12 full months, unless certain additional requirements are met.

Export Express loan proceeds must be used for an export development activity, which includes the following:

a. Obtaining a standby letter of credit when required as a bid bond, performance bond, or advance payment guarantee;

b. Participating in a trade show that takes place outside of the U.S.;

c. Translation of product brochures or catalogues for use in markets outside of the United States;

d. Obtaining a general line of credit for export purposes;

e. Performing a service contract for buyers located outside the U.S.;

f. Obtaining transaction-specific financing associated with completing export orders;

g. Purchasing real estate or equipment to be used in the production of goods or services for export;

h. Providing term loans or other financing to enable a small business concern, including an export trading company and an export management company, to develop a market outside the U.S.; and

i. Acquiring, constructing, renovating, modernizing, improving, or expanding a production facility or equipment to be used in the U.S. in the production of goods or services for export.

Export Express Lenders must follow the same collateral policies and procedures that they have established and implemented for their similarly sized, non-SBA guaranteed commercial loans, including those concerning identification of collateral. Such policies and procedures must be commercially reasonable and prudent. Additionally, Export Express lines of credit over $25,000 used to support the issuance of a standby letter of credit must have collateral (cash, cash equivalent or project) that will provide coverage for at least 25 percent of the issued standby letter of credit amount.

The statutory provisions for the Export Working Capital Program (EWCP) are in Sections 7(a)(14) and 7(a)(2)(D) of the Small Business Act, as amended (15 U.S.C. 636(a)(14) and 636(a)(2)(D)). Agency regulations at 13 CFR 120.340 to 13 CFR 120.344 govern EWCP. SBA's SOPs 50 10 5(K) and 50 57 2, as amended, describe in detail the policies and procedures governing EWCP. Under EWCP, SBA guarantees short-term export working capital loans made by participating lenders to eligible U.S. small business exporters. The maximum loan amount for an EWCP loan is $5,000,000. The guaranty for EWCP loans is 90 percent, not to exceed $4,500,000.

EWCP loan maturities may be for up to 3 years with annual renewals. EWCP loan facilities can be structured for single export transactions, multiple export transactions or as asset-based lines of credit. EWCP loan proceeds can be used only to finance export transactions. An export transaction is the production and payment associated with a sale of goods or services to a foreign buyer. In addition to the eligibility criteria applicable to all 7(a) loans, an EWCP borrower must be in business for one full year at the time of application, but not necessarily in the exporting business, unless waived by SBA. Additionally, as with all 7(a) loans, the EWCP lender must demonstrate that credit is not available elsewhere on reasonable terms to the borrower.

Eligible uses of EWCP loan proceeds are as follows:

a. To acquire inventory;

b. To pay the manufacturing costs of goods for export;

c. To purchase goods or services for export;

d. To support standby letters of credit;

e. For pre-shipment working capital; and

f. For post-shipment foreign accounts receivable financing.

SBA requires a first security interest sufficient to cover 100 percent of the EWCP loan amount (such as insured accounts receivable or letters of credit). Collateral must be located in the U.S., its territories or possessions. EWCP applicants are required to submit cash flow projections to support the need for the loan and demonstrate the ability to repay. After the EWCP loan is made, the EWCP borrower must submit continual progress reports.

The statutory provisions for the International Trade Loan Program (ITL) are in Section 7(a)(16) and 7(a)(2)(E) of the Small Business Act, as amended (15 U.S.C. 636(a)(16) and 636(a)(2)(E)). Agency regulations at 13 CFR 120.345 to 120.349 govern the ITL program. SBA's SOPs 50 10 5(K) and 50 57 2, as amended, describe in detail the policies and procedures governing the ITL program. Under the ITL program, SBA guarantees term loans made by participating lenders to U.S. small businesses that are engaged in or preparing to engage in international trade or are adversely affected by import competition. The maximum loan amount for an ITL loan is $5,000,000. The ITL loans may receive a maximum guaranty of 90 percent or $4,500,000, except that the maximum guaranty amount for any working capital component of an ITL loan is limited to $4,000,000.

An applicant must demonstrate that the ITL loan proceeds will allow it to significantly expand an existing export market or develop new export markets, or that the applicant has been adversely affected by import competition and the loan will improve its competitive position. As with all 7(a) loans, the ITL lender must demonstrate that credit is not available elsewhere on reasonable terms to the borrower.

Eligible uses of ITL loan proceeds are as follows:

a. Acquire, construct, renovate, modernize, improve, or expand facilities and equipment to be used in the U.S. to produce goods or services involved in international trade, and to develop and penetrate foreign markets;

b. Refinance existing indebtedness that is not structured with reasonable terms and conditions, including any debt that qualifies for refinancing under 7(a) Loan Program Requirements; and

c. Provide working capital.

Each ITL loan must be secured either by a first lien position or first mortgage on the property or equipment financed by the ITL loan or on other assets of the borrower. An ITL loan may be secured by a second lien position on the property or equipment financed by the ITL loan or on other assets of the borrower, if SBA determines the second lien position provides adequate assurance of the payment of the ITL loan.

This Advance Notice of Proposed Rulemaking (ANPRM) reflects a revision to the title submitted for this action in SBA's Spring 2019 Semiannual Regulatory Agenda. In order to facilitate feedback from the public, the rule title for this action is revised from “Amendments to International Trade Loan Programs (RIN 3245-AG95)” to “Export Express, Export Working Capital, and International Trade Loan Programs (RIN 3245-AG95)”. SBA will include this revised rule title in its Fall 2019 Semiannual Regulatory Agenda and Regulatory Plan.

SBA requests comments from the public on the questions listed below. The list of questions is meant to assist in the formulation of public comments and is not intended to restrict the issues that may be addressed. Responders are invited to comment on any or all portions of this ANPRM.

1. Currently, the maximum loan amount for Export Express is $500,000, and loans up to $350,000 receive a 90 percent guaranty, while loans over $350,000 receive a 75 percent guaranty. Is there a need for an SBA guaranty for U.S. small business exporters at this loan level to address a market gap? Are the current maximum loan amount and guaranty amounts affecting usage of the program?

2. What requirements, including underwriting and types of documentation, do lenders use for export loans made under their conventional policies to ensure that loan proceeds are used for their intended purpose?

3. The Export Express program allows participating lenders to monitor lines of credit using their own internal policies for similarly sized non-SBA guaranteed commercial loans, provided that such policies are commercially reasonable and prudent. How do SBA requirements differ from lenders policies for conventional export loans regarding use of proceeds for unauthorized purposes?

4. Although the SBA Express and Export Express programs share many similarities, they are separate programs with separate maximum loan and guaranty amounts and different eligible uses of proceeds. Do lenders combine loans for both export and domestic uses for conventional commercial loans? If so, how does the monitoring, reporting and underwriting account for the different uses of proceeds?

5. The Export Express program allows participating lenders to refinance an existing Export Express loan under Export Express only if the original Export Express Lender is unable or unwilling to increase or make a second Export Express loan. Since all Export Express loans must have a stated maturity, do lenders support permitting the use of a term Export Express loan to refinance an Export Express revolving line of credit under other conditions?

6. Would the ability to submit Export Express loans using SBA One increase usage of the program? Do lending partners encounter any challenges in inputting Export Express loans into SBA's E-Tran system?

7. How can SBA revise the Export Express Loan Program Requirements to increase the number of lenders using the Export Express program and increase the number of eligible U.S. small businesses receiving loans under the program?

8. How can SBA revise the Export Express Loan Program Requirements to more closely align with how lenders finance export transactions conventionally?

1. Although EWCP provides guarantees for short-term loans with maturities of up to 3 years, EWCP loans with a maturity of 12 months or less are charged a guaranty fee of one quarter of one (.25) percent, while EWCP loans with a maturity over 12 months and up to 3 years are charged a guaranty fee of between 2 percent and 3 and 3 quarters (3.75) percent depending on the amount of the loan. What fee structure do lenders use for similarly sized working capital loans, including asset-based loans? Would an alternative fee structure increase participation in EWCP?

2. Currently, the maximum loan amount for EWCP is $5,000,000, and all loans receive a 90 percent guaranty. Per 7(a) loan program parameters, these loan guarantees must only be provided to eligible small businesses. Are these loan limits and credit facility types sufficient to serve the needs of U.S. small business exporters, particularly in light of the availability of a similar program with higher loan amounts at the Export-Import Bank of the United States (EXIM) which are not restricted to eligible small business?

3. Which, if any existing EWCP collateral requirements set forth in 13 CFR 120.343 differ from conventional lending standards for similarly sized commercial loans for collateral on asset-based lending export credit facilities?

4. Should SBA consider allowing lenders to advance loan proceeds under an EWCP line with sufficient collateral to ensure there is a 1:1 collateral ratio or better, rather than using a Borrowing Base Certificate, as is currently available in the 7(a) Working Capital CAPLine program? Would such a change increase usage of EWCP?

5. SBA understands that lenders and EXIM allow overseas accounts receivable and inventory owned by an affiliated entity of a borrower, located in overseas markets, to be included in a borrowing base on conventional export loans. What additional risks are associated with such a policy and what experience do lenders have recovering funds from the liquidation of such collateral for their non-SBA guaranteed loans of similar size?

6. What cash flow analysis (including projections) and documentation do lenders require on their conventional asset-based export loans similarly sized to SBA guaranteed loans?

7. What fees do lenders currently charge on conventional export loans similar in size to SBA guaranteed loans? What interest rates do lenders currently charge on conventional export loans similar in size to SBA guaranteed loans?

8. Non-bank lenders are allowed to participate in the EWCP program provided they are Small Business Lending Companies (SBLCs) or Non-Federally Regulated Lenders (NFRLs). Historically, Non-bank lender participation in the EWCP has been low. What outreach efforts and EWCP program changes would increase Non-bank lender utilization?

9. Would the inclusion of SBA One for electronic submission of EWCP loan applications increase usage of the program?

10. How can SBA revise the EWCP Loan Program Requirements to increase the number of lenders using the EWCP program and increase the number of eligible U.S. small businesses receiving loans under the program?

11. How can SBA revise the EWCP Loan Program Requirements to more closely align with how lenders finance export transactions conventionally?

1. Currently, an ITL loan must be secured by a first lien position on the property or equipment financed by the loan or on other assets of the borrower, except that an ITL loan may be secured by a second lien position on the property or equipment or other assets of the borrower if SBA determines that the second lien position provides adequate assurance of payment of the ITL loan. Do the existing ITL collateral requirements align with commercial lending standards for collateralization of term facilities for capital assets? What other options for collateral are used in the extension of conventional commercial export loans of similar size?

2. ITL applicants must have a business plan reasonably supporting their projected export sales. Is there a need for additional policy guidance regarding this requirement?

3. Although ITL loans can be processed under a lender's delegated authority, is there a need for a streamlined delivery method for ITL loans with a maximum limit of $350,000 or less? Would such a delivery method increase lender usage of the ITL loan program?

4. Would the inclusion of the ITL programs in SBA One increase usage of the program? Do lending partners encounter any challenges in inputting ITL loans into SBA's E-Tran system?

5. How can SBA revise the ITL Loan Program Requirements to increase the number of lenders using the ITL program and increase the number of eligible U.S. small businesses receiving loans under the program?

6. How can SBA revise the ITL Loan Program Requirements to more closely align with how lenders finance export transactions conventionally?

SBA is seeking comments and recommendations on additional 7(a) Loan Program changes in order to increase the number of U.S. small business exporters and the volume of U.S. small business exports. Comments and recommendations are not limited to specific financial products. SBA would be interested in hearing from commenters on the need for loan guarantees for financial products specifically tailored for standby letters of credit, lease financing, purchase order financing, receivable factoring platforms, or supply chain finance.

Interested parties are invited to provide any other comments that they may have relating to the concerns described in this ANPRM. We ask that you provide a brief justification for any suggested changes.

Table of Contents I. Executive Summary A. Purpose of the Proposed Rule B. Summary of the Major Provisions of the Proposed Rule C. Legal Authority D. Costs and Benefits II. Background III. Legal Authority IV. Description of the Proposed Rule V. Incorporation by Reference VI. Proposed Effective Date VII. Economic Analysis of Impacts VIII. Analysis of Environmental Impact IX. Paperwork Reduction Act of 1995 X. Federalism XI. Consultation and Coordination With Indian Tribal Governments XII. References I. Executive Summary A. Purpose of the Proposed Rule

FDA is issuing this proposed rule primarily to provide an alternative to the current analytical method that is incorporated by reference and establish a new, more efficient analytical method that FDA could use for determining sulfite concentrations in foods. This action is part of FDA's implementation of Executive Orders 13771 and 13777. Under these Executive Orders, FDA is comprehensively reviewing existing regulations to identify opportunities for repeal, replacement, or modification that will result in meaningful burden reduction while allowing us to achieve our public health mission and fulfill statutory obligations.

This proposed rule, if finalized, would update the current incorporation by reference of the AOAC International Official Method of Analysis for determining sulfite concentrations in foods and remove Appendix A to Part 101 (21 CFR part 101), as no longer necessary. The rule would also add a recently developed, accurate, and more efficient analytical method to determine sulfite concentrations in foods. If finalized, FDA would use this more modern method; the addition of this method would not affect parties other than FDA. The addition of this method would not affect industry's disclosure obligations. Manufacturers, for example, would be free to use any method to determine sulfite concentrations in their foods.

FDA is issuing this proposed rule to amend part 101 under sections 403(i)(2), 403(a), 201(n), and 701(a) (21 U.S.C. 343(i)(2), 21 U.S.C. 343(a), 21 U.S.C. 321(n), and 371(a)) of the FD&C Act.

The benefit of this proposed rule would be the cost savings, in the form of time savings, associated with use of the new method. We estimate that, at the mean, the present value of the benefits of this proposed rule is $1.0 million using a 3 percent discount rate and $0.9 million using a 7 percent discount rate (2017$). The cost of this proposed rule would consist of both one-time validation costs and materials costs associated with use of the new method. We estimate that, at the mean, the present value of the costs of this proposed rule would be $0.2 million using either a 3 or a 7 percent discount rate (2017$). At the mean, the estimated present value of the net benefits of this proposed rule would be $0.8 million using a 3 percent discount rate and $0.7 million using a 7 percent discount rate (2017$).

Executive Order 13777, “Enforcing the Regulatory Reform Agenda” ( https://www.govinfo.gov/content/pkg/FR-2017-03-01/pdf/2017-04107.pdf, 82 FR 12285 (March 1, 2017)) was issued on February 24, 2017. One provision in the Executive Order requires agencies to evaluate existing regulations and make recommendations to the Agency head regarding their repeal, replacement, or modification, consistent with applicable law. As part of this initiative, FDA is proposing to update regulations that include an outdated incorporation by reference as specified in this proposed rule and add a recently developed, accurate, and more efficient analytical method of analysis for determining sulfite concentrations in foods.

FDA's food labeling regulations require that sulfites present at more than 10 parts per million (ppm) be labeled on foods. (See § 101.100(a)(4) and § 130.9(a) (21 CFR 130.9(a))). Sulfites are widely used food preservatives that have been shown to produce allergic-type responses in humans, and the presence of sulfites in foods may have serious health implications for those persons who are intolerant of sulfites. The analytical method we use for determining sulfite concentrations in foods is specified at §§ 101.100(a)(4) and 130.9(a), partially through incorporation by reference. In this document, we propose to update the incorporation by reference of the analytical method that we use to determine sulfite concentrations in foods and establish a new, accurate, and more efficient analytical method that we would also use to determine sulfite concentrations in foods. We are also proposing to amend the unit of measure specified in §§ 101.100(a)(4) and 130.9(a) to milligrams per kilogram, which is equivalent to parts per million, to be consistent with the unit of measure specified in the new analytical method.

FDA is issuing this proposed rule to amend part 101 under sections 403(i)(2), 403(a), 201(n), and 701(a) (21 U.S.C. 343(i)(2), 21 U.S.C. 343(a), 21 U.S.C. 321(n), and 21 U.S.C. 371(a)) of the FD&C Act. Specifically, FDA is proposing to amend § 101.100(a)(4), which describes the analytical method FDA uses to determine whether there is a detectable amount of sulfite in a finished nonstandardized food.

Section 403(i)(2) of the FD&C Act requires that all of the ingredients in a nonstandardized food be declared on the label of that food by their common or usual names unless FDA has exempted the ingredients from such requirements. FDA established such an exemption in § 101.100(a)(3) for “incidental additives” that are present in foods at insignificant levels and that do not have any technical or functional effect in the foods. Under § 101.100(a)(4), sulfiting agents will be considered to be present in foods in insignificant amounts only if no detectable amount of sulfite is present in the finished food; a detectable amount of a sulfiting agent is 10 parts per million (ppm) or more. Additionally, section 701 of the FD&C Act permits FDA to promulgate regulations for the efficient enforcement of the FD&C Act. Updating the analytical method FDA will use to determine whether there is a detectable amount of sulfites in a finished nonstandardized food will allow FDA to use current scientific technology for the efficient enforcement of the food labeling requirements.

We are also proposing to amend parts 101 and 130 under sections 403(a) and 201(n) of the FD&C Act. Pursuant to § 130.9, standardized foods containing sulfiting agents that are functional or that are present in the finished food at a detectable amount (10 ppm or more) are deemed misbranded unless the presence of the sulfiting agents is declared on the label. This provision also describes the analytical methods, which are the same as in part 101, for determining the presence of sulfiting agents in food. Section 403(a) of the FD&C Act states that a food is misbranded if its labeling is false or misleading in any particular. Under section 201(n) of the FD&C Act, the extent to which labeling fails to reveal material facts with respect to the consequences which may result from the use of an article under the conditions of use in the labeling or as customary or usual shall be taken into account in determining whether the labeling of that article is misleading. Because sulfiting agents can cause allergic-type responses of unpredictable severity, the presence of a detectable amount of sulfites (as defined at §§ 101.100(a)(4) and 130.9 as 10 ppm or more of sulfites) in a food is a material fact. Therefore, the failure to label a food as containing sulfiting agents renders that label misleading and the food misbranded under sections 403(a) and 201(n) of the FD&C Act.

This proposed rule would update the incorporation by reference for the current analytical method in parts 101 and 130 and also identify a new analytical method that we would use in testing for sulfites in foods to determine compliance. The rule, if finalized, would not require other entities to use these methods. Other entities are free to determine the correlation between the official FDA-designated methods and the entity's method of choice for determining sulfite concentrations in foods and to use their method of choice as they see fit, recognizing that FDA would rely on the methods established by any final rule resulting from this rulemaking.

We are proposing to amend the regulations that specify the method of analysis that FDA uses when determining sulfite concentrations in foods. These changes are intended to update an outdated incorporation by reference in two provisions, remove an obsolete appendix, and establish a new analytical method that is accurate and more efficient than the current method.

Our regulations at §§ 101.100(a)(4) and 130.9(a) specify the analytical method that FDA uses for determining sulfite concentrations in food. Both of these regulations establish the method of analysis in two steps. The first step incorporates by reference §§ 20.123-20.125, “Total Sulfurous Acid,” in “Official Methods of Analysis of the Association of Official Analytical Chemists,” 14th Ed. (1984); this method is known as the Monier-Williams method. The second step refines the Monier-Williams method to improve accuracy and reproducibility and make the method suitable for detecting sulfite concentrations as low as 10 ppm; the modifications are included in Appendix A to Part 101. Collectively, the Monier-Williams method with the Appendix A to Part 101 modifications is referred to as the “optimized Monier-Williams method.” After we incorporated by reference the Monier-Williams method and implemented the modifications to that method in Appendix A to Part 101, the AOAC amended the Official Methods of Analysis to include “Official Method 990.28, Optimized Monier-Williams Method,” which is the same as the two-step process in FDA's regulations; i.e, the Monier-Williams method and the refinements to the Monier-Williams method in Appendix A to Part 101. As such, this portion of the proposed rule would modernize our regulations to reflect the citation to the current AOAC method for determining sulfite concentrations in food, but would not result in a change in FDA methodology. We are, therefore, proposing to amend §§ 101.100(a)(4) and 130.9(a) to replace the existing incorporation by reference with “AOAC Official Method 990.28, Sulfites in Foods, Optimized Monier-Williams Method,” (Final Action 1994), Section 47.3.43, Official Methods of Analysis of AOAC INTERNATIONAL, 21st Edition (2019), and to remove Appendix A to Part 101.

We are also proposing to amend §§ 101.100(a)(4) and 130.9(a) to add a recently developed and published new analytical method for determining sulfite concentrations in foods. A liquid chromatography (LC) tandem mass spectrometry (MS) method (LC-MS/MS method) was recently published (Ref. 1). This method proved to be a faster and more sensitive way to determine sulfite concentrations in foods. FDA's current methodology is an acceptable method for quantifying sulfites, but it is time-consuming, has a method detection limit of 10 ppm, and is unable to accurately determine sulfite concentrations in some samples. The current method also requires specialty glassware, strong familiarity with the method, and almost two hours of distillation, meaning that only three samples per apparatus can be run in one 8-hour work day.

The newly published LC-MS/MS method is a more rapid, specific alternative to Official Method 990.28, with a lower detection limit, and has been validated by other labs to ensure its accuracy for widespread use (Ref. 2). Sample preparation using the LC-MS/MS method involves routine extraction techniques that can easily be batched, allowing for the completion of as many as 30 samples by a single analyst in a single day. By using the LC-MS/MS method, FDA would improve efficiency in testing and could better enforce the labeling requirements for sulfites.

We are also proposing to amend the unit of measure specified in § 101.100(a)(4) and 130.9(a) to include milligrams per kilogram, which is equivalent to parts per million, to be consistent with the unit of measure specified in the new analytical method.

FDA is proposing to incorporate by reference “AOAC Official Method 990.28, Sulfites in Foods, Optimized Monier-Williams Method,” (Final Action 1994), Section 47.3.43, Official Methods of Analysis of AOAC INTERNATIONAL, 21st Edition (2019). You may purchase a copy of the material from AOAC International, 2275 Research Blvd., Ste. 300, Rockville, MD 20850-3250, 301-924-7077 ext. 170, www.aoac.org. This method is an updated version of the method currently referenced in FDA's regulations as the method that FDA uses to determine sulfite concentrations in foods.

FDA is also proposing to incorporate by reference “Determination of Sulfite in Food by Liquid Chromatography Tandem Mass Spectrometry: Collaborative Study,” Journal of AOAC International Vol. 100, No. 6, pp. 1785-1794. You may purchase a copy of the material from AOAC International, 2275 Research Blvd., Ste. 300, Rockville, MD 20850-3250, 301-924-7077 ext. 170, www.aoac.org. The study describes a liquid chromatography tandem mass spectrometry method that FDA would use for the determination of sulfite concentrations in foods as an alternative to AOAC Official Method 990.28.

We are proposing that any final rule resulting from this rulemaking become effective 30 days after the date of its publication in the Federal Register .

We have examined this proposed rule under Executive Order 12866, Executive Order 13563, Executive Order 13771, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct us to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). Executive Order 13771 requires that the costs associated with significant new regulations “shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.” We believe that this proposed rule would not be a significant regulatory action as defined by Executive Order 12866 and would be a deregulatory action for purposes of Executive Order 13771.

The Regulatory Flexibility Act requires us to analyze regulatory options that would minimize any significant impact of a rule on small entities. This proposed rule would amend the regulations that specify the method of analysis that FDA uses to determine the concentration of sulfites in foods and would not require other entities to use these methods. Hence, the scope of this proposed rule is limited to FDA. We, therefore, propose to certify that this proposed rule would not have a significant economic impact on a substantial number of small entities.

The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires us to prepare a written statement, which includes an assessment of anticipated costs and benefits, before issuing “any rule that includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any one year.” The current threshold after adjustment for inflation is $154 million, using the most current (2018) Implicit Price Deflator for the Gross Domestic Product. This proposed rule would not result in an expenditure in any year that meets or exceeds this amount.

This proposed rule would amend the regulations that specify the method of analysis that FDA uses to determine the concentration of sulfites in foods. The currently specified method of analysis is the optimized Monier-Williams method. This rule proposes to update the incorporation by reference for FDA's current methodology and add to this a recently developed, accurate, and more efficient analytical method of analysis, referred to as the LC-MS/MS method. The LC-MS/MS method would serve as the primary method used by FDA to determine sulfite concentrations in foods if this proposed rule becomes finalized.

The benefit of this proposed rule would be the cost savings, in the form of time savings, associated with use of the LC-MS/MS method. There would be no impact from the update to the incorporation by reference for FDA's current methodology ( i.e., the optimized Monier-Williams method) because only the reference would change, not the method. Using a standard 10-year time horizon, we estimate that the present value of the benefits of this proposed rule ranges from $0.5 million to $1.7 million, with a mean estimate of $1.0 million, using a 3 percent discount rate, and ranges from $0.4 million to $1.4 million, with a mean estimate of $0.9 million, using a 7 percent discount rate (2017$). Annualized benefits, which are illustrated below in table 1, are estimated to range from $0.06 million per year to $0.2 million per year, with a mean estimate of $0.1 million per year, using either a 3 percent or a 7 percent discount rate (2017$).

The cost of this proposed rule would consist of both one-time validation costs and materials costs associated with use of the LC-MS/MS method. Using a standard 10-year time horizon, we estimate that the present value of the total costs of this proposed rule is $0.2 million, using a 3 percent discount rate, and ranges from $0.1 million to $0.2 million, with a mean estimate of $0.2 million, using a 7 percent discount rate (2017$). We estimate that annualized costs, which are presented below in table 1, are $0.02 million per year, using either a 3 percent or a 7 percent discount rate (2017$).

The estimated net benefits of this proposed rule are defined as the difference between the estimated benefits and the estimated costs of the rule. Using a standard 10-year time horizon, we estimate that the present value of the net benefits of this proposed rule ranges from $0.3 million to $1.5 million, with a mean estimate of $0.8 million, using a 3 percent discount rate, and ranges from $0.3 million to $1.2 million, with a mean estimate of $0.7 million, using a 7 percent discount rate (2017$). Annualized net benefits are estimated to range from $0.04 million per year to $0.18 million per year, with a mean estimate of $0.09 million per year, using a 3 percent discount rate, and from $0.04 million per year to $0.17 million per year, with a mean estimate of $0.10 million per year, using a 7 percent discount rate (2017$).

In line with Executive Order 13771, in table 2 we estimate present and annualized values of costs and cost savings over an infinite time horizon. Based on these cost savings, this proposed rule would be considered a deregulatory action under Executive Order 13771.

We have developed a comprehensive Preliminary Economic Analysis of Impacts that assesses the impacts of the proposed rule. The full preliminary analysis of economic impacts is available in the docket for this proposed rule (Ref. 3) and at https://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm.

We have determined under 21 CFR 25.30(h) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

FDA tentatively concludes that this proposed rule contains no collection of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.

We have analyzed this proposed rule in accordance with the principles set forth in Executive Order 13132. We have determined that the proposed rule does not contain policies that have substantial direct effects 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. Accordingly, we conclude that the rule does not contain policies that have federalism implications as defined in the Executive Order and, consequently, a federalism summary impact statement is not required.

We have analyzed this proposed rule in accordance with the principles set forth in Executive Order 13175. We have tentatively determined that the rule does not contain policies that would have a substantial direct effect on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes. We invite comments from tribal officials on any potential impact on Indian Tribes from this proposed action.

The following references marked with an asterisk (*) are on display in the Dockets Management Staff (see ADDRESSES ) and are available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; they are also available electronically at https://www.regulations.gov. References without asterisks are not on public display at https://www.regulations.gov because they have copyright restriction. Some may be available at the website address, if listed. References without asterisks are available for viewing only at the Dockets Management Staff. FDA has verified the website addresses, as of the date this document publishes in the Federal Register , but websites are subject to change over time.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, we propose that 21 CFR parts 101 and 130 be amended as follows:

Please note that all comments received in response to this docket are considered part of the public record. They will, unless reasonable cause is given, be made available by the DEA for public inspection online at http://www.regulations.gov. Such information includes personal identifying information (such as your name, address, etc.) voluntarily submitted by the commenter. The Freedom of Information Act (FOIA) applies to all comments received. If you want to submit personal identifying information (such as your name, address, etc.) as part of your comment, but do not want it to be made publicly available, you must include the phrase “PERSONAL IDENTIFYING INFORMATION” in the first paragraph of your comment. You must also place all of the personal identifying information you do not want made publicly available in the first paragraph of your comment and identify what information you want redacted.

If you want to submit confidential business information as part of your comment, but do not want it to be made publicly available, you must include the phrase “CONFIDENTIAL BUSINESS INFORMATION” in the first paragraph of your comment. You must also prominently identify the confidential business information to be redacted within the comment.

Comments containing personal identifying information or confidential business information identified as directed above will be made publicly available in redacted form. If a comment has so much confidential business information that it cannot be effectively redacted, all or part of that comment may not be made publicly available. Comments posted to http://www.regulations.gov may include any personal identifying information (such as name, address, and phone number) included in the text of your electronic submission that is not identified as directed above as confidential.

An electronic copy of this proposed rule is available at http://www.regulations.gov for easy reference.

Under 21 U.S.C. 811(e), the Attorney General may place an immediate precursor into the same schedule as the controlled substance that the immediate precursor is used to make, if the substance meets the requirements of an immediate precursor under 21 U.S.C. 802(23).

The DEA is extremely concerned with the increase in the illicit manufacture and distribution of fentanyl. Fentanyl is a synthetic opioid and was first synthesized in Belgium in the late 1950's. Fentanyl is controlled in schedule II of the CSA due to its high potential for abuse and dependence, and accepted medical use in treatment in the United States. Fentanyl was introduced into medical practice and is approved in the United States for anesthesia and analgesia. However, due to its pharmacological effects, fentanyl can serve as a substitute for heroin, oxycodone, and other opioids in opioid dependent individuals. The trafficking of fentanyl in the United States continues to pose an imminent hazard to the public safety. Since 2012, fentanyl has shown a dramatic increase in the illicit drug supply as a single substance, in mixtures with other illicit drugs ( i.e. heroin, cocaine, and methamphetamine), or in forms that mimic pharmaceutical preparations including prescription opiates and benzodiazepines.

The DEA has noted a significant increase in overdoses and overdose fatalities from fentanyl in the United States in recent years. A recent report  1 from the Centers for Disease Control and Prevention (CDC) highlights this trend. According to this report, of the 41,430 drug overdose deaths occurring in the United States in 2011, 1,662 (4.0%) involved fentanyl. 2 Of the 63,632 drug overdose deaths in 2016, 18,335 (28.8%) involved fentanyl. This was the first time that fentanyl was reported in more drug related fatalities than heroin.

The increase of drug overdose deaths continued into 2017. According to the CDC, 3 there were 70,237 drug overdose deaths in the United States in 2017, an increase from the 63,632 overdose deaths recorded in 2016. Of the 70,237 overdose deaths in 2017, 47,600 (67.8%) involved an opioid. Deaths involving prescription opioids and heroin remained stable from 2016 to 2017; synthetic opioid overdose deaths (other than methadone), which include deaths related to fentanyl, increased 45.2% from 19,413 deaths in 2016 to 28,466 deaths in 2017.

The increase in overdose fatalities involving fentanyl coincides with a dramatic increase of law enforcement encounters of fentanyl. According to the National Forensic Laboratory Information System (NFLIS), 4 submissions to forensic laboratories that contained fentanyl increased exponentially beginning in 2012: 694 in 2012, 1,044 in 2013, 5,537 in 2014, 15,455 in 2015, 37,294 in 2016, 61,382 in 2017, and 70,453 in 2018.

Fentanyl is not a naturally occurring substance. As such, the manufacture of fentanyl requires it to be produced through synthetic organic chemistry. Synthetic organic chemistry is the process for creating a new organic molecule through a series of chemical reactions, which involve precursor chemicals. In the early 2000's, a synthetic process, commonly known as the Siegfried method, was utilized to manufacture fentanyl in several domestic and foreign clandestine laboratories. 72 FR 20039. At that time, the DEA had determined that two primary synthesis routes ( i.e., the Janssen method and the Siegfried method) were being used to produce fentanyl clandestinely, although it believed the Janssen synthesis route to be difficult to perform and beyond the rudimentary skills of most clandestine laboratory operators. The Siegfried synthetic route involves two important intermediates, N -phenethyl-4-piperidone (NPP) and 4-anilino- N -phenethylpiperidine (ANPP). The DEA controlled NPP on April 23, 2007 as a list I chemical by interim rule (72 FR 20039), which was finalized on July 25, 2008. 73 FR 43355. ANPP was controlled as a schedule II immediate precursor to fentanyl on August 30, 2010. 75 FR 37295. (June 29, 2010).

In 2017, the United Nations Commission on Narcotic Drugs placed NPP and ANPP in Table I of the Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 (1988 Convention) in response to the international increase of fentanyl on the illicit drug market. As such, member states of the United Nations were required to regulate these precursor chemicals at the national level. In addition, the People's Republic of China regulated NPP and ANPP on February 1, 2018.

Recent law enforcement information indicates that illicit manufacturers of fentanyl also use other synthetic routes in response to regulations placed on NPP and ANPP. One of these other routes is the original published synthetic pathway to fentanyl, known as the Janssen method, previously thought to be beyond the skills of most clandestine laboratory operators. This synthetic route does not involve NPP or ANPP as precursors. This synthetic pathway involves the important precursors N -(1-benzylpiperidin-4-yl)- N -phenylpropionamide (benzylfentanyl) and N -phenyl- N -(piperidin-4-yl)propionamide (norfentanyl). Benzylfentanyl, which is subject to a Notice of Proposed Rulemaking for control as a list I chemical published elsewhere in this issue of the Federal Register , is converted into norfentanyl in one chemical reaction. Norfentanyl is then subjected to one simple chemical reaction to complete the synthesis of fentanyl. The DEA is not aware of any legitimate uses of benzylfentanyl or norfentanyl other than in the synthesis of fentanyl.

According to DEA forensic laboratory data, the Janssen method was confirmed as the synthetic route used in 94% of 85 fentanyl drug exhibits that were evaluated to determine the synthetic route. These exhibits were seized in 2018. In addition, the number of law enforcement encounters of benzylfentanyl increased in 2017 and 2018. As stated above, benzylfentanyl is a precursor chemical used to synthesize norfentanyl in the Janssen method. According to NFLIS, 5 there was one identification of benzylfentanyl in 2016; however, benzylfentanyl was identified in 195 reports in 2017 and 237 reports in 2018. This is believed to indicate a change in the synthetic route used by some clandestine chemists to manufacture fentanyl in efforts to evade chemical regulations on NPP and ANPP. The increase in law enforcement encounters coincides with the international control that placed NPP and ANPP in Table I of the 1988 Convention in 2017.

The DEA determined that norfentanyl is commercially available from both domestic and foreign chemical suppliers. The DEA has identified 30 domestic suppliers and 22 foreign suppliers of norfentanyl from Canada (3), China (7), Germany (2), Hong Kong (1), India (1), Japan (2), Switzerland (1), and the United Kingdom (5). Of the 30 domestic suppliers of norfentanyl, only one is a DEA registrant. As it appears that these other 29 suppliers are not registered to manufacture schedule II controlled substances, it is not likely these suppliers are manufacturing fentanyl. Norfentanyl is attractive to illicit manufacturers because of the lack of chemical regulations on this substance, it is readily available from chemical suppliers, and it can easily be converted to the schedule II controlled substance fentanyl, in a one-step chemical reaction.

Under 21 U.S.C. 811(e), the Attorney General may place an immediate precursor into the same schedule as the controlled substance that the immediate precursor is used to make. The substance must meet the requirements of an immediate precursor under 21 U.S.C. 802(23). The term “immediate precursor” as defined in 21 U.S.C. 802(23) means a substance:

(A) which the Attorney General has found to be and by regulation designated as being the principal compound used, or produced primarily for use, in the manufacture of a controlled substance;

(B) which is an immediate chemical intermediary used or likely to be used in the manufacture of such controlled substance; and

(C) the control of which is necessary to prevent, curtail, or limit the manufacture of such controlled substance.

The DEA finds that norfentanyl meets the three criteria for the definition of an immediate precursor under 21 U.S.C. 802(23). First, the DEA finds that norfentanyl is produced primarily for use in the manufacture of the schedule II controlled substance fentanyl. As stated in the preceding section, under the Janssen method, norfentanyl is typically produced from the starting material benzylfentanyl and is then subjected to a simple one-step chemical reaction to obtain the schedule II controlled substance, fentanyl. The DEA is not aware of any legitimate use of benzylfentanyl other than in the synthesis of norfentanyl, and subsequently, fentanyl. The DEA has also not identified an industrial or other use for norfentanyl beyond the manufacture of fentanyl. Although DEA has not identified any other legitimate uses of norfentanyl, this notice of proposed rulemaking provides the public an opportunity to provide information to the contrary, as described in the “Solicitation for Information” section below.

Second, the DEA finds that norfentanyl is an immediate chemical intermediary used in the manufacture of the controlled substance fentanyl. As stated earlier, norfentanyl is produced as an intermediary in the fentanyl synthetic pathway. After it is synthesized, norfentanyl is subjected to a simple chemical reaction that converts it directly to fentanyl.

Third, the DEA finds that controlling norfentanyl is necessary to prevent, curtail, and limit the unlawful manufacture of the controlled substance, fentanyl. The DEA believes this action is necessary to assist in preventing the possible theft of norfentanyl from legitimate firms. The DEA believes that clandestine manufacturers will attempt to procure unregulated chemicals in effort to synthesize fentanyl. As a schedule II substance, norfentanyl will be safeguarded to the same degree that pharmaceutical firms now safeguard the fentanyl that they produce. Since norfentanyl is an immediate chemical intermediary in the manufacture of fentanyl, the increased level of security is necessary to prevent diversion of norfentanyl from legitimate firms. The DEA also believes control is necessary to prevent unscrupulous chemists from synthesizing norfentanyl and selling it (as an unregulated material) through the internet and other channels to individuals who may wish to acquire an unregulated precursor for the purpose of manufacturing fentanyl, a schedule II controlled substance.

The DEA believes that the control of norfentanyl is necessary to prevent its production and use in the illicit production of fentanyl. Therefore, the DEA is proposing the designation of norfentanyl as an immediate precursor of fentanyl, a schedule II controlled substance, pursuant to 21 U.S.C. 802(23) and 21 U.S.C. 811(e).

Pursuant to 21 U.S.C. 811(e), once norfentanyl is designated as an immediate precursor under 21 U.S.C. 802(23), it may be placed directly into schedule II (or a schedule with a higher numerical designation). The immediate precursor provision in 21 U.S.C. 811(e) permits the DEA to schedule an immediate precursor “without regard to the findings required by” section 811(a) or section 812(b) and “without regard to the procedures” prescribed by section 811(a) and (b). Accordingly, the DEA need not address the “factors determinative of control” in section 811 or the findings required for placement in schedule II in section 812(b)(2). Based on the finding that norfentanyl is an “immediate precursor” for fentanyl, the DEA proposes to place norfentanyl directly into schedule II.

The proposed scheduling of norfentanyl as an immediate precursor of the schedule II controlled substance, fentanyl, would subject norfentanyl to all of the regulatory controls and administrative, civil, and criminal sanctions applicable to the manufacture, distribution, dispensing, importing, and exporting of a schedule II controlled substance. If norfentanyl is placed in schedule II, the regulatory requirements will include the following:

1. Registration. Any person who manufactures, distributes, dispenses, imports, or exports norfentanyl, engages in research with respect to norfentanyl, or proposes to engage in such activities would be required to submit an application and be accepted for schedule II registration in accordance with 21 CFR part 1301.

2. Security. Norfentanyl would be subject to schedule II security requirements. In order to prevent diversion, norfentanyl would have to be manufactured, distributed, and stored in accordance with the standards for physical security and the operating procedures set forth in 21 CFR 1301.71, 1301.72(a), (c), and (d), 1301.73, 1301.74, 1301.75(b) and (c), 1301.76, and 1301.77.

3. Labeling and Packaging. All labels and labeling for commercial containers of norfentanyl that are distributed would be required to comply with the requirements of 21 CFR 1302.03-1302.07.

4. Quotas. Quotas for norfentanyl would be established pursuant to 21 CFR part 1303.

5. Inventory. Every registrant who possesses any quantity of norfentanyl would be required to keep an inventory of all stocks of the substance on hand pursuant to 21 CFR 1304.03, 1304.04 and 1304.11.

6. Records and Reports. Every DEA registrant would be required to maintain records and submit reports with respect to norfentanyl pursuant to 21 U.S.C. 827 and in accordance with 21 CFR parts 1304 and 1312.

7. Order Forms. Every DEA registrant who distributes norfentanyl would be required to comply with the order form requirements pursuant to 21 U.S.C. 828 and in accordance with 21 CFR part 1305.

8. Importation and Exportation. All importation and exportation of norfentanyl would be required to be in compliance with 21 U.S.C. 952, 953, 957, and 958, and in accordance with 21 CFR part 1312.

9. Liability. Any activity with norfentanyl in violation of or not authorized under the Controlled Substances Act or the Controlled Substances Import and Export Act would be unlawful and potentially subject to criminal penalties (21 U.S.C. 841-863 and 959-964).

As part of this proposed rulemaking, the DEA is soliciting information on any possible legitimate uses of norfentanyl unrelated to fentanyl production (including industrial uses) in order to assess the potential commercial impact of scheduling norfentanyl. The DEA has searched information in the public domain for legitimate uses of norfentanyl and has not documented legitimate commercial uses for norfentanyl other than as an intermediary chemical in the production of fentanyl. The DEA seeks, however, to document any unpublicized use(s) and other proprietary use(s) of norfentanyl not in the public domain. Therefore, the DEA is soliciting comment on the uses of norfentanyl in the legitimate marketplace. DEA is also soliciting comment on the regulatory burden to legitimate commercial activities that would result from the proposed placement of norfentanyl in schedule II of the CSA.

The DEA is soliciting input from all potentially affected parties regarding: (1) The types of legitimate industries using norfentanyl; (2) the legitimate uses of norfentanyl; (3) the size of the domestic market for norfentanyl; (4) the number of manufacturers of norfentanyl; (5) the number of distributors of norfentanyl; (6) the level of import and export of norfentanyl; (7) the potential burden these proposed regulatory controls of norfentanyl may have on legitimate commercial activities; (8) the potential number of individuals/firms that may be adversely affected by these proposed regulatory controls (particularly with respect to the impact on small businesses); and (9) any other information on the manner of manufacturing, distribution, consumption, storage, disposal, and uses of norfentanyl by industry and others. The DEA invites all interested parties to provide any information on any legitimate uses of norfentanyl in industry, commerce, academia, research and development, or other applications. The DEA seeks both quantitative and qualitative data.

Confidential or proprietary information may be submitted as part of a comment regarding this Notice of Proposed Rulemaking. Please see the “POSTING OF PUBLIC COMMENTS” section above for a discussion of the identification and redaction of confidential business information and personally identifying information.

This proposed rule was developed in accordance with the principles of Executive Orders 12866, 13563, and 13771. Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health, and safety effects; distributive impacts; and equity). Executive Order 13563 is supplemental to and reaffirms the principles, structures, and definitions governing regulatory review as established in Executive Order 12866. Executive Order 12866 classifies a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB), as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, 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 set forth in the Executive Order. The DEA has determined that this proposed rule is not a “significant regulatory action” under Executive Order 12866, section 3(f).

Executive Order 13771 requires an agency, unless prohibited by law, to identify at least two existing regulations to be repealed when the agency publicly proposes for notice and comment or otherwise promulgates a new regulation. 6 In furtherance of this requirement, Executive Order 13771 requires that the new incremental costs associated with new regulations, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations. 7 According to guidance provided by OMB, the requirements of Executive Order 13771 only apply to each new “significant regulatory action that . . . imposes costs.”  8 This proposed rule is not expected to be an E.O. 13771 regulatory action because this proposed rule is not significant under E.O. 12866.

The scheduling of norfentanyl as an immediate precursor of the schedule II controlled substance, fentanyl, would subject norfentanyl to all of the regulatory controls and administrative, civil, and criminal sanctions applicable to the manufacture, distribution, dispensing, importing, and exporting of a schedule II controlled substance. Norfentanyl is the immediate chemical intermediary in a synthesis process currently used by clandestine laboratory operators for the illicit manufacture of the schedule II controlled substance fentanyl. The distribution of illicitly manufactured fentanyl has caused an unprecedented outbreak of thousands of fentanyl-related overdoses in the United States in recent years.

The DEA has not identified any use for norfentanyl, other than its role as an intermediary chemical in the production of fentanyl. Based on the review of import and quota information for ANPP and fentanyl, the DEA believes the vast majority, if not all, of legitimate pharmaceutical fentanyl is produced from ANPP (schedule II immediate precursor for fentanyl), not norfentanyl. The quantities of ANPP permitted in the U.S., imported or manufactured pursuant to a quota, generally correspond with the quantities of legitimate pharmaceutical fentanyl produced in the U.S. Additionally, the DEA is not aware of norfentanyl being used for the manufacturing of legitimate pharmaceutical fentanyl; however, the DEA cannot rule out the possibility that minimal quantities of norfentanyl are used for this purpose. If there are any quantities of norfentanyl used for the manufacturing of legitimate pharmaceutical fentanyl, the quantities are believed to be small and economically insignificant.

The DEA evaluated the costs and benefits of this proposed action.

DEA believes the market for norfentanyl for the legitimate manufacturing of pharmaceutical fentanyl is minimal. As stated above, the only use for norfentanyl of which the DEA is aware is for the manufacturing of fentanyl. Any manufacturer, distributor, importer, or exporter of norfentanyl for the production of legitimate pharmaceutical fentanyl, if they exist at all, would incur costs if this proposed rule were finalized. The primary costs associated with this proposed rule include costs associated with complying with registration, physical security, labeling and packaging, quota, inventory, recordkeeping and reporting, and importation and exportation requirements. Other than the annual registration fees ($3,047 for manufacturers and $1,523 for distributors, importers, and exporters), due to the many unknowns and variability between entities, it is highly difficult to quantify the potential total cost burden of this proposed regulation. However, any manufacturer that uses norfentanyl for legitimate pharmaceutical fentanyl production would already be registered with the DEA and have all security and other handling processes in place, resulting in minimal cost. Any lost sales or profit attributed to those manufacturers or suppliers that are not for legitimate pharmaceutical fentanyl are excluded from the analysis as they are, whether passively or actively, facilitating the manufacture of illicit fentanyl.

The DEA has identified 30 domestic suppliers of norfentanyl, 29 of which are not registered with the DEA to handle schedule II controlled substances. It is difficult to estimate how much norfentanyl is distributed by these suppliers. It is common for chemical distributors to have items on their catalog while not actually having any material level of sales. Based on the review of import and quota information for fentanyl and ANPP, where the quantities of ANPP imported and manufactured generally correspond with the quantities of fentanyl produced, the DEA believes any quantity of sales from these distributors for the legitimate pharmaceutical fentanyl manufacturing is minimal. If this proposed rule is finalized, suppliers for the legitimate use of norfentanyl are expected to choose the least-cost option, and stop selling the minimal quantities, if any, of norfentanyl, rather than incur the costs of complying with the regulatory requirements. Because the DEA believes the quantities of norfentanyl supplied for the legitimate manufacturing of pharmaceutical fentanyl is minimal, the DEA estimates that the cost of foregone sales is minimal; and thus, the cost of this proposed rule is minimal. The DEA welcomes any public comment regarding this estimate.

This analysis excludes consideration of economic impact to those businesses that facilitate the manufacturing and distribution of norfentanyl for the production of manufacturing illicit fentanyl. The only use for norfentanyl of which the DEA is currently aware is the production of fentanyl. Although these suppliers are selling a currently unregulated substance, they wittingly or unwittingly facilitate the manufacturing of illicit fentanyl. As a law enforcement organization and as a matter of principle, the DEA believes considering the economic utility of facilitating the manufacture of illicit fentanyl would be improper.

Controlling norfentanyl is expected to prevent, curtail, and limit the unlawful manufacture and distribution of the controlled substance, fentanyl. This action is also expected to assist preventing the possible theft or diversion of norfentanyl from any legitimate firms. As a schedule II substance, norfentanyl would be safeguarded to the same degree that pharmaceutical firms now safeguard the fentanyl that they produce. The DEA also believes control is necessary to prevent unscrupulous chemists from synthesizing norfentanyl and selling it (as an unregulated material) through the internet and other channels, to individuals who may wish to acquire an unregulated precursor for the purpose of manufacturing illicit fentanyl.

In summary, the DEA conducted a qualitative analysis of costs and benefits. The DEA believes this action, if finalized, will minimize the diversion of norfentanyl. The DEA believes the market for norfentanyl for the legitimate manufacturing of pharmaceutical fentanyl is minimal. Therefore, any potential cost as a result of this regulation is minimal. Therefore, the estimated economic impact of this proposed rule is less than $100 million in any given year.

This proposed regulation meets the applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988 Civil Justice Reform to eliminate drafting errors and ambiguity, minimize litigation, provide a clear legal standard for affected conduct, and promote simplification and burden reduction.

This proposed rulemaking does not have federalism implications warranting the application of Executive Order 13132. The proposed rule does not have substantial direct effects on the States, on the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government.

This proposed rule does not have tribal implications warranting the application of Executive Order 13175. This proposed rule does not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

The Acting Administrator, in accordance with the Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA), has reviewed this proposed rule and by approving it certifies that it will not have a significant economic impact on a substantial number of small entities. As discussed above, the proposed scheduling of norfentanyl as an immediate precursor of the schedule II controlled substance, fentanyl, would subject norfentanyl to all of the regulatory controls and administrative, civil, and criminal sanctions applicable to the manufacture, distribution, dispensing, importing, and exporting of a schedule II controlled substance. Norfentanyl is the immediate chemical intermediary in a synthesis process currently used by clandestine laboratory operators for the illicit manufacture of the schedule II controlled substance fentanyl. The distribution of illicitly manufactured fentanyl has caused an unprecedented outbreak of thousands of fentanyl-related overdoses in the United States in recent years.

The DEA has not identified any use for norfentanyl, other than its role as an intermediary chemical in the production of fentanyl. Based on the review of import and quota information for ANPP and fentanyl, the DEA believes the vast majority, if not all, of legitimate pharmaceutical fentanyl is produced from ANPP (schedule II immediate precursor for fentanyl), not norfentanyl. The quantities of ANPP permitted in the U.S., imported or manufactured pursuant to a quota, generally correspond with the quantities of legitimate pharmaceutical fentanyl produced in the U.S. Additionally, the DEA is not aware of norfentanyl being used for the manufacturing of legitimate pharmaceutical fentanyl; however, the DEA cannot rule out the possibility that minimal quantities of norfentanyl are used for this purpose. If there are any quantities of norfentanyl used for the manufacturing of legitimate pharmaceutical fentanyl, the quantities are believed to be small and economically insignificant.

The DEA has identified 30 domestic suppliers of norfentanyl. Based on Small Business Administration size standard for chemical distributors and Statistics of U.S. Business data, 94.5% or 28.4 (rounded to 28) are estimated to be small entities. It is difficult to know how much norfentanyl is distributed by these suppliers. It is common for chemical distributors to have items on their catalog while not actually having any material level of sales. Based on the review of import and quota information for fentanyl and ANPP, where the quantities of ANPP imported and manufactured generally correspond with the quantities of fentanyl produced, the DEA believes any quantity of sales from these distributors for the legitimate pharmaceutical fentanyl manufacturing is minimal. Therefore, the DEA estimates the cost of this rule on any affected small entity is minimal. The DEA welcomes any public comment regarding this estimate.

Because of these facts, this proposed rule will not, if promulgated, result in a significant economic impact on a substantial number of small entities.

On the basis of information contained in the “Regulatory Flexibility Act” section above, the DEA determined and certifies pursuant to the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1501 et seq., that this action would not result in any Federal mandate that may result “in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted for inflation) in any one year * * *.” Therefore, neither a Small Government Agency Plan nor any other action is required under provisions of UMRA.

This proposed action does not impose a new collection of information under the Paperwork Reduction Act, 44 U.S.C. 3501-3521. This proposed action would not impose recordkeeping or reporting requirements on State or local governments, individuals, businesses, or organizations. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

For the reasons set out above, the DEA proposes to amend 21 CFR part 1308 as follows:

On July 29, 2016, HOTMA was signed into law (Pub. L. 114-201, 130 Stat. 782). HOTMA makes numerous changes to statutes governing HUD programs, including sections 3, 8, and 16 of the United States Housing Act of 1937 (1937 Act). HUD issued a notice in the Federal Register on October 24, 2016, at 81 FR 73030, announcing which statutory changes made by HOTMA could be implemented immediately and which statutory changes require further action by HUD.

On November 29, 2016, HUD published another Federal Register notice (81 FR 85996), seeking public input on how HUD should determine the income limit for public housing residents, pursuant to section 103 of HOTMA, and this was followed by a July 26, 2018, notice (83 FR 35490) that made some provisions of section 103 of HOTMA effective. On January 18, 2017, HUD published a Federal Register notice (82 FR 5458), that made multiple HOTMA provisions for the Housing Choice Voucher (HCV) program, unrelated to sections 102, 103, and 104, effective and solicited public comment on HUD's implementation methods. The conforming regulatory changes for the HCV program provisions implemented by the January 18, 2017, Federal Register notice are not part of this proposed rule and will be addressed through a separate rulemaking.

Many of the statutory provisions in HOTMA are intended to streamline administrative processes and reduce burdens on public housing agencies (PHAs) and private owners. Sections 102, 103, and 104 of HOTMA require that HUD make changes to its regulations and take other actions—some of which will also reduce burdens on PHAs and private owners once implemented.

Section 102 of HOTMA deals with income reviews in HUD's public housing and Section 8 programs. Section 102(a) amends section 3(a) of the 1937 Act to revise the frequency of family income reviews and the calculation of income and requires HUD, in consultation with other appropriate Federal agencies, to develop electronic procedures enabling PHAs to access income determinations for other Federal means-tested programs. Section 102(c) amends section 3(b) of the 1937 Act to change the definitions, for the public housing and Section 8 programs, of income and adjusted-income for each member of the household who is 18 years or older and unearned income for each dependent who is less than 18 years old. Section 102(d) amends section 8(o) of the 1937 Act, which authorizes the HCV Program, but existing HUD regulations already reflect the changes. Section 102(e) changes the definition of “income” to “annual adjusted income” for the Enhanced Voucher Program. Section 102(f) strikes the last sentence of paragraph (3) of section 8(c) of the 1937 Act, eliminating the requirement that reviews of family income shall be made no less frequently than annually for project-based housing. Under section 102(h), statutory amendments based on changes in section 102 are not effective until the beginning of the calendar year after HUD has issued a notice or regulation implementing the changes.

Some provisions in section 102 of HOTMA do not require regulatory changes and are not addressed in this proposed rule. Section 102(b) requires HUD to submit a certification letter to Congress regarding hardship exemptions to minimum monthly rent and does not amend the 1937 Act or prompt changes to HUD regulations. Section 102(g)(1) states that HUD may make appropriate adjustments in the formula income of PHAs that experience a material and disproportionate reduction in rental income during the first year in which the provisions of this section are implemented. 24 CFR 990.110(c) currently provides that HUD will address secondary elements that will be used in the revised Operating Fund Formula through nonregulatory means, so this provision does not require a regulatory change. Section 102(g)(2) requires that HUD submit a report to Congress identifying and calculating the impact of changes made by sections 102 and 104 of HOTMA during each of the first 2 years after the implementation of section 102. Section 102(i) requires HUD to conduct a study on the impact any decreased amount of deductions in income that result from the implementation of this section has on elderly and disabled families.

Section 103 of HOTMA amends section 16(a) of the 1937 Act to place an income limitation on a public housing tenancy for families. The law requires that after a family's income has exceeded 120 percent of the area median income (AMI) (or a different limitation established by HUD) for 2 consecutive years, a PHA must terminate the family's tenancy within 6 months after the expiration of the 2-year period or charge the family a monthly rent equal to the greater of (1) the applicable Fair Market Rent or (2) the amount of monthly subsidy for the unit, including amounts from the operating and capital fund, as determined by regulations. For purposes of this proposed rule, the income limit established by HOTMA will be referred to as the “over-income limit.” A PHA must notify a family of the potential changes to monthly rent 1 year after the PHA determines that the family's income exceeds the over-income limit. Pursuant to section 3(a)(5) of the 1937 Act, the over-income limit does not apply in instances where a PHA operating fewer than 250 public housing units has admitted families with income exceeding the over-income limit, if the PHA is renting to those families because there are no income-eligible families on the PHA's waiting list or applying for public housing assistance. Each PHA must submit a report annually to HUD that specifies, as of the end of the year, the number of families residing in public housing with incomes exceeding the over-income limit and the number of families on the waiting lists for admission to public housing projects. Such reports must be publicly available.

The new language in section 16(a)(5) of the 1937 Act sets the over-income limit at 120 percent of the AMI. However, HUD can adjust the over-income limit if the Secretary determines that it is necessary due to prevailing levels of construction costs or unusually high or low family incomes, vacancy rates, or rental costs. On July 26, 2018, at 83 FR 35490, HUD published a final notice in the Federal Register implementing HUD's methodology for determining the over-income limit by using the very low-income (VLI)  1 level for the applicable area as the baseline and multiplying it by 2.4. Because VLI is preliminarily calculated as 50 percent of the estimated area median income for the family, in most cases this would result in a figure matching 120 percent of the area median income. However, in areas where the VLI has been adjusted to account for high or low housing costs or to prevent it from being lower than 50 percent of the state, non-metro median family income, the final amount would result in an adjusted over-income limit as well.

Section 104 of HOTMA amends section 16 of the 1937 Act to set limits on the assets that families residing in public housing and families receiving assistance under section 8 of the 1937 Act may own. In addition to providing limitations on assets, this section defines the term “net family assets” and lists exclusions to the definition. The section allows for families to self-certify that they are not subject to the limitation on assets, under certain circumstances. Section 104 also grants PHAs and owners authority to not enforce the asset limitation, provided that the PHA or owner sets forth a policy to that effect in its PHA plan or in a plan adopted by the owner. Section 104 also directs HUD to direct PHAs to require all applicants and recipients under the 1937 Act to authorize the PHA to obtain financial information needed in connection with a determination with respect to eligibility.

HUD proposes to revise 24 CFR parts 5, 92, 93, 574, 960, and 982 in order to implement sections 102, 103, and 104 of HOTMA. Although sections 102, 103, and 104 amend the 1937 Act, which governs HUD's public housing and Section 8 programs, this proposed rule also aligns policies and procedures across program offices, where appropriate, to include programs that are administered by HUD's Office of Community Planning and Development, including the HOME Investment Partnerships (HOME), Housing Trust Fund (HTF), and Housing Opportunities for Persons With AIDS (HOPWA) programs. Alignment will reduce disparities between the programs and better simplify program administration for HUD grantees that manage multiple programs.

Section 102 of HOTMA revises the definition in the 1937 Act of family income. Because a variety of programs use this definition, HUD offers the following chart showing which programs (other than public housing and the voucher programs) are affected by various changes to the income regulatory provisions in 24 CFR part 5:

Specific solicitation of comment 1: What administrative burdens or other considerations (particularly related to Rental Assistance Demonstration conversions) should HUD be aware of in relation to certain sections applying to public housing and the HCV and project-based voucher (PBV) programs, but not to project-based rental assistance (PBRA) and Section 202/811?

Section 102(a)(1) of HOTMA revises the process by which PHAs and owners are required to review family income. To conform to these changes, this rule proposes to revise 24 CFR 5.657, 24 CFR 960.257, and 24 CFR 982.516 for the Section 8 PBRA programs, public housing, and the HCV program (including PBV). Currently, these program regulations provide that families may request an interim reexamination of family income because of any changes since the last examination, and the PHA or owner must make the interim determination within a reasonable period of time after the family's request. HOTMA provides that reviews of family income shall be made upon the request of the family at any time the income or deductions of the family change by an amount that is estimated to result in a decrease of 10 percent or more in annual adjusted income, or of such lower amount as HUD may establish or permit the PHA or owner to establish. This proposed rule would revise §§ 5.657, 960.257, and 982.516 to state that the owner or PHA may decline to process a family's request for an interim reexamination if the owner or PHA estimates the family's adjusted income will decrease by an amount that is less than 10 percent of the family's annual adjusted income. The proposed rule further provides that the owner or PHA may still choose to process the family request for an interim reexamination if the owner or PHA estimates the family's adjusted income will decrease by less than 10 percent, provided the owner or PHA has established a standard for conducting the interim reexamination that is more generous to the family ( e.g., the owner or PHA will conduct an interim reexamination if the decrease in family income exceeds 5 percent of adjusted income) and the PHA estimates the family's adjusted income will decrease by an amount that exceeds the owner or PHA threshold. HUD believes that while the 10 percent standard is appropriate as the HUD standard and consequently is not exercising its discretion to establish a lower threshold, owners and PHAs should have the flexibility to establish a lower threshold if they wish to do so and are willing to take on the additional administrative burden. The owner or PHA may not establish an alternative threshold that is less generous to the family than the standard 10 percent decrease in adjusted income ( e.g., the owner or PHA will only conduct an interim examination if the decrease in family adjusted income is estimated to be more than 20 percent decrease in adjusted income).

Additionally, HOTMA states that PHAs and owners must conduct a reexamination of family income at any time the family's adjusted income is estimated to have increased by 10 percent or more. This proposed rule would revise §§ 5.657, 960.257, and 982.516 to reflect this change and would specify that the owner or PHA would be required to conduct the reexamination within a reasonable period of time after the owner or PHA becomes aware of the family's change in income. HOTMA provides some administrative relief to this requirement by allowing PHAs or owners to elect not to conduct an income review in the last 3 months of a certification period, and that flexibility is incorporated into this proposed rule. PHAs or owners may not consider earned income of the family when estimating whether the family's adjusted income has increased, unless the increases in earned income correspond to previous decreases resulting from the family's request for an interim reexamination. This proposed rule would provide a definition for “earned income” in 24 CFR 5.100 that would apply when the term is used throughout this rule. The definition would mirror the definition of earned income that is currently in 24 CFR 984.103.

Specific solicitation of comment 2: HUD is specifically seeking comment about the “reasonable period of time” in which the PHA and owner must conduct an interim reexamination. HUD seeks comment on what should be considered reasonable and whether this rule should contain a specific time frame by which the PHA or owner must complete an interim reexamination. HUD seeks comment on what such a time frame might be (for example, 2 weeks from the time of the family request, or the time the PHA or owner is aware of the change in income or family composition).

Specific solicitation of comment 3: HUD is seeking comments on whether HUD should continue to require PHAs and owners to use the Enterprise Income Verification (EIV) System for every income examination, or revise its regulations at 24 CFR 5.233 to require use of EIV only at initial and annual reexaminations and not at interim reexaminations. If HUD were to adopt such a proposal, housing providers could still use EIV for interim reexaminations but would not be required to use EIV. HUD is seeking comments on whether such a proposal would save time for PHAs and owners without significantly impacting the accuracy of the reexaminations.

Section 102(a)(1) of HOTMA also describes how PHAs and owners must calculate family income, and this proposed rule would revise 24 CFR 5.609 to account for this. Specifically, this proposed rule would revise § 5.609 to direct PHAs and owners to estimate the income of the family for the upcoming year to determine family income for initial occupancy or for the initial provision of housing assistance or for an interim reexamination of family income. In determining family income for annual reviews, this proposed rule would provide that the PHA or owner must use the income of the family as determined by the PHA or owner for the preceding year, taking into account any redetermination of income undertaken during the preceding year. For example, if a PHA had made a redetermination of the family's income during the preceding year because the family's income had decreased by more than 10 percent, the PHA would be required at the annual review to use that redetermination to determine the family's income for the forthcoming year. This will not apply in situations where the PHA or owner uses a streamlined income determination. HOTMA provides that the PHA or owner may make adjustments, as it considers appropriate, to reflect current income if during the previous 12-month period there was a change in income that was not accounted for in a redetermination of income. However, in order to properly account for income, this rule proposes that the PHA or owner must make adjustments to reflect current income if during the previous 12-month period there was a change in income that was not accounted for in a redetermination of income. For example, if a family reported a decrease in income during the preceding year but the PHA had not conducted an interim redetermination because the decrease was less than 10 percent of the family's annual adjusted income, at the annual review the PHA would be required to adjust the determination of family income to reflect the decrease.

HOTMA provides for a “safe harbor” for PHAs or owners who determine family income prior to the application of deductions based on timely income determinations made for purposes of other means-tested Federal public assistance programs, including the Temporary Assistance for Needy Families block grant, Medicaid assistance, and the Supplemental Nutrition Assistance program. This proposed rule adopts this language in the new paragraph on calculation of income in 24 CFR 5.609. Specifically, HUD is permitting PHAs and owners to utilize the income determinations, regardless of definitional differences between other forms of public assistance and the respective HUD program. HUD believes this maximizes the streamlining benefit of the provision. Further, HUD proposes to add the Earned Income Tax Credit to the list of means-tested Federal public assistance.

Specific solicitation of comment 4: HUD is soliciting feedback on how allowing PHAs and owners to use income determinations from other forms of public assistance may impact program administration, and whether HUD should establish requirements as to which income determination should be used if there is more than one determination of income from other public assistance programs available to the PHA or owner.

Specific solicitation of comment 5: HUD is soliciting feedback on whether there are other forms of Federal public assistance that should be added to the “safe harbor” list or whether HUD should limit the number of such programs.

In order to conform to HOTMA, this proposed rule would also remove an existing provision in 24 CFR 5.609 on annualization of income, which states that if it is not feasible to anticipate a level of income over a 12-month period ( e.g., seasonal or cyclic income), or the PHA believes that past income is the best available indicator of expected future income, the PHA may annualize the income anticipated for a shorter period, subject to a redetermination at the end of the shorter period.

HOTMA provides that a PHA or owner will not be out of compliance with the statute's new provisions regarding income review and income calculation solely due to any de minimis errors made by the agency or owner in calculating family income. HOTMA does not define de minimis error. HUD proposes to revise 24 CFR 5.609, 24 CFR 5.657, 24 CFR 960.257, and 24 CFR 982.516 to provide that PHAs and owners will not be considered to have failed to comply with the requirements involving the calculation of income solely due to de minimis errors. Under this proposed rule, a de minimis error would be defined as any error where the PHA's or owner's calculation of a family's income or adjusted income varies from the correct income or adjusted income by no more than 5 percent. In such instance, the PHA's or owner's income determination would not be considered incorrect for purposes of HUD's monitoring and compliance oversight responsibilities. However, the PHA or owner would still be required to take necessary corrective action to repay a family if the de minimis error in the income determination resulted in the family being overcharged for their rent.

Specific solicitation of comment 6: HUD specifically seeks comment from PHAs and owners on the methodology HUD should use in determining what constitutes a de minimis error. For example, as alternatives to the 5 percent figure discussed above, HUD could calculate de minimis errors to be those that do not exceed $30 per month for any family, because a family's share of rent for 1937 Act programs is approximately $30 for every $100 of income. Or, HUD could calculate de minimis errors as those that represent less than 5 percent of all income determinations made during a calendar year.

Section 102(a)(2) of HOTMA eliminates section 3(d) of the 1937 Act, which had thus far allowed for the disallowance of earned income (EID) from rent determinations. This section had provided that the rent of certain public housing residents or recipients of Section 8 assistance could not be increased as a result of increased income due to employment during the 12-month period beginning on the date on which the employment started, and that following the expiration of that 12-month period, the PHA must exclude from the annual income of a qualified family at least 50 percent of any increase in the income of such family member, as a result of employment, over the family's baseline income for the subsequent 12-month period. Other HUD programs, including the HOME, HOPWA, and Supportive Housing programs, similarly adopted an EID for persons with disabilities. Because the EID is no longer authorized under the 1937 Act, this proposed rule would eventually eliminate regulatory references to it.

Despite the elimination of the EID from HUD's regulations, HUD proposes to allow families who receive the EID benefit as of the effective date of a final rule implementing section 102 of HOTMA to continue receiving the benefits of EID until the allowed time frame expires, per the framework currently provided under § 5.617 or § 960.255. Given the time frames in § 5.617 or § 960.255, within 2 years from the effective date of a final rule implementing the elimination of EID, no family would receive the EID benefit.

Specific solicitation of comment 7: HUD specifically solicits comment on this proposal to allow current recipients of the EID benefit to continue to receive the benefit until the allowed time frame expires.

Section 102(c) of HOTMA provides a new definition for the term “income.” As a result, this proposed rule would significantly revise HUD regulations in 24 CFR 5.609. Specifically, this rule proposes to simplify the existing definition of annual income by removing the list of examples of income sources and providing a broader definition of income that mirrors the definition of income provided by HOTMA. HUD hopes that this streamlining effort will reduce the burden on PHAs and owners in determining a family's income and reduce confusion about what should be included as income.

This HOTMA definition sufficiently encompasses what HUD considers to be income under the current regulation, with the exception of the treatment of imputed returns on assets. Therefore, in addition to the HOTMA definition of income, this proposed rule would specify that annual income also includes the imputed return on assets over $50,000, based on the current passbook savings rate if the actual income from assets cannot be computed. The $50,000 figure will be adjusted for inflation, in accordance with HOTMA. By simplifying the definition of income and streamlining the regulatory provisions in § 5.609, HUD seeks to reduce the complexity of the existing income regulations.

HUD wants to be clear that income sources that were previously included in annual income are generally unchanged. HUD is only simplifying the definition to eliminate confusing regulatory language that excluded some income that should have been included and which increased litigation risk for housing providers who rely on HUD's definition of income.

Specific solicitation of comment 8: HUD is seeking feedback from interested parties on the impact of the proposed redefinition of annual income and whether it simplifies the understanding of what is included in annual income.

Specific solicitation of comment 9: HUD solicits comment on what inflationary index to use for purposes of adjusting the amount of imputed return on assets included in annual income, and other provisions in HOTMA that require amounts to be adjusted annually for inflation.

Additionally, HUD proposes updating the list of income exclusions to be consistent with HOTMA and to eliminate certain nonstatutory, discretionary exclusions from income in order to further streamline the income determination process. This proposed rule specifies that annual income does not include amounts that are explicitly excluded from the definition of income in HOTMA, but removes current exclusions for inheritances, capital gains, gifts, and other sporadic income. HUD has found that these provisions have caused confusion, there has been inconsistent application of these exclusions, and that these amounts should be included as annual income. HUD notes that with this change, realized capital gains—meaning those capital gains obtained from the sale of property in a given year—would be included as income under 24 CFR 5.609(a)(1). The value of unrealized capital gains—meaning the value of any increase in an asset from one year to the next—would be included under the definition of Net Family Assets, which is used to determine imputed income under 24 CFR 5.609(a)(2).

Under this proposed rule, insurance payments remain excluded from annual income. However, HUD would strike the parentheses and the text enclosed in the parentheses that is intended to clarify that insurance payments include payments under health and accident insurance and worker's compensation. This proposed change does not represent any change in policy and payments under health and accident insurance and worker's compensation would continue to be excluded from annual income. HUD is proposing the change because HUD believes the current language has created more confusion in terms of what is meant by insurance payments than it has solved and to clarify that all insurance payments should be excluded from annual income, not just a select, few types.

Specific solicitation of comment 10: The proposed rule provides that distributions from a nonrevocable trust fund specifically provided to cover the cost of medical expenses for a minor is excluded income, as are any amounts recovered in any civil action or settlement based on a claim of malpractice, negligence, or other breach of duty, owed to a family member arising out of law, that resulted in a member of the family being disabled. Distributions from a non-revocable trust fund provided for other purposes would be considered income. HUD is seeking comment on whether this rule should treat subsequent withdrawals of an insurance payment or settlement for personal or property losses (whether related to a minor or not), or amounts recovered in the aforementioned civil action or settlement, as income. Start here For example, while the initial lump sum addition of an insurance payment or an amount recovered in the civil action or settlement would not count as annual income, HUD seeks comment on whether this rule should specify that any amount the family subsequently withdraws against the payment ( e.g., from a bank account or trust fund into which the insurance payment or recovered amount was deposited) would be considered income. If this rule were to consider such subsequent withdrawals as income, HUD seeks comment on whether certain types of withdrawals should be excluded from annual income (in addition to the existing exclusion of distributions from a non-revocable trust fund specifically provided to cover the medical expenses of a minor). If the rule were to consider such subsequent withdrawals as income but exclude certain withdrawals that are used for a particular purpose ( e.g., the family received an auto insurance payment after an accident that totaled the family car that the family deposited in their checking account and then subsequently used to purchase a replacement vehicle), HUD seeks comment on whether there are specific requirements that could be added to address the operational challenges that a PHA or owner would face in identifying, determining, and verifying that the withdrawal should be either included or excluded from annual income. Finally, HUD is requesting comment on whether the final rule should simply count the lump-sum insurance payment or settlement as income, rather than excluding it from annual income at any point in time.

HOTMA provides HUD the discretion to establish exclusions to income beyond those explicitly listed in HOTMA and any amount required by Federal law to be excluded from consideration as income. As a result, with the exception of inheritances, capital gains, gifts, and other sporadic income, HUD proposes to maintain the other exclusions currently listed in § 5.609, but would revise the explanatory language for some of those exclusions to provide greater clarity and understanding. One of these exclusions is for earnings in excess of $480 for full-time students 18 years or older who are not the head of household or spouse of the head of household. This proposed rule would effectively maintain that exclusion, but provide that the $480 figure be adjusted annually for inflation. As explained below, this is because there is a mandatory $480 deduction for dependents in the current regulations that HOTMA requires be adjusted for inflation, so the end result is that all earned income of dependent students should either be excluded or deducted from income. Additionally, this proposed rule would provide that the amount of the existing exclusion for adoption assistance payments, which is payments in excess of $480 per adopted child, would also be adjusted annually for inflation.

This proposed rule would add additional exclusions to income in order to conform with HUD policy. This proposed rule would provide that amounts in or from ABLE accounts created under section 529A of the Internal Revenue Code (IRC) are excluded from income. ABLE accounts are tax-advantaged savings accounts for individuals with disabilities. This proposed rule would exclude the income of foster adults from consideration of family income in order to prevent disincentives to housing such persons, and would codify HUD's existing policy that state kinship or guardianship care payments are excluded from the definition of income. Additionally, this proposed rule would specify that loan proceeds (for example, car loans or payday loans) must be excluded from income. Loan proceeds are not considered income by HUD because they are typically a pass-through payment for the purpose of purchasing something like a car. In the case of a payday loan, a family uses a paycheck as collateral, thus counting such a loan as income would effectively count that income amount twice.

This proposed rule would also add an exclusion for payments received by Indian persons as a result of claims relating to the mismanagement of assets held in trust by the United States (including payments from tribal trust settlements), to the extent such payments are also excluded from gross income under the Internal Revenue Code. HUD already consider such payments to be excluded from annual income, but relies on the current exclusion for temporary, nonrecurring, or sporadic income to do so, which this proposed rule would remove.

Finally, the rule would codify long-standing practice of excluding from annual income replacement housing “gap” payments that offset increased rent and utility costs to families that are displaced from one federally subsidized housing unit and move into another federally subsidized housing unit. HUD currently excludes these payments from income as “temporary, nonrecurring, or sporadic income” under § 5.609(c)(9). This rule preserves the gap payment exclusion and clarifies that this exclusion only exists to the extent that the tenant's out of pocket expenses for rent and utilities in their new federally subsidized housing are higher than they were in their previous federally subsidized housing. Later changes to a tenant's contribution due solely to changes in family income, size, or composition should not be considered when determining if a gap has been reduced or eliminated. If the gap is reduced or eliminated because of reasons such as a subsequent move by the tenant or change in the subsidy program applicable to the tenant's unit, and the tenant chooses to retain or continue to receive their replacement housing “gap” payment, then the portion of the “gap” payment that is no longer needed to close the gap should be counted as income for purposes of determining annual income under § 5.609.

HOTMA provides an income exclusion for full-time dependent students for any grant-in-aid or scholarship amounts used for the costs of tuition or books, and, in such amounts as HUD may allow, for the cost of room and board. In implementing this provision and as part of this proposed rule's objective to simplify income determinations, HUD proposes to combine the student financial assistance requirements under a new 24 CFR 5.609(b)(9) (currently, student financial assistance exclusion requirements are found at § 5.609(b)(9) and at § 5.609(c)(6)). The proposed rule provides in general that the full amount of student financial assistance paid directly to the student or to the education institution on the student's behalf is excluded from annual income. The rule defines financial assistance to be any grant-in-aid, scholarship, or other assistance amounts an individual receives for the costs of tuition, books, room and board, and other fees charged to the student by the education institution.

Since 2005, HUD's Appropriations Acts have placed limits on the amount of financial assistance that is excluded from income for students applying for and receiving Section 8 assistance who are not over the age of 23 with dependent children. In accordance with that statutory restriction, this proposed rule would provide that, for those students, the financial assistance in excess of the cost of tuition and any other required fees and charges under the Higher Education Act of 1965, from private sources, or an institution of higher education, shall be considered income. This categorization of funds as income does not apply to public housing students, students under other HUD programs, or to Section 8 students over the age of 23 with dependent children, for whom the financial assistance in excess of the cost of tuition the individual receives for the cost of books, room and board, and other fees charged by the education institution is excluded from annual income (in addition to the financial assistance that covers the student's tuition).

HOTMA also provides an income exclusion for any amount in or from, or any benefits from, any Coverdell educational savings account of or any qualified tuition program under section 530 and section 529 of the Internal Revenue Code of 1986, respectively. The proposed rule covers these HOTMA income exclusions under a new § 5.609(b)(10).

Additionally, HOTMA provides an exclusion for payments related to aid and attendance under 38 U.S.C. 1521 to veterans in need of regular aid and attendance, and this proposed rule would include this exclusion.

Specific solicitation of comment 11: HUD is soliciting feedback about whether there are other income exclusions that should be provided for in this rulemaking. For example, deferred disability benefits are excluded from income under HOTMA and this proposed rule, but the rule could provide for exclusions from income for all veteran's disability benefits.

Section 102(c) of HOTMA makes changes to “adjusted income” that require revisions to 24 CFR 5.611. Section 5.611 currently provides for a mandatory deduction of $480 for each dependent. HOTMA provides for a mandatory deduction of $480 for minors, students, and persons with disabilities who are not the head of the household or that person's spouse, and provides that this figure be adjusted annually for inflation and the actual deduction should be determined for each year by rounding such amount to the next lowest multiple of $25. HOTMA also provides HUD the discretion to establish deductions in addition to those listed in HOTMA. As a result, HUD proposes to maintain the $480 deduction for each dependent, which amount will be annually adjusted for inflation. In line with HOTMA's requirement, this rule would also increase the deduction for any elderly or disabled family from the current $400 to $525, which amount will be annually adjusted for inflation and rounded to the next lowest multiple of $25.

This proposed rule would maintain other deductions currently allowed, such as those for child care and health and medical expenses. However, to conform to section 102(c) of HOTMA, this proposed rule would revise the deduction for health and medical expenses. Currently, this deduction is for the sum of (i) unreimbursed medical expenses of any elderly family, and (ii) the unreimbursed reasonable attendant care and auxiliary apparatus expenses for each member of the family who is a person with disabilities, to the extent necessary to enable any member of the family to be employed. The deduction is currently limited to the amount by which these total expenses exceed three percent of the family's income. HOTMA increases the health and medical expense threshold from three percent to 10 percent. In other words, the health and medical expense deduction is now limited to the amount by which those expenses exceed 10 percent of the family's annual income. This means families who receive a health and medical expense deduction at the time the HOTMA change is implemented may see a significant increase in their non-deductible health and medical expenses, which could result in an increase in their adjusted income and their rent. However, HUD notes that the reduction in the family's health and medical expense deduction may be offset to some degree by the HOTMA change that increases the deduction for elderly and disabled families from $400 to $525.

Section 102(c) provides that the Secretary shall by regulation provide hardship exemptions to the requirements of the health and medical expenses provision for impacted families who demonstrate an inability to pay calculated rents because of financial hardship, and that the regulations must include a requirement to notify tenants of any changes to determination of adjusted income based on the determination of the family's claim of financial hardship. In order to implement this provision, this proposed rule would provide, that if the family can demonstrate an inability to pay the new rent and the PHA or owner determines that the family's inability is the result of the change in the medical expense deduction ( i.e., the increase in the amount of non-deductible expenses from 3 to 10 percent of family income), the PHA or owner would be required to recalculate the family's adjusted income. In recalculating the family's adjusted income, the PHA or owner would deduct the amount of eligible health and medical expenses that exceeds 6.5 percent of the family's annual income instead of the normally applicable 10 percent of family's annual income. HUD proposes a 6.5 percent threshold because it is half-way between the pre-HOTMA health and medical expense threshold of three percent and the new statutory 10 percent threshold. Under this proposed rule, the family's hardship exemption would expire at the family's next regular income reexamination or at such time that the PHA or owner determines the family can pay their rent under the normal adjusted income calculation, whichever comes first. The PHA or owner would be required to notify the family in writing of the change in the determination of adjusted income, the family's rent resulting from the hardship exemption, and when the hardship exemption will expire. The intent of the proposed regulation is to allow families receiving hardship exemptions to transition to their new adjusted income and higher rent incrementally, rather than immediately absorbing the full increase as a result of the medical expense deduction change.

Section 102(c) also allows a hardship exemption for the child care expense deduction, which provides that any reasonable child care expenses necessary to enable a member of the family to be employed or to further his or her education is deducted from annual income. Under this proposed rule, a hardship exemption would be provided to allow the deduction for reasonable child care costs to continue in certain circumstances for a family that no longer has a member that is employed or seeking to further his or her education. In order to qualify for the hardship exemption, the family would be required to demonstrate to the satisfaction of the PHA or owner that their inability to pay the increased rent is due to the loss of the child care deduction. In addition, the family would also have to demonstrate why the child care expense remains necessary now that no family member is employed, actively seeking employment, or furthering his or her education. For example, the family member may have had to temporarily suspend their educational pursuits as the result of injury or illness, and due to the injury or illness they are unable to be the primary full-time care giver for the child whose child care expenses were deducted from the family's adjusted income. Under this proposed rule, if the PHA or owner determines that the family qualifies for the hardship exemption, the PHA or owner would be required to recalculate the family's adjusted income and continue to include the deduction for the reasonable child care expenses. As is the case with the health and medical expense hardship exemption, the child care expense hardship exemption would be temporary and would end no later than the family's next regular reexamination. The child care hardship exemption would also end at any point in time that the PHA or owner determines that the family is either able to pay the rent without the child care expense deduction or the need for the child care expense no longer exists.

The PHA or owner would be required to notify the family in writing of the change in the determination of adjusted income and the family's rent for both the adjusted medical expense deduction and the continuation of the child care deduction hardship exemptions. The notice would also inform the family of the temporary nature of the hardship exemption and that the exemption will expire at the earlier of the family's next regular income reexamination or at such time the PHA or owner determines the need for the hardship exemption no longer exists.

Specific solicitation of comment 12: HUD is soliciting feedback from affected parties on the proposed implementation of the hardship exemption for both the health and medical expenses deduction and child care deduction. Specifically, HUD is soliciting comments on whether there are better approaches to implementing the hardship exemptions than what is proposed in this rule, whether HUD should establish specific requirements or parameters as to how the PHA or owner would determine that the family is unable to pay the rent (for example, the percentage of the family's income paid for rent and health and medical expenses exceeds a certain percentage), or whether PHAs and owners should be given broad administrative discretion to establish their own policies on how to make this determination.

HUD's current regulations provide that for public housing, PHAs may adopt additional deductions from annual income. Under HOTMA, PHAs may also choose to adopt additional deductions from income for the voucher programs, and the Section 8 project-based rental assistance program (where the PHA is an owner) in addition to public housing. As such, this proposed rule would provide that for public housing and the voucher programs, and where the PHA is an owner in the Section 8 project-based rental assistance program, PHAs may adopt additional deductions from annual income. Additionally, HOTMA requires that HUD establish procedures to ensure that any deductions adopted by PHAs do not materially increase Federal expenditures. Under this proposed rule, PHAs that adopt permissive deductions would not be eligible to receive any program funding to cover the increased cost to the impacted program. The rule provides that the PHA would have to identify the amount of subsidy provided on behalf of the family that is attributable to the permissive deduction as required by HUD. This information would then be used by HUD to ensure that the cost of the permissive deduction is not included in the subsidy for the public housing program, renewal funding for the HCV (including PBV) program, or the housing assistance payments provided to the PHA under the Section 8 project-based programs.

Specific solicitation of comment 13: HUD is soliciting feedback on whether the proposed implementation of permissive deductions ( i.e., that a PHA will not be eligible for additional subsidy to cover the costs associated with the deduction) has any unintended consequences, or whether HUD should define “material” differently. Further, HUD is soliciting feedback on whether the permissive deductions could be used to provide incentives for employment. For example, HUD could permit PHAs to be eligible for additional subsidy for certain permissive deductions of earned income ( e.g., permissive deductions of the first $1,000 or $5,000 of earned income) or other work-related income.

This proposed rule would create a new 24 CFR 960.507 in HUD's regulations to implement section 103 of HOTMA. Section 103 of HOTMA places an income limitation on a public housing tenancy for families at 120 percent of the AMI. However, HUD can adjust the over-income limit if HUD determines that it is necessary due to prevailing levels of construction costs or unusually high or low family incomes, vacancy rates, or rental costs. This proposed rule would provide that the over-income limit is determined by using the very low-income (VLI) level for the applicable area as the baseline and multiplying it by 2.4. Pursuant to section 3(a)(5) of the 1937 Act, the over-income limit does not apply in instances where a PHA operating fewer than 250 public housing units has admitted families with income exceeding the over-income limit, if the PHA is renting to those families because there are no income-eligible families on the PHA's waiting list or applying for public housing assistance. To conform to HOTMA, this proposed rule would also remove existing 24 CFR 960.261 from HUD's regulations, which provides that PHAs may not evict or terminate the tenancy of a family that is over the income limit for public housing if the family is participating in the Family Self-Sufficiency program, or if it currently receives the earned income disallowance.

Following section 16(a)(5) of the 1937 Act, this proposed rule would provide in § 960.507 that when a PHA becomes aware, through an annual reexamination or an interim reexamination of an increase in income, that if a family's income exceeds the over-income limit, the PHA must document that the family exceeds the threshold. This would be used to compare the family's current income with the family's income one year later. Once found to be over-income, the family's income would be reviewed one year later even if they have chosen to pay the flat rent. This proposed rule would also revise § 960.253(f) to conform to the new requirements of section 103 by providing that for families that choose to pay a flat rent, once a family is determined to be over-income, the PHA must follow the documentation and reexaminations requirements in § 960.507(c).

Under proposed § 960.507, if the family's income continues to exceed the new over-income limit one year after the initial determination by the PHA, the PHA must, as required by section 16(a)(5) of the 1937 Act, provide written notification to the family that their income has exceeded the over-income limit for one year. If the family's income continues to exceed the over-income limit for the next 12 consecutive months, the family would be subject to either a higher rent or termination based on the PHA's policies. If, however, a PHA discovers through an annual or interim reexamination that a previously over-income family has income that is now below the over-income limit, the family would no longer be subject to these provisions. The family would be entitled to a new two-year grace period if the family's income once again exceeds the over-income limit.

As reflected in this proposed rule, HOTMA requires that after a family's income has exceeded the over-income limit for two consecutive years, a PHA must terminate the family's tenancy within 6 months after the expiration of the two-year period or charge the family a monthly rent equal to the greater of: (1) The applicable Fair Market Rent (FMR); or (2) the amount of monthly subsidy for the unit including amounts from the operating and capital fund, as determined by regulations. To calculate the monthly subsidy for a unit, HUD would define the monthly amount of Public Housing Capital and Operating funds as the per unit subsidy amount provided to a PHA for the development in which the family resides for the most recent year for which HUD has calculated final eligibility. HUD would publish such funding amounts annually. PHAs would continue to charge these families the non-over-income rent amount (the family's choice of income-based or flat rent) for the time period during the 6-month period before termination.

HUD notes that PHAs are required to establish policies for continued occupancy in public housing. Through the development of those policies, a PHA is able to consider specific circumstances in which they would provide for flexibility in the administration of over-income requirements, provided such policies are in compliance with the 1937 Act and all applicable fair housing requirements. PHAs are subject to, among other fair housing and civil rights authorities, Section 504 of the Rehabilitation Act (Section 504), the Fair Housing Act, and Title II of the Americans with Disabilities Act (ADA), which include, among other requirements, the obligation to grant reasonable accommodations that may be necessary for persons with disabilities.

HOTMA requires PHAs to submit an annual report that specifies the number of families in public housing with incomes exceeding the over-income limit and the number of families on the waiting lists for admission to public housing. Because the report data must reflect the numbers at the end of the calendar year, not at the end of a PHA's reporting year, and because not all PHAs submit an annual plan, this report will be a separate report from other reporting requirements. However, HUD is developing a tool that will make it simple for PHAs to submit the relevant numbers and make those numbers public.

Section 104 of HOTMA establishes a limitation on the amount and type of assets that a family assisted under the public housing or Section 8 programs can possess. To conform to HOTMA, this proposed rule would create a new section 24 CFR 5.618 to HUD regulations that would restrict assistance to families based on assets.

The new § 5.618 would provide that families would be ineligible for assistance under HUD's public housing or Section 8 programs if their net family assets exceed $100,000. HOTMA requires that this amount be adjusted annually for inflation and, as discussed earlier in this preamble HUD solicits comment on the inflationary index that should be used.

To conform to HOTMA, § 5.618 would also provide that families could not receive assistance if they have a present ownership interest in, legal right to reside in, and the effective legal authority to sell real property in the jurisdiction in which the property is located that is suitable for occupancy by the family as a residence. Under this proposed rule, families would have to demonstrate that in the jurisdiction in which the property is located they do not have a present ownership interest in, legal right to reside in, or the legal authority to sell the real property for the property to be excluded from net family assets. HUD proposes to exclude from the real property restriction any property that is jointly owned by a member of the family and another individual or individuals who would not reside with the family. HUD proposes this exclusion because an assisted family may not have the effective legal authority to sell such property in the jurisdiction in which the property is located, and depending on the nature of the property or type of joint ownership, may not be able to live in the property.

Specific solicitation of comment 14: HUD is soliciting comment about the circumstances under which a family may not have a present ownership interest in, legal right to reside in, or effective legal authority to sell real property in the jurisdiction in which the property is located, and the feasibility of families demonstrating this.

While HOTMA does not define what it means for a property to be suitable for occupancy, this proposed rule would provide that a property is suitable for occupancy unless that family can demonstrate that the property: (i) Does not meet the disability-related needs of the family, including meeting physical accessibility requirements; (ii) is not sufficient for the size of the family, for example, there are not enough bedrooms; (iii) that it is geographically located so as to provide a hardship for the family; and (iv) that it is not safe to reside in because of its physical condition.

HOTMA provides certain exclusions to the real property restriction. Particularly, this restriction would not apply to the following: (i) A manufactured home for which the family is receiving Section 8 tenant-based assistance; (ii) property for which a family receives homeownership assistance from a PHA; (iii) any person who is a victim of domestic violence; or (iv) to any family that is offering the property for sale. Under this proposed rule, in order to demonstrate that a family is offering property for sale, a PHA or owner could require that the family provide evidence that the property has been listed for sale. This proposed rule would add that the restriction in this section also does not apply to victims of dating violence, sexual assault, or stalking, and that the terms “domestic violence,” “dating violence,” “sexual assault,” and “stalking” are defined in HUD's regulations implementing the Violence Against Women Act (VAWA).

Specific solicitation of comment 15: HUD is soliciting feedback from the public on how the exemption for victims of domestic violence, dating violence, sexual assault, or stalking will be implemented and how it will operate.

To provide context for the references to real property in § 5.618, this proposed rule would provide a new definition in 24 CFR 5.100 for “real property,” specifying that “real property” has the same meaning as that provided under the state law in which the real property is located.

In accordance with HOTMA, § 5.618 would also provide that the PHA or owner could determine the net assets of a family based on a certification by the family that their net family assets do not exceed $50,000 after annual adjustment for inflation. This proposed rule would also revise § 5.659 of the current regulations to reflect the requirement that families can self-certify. Similarly, § 5.618 would provide that the PHA or owner could determine that a family does not have any present ownership interest in any real property based on a certification by the family to that effect.

This proposed rule would conform to HOTMA by providing that PHAs and owners have the discretion to choose not to enforce the limitation on eligibility based on assets, or may establish exceptions to the restrictions based on eligibility criteria, if the PHA or owner does so in the PHA plan or under a policy adopted by the owner.

In HOTMA and these regulations, eligibility criteria for establishing exceptions may provide for separate treatment based on family type and may be based on different factors, such as age, disability, income, the ability of the family to find suitable alternative housing, and whether supportive services are being provided. This proposed rule clarifies that these policies cannot violate fair housing statutes or regulations. This means that these policies cannot be implemented in a manner that discriminates against any protected classes.

HOTMA provides that PHAs and owners who choose to enforce the asset limitations may delay for a period of not more than 6 months the eviction or termination of a family that does not meet the limitation on assets. This proposed rule would clarify that it is the start of the eviction or termination proceedings that could not be delayed for more than 6 months.

This proposed rule would revise the definition of “net family assets” found in 24 CFR 5.603 to align it with the provisions in section 104 of HOTMA. The new regulatory definition would provide that the following will not be considered to be part of net family assets: (i) Equity in a manufactured home where the family receives Section 8 tenant-based assistance; (ii) equity in property for which a family receives HCV homeownership assistance from a PHA; (iii) Family Self-Sufficiency Accounts; (iv) the value of any accounts specifically dedicated for retirement; (v) real property for which the family does not have the effective legal authority necessary to sell such property; (vi) amounts recovered in any civil action or settlement based on a claim of malpractice, negligence, or other breach of duty that resulted in a member of the family being disabled; and (vii) the value of any Coverdell education savings account or any qualified tuition program under section 529 of the IRC. HUD proposes to exclude from the definition of net family assets the value of any ABLE account created under section 529A of the IRC. Per section 104 of HOTMA, with respect to non-revocable trusts, the value of the trust would not be considered an asset to the family as long as the fund continues to be held in trust. Any income distribution from any trust would be considered income, except in the case of distributions from non-revocable trusts, made to cover the medical expenses for a minor. Additionally, this proposed rule would continue some of the current exclusions from net family assets, including interest in Indian trust land.

HOTMA provides that the term “net family assets” does not include the value of personal property, except for items of personal property of significant value, as the Secretary may establish. Therefore, this proposed rule would revise the existing exclusion in HUD's regulations for the value of necessary items of personal property, to provide that the exclusion would apply to items of personal property with a total value under $50,000, other than necessary items. HUD proposes to consider items valued over $50,000 to be those of “significant value,” given HOTMA's provision that families may certify that their net assets do not exceed $50,000.

Specific solicitation of comment 16: HUD specifically seeks comment on the proposal to exclude items of personal property valued $50,000 or less, other than necessary items, from the calculation of net family assets, and comments on what such necessary items of personal property might be. Examples might include a car that the family relies on for transportation, or medical equipment.

This proposed rule would make additional changes to the definition of net family assets for clarity. It would eliminate the current exclusion from net family assets for equity accounts in HUD homeownership programs, as this terminology is vague and unclear. As mentioned above, the new definition for net family assets would exclude equity in a manufactured home where the family receives Section 8 tenant-based assistance and equity in property for which a family receives homeownership assistance from a PHA.

Section 104 of HOTMA that states that HUD must require PHAs to require all applicants and recipients under the 1937 Act to authorize the PHA to obtain financial information needed in connection with a determination with respect to eligibility. Currently, 24 CFR 5.230 requires HUD assistance applicants and participants to sign a consent form that authorizes PHAs and owners to obtain information from certain sources in order to verify income. Further, 24 CFR 5.232 outlines that a refusal to sign the consent form would lead to termination. Following HOTMA's mandate, this proposed rule would amend § 5.230 to include a provision authorizing PHAs to obtain any financial record from any financial institution, as the terms financial record and financial institution are defined in the Right to Financial Privacy Act (42 U.S.C. 1304), whenever the PHA determines the record is needed in connection with a determination of an assistance applicant's or participant's eligibility or level of benefits. Additionally, this section currently states the consent form must contain a statement that the authorization to release the information requested by the consent form expires 15 months after the date the consent form is signed. HOTMA section 104 requires that the authorization allowing PHAs to obtain financial records from financial institutions shall remain effective until the earliest of: The rendering of a final adverse decision for an assistance applicant; the cessation of a participant's eligibility for assistance from HUD and the PHA; or the express revocation by the assistance applicant or recipient (or applicable family member) of the authorization, in a written notification to HUD. In an effort to streamline program administration, this proposed rule would revise the section to align the current authorization consent timeline to the HOTMA timeline, thereby reducing annual burden on PHAs.

HOTMA provides PHAs with the discretion to determine whether applicants or recipients are ineligible for benefits if they, or their family members, refuse to provide or revoke the authorization to obtain financial records. Therefore, this proposed rule would also revise 24 CFR 5.232, which describes the penalties for failing to sign the consent form required in § 5.230, to clarify that the penalties in § 5.232 will not apply if applicants or participants or their family members revoke their consent for the PHA to access financial records, unless the PHA has established a policy in their annual plan that revocation of consent to access financial records will result in denial or termination of assistance or admission.

As discussed earlier in this preamble, this proposed rule would make changes to regulations for HUD's HOME, HTF, and HOPWA programs in order to better align regulations pertaining to income and assets among different HUD programs. The HOME and HTF programs are federal block grant programs that provide annual grants to States and local governments to create decent, safe and affordable housing for low-income, very low-income, and extremely low-income families, including homeless individuals. In fiscal year 2018, HUD allocated over $1.6 billion to the States and localities nationwide to fund a wide range of activities including building, buying, and/or rehabilitating affordable housing for rent or homeownership or providing direct rental assistance to low-income people. The HOME and HTF programs often operate in conjunction with other federal, state or local housing programs and leverage community and private equity in support of affordable housing. To make housing affordable, HOME and HTF funds are frequently combined with other HUD federal programs such as Project-Based Section 8 Rental Assistance and used as gap financing in rental housing developed with Low-Income Housing Tax Credits (LIHTC). Many of these programs require the use of the Part 5 definition of annual income and adjusted income for the purpose of determining income eligibility and/or tenant payments.

Section 859 of the AIDS Housing Opportunity Act (42 U.S.C. 12908) requires that HOPWA rental assistance “be provided to the extent practicable in the manner” of the Section 8 program. Therefore, HUD is proposing to incorporate into the HOPWA regulations in 24 CFR part 574 the procedures on income examinations and net family assets proposed for the public housing, HCV, and Section 8 project-based rental assistance programs in this rule.

To determine the resident payment, as in the Section 8 program, annual reexaminations of family income will be the standard under the proposed rule. However, if a family has income from fixed-income sources, grantees will be able to apply a COLA to those sources of income and will only perform a full reexamination of income every three years. If a family has at least 90 percent of their income from fixed-income sources, the grantees will be able to apply a COLA to the entire income amount, provided the family certifies that their income is at least 90 percent fixed-income, and the grantee will only have to conduct a full reexamination of family income every three years.

In between full reexaminations, this proposed rule would provide that families receiving HOPWA assistance may request an interim reexamination of family income at any time, but grantees are only required to conduct the reexamination if the family's adjusted income, as defined in the revised 24 CFR 5.611, changes by an amount that the grantee estimates will result in a change of at least 10 percent in annual adjusted income. HUD anticipates that this will decrease the number of reexaminations that HOPWA grantees conduct.

The proposed rule further amends the HOPWA regulations to cross reference § 5.611 more generally and eliminate the reference to the earned income disregard. These changes, which impact calculation of the resident rent payment under HOPWA, similarly impact HUD's Section 8 programs because of HOTMA.

Additionally, this proposed rule would revise part 574 to apply the part 5 definition of net family assets to HOTMA that applies to the Section 8 program, except the value of a home of a participant receiving short-term mortgage or utility assistance under § 574.300(b)(6) or other homeownership assistance eligible under the HOPWA program would be excluded from the definition. This proposed rule would also revise part 574 to incorporate HOTMA's provisions for restrictions on assistance to families with certain assets to the HOPWA program, but would specify that the requirements in 24 CFR 5.618 do not apply to short-term mortgage and utility assistance and other homeownership assistance eligible under the HOPWA program, or to housing information services or supportive services funded under HOPWA.

The proposed rule at 24 CFR 92.203(b) would incorporate HUD's proposed revisions to the definition of income at 24 CFR 5.609(a) and (b), which is the definition of income established by HOTMA, as well as revisions to the definition of Net Family Assets at 24 CFR 5.603 used to determine the imputed income on assets over $50,000 based on the current passbook saving rate. In determining annual income, a participating jurisdiction would continue to exclude income and asset enhancements derived from HOME assistance pursuant to 24 CFR 92.203(d)(1) ( e.g., the rental income generated from HOME assistance provided to a multi-unit housing project where the owner occupies one of the units and rents out the other units acquired through the HOME assistance), and the value of a homeowner's principal residence pursuant to 24 CFR 92.203(b)(1) from the calculation of Net Family Assets, as defined in 24 CFR 5.603.

This proposed rule would revise 24 CFR 92.203(c) to move the first sentence into a new standalone paragraph (e) and incorporate the second and third sentences into paragraphs (e)(1) and (e)(2). The new paragraph (e) would incorporate the revisions to the definition of adjusted income at 24 CFR 5.611(a)-(c). It would require participating jurisdictions, when determining a family's adjusted income for the purpose of determining the appropriate amount of rent applicable to a tenant in HOME units receiving Federal or State project-based subsidy, the to apply the mandatory deductions from income established at 24 CFR 5.611(a). For units with tenant-based rental assistance, § 92.203(e)(2) would permit a participating jurisdiction to apply the deductions at § 5.611(a) and grant financial hardship exemptions according to the requirements of § 5.611(c).

Finally, where a family applying for or living in a HOME-assisted unit receives assistance from the HCV program or where a PHA is the owner in the PBRA program, HUD proposes to add § 92.203(e)(3) to require the use of the deductions in § 5.611(a) and (b) to calculate a family's adjusted income. In such cases, HUD would allow a participating jurisdiction to accept a PHA's determination to grant a hardship exemption under § 5.611(c).

Specific solicitation of comment 17: HUD is seeking feedback from interested parties on whether HUD should adopt all revisions made to adjusted income (mandatory deductions, additional deduction and hardship exemptions, as applicable) when combining HOME and other federal programs such as Section 8 in a rental project.

Specific solicitation of comment 18: HUD is seeking feedback from interested parties on whether HUD should adopt financial hardship exemptions for families receiving HOME-funded tenant-based rental assistance.

For purposes of calculating tenant income in the HOME program, HUD is not proposing to adopt the new section 5.609(c) for determining income at initial occupancy or interim reexaminations and the timing requirements of those determinations. The HOME regulations permit participating jurisdictions to choose, on a program ( e.g., homeownership) basis and on a rental project by project basis, one of two definitions of annual income: (1) Annual income as defined at 24 CFR 5.609; or (2) the Internal Revenue Service definition of “adjusted gross income.” For families who are tenants in HOME-assisted housing and not receiving tenant-based rental assistance, the HOME program requires a participating jurisdiction to examine at least 2 months of source documents evidencing annual income at initial occupancy. For subsequent income determinations during the HOME compliance period, the existing HOME regulations permit a participating jurisdiction to use one of three methods to determine annual income. Adopting 24 CFR 5.609(c) for the HOME program would impose different methods for calculating and verifying income that are more stringent than those currently required by the HOME regulations. HUD believes the methods described at 24 CFR 92.203(a)(1) provide a participating jurisdiction more flexibility in administering and managing its HOME-assisted rental housing portfolio.

Specific solicitation of comment 19: In light of revisions made to 24 CFR 5.609(c)(3) to allow PHAs to accept a timely income determination of a family from another agency's means-tested Federal public assistance, HUD is seeking feedback from interested parties on whether 24 CFR 92.203(a)(1)(iii) should specify what HUD considers timely for purposes of accepting an income determination of a family made by an administrator of a government program under which the family receives benefits.

There is no independent statutory basis in the HOME program for applying the EID in 24 CFR 5.617 to persons with disabilities who are tenants in HOME-assisted rental housing or who are receiving tenant-based rental assistance. HUD applied 24 CFR 5.617 to HOME through 24 CFR 92.203(d)(3) to be consistent with other programs governed by the 1937 Act. With the revision to the 1937 Act removing the authority for disallowance of earned income and the sunset of the corresponding regulatory provision in 24 CFR 5.617(e), the HOME regulation at 24 CFR 92.203(d)(3) would be revised so that the applicability to HOME will also sunset.

The HOME statute does not establish a limitation on the amount of and type of assets that a family assisted with HOME funds can have. HUD is not proposing to adopt the new asset restriction for the HOME program.

Specific solicitation of comment 20: HUD is seeking feedback from interested parties on whether HUD should adopt asset restrictions for any housing programs funded with HOME ( e.g., homebuyer, rental, tenant-based rental assistance and owner-occupied rehabilitation), as well as when housing programs funded with HOME are combined with other federal programs such as Section 8.

The proposed rule at 24 CFR 93.151(b) incorporates HUD's proposed revisions to the definition of annual income at 24 CFR 5.609(a) and (b), which is the definition of income provided by HOTMA, as well as the revisions to the definition of Net Family Assets at 24 CFR 5.603 that are used to determine the imputed income on assets over $50,000 based on the current passbook saving rate.

For purposes of calculating tenant income in the HTF program, HUD is not proposing to adopt the new section 5.609(c) for determining income at initial occupancy or interim reexaminations and the timing requirements for those determinations. For families who are tenants in HTF-assisted housing, the HTF program requires a grantee to examine at least 2 months of source documents evidencing annual income at initial occupancy. For subsequent income determinations during the HTF compliance period, a grantee may use one of three methods to determine annual income. Adopting 24 CFR 5.609(c) for the HTF program would impose methods for calculating and verifying income that are more stringent than those currently required by the HTF regulations without providing additional benefit to the program. As HTF does not provide an ongoing subsidy to grantees, HUD believes the methods described at 24 CFR 93.151(d) provide a grantee more flexibility in administering and managing its HTF-assisted rental housing portfolio.

Specific solicitation of comment 21: In light of revisions made to 24 CFR 5.609(c)(3) to allow PHAs to accept a timely income determination of a family from another agency's means-tested Federal public assistance, HUD is seeking feedback from interested parties on whether 24 CFR 93.151(d) should specify what HUD considers timely for purposes of accepting an income determination of a family made by an administrator of a government program under which the family receives benefits.

This proposed rule would revise 24 CFR 93.151(b) to clarify that annual income includes income from all persons in the household regardless of which definition of annual income the grantee applies to its HTF-assisted program(s) or project(s). Furthermore, this proposed rule would revise 24 CFR 93.151 to add a new paragraph (e) to incorporate revisions to adjusted income in § 5.611 and requires grantees to apply the deductions in § 5.611(a) to determine the tenant's adjusted income. For public housing, the HCV program, and where the PHA is an owner in the PBRA program, paragraph (e)(2) requires the use of the deductions in § 5.611(a) and (b) to determine the tenant's adjusted income and also permits a grantee to accept a PHA's decision to grant financial hardship exemptions under § 5.611(c) to a family.

The HTF statute did not establish a limitation on the amount of and type of assets that a family assisted with HTF funds may have. HUD is not proposing to adopt the new asset restriction for the HTF program.

Specific solicitation of comment 22: HUD is seeking feedback from interested parties on whether HUD should adopt asset restrictions for any housing programs funded with HTF funds ( e.g., homebuyer or rental housing), as well as when HTF funds are combined with other federal programs such as Section 8.

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.”

The rule would update HUD regulations for various programs to conform to sections 102, 103, and 104 of HOTMA by listing specific criteria for triggering family income reviews, providing methods for calculating family income, revising the definition of income and adjusted income, setting a limit on the amount and type of assets that assisted families may have, revising the definition of net family assets, and requiring that applicants for and recipients of assistance provide authorization to PHAs to obtain financial records. This proposed rule was determined to be a significant regulatory action under section 3(f) of Executive Order 12866 (although not an economically significant regulatory action under the order). 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.

Executive Order 13771, entitled “Reducing Regulation and Controlling Regulatory Costs,” was issued on January 30, 2017. This proposed rule is expected to be an E.O. 13771 deregulatory action. HUD estimates that this rule would have annual net cost savings in the first year of about $2 million and after the first year, of about $23 million to $27 million, accruing to Public Housing Agencies, HOPWA grantees, and Project-Based Rental Assistance owners. Around 20,000 to 30,000 units may transfer from currently assisted households to households on the waitlist or new applicants. Further details on the estimated cost savings of this proposed rule can be found in the rule's RIA.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.

This proposed rule revises HUD regulations in certain ways that will reduce burden or provide flexibility for PHAs and owners and other housing providers. The proposed rule provides specific events that trigger an interim reexamination of family income, whereas current regulations provide that families may request reexaminations at any time. The proposed rule provides methods for calculating family income, but also provides a safe harbor for PHAs and owners who determine a family's income based on other means-tested Federal public assistance programs. Additionally, this proposed rule provides for a limitation on assets, but provides that PHAs and owners may choose not to enforce this provision. This proposed rule also provides that applicants and recipients of assistance must provide authorization for PHAs to obtain financial records in order to verify family income.

For the reasons presented, the undersigned certifies that this rule will not have a significant economic impact on a substantial number of small entities.

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has Federalism implications if the rule either imposes substantial direct compliance costs on state and local governments and is not required by statute, or the rule preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This rule would not have Federalism implications and would not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

The proposed rule relates to establishment and review of income limits and exclusions with regard to eligibility for or calculation of HUD housing assistance or rental assistance and related external administrative or fiscal requirements and procedures that do not constitute a development decision that affects the physical condition of specific project areas or building sites. Accordingly, under 24 CFR 50.19(c)(6), this proposed rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4; approved March 22, 1995) (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 rule does not impose any Federal mandates on any state, local, or tribal government, or on the private sector, within the meaning of the UMRA.

The information collection requirements contained in this proposed rule have 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 numbers 2502-0204, 2506-0133, and 2577-0083. HUD expects to make changes to these existing recordkeeping items consistent with the changes in this proposed rule and believes that the changes will result in a decrease of burden of $8,337,744 and 345,495 hours.

HUD would change the HOPWA PRA OMB No. 2506-0133 to reduce the recordkeeping burden hours from 60 hours to 50 hours per grantee to reflect the change to a triennial recertification and the reduction in the frequency of granting interim reexaminations. See § 574.310(e).

HUD would change the Section 8 project-based PRA OMB No-2502-0204 to reflect the regulatory change that a new consent to release of information would only apply at the time of initial tenancy, estimated at an approximate 80 percent reduction based on anticipated number of new participants, and reduce the number of certification compliances conducted by project owners to represent the decrease in interim reexaminations, estimated at 5 percent of recertifications. See §§ 5.230 and 5.657.

HUD would also change the Public Housing and HCV programs PRA OMB No. 2577-0083. HUD provides for a new burden in the Public Housing context for providing notices to over-income tenants and reporting the number of families on the waiting list annually, and the change includes a reduction in burden for Public Housing and HCV to reflect the decrease in interim reexaminations, estimated at 5 percent of recertifications. HUD would also change the Public Housing and HCV programs PRA OMB No. 2501-0014 to reflect the regulatory change that a new consent to release information would only apply at the time of initial tenancy, estimated at an approximate 88 percent reduction based on anticipated number of new participants. See §§ 5.230, 960.257, 960.507 and 982.516.

HUD believes that there are no PRA burden reductions for HOME and the HTF programs. Also, HUD finds that while changes to § 5.609, Annual Income, and § 5.611, Adjusted Income, will result in tenants providing different information, the net burden will not change. In accordance with the Paperwork Reduction Act of 1995, 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.

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. 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-6057) 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.

The Catalog of Federal Domestic Assistance numbers applicable to the programs that would be affected by this rule are: 14.195, 14.239, 14.241, 14.275, 14.850, 14.856, and 14.871.

Accordingly, for the reasons described in the preamble, HUD proposes to amend 24 CFR parts 5, 92, 93, 574, 960, 966, and 982 as follows:

The Coast Guard views public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.

We encourage you to submit comments through the Federal eRulemaking Portal at https://www.regulations.gov. If you cannot submit your material by using https://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section for alternate instructions. Documents mentioned in this notice of proposed rulemaking, and all public comments, will be available in our online docket at https://www.regulations.gov, and can be viewed by following that website's instructions. Additionally, if you visit the online docket and sign up for email alerts, you will be notified when comments are posted or if a final rule is published.

We accept anonymous comments. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, visit http://www.regulations.gov/privacyNotice.

We do not plan to hold a public meeting, but we will consider doing so if public comments indicate that a meeting would be helpful. We would issue a separate Federal Register notice to announce the date, time, and location of such a meeting.

Under 46 CFR 11.201(c)(2), an applicant for a national officer endorsement on a Merchant Mariner Credential (MMC) “must have at least 3 months of required service on vessels of appropriate tonnage or horsepower within the 3 years immediately preceding the date of application.” Section 305 of the Howard Coble Coast Guard and Maritime Transportation Act of 2014  1 amended 46 U.S.C. 7101 to authorize the Coast Guard to extend the period from 3 years to 7 years for individuals whose 3 months of qualifying sea service was aboard vessels of the uniformed services. Such individuals must also satisfy all other requirements for a national officer endorsement on an MMC. In this notice of proposed rulemaking (NPRM), we propose to establish a 7-year period within which the attainment of 3 months of qualifying sea service aboard vessels of the uniformed services can be used to satisfy the requirement for recent sea service to qualify for an MMC with a national officer endorsement. This NPRM would affect only 46 CFR part 11, “Requirements for officer endorsements,” and, specifically, only 46 CFR 11.201(c)(2).

Individuals serving on vessels of the uniformed services represent a population who may be qualified for an MMC. When these individuals spend the final years of their careers assigned to shoreside units, the requirement in 46 CFR 11.201(c)(2) to have at least 3 months of qualifying sea service within 3 years of application for an officer endorsement poses an obstacle to meeting the requirement for recent sea service. This rule will improve the pathway for individuals with sea service aboard vessels of the uniformed services to meet the requirement for recent sea service to qualify for a national officer endorsement.

On December 18, 2014, Congress amended 46 U.S.C. 7101 by adding paragraph (j), which authorized the Coast Guard to extend the period from 3 years to 7 years for individuals whose 3 months of qualifying sea service was aboard vessels of the uniformed services. Subsequent to enactment of 46 U.S.C. 7101(j)(1), the Coast Guard issued CG-CVC Policy Letter 15-03, “Crediting Recent Service of Uniformed Service Personnel,”  2 on October 16, 2015 to implement 46 U.S.C. 7101(j)(1) until a rulemaking could be completed.

In accordance with 46 U.S.C. 7101(j)(1), we propose to amend 46 CFR 11.201(c)(2) to allow individuals who have attained qualifying sea service aboard vessels of the uniformed services within 7 years preceding the date of application for a national officer endorsement to use this service to satisfy the requirement for recent sea service. Because the existing regulatory language in 46 CFR 11.201(c)(2) requires qualifying sea service to be attained within a 3-year period preceding the date of application, a regulatory change is needed to align our regulations with the authority granted in 46 U.S.C. 7101(j)(1).

In addition to seeking public comment on the proposed change described above, the Coast Guard also seeks comment from the public on the following questions:

(1) Should the period for “recent” service be extended to 7 years for all national officer endorsements?

(2) Is it necessary to have a requirement for recent sea service for an original, renewal, or raise of grade of an MMC with a national officer endorsement?

The Coast Guard asks the second question because the Coast Guard has not solicited public comment on the requirement for recent sea service to qualify for an MMC with a national officer endorsement since the 1980s. 3 The Coast Guard is interested in hearing public opinion on whether recent sea service is necessary in addition to the existing sea service requirement for deck officer endorsements under 46 CFR part 11, subpart D, for engineer officer endorsements under subpart E, and for first-class pilot endorsements under subpart G to demonstrate that an applicant has the appropriate experience for the endorsement being sought.

When evaluating whether there is a need for recent sea service for the renewal of an MMC with a national officer endorsement, consideration should be given to the professional requirements an applicant must meet for the renewal of any MMC that are provided under 46 CFR 10.227(e). Under this section, applicants must meet one of the following professional requirements for renewal of an MMC:

(1) Present evidence of 1 year of sea service within the previous 5 years;

(2) Pass a comprehensive open book exercise;

(3) Complete an approved refresher training course;

(4) Provide evidence of closely related service for at least 3 years in the previous 5 years; or

(5) Provide evidence of employment as a qualified instructor having taught two classes in the last 5 years in course work that is relevant to the credential sought.

The comments we receive in response to the questions above may form the basis for a separate rulemaking in the future.

We developed this NPRM after considering numerous statutes and Executive orders related to rulemaking. A summary of our analyses based on these statutes or Executive orders follows.

Executive Orders 12866 (Regulatory Planning and Review) and 13563 (Improving Regulation and Regulatory Review) direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and of promoting flexibility. Executive Order 13771 (Reducing Regulation and Controlling Regulatory Costs) directs agencies to reduce regulation and control regulatory costs and provides that “for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.”

The Office of Management and Budget (OMB) has not designated this rule a significant regulatory action under section 3(f) of Executive Order 12866. Accordingly, OMB has not reviewed it. Because this proposed rule is not a significant regulatory action, this rule is exempt from the requirements of Executive Order 13771. See the OMB Memorandum titled “Guidance Implementing Executive Order 13771, Titled `Reducing Regulation and Controlling Regulatory Costs'” (April 5, 2017).

A combined preliminary regulatory analysis and threshold regulatory flexibility analysis follows and provides an evaluation of the economic impacts associated with this NPRM.

This NPRM would revise existing regulations related to the requirement for recent sea service to qualify for an MMC with a national officer endorsement. Specifically, this NPRM proposes to amend 46 CFR 11.201(c)(2) by establishing a 7-year period within which the attainment of 3 months of qualifying sea service aboard vessels of the uniformed services would satisfy the requirement for recent sea service. This proposed change would apply to original and raise of grade national officer endorsement applicants who have served on vessels of the uniformed services. 4 Under 10 U.S.C. 101(a)(5), “uniformed services” means the armed forces, the commissioned corps of the National Oceanic and Atmospheric Administration (NOAA), and the commissioned corps of the Public Health Service (PHS). To estimate the impacts that the proposed increase in timeframe for which the attainment of 3 months of qualifying sea service can be used to satisfy the requirement for recent sea service, we examined data on officer endorsement applications provided by the National Maritime Center (NMC).

This proposed rule intends to increase the number of qualified applicants for a national officer endorsement, which would subsequently increase the pool of credentialed mariners supporting U.S. commerce and the growth of the marine transportation system. However, after examining the existing data it was not possible to estimate the extent of any increases. Information provided by the NMC from the Merchant Mariner Licensing Documentation (MMLD) system was used to estimate the number of mariners that may be affected by this proposed rule. The data available from 2016 to 2018 indicates that applicants for an original endorsement or raise of grade to an existing endorsement may be able to utilize previous sea service on vessels of the uniformed services to meet the professional requirements for a national officer endorsement. Meeting the requirements for an original officer endorsement may allow a mariner to be employed at a higher initial wage rate. We present an analysis of the potential positive distributional impacts (qualitative) on mariners in the benefits section.

This NPRM proposes to increase the period from 3 years to 7 years, within which qualifying sea service aboard vessels of the uniformed services can be used to satisfy the requirement for recent sea service to qualify for an MMC with a national officer endorsement. The Coast Guard cannot conclusively estimate the impact of increasing the period from 3 years to 7 years on the number of total qualified merchant mariners. Although the annual average number of original and raise of grade national officer endorsements is decreasing, the number of individuals using prior service on vessels of the uniformed services is increasing, based on data from between 2016 and 2018. We are also unable to determine the source of the increase in national officer endorsements issued with sea service on vessels of the uniformed services; therefore, we did not estimate costs (see table 1).

46 U.S.C. 7101(j)(1) applies to applicants that have three months of qualifying service on vessels of the uniformed services within the seven years immediately preceding the date of application. The pool of applicants consists of, and this NPRM would affect, current and former members of the U.S. armed forces, 5 the commissioned corps of NOAA and PHS, and civilians who attained qualifying sea service aboard vessels of the uniformed services within 7 years preceding the date of application for a national officer endorsement. There are approximately 1.33 million military personnel serving in the U.S. armed forces, 681,000 personnel serving in the Reserve  6 and approximately 727,000 civilians employed by the armed and uniformed services. 7 8 9 To estimate the number of people potentially affected by this NPRM, we examined data provided by the NMC. The NMC evaluates MMC applications and issues credentials to qualified mariners. As noted in section IV, on December 18, 2014, Congress amended 46 U.S.C. 7101 to authorize the Coast Guard to extend the period by which a mariner can obtain 3 months of qualifying sea service aboard vessels of the uniformed services from 3 years to 7 years to satisfy the requirement for recent sea service. Following that, in October 2015, CG-CVC Policy Letter 15-03 was published to implement 46 U.S.C. 7101(j)(1) on an interim basis until the Coast Guard could complete a rulemaking. This analysis utilized Coast Guard data from the MMLD database on all original and raise of grade national officer endorsements issued beginning in 2010, and original and raise of grade national officer endorsements issued utilizing prior sea service on vessels of the uniformed services beginning in 2016. In 2016, the NMC began identifying applications utilizing prior service aboard vessels of the uniformed services to meet the requirement for recent sea service under 46 CFR 11.201(c)(2). The data spans from January 2016 through December 2018 to include 36 months (unless otherwise noted). Therefore, given the data availability, we use the statistical baseline of 2016 for this analysis. The observations are as follows:

(1) The annual average number of original and raise of grade national officer endorsements issued is 7,203 (as observed from 2010-2018). In Figure 1, we show the results of our observation of historical data indicating that the number of annual officer endorsements issued from 2010-2018 is on a downward trend.

(2) In 2016, there were 7,165 original and raise of grade national officer endorsements issued, 10 of which 356 used prior service on vessels of the uniformed services to meet the requirements for the endorsement. 11 This is equivalent to approximately five percent (356 ÷ 7,165). In 2017, there were 6,330 original and raise of grade national officer endorsements issued, of which 495 used prior service on vessels of the uniformed services to meet the requirements for the endorsement. This is equivalent to approximately 7.8 percent (495 ÷ 6,330). In 2018, there were 5,748 original and raise of grade national officer endorsements issued, of which 501 used prior service on vessels of the uniformed services to meet the requirements for the endorsement. This is equivalent to approximately 8.7 percent (501 ÷ 5,748).

(3) The average percentage of original and raise of grade national officer endorsements issued using prior sea service aboard vessels of the uniformed services is about 7.2 percent ([0.05 + 0.078 + 0.087] ÷ 3 = 0.072 or 7.2 percent).

(4) Using the figure derived in (1) and the figure derived in (3), the Coast Guard found the average number of (estimated) national officer endorsements using prior sea service aboard vessels of the uniformed services to be 516 per year (7,203 average annual number of national officer endorsements issued × 0.072 percentage of national officer endorsements issued using prior sea service on vessels of the uniformed services). 12

This NPRM would amend 46 CFR 11.201(c)(2) and establish a 7-year period within which the attainment of 3 months of qualifying sea service aboard vessels of the uniformed services could be used to satisfy the requirement for recent sea service to qualify for a national officer endorsement. Following the publication of CG-CVC Policy Letter 15-03, the Coast Guard anticipated an increase in the total number of MMCs issued with original or raise of grade national officer endorsements. In 2016, the NMC began collecting data on the number of applicants using prior sea service aboard vessels of the uniformed service. 13 As shown in table 2, the total number of national officer endorsements issued, either original or raise of grade, decreased approximately 20 percent from 2016 to 2018. However, the number of national officer endorsements issued, either original or raise of grade, that utilized sea service on vessels of the uniformed services increased approximately 29 percent.

In 2018, the Commission initiated a non-adjudicatory fact-finding investigation, Fact Finding Investigation No. 28, into the conditions and practices relating to detention, demurrage, and free time. 1 On December 7, 2019, the Commission voted to accept the investigation's Final Report, in which the Fact-Finding Officer found that:

• Demurrage and detention are valuable charges when applied in ways that incentivize cargo interests to move cargo promptly from ports and marine terminals;

• All international supply chain actors could benefit from transparent, consistent, and reasonable demurrage and detention practices, which would improve throughput velocity at U.S. ports, allow for more efficient use of business assets, and result in administrative savings; and

• Focusing port and marine terminal operations on notice of actual cargo availability would achieve the goals of demurrage and detention practices and improve the performance of the international commercial supply chain. 2

Based on the Fact Finding's Final Report, Interim Report, 3 and investigatory record, the Commission is considering incorporating those findings in guidance as to the Commission's interpretation of 46 U.S.C. 41102(c) and 46 CFR 545.4(d) in the context of demurrage and detention. Although each § 41102(c) case would continue to be decided on the particular facts of the case, the Commission believes that guidance in the form of a non-exclusive list of considerations will promote fluidity in the U.S. freight delivery system by ensuring that demurrage and detention serve their purpose of incentivizing cargo and equipment velocity. The proposed interpretive rule will also mitigate confusion, reduce and streamline disputes, and enhance competition and innovation in business operations and policies. The Commission is issuing this notice to obtain public comments on this guidance.

This notice of proposed rulemaking arises from the Commission's Fact Finding Investigation No. 28, which itself derived from repeated criticisms of ocean carrier and marine terminal operator demurrage and detention practices. 4 The investigation was nationwide and industry-wide in scope and involved thousands of pages of written discovery and interviews with numerous representatives of cargo interests (shippers and consignees), truckers, ocean transportation intermediaries, ocean carriers, marine terminal operators, and ports. 5

The Fact-Finding Officer found that the primary purposes of demurrage and detention are to serve as financial incentives to encourage the productive use of assets (containers and terminal space) and promote optimal cargo velocity through marine terminals. 6 The Fact Finding Officer further found that the U.S. international ocean freight delivery system, and American economy, would benefit from: (1) “Transparent, standardized language for demurrage and detention practices;” (2) “Clear, simplified, and accessible demurrage and detention billing practices and dispute resolution processes;” (3) “Explicit guidance regarding the types of evidence relevant to resolving demurrage and detention disputes;” and (4) “Consistent notice to cargo interests of container availability.”  7

The guidance proposed by the Commission is in the form of an interpretive rule. 8 The proposed rule concerns financial incentives, particularly with respect to cargo availability, empty container return, notice of availability, and government inspections; accessible and user-friendly demurrage and detention policies; and transparent, consistent terminology. The following consists of the text of the proposed rule and comments on each subparagraph.

The Commission's proposed rule would first specify that its purpose is to provide guidance about how the Commission will interpret 46 U.S.C. 41102(c) and 46 CFR 545.4(d) in the context of demurrage and detention The proposed interpretive rule would also make clear that it applies to practices and regulations relating to demurrage and detention for containerized cargo. For purposes of this rule, demurrage and detention would include any charges, including “per diem,” assessed by ocean common carriers, marine terminal operators, or ocean transportation intermediaries (“regulated entities”) related to the use of marine terminal space ( e.g., land) or shipping containers, not including freight charges.

As for the scope and applicability of the proposed rule, first, it defines “demurrage and detention” broadly to encompass all charges customarily referred to as demurrage, detention, or per diem, however defined. 9 Second, the proposed rule would only apply to containerized cargo, including refrigerated (“reefer”) containers. Third, the proposed rule makes clear that it applies to charges related to shipping containers, not other equipment, such as chassis. 10

The Commission proposes that in assessing the reasonableness of demurrage and detention practices and regulations, it will consider the extent to which demurrage and detention are serving their intended purposes as financial incentives to promote freight fluidity.

To pass muster under § 41102(c), “a regulation or practice must be tailored to meet its intended purpose.”  11 The intended purposes of demurrage and detention charges are to incentivize cargo movement and the productive use of assets (containers and port or terminal land)—a point which ocean carriers and marine terminal operators have repeatedly emphasized to the Commission. 12 The “incentive principle” in the proposed rule is merely an application of the general § 41102(c) reasonableness standard to the demurrage and detention context.

As Fact-Finding Investigation No. 28 made clear, demurrage and detention are valuable charges when they work—when they are applied in ways that incentivize cargo interests to move cargo promptly from ports and marine terminals. 13 When circumstances are such that demurrage and detention do not work, i.e., when they do not incentivize cargo movement and productive asset use, there is cause to question the reasonableness of their application. For instance, if a cargo interest or its trucker cannot retrieve cargo from a marine terminal because the cargo is not available for retrieval due to circumstances such as weather, port or terminal closures, the container is in a closed area, or government inspections of the cargo, demurrage would not serve as an effective incentive for cargo retrieval.

The proposed rule states the incentive principle in general terms, but its application will vary depending on the facts of a given case. For example, under the incentive principle, absent extenuating circumstances, demurrage and detention practices and regulations that do not provide for a suspension of charges when circumstances are such that demurrage and detention are incapable of serving their purpose would likely be found unreasonable. 14 An example of an extenuating circumstance is whether a cargo interest has complied with its customary responsibilities, especially regarding cargo retrieval ( e.g., making appointments, paying freight, submitting required paperwork, retaining a trucker). If it has not, this could be factored into the analysis. Another application of the incentive principle is if cargo cannot be retrieved, or empty containers cannot be returned, due to a lack of appointments, demurrage and detention cannot incentivize cargo retrieval or equipment return. The Commission may therefore consider in the reasonableness analysis how demurrage and detention practices and regulations account for the availability of appointments.

Particularly significant applications of the incentive principle involve cargo availability, empty container return, notice of cargo availability, and government inspections, as set forth below.

As for particular applications of the “incentive principle,” the proposed interpretive rule would clarify that the Commission may consider in the reasonableness analysis the extent to which demurrage practices and regulations relate demurrage or free time to cargo availability for retrieval.

A particularly important context for the incentive principle, and one given its own subparagraph in the proposed rule, is cargo availability. If cargo interests or truckers cannot pick up their cargo within free time, then demurrage cannot serve its incentive purpose. Cargo availability is key to demurrage serving its intended function, and thus the Commission may consider the relationship between demurrage and cargo availability in its analysis under 46 U.S.C. 41102(c). 15 The more a demurrage practice is tailored to cargo availability, the less likely the practice is to be found unreasonable.

In this context, “cargo availability” or “accessibility” refers to the actual ability of a cargo interest or trucker to retrieve its cargo. Cargo is not available, for instance, if a cargo interest or trucker cannot pick it up because it is in a closed area of a terminal, or if the port is closed. 16 Examples of demurrage practices that are expressly linked to container availability, and which the Commission would weigh positively in the reasonableness analysis, include: (a) Starting the free time clock upon container availability as opposed to container discharge from a vessel; (b) public notice of terminal yard closures; and (c) stopping a demurrage or free time clock when a container is rendered unavailable, such as upon notice of a yard or terminal closure or when a trucker cannot get an appointment within a reasonable time of it becoming available. 17

The proposed interpretive rule would also indicate that absent extenuating circumstances, practices and regulations that provide for imposition of detention when it does not serve its incentivizing purposes, such as when empty containers cannot be returned, are likely to be found unreasonable.

The flip side of cargo availability is empty container return. Absent extenuating circumstances, practices and regulations that result in detention being imposed when a container cannot be returned weigh heavily in favor of a finding of unreasonableness. The paradigmatic example is that if the marine terminal designated by an ocean carrier refuses to accept empty containers, no amount of detention can incentivize the return of those containers. Absent extenuating circumstances, assessing detention in such situations, or declining to pause the free time or detention clock, would likely be unreasonable. Imposing detention in situations of uncommunicated or untimely communicated changes in container return location also weighs on the side of unreasonableness, as might doing so when there have been uncommunicated or untimely communicated notice of terminal closures for empties.

Additionally, the Commission would clarify that in assessing the reasonableness of demurrage practices and regulations, it may consider whether and how regulated entities provide notice to cargo interests that cargo is available for retrieval. The Commission would consider the type of notice, to whom notice is provided, the format of notice, method of distribution of notice, the timing of notice, and the effect of the notice.

This subparagraph promotes aligning cargo retrieval processes around notice that cargo is available. 18 The Commission will consider in the reasonableness analysis whether and how regulated entities provide notice to cargo interests that cargo is available for retrieval. The more notice is calculated to apprise cargo interests that cargo is available for retrieval, the more this factor favors a finding of reasonableness.

The Commission may consider the type of notice. Types of notice that are expressly linked to cargo availability will weigh toward reasonableness, and include: (a) Notice that cargo is discharged and in an open area; (b) notice that cargo is discharged, in an open area, free of holds, and proper paperwork has been submitted; and (c) notice of all the above and that an appointment is available.

Other factors include to whom notice is provided, the format and method of distribution of notice, the timing of notice, and the effect of notice. The more these factors align with the goal of moving cargo off terminal property, the less likely demurrage practices would be found unreasonable. For instance, while the Commission appreciates that many marine terminal operators make container status information available on websites and allow users to register to get electronic notice of changes in container status, cargo interests have persuasively explained the superior merits of “push notifications” related to cargo availability, including notice of yard closures. 19 Moreover, the Commission will consider how demurrage and detention practices account for cargo availability changes, such as when a container that is initially available becomes unavailable. 20 Regarding the effect of notice, demurrage practices that link the start of free time to notice that a container is available weigh in favor of reasonableness, as do practices that guarantee the availability of an appointment within a specified time of notice of container availability.

The Commission is still considering its guidance related to government inspections of cargo. Imposition of demurrage and detention during government inspections of cargo, and the delays associated with such inspections, is a significant problem for cargo interests and truckers. Such inspections not only involve cargo interests and regulated entities but also government agencies, third-parties, and, in some cases, off-terminal facilities. In light of the incentive principle, the Commission is considering the following interpretive rules:

• In the absence of extenuating circumstances, demurrage and detention practices and regulations that provide for the escalation of demurrage or detention while cargo is undergoing government inspection are likely to be found unreasonable;

• In the absence of extenuating circumstances, demurrage and detention practices and regulations that do not provide for mitigation of demurrage or detention while cargo is undergoing government inspection, such as by waiver or extension of free time, are likely to be found unreasonable; or

• In the absence of extenuating circumstances, demurrage and detention practices and regulations that lack a cap on the amount of demurrage or detention that may be imposed while cargo is undergoing government inspection are likely to be found unreasonable.

The Commission is particularly interested in comments on such proposals and other suggestions for handling demurrage and detention in the context of government inspections, consistent with the incentive principle.

The Commission further proposes making clear that it may consider in the reasonableness analysis the existence and accessibility of policies implementing demurrage and detention practices and regulations, including dispute resolution policies. In assessing dispute resolution policies, the Commission would further consider the extent to which they contain information about points of contact, timeframes, and corroboration requirements.

Cargo interests should be informed of who is being charged, for what, by whom, and how disputes can be addressed in a timely fashion. 21 The opacity of current practices encourages disputes and discourages competition over demurrage and detention charges. Accordingly, the proposed rule would have the Commission consider in the reasonableness analysis the existence of policies—whether a regulated entity has demurrage and detention policies that reflect its practices. The Commission would also consider the accessibility of policies—whether and how those policies are made available to cargo interests and truckers and the public. The more accessible these policies are, the greater this factor weighs against a finding of unreasonableness. This factor favors demurrage and detention practices and regulations that make policies available in one, easily accessible website, whereas burying demurrage and detention policies in scattered sections in tariffs would be disfavored. 22

As for dispute resolution policies, not only should they be accessible, but the Commission will consider whether they address things such as points of contact for disputing charges; time frames for raising disputes, for responding to cargo interests or truckers, and for resolving disputes; and the types of information or evidence relevant to resolving demurrage or detention disputes. 23 Other attributes of dispute resolution policies that will weigh in favor of reasonableness include step-by-step instructions for disputing a charge, dedicated dispute resolution staff at regulated entities, allowing priority appointments or waiving appointments after successful dispute resolution or when a container is not available; sufficient responses to cargo interests requests for free time extensions or waiver; processes for elevating disputes after an initial response; and allowing a trucker to continue to do business with a regulated entity during the pendency of a dispute.

As an example, the best practices proposal put forward by the Ocean Carrier Equipment Management Association (OCEMA)—and made available on OCEMA's website—is a useful model for demurrage and detention dispute resolution policies, which each regulated entity would tailor to fit its own circumstances. 24 That model supports including in demurrage and detention policies: (1) Points of contact for demurrage and detention disputes (names, phone numbers, and email addresses); (2) “[a] description of what information is required to be provided by the shipper in order to make a detention and/or demurrage dispute claim;” (3) timeframes for raising a dispute and providing a response; and (4) that individual entities' dispute resolution processes web pages be linked to the OCEMA website. 25

The efficacy (and reasonableness) of dispute resolution policies also depends on demurrage and detention bills having enough information to allow cargo interests to meaningfully contest the charges. Another proposal that could promote transparency and alignment of stakeholder interests is to tie billing relationships to ownership or control of the assets that are the source of charges. 26 Under this approach, marine terminal operators would bill cargo interests directly for use of terminal land. Ocean carriers would bill cargo interests directly for use of containers. 27 This approach is also consistent with the Commission's preferred definitions of “demurrage” and “detention.”  28 Moreover, regardless of billing model, ocean carriers should bill their customers, rather than imposing charges contractually-owed by cargo interests on third parties. The Commission is interested in comments on this proposal.

Dispute resolution policies that lack guidance on corroboration requirements, that is, guidance about the types of evidence relevant to resolving demurrage and detention disputes, are likely to fall on the unreasonable end of the spectrum. Cargo interests and truckers have suggested several ideas regarding this topic, which, if implemented by regulated entities, would weigh favorably in the § 41102 analysis, including: (a) Providing truckers with evidence substantiating trucker attempts to retrieve cargo that are thwarted when the cargo is not available ( e.g., a trouble ticket with information about container and container unavailability); and (b) providing cargo interests and truckers with log records that track attempts to make appointments. Dispute resolution policies should include evidentiary guidance. The OCEMA best practices proposal, for example, expressly contemplates such guidance.

Finally, according to the proposed interpretive rule, the Commission may consider in the reasonableness analysis the extent to which regulated entities have defined the terms used in demurrage and detention practices and regulations, the accessibility of definitions, and the extent to which the definitions differ from how the terms are used in other contexts.

For demurrage and detention practices and regulations to be just and reasonable, it must be clear what the terminology means. 29 Accordingly, the Commission will consider in the reasonableness analysis whether a regulated entity has defined the material terms of the demurrage or detention practice at issue, whether and how those definitions are made available to cargo interests, truckers, and the public, and how those definitions differ from a regulated entity's past use of the terms, how the terms are used elsewhere in the port at issue, and how the terms are used in the U.S. trade.

The Commission supports defining demurrage and detention in terms of what asset is the source of a charge (land or container) as opposed to the location of a container (inside or outside a terminal). 30 Under the former, “demurrage” would be a charge related to terminal space, and “detention” would be a charge related to containers. 31 The Commission strongly discourages the continued use of terms such as “storage” and “per diem” in this context because not only do they add unnecessary complexity, the Commission has been informed that they are inconsistent with international practice.

Your comments must be written and in English. To ensure that your comments are correctly filed in the docket, please include the docket number of this document in your comments.

You may submit your comments via email to the email address listed above under ADDRESSES . Please include the docket number associated with this notice and the subject matter in the subject line of the email. Comments should be attached to the email as a Microsoft Word or text-searchable PDF document. Only non-confidential and public versions of confidential comments should be submitted by email.

You may also submit comments by mail to the address listed above under ADDRESSES .

The Commission will provide confidential treatment for identified confidential information to the extent allowed by law. If your comments contain confidential information, you must submit the following by mail to the address listed above under ADDRESSES :

• A transmittal letter requesting confidential treatment that identifies the specific information in the comments for which protection is sought and demonstrates that the information is a trade secret or other confidential research, development, or commercial information.

• A confidential copy of your comments, consisting of the complete filing with a cover page marked “Confidential-Restricted,” and the confidential material clearly marked on each page. You should submit the confidential copy to the Commission by mail.

• A public version of your comments with the confidential information excluded. The public version must state “Public Version—confidential materials excluded” on the cover page and on each affected page, and it must clearly indicate any information withheld. You may submit the public version to the Commission by email or mail.

The Commission will consider all comments received before the close of business on the comment closing date indicated above under DATES . To the extent possible, we will also consider comments received after that date.

You may read the comments received by the Commission at the Commission's Electronic Reading Room or the Docket Activity Library at the addresses listed above under ADDRESSES .

The Regulatory Flexibility Act (codified as amended at 5 U.S.C. 601-612) provides that whenever an agency is required to publish a notice of proposed rulemaking under the Administrative Procedure Act (APA) (5 U.S.C. 553), the agency must prepare and make available for public comment an initial regulatory flexibility analysis (IRFA) describing the impact of the proposed rule on small entities. 5 U.S.C. 603. An agency is not required to publish an IRFA, however, for the following types of rules, which are excluded from the APA's notice-and-comment requirement: Interpretative rules; general statements of policy; rules of agency organization, procedure, or practice; and rules for which the agency for good cause finds that notice and comment is impracticable, unnecessary, or contrary to public interest. See 5 U.S.C. 553(b).

Although the Commission has elected to seek public comment on this proposed rule, the rule is an interpretive rule. Therefore, the APA does not require publication of a notice of proposed rulemaking in this instance, and the Commission is not required to prepare an IRFA.

The Commission's regulations categorically exclude certain rulemakings from any requirement to prepare an environmental assessment or an environmental impact statement because they do not increase or decrease air, water or noise pollution or the use of fossil fuels, recyclables, or energy. 46 CFR 504.4. This rule regarding the Commission's interpretation of the 46 U.S.C. 41102(c) falls within the categorical exclusion for investigatory and adjudicatory proceedings, the purpose of which is to ascertain past violations of the Shipping Act of 1984. 46 CFR 504.4(a)(22). Therefore, no environmental assessment or environmental impact statement is required.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) requires an agency to seek and receive approval from the Office of Management and Budget (OMB) before collecting information from the public. 44 U.S.C. 3507. This proposed rule does not contain any collections of information as defined by 44. U.S.C. 3502(3) and 5 CFR 1320.3(c).

This rule meets the applicable standards in E.O. 12988 titled, “Civil Justice Reform,” to minimize litigation, eliminate ambiguity, and reduce burden.

The Commission assigns a regulation identifier number (RIN) to each regulatory action listed in the Unified Agenda of Federal Regulatory and Deregulatory Actions (Unified Agenda). The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN contained in the heading at the beginning of this document to find this action in the Unified Agenda, available at http://www.reginfo.gov/public/do/eAgendaMain.

For the reasons set forth above, the Federal Maritime Commission proposes to amend 46 CFR part 545 as follows:

I. General Information

1. Submitting Classified Business Information. Do not submit CBI to EPA website https://www.regulations.gov or email. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD-ROM that you mail to EPA, mark the outside of the disk or CD-ROM as CBI, and then identify electronically within the disk or CD-ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

2. Tips for Preparing Your Comments. When submitting comments, remember to:

Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

Follow directions—The Agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) Part or section number.

Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes.

Describe any assumptions and provide any technical information and/or data that you used.

If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

Provide specific examples to illustrate your concerns and suggest alternatives.

Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

Make sure to submit your comments by the comment period deadline identified.

EPA defines Commercial Supplier Agreements (CSAs) as terms and conditions that are customarily offered to the public by vendors of supplies or services that meet the Federal Acquisition Regulation (FAR) definition of “commercial item” and are intended to create a binding legal obligation on the end user. CSAs are common in information technology acquisitions, including acquisitions of commercial computer software and commercial technical data, and they may apply to any supply or service.

Commercial supplies and services are offered to the public under standard agreements that may take a variety of forms, including but not limited to license agreements, terms of service, and terms of sale or purchase. These standard CSAs contain terms and conditions that are appropriate when the purchaser is a private party, but not when the purchaser is the Federal Government.

The existence of Federally-incompatible terms in standard CSAs is recognized in FAR 27.405-3(b), which is limited to the acquisition of commercial computer software. This subsection advises contracting officers to exercise caution when accepting a contractor's terms and conditions. The use of CSAs is not limited to information technology acquisitions, as they have become common in a broad variety of contexts, from travel to telecommunications to financial services to building maintenance systems; including purchases below the simplified acquisition threshold.

Discrepancies between CSAs and Federal law, or the Government's needs, create recurrent points of inconsistency. Below are examples of incompatible clauses that are commonly found in CSAs:

Jurisdiction or venue clauses may require that disputes be resolved in a particular state or Federal court. Such clauses conflict with the sovereign immunity of the U.S. Government and cannot apply to litigation where the U.S. Government is a defendant because those disputes must be heard either in U.S. District Court (28 U.S.C. 1346) or the U.S. Court of Federal Claims (28 U.S.C. 1491).

Automatic renewal clauses may automatically renew or extend contracts unless affirmative action is taken by the Government. Such clauses that require the obligation of funds prior to appropriation violate the restrictions of the Anti-Deficiency Act (31 U.S.C. 1341(a)(1)(B)).

Termination clauses may allow the contractor to unilaterally terminate a contract if the Government is alleged to have breached the contract. Government contracts are subject to the Contract Disputes Act of 1978 (41 U.S.C. 601-613). The Contract Disputes Act requires a certain process for resolving disputes, including terminations, and that the “Contractor shall proceed diligently with performance of this contract, pending final resolution” under the terms of the FAR Disputes clause at 52.233-1.

Additionally, the current order of precedence contained in the Commercial Items clause at FAR 52.212-4 is not clear on prevailing terms, and potentially allows CSAs to supersede the terms of Federal contracts, especially in those areas where Federal law is implicated indirectly. As a result, industry and Government representatives must spend time and resources negotiating and tailoring CSAs to comply with Federal law and to ensure both parties have agreement on the contract terms.

EPA has identified common illegal, improper or inappropriate CSA terms that constitute the majority of the negotiated CSA terms. The outcome of the negotiations regarding these identified terms is generally predetermined by rule of law, but EPA and contractors must spend time and resources to negotiate these terms. By explicitly addressing common unenforceable terms within the Commercial Items clause at FAR 52.212-4 and clarifying prevailing terms in the order of precedence, it eliminates the need for negotiation of these terms.

This approach will decrease the time needed for legal review prior to contract award, and will reduce costs to both the Government and contractors. EPA believes that such an approach will benefit contractors, including small business concerns, by: (1) Decreasing proposal costs associated with negotiating the identified unenforceable CSA terms; (2) facilitating faster procurement and contract lead times, therefore decreasing the time it takes for contractors to make a return on their investment; (3) reducing administrative costs for companies that maintain alternate Federally compliant CSAs; and (4) for small business concerns, it levels the playing field with larger competitors since negotiations will only be required if the CSA contains objectionable clauses outside of those already identified in proposed clause. Additionally, this approach ensures consistent application and understanding of these unenforceable terms.

EPA is issuing class deviations for two Federal Acquisition Regulation (FAR) clauses to address the order of precedence and CSA terms that are incompatible with Federal law. The class deviations not only protect EPA and contractors by uniformly addressing common unacceptable terms and reducing risk, but also by further streamlining the acquisition process and reducing administrative cost for commercial-item supplies and services. The class deviations also clarify the precedence of terms to ensure parties have a mutual understanding of the contract terms; for example, bilateral modifications to the CSAs are only required for material changes.

The EPA is updating clause 1552.216-73, Fixed Rates for Services-Indefinite Delivery/Indefinite Quantity Contract, to add Alternate I (which had previously been a deviation) to the Basic form. The deviation was issued in April 2018 and provides for contractors to be paid escalated rates for optional periods of performance. The deviation is amended into an alternate version because there is an ongoing need for the deviation. The corresponding prescription in § 1516.505(b) is being updated accordingly.

EPA is creating a new subpart 1552.3, FAR and EPAAR Class Deviations, that will contain FAR and EPAAR class deviations initiated by the EPA. As discussed in II. 3. in this preamble the EPA is creating two new FAR class deviations in this proposed rulemaking that will be added to the new subpart: Class deviations for 52.212-4, Contract Terms and Conditions—Commercial Items (FAR DEVIATION); and 52.232-39, Unenforceability of Unauthorized Obligations (FAR DEVIATION).

EPA is proposing to amend the EPAAR to implement standard terms and conditions for the most common conflicting CSA terms and to minimize the need for the negotiation of these terms of CSAs on an individual basis. The proposed rulemaking will add requirements to contracts making certain conflicting or inconsistent terms in a CSA unenforceable so long as an express exception is not authorized elsewhere by Federal statute. EPA is also proposing to amend the EPAAR to modify the order of precedence contained in the Commercial Items clause (FAR 52.212-4) to make clear that all of the terms of the EPAAR deviated clause control in the event of a conflict with a CSA, unless both parties agree to specific terms during the course of negotiating the contract. The EPA is also proposing to amend the EPAAR to create new subpart 1552.3 for class deviations. The EPA also proposes to change the deviated version of clause 1552.216-73 into an alternate version because of its ongoing need.

These changes will be accomplished by revising guidance and clauses contained throughout the EPAAR as follows:

EPAAR § 1502.100 is amended to provide a definition for Commercial Supplier Agreements.

EPAAR § 1512.101 is created and clarifies that paragraph (u) of the deviated Commercial Items clause at § 1552.312-4 (FAR DEVIATION) prevents violation of the Anti-Deficiency Act.

EPAAR § 1512.1070 is created to prescribe the use of the deviated Commercial Items clause at § 1552.312-4 (FAR DEVIATION) in lieu of FAR 52.212-4.

EPAAR § 1513.507(b) is amended and requires the inclusion of § 1552.332-39 and § 1552.232-75 in all acquisitions for supplies or services that are offered under a CSA.

EPAAR Subpart 1513.6 is created and will add § 1552.332-39 to all purchases below the micro-purchase threshold.

EPAAR § 1516.505(b) is amended to update the prescription for § 1552.216-73.

EPAAR Subpart 1532.10 is created and clarifies the definition of “supplier license agreements ” as used in FAR 32.705, Unenforceability of Unauthorized Obligations.

EPAAR § 1532.1070 is created and directs contracting officers to utilize the clause at § 1552.332-39 in lieu of FAR 52.232-39; and prescribes the use of clause Commercial Supplier Agreements—Unenforceable Clauses at 1552.232-75.

EPAAR Subpart 1539.1 is created and advises contracting officers and contract specialists to follow the relevant EPAAR rules relating to CSA procurement.

EPAAR § 1552.216-73 is amended to add an alternate clause version.

EPAAR § 1552.232-75 is created for non-commercial contracts and addresses the same common unenforceable CSA terms addressed in § 1552.312-4 (FAR DEVIATION) paragraph (w) described above.

EPAAR Subpart 1552.3 is created and adds the class deviations for § 1552.312-4 and § 1552.332-39.

The Commercial Items clause at § 1552.312-4 (FAR DEVIATION) in subpart 1552.3 is modified to include instructions to contracting officers on how to incorporate the change in language from FAR 52.212-4.

The order of precedence contained in paragraph (s) of the Commercial Items clause at § 1552.312-4 (FAR DEVIATION) in subpart 1552.3 is amended to ensure that all of the terms of § 1552.312-4 shall control over the terms of a CSA by moving ”Addenda to this solicitation or contract, including any license agreements for computer software” down two spaces in the order of precedence, behind “Solicitation provisions as awarded if there is a solicitation” and “Other paragraphs of this clause.”

Paragraph (u) of the Commercial Items clause at § 1552.312-4 (FAR DEVIATION) in subpart 1552.3 is amended to (1) reflect the new Commercial Supplier Agreement definition contained in EPAAR 1502.100; (2) expand coverage to “language or provision” in addition to “clause” in order to ensure that all CSA terms are covered regardless of terminology utilized; and (3) include future fees, penalties, interest and legal costs as unauthorized obligations in addition to indemnification.

Paragraph (w) of the Commercial Items clause at § 1552.312-4 (FAR DEVIATION) in subpart 1552.3 is created to address the following commonplace unenforceable elements found in CSAs:

○ Definition of contracting parties: Contract agreements are between the commercial supplier or licensor and the U.S. Government. Government employees or persons acting on behalf of the Government will not be bound in their personal capacity by the CSA.

○ Laws and disputes: Clauses that conflict with the sovereign immunity of the U.S. Government cannot apply to litigation where the U.S. Government is a defendant because those disputes must be heard either in U.S. District Court or the U.S. Court of Federal Claims. CSA terms that require the resolution of a dispute in a forum or time period other than those expressly authorized by Federal law are deleted. Statutes of limitation on potential claims shall be governed by U.S. Federal law.

○ Continued Performance: Commercial suppliers may not unilaterally terminate or suspend a contract based upon a suspected breach of contract by the Government. These types of CSA terms violate 31 U.S.C. 3324, which provides that payment under a contract may not exceed the value of a service or product already delivered. A license that is prematurely terminated outside of the regular dispute resolution procedures results in the Government not receiving the value of that good or service ordered because it is no longer delivered. The removal of the contractor's right to unilateral termination does not impair the contractor's ability to pursue remedies. It preserves all the legal remedies the contractor otherwise has under Federal law, including Contract Disputes Act claims. Remedies through the Contract Disputes Act or other applicable Federal statutes align with the continuing performance requirement set forth in subparagraph (d) Disputes.

○ Arbitration; equitable or injunctive relief: A binding arbitration may not be enforced unless explicitly authorized by agency guidance or statute. Equitable remedies or injunctive relief such as attorney fees, cost or interest may only be awarded against the U.S. Government when expressly authorized by statute ( e.g., Prompt Payment Act ).

○ Additional Terms: Incorporation of terms by reference is allowed provided the full text of terms is provided with the offer. Unilateral modifications to the CSA after the time of award may be allowed to the extent that the modified terms do not materially change the Government's rights or obligations, increase the Government's prices, decrease the level of service provided, or limit any Government right addressed elsewhere in the contract. A bilateral contract modification is required for any of the above described changes to be enforceable against the Government.

○ Automatic renewals: Due to Anti-Deficiency Act restrictions, automatic contract renewal clauses are impermissible. Any such CSA clauses are unenforceable.

○ Indemnity (contractor assumes control of proceedings): Any clause requiring that the commercial supplier or licensor control any litigation arising from the Government's use of the contractor's supplies or services is deleted. Such representation when the Government is a party is reserved by statute for the U.S. Department of Justice.

○ Audits ( automatic liability for payment): Discrepancies found during an audit must comply with the invoicing procedures from the underlying contract. Disputed charges must be resolved through the Disputes clause. Any audits requested by the commercial supplier or licensor will be performed at supplier or licensor's expense.

○ Taxes or surcharges: Any taxes or surcharges that will be passed along to the Government will be governed by the terms of the underlying contract. The cognizant contracting officer must make a determination of applicability of taxes whenever such a request is made.

○ Assignment of CSA or Government contract by supplier: The contract, CSA, party rights and party obligations may not be assigned or delegated without express Government approval. Payment to a third party financial institution may still be reassigned.

○ Confidentiality of CSA terms and conditions: The content of the CSA may not be deemed confidential. The Government may retain other marked confidential information as required by law, regulation or agency guidance, but will appropriately guard such confidential information.

§ 1552.332-39 (FAR DEVIATION) in subpart 1552.3 is created to amend the language of FAR 52.232-39 to reflect the definition of CSAs contained at EPAAR 1502.100, to expand coverage to “language or provision” in addition to “clause” in order to ensure that all CSA terms are covered, regardless of terminology utilized; and to include future fees, penalties, interest and legal costs as unauthorized obligations in addition to indemnification.

This proposed rule will reduce risk by uniformly addressing common unacceptable CSA terms, facilitate efficiency and effectiveness in the contracting process by reducing the administrative burden for the Government and industry, and promote competition by reducing barriers to industry, including small businesses. It will also create a new EPAAR subpart for class deviations, and an alternate version for clause 1552.216-73.

The proposed rule amends Part 1502, Definition of Words and Terms, by adding a definition for Commercial Supplier Agreements to § 1502.100. It adds Part 1512, Acquisition of Commercial Items, Subpart 1512.1, Special Requirements for the Acquisition of Commercial Items, § 1512.101, Unenforceability of Unauthorized Obligations, and § 1512.1070, Contract Clause. It amends Part 1513, Simplified Acquisition Procedures, by adding Subpart 1513.6, Action At or Below the Micropurchase Threshold, and amending § 1513.507(b). It amends § 1516.505(b) by adding an alternate clause version to the clause prescription. It amends Part 1532, Contract Financing, by adding Subpart 1532.10, Unenforceability of Unauthorized Obligation; and § 1532.1070, Contract clause. It adds Part 1539, Acquisition of Information Technology, and Subpart 1539.1, Commercial Supplier Agreements. It amends Subpart 1552.2, Texts of Provisions and Clauses, by adding an alternate clause version to § 1552.216-73, Fixed Rates for Services—Indefinite Delivery/Indefinite Quantity Contract; and adding § 1552.232-75, Commercial Supplier Agreements—Unenforceable Clauses. Finally, it amends Part 1552, Solicitation Provisions and Contract Clauses, by adding Subpart 1552.3, FAR and EPAAR Class Deviations, and class deviations for clauses 52.212-4 and 52.232-39. This proposed rule:

1. Amends Part 1502, Definition of Words and Terms, by adding a definition for Commercial Supplier Agreements to § 1502.100, Definitions.

2. Adds Part 1512, Acquisition of Commercial Items, and Subpart 1512.1, Special Requirements for the Acquisition of Commercial Items, which clarify that paragraph (u) of the Commercial Items clause at § 1552.312-4 (FAR DEVIATION) prevents violation of the Anti-Deficiency Act.

3. Adds § 1512.101, Unenforceability of Unauthorized Obligations, and § 1512.1070, Contract Clause, to prescribe the use of the deviated Commercial Items clause at § 1552.312-4 (FAR DEVIATION) in lieu of FAR 52.212-4.

4. Amends Part 1513, Simplified Acquisition Procedures, by adding Subpart 1513.6, Action At or Below the Micropurchase Threshold, and amending § 1513.507(b), which will automatically apply the clauses at § 1552.232-75 and § 1552.332-39 to all purchases below the micro-purchase threshold.

5. Amends the currently designated § 1513.507(a) to become § 1513.507(a)(i), and the currently designated § 1513.507(b) to become § 1513.507(a)(ii), due to the addition above.

6. Amends § 1516.505(b) by adding an alternate clause version to the prescription.

7. Adds EPAAR Subpart 1532.10, Unenforceability of Unauthorized Obligation, that clarifies the definition of supplier license agreements.

8. Adds EPAAR § 1532.1070 and establishes the prescription for use of EPAAR clause 1552.232-75 in all procurements where supplies or services are offered under a CSA.

9. Adds Part 1539, Acquisition of Information Technology, and Subpart 1539.1, Commercial Supplier Agreements .

10. Amends Subpart 1552.2, Texts of Provisions and Clauses, to add an alternate clause version to § 1552.216-73, Fixed Rates for Services—Indefinite Delivery/Indefinite Quantity Contract, that pays the contractor escalated rates for optional periods of performance.

11. Adds EPAAR § 1552.232-75, Commercial Supplier Agreements—Unenforceable Clauses, that provides the terms and conditions for supplies or services offered under a CSA.

12. Adds EPAAR Subpart 1552.3, FAR and EPAAR Class Deviations, to contain § 1552.312-4, Contract Terms and Conditions—Commercial Items (FAR DEVIATION); and § 1552.332-39/ Unenforceability of Unauthorized Obligations (FAR DEVIATION) . § 1552.312-4 updates paragraphs (s) and (u), and adds paragraph (w). § 1552.332-39 updates terms from Terms of Sale and End User Licensing Agreement to Commercial Supplier Agreement .

This action is not a “significant regulatory action” under the terms of Executive Order (E.O.) 12866 (58 FR 51735, October 4, 1993) and is therefore not subject to review under the E.O.

This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. Burden is defined at 5 CFR 1320.3(b).

The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute; unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impact of this proposed rule on small entities, “small entity” is defined as: (1) A small business that meets the definition of a small business found in the Small Business Act and codified at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; or (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. After considering the economic impacts of this rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, because the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of the proposed rule on small entities” 5 U.S.C. 503 and 604. Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule. This action creates a new EPAAR clause, clause alternate and class deviations that will not have a significant economic impact on a substantial number of small entities, as discussed in Section (II)(B). We continue to be interested in the potential impacts of the rule on small entities and welcome comments on issues related to such impacts.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 104-4), establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, Local, and Tribal governments and the private sector. This rule contains no Federal mandates (under the regulatory provisions of the Title II of the UMRA) for State, Local, and Tribal governments or the private sector. The rule imposes no enforceable duty on any State, Local or Tribal governments or the private sector. Thus, the rule is not subject to the requirements of sections 202 and 205 of the UMRA.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and Local officials in the development of regulatory policies that have federalism implications. “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects 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.” This rule does not have federalism implications. It will not have substantial direct effects 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 as specified in Executive Order 13132.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This rule does not have tribal implications as specified in Executive Order 13175.

Executive Order 13045, entitled “Protection of Children from Environmental Health and Safety Risks” (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is determined to be economically significant as defined under E.O. 12886, and (2) concerns an environmental health or safety risk that may have a proportionate effect on children. This rule is not subject to E.O. 13045 because it is not an economically significant rule as defined by Executive Order 12866, and because it does not involve decisions on environment health or safety risks.

This action is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution or Use” (66 FR 28335 (May 22, 2001), because it is not a significant regulatory action under Executive Order 12866.

Section 12(d) (15 U.S.C. 272 note) of the National Technology Transfer and Advancement Act of 1995, Public Law 104-113, directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g., materials specifications, test methods, sampling procedures and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This action does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards.

Executive Order 12898 (59 FR 7629, February 16, 1994) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. EPA has determined that this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment in the general public.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a major rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. Section 804(2) defines a “major rule” as any rule that the Administrator of the Office of Information and Regulatory Affairs of the Office of Management and Budget finds has resulted in or is likely to result in (1) an annual effect on the economy of $100,000,000 or more; (2) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. EPA is not required to submit a rule report regarding this action under section 801 as this is not a major rule by definition.

For the reasons stated in the preamble, 48 CFR parts 1502, 1512, 1513, 1516, 1532, 1539 and 1552 are proposed to be amended as follows:

NHTSA is proposing to amend FMVSS No. 141, Minimum Sound Requirements for Hybrid and Electric Vehicles (the “Quiet Vehicles” final rule) to remove the current limitation of one sound per vehicle model. Under the proposal, there would not be a limit to the number of compliant sounds a manufacturer could install in a vehicle. NHTSA is also requesting comment on whether there should be a limit to the number of compliant sounds that a manufacturer can install in a vehicle and what that limit should be.

Under FMVSS No. 141 currently, the HEV pedestrian alert sounds are allowed to vary with vehicle operating condition (stationary, reverse, 10 km/h, 20 km/h, and 30 km/h), but only one sound per operating condition is allowed for all vehicles of the same model, model year, body type and trim level. This proposal responds to a petition for reconsideration of the FMVSS No. 141 final rule published on December 14, 2016. 1 In a joint petition  2 submitted to NHTSA in January 2017, the Alliance of Automobile Manufacturers (Alliance) and Global Automakers (Global), the two main automotive industry groups in the U.S. representing most light vehicle manufacturers, requested several amendments. 3 One of the requested amendments, addressed in this proposed rule, was that NHTSA modify section S5.5 of FMVSS No. 141 so that each HEV can be equipped with a suite of several pedestrian alert sounds for the driver to choose from rather than one sound. According to Alliance/Global, providing this choice is important for consumer acceptance of future HEVs that will have pedestrian alert sounds in compliance with FMVSS No. 141.

NHTSA promulgated FMVSS No. 141 pursuant to the Pedestrian Safety Enhancement Act (PSEA) of 2010. 4 The PSEA included language that placed constraints on the multitude of different HEV pedestrian alert sounds that are possible. The PSEA stated NHTSA should allow manufacturers to provide each vehicle with one or more sounds at the time of manufacture. The PSEA further stated that NHTSA must require that vehicles of the same make and model produce the same sound or set of sounds, which would result in all similar vehicles having a similar sound in a given operating condition (forward, reverse, etc.). The PSEA did not, however, establish a specific limitation on the number of sounds emitted by vehicles subject to the final rule.

NHTSA implemented this PSEA limitation in the FMVSS No. 141 final rule  5 under section S5.5 titled “Sameness.” This section states that vehicles of the same make, model, model year, and trim level must have the same pedestrian alert sound. The agency interpreted the PSEA “sameness” language to allow vehicles to have different sounds for different operating modes, such as forward, reverse and stationary. The requirements as published in FMVSS No. 141 do not permit a vehicle to have multiple sounds from which the driver can choose. The agency discussed this in the preamble of the final rule. 6

The automotive industry groups' petition showed they had a different view of the language of the PSEA regarding multiple sounds per vehicle. Because the original Notice of Proposed Rulemaking (NPRM) for FMVSS No. 141 did not contemplate allowing driver-selectable sounds, the agency is opening this issue for public comment before proceeding with an amendment of FMVSS No. 141.

This notice also makes a technical change to section S6.7 of FMVSS No. 141 relating to ambient noise correction procedures. NHTSA has received several requests to clarify the procedural step in S6.7.3 for evaluation of ambient one-third octave bands in compliance tests. NHTSA is issuing a reworded paragraph S6.7.3 to specify more clearly the point at which the one-third octave bands should be computed during measurements of ambient noise.

Lastly, in this notice NHTSA is correcting two dates in the FMVSS No. 141 phase-in reporting requirements in 49 CFR 585, Subpart N.

This proposed rule is deregulatory in nature and is expected to generate benefits and cost savings in excess of costs. The proposed rule provides manufacturers with more flexibility and options in developing and installing sounds for their hybrid and electric vehicles. NHTSA believes it is reasonable to assume that manufacturers would not utilize the flexibilities provided by the proposal to develop and install additional selectable sound options unless the benefits exceed the costs to them. Likewise, NHTSA believes it is reasonable to assume that consumers would not pay more for vehicles with additional sound options unless the benefits to them exceed any additional cost of the vehicle.

The PSEA was enacted in January 2011 and mandated that NHTSA must establish a new motor vehicle safety standard applying to HEVs. The PSEA stated the new standard must “establish performance requirements for an alert sound that allows blind and other pedestrians to reasonably detect a nearby electric or hybrid vehicle operating below the cross-over speed . . . .” In section 3(2) of the PSEA, there is a provision addressing “sameness” of the required vehicle alert sounds. Section 3(2) states that HEVs must have “within reasonable manufacturing tolerances, the same sound or set of sounds for all vehicles of the same make and model . . . .”

Pursuant to the PSEA, NHTSA issued an NPRM  7 in January 2013 and a final rule in December 2016, to create a new FMVSS setting minimum sound level requirements for the operation of HEVs at speeds up to 30 km/h. The requirements in the final rule respond to the PSEA mandate by providing a level of vehicle sound that the blind and sighted pedestrians, as well as bicyclists, can use to detect the presence of these so-called “quiet vehicles,” thereby reducing the risk of low-speed pedestrian and bicyclist crashes involving HEVs. The FMVSS applies to electric and hybrid-electric passenger cars, multi-purpose vehicles, light trucks, and buses with a GVWR of 10,000 pounds or less that can be operated in electric mode without an internal combustion engine (ICE). To comply with the standard, light vehicle manufacturers in most cases will equip vehicles with pedestrian alert systems that meet the minimum sound levels specified in the standard. These systems typically consist of one or more audio speakers, amplifiers, a control module, and software capable of generating the required sound. It is possible for a vehicle to meet some or all the minimum sound levels without added hardware if there is sufficient noise from other sources within the vehicle. For example, the sound emitted by a battery cooling system or a vehicle's tires at 30 km/h might satisfy the minimum specifications without added noise from an alert system.

After the final rule was published, NHTSA received timely petitions for reconsideration from three sources: The Auto Alliance in conjunction with Global Automakers (Alliance/Global), Nissan North America, Inc. (Nissan), and American Honda Motor Company, Inc. (Honda). Each of these petitioners requested changes to various aspects of the final rule. The requested changes included the phase-in schedule and compliance lead-time as well as other requirements of the new safety standard such as how much alert sound variation is allowed between vehicles of the same make and model. The petitions also asked for clarification of some technical aspects of the acoustic performance requirements and test procedures.

Alliance/Global included in its petition a request for NHTSA to amend S5.5 of the new safety standard to explicitly allow automakers to equip their HEVs with multiple different sounds, rather than just one sound, for each operating condition as specified in the FMVSS No. 141 final rule. NHTSA is responding to that petition request by proposing to amend FMVSS No. 141 to accommodate driver-selectable sounds. NHTSA is issuing this NPRM to solicit public comment on the proposed change.

Specifically, NHTSA proposes amending Paragraph S5.5.1 to remove any limit on the number of sounds per vehicle make/model. NHTSA is also requesting comment from any interested parties on whether there should be a limit to the number of driver selectable sounds and what that limit should be.

The “Sameness” provision appears in section 3(2) of the PSEA and states that the federal regulation created pursuant to the PSEA “shall allow manufacturers to provide each vehicle with one or more sounds that comply with the motor vehicle safety standard at the time of manufacture.” Section 3(2) further states that the regulation “shall require manufacturers to provide, within reasonable manufacturing tolerances, the same sound or set of sounds for all vehicles of the same make and model.”

NHTSA interpreted this section of the PSEA to mean that a manufacturer may choose to equip a vehicle with different sounds for different operating modes, including stationary, reverse, and forward at 10 km/h, 20 km/h, and 30 km/h. 8 However, in the December 2016 final rule, NHTSA did not interpret this language to mean vehicles can be equipped with more than one alert sound for a given operating condition and speed.

Consequently, NHTSA did not include any provision in either the NPRM or final rule allowing for more than a single alert sound per operating mode. Instead, FMVSS No. 141 requires that any two vehicles of the same make and model to which the standard applies must have the same alert sound when operating under the same test conditions and the same speed. 9

In their January 2017 petition, Alliance/Global stated that NHTSA adopted an inflexible approach to ensuring sameness and did not account for specific statutory language in the PSEA that permits multiple alert sounds per vehicle. Specifically, Alliance/Global believe the words “one or more sounds” in Section 3(2) of the PSEA provide this flexibility and that NHTSA's final rule was inconsistent with this. Alliance/Global stated that providing a selection of sounds is essential for customer acceptance of HEVs: “Satisfying our customers is a primary concern for OEMs [Original Equipment Manufacturers]. Since `one size does not fit all' neither will one alert sound for a given make, model, trim level and model year satisfy all those consumers purchasing all these same vehicles.” The petition also discussed comments submitted to the agency in February 2014 jointly by the Alliance, Global, the American Council of the Blind (ACB), and the National Federation of the Blind (NFB), in which the commenters, including the two advocate organizations, recognized the need to provide consumers with a reasonable number of driver-selectable sound choices for customer acceptance reasons.

Alliance/Global submitted a follow-up letter  10 dated March 1, 2017, to supplement their petition. One aspect of the letter addressed the fact that the variety of alert sounds that manufacturers can create that comply with the safety standard is virtually unlimited due to the acoustic flexibility provided by the requirements in FMVSS No. 141. To address this concern, Alliance/Global stated that, in the event NHTSA amended FMVSS No. 141 to allow selectable sounds, they recommend a limit of five sounds per vehicle. They provided the following explanation: “Because every additional driver-selectable choice of sound requires a separate certification test as well as a compliance test, the number of driver-selectable choices provided by manufacturers would naturally be limited for practical reasons. However, to address potential concerns that manufacturers might provide too many optional sounds, we recommend that the number of permitted driver-selectable sounds be limited to no more than five driver-selectable alert sounds for any make, model, trim level, model year vehicle.”

The Alliance and Global's January 2017 petition also discussed possible implications of paragraph S8 of FMVSS No. 141 regarding a selectable-sounds provision. Paragraph S8 implements part of Section 3(2) of the PSEA by prohibiting alteration of a factory-installed sound except in case of a vehicle repair or recall. 11 The Alliance/Global petition states, “The ability to permit customers to select different compliant sounds from a set of driver-selectable compliant sounds does not violate the PSEA restrictions against disabling, altering, replacing, or modifying the sound or set of sounds. Specifically, as long as the customer is selecting a sound that is among the `set of sounds' provided by the manufacturer when the car is new, then the driver is not modifying the `set' by selecting sounds provided within the `set.' ”

After considering the Alliance/Global petition, and recognizing that the language of the PSEA regarding sameness of sounds among vehicles of the same make and model is subject to more than one interpretation, and also that consumer preferences for vehicle alert sounds will depend on subjective factors, NHTSA has decided to propose amending FMVSS No. 141 to allow an unlimited number of pedestrian alert sounds per vehicle for any operating condition. (As previously stated, the different operating conditions are when the vehicle is stationary, in reverse, or moving forward at speeds up to 30 km/h.)

This proposal would also improve international harmonization by aligning FMVSS No. 141 more closely with international regulations, particularly United Nations ECE Regulation No. 138 for Audible Vehicle Alerting Systems, which states “a vehicle manufacturer may define alternative sounds which can be selected by the driver.” The ECE regulation does not specify a particular limit on the number of alternative sounds that may be provided.

The agency believes that allowing for an additional number of sounds will have no effect on safety, since all sounds would still need to comply with the standard. NHTSA notes that the Alliance/Global petition recommended up to five sounds per operating condition. The agency requests comment on this suggestion and any other appropriate limit.

In summary, NHTSA is seeking comment from all interested parties on amending the “Sameness” requirement, section S5.5.1 of FMVSS No. 141, which currently allows only one sound, to allow multiple sounds per operating condition for each model, model year, trim, and body style of HEV. Specifically, NHTSA requests comment and supporting information on any safety implications, compliance issues, consumer-acceptance factors, cost issues, or other possible alternatives that would accompany allowing an unlimited number of compliant driver-selectable sounds in FMVSS No. 141.

In particular, NHTSA seeks comment on the potential safety issues related to HEV recognition by pedestrians if a multitude of new compliant driver- selectable sounds are available, and the extent to which having an unlimited number of sounds would lead to the potential for a pedestrian's inability to identify the sounds as a motor vehicle.

As to the remaining aspects of the Alliance/Global petition, NHTSA is not proposing any change to paragraph S8 of FMVSS No. 141 and believes amending S5.5.1 as proposed in this notice will fully address the Alliance/Global petition on driver-selectable sounds. The requirements in S8 still would apply to the set of selectable sounds provided by the OEM, i.e., aftermarket modification of the set of sounds would not be permitted except in allowable circumstances specified in section S8, such as vehicle repairs and recalls.

NHTSA recently became aware that the procedure in FMVSS No. 141 for evaluating ambient noise during compliance tests is unclear. The Alliance and Global raised this issue in an April 2018 letter along with several other FMVSS No. 141 technical concerns. 12 The ambient noise correction procedure at issue is in section S6.7.3.

This paragraph indicates that the one-third octave band levels of the ambient noise recording that are used for correction of vehicle measurements are the individual minimum levels in each one-third octave at any point in time over the 60-seconds of recorded ambient noise. This incorrectly implies that the levels of different one-third octave bands may be evaluated at different times. This was not NHTSA's intention. The correct method intended by the agency is to evaluate ambient levels of all 13 one-third octave bands at the same point in time. The point in time at which ambient one-third octave bands are supposed to be evaluated is the unique point during the 60 seconds when the overall sound pressure level of the ambient is at a minimum, as identified in S6.7.2, the preceding step in the ambient correction procedure.

To resolve this, NHTSA is proposing to amend paragraph S6.7.3 to more clearly state the intended method of evaluating one-third octave bands for ambient correction. A proposed rewording of section S6.7.3 that would implement this change is included at the end of this document. The agency invites all interested parties to comment on this change.

Additionally, NHTSA has become aware of a minor correction that is needed in the phase-in reporting requirements of FMVSS No. 141. The FMVSS No. 141 final rule published in December 2016 required vehicle manufacturers to report on their production of compliant HEVs during a one-year phase-in period. (This kind of reporting requirement is standard practice for NHTSA rules that include a phase-in period.) The reporting requirements and associated due dates for phase in of compliance with FMVSS No. 141 are contained in 49 CFR 585, Subpart N. NHTSA has determined that the December 2016 rule amending Part 585, Subpart N, states in two places, “the production year ending August 31, 2018” instead of “the production year ending August 31, 2019.” When NHTSA granted a petition to extend the FMVSS No. 141 phase-in and compliance deadlines by one year, 13 the reporting dates in Part 585, Subpart N, were all adjusted by adding one year. However, because those two dates were stated incorrectly in the original final rule, the adjusted dates also were off by one year. In this notice, NHTSA is making the necessary changes to 49 CFR 585, Subpart N, to specify that phase-in reporting applies to the production year ending August 31, 2020. The corrected regulatory text, is included at the end of this document.

NHTSA has considered the impact of this rulemaking action under Executive Order 12866, Executive Order 13563, and the Department of Transportation Order 2100.6, “Policies and Procedures for Rulemakings.” This rulemaking is not considered significant and was not reviewed by the Office of Management and Budget under E.O. 12866, “Regulatory Planning and Review.” Given the minimal impact of the rule, in accordance with the Department's regulatory policies and procedures, we have not prepared a full regulatory evaluation. 14 The agency has further determined that the impact of this proposed rule is so minimal that the preparation of a full regulatory evaluation is not required.

This proposed rule responding to a petition for reconsideration does not add any cost, as it would afford manufacturers additional flexibility in designing their vehicles to meet customer acceptance goals. It would not add new requirements or increase design or production burden for vehicle manufacturers.

This proposal, if adopted, would remove a final-rule restriction on vehicle design that auto manufacturers in the U.S. have sought to remove. This amendment also would give manufacturers of hybrid and electric vehicles greater flexibility in marketing those vehicles to consumers and make vehicles potentially more appealing to consumers by providing customer choice in selecting vehicle sounds.

The benefits and cost savings of this proposed rule are expected to exceed any increase in costs to manufacturers if they choose to create additional sounds. The proposal would allow manufacturers to equip vehicles with additional sounds but would not require it. If this proposal is finalized, a manufacturer would still be able to comply with FMVSS No. 141 by equipping a vehicle with a single sound.

The proposed rule provides manufacturers with more flexibility and options in developing and installing sounds for their hybrid and electric vehicles. NHTSA believes it is reasonable to assume that manufacturers would not utilize the flexibilities provided by the proposal to develop and install additional selectable sounds unless the benefits to them exceed the costs to them. Likewise, NHTSA believes it is reasonable to assume that consumers would not purchase vehicles with additional sounds unless the benefits to them exceed any additional cost of the vehicle. At the same time, the proposal would not have any effect on safety, as all sounds would still need to comply with the standard.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq., as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effect of the rule on small entities ( i.e., small businesses, small organizations, and small governmental jurisdictions). The Small Business Administration's regulations at 13 CFR part 121 define a small business, in part, as a business entity “which operates primarily within the United States.” (13 CFR 121.105(a)). No regulatory flexibility analysis is required if the head of an agency certifies the rule would not have a significant economic impact on a substantial number of small entities. SBREFA amended the Regulatory Flexibility Act to require Federal agencies to provide a statement of the factual basis for certifying that a rule would not have a significant economic impact on a substantial number of small entities.

NHTSA has considered the effects of this proposed rule under the Regulatory Flexibility Act. This proposed rule would directly impact manufacturers of hybrid and electric vehicles. Most manufacturers affected by this proposed rule are not small businesses. To the extent any manufacturers of hybrid or electric vehicles are small businesses, we do not believe this proposed rule would have a significant economic impact on any small businesses as this proposed rule would not impose any costs on manufacturers but would instead increase flexibility for vehicle manufacturers.

NHTSA has examined today's proposed rule pursuant to Executive Order 13132 (64 FR 43255, August 10, 1999) and concluded that no additional consultation with States, local governments or their representatives is mandated beyond the rulemaking process. The agency has concluded that the rulemaking would not have sufficient federalism implications to warrant consultation with State and local officials or the preparation of a federalism summary impact statement. The proposed rule would not have “substantial direct effects 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.”

NHTSA rules can preempt in two ways. First, the National Traffic and Motor Vehicle Safety Act contains an express preemption provision: When a motor vehicle safety standard is in effect under this chapter, a State or a political subdivision of a State may prescribe or continue in effect a standard applicable to the same aspect of performance of a motor vehicle or motor vehicle equipment only if the standard is identical to the standard prescribed under this chapter. 49 U.S.C. 30103(b)(1). It is this statutory command by Congress that preempts any non-identical State legislative and administrative law addressing the same aspect of performance.

The express preemption provision described above is subject to a savings clause under which “[c]ompliance with a motor vehicle safety standard prescribed under this chapter does not exempt a person from liability at common law.” 49 U.S.C. 30103(e). Pursuant to this provision, State common law tort causes of action against motor vehicle manufacturers that might otherwise be preempted by the express preemption provision are generally preserved. However, the Supreme Court has recognized the possibility, in some instances, of implied preemption of such State common law tort causes of action by virtue of NHTSA's rules, even if not expressly preempted. This second way that NHTSA rules can preempt is dependent upon there being an actual conflict between an FMVSS and the higher standard that would effectively be imposed on motor vehicle manufacturers if someone obtained a State common law tort judgment against the manufacturer, notwithstanding the manufacturer's compliance with the NHTSA standard. Because most NHTSA standards established by an FMVSS are minimum standards, a State common law tort cause of action that seeks to impose a higher standard on motor vehicle manufacturers will generally not be preempted. However, if and when such a conflict does exist—for example, when the standard at issue is both a minimum and a maximum standard—the State common law tort cause of action is impliedly preempted. See Geier v. American Honda Motor Co., 529 U.S. 861 (2000).

Pursuant to Executive Order 13132 and 12988, NHTSA has considered whether this rulemaking action could or should preempt State common law causes of action. The agency's ability to announce its conclusion regarding the preemptive effect of one of its rules reduces the likelihood that preemption will be an issue in any subsequent tort litigation.

To this end, the agency has examined the nature ( e.g., the language and structure of the regulatory text) and objectives of today's proposed rule and finds that this rule, like many NHTSA rules, prescribes only a minimum safety standard. As such, NHTSA does not intend that this rule preempt State tort law that would effectively impose a higher standard on motor vehicle manufacturers than that established by today's rule. Establishment of a higher standard by means of State tort law would not conflict with the minimum standard announced here. Without any conflict, there could not be any implied preemption of a State common law tort cause of action.

NHTSA has reviewed this proposed rule for compliance with E.O. 13771 (“Reducing Regulation and Controlling Regulatory Costs”), which requires Federal agencies to offset the number and cost of new regulations through the repeal, revocation, or revision of existing regulations. As provided in OMB Memorandum M-17-21 (“Implementing E.O. 13771”), a “regulatory action” subject to E.O. 13771 is a significant regulatory action as defined in section 3(f) of E.O. 12866 that has been finalized and that imposes total costs greater than zero. For the reasons identified in the previous sections, this proposed rule is not a significant regulatory action under E.O. 12866.

Furthermore, this proposal is a “deregulatory action” under E.O. 13771 because, as discussed above, it would reduce regulatory burden on industry by allowing design flexibility by giving manufacturers the option to use selectable sounds. Also, it would improve international harmonization by aligning more closely with international regulations, particularly United Nations ECE Regulation No. 138 for Audible Vehicle Alerting Systems.

With respect to the review of the promulgation of a new regulation, section 3(b) of Executive Order 12988, “Civil Justice Reform” (61 FR 4729; Feb. 7, 1996), requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) Clearly specifies the preemptive effect; (2) clearly specifies the effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct, while promoting simplification and burden reduction; (4) clearly specifies the retroactive effect, if any; (5) specifies whether administrative proceedings are to be required before parties file suit in court; (6) adequately defines key terms; and (7) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. This document is consistent with that requirement.

Pursuant to this Order, NHTSA notes that the issue of preemption is discussed separately in this notice. NHTSA notes further that there is no requirement that individuals submit a petition for reconsideration or pursue other administrative proceedings before they may file suit in court.

Executive Order 13045, “Protection of Children from Environmental Health and Safety Risks” (62 FR 19855, April 23, 1997), applies to any rule that: (1) Is determined to be “economically significant” as defined under Executive Order 12866, and (2) concerns an environmental, health, or safety risk that the agency has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the agency.

This notice is part of a rulemaking that is not expected to have a disproportionate health or safety impact on children. Consequently, no further analysis is required under Executive Order 13045.

Under the Paperwork Reduction Act of 1995 (PRA), a person is not required to respond to a collection of information by a Federal agency unless the collection displays a valid OMB control number. There is not any new information collection requirement associated with this proposed rule.

Section 12(d) of the National Technology Transfer and Advancement Act (NTTAA) requires NHTSA to evaluate and use existing voluntary consensus standards in its regulatory activities unless doing so would be inconsistent with applicable law ( e.g., the statutory provisions regarding NHTSA's vehicle safety authority) or otherwise impractical. Voluntary consensus standards are technical standards developed or adopted by voluntary consensus standards bodies. Technical standards are defined by the NTTAA as “performance-based or design-specific technical specification and related management systems practices.” They pertain to “products and processes, such as size, strength, or technical performance of a product, process or material.” Examples of organizations generally regarded as voluntary consensus standards bodies include ASTM International, the SAE International, and the American National Standards Institute. If NHTSA does not use available and potentially applicable voluntary consensus standards, we are required by the Act to provide Congress, through OMB, an explanation of the reasons for not using such standards.

There are no voluntary consensus standards developed by voluntary consensus standards bodies pertaining to this proposed rule.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires federal agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of more than $100 million annually (adjusted for inflation with base year of 1995). Before promulgating a NHTSA rule for which a written statement is needed, section 205 of the UMRA generally requires the agency to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows the agency to adopt an alternative other than the least costly, most cost-effective, or least burdensome alternative if the agency publishes with the final rule an explanation of why that alternative was not adopted.

This proposed rule would not result in any expenditure by State, local, or tribal governments or the private sector of more than $100 million, adjusted for inflation.

NHTSA analyzed the original FMVSS No. 141 final rule for the purposes of the National Environmental Policy Act. The agency determined that implementation of that rule would not have any significant impact on the quality of the human environment. 15

The rulemaking action in this notice would amend the FMVSS No. 141 final rule in a way that would not change the impact for the purposes of the National Environmental Policy Act. Therefore, the agency has determined that implementation of this action would not have any significant impact on the quality of the human environment.

The Department of Transportation assigns a regulation identifier number (RIN) to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN contained in the heading at the beginning of this document to find this action in the Unified Agenda.

Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78).

For the reasons set forth in the preamble, the National Highway Traffic Safety Administration proposes to amend 49 CFR parts 571 and 585 as follows:

In January 2018, 1 the Board established its Rate Reform Task Force (RRTF), with the objectives of developing recommendations to reform and streamline the Board's rate review processes for large cases, and determining how to best provide a rate review process for smaller cases. After holding informal meetings throughout 2018, the RRTF issued a report on April 25, 2019 (RRTF Report). 2 Among other recommendations, the RRTF included a proposal for a final offer procedure, which it described as “an administrative approach that would take advantage of procedural limitations, rather than substantive limitations, to constrain the cost and complexity of a rate reasonableness case.” RRTF Report 12. Versions of a final offer process for rate review have also been recommended by the U.S. Department of Agriculture (USDA) and a committee of the Transportation Research Board (TRB). The Board now proposes to build on the RRTF recommendation and establish a new rate case procedure for smaller cases, the Final Offer Rate Review (FORR) procedure.

In the ICC Termination Act of 1995 (ICCTA), Congress directed the Board to “establish a simplified and expedited method for determining the reasonableness of challenged rail rates in those cases in which a full stand-alone cost [(SAC)] presentation is too costly, given the value of the case.” Public Law 104-88, 109 Stat. 803, 810. In the Surface Transportation Board Reauthorization Act of 2015 (STB Reauthorization Act), Public Law 114-110, 129 Stat. 2228, Congress revised the text of this requirement so that it currently reads: “[t]he Board shall maintain 1 or more simplified and expedited methods for determining the reasonableness of challenged rates in those cases in which a full [SAC] presentation is too costly, given the value of the case.” 49 U.S.C. 10701(d)(3) (emphasis added). In addition, section 11 of the STB Reauthorization Act modified 49 U.S.C. 10704(d) to require that the Board “maintain procedures to ensure the expeditious handling of challenges to the reasonableness of railroad rates.”  3 More generally, the rail transportation policy states that, in regulating the railroad industry, it is the policy of the United States Government “to provide for the expeditious handling and resolution of all proceedings required or permitted to be brought under this part.” 49 U.S.C. 10101(15).

In 1996, the Board adopted a simplified methodology, known as Three-Benchmark, which determines the reasonableness of a challenged rate using three benchmark figures. Rate Guidelines—Non-Coal Proceedings, 1 S.T.B. 1004 (1996), pet. to reopen denied, 2 S.T.B. 619 (1997), appeal dismissed sub nom. Ass'n of Am. R.Rs. v. STB, 146 F.3d 942 (D.C. Cir. 1998). A decade passed without any complainant bringing a case under that methodology. In 2007, the Board modified the Three-Benchmark methodology and also created another simplified methodology, known as Simplified-SAC, which determines whether a captive shipper is being forced to cross-subsidize other parts of the railroad's network. See Simplified Standards for Rail Rate Cases, EP 646 (Sub-No. 1) (STB served Sept. 5, 2007), aff'd sub nom. CSX Transp., Inc. v. STB, 568 F.3d 236 (D.C. Cir.), vacated in part on reh'g, 584 F.3d 1076 (D.C. Cir. 2009). In 2013, the Board increased the relief available under the Three-Benchmark methodology and removed the relief limit on the Simplified-SAC methodology, among other things. See Rate Regulation Reforms, EP 715 (STB served July 18, 2013), remanded in part sub nom. CSX Transp., Inc. v. STB, 754 F.3d 1056 (D.C. Cir. 2014). Notwithstanding the Board's efforts to improve its rate review methodologies and make them more accessible, only a few Three-Benchmark cases have ever been brought to the Board, and no complaint has been litigated to completion under the Simplified-SAC methodology.

The Board has recognized that, for smaller disputes, the litigation costs required to bring a case under the Board's existing rate reasonableness methodologies can quickly exceed the value of the case. Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 10 (STB served Aug. 31, 2016). As the Board stated in Simplified Standards, “[f]or some shippers who have smaller disputes with a carrier, even [Simplified-SAC] would be too expensive, given the smaller value of their cases. These shippers must also have an avenue to pursue relief.” Simplified Standards, EP 646 (Sub-No. 1), slip op. at 16. Along similar lines, as the Board has previously stated, simplified procedures “enable the affected shippers to avail themselves of their statutory right to challenge rates charged on captive rail traffic regardless of the size of the complaint.” Non-Coal Proceedings, 1 S.T.B. at 1057. 4

In public comments, shippers and other interested parties have repeatedly stated that the Board's current options for challenging the reasonableness of rates do not meet their need for expeditious resolution at a reasonable cost. 5 Moreover, because a contract rate may not be challenged before the Board, 49 U.S.C. 10709(c)(1), some complainants  6 shift from contract rates to tariff rates before bringing a rate case, and tariff rates may be higher than prior contract rates. 7 That factor gives complainants a strong interest in having a rate case decided quickly, from start to finish.

Accordingly, the Board has continued to explore ideas to improve the accessibility of rate relief. See, e.g., Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 11-23. Among the comments submitted in Docket No. EP 665 (Sub-No. 2), the Board received a suggestion from USDA that the Board consider procedural limitations to streamline and expedite its rate reasonableness review as an alternative to substantive limitations. See USDA Reply Comments 5-6, Dec. 19, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2). USDA specifically recommended a short procedural timeline as a means to make rate reasonableness review accessible for smaller disputes. See id. To implement this recommendation, USDA suggested that the Board adopt a final offer procedure whereby parties would submit market dominance and rate reasonableness evidence in a single package offer. See id. at 6-7.

The Board uses a final offer procedure as part of the Three-Benchmark methodology, although it is only one part of the rate reasonableness approach as opposed to providing the overall framework, as the Board is proposing here. 8 One of the benchmarks compares the markup paid by the challenged traffic to the average markup assessed on similar traffic. See, e.g., Rate Regulation Reforms, EP 715, slip op. at 11. To improve the efficiency of this part of the Three-Benchmark methodology and “enable a prompt, expedited resolution of the comparison group selection,” the Board requires each party to submit its final offer comparison group simultaneously, and the Board chooses one of those groups without modification. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at 18.

The Board has held that it may not require arbitration of rate disputes under current law, 9 and it is not proposing to do so here; instead, the Board would make the determination of rate reasonableness as it does under the Board's current options for challenging the reasonableness of rates. However, the benefits of final offer procedures used in other settings offer support and background for the Board's proposal. For example, final offer procedures are used in commercial settings, including the resolution of wage disputes in Major League Baseball, and final offer arbitration is therefore sometimes referred to as “baseball arbitration.” See, e.g., Josh Chetwynd, Play Ball? An Analysis of Final-Offer Arbitration, Its Use in Major League Baseball, & Its Potential Applicability to European Football Wage & Transfer Disputes, 20 Marq. Sports L. Rev. 109 (2009) (noting the final offer procedure “can lead to a win-win situation as it spurs negotiated settlement at a very high rate”); see also Michael Carrell & Richard Bales, Considering Final Offer Arbitration to Resolve Public Sector Impasses in Times of Concession Bargaining, 28 Ohio St. J. on Disp. Resol. 1, 3, 16, 23-24 (2012) (noting that fourteen states had codified some form of final offer arbitration for certain labor disputes involving public sector employees and noting that the procedure “encourages the parties to negotiate toward middle ground rather than staking out polar positions” and “encourages the parties to settle before arbitration”).

Similarly, the Association of American Railroads' Circular No. OT-10, “Code of Car Service Rules/Code of Car Hire Rules,” sets forth a final offer procedure for car hire arbitration, which is included in Rule 25 (the Arbitration Rule). See Circular No. OT-10, Rule 25, https://www.railinc.com/rportal/documents/18/260773/OT-10.pdf. The Board has described the Arbitration Rule as an “integral part” of its deregulation of car hire rates. See Joint Pet. for Rulemaking on R.R. Car Hire Comp., EP 334 (Sub-No. 8) et al., slip op. at 1 (STB served Apr. 22, 1997). And as noted by the Board's predecessor agency, the Interstate Commerce Commission (ICC), the Arbitration Rule “provides for negotiation and, when that is not successful, `baseball style' arbitration, by which the arbitrator will select between the best final offers of the parties.” Joint Pet. for Rulemaking on R.R. Car Hire Comp., 9 I.C.C.2d 80, 88 (1992).

Finally in this regard, the Committee for a Study of Freight Rail Transportation and Regulation of the TRB (TRB Committee)  10 released a report in 2015 that described the benefits of adopting “an independent arbitration process similar to the one long used for resolving rate disputes in Canada.”  11 In particular, the TRB Committee recommended “a final-offer rule,” set on a “strict time limit,” whereby “each side offers its evidence, arguments, and possibly a changed rate or other remedy in a complete and unmodifiable form after a brief hearing.” TRB Committee Report 211-12. According to the TRB Committee Report, adoption of such a procedure could enhance complainants' access to rate reasonableness protections, while expediting dispute resolution and encouraging settlements. Id. at 212.

Proposed Rule. The RRTF stated that there is substantial merit to USDA's general recommendation to improve access using procedural limitations, RRTF Report 16, and the Board agrees. USDA points out that, in addition to reducing the length and cost of litigation, “[a] limited amount of time to collect and present evidence forces parties to focus their time on only the clearest and most important evidence,” and “the decision of what evidence to use or leave out is contextualized within each case.” USDA Reply Comments 6, Dec. 19, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2).

The Board also agrees with the RRTF and USDA that a final offer approach could be an effective way to implement procedural limitations. As USDA notes, Dr. Richard L. Schmalensee, chair of the TRB Committee, recommended that the Board seek process improvements based on the final offer arbitration procedure used in Canada. See Tr. 24-25, Public Roundtable, Oct. 25, 2016 (emphasizing the importance of time limits and raising the idea that, among other things, the Board retain final authority over the outcome of a proceeding). 12 The TRB Committee Report also outlined several advantages of a final offer approach—for example, “[t]he imposition of time limits is intended to bring economy to the process and to ensure that shippers are not precluded from access to rate relief as a consequence of slow processing and high litigation costs,” and “the time limit in conjunction with the final-offer rule injects uncertainty into the process, which limits the likelihood that any one party will take an extreme position and encourages the settlement of disputes.” TRB Committee Report 138. And the Board stated in Simplified Standards that “[a] final offer procedure for determining the comparison group is in the public interest because it will encourage both parties to submit a reasonable comparison group. Any final tender that is skewed too far in one direction might well result in the selection of a more reasonable final tender presented by the opposing party.” Simplified Standards, EP 646 (Sub-No. 1), slip op. at 18; see also U.S. Magnesium, L.L.C. v. Union Pac. R.R., NOR 42114, slip op. at 9-12 (STB served Jan. 28, 2010) (selecting one party's comparison group as “more reasonable” while also recognizing that both parties' submissions were imperfect).

By lowering the costs of litigating smaller rate cases, the Board expects that complainants with smaller rate cases, who otherwise might have been deterred from challenging a rate due to the cost of bringing a case under the Board's existing rate reasonableness methodologies, would have a more accessible avenue for rate reasonableness review by the Board. The Board also expects that reduced litigation costs would make it possible for such complainants to prove meritorious cases. And, a final offer procedure may help to encourage private settlements of disputes, an outcome that was similarly suggested in the TRB Committee Report.

Accordingly, the Board proposes to establish a procedure similar to the one described by the RRTF: A final offer procedure to determine rate reasonableness for smaller cases, thereby providing faster, less costly review of claims of unreasonable railroad rates.

Before the process formally begins, the complainant would be required to file with the Board and serve the defendant with a notice of intent to initiate a case, at least five days in advance of filing its complaint. 13 The proceeding would formally begin with the filing of a complaint. At the time it files its complaint, the complainant would also be required to submit the information listed in 49 CFR 1111.2(a)(1)-(11)  14 and provide to the defendant the materials described in § 1111.2(b). 15 The Board would not require the defendant to file an answer to the complaint  16 in cases under FORR, in light of the expedited timeline included in this procedure.

The filing of the complaint would also mark the beginning of discovery. No litigation over discovery disputes would be permitted. Instead, if a party unreasonably withholds information that the Board subsequently deems to be relevant, the Board would take that withholding into account in making its final decision. 17 If a party believes that relevant information was unreasonably withheld during discovery, it could so argue in the explanation accompanying its final offer, as described further below.

Parties should not expect to receive (or produce) the volume or even necessarily the types of discovery that parties have received in SAC cases, because the proposed time limits do not provide for it. Parties would instead submit narrowly tailored, targeted discovery requests based on the information that the other side could reasonably be expected to provide in a short period of time, focusing on the key information needed to prove or defend a rate case. Parties would be expected to interpret such discovery requests liberally to require the production of readily available information (relative to the discovery deadline) that they should reasonably know to be material and responsive to the request. If a party limits its requests as described above, and the other side still does not comply, as noted above, the requesting party could argue in the explanation accompanying its final offer that relevant information was unreasonably withheld. The Board would take that unreasonable withholding of relevant information into account in choosing between the offers—for example, by giving less weight to an argument that could be undercut by the information that was withheld or by making other adverse inferences. Over time, the Board anticipates that its decisions in FORR cases would establish categories of easily producible, core information that each side could be expected to request and produce within the truncated discovery period.

Although this procedure would not necessarily require the use of data from the Board's Waybill Sample, parties would be able to seek access to waybill data pursuant to the Board's regulations at 49 CFR 1244.9. 18 Up to four years of Waybill Sample data would be available—specifically, the most recent four years that can be provided as of the date of the complaint. See Waybill Data Released in Three-Benchmark Rail Rate Proceedings, EP 646 (Sub-No. 3), slip op. at 4-9 (STB served Mar. 12, 2012). A complainant would be required to submit its waybill data request pursuant to 49 CFR 1244.9(b)(4), if it chooses to make such a request, on the same day it files its notice of intent to initiate a case. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at 78-80 (describing procedures for the release of Waybill Sample data to rate case litigants). A defendant would be required to submit its waybill data request pursuant to 49 CFR 1244.9(b)(4), if it chooses to make such a request, no later than one day after it is served with the complaint. The defendant would have the option of submitting its request at any time after complainant's filing of the notice of intent to initiate a case, until the deadline stated above—an option which, in effect, provides at least six days for a defendant to make a request. Based on these deadlines, the Board would process requests and provide the data no later than five business days after it receives the request for waybill data.

In order to adjudicate the reasonableness of a rate, the Board must first find that the defendant rail carrier has market dominance over the transportation to which the rate applies. 49 U.S.C. 10707(c). Market dominance includes both a quantitative threshold and a qualitative analysis. Total Petrochems. & Ref. USA, Inc. v. CSX Transp., Inc., NOR 42121, slip op. at 3 (STB served May 31, 2013). Under the proposed FORR procedure, market dominance would be evaluated separately from the parties' offers, as is the case with other rate reasonableness procedures. The Board proposes that the FORR procedure may only be used if the complainant also elects to use the streamlined market dominance approach proposed in Docket No. EP 756, Market Dominance Streamlined Approach, served concurrently with this decision. In that decision, the Board is proposing a streamlined market dominance approach for those cases in which a complainant can establish a prima facie case of market dominance by demonstrating six specified factors. See Market Dominance Streamlined Approach, EP 756, slip op. at 6-7 (STB served Sept. 12, 2019). Although the RRTF suggested that a streamlined market dominance approach may not be necessary for a final offer procedure given the time constraints that would accompany such a procedure, RRTF Report 17, the Board finds that the streamlined market dominance approach proposed in Docket No. EP 756 would complement and enhance the streamlined rate reasonableness procedure proposed here. Moreover, the expedited timelines proposed here may make it too difficult for parties to litigate a non-streamlined market dominance presentation. 19 Nevertheless, because there may be merit to giving complainants the option of choosing between streamlined and non-streamlined market dominance in FORR cases, parties may address this issue in their comments.

In a FORR case, the complainant would submit its showing as to the relevant factors identified in the Board's proposal in Docket No. EP 756 in its market dominance presentation. The defendant carrier, in its reply, could try to refute any of the prima facie factors or otherwise demonstrate that effective competition exists for the traffic at issue. At the complainant's option, further discussion of market dominance could take place during a telephonic hearing before an administrative law judge (ALJ), as described below. In the event that the complainant opts for such a hearing, both sides would be permitted to present their market dominance positions at the hearing.

Following discovery, parties would simultaneously submit their market dominance presentations and final offers, and each party would also submit an analysis addressing the reasonableness of the challenged rate and support for the rate in the party's offer. 20 Each party's final offer should reflect what it considers to be the maximum reasonable rate. See 49 U.S.C. 10704(a)(1). The party submitting the offer could choose how to present and support its offer, including the methodology it uses. The Board's criteria for determining rate reasonableness of and choosing between the offers  21 would be based on its consideration of the rail transportation policy in 49 U.S.C. 10101, the Long-Cannon factors in 49 U.S.C. 10701(d)(2), and appropriate economic principles.

Among other aspects of the rail transportation policy, the Board would take into account the policy “to allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail,” the policy “to maintain reasonable rates where there is an absence of effective competition and where rail rates provide revenues which exceed the amount necessary to maintain the rail system and to attract capital,” and the policy “to promote a safe and efficient rail transportation system by allowing rail carriers to earn adequate revenues, as determined by the Board.” 49 U.S.C. 10101(1), (3), (6).

Furthermore, pursuant to the Long-Cannon factors, the Board would give due consideration to (i) the carrier's efforts to minimize traffic transported at revenues that do not contribute to going concern value, (ii) the carrier's efforts to maximize revenues from traffic that contributes only marginally to fixed costs, and (iii) whether one commodity is paying an unreasonable share of the carrier's overall revenues, all the while recognizing the policy that rail carriers earn adequate revenues. 49 U.S.C. 10701(d)(2). 22

Finally, the Board would consider appropriate economic principles, and this general criterion would allow the Board to apply, among other things, the agency's expertise and general principles developed in its rate case precedent over decades. See, e.g., R.R. Revitalization & Regulatory Reform Act of 1976, Public Law 94-210, 90 Stat. 31 (directing the ICC to “give due consideration to appropriate economic principles” in adopting new accounting system requirements relevant to its authorities); see also Non-Coal Proceedings, 1 S.T.B. at 1007 (“Our challenge is to reflect these economic and equitable principles, as best we can, in a practical, readily administrable test.”). As with the Board's other rate reasonableness procedures, the agency would consider the defendant railroad's need for differential pricing to permit it to collect adequate revenues. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at 73.

If a party adopts a position that is contrary to these guiding criteria, it risks the likelihood that the Board would choose the other party's offer. In addition to the previously noted benefits of a final offer procedure with expedited time limits, most notably its bringing economy to rate cases and encouraging the parties to take reasonable positions, the Board expects that the criteria here—the rail transportation policy, the Long-Cannon factors, and appropriate economic principles—allow for the parties to submit final offers using their preferred methodologies, including revised versions of the Board's existing rate review methodologies or new methodologies altogether. These principle-based, non-prescriptive criteria are intended to allow for innovation with respect to rate review methodologies, and the use and creation of precedent through an adversarial process simultaneously creates incentives for methodological improvements over time (while overall complexity is constrained by procedural limitations and reasonableness is encouraged by a final offer selection structure). 23

With its final offer, each party would be required to submit an analysis addressing the reasonableness of the challenged rate and support for the rate in the party's offer, 24 including an explanation of the methodology it used and how it complies with the criteria discussed above, as well as any necessary supporting workpapers. 25 Ten days after submitting market dominance presentations, rate reasonableness analyses, and final offers, the parties would simultaneously submit replies to each other's presentations. On reply, parties would not be permitted to alter their market dominance presentations, rate reasonableness analyses, or final offers but would have an opportunity to argue against the other side's submission.

One week after the submission of replies, at the complainant's option, the parties would participate in a telephone hearing before an ALJ. The purpose of this hearing would be to complete the record regarding market dominance, and the transcript of this hearing would be part of the administrative record submitted to the Board for decision. The complainant, if it chooses, may limit its written market dominance presentations to the six factors required for the prima facie showing—in that instance, at the ALJ hearing, the complainant could address any additional market dominance arguments made by the defendant. As noted above, if the complainant opts for a hearing, both sides would be permitted to present their market dominance positions at the hearing. Within four days of the evidentiary hearing, a transcript of the hearing would be entered into the docket.

Pursuant to the Administrative Procedure Act, “the proponent of a rule or order has the burden of proof.” 5 U.S.C. 556(d). In a rate complaint proceeding, the complainant is the proponent of an order and therefore bears the burden. Accordingly, the complainant must demonstrate that (i) the defendant carrier has market dominance over the transportation to which the rate applies; and (ii) the challenged rate is unreasonable. See 49 U.S.C. 10701(d)(1), 10704(a)(1), 11704(b).

If the Board finds that the complainant's market dominance presentation and rate reasonableness analysis demonstrate that the defendant carrier has market dominance over the transportation to which the rate applies and that the challenged rate is unreasonable, the Board would then choose between the parties' final offers. In making the rate reasonableness finding and choosing between the offers, the Board would take into account the criteria described above. 26 As in the final offer procedure used as part of the Three-Benchmark methodology, this would be an “either/or” selection, with no modifications by the Board. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at 18. 27 This approach would work as intended only if the parties know that the agency would not attempt to find a compromise position. Id. The incentives created by a final offer selection procedure could not be preserved if the Board retained the discretion to formulate its own “offer.” Id. 28

The Board would issue a decision no later than 90 days after the deadline for the parties' replies. Petitions for reconsideration would be due five days after service of the Board's decision; replies to petitions for reconsideration would be due 10 days after service of the Board's decision; and the Board would issue its decision on reconsideration expeditiously after replies are filed.

The following is the proposed timeline for this procedure.

This proposed timeline attempts to balance the need for due process—for example, allowing parties to reply to each other's submissions—and the Board's underlying goal of constraining the cost and complexity of rate litigation by limiting the time available. The Board specifically seeks comment on whether the proposed timeline strikes the appropriate balance.

To preserve the effects of the procedural limitations described above, requests for extensions of time would be strongly disfavored, even if both parties consented to the request. Therefore, parties would be encouraged not to spend the scarce time available under this procedure on preparing extension requests. Joint requests to allow time to negotiate a settlement, including joint requests for mediation, would be an exception and would be considered by the Board. A party would be permitted to accept the other party's final offer at any time.

Mediation is mandatory as part of the Board's existing rate reasonableness procedures. See 49 CFR 1109.4(a), 1111.10(a)(1), 1111.10(a)(2). The Board does not propose to require mediation as part of FORR because it would add time and possibly expense, but the Board would be prepared to facilitate mediation if requested by the parties. See 49 CFR 1109.2 (parties may request Board-sponsored mediation).

If the Board finds that the defendant carrier has market dominance, finds the challenged rate unreasonable, and chooses the complainant's offer (or the defendant's offer, if it is below the challenged rate), it could award relief based on the difference between the challenged rate and the rate in that offer. The proposed procedure would be subject to a two-year limit on rate prescriptions unless the parties agree to a different limit on relief. Such a limit would be one-fifth of the 10-year limit applied in SAC cases and less than half of the five-year limit applied in Simplified-SAC and Three-Benchmark cases ( see Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 6), thereby accounting for the expedited deadlines of the FORR procedure. The Board could also award relief in the form of reparations. See 49 U.S.C. 11704(b). 29

For certain of its other options for challenging the reasonableness of rates, the Board has also previously imposed monetary caps on relief. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at 27-28. Such caps apply to an award of reparations, a rate prescription, or a combination of the two. Thus, any rate prescription automatically terminates once the complainant has exhausted the relief available, and the actual length of the prescription may be less than the period set by the Board if the relief is used up in a shorter time. Under such circumstances, the complainant would be barred from bringing another complaint against the same rate for the remainder of the prescription period set by the Board. Id.; see also Rate Regulation Reforms, EP 715, slip op. at 11-12 (STB served July 18, 2013). 30

The Board established its prior caps based on the cost of litigating a case using the next more complicated and precise procedure: A cap on the Simplified-SAC methodology (later removed) was based on the cost to bring a SAC case, and a lower cap for the Three-Benchmark methodology was based on the cost to bring a Simplified-SAC case. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at 28. In setting these limits, the Board attempted to strike a balance between providing simplified methods that permit complainants to seek protection from unreasonable rates, while encouraging use of the most precise approach feasible for the amount in dispute. Id. at 35; see also id. at 52 (explaining that this approach represents “sound regulatory policy” by balancing the impracticability of using a more complicated procedure given its cost against the impropriety of judging large disputes under what might be considered a less accurate methodology). In addition, adoption of the caps gave effect to Congress's directive that the Board weigh the litigation cost of a SAC presentation against the value of the case when establishing a simplified and expedited method for rate reasonableness challenges. Id. at 34; see also id. at 52 (explaining that the best “method” is the “creation of separate processes for rail rate disputes of varying size”).

In keeping with 49 U.S.C. 10701(d)(3), as well as the Board's previously stated interest in channeling higher-value cases into appropriate procedures, there is merit in setting a cap for FORR by considering it within the framework of pre-existing rate reasonableness methodologies. Nevertheless, as described above, because FORR does not prescribe a particular methodology—nor a methodology necessarily less precise than any pre-existing procedure—the Board's prior rationale for capping relief based on the cost of the next more complicated procedure does not necessarily or neatly apply here.

Accordingly, the Board proposes to establish a relief cap of $4 million, as indexed annually using the Producer Price Index, which is consistent with the potential relief afforded under the Three-Benchmark methodology. 31 Applying a relief cap based on the estimated cost to bring a Simplified-SAC case would further the Board's intention that Three-Benchmark and FORR be used in the smallest cases, and applying the same $4 million relief cap, as indexed, would provide consistency in terms of defining that category of case.

Although the proposed FORR procedure is designed to apply to smaller cases ( i.e., proceedings for which the value of the case is subject to a certain relief cap), parties may wish to generally address whether the Board should establish different levels of relief and provide supporting rationale for such alternatives. As discussed above, final offer arbitration in Canada provides for two different procedural tracks. If the matter involves freight charges of $2 million CAD or less (subject to an inflation adjustment), an expedited “summary” procedure applies, and if the matter involves freight charges of greater than that amount, a longer procedure applies. See Canada Transp. Act, S.C. 1996, c. 10, as amended, section 164.1 (Can.). The Board might consider an approach that, for example, would permit a complainant submitting a FORR complaint to use the procedure described above if it seeks relief equal to or less than the $4 million cap proposed by the Board here. But, if the complainant were to seek relief above this amount (which, under the procedure described here, would be subject only to the two-year limit on rate prescriptions), a somewhat longer procedural schedule could apply. The Board invites comment on the advisability of such a two-tiered relief procedure in which the top tier contains no limit on the size of the relief, in total, including both reparations and the two-year prescription period.

Another alternative that parties may wish to address in comments is a relief cap based on record development time and value of the case. For example, this alternative could consider the potential relief available in a SAC case, reduced proportionally by the difference in record development time between a case brought under the proposed FORR procedure and one brought under SAC. The resultant proportionally reduced amount could be the relief cap applicable to cases under the FORR procedure.

The Board proposes that the FORR procedure would not be available to challenge purely local movements of a Class II or Class III rail carrier. 32 Rate cases filed to date indicate that complainants' rate concerns relate primarily to Class I carriers. As such, the Board sees no reason to apply these new rules to purely local movements of smaller carriers. See, e.g., Am. Short Line & Reg'l R.R. Ass'n Comment 4-5, Feb. 26, 2007, Simplified Standards for Rail Rate Cases, EP 646 (Sub-No. 1) (describing the impacts new rate reasonableness procedures would have on small railroads in particular). However, the FORR procedure would be available in challenges where the movement involves the participation of a Class I railroad as well as a Class II or Class III railroad. See Simplified Standards, EP 646 (Sub-No. 1), slip op. at 101-02 (stating that excluding combined movements would shut out a significant portion of domestic rail traffic and could create perverse routing incentives). Parties may further address in their comments the applicability of this proposed rule to purely local movements of a Class II or Class III rail carrier.

Parties may also file comments as to whether and how the Board might provide assistance to parties—particularly smaller entities—regarding how best to utilize the proposed FORR procedure.

The Board acknowledges that the FORR procedure, by requiring that the Board select one of the parties' final offers without modification, constrains its flexibility in setting a maximum lawful rate. See generally 49 U.S.C. 10704(a) (authorizing the Board to “prescribe” a maximum rate should it find the rate charged by the carrier to be unreasonable). Also, by prohibiting litigation over discovery disputes, the FORR procedure would constrain the Board's ability to separately resolve one type of ancillary issue—although, as noted above, these issues may be raised in the explanations accompanying parties' final offers. The Board, however, concludes that these constraints would be justified by the cost and time savings it expects would be achieved through the use of the proposed procedure to challenge rate reasonableness for smaller cases, which in turn would assist the Board in maintaining reasonable rates. The existing options to challenge the reasonableness of rates (especially SAC), which allow the Board to craft individual responses to numerous issues (hundreds of issues, in some instances), are time-consuming and costly.

Finally, the Board seeks additional comments on Docket No. EP 665 (Sub-No. 2), including whether to close that docket. There, the Board provided notice that it was considering a new methodology that would utilize a comparison group approach to determine the reasonableness of the challenged traffic's rate, like the approach utilized by the Three-Benchmark methodology but more streamlined. Expanding Access to Rate Relief, EP 665 (Sub-No. 2), slip op. at 12, 15, 23. As the RRTF explained, however, the Board received a number of negative comments regarding Docket No. EP 665 (Sub-No. 2), including arguments that the methodology discussed in that docket could increase the time and cost of litigation compared to bringing a Three-Benchmark case. See, e.g., Am. Chemistry Council Opening Comments 7-9, Nov. 14, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2).

Within the due dates for comments set forth below, parties may also update their comments or submit new comments on Docket No. EP 665 (Sub-No. 2). If parties choose to submit comments that pertain both to Docket No. EP 665 (Sub-No. 2) and to the proposal made in Docket No. EP 755, they should submit those comments in both dockets. Moreover, the Board is aware that stakeholders have worked to create additional rate reasonableness methodologies. See, e.g., Nat'l Grain & Feed Ass'n Opening Comments 27-35, June 26, 2014, Rail Transp. of Grain, Rate Regulation Review, EP 665 (Sub-No. 1); Notice of Director's Decision, WB 17-44 (STB served Apr. 17, 2018) (granting access to Waybill Sample data for the “development, evaluation, and proposal” of new rate reasonableness alternatives).

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, generally requires a description and analysis of new rules that would have a significant economic impact on a substantial number of small entities. In drafting a rule, an agency is required to: (1) Assess the effect that its regulation will have on small entities, (2) analyze effective alternatives that may minimize a regulation's impact, and (3) make the analysis available for public comment. Sections 601-604. In its notice of proposed rulemaking, the agency must either include an initial regulatory flexibility analysis, section 603(a), or certify that the proposed rule would not have a “significant impact on a substantial number of small entities,” section 605(b). Because the goal of the RFA is to reduce the cost to small entities of complying with federal regulations, the RFA requires an agency to perform a regulatory flexibility analysis of small entity impacts only when a rule directly regulates those entities. In other words, the impact must be a direct impact on small entities “whose conduct is circumscribed or mandated” by the proposed rule. White Eagle Coop. v. Conner, 553 F.3d 467, 480 (7th Cir. 2009).

This proposal would not have a significant economic impact on a substantial number of small entities within the meaning of the RFA. 33 The proposal imposes no additional record-keeping by small railroads or any reporting of additional information. Nor does this proposed rule circumscribe or mandate any conduct by small railroads that is not already required by statute: The establishment of reasonable transportation rates when a carrier is found to be market dominant. Although the Board predicts that the establishment of the FORR procedure would result in the filing of several additional complaints per year, small railroads have always been subject to rate reasonableness complaints and their associated litigation costs, the latter of which the Board expects would be reduced through the use of this proposed procedure. The new procedure proposed here would exclude purely local movements of Class III carriers, affecting only movements that also involve the participation of a Class I railroad. Finally, as the Board has previously concluded, the majority of railroads involved in these rate proceedings are not small entities within the meaning of the Regulatory Flexibility Act. Simplified Standards, EP 646 (Sub-No. 1), slip op. at 33-34. Since the inception of the Board in 1996, only three of the 51 cases filed challenging the reasonableness of freight rail rates have involved a Class III rail carrier as a defendant. Those three cases involved a total of 13 Class III rail carriers. The Board estimates that there are approximately 656 Class III rail carriers. Therefore, the Board certifies under 5 U.S.C. 605(b) that this proposed rule, if promulgated, would not have a significant economic impact on a substantial number of small entities as defined by the RFA.

This decision will be served upon the Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration, Washington, DC 20416.

Pursuant to the Paperwork Reduction Act (PRA), 44 U.S.C. 3501-3521, Office of Management and Budget (OMB) regulations at 5 CFR 1320.8(d)(3), and in the Appendix, the Board seeks comments about the revisions in the proposed rule to the currently approved collection of Complaints (OMB Control No. 2140-0029) regarding: (1) Whether the collection of information, as modified in the proposed rule and further described below, is necessary for the proper performance of the functions of the Board, including whether the collection has practical utility; (2) the accuracy of the Board's burden estimates; (3) ways to enhance the quality, utility, and clarity of the information collected; and (4) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology, when appropriate.

The Board believes that the proposed procedure would provide a less burdensome alternative to other rate review options and estimates that it would, on balance, result in four additional complaints filed each year. Filing a complaint, generally, has been estimated to require an annual hour burden of 469 hours and an annual “non-hour burden” cost of $1,462. See Supporting Statement for Modification & OMB Approval Under the Paperwork Reduction Act & 5 CFR 1320, OMB Control No. 2140-0029 (Jan. 2018), available at https://www.reginfo.gov/public/do/DownloadDocument?objectID=78860402. For the reasons discussed above, filing a FORR complaint is likely to require less time and expenditure than other complaints. Accordingly, the Board estimates that this proposed procedure would entail an annual hour burden of 250 hours per complaint and an annual “non-hour burden” cost of $780 per complaint. Accounting for the projected four additional complaints per year, this proposal would result in an additional total annual hour burden of 1,000 hours and $3,120 of total annual “non-hour burden” cost under the PRA. The Board welcomes comment on the estimates of actual time and costs of the proposed alternative complaint, as detailed below in the Appendix. Other information pertinent to the proposed alternative complaint is also included in the Appendix. The proposed rule will be submitted to OMB for review as required under 44 U.S.C. 3507(d) and 5 CFR 1320.11. Comments received by the Board regarding the information collection will also be forwarded to OMB for its review when the final rule is published.

It is ordered:

1. The Board proposes to amend its rules as set forth in this decision. Notice of the proposed rule will be published in the Federal Register .

2. Comments are due by November 12, 2019. Reply comments are due by January 10, 2020.

3. A copy of this decision will be served upon the Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration.

4. This decision is effective on its service date.

For the reasons set forth in the preamble, the Surface Transportation Board proposes to amend parts 1002, 1111, 1114, and 1115 of title 49, chapter X, of the Code of Federal Regulations as follows:

In January 2018, the Board established its Rate Reform Task Force (RRTF), with the objectives of developing recommendations to reform and streamline the Board's rate review processes for large cases, and determining how to best provide a rate review process for smaller cases. After holding informal meetings throughout 2018, the RRTF issued a report on April 25, 2019 (RRTF Report). 1 Among other recommendations, the RRTF Report included a proposal that the Board develop “a standard for pleading market dominance that will reduce the cost and time of bringing a rate case,” stating that the market dominance inquiry for rate reasonableness cases was a “costly and time-consuming undertaking.” RRTF Report 52-53. Moreover, the RRTF concluded that an effort to streamline the market dominance inquiry was a necessary part of making rate relief available for smaller rate disputes. Id. at 52. Having considered the recommendations included in the RRTF Report, and the broader market dominance issues discussed below, the Board is proposing a streamlined market dominance approach that would be available to complainants for rate cases under all of the Board's rate review methodologies.

Determining the reasonableness of challenged rail transportation rates is one of the Board's core functions. See 49 U.S.C. 10101(6) (stating the rail transportation policy “to maintain reasonable rates where there is an absence of effective competition and where rail rates provide revenues which exceed the amount necessary to maintain the rail system and to attract capital”). In order to adjudicate the reasonableness of a rate, the Board must first find that the defendant rail carrier has market dominance over the transportation to which the rate applies. 49 U.S.C. 10701(d)(1), 10707(b), (c). Market dominance is defined as “an absence of effective competition from other rail carriers or modes of transportation for the transportation to which a rate applies.” 49 U.S.C. 10707(a).

The Board's market dominance inquiry comprises two components: A quantitative threshold and a qualitative analysis. The statute establishes a conclusive presumption that a railroad does not have market dominance if the rate charged produces revenues that are less than 180% of the variable costs  2 of providing the service. 49 U.S.C. 10707(d)(l)(A). However, a finding by the Board that a movement's R/VC ratio is 180% or greater does not establish a presumption that the rail carrier providing the transportation has market dominance over the movement. 49 U.S.C. 10707(d)(2)(A). Accordingly, if the quantitative 180% R/VC threshold is met, the Board moves to the second component, a qualitative analysis. In this analysis, the Board determines whether there are any feasible transportation alternatives sufficient to constrain the railroad's rates for the traffic to which the challenged rates apply (the issue traffic). See, e.g., M&G Polymers 2012, NOR 42123, slip op. at 2, 11-18; Consumers Energy Co. v. CSX Transp., Inc., NOR 42142, slip op. at 287-98 (STB served Jan. 11, 2018).

The Board considers two types of competition in its qualitative market dominance analysis:  3

• Intramodal ( i.e., whether the complainant can use other railroads to transport the same commodity between the same points); and

• Intermodal ( i.e., whether the complainant can use other transportation modes, such as trucks or barges, to transport the same commodity between the same points).

It is established Board precedent that the burden is on the complainant to demonstrate the lack of effective competition. See, e.g., Total Petrochems. & Ref. USA, Inc. v. CSX Transp., Inc. ( Total Petrochems. 2013 ), NOR 42121, slip op. at 28 (STB served May 31, 2013) (with Board Member Begeman dissenting on other matters) (“In the qualitative market dominance inquiry, the complainant bears the burden of establishing the absence of effective competition from other rail carriers or modes of transportation for the traffic to which the challenged rate applies.”). The evidentiary process requires the complainant to prove a negative proposition on opening—that intermodal and intramodal competition are not effective constraints on rail rates. The Board then must determine what evidence is sufficient to make such a showing and how that evidence should be presented. 4

The market dominance inquiry is a costly and time-consuming undertaking, resulting in a significant burden on rate case litigants. 5 Given the hypothetical nature of some competitive options proposed by defendant railroads in past cases, complainants essentially have to predict what a defendant railroad might argue regarding potential, but unused, competitive options—all without knowing precisely what constitutes a prima facie showing of an absence of effective competition. In the most recent rate reasonableness case, Consumers Energy Co. v. CSX Transportation, Inc., Docket No. NOR 42142, the parties' market dominance presentations alone (throughout their filings) exceeded 200 pages of narrative discussion and included multiple expert reports. See also Total Petrochems. & Ref. USA, Inc. v. CSX Transp., Inc., Docket No. NOR 42121 (including over 340 pages of narrative discussion on market dominance). In two cases where the market dominance inquiry was bifurcated from the rate reasonableness inquiry, the market dominance procedural schedules alone were three months long. See M&G Polymers USA, LLC v. CSX Transp., Inc., NOR 42123, slip op. at 5 (STB served May 6, 2011); Total Petrochems. & Ref. USA, Inc. v. CSX Transp., Inc., NOR 42121, slip op. at 7-8 (STB served Apr. 5, 2011).

In smaller rate cases, the expense associated with the market dominance inquiry may be particularly out of balance with the remedy being sought. For some complainants whose case may involve a limited number of carloads per year, the expense of the market dominance inquiry could make even the Board's least costly rate methodology, currently the Three-Benchmark methodology, cost-prohibitive. See RRTF Report 44 (noting carload shipper concerns “that even a Three-Benchmark case under our current methodology (including, e.g., a required showing of market dominance) is still too expensive and time-consuming”). Public comments in other Board proceedings state that current options for challenging the reasonableness of rates do not meet their need for expeditious resolution at a reasonable cost. See, e.g., Alliance for Rail Competition Opening Comments 22, June 26, 2014, Rail Transp. of Grain, Rate Regulation Review, EP 665 (Sub-No. 1) (stating that the Three-Benchmark test is too costly and complex in its current form); Western Coal Traffic League Opening Comments 74-76, Oct. 23, 2012, Rate Regulation Reforms, EP 715 (stating that the cost and complexity of Simplified-SAC discourage its use). The RRTF concluded that streamlining the market dominance inquiry is a necessity to making rate relief available for smaller rate disputes and that a streamlined inquiry, available to complainants for rate cases under all of the Board's methodologies, could reduce the cost and time required to bringing a rate case while preserving a railroad's right to rebut market dominance arguments. RRTF Report 52-54. An overly complicated and costly market dominance inquiry can itself be a barrier to rate relief, even in cases where there is no effective competitive restraint on rail rates. A less complex market dominance inquiry that still provides ample opportunity for both parties to present evidence would help ensure both that the burden of the process will not dissuade complainants with meritorious cases from bringing those cases to the Board, and that rate cases are processed more expeditiously. The agency's predecessor, the Interstate Commerce Commission, noted the Congressional intent expressed in the market dominance statute and in the legislative history, stating that Congress “envisioned the market dominance determination simply as a practical threshold jurisdictional determination to be made without lengthy litigation or administrative delay.” Westmoreland Coal Sales Co. v. Denver & Rio Grande W. R.R., 5 I.C.C.2d 751, 754 (1989) (discussing 49 U.S.C. 10709, the predecessor of the current section 10707).

Having considered the RRTF's recommendation, the Board proposes a streamlined market dominance approach to further the rail transportation policy, which requires that the Board regulate in such a way to provide for the expeditious handling and resolution of all proceedings, 49 U.S.C. 10101(15), foster sound economic conditions in transportation and ensure effective competition, section 10101(5), and maintain reasonable rates where there is an absence of effective competition, section 10101(6). The streamlined market dominance approach would expedite the handling of rate cases and make rate relief procedures more accessible to those complainants that find the current processes cost prohibitive. A streamlined approach to market dominance would also be consistent with the policy of allowing, to the maximum extent possible, competition and the demand for services to establish reasonable transportation rates, section 10101(1). Under the proposed streamlined approach described below, complainants would still be required to demonstrate, with sufficient evidence, the absence of effective competition. 6

Streamlining the market dominance inquiry would also be consistent with clear Congressional directives not only in the rail transportation policy but also in the Surface Transportation Board Reauthorization Act of 2015 (STB Reauthorization Act), Public Law 114-110, 129 Stat. 2228. Section 11 of the STB Reauthorization Act modified 49 U.S.C. 10704(d) to require that the Board “maintain procedures to ensure the expeditious handling of challenges to the reasonableness of railroad rates.”  7 Section 11 also shortened the time for deciding rate cases brought under the Stand-Alone Cost (SAC) methodology. In addition, appropriate Board-imposed measures to avoid delay in the discovery and evidentiary phases of rate proceedings, especially on a threshold issue like market dominance, fulfill those Congressional directives. See, e.g., 49 U.S.C. 10704(d)(1).

It is well established that the Board has the authority to review and modify its rate reasonableness methodologies and processes—including its market dominance inquiry—to ensure that they remain accessible to the complainants that are entitled to use them. 8 For example, in Market Dominance Determinations—Product & Geographic Competition ( Product & Geographic Competition 1998 ), 3 S.T.B. 937, 938 (1998), the Board examined whether product and geographic competition should be considered in market dominance inquiries. The Board concluded that “it appears that the burdens associated with litigating product and geographic competition issues may serve to deny captive shippers with valid claims access to the Board and thus their only avenue of rate relief.”  9 In a subsequent decision, following remand from the U.S. Court of Appeals for the District of Columbia Circuit for consideration of the rail transportation policy, the Board reaffirmed its elimination of product and geographic competition from consideration, stating that “Congress has directed us to apply the market dominance provision in a practical manner.” Product & Geographic Competition 2001, EP 627, slip op. at 2. The Board stated that “the complications and delays resulting from consideration of product and geographic competition are contrary to the Congressional directive that the administrative market dominance procedures be easily administrable.” Id. at 8 (citing Ass'n of Am. R.Rs., 237 F.3d at 680; Rail Revitalization & Regulatory Reform Act of 1976, Public Law 94-210 section 202(d), 90 Stat. 31). Most significantly, the Board found that elimination of product and geographic competition from consideration advanced the equally important goal of expediting rate cases. Id. (citing 49 U.S.C. 10101(2), (15)).

In affirming the Board's 2001 decision, the D.C. Circuit noted that it is up to the Board to arrive at a reasonable accommodation of the conflicting policies set out in the Staggers Rail Act of 1980, and that Congress had expressly required the Board to provide for the expeditious handling and resolution of all proceedings. Ass'n of Am. R.Rs., 306 F.3d at 1111. The court found that the Board's construction of the statute furthered its statutory mandate “to establish procedures to ensure expeditious handling of challenges to the reasonableness of railroad rates, including `appropriate measures for avoiding delay in the discovery and evidentiary phases of such proceedings.' ” Id. (emphasis omitted) (citing 49 U.S.C. 10704(d)(1)).

In a similar vein, the D.C. Circuit affirmed the Board's decision in Major Issues in Rail Rate Cases, EP 657 (Sub-No. 1), slip op. at 60 (STB served Oct. 30, 2006), to eliminate “movement-specific adjustments” to the uniform method for determining the variable costs in the quantitative market dominance inquiry. BNSF Ry. v. STB, 526 F.3d 770, 776-77 (D.C. Cir. 2008). Prior to the decision in Major Issues, parties to rate cases were permitted to make movement-specific adjustments to the Board's standard variable cost calculations generated by the Uniform Railroad Costing System (URCS). In Major Issues, the Board eliminated the use of those movement-specific adjustments in market dominance presentations, finding that they made proceedings “inordinately complex, time consuming, and expensive, and [did] not necessarily result in more reliable results.” Major Issues, EP 657 (Sub-No. 1), slip op. at 60. In affirming the Board's decision, the D.C. Circuit found that the elimination of movement-specific adjustments “balances inherently incommensurable cost and benefits,” and is a decision that “falls within the expertise of the agency.” BNSF Ry., 526 F.3d at 776.

The expeditious treatment of market dominance issues is essential to the Board's ability to consider rate reasonableness cases where there is an absence of effective competition. In order to meet its statutory duty to ensure the expeditious handling of challenges to the reasonableness of railroad rates, it is important for the Board to consider ways to streamline the presentation of market dominance evidence, particularly in smaller cases where the cost of making a market dominance presentation can outweigh the value of the case.

To reduce the burden on the parties, the Board proposes to establish that a complainant has made a prima facie showing of market dominance when it can demonstrate the following:

• The movement has an R/VC ratio of 180% or greater;

• The movement would exceed 500 highway miles between origin and destination;

• There is no intramodal competition from other railroads;

• There is no barge competition;

• The complainant has used truck for 10% or fewer of its movements subject to the rate at issue over a five-year period; and

• The complainant has no practical build-out alternative due to physical, regulatory, financial, or other issues (or combination of issues).

As discussed below, these proposed prima facie factors are relevant to the Board's consideration of the existence (or lack) of effective competition for a rail movement and would be sufficient to make a prima facie showing of market dominance. If a complainant could demonstrate each of the factors listed above, the Board would have significant evidence about the status of effective competition, without requiring a more complicated evidentiary showing by the complainant or the railroad. Complainants that cannot make a showing under the six factors—and therefore choose not to attempt a streamlined market dominance showing in the first place—would be required at the outset to establish market dominance in a non-streamlined market dominance presentation by introducing additional detailed evidence regarding effective competition. In either scenario, defendant railroads would continue to have the opportunity to rebut the complainant's evidence or argue against a finding of market dominance based on other factors.

R/VC of 180% or Greater. As discussed earlier, this is a statutory requirement for quantitative market dominance and must be established, even under a streamlined approach. This is not often a contentious issue in rate cases and is often established by stipulation. The revenue figure is taken from the tariff rate plus applicable fuel surcharge and escalation clauses. The URCS Phase III movement costing program, which is available for download on the Board's website, calculates the variable costs of a particular movement based on user-supplied information. Calculating variable costs using the URCS Phase III program is a quick and simple process. In demonstrating the R/VC ratio, a complainant must show its quantitative calculations.

Movement Length Greater than 500 Highway Miles. The Board proposes a 500-highway-mile threshold as a factor to identify when trucking is not likely to provide effective competition. The Board has previously indicated that “[t]rucking becomes less viable when the length of haul exceeds 500 miles because any transport over that threshold, in many instances, could not be completed in one day.” Review of Commodity, Boxcar, & TOFC/COFC Exemptions, EP 704 (Sub-No. 1), slip op. at 7 n.12 (STB served Mar. 23, 2016). 10 Given the reduced likelihood of effective truck competition for movements exceeding 500 highway miles, rail movements that meet this criterion are more likely to be served by market dominant carriers. If a complainant can establish this prima facie factor, it would assist the Board in making a market dominance determination more expeditiously.

The Board recognizes that the 500-highway-mile threshold may be underinclusive for certain commodities that are more difficult to move by truck ( e.g., particularly heavy commodities). Further, the Board has received public comment that “trucking generally becomes cost-competitive to rail only for agricultural movements of 200 miles or less.” National Grain & Feed Assoc. Opening Comments 11, Nov. 14, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2). Accordingly, the Board specifically seeks comment on whether, and if so how, the mileage threshold could be varied by commodity group(s). The Board invites public commenters to include detailed quantitative and qualitative information in support of any alternative mileage threshold.

The Board also recognizes that movements in excess of the proposed 500-highway-mile threshold could still have effective competitive transportation alternatives. See CSX Transportation, Inc. Opening Comments 7, Nov. 14, 2016, Expanding Access to Rate Relief, EP 665 (Sub-No. 2) (noting instances where the Board has found market dominance for movements over 500 miles). Under the Board's proposal, a defendant railroad would have the opportunity in its reply evidence to argue that despite the 500-highway-mile threshold, the carrier is not market dominant for the movement.

Absence of Intramodal Competition. Because the Board must consider whether other railroads provide effective competition regarding a challenged rate, the absence of intramodal competition is an important factor that could streamline the Board's analysis. While the existence of intramodal competition is not often litigated, there are exceptions. See, e.g., Total Petrochems. 2013, NOR 42121, slip op. at 50-51 (addressing railroad's arguments that shipper had a direct rail option for one of the lanes at issue). If a complainant can demonstrate the complete absence of such competition, it would assist the Board in making a market dominance determination more expeditiously. The Board expects that, in most cases, the complainant would demonstrate the absence of intramodal competition by submitting a verified statement from an appropriate official attesting that the complainant does not have practical physical access to another railroad. Practical physical access encompasses feasible shipping alternatives on another railroad, including switching arrangements, where “an alternative is possible from a practical standpoint given real-world constraints.” Total Petrochems. 2013, NOR 42121, slip op. at 4 n.9.

Absence of Barge Competition. The existence of barge competition, like truck competition, can be an issue in cases where a complainant's or receiver's facility is located on a navigable waterway. See, e.g., Consumers Energy Co. v. CSX Transp., Inc., NOR 42142, slip op. at 287 (STB served Jan. 11, 2018). Accordingly, if a complainant can demonstrate the absence of such competition ( e.g., because the complainant or receiver, or both, is landlocked), it would assist the Board in making a determination more expeditiously as to whether barge competition constrains market power. The Board expects that, in most cases, the complainant would demonstrate the absence of barge competition by submitting a verified statement from an appropriate official attesting that the complainant does not have practical physical access to barge competition.

No More Than 10% of Recent Movements by Truck. Board precedent makes clear that traffic that regularly and routinely moves by truck or truck-rail transloading is less likely to be served by a market dominant rail carrier. See, e.g., E.I. DuPont de Nemours & Co. v. Norfolk S. Ry. ( E.I. DuPont ), NOR 42125, slip op. at 307-08 (STB served Mar. 24, 2014), corrected and updated (STB served Oct. 3, 2014); M&G Polymers 2012, NOR 42123, slip op. at 48. However, market dominance can still be found in cases where truck competition exists if the truck competition is found not to be a constraint on the defendant railroad's rates. See, e.g., Total Petrochems. & Ref. USA, Inc. v. CSX Transp., Inc., NOR 42121, slip op. at 9 (STB served Dec. 19, 2013) (“But the fact that some [truck] competition exists, or that the price of the alternative happens to be similar to the challenged rate, does not in itself demonstrate that such competition is effectively constraining a carrier's pricing— i.e., whether the competitive alternative is sufficient to deter the carrier from charging monopoly prices for the transportation at issue.”). Cases that require a review of the comparative pricing between truck and rail raise many complicated issues that do not appear to be suitable for a streamlined market dominance approach. But most cases that raise no such issues, because truck competition is simply not a factor providing effective competition, would benefit from a streamlined approach, and it would assist the Board in making a market dominance determination more expeditiously.

Accordingly, the Board proposes that a showing that truck movements for the issue traffic are minimal would establish this factor. See, e.g., E.I. DuPont, NOR 42125, slip op. at 323 n.1709 (noting that “there are a variety of reasons unrelated to transportation economics that [a shipper] might use certain alternatives ( e.g., to serve customers without rail access, to accommodate low volume purchasers, or to expedite emergency shipments)”). As might be expected in a case-by-case fact-specific inquiry, the agency has accepted varying percentages of truck movements as proof of effective competition. Compare Amstar Corp. v. Atchison, Topeka & Santa Fe Ry., NOR 37478, slip op. at 7 (ICC served Dec. 8, 1987) (finding that effective competition existed even where complainants had shipped 98.5% of the issue movements by rail), with McCarty Farms v. Burlington N. Inc., 3 I.C.C.2d 822, 829-33 (1987) (finding no effective competition existed despite a trucking alternative accounting for 20%-25% of the movements). Given today's transportation market, including the state of truck competition, and the Board's experience with market dominance determinations in recent rate cases, the Board proposes that a complainant that shows that it has used trucking for 10% or fewer of its movements subject to the rate at issue over a five-year period will have made a prima facie showing for this factor concerning the absence of effective truck competition. Although the agency has found an absence of market dominance in cases where less than 10% of the issue traffic has moved by truck, the Board proposes that a 10% level is an appropriate threshold for a complainant to demonstrate that its truck options are ineffective, based on its limited use of the option over a historical period. Unlike complainants that regularly move large volumes of traffic by truck, complainants that move less than 10% of their traffic by truck, despite rates with high R/VC ratios and the absence of intramodal and barge competition, are reasonably likely to have persuasive arguments for why trucking does not provide effective competition, including customer contracts, product characteristics, and price of the trucking alternative. See, e.g., M&G Polymers 2012, NOR 42123, slip op. at 19-21, 24-34 (addressing, among other things, customer requirements and product integrity issues in the context of a market dominance analysis). Such a showing would assist the Board in making a market dominance determination more expeditiously.

The Board recognizes that it has found market dominance in cases where complainants utilize trucks for more than 10% of their movements. Accordingly, the Board specifically seeks comment on whether, and if so, how the truck movement percentage threshold should be implemented. The Board invites public commenters to include detailed quantitative and qualitative information in support of any alternative truck movement percentage threshold. As with the 500-highway-mile threshold, and all the other factors as well, a defendant railroad would have the opportunity in its reply evidence to argue that despite the 10% threshold, the carrier is not market dominant for the movement. The Board proposes that five years  11 is an appropriate lookback period for truck movement data because it is recent enough to reflect a complainant's current business operations and long enough to capture a snapshot of its historical use of trucks.

No Practical Build-out Option. The term “build-out” has been used by the agency to refer to possible competitive alternatives that could be accessed if the complainant makes certain infrastructure investments. The Board proposes that one factor of a prima facie showing of market dominance under the streamlined approach would be that a complainant demonstrate, by a short plain statement in a verified statement from an appropriate official or other means, that it has no practical build-out option due to physical, regulatory, financial, or other issues (or combination of issues). 12 The streamlined market dominance option would not be available when build-out alternatives are practical, although such a complainant could still attempt to show in a non-streamlined market dominance presentation that the build-out does not provide effective competition. In cases where there is no practical build-out option, it would assist the Board in making a market dominance determination more expeditiously.

Railroad arguments that potential build-outs are available—although not typically found by the Board to be practical alternatives  13 —can significantly complicate market dominance presentations. A complainant may not have information to address build-out options unless it has studied those options. But a defendant railroad might be able to identify hypothetical potential competitive options for the complainant's traffic. This possibility likely leaves some complainants unsure as to how much information to affirmatively include in their opening presentation about potential competitive options that a railroad might identify. Such uncertainty could significantly increase litigation costs and dissuade complainants from bringing cases to the Board.

Therefore, the Board proposes a factor that would limit the evidentiary burden and simplify the requirement for complainants while also ensuring that the Board obtains information about build-out alternatives that may be relevant to the competitive landscape. To demonstrate this factor of a market dominance prima facie showing, a complainant would need to submit a short plain statement in a verified statement by an appropriate official, or otherwise demonstrate, that it has no practical build-out alternative. For example, the complainant must state whether the impracticality is due to physical, regulatory, financial, or other issues (or combination of issues). If that showing cannot be made, the complainant would be required at the outset to address in some detail in its opening, through the non-streamlined market dominance presentation, why any potential build-out(s) would not provide effective competition.

Many of the facts to support these proposed prima facie factors are available to complainants at the pleading stage. Accordingly, the Board expects that complainants would be able to plead these factors in most cases and potentially negotiate stipulations with defendant carriers that would avoid costly discovery. Further, as discussed above, with respect to some of the factors, a verified statement from an appropriate official(s) with knowledge of the facts would be sufficient to meet the complainant's prima facie showing. By establishing the list of factors set out above, the Board would find by rule that a complainant that meets each of the required factors will have made a prima facie showing of market dominance. If a complainant determines that it is not able to demonstrate one of the required factors, it would not choose this streamlined approach at the beginning of the case, but would instead need to choose a non-streamlined market dominance presentation with additional detailed information about its transportation options. If a complainant elects to use the streamlined market dominance approach and the Board finds that market dominance has not been shown, the complainant may not submit a new rate case involving the same traffic using the non-streamlined market dominance presentation unless there are changed circumstances (or other factors under 49 U.S.C. 1322(c)). For purposes of this streamlined approach, the disclosures required under 49 CFR 1111.2(a) and (b)  14 would apply to a complainant electing to use this streamlined approach.

The Board's proposed streamlined market dominance approach would not result in a shifting of the burden for market dominance. The burden for establishing market dominance remains on the complainant, as it does with other issues in rate reasonableness cases. But the proposed approach would allow a complainant that can demonstrate the factors to make a prima facie showing that it has met its “burden of establishing the absence of effective competition from other rail carriers or modes of transportation for the traffic to which the challenged rate applies.” Total Petrochems. 2013, NOR 42121, slip op. at 28.

As stated above, this streamlined approach would not deprive railroads of their opportunity to defend themselves by rebutting a complainant's prima facie showing. Carriers would be permitted to refute any of the prima facie factors of the complainant's case, or otherwise show that effective competition exists for the traffic at issue. As in a non-streamlined market dominance presentation, a complainant under this new approach would have the opportunity to respond to the railroad's reply evidence in its rebuttal submission (or in the case of a matter brought under the Final Offer Rate Review procedure in the optional hearing described below). The new approach described in this decision should help narrow the focus of arguments on reply and rebuttal. Accordingly, the Board would impose a 50-page limit, inclusive of exhibits and verified statements, on each of the parties' reply and rebuttal submissions on market dominance in proceedings where the complainant uses the streamlined approach. 15 “The Board believes the page limit will encourage parties to focus their [arguments] on the most important issues.” Expediting Rate Cases, EP 733, slip op. at 12 (STB served Nov. 30, 2017).

To help facilitate building the record on market dominance under the streamlined approach, the Board proposes a new delegation of authority under 49 CFR 1011.6 to an Administrative Law Judge (ALJ) to hold an on-the-record telephonic market dominance evidentiary hearing, at the complainant's option, within seven days after the due date of complainant's rebuttal (or in the case of a matter brought under the Final Offer Rate Review procedure within seven days after the due date of the parties' reply). The ALJ's role would be to allow the parties to clarify their market dominance positions under oath, and to build upon issues presented by the parties through critical and exacting questioning. Given this hearing, the complainant may elect whether to file rebuttal evidence on market dominance issues (in cases that provide for rebuttal, i.e. cases not brought under the Final Offer Rate Review procedure) or to rely on the ALJ hearing to rebut the defendant's reply evidence. Within four days of the evidentiary hearing, a transcript of the hearing would be entered into the docket. The Board would take the entire record into consideration, including the transcript from the ALJ hearing, when reaching its final conclusion on market dominance. The Board's determinations would occur in accordance with the deadlines set out in 49 CFR 1111.9 and 1111.10, and, if adopted, the new deadlines proposed in Final Offer Rate Review, Docket No. EP 755 et al.

The Board concludes that the proposed approach would have the benefit of reducing the complexity of market dominance presentations for many complainants without limiting railroads' ability to mount a thorough defense. The Board finds that the availability of a streamlined market dominance approach would reduce unneeded burdens that could dissuade complainants from bringing cases. Moreover, reducing the time and expense associated with litigating market dominance is particularly important for smaller rate disputes. The proposed rule would also help the Board achieve the statutory requirement to ensure the expeditious handling of challenges to the reasonableness of railroad rates, 49 U.S.C. 10704(d)(1), and further the rail transportation policies of providing for the expeditious handling and resolution of all proceedings, section 10101(15), fostering sound economic conditions in transportation and ensuring effective competition, section 10101(5), and maintaining reasonable rates where there is an absence of effective competition, section 10101(6). Accordingly, the Board invites comment on the proposed streamlined market dominance approach.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, generally requires a description and analysis of new rules that would have a significant economic impact on a substantial number of small entities. In drafting a rule, an agency is required to: (1) Assess the effect that its regulation will have on small entities; (2) analyze effective alternatives that may minimize a regulation's impact; and (3) make the analysis available for public comment. Sections 601-604. In its notice of proposed rulemaking, the agency must either include an initial regulatory flexibility analysis, section 603(a), or certify that the proposed rule would not have a “significant impact on a substantial number of small entities,” section 605(b). Because the goal of the RFA is to reduce the cost to small entities of complying with federal regulations, the RFA requires an agency to perform a regulatory flexibility analysis of small entity impacts only when a rule directly regulates those entities. In other words, the impact must be a direct impact on small entities “whose conduct is circumscribed or mandated” by the proposed rule. White Eagle Coop. v. Conner, 553 F.3d 467, 480 (7th Cir. 2009).

This proposal would not have a significant economic impact upon a substantial number of small entities, within the meaning of the RFA. 16 The proposal imposes no additional record-keeping by small railroads or any reporting of additional information. Nor do these proposed rules circumscribe or mandate any conduct by small railroads that is not already required by statute: The establishment of reasonable transportation rates when a carrier is found to be market dominant. Small railroads have always been subject to rate reasonableness complaints and their associated litigation costs, including addressing whether they have market dominance over traffic. Finally, as the Board has previously concluded, the majority of railroads involved in these rate proceedings are not small entities within the meaning of the Regulatory Flexibility Act. Simplified Standards, EP 646 (Sub-No. 1), slip op. at 33-34. Furthermore, since the inception of the Board in 1996, only three of the 51 cases filed challenging the reasonableness of freight rail rates have involved a Class III rail carrier as a defendant. Those three cases involved a total of 13 Class III rail carriers. The Board estimates that there are approximately 656 Class III rail carriers. Therefore, the Board certifies under 5 U.S.C. 605(b) that this proposed rule, if promulgated, will not have a significant economic impact on a substantial number of small entities within the meaning of the RFA.

This decision will be served upon the Chief Counsel for Advocacy, Offices of Advocacy, U.S. Small Business Administration, Washington, DC 20416.

Pursuant to the Paperwork Reduction Act (PRA), 44 U.S.C. 3501-3521, Office of Management and Budget (OMB) regulations at 5 CFR 1320.8(d)(3), and in the Appendix, the Board seeks comments about the impact of the revisions in the proposed rule to the currently approved collection of Complaints (OMB Control No. 2140-0029) regarding: (1) Whether the collection of information, as modified in the proposed rule and further described below, is necessary for the proper performance of the functions of the Board, including whether the collection has practical utility; (2) the accuracy of the Board's burden estimates; (3) ways to enhance the quality, utility, and clarity of the information collected; and (4) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology, when appropriate.

The proposed simplified market dominance approach is intended to provide a less burdensome alternative to a non-streamlined market dominance presentation and is estimated, on balance, to result in five additional complaints filed each year. Filing a complaint has been estimated to require an annual hour burden of 469 hours and an annual “non-hour burden” cost of $1,462. See Supporting Statement for Modification & OMB Approval Under the Paperwork Reduction Act & 5 CFR pt. 1320, OMB Control No. 2140-0029 (Jan. 2018), available at https://www.reginfo.gov/public/do/DownloadDocument?objectID=78860402. For the reasons discussed above, filing a complaint with the streamlined market dominance approach is likely to require less time and expenditure than other complaints. Accordingly, the Board estimates that this new proposed method would entail an annual hour burden of 250 hours per complaint and an annual “non-hour burden” cost of $780 per complaint. These additional complaints are estimated to add a total annual hour burden of 1,250 hours and $3,900 of total annual “non-hour burden” cost under the PRA. The Board welcomes comment on the estimates of actual time and costs of complaints, as detailed below in the Appendix. Other information pertinent to complaints, including the simplified market dominance presentations, is also included in the Appendix. The proposed rule will be submitted to OMB for review as required under 44 U.S.C. 3507(d) and 5 CFR 1320.11. Comments received by the Board regarding the information collection will also be forwarded to OMB for its review when the final rule is published.

It is ordered:

1. The Board proposes to amend its rules as set forth in this decision. Notice of the proposed rules will be published in the Federal Register .

2. Comments regarding the proposed rules are due by November 12, 2019. Replies are due by January 10, 2020.

3. A copy of this decision will be served upon the Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration, Washington, DC 20416.

4. This decision is effective on its service date.

For the reasons set forth in the preamble, the Surface Transportation Board proposes to amend parts 1011 and 1111 of title 49, chapter X, of the Code of Federal Regulations as follows:

NMFS and the South Atlantic Council manage the snapper-grouper fishery under the FMP. The FMP was prepared by the South Atlantic Council and is implemented by NMFS through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) (16 U.S.C. 1801 et seq. ).

The Endangered Species Act (ESA) directs all Federal agencies to ensure that any action they authorize, fund, or carry-out is not likely to jeopardize the continued existence of endangered or threatened species, or destroy or adversely modify designated critical habitat. In June 2006, NMFS issued a biological opinion (2006 BiOp), in accordance with section 7 of the ESA, that evaluated the impact of the South Atlantic snapper-grouper fishery on ESA-listed sea turtles and smalltooth sawfish. The 2006 BiOp concluded that the anticipated incidental take of sea turtles and smalltooth sawfish by the South Atlantic snapper-grouper fishery is not likely to jeopardize their continued existence, or destroy or adversely modify designated critical habitat. However, the 2006 BiOp required that within the fishery reasonable and prudent measures be taken to minimize stress and increase the survival rates of any sea turtles and smalltooth sawfish taken in the fishery.

In response to the 2006 BiOp, the South Atlantic Council developed measures in Amendment 15B to the FMP (Amendment 15B) to increase the likelihood of survival of released sea turtles and smalltooth sawfish caught incidentally in the South Atlantic snapper-grouper fishery. The final rule for Amendment 15B required fishermen on vessels with Federal commercial or charter vessel/headboat permits for South Atlantic snapper-grouper to possess a specific set of release gear, and comply with sea turtle and smalltooth sawfish handling and release protocols and guidelines (74 FR 58902, November 16, 2009). The final rule also required those fishermen to maintain a reference copy of the NMFS sea turtle handling and release protocols document titled, “Careful Release Protocols for Sea Turtle Release with Minimal Injury” (Release Protocols), in the event a sea turtle is incidentally captured. These South Atlantic snapper-grouper permit holders are also required to post a NMFS placard of sea turtle handling and release guidelines inside their vessel wheelhouse or in an easily viewable area on the vessel if there is no wheelhouse.

The required gear for safe sea turtle handling and release was initially the same gear as required for vessels using pelagic longline gear for highly migratory species. However, most effort in the snapper-grouper fishery in the South Atlantic occurs on smaller vessels using lighter tackle than that used when longline fishing for pelagic species. Subsequent to Amendment 15B, Comprehensive Ecosystem-Based Amendment 2 modified sea turtle release gear requirements to allow smaller vessels to have fewer gear requirements than for pelagic longline vessels based on the freeboard height of the snapper-grouper fishing vessel (76 FR 82183, December 30, 2011).

Since implementation of Amendment 15B, the Release Protocols have been revised twice, once in 2008, and again in 2010. NMFS recently published a 2019 revision to the Release Protocols that includes the sea turtle release devices recently approved by the NMFS Southeast Fisheries Science Center (SEFSC) available at https://www.fisheries.noaa.gov/southeast/endangered-species-conservation/sea-turtle-and-smalltooth-sawfish-release-gear-protocols. Fishermen participating in the snapper-grouper fishery would be able to use these new devices to meet sea turtle release gear requirements if they are implemented as part of the regulations contained in this proposed rule.

In 2018, the Gulf of Mexico Fishery Management Council took final action on similar management measures to allow federally permitted fishermen in the commercial and charter vessel/headboat components of the reef fish fishery to use the newly-approved devices to meet requirements for sea turtle release gear. The final rule for Amendment 49 to the FMP for Reef Fish Resources in the Gulf of Mexico (Gulf) updated those fishery regulations to incorporate the new devices, and simplified and clarified the requirements for other sea turtle release gear (84 FR 22383, May 17, 2019). If NMFS implements this proposed rule for Amendment 42, regulations for release gear and handling requirements for sea turtles in the Gulf and South Atlantic would be consistent, thereby benefiting fishermen that fish in both areas.

This proposed rule would add three new sea turtle handling and release devices to the Federal regulations, clarify the requirements for other currently required gear, and modify the FMP framework procedure to include future changes to release gear and handling requirements for sea turtles and other protected resources.

For vessels with Federal commercial and charter vessel/headboat permits for South Atlantic snapper-grouper, this proposed rule would add three new devices to the Federal regulations that have been approved for use by SEFSC to safely handle and release sea turtles, and provide more options for fishermen to fulfill existing requirements. Details for these new devices can be found in Amendment 42 and this proposed rule, and the Release Protocols. Complete construction specifications for all SEFSC-approved handling and release devices are included in the 2019 NMFS SEFSC Technical Memorandum titled, “Design Standards and Equipment for Careful Release of Sea Turtles Caught in Hook-and-Line Fisheries” available at https://www.fisheries.noaa.gov/southeast/endangered-species-conservation/sea-turtle-and-smalltooth-sawfish-release-gear-protocols. NMFS expects the proposed new release devices in this proposed rule would increase flexibility for fishermen and regulatory compliance within the snapper-grouper fishery, which may result in positive benefits to sea turtles.

Two of the new sea turtle handling devices are a collapsible hoop net and a sea turtle hoist (net). Both of these devices are more compact versions of the currently required long-handled dip net, and would be used for bringing an incidentally captured sea turtle on board the fishing vessel to remove fishing gear from the sea turtle. For the collapsible hoop net, the net portion is attached to hoops made of flexible stainless steel cable; when the collapsible hoop net is folded over on itself for storage, its size reduces to about half of its original diameter. Additionally, there are two versions of the sea turtle hoist. One version consists of the net portion securely fastened to a frame, providing a relatively taut platform for the sea turtle to be brought on board. Another version creates a basket with the frame and net that holds the sea turtle as it is brought on board. Both the collapsible hoop net and the sea turtle hoist use rope handles attached to either side of the frame, in place of the rigid handle on the dip net. Generally, the collapsible hoop net or hoist would be used to bring sea turtles on board vessels with a high freeboard when it is not feasible to use a dip net.

The third new device is a dehooker that can be used to remove an externally embedded hook from a sea turtle. This device has a squeeze handle that secures the hook into notches at the end of the shaft of the dehooker, so the hook can be twisted out. This new device would provide another option for fishermen to comply with the regulations for a short-handled dehooker for external hooks.

This proposed rule also would update the requirements of some currently approved devices for clarity and simplicity, and to aid fishermen and law enforcement with compliance and enforcement efforts. Existing regulations use the word “approximately” to define some gear specifications, and this proposed rule would replace “approximately” in the applicable regulations where precise specifications would clarify requirements for the dimensions or lengths of several devices. The revisions would provide for either a minimum size dimension or a size range for the short-handled dehookers for external and internal hooks, bite block on the short-handled internal use dehooker, long-nose or needle-nose pliers, bolt cutters, and the block of hard wood and hank of rope when used as mouth openers and gags. In general, these clarifications would either establish the currently approximate dimensions as a minimum requirement, or establish the smaller end of the current size range for the required dimensions as a minimum. Other proposed changes to the gear requirements follow.

Current regulations specify that short- and long-handled dehookers must be constructed of 316L stainless steel, which is resistant to corrosion from salt water. The SEFSC has also approved 304L stainless steel for the construction of all short-handled and long-handled dehookers. This proposed additional grade of stainless steel is commonly available and is also corrosion resistant.

Another required device to assist with removing fishing gear from a sea turtle is a pair of monofilament line cutters. Current regulations state that the monofilament line cutters must have cutting blades of 1-inch (2.5 cm) in length (appendix F to 50 CFR part 622). However, SEFSC has clarified that the blade length must be a minimum of 1 inch (2.5 cm) but could be longer.

Another required gear type is mouth openers and gags, used to hold a sea turtle's mouth open to remove fishing gear. At least two of the seven types of mouth openers and gags are required on board. Current regulations state that canine mouth gags, an option for this gear requirement, must have the ends covered with clear vinyl tubing, friction tape, or similar, to pad the surface. However, SEFSC determined that this was not necessary and could result in the canine mouth gags not functioning properly. This proposed rule would remove from the regulations the requirement to cover the ends of the canine mouth gags with these materials.

A life-saving device on a vessel, such as a personal flotation device or life ring buoy, may currently be used as the required cushion or support device for sea turtles brought aboard a vessel to remove fishing gear. However, this proposed rule would add language to clarify that any life-saving device used to fulfill the sea turtle safe handling requirements cannot also be used to meet U.S. Coast Guard safety requirements of one flotation device per person on board the vessel.

Lastly, fishermen are currently required to maintain a paper copy of the Release Protocols on each vessel for reference in the event a sea turtle is incidentally captured. This proposed rule would allow fishermen to use an electronic copy of the document to fulfill the requirement, as long as the electronic document is readily available for viewing and reference during a trip.

Currently, adding or changing careful release devices and protocols for incidentally caught sea turtles and other protected species requires an amendment to the FMP. This limits the South Atlantic Council and NMFS' ability to implement new release devices and handling requirements in a timely manner. The FMP amendment and rulemaking process generally involves more detailed analyses and a lengthier timeline prior to implementation than rulemaking done through a framework procedure. The FMP contains a framework procedure to allow the South Atlantic Council to modify certain management measures via an expedited process (see 50 CFR 622.194). The FMP framework procedure was last modified by the final rule implementing Amendment 27 to the FMP (78 FR 78770, December 27, 2013).

Amendment 42 and this proposed rule would allow changes to the sea turtle release gear and handling techniques under the framework procedure. For example, the South Atlantic Council could more quickly add a new release device for sea turtles if approved by the SEFSC. The South Atlantic Council decided that making these changes through an expedited process may have beneficial biological and socio-economic impacts. The South Atlantic Council concluded that the revised framework procedure would still allow adequate opportunity for the public to comment on any future proposed regulatory changes.

If a sea turtle is incidentally caught during fishing operations, the owner or operator of a federally permitted commercial vessel or a recreational charter vessel or headboat for South Atlantic snapper-grouper must have the 2019 Release Protocols document (incorporated by reference, see § 622.179(b) below) available for reference on board to safely handle and release the animal. In addition, a placard summarizing sea turtle handling and release guidelines (incorporated by reference, see § 622.179(b) below) must be posted on the vessel. The Release Protocols document is a NOAA Technical Memorandum published by the NMFS SEFSC. The placard is also contained within the Release Protocols document, and the placard is available in English, Spanish, and Vietnamese. Both the Release Protocols document and placard are available at the NMFS Southeast Regional Office, 263 13th Ave. South, St. Petersburg, FL 33701, phone: 727-824-5301, or for digital download and printing from this website: https://www.fisheries.noaa.gov/southeast/endangered-species-conservation/sea-turtle-and-smalltooth-sawfish-release-gear-protocols.

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this proposed rule is consistent with Amendment 42, the FMP, other provisions of the Magnuson-Stevens Act, and other applicable laws, subject to further consideration after public comment.

This proposed rule has been determined to be not significant for purposes of Executive Order 12866. This rule is expected to be an Executive Order 13771 deregulatory action.

The Magnuson-Stevens Act provides the statutory basis for this proposed rule. No duplicative, overlapping, or conflicting Federal rules have been identified. In addition, no new reporting and record-keeping requirements are introduced by this proposed rule. Accordingly, the Paperwork Reduction Act does not apply to this proposed rule. A description of this proposed rule, why it is being considered, and the purposes of this proposed rule are contained in the preamble and in the SUMMARY section of the preamble.

The objectives of this proposed rule are to provide greater flexibility to vessels in the commercial and for-hire snapper-grouper fishing industries ( i.e., with Federal commercial and charter vessel/headboat permits for South Atlantic snapper-grouper) in complying with release gear regulations, to clarify existing requirements for fishery participants and law enforcement officers, and to streamline the process for future revisions to release gear and handling procedures for incidentally captured sea turtles and other protected species after approval by the SEFSC.

On July 18, 2019, the Small Business Administration (SBA) issued an interim final rule (84 FR 34261) effective August 19, 2019, that adjusted the monetary-based industry size standards ( i.e., receipts- and assets-based) for inflation for many industries. For for-hire fishing businesses, the interim final rule changes the small business size standard from $7.5 million in annual gross receipts to $8 million. See 84 FR 34273 (adjusting NAICS 487210 (Scenic and Sightseeing Transportation, Water)).

Pursuant to the Regulatory Flexibility Act, and prior to SBA's July 18, 2019 interim final rule, a certification was developed for this proposed rule using SBA's former size standard. NMFS has reviewed the analyses prepared for this proposed rule in light of the new size standards. Under the former SBA size standard, all for-hire fishing businesses subject to this proposed rule were considered small entities, and they all would continue to be considered small under the new standard. NMFS does not think that the new size standard affects analyses prepared for this proposed rule and solicits public comment on the analyses in light of the new size standard.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the SBA that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. A description of the factual basis for this determination follows. All monetary estimates are in 2017 dollars, consistent with the data and estimates in Amendment 42.

This proposed rule, if implemented, would allow vessels in the commercial and for-hire South Atlantic snapper-grouper fishing industries to use a collapsible hoop net or sea turtle hoist rather than a dip net to bring an incidentally captured sea turtle on board, and add a new dehooking device to remove an externally embedded hook from a sea turtle.

This proposed rule would also clarify requirements for currently required gear used to remove fishing gear from sea turtles to aid fishermen and law enforcement personnel with compliance and enforcement efforts. Existing regulations use the word “approximately” to define some gear specifications, and this proposed rule would replace “approximately” in the applicable regulations where precise specifications would clarify requirements for the dimensions or lengths of several devices, including the short-handled dehookers for internal and external hooks, bite block on the short-handled internal use dehooker, long-nose or needle-nose pliers, bolt cutters, and the block of hard wood and hank of rope when used as mouth openers and gags. In general, these clarifications would either establish the currently approximate dimensions as a minimum, or establish the smaller end of the current size range for the required dimensions as a minimum. Specific proposed changes of importance from a cost perspective are requiring long-nose or needle-nose pliers with a minimum length of 11 inches (28 cm), rather than “approximately” 12 inches (30 cm) in overall length; and changing the required length of monofilament line cutters from “approximately” 7.5 inches (19 cm) to a minimum of 6 inches (15 cm).

This proposed rule is expected to directly regulate vessels (businesses) in the commercial and for-hire South Atlantic snapper-grouper fishing industries. In 2017, the number of vessels with a valid or renewable Federal charter vessel/headboat permit for snapper-grouper was 1,982. In addition, there were 554 vessels with valid or renewable unlimited snapper-grouper commercial permits, and 114 vessels with 225-lb trip-limited snapper-grouper commercial permits. Based on information provided in a recent analysis regarding permit portfolios of commercial snapper-grouper permit holders, NMFS assumes that 21.8 percent of vessels with unlimited snapper-grouper commercial permits (121 vessels) and 23.6 percent of vessels with 225-lb trip limited commercial permits (27 vessels) also held a Federal charter vessel/headboat permit for snapper-grouper. Based on this information, 148 vessels are estimated to hold both a Federal commercial and a Federal charter vessel/headboat permit for South Atlantic snapper-grouper. Thus, an estimated 2,502 vessels are expected to be directly regulated by this proposed rule.

Although NMFS possesses complete ownership data regarding businesses and vessels that participate in the Gulf red snapper, and the Gulf groupers and tilefishes individual fishing quota (IFQ) programs, ownership data are incomplete regarding businesses that possess commercial or charter vessel/headboat permits for South Atlantic snapper-grouper but do not also commercially harvest Gulf IFQ species. Therefore, it is not currently feasible to accurately determine affiliations between these particular businesses. Because of the incomplete ownership data, for purposes of this analysis, NMFS assumes each of these vessels is independently owned by a single business, which is expected to result in an overestimate of the actual number of businesses directly regulated by this proposed rule. Thus, this proposed rule is estimated to directly regulate 2,502 businesses in the commercial and for-hire snapper-grouper fishing industries.

For vessels with commercial South Atlantic snapper-grouper permits that were active in the snapper-grouper fishing industry from 2013 through 2017, average annual gross revenue was $45,476 per vessel. Annual net revenue from operations for vessels in the commercial snapper-grouper fishing industry was approximately 5 percent of their average annual gross revenue from 2014 through 2016, while average net cash flow was about 19 percent of their average annual gross revenue during this time. Net revenue from operations is the best available measure of economic profit for these vessels, though net cash flow may also be of interest to fishery participants and managers. Average annual net revenue from operations (economic profit) for snapper-grouper vessels is estimated to be $2,046 per vessel, while average annual net cash flow per vessel is estimated to be $8,640 per vessel.

The average annual gross revenue for a federally permitted headboat in the South Atlantic is $212,680, while the average annual gross revenue for a federally permitted charter vessel in the South Atlantic is $120,297. Estimates of net revenue from operations and net cash flow are not available for vessels with Federal charter vessel/headboat permits for South Atlantic snapper-grouper.

The SBA has established size standards for all major industry sectors in the U.S. including for-hire fishing businesses (NAICS code 487210). A business primarily involved in the for-hire fishing industry is classified as a small business if it is independently owned and operated, is not dominant in its field of operation (including its affiliates), and has annual receipts (revenue) not in excess of $7.5 million for all its affiliated operations worldwide. In 2017, the maximum annual gross revenue for a single headboat in the South Atlantic was about $748,000. Because average annual gross revenue for headboats in the South Atlantic is significantly greater than average annual gross revenue for charter vessels, it is assumed the maximum annual gross revenue for charter vessels is less than $748,000.

On December 29, 2015, NMFS issued a final rule establishing a small business size standard of $11 million in annual gross receipts (revenue) for all businesses primarily engaged in the commercial fishing industry (NAICS code 11411) for RFA compliance purposes only (80 FR 81194, December 29, 2015). In addition to this gross revenue standard, a business primarily involved in commercial fishing is classified as a small business if it is independently owned and operated, and is not dominant in its field of operations (including its affiliates). For vessels with a Federal commercial permit for South Atlantic snapper-grouper, the maximum annual gross revenue earned by a single vessel that was active in the industry from 2013 through 2017 was approximately $1.43 million.

This proposed rule, if implemented, would be expected to directly regulate all 2,502 vessels with Federal commercial or charter vessel/headboat permits in the South Atlantic snapper-grouper fishing industry. All directly regulated businesses have been determined, for the purpose of this analysis, to be small entities. Based on this information, the proposed rule is expected to affect a substantial number of small entities.

Allowing federally permitted businesses (vessels) in the commercial and for-hire South Atlantic snapper-grouper fishing industries to use a collapsible hoop net or sea turtle hoist rather than a dip net to handle incidentally captured sea turtles is expected to reduce the cost of complying with the associated regulatory requirement by about $40 per business (vessel) on average. However, when this gear is replaced, typically about once every 7 years, the average cost savings to each business (vessel) is about $6 per year and thus is expected to minimally increase these businesses' profitability.

Allowing federally permitted businesses in the commercial and for-hire South Atlantic snapper-grouper fishing industries to use a new dehooking device to remove an externally embedded hook from a sea turtle is not expected to change the cost of complying with the associated regulatory requirement as its cost is within the range of the currently allowed dehooking devices. Thus, NMFS does not expect the profitability of commercial and for-hire vessels to change as a result of allowing this new dehooking device.

Clarifying the dimensions or length requirements for several other sea turtle release devices in cases where the regulations currently use the word “approximately” to describe those requirements or are otherwise ambiguous is expected to aid fishermen in the commercial and for-hire South Atlantic snapper-grouper fishing industries with compliance, as well as aid law enforcement efforts, though some clarifications would slightly reduce flexibility. As such, these clarifications are expected to reduce the risk of these businesses incurring a fine or other penalty for unintentional non-compliance with the requirements, and thus would generally be expected to reduce the costs of complying with those requirements.

For example, allowing federally permitted vessels in the commercial and for-hire South Atlantic snapper-grouper fishing industries to use long-nose or needle-nose pliers with an overall length of 11 inches (28 cm) or greater, rather than “approximately” 12 inches (30 cm), is expected to reduce the cost of complying with the associated regulatory requirement for at least some of these businesses. Due to the ambiguity of the current length requirement, as well as the limited market availability of pliers with an approximate length of 12 inches (30 cm), it has been difficult for some vessel owners to find pliers that clearly comply with the current regulation. As a result, some of these owners currently use pliers that have an overall length of 11 inches (28 cm). Thus, the proposed regulatory change would eliminate the risk of vessel owners that currently use pliers with an overall length of 11 inches (28 cm) from potentially being found non-compliant with the current regulation and having to purchase new pliers, which cost around $10, that comply with the current regulation.

In addition, modifying the required length for approved monofilament line cutters from “approximately” 7.5 inches (19 cm) in length to a minimum of 6 inches (15 cm) in length would allow federally permitted vessels in the commercial and for-hire South Atlantic snapper-grouper fishing industries to use monofilament line cutters as small as 6 inches (15 cm) in length. Monofilament line cutters 6 inches (15 cm) in length and longer are commonly available in the market. The cost of monofilament line cutters ranges from $15 to $66, depending on the material and features. Thus, the proposed regulatory change would eliminate the risk of vessel owners currently using monofilament line cutters 6 inches (15 cm) in length from potentially being found non-compliant with the current regulation and having to purchase new monofilament line cutters that comply with the current regulations.

Although federally permitted vessel owners are expected to be able to meet the clarified dimension and length requirements in this proposed rule without purchasing new gear, it is possible that a few may incur costs to replace gear that would be non-compliant. For example, though unlikely, it is possible that some commercial and for-hire fishing vessel owners could be using monofilament line cutters less than 6 inches (15 cm) in length ( e.g., 5.5 inches (14 cm) in length) and consider this to be compliant with the current “approximately” 7.5-inch (19-cm) requirement. These vessel owners would have to purchase new monofilament line cutters and incur the associated cost. However, NMFS expects few if any commercial or for-hire fishing vessel owners to consider a length more than 25 percent less than “approximately” 7.5 inches (19 cm) in length as compliant with the current requirement. Thus, the potential costs resulting from this remote possibility are expected to be minimal if not zero.

Modifying the snapper-grouper FMP framework procedure to include changes to release gear requirements through the abbreviated framework process is an administrative action that does not alter any requirements that directly regulate federally permitted vessels in the commercial and for-hire South Atlantic snapper-grouper fishing industries. Therefore, this action is not expected to affect the profitability of any businesses that possess permits in these industries.

Based on the information above, a reduction in profits for a substantial number of small entities is not expected as a result of this proposed rule. Thus, this proposed rule would not have a significant economic impact on a substantial number of small entities, so an initial regulatory flexibility analysis is not required and none has been prepared.

For the reasons set out in the preamble, 50 CFR part 622 is proposed to be amended as follows:

1. Long-handled line clipper or cutter. Line cutters are intended to cut fishing line as close as possible to the hook, and assist in removing line from an entangled sea turtle to minimize any remaining gear upon release. One long-handled line clipper or cutter and one set of replacement blades are required to be on board. The minimum design standards are as follows:

(a) A protected and secured cutting blade. The cutting blade(s) must be capable of cutting 2.0 to 2.1-mm (0.078 to 0.083-inch) diameter monofilament line (approximately 400 to 450-lb test strength) or polypropylene multistrand material, known as braided or tarred mainline, and the cutting blade must be maintained in working order. The cutting blade must be curved, recessed, contained in a holder, or otherwise designed to facilitate its safe use so that direct contact between the cutting surface and the sea turtle or the user is prevented. The cutting instrument must be securely attached to an extended reach handle and the blade(s) must be easily replaceable during a trip if necessary. The extra set of replacement blades must meet these standards and be carried on board to replace all cutting surfaces on the line cutter or clipper.

(b) An extended reach handle. The line cutter blade must be securely fastened to an extended reach handle or pole with a minimum length equal to or greater than 150 percent of the freeboard, or a minimum length of 6 ft (1.8 m), whichever is greater. The extended reach handle may break down into sections for storage, but it is not required. There is no restriction on the type of material used to construct this handle as long as it is sturdy and facilitates the secure attachment of the cutting blade.

2. Long-handled dehooker for internal hooks. One long-handled dehooker to remove internal hooks from sea turtles that cannot be brought on board is required on the vessel. It should also be used to engage an unattached hook when a sea turtle is entangled but not hooked, and line is being removed. The design must shield the point of the hook and prevent the hook from re-engaging during the removal process. The minimum design standards are as follows:

(a) Hook removal device. The dehooker must be constructed of 3/16 inch (4.8-mm) to 5/16 inch (7.9-mm) diameter 316L or 304L stainless steel and have a dehooking end no larger than 1 7/8 inches (4.8 cm) outside diameter. The dehooker must securely engage and control the leader while shielding the point to prevent the hook from re-engaging during removal. It may not have any unprotected terminal points (including blunt ones), as these could cause injury to the esophagus during hook removal. The dehooker must be of a size appropriate to secure the range of hook sizes and styles used on the vessel.

(b) Extended reach handle. The dehooking end that secures the fishhook must be securely fastened to an extended reach handle or pole with a minimum length equal to or greater than 150 percent of the freeboard, or a minimum of 6 ft (1.8 m), whichever is greater. The extended reach handle may break down into sections for storage, but it is not required. The handle must be sturdy and strong enough to facilitate the secure attachment of the dehooking end.

3. Long-handled dehooker for external hooks. One long-handled dehooker to remove external hooks from sea turtles that cannot be brought on board is required on the vessel. The long-handled dehooker for internal hooks described in paragraph A.2. of this appendix may be used to comply with this requirement. The minimum design standards are as follows:

(a) Hook removal device. A long-handled dehooker must be constructed of 3/16 inch (4.8-mm) to 5/16 inch (7.9-mm) diameter 316L or 304L stainless steel and have a dehooking end no larger than 1 7/8 inches (4.8 cm) outside diameter. The dehooking end that secures the fishhook must be blunt with all edges rounded. The dehooker must be of a size appropriate to secure the range of hook sizes and styles used on the vessel.

(b) Extended reach handle. The handle must be a minimum length equal to the freeboard of the vessel or 6 ft (1.8 m), whichever is greater. The extended reach handle may break down into sections for storage, but it is not required.

4. Long-handled device to pull an “inverted V”. One long-handled device to pull an “inverted V” is required on board. This tool is used to pull an “inverted V” in the fishing line when implementing the “inverted V” dehooking technique, as described in the 2019 version of the document titled “Careful Release Protocols for Sea Turtle Release with Minimal Injury,” for dehooking and disentangling sea turtles. A long-handled J-style dehooker as described in paragraph A.3. of this appendix may be used to comply with this requirement. The minimum design standards are as follows:

(a) Hook end. This device, such as a standard boat hook or gaff must be constructed of stainless steel or aluminum; if a long-handled J-style dehooker is used to comply with this requirement, it must be constructed of 316L or 304L stainless steel. The semicircular or “J” shaped hook end must be securely attached to the handle to allow the hook end to engage and pull an “inverted V” in the fishing line. A gaff or any other tool with a sharp point is to be used only for holding fishing lines and must never contact the sea turtle.

(b) Extended reach handle. The handle must have a minimum length equal to the freeboard of the vessel or must be at least 6 ft (1.8 m) in length, whichever is greater. The extended reach handle may break down into sections for storage, but it is not required. The handle must be sturdy and strong enough to facilitate the secure attachment of the hook end.

5. Net or hoist. One approved net or hoist is required on board. These devices are to be used to facilitate safe handling of sea turtles by allowing them to be brought on board for fishing gear removal, without causing further injury to the animal. Sea turtles must not be brought on board without the use of a net or hoist. There must be no sharp edges or burrs on the hoop or frame, or where the hoop or frame attaches to the handle. There is no requirement for the hoop or frame to be circular as long as it meets the applicable minimum specifications. In this appendix, bar measure means the non-stretched distance between a side knot and a bottom knot of a net mesh; also known as the square mesh measurement. The types and minimum design standards for approved nets and hoists are as follows:

(a) Dip net —(i) Size of the net. The dip net must have a sturdy net hoop or frame of at least 31 inches (78.7 cm) inside diameter and a bag depth of at least 38 inches (96.5 cm) to accommodate sea turtles up to 3 ft (0.9 m) in carapace (shell) length. The bag mesh size must not exceed 3 inches (7.6 cm), bar measure. The net hoop or frame must be made of a rigid material strong enough to facilitate the sturdy attachment of the net.

(ii) Extended reach handle. The dip net hoop or frame must be securely fastened to an extended reach handle or pole with a minimum length equal to or greater than 150 percent of the freeboard, or at least 6 ft (1.8 m) in length, whichever is greater. The handle and net must be able to support a minimum of 100 lb (45.4 kg) without breaking or significant bending or distortion. The extended reach handle may break down into sections for storage, but it is not required.

(b) Collapsible hoop net —(i) Size of the net. The collapsible hoop net must have a sturdy net hoop of at least 31 inches (78.7 cm) inside diameter and a bag depth of at least 38 inches (96.5 cm) to accommodate sea turtles up to 3 ft (0.9 m) in carapace (shell) length. The bag mesh size must not exceed 3 inches (7.6 cm), bar measure. The net hoop must be strong enough to facilitate the sturdy attachment of the net.

(ii) Extended reach handle. The collapsible hoop net must be securely fastened with rope(s) or other line(s) connected to the hoop with a minimum length equal to or greater than 150 percent of the freeboard, or at least 6 ft (1.8 m) in length, whichever is greater. The rope(s) and net must be able to support a minimum of 100 lb (45.4 kg) without breaking or significant distortion.

(c) Small hoist —(i) Size of the hoist. The sea turtle hoist must have a sturdy net hoop or frame of at least 31 inches (78.7 cm) inside diameter to accommodate sea turtles up to 3 ft (0.9 m) in carapace (shell) length. The net mesh size must not exceed 3 inches (7.6 cm), bar measure. If polyvinyl chloride, or PVC, pipe is used to construct the hoist, the pipe fittings must be glued together and a minimum strength of Schedule 40 pipe must be used. The hoist hoop or frame must be made of a rigid material strong enough to facilitate the sturdy attachment of the net.

(ii) Extended reach handle. The sea turtle hoist must be securely fastened with ropes or other lines connected to the hoop or frame with a minimum length equal to or greater than 150 percent of the freeboard, or at least 6 ft (1.8 m) in length, whichever is greater. The ropes and hoist hoop or frame must be able to support a minimum of 100 lb (45.4 kg) without breaking or significant distortion.

6. Cushion or support device. A standard automobile tire free of exposed steel belts, a boat cushion, or any other comparable cushioned and elevated surface, is required for supporting a sea turtle in an upright orientation while the sea turtle is on board. The cushion or support device must be appropriately sized to fully support a range of sea turtle sizes. Any life-saving device that would be used to support a sea turtle on board must be dedicated for that purpose and in addition to all minimum human safety at sea requirements.

7. Short-handled dehooker for internal hooks. One short-handled dehooker for removing internal hooks is required on board. This dehooker is designed to remove internal hooks from sea turtles brought on board. This dehooker can also be used on external hooks. The minimum design standards are as follows:

(a) General. The dehooker must allow the hook to be secured and the hook point shielded without re-engaging during the removal process. It may not have any unprotected terminal points, including blunt ones, as this could cause injury to the esophagus during hook removal. A sliding plastic bite block must be permanently installed around the shaft to protect the beak and facilitate hook removal in case a sea turtle bites down on the dehooker. The dehooker must be of a size appropriate to secure the range of hook sizes and styles used on the vessel.

(b) Specifications. The dehooker must be constructed of 316L or 304L stainless steel. The shaft must be 3/16 inch (4.8-mm) to 5/16 inch (7.9-mm) in diameter. The shaft must be 16 to 24 inches (40.6 cm to 60.7 cm) long, with approximately a 4 to 6 inch (10.2 to 15.2-cm) long tube T-handle, wire loop handle, or similar. The bite block must be constructed of a 3/4 to 1-inch (1.9 to 2.5-cm) inside diameter high impact rated, rigid plastic cylinder ( e.g., Schedule 80 PVC) that is 4 to 6 inches (10.2 to 15.2 cm) long to allow for 5 inches (12.7 cm) of slide along the shaft. The dehooking end must be no larger than 1 7/8 inches (4.8 cm) outside diameter.

8. Short-handled dehooker for external hooks. One short-handled dehooker for external hooks is required on board. This dehooker is designed to remove external hooks from sea turtles brought on board. The short-handled dehooker for internal hooks required to comply with paragraph A.7. of this appendix may be used to comply with this requirement. The minimum design standards are as follows:

(a) Fixed handle dehooker —(i) General. The dehooking end that secures the fishhook must be blunt and all edges rounded. The dehooker must be of a size appropriate to secure the range of hook sizes and styles used on the vessel.

(ii) Specifications. The dehooker must be constructed of 316L or 304L stainless steel. The shaft must be 3/16 inch (4.8-mm) to 5/16 inch (7.9-mm) in diameter. The shaft must be 16 to 24 inches (40.6 to 60.7 cm) long with approximately a 4 to 6-inch (10.2 to 15.2-cm) long tube T-handle, wire loop handle, or similar.

(b) Squeeze handle dehooker —(i) General. The dehooking end that secures the fishhook must be blunt and all edges rounded. The dehooker must be able to secure the range of hook sizes and styles used on the vessel. This dehooker secures a fishhook for removal by squeezing the handles together using one hand to grab and pull the hook into notches at the top of the shaft of the dehooker.

(ii) Specifications. The dehooker must be constructed of 316L or 304L stainless steel. The overall length must be a minimum of 11 inches (27.9 cm) long.

9. Long-nose or needle-nose pliers. One pair of long-nose or needle-nose pliers is required on board. Required long-nose or needle-nose pliers can be used to remove hooks from the sea turtle's flesh or for removing hooks from the front of the mouth. They can also hold PVC splice couplings in place, when used as mouth gags. The minimum design standards are as follows: The long-nose or needle-nose pliers must be a minimum of 11 inches (27.9 cm) in length. It is recommended that the pliers be constructed of stainless steel or other corrosion resistant metal material.

10. Bolt cutters. One pair of bolt cutters is required on board. Required bolt cutters may be used to cut off the eye or barb of a hook to facilitate the hook removal without causing further injury to the sea turtle. They should also be used to cut off as much of the hook as possible, when the remainder of the hook cannot be removed. The minimum design standards are as follows: The bolt cutters must be a minimum of 14 inches (35.6 cm) in total length, with blades that are a minimum of 4 inches (10.2 cm) long and 2 1/4 inches (5.7 cm) wide, when closed. Required bolt cutters must be able to cut hard metals, such as stainless or carbon steel hooks, up to 1/4 inch (6.4-mm) wire diameter, and they must be capable of cutting through the hooks used on the vessel.

11. Monofilament line cutters. One pair of monofilament line cutters is required on board. Required monofilament line cutters must be used to remove fishing line entangling a sea turtle, or to cut fishing line as close to the eye of the hook as possible if the hook is swallowed or if the hook cannot be removed. The minimum design standards are as follows: The monofilament line cutters must be a minimum of 6 inches (15.2 cm) in length. The blades must be a minimum of 1 inch (2.5 cm) in length and 5/8 inches (1.6 cm) wide, when closed.

12. Mouth openers or mouth gags. Required mouth openers and mouth gags are used to open sea turtle mouths, and to keep them open when removing internal hooks from sea turtles brought on board. They must allow access to the hook or line without causing further injury to the sea turtle. Design standards are included in the item descriptions. At least two of the seven different types of mouth openers or mouth gags described in paragraphs A.12.(a) through (g) of this appendix are required.

(a) A block of hard wood. A block of hard wood of a type that does not splinter ( e.g., maple) with rounded and smoothed edges, or a wooden-handled brush with the bristles removed. The dimensions must be a minimum of 10 inches (25.4 cm) by 3/4 inch (1.9 cm) by 3/4 inch (1.9 cm).

(b) A set of three canine mouth gags. A set of canine mouth gags must include one of each of the following sizes: Small—5 inches (12.7 cm), medium—6 inches (15.2 cm), and large—7 inches (17.8 cm). They must be constructed of stainless steel.

(c) A set of two sturdy dog chew bones. Required canine chews must be constructed of durable nylon or thermoplastic polymer, and strong enough to withstand biting without splintering. To accommodate a variety of sea turtle beak sizes, a set must include one large (5 1/2 to 8 inches (14 cm to 20.3 cm) in length), and one small (3 1/2 to 4 1/2 inches (8.9 cm to 11.4 cm) in length) canine chew bones.

(d) A set of two rope loops covered with protective tubing. A required set consists of two 3-ft (0.9-m) lengths of poly braid rope ( 3/8 inch (9.5-mm) diameter suggested), each covered with an 8-inch (20.3-cm) long section of 1/2 inch (1.3-cm) to 3/4 inch (1.9-cm) diameter light duty garden hose or similar flexible tubing, and each rope tied into a loop.

(e) A hank of rope. A length of soft braided or twisted nylon rope a minimum of 3/16 inch (4.8-mm) diameter must be folded to create a hank, or looped bundle, of rope. The rope must create a hank of 2 to 4 inches (5.1 cm to 10.2 cm) in thickness.

(f) A set of four PVC splice couplings. A required set must consist of the following Schedule 40 PVC splice coupling sizes: 1 inch (2.5 cm), 1 1/4 inch (3.2 cm), 1 1/2 inch (3.8 cm), and 2 inches (5.1 cm). PVC splice couplings are held in a sea turtle's mouth with the needle-nose pliers.

(g) A large avian oral speculum. The avian oral speculum must be 9 inches (22.9 cm) long, and constructed of 3/16 inch (4.8-mm) wire diameter 304 stainless steel. The wire must be covered with 8 inches (20.3 cm) of clear vinyl tubing ( 5/16 inch (7.9-mm) outside diameter, 3/16 inch (4.8-mm) inside diameter), friction tape, or similar to pad the surface.

B. Sea turtle handling requirements. Any sea turtle incidentally captured during fishing operations must be handled, and release gear must be used, in accordance with the NMFS careful handling, resuscitation, and release protocols as specified in this appendix, in the 2019 version of the NMFS document titled, “Careful Release Protocols for Sea Turtle Release with Minimal Injury”, or on the NMFS sea turtle handling and release guidelines placard.

1. Sea turtles brought on board. When practicable, both active and inactive (comatose) sea turtles must be brought on board the vessel without causing further injury to the animal, using a net or hoist as specified in paragraph A.5. of this appendix. Release gear specified in paragraphs A.6. through A.12. of this appendix must be used to remove fishing gear from sea turtles. All sea turtles up to 3 ft (0.9 m) carapace (shell) length must be brought on board to remove fishing gear if sea conditions allow.

(a) Place a sea turtle upright on its bottom shell on a cushion or support device, as specified in paragraph A.6. of this appendix, to immobilize it and facilitate gear removal. Then, determine if the fishing gear can be removed without causing further injury. All externally embedded hooks should be removed, unless hook removal would result in further injury to the sea turtle. No attempt to remove a hook should be made if it has been swallowed and the insertion point of the hook is not clearly visible, or if it is determined that removal would result in further injury to the sea turtle.

(b) If a hook cannot be removed, remove as much line as possible from the sea turtle and the hook using monofilament cutters as specified in paragraph A.11. of this appendix, and as much of the hook as possible should be removed before releasing the sea turtle, using bolt cutters as specified in paragraph A.10. of this appendix.

(c) If a hook can be removed, an effective technique may be to cut off the barb or the eye of the hook using bolt cutters, and then to slide the hook out. When the hook is visible in the mouth, a mouth opener or mouth gag, as specified in paragraph A.12. of this appendix, may facilitate opening the sea turtle's mouth and keeping the mouth open. Short-handled dehookers for internal hooks, or long-nose or needle-nose pliers, as specified in paragraphs A.7. and A.8. of this appendix, respectively, should be used to remove visible hooks from the mouth that have not been swallowed on boated sea turtles, as appropriate.

(d) If a sea turtle appears comatose or inactive, follow the NMFS resuscitation protocols to attempt revival before its release. As much gear as possible must be removed from the sea turtle without causing further injury prior to its release.

(e) Sea turtle resuscitation. Resuscitation must be attempted on any sea turtle that is comatose or appears inactive by the following methods:

(i) Place the sea turtle upright on its bottom shell and elevate its hindquarters at least 6 inches (15.2 cm) to drain any water from the sea turtle for a period of at least 4 hours and up to 24 hours. The amount of the elevation depends on the size of the sea turtle; greater elevations are needed for larger sea turtles.

(ii) Periodically rock the sea turtle gently from left to right by holding the outer edge of the shell (carapace) and lift one side about 3 inches (7.6 cm), and then alternate to the other side.

(iii) The sea turtle being resuscitated must be shaded and kept damp or moist. Do not put the sea turtle into a container holding water. A water-soaked towel placed over the head, shell, and flippers is the most effective method to keep a sea turtle moist.

(iv) Gently touch the corner of the eye and pinch the tail (reflex test) periodically to see if there is a response indicating the sea turtle may be recovering.

(f) Sea turtle release. A sea turtle that is actively moving or determined to be dead as described in paragraph B.1.(g) of this appendix must be released. Release the sea turtle when fishing gear is not in use to avoid recapturing the sea turtle. Place the engine gear in neutral position, and then lower the sea turtle into the water from a low part on the vessel, in an area where the sea turtle is unlikely to be recaptured or injured by vessels.

(g) A sea turtle is determined to be dead if the muscles are stiff ( rigor mortis ) and/or the flesh has begun to rot; otherwise the sea turtle is determined to be comatose or inactive, and resuscitation attempts are necessary as specified in paragraph B.1.(e).

(h) A sea turtle that fails to respond to the reflex test or fails to move within 4 hours (up to 24 hours if possible) must be returned to the water in the same manner as that for an actively moving sea turtle.

2. Sea turtles that cannot be brought on board. If a sea turtle is too large, or is hooked or entangled in a manner that prevents bringing the sea turtle on board safely and without causing further injury, release gear specified in paragraph A. of this appendix must be used to remove the maximum amount of fishing gear from the sea turtle, or to remove as much line as possible from the sea turtle or from a hook that cannot be removed prior to releasing the sea turtle.

(a) A non-boated sea turtle should be brought close to the boat. Then, determine whether the hook can be removed without causing further injury to the sea turtle. All externally embedded hooks should be removed, unless hook removal would result in further injury to the sea turtle. No attempt should be made to remove a hook if it has been swallowed and the insertion point is not clearly visible, or if it is determined that removal would result in further injury.

(b) If the hook cannot be removed or if the sea turtle is only entangled, remove as much line as possible prior to its release using a long-handled line cutter or monofilament line cutters specified in paragraphs A.1. and A.11. of this appendix.

(c) If the hook can be removed, it must be removed using the appropriate dehooker or other hook removal device specified in paragraph A. of this appendix. Without causing further injury, as much gear as possible must be removed from the sea turtle prior to its release.

(3) Any sea turtle taken incidentally while fishing, regardless of whether the sea turtle is alive or dead, or whether it is brought on board, must not be consumed, sold, landed, offloaded, transshipped, or kept below deck.

C. Incorporation by reference. The standards required in paragraphs A. and B. of this appendix are incorporated by reference into this appendix with the approval of the Director of the Federal Register under 5 U.S.C. 552(a) and 1 CFR part 51. All approved material is available for inspection at the National Marine Fisheries Service, Southeast Regional Office, 263 13th Ave. South, St. Petersburg, FL 33701, phone: 727-824-5301, website: https://www.fisheries.noaa.gov/southeast/endangered-species-conservation/sea-turtle-and-smalltooth-sawfish-release-gear-protocols, and is available from the sources listed below. It is also available for inspection at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030 or go to www.archives.gov/federal-register/cfr/ibr-locations.html.

1. U.S. Department of Commerce, National Oceanic and Atmospheric Administration, National Marine Fisheries Service, Southeast Fisheries Science Center, 75 Virginia Beach Drive, Miami, FL 33149.

(a) Careful Release Protocols for Sea Turtle Release with Minimal Injury, NOAA Technical Memorandum NMFS-SEFSC-735, Stokes, L., and Bergmann, C. (Editors), 2019.

(b) [Reserved]

2. U.S. Department of Commerce, National Oceanic and Atmospheric Administration, National Marine Fisheries Service, Southeast Regional Office, 263 13th Ave. South, St. Petersburg, FL 33701.

(a) Sea Turtle Handling/Release Guidelines: Quick Reference for Hook and Line Fisheries, English, Spanish, Vietnamese, Revised April 2019.

(b) [Reserved]

The Great South Channel Habitat Management Area (GSC HMA) was created by the final rule to implement the New England Fishery Management Council's Omnibus Habitat Amendment 2 (OHA2) (83 FR 15240; April 9, 2018), which prohibited the use of all mobile bottom-tending fishing gear in the GSC HMA. The GSC HMA contains complex benthic habitat that is important for juvenile cod and other fish species, and it is susceptible to the adverse impacts of fishing gear. The OHA2 included a 1-year delay of the GSC HMA closure that allowed the surfclam fishery to continue fishing with hydraulic clam dredges in the GSC HMA. This delay was intended to give the Council time to determine if a long-term exemption is warranted. The 1-year delay ended on April 9, 2019, and the GSC HMA is now closed to all mobile bottom-tending fishing gear.

The Council initiated the Habitat Clam Dredge Exemption Framework Adjustment in 2015 as a following action to OHA2. Development of the framework was guided by a problem statement approved by the Council in October 2015:

In the final stages of OHA2 development, the Council was also approached by parties interested in developing a mussel dredge fishery in the GSC HMA. Currently there is no Federal mussel fishery management plan.

The Georges Shoal HMA was disapproved by NMFS, and the framework became solely focused on the GSC HMA. Development of the Habitat Clam Dredge Exemption Framework occurred over several meetings of Council's Habitat Plan Development Team, with input from the Council's Habitat Committee and the full Council. While the primary focus of the framework was an exemption for the existing surfclam fishery, most of the alternatives considered could be implemented with or without the exemption applying to the mussel fishery as well. The Council took final action at its December 2018 meeting selecting preferred alternatives and approving the action for submission to NMFS. This rule proposes management measures necessary to implement the Framework.

This action would establish three dredge exemption areas (McBlair, Old South, and Fishing Rip) within the GSC HMA where a vessel could potentially fish for surfclams or blue mussels. Tables 1 through 3 contain the coordinates for the proposed exemption areas and are illustrated in Figure 1. Each area would be defined by the following points connected in the order listed by straight lines.

These exemption areas were chosen to allow limited access to some historical surfclam fishing grounds while protecting the majority of the HMA. The three exemption areas total only 6.9 percent of the total area of the HMA and do not include the areas most clearly identified as containing complex and vulnerable habitats. Because of the small area being considered for this exemption, this action would not affect the overall conservation benefit of the HMA. The McBlair and Fishing Rip Dredge Exemption Areas would be open to fishing for surfclams or mussels year round. The Old South Dredge Exemption Area would be closed to all mobile bottom-tending gear from November 1 through April 30 and open for surfclam or mussel fishing from May 1 through October 31 each year. The Old South Dredge Exemption Area overlaps with an area identified in OHA2 as a historical cod spawning area. The annual closure from November through April is meant to avoid times when cod are expected to spawn and to reduce the potential for dredge fishing to disturb spawning aggregations of cod.

In addition to the proposed exemption areas of McBlair, Old South, and Fishing Rip, the Council tasked its Habitat Plan Development Team to work with the surfclam industry to develop a prioritized list of research needs concerning two other areas of the HMA (Rose and Crown and Davis Bank East). The intent of the Council was to develop an exempted fishing permit program for these areas that could support the potential development of additional exemptions in the future. Industry members have been working with research organizations on potential exempted fishing permits (EFP) to conduct research in these areas. Requests for EFPs will be evaluated consistent with our normal practice and are separate from this rulemaking.

To facilitate enforcement of the small exemption areas, participating vessels would be required to obtain a letter of authorization (LOA) from the NMFS Regional Administrator. Similar LOAs are used to grant access to specific areas or programs in other fisheries and may be applied for using a common form available from NMFS' Greater Atlantic Regional Fisheries Office (GARFO). If a vessel violates any of the requirements of the exemption areas, the LOA may be canceled, prohibiting future access to the GSC HMA.

To receive the LOA, a vessel must hold a Federal commercial surfclam permit, which comes with requirements including reporting each fishing trip, using a vessel monitoring system (VMS), and selling catch exclusively to a federally permitted dealer. The LOA would require the vessel have a NMFS-approved VMS unit that can automatically adjust the frequency of position information sent to NMFS. A list of qualifying VMS units is available from GARFO. While within the GSC HMA, vessels would be subject to an increased VMS position polling rate from once per hour to once every 5 minutes. This would provide finer scale resolution on the location of the vessel and allow NMFS to monitor compliance with the small exemption areas. The increased polling rate would begin automatically as the vessel approaches the GSC HMA and would continue until after the vessel leaves the area. Vessels fishing in the GSC HMA would be required to use new VMS trip declaration codes that would allow law enforcement to know they intend to fish in the GSC HMA for surfclams or blue mussels.

Vessels fishing for surfclams within the GSC HMA would still be subject to the requirements of the individual transferable quota system and other provisions of the surfclam regulations. This includes restrictions on retention of other species of fish caught incidentally while using hydraulic clam dredge gear, which are typically determined by the other Federal fishing permits the vessel holds.

To fish for mussels in the GSC HMA, a vessel would be required to hold a surfclam vessel permit. This permit can be obtained from GARFO. By holding a surfclam permit, mussel fishing vessels in the GSC HMA would be subject to permit reporting and monitoring requirements that would not normally apply to vessels fishing for mussels in Federal waters. Mussel fishing vessels would also need to obtain the new LOA and use the VMS trip declaration code for any trip in the GSC HMA. Vessels would be required to use a non-hydraulic mussel dredges (also called a dry dredge), which could not exceed 8 ft (2.4 m) in width. Vessels fishing for mussels could not fish for, harvest, or land any species of fish other than blue mussels. Any violation of permit, reporting, monitoring, or LOA requirements for fishing in the GSC HMA could result in NMFS revoking the vessel's LOA, which would prevent further fishing by that vessel in the HMA.

Pursuant to section 303(c) of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), the Council has deemed that this proposed rule is necessary and appropriate for the purpose of implementing the Habitat Clam Dredge Exemption Framework Adjustment, with the exception of the measure noted below as proposed under the Secretary's authority under section 305(d) of the Magnuson-Stevens Act. Under the Magnuson-Stevens Act, we are required to publish proposed rules for comment after preliminarily determining whether they are consistent with applicable law. The Magnuson-Stevens Act permits us to approve, partially approve, or disapprove measures proposed by the Council based only on whether the measures are consistent with the fishery management plan, plan amendment, the Magnuson-Stevens Act and its National Standards, and other applicable law. Otherwise, we must defer to the Council's policy choices. We are seeking comment on the Council's proposed measures in the Habitat Clam Dredge Exemption Framework Adjustment and whether they are consistent with the Council's FMPs and the OHA2, the Magnuson-Stevens Act and its National Standards, and other applicable law.

This action also proposes a minor modification to the regulations under authority granted the Secretary under section 305(d) of the Magnuson-Stevens Act to ensure that Fishery Management Plans (FMP) are implemented as intended and consistent with the requirements of the Magnuson-Stevens Act. This action proposes to define a “straight line” with regard to regulated areas, as a rhumb line, unless explicitly stated otherwise. When fishery managers develop regulated areas ( e.g., scallop access areas or Northeast multispecies closed areas), the areas are defined by a series of points of latitude and longitude connected by straight lines when drawn on a standard nautical chart. Nautical charts use a Mercator projection so straight lines drawn on a chart are lines of constant compass bearing, also known as rhumb lines. To make the regulations as unambiguous as possible, we propose to add this definition and invite the public to comment on this proposal.

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has preliminarily determined that this proposed rule is consistent with the New England Council's FMPs, other provisions of the Magnuson-Stevens Act, and other applicable law, subject to further consideration after public comment.

This proposed rule has been determined to be not significant for purposes of Executive Order 12866.

The Council prepared a draft EA for this action that analyzes the impacts of this proposed rule. The EA includes an initial regulatory flexibility analysis (IRFA), as required by section 603 of the Regulatory Flexibility Act (RFA). The IRFA describes the economic impact this proposed rule, if adopted, would have on small entities. A description of the action, why it is being considered, and the legal basis for this action are contained at the beginning of this section and in the preamble to this proposed rule. A summary of the RFA analysis follows. A copy of the detailed RFA analysis is available from the Council (see ADDRESSES ).

This action proposes management measures to allow fishing with dredge gear for Atlantic surfclams or blue mussels in three exemption areas within the Great South Channel HMA. The measures seek to minimize to the extent practicable the adverse effects on complex habitat within the HMA by fishing for surfclams and mussels in the area.

This action is taken under the authority of the Magnuson-Stevens Act and regulations at 50 CFR part 648. A complete description of the action, why it is being considered, and the legal basis for this action are contained in the Clam Dredge Exemption Framework document, and elsewhere in the preamble to this proposed rule, and are not repeated here.

This proposed rule affects small entities engaged in commercial fishing operations in the Federal waters off Southern New England, Georges Bank, and the Gulf of Maine, and permitted to fish for either surfclams or mussels. In 2017, eight large commercial fishing businesses and 377 small commercial fishing businesses held either a surfclam or ocean quahog federal permit. The number of fishermen actively engaged in the surfclam and ocean quahog fishery is much smaller than the number of individuals permitted for those two fisheries. This is because there is an individual transferrable quota associated with both species, meaning only individuals holding or leasing quota can land surfclam and ocean quahog. Over the last 3 years, the number of businesses that have been active in the areas proposed for exemption areas has been between 10 (8 small and 2 large) and 12 (10 small and 2 large).

Between 10 (2015) and 11 (2016, 2017) vessels were permitted and active in the Massachusetts mussel fishery in the most recent 3-year period, although only one or two are expected to fish in the HMA. The current status of the mussel fishery in the Great South Channel is exploratory, and ownership data is not available from which to assess business size for state-permitted vessels. This situation precludes a more thorough investigation into the number and size of mussel businesses regulated under the Clam Dredge Framework.

Small businesses have historically generated a higher percentage of their revenue within the Great South Channel HMA and are expected to benefit more from any exemption than large businesses, relatively speaking.

This action would require an annual letter of authorization for fishermen accessing the Great South Channel HMA exemption areas and each trip into the exemption areas would require vessels use a new Vessel Monitoring System (VMS) trip declaration code and be subject to additional position polling when inside the HMA.

NMFS is not aware of any relevant Federal rules that may duplicate, overlap, or conflict with this proposed rule.

This action proposes a set of three discrete exemption areas within the GSC HMA where dredge fishing for surfclams and mussels would be allowed. The Council considered three other options. The Council also evaluated taking no action thereby keeping the entire GSC HMA closed to dredge fishing for surfclams and blue mussels. All of the action alternatives would result in some level of increased revenue for vessels fishing in the exemption areas. While this action does not affect the overall quota for surfclams, the catch rate in the exemption areas is potentially higher than in other open areas. Therefore, the opening of these areas may not affect the total harvest of surfclams, but may improve the efficiency with which part of the quota is harvested. Moreover, within the affected entities, some may have had a disproportionate historic harvest from areas now closed to hydraulic dredges in the GSC HMA. In choosing a preferred alternative, the Council considered the tradeoffs between short-term economic benefit to the surfclam and mussel industries and potential long-term benefit to other fisheries through the protection of essential fish habitat from the adverse impacts of fishing gear.

This proposed rule contains an addition to a collection-of-information requirement subject to the Paperwork Reduction Act (PRA) and which has been approved by the Office of Management and Budget (OMB) under control number 0648-0202. Public reporting burden for obtaining a letter of authorization to fish within the GSC HMA is estimated to average five minutes per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection information. The public reporting burden for increasing the VMS location data from once per hour to once every five minutes is estimated to cost participating fishermen $0.84 per hour while a vessel is within 3 nm (5.6 km) of the HMA and subject to the higher position polling rate. Based on historical fishing effort, this would translate to an average annual cost of $8,639 spread across all vessels active in the HMA.

Public comment is sought regarding: Whether this proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; the accuracy of the burden estimate; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the collection of information, including through the use of automated collection techniques or other forms of information technology. Send comments on these or any other aspects of the collection of information to the Greater Atlantic Regional Fisheries Office at the ADDRESSES above, and by email to OIRA_Submission@omb.eop.gov or fax to (202) 395-7285.

Notwithstanding any other provision of the law, no person is required to respond to, and no person shall be subject to penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB control number.

For the reasons set out in the preamble, 50 CFR part 648 is proposed to be amended as follows: