[Federal Register Volume 85, Number 49 (Thursday, March 12, 2020)]
[Rules and Regulations]
[Pages 14393-14409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04086]



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 Rules and Regulations
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 This section of the FEDERAL REGISTER contains regulatory documents 
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  Federal Register / Vol. 85, No. 49 / Thursday, March 12, 2020 / Rules 
and Regulations  

[[Page 14393]]



DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Parts 1738 and 1739

[Docket No. RUS-19-Telecom-0003]
RIN 0572-AC46


Rural Broadband Loans, Loan/Grant Combinations, and Loan 
Guarantees

AGENCY: Rural Utilities Service, USDA.

ACTION: Interim final rule; request for comments.

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

SUMMARY: The Rural Utilities Service (RUS), an agency of the United 
States Department of Agriculture, hereinafter referred to as the 
Agency, is amending its regulation for the Rural Broadband Program, 
previously referred to as the Rural Broadband Access Loan and Loan 
Guarantee Program, to implement the Agricultural Act of 2018 (the 2018 
Farm Bill). The Agency is publishing this regulation as an interim 
final rule, which will take effect upon publication in the Federal 
Register. In addition, the Agency is seeking comments regarding this 
interim final rule to guide its efforts in drafting the final rule for 
the Rural Broadband Program and Community Connect Grant Program.

DATES: 
    Effective date: This rule is effective May 11, 2020.
    Comment date: Comments due on or before May 11, 2020.

ADDRESSES: You may submit comments by utilizing the Federal eRulemaking 
Portal: https://www.regulations.gov. The rule can be identified by 
docket number RUS-19-Telecom-0003 and RIN number 0572-AC46. Please 
follow the instructions for submitting comments.
    RUS will post all comments received without change, including any 
personal information that is included with the comment, on https://www.regulations.gov. Comments will be available for inspection online 
at https://www.regulations.gov. Additional information about RUS 
Telecommunication programs is available at https://www.rd.usda.gov/programs-services/all-programs/telecom-programs.

FOR FURTHER INFORMATION CONTACT: For information about this document or 
to view supplemental materials call or email Laurel Leverrier, Acting 
Assistant Administrator; Telecommunication Program; Rural Development; 
U.S. Department of Agriculture; 1400 Independence Avenue SW; Room 5153-
S; Washington, DC 20250; telephone 202-720-3416, email 
[email protected]. Persons with disabilities or who require 
alternative means for communication should contact the USDA Target 
Center at 202-720-2600.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Definition and Abbreviations
II. Background
III. Discussion of Rule Changes
IV. Procedural Matters

I. Definitions and Abbreviations

2014 Farm Bill Agricultural Act of 2014
2018 Farm Bill Agricultural Improvement Act of 2018
CFDA Catalog of Federal Domestic Assistance
CFR Code of Federal Regulations
FTTH Fiber-to-the-home
FR Federal Register
GPO Government Publishing Office
GSA General Services Administration
OMB Office of Management and Budget
RE Act Rural Electrification Act of 1936
RUS Rural Utilities Services
Sec.  Section
U.S.C. United States Code
USDA U.S. Department of Agriculture

II. Background

A. Introduction

    The Agency improves the quality of life in rural America by 
providing investment capital for deployment of rural telecommunications 
infrastructure. In order to achieve the goal of increasing economic 
opportunity in rural America, the Agency finances infrastructure that 
enables access to a seamless, nationwide telecommunications network. 
With access to the same advanced telecommunications networks as its 
urban counterparts, especially those designed to accommodate distance 
learning, telework, and telemedicine, rural America will eventually see 
improving educational opportunities, health care, economies, safety and 
security, and ultimately higher employment. The Agency shares the 
assessment of Congress, State and local officials, industry 
representatives, and rural residents that broadband service is a 
critical component to the future of rural America. The Agency is 
committed to ensuring that rural America will have access to 
affordable, reliable, broadband services and to provide a healthy, 
safe, and prosperous place to live and work.

B. Regulatory History

    On May 13, 2002, the Farm Security and Rural Investment Act of 
2002, Public Law 107-171 (2002 Farm Bill), was signed into law. The 
2002 Farm Bill amended the Rural Electrification Act of 1936 to include 
Title VI, the Rural Broadband Access Loan and Loan Guarantee Program, 
to be administered by the Agency. Title VI authorized the Agency to 
approve loans and loan guarantees for the costs of construction, 
improvement, and acquisition of facilities and equipment for broadband 
service in eligible rural communities. Under the 2002 Farm Bill, the 
Agency was directed to promulgate regulations without notice and 
comment. Implementing the program required a different lending approach 
for the Agency than it employed in its earlier telephone program 
because of the unregulated, highly competitive, and technologically 
diverse nature of the broadband market. Those regulations were 
published on January 30, 2003, at 68 FR 4684.
    In an attempt to enhance the Broadband Loan Program and to 
acknowledge growing criticism of funding competitive areas, the Agency 
proposed to amend the program's regulations on May 11, 2007, at 72 FR 
26742 to make eligibility of certain service areas more restrictive 
than set out in the 2002 Farm Bill. In addition to eligibility changes, 
the proposed rule included, among others, changes to persistent 
problems the Agency had encountered while implementing the program over 
the years, especially regarding equity requirements, the market survey, 
and the legal notice requirements. As the Agency began analysis of the 
public comments it received on the proposed regulations, the Food, 
Conservation, and Energy Act of 2008 (2008 Farm Bill) was working its 
way through Congress. The proposed

[[Page 14394]]

rule and key aspects of the public comments were shared with Congress 
during its deliberations, and the majority of the proposed changes in 
the Agency's proposed rule were incorporated into the legislation, with 
and without modification. On March 14, 2011 (76 FR 13770), the Agency 
published an interim rule implementing the requirements of the 2008 
Farm Bill. The Agency did not receive any significant comments to the 
interim rule and published a final rule on February 6, 2013 (78 FR 
8353).
    With the passage of the Agricultural Act of 2014, Public Law 113-79 
(2014 Farm Bill), Congress made additional changes to the program, and 
the Agency again published a final rule on July 30, 2015 (80 FR 45397). 
Those changes included the prioritization of approving applications, a 
minimum benchmark of broadband service, a more transparent public 
notice requirement, and the first statutorily required reporting 
standards.
    Again, on December 20, 2018, under the Agricultural Improvement Act 
of 2018, Public Law 115-334 (2018 Farm Bill), Congress made even more 
significant improvements to the program, most notably by furnishing 
grant assistance to reach the most underserved rural areas lacking 
broadband access. This regulation implements those required statutory 
changes.

III. Discussion of Rule Changes

    Below is a table showing each updated section and subpart and its 
previous location.

                                  Updated 7 CFR Part 1738 Sections and Subparts
----------------------------------------------------------------------------------------------------------------
                                                                   Previous section
    New section number and title            New subpart            number and title         Previous subpart
----------------------------------------------------------------------------------------------------------------
Sec.   1738.1 Overview.............  A........................  Sec.   1738.1 Overview  Unchanged.
Sec.   1738.2 Definitions..........  A........................  Sec.   1738.2           Unchanged.
                                                                 Definitions.
Sec.   1738.3 Funding Parameters...  A........................  New...................  New.
Sec.   1738.51 Eligible Entities...  B........................  Sec.   1738.101         C.
                                                                 Eligible Applicants.
Sec.   1738.52 Eligible Projects...  B........................  New...................  New.
Sec.   1738.53 Eligible Service      B........................  Sec.   1738.102         C.
 Area.                                                           Eligible service area.
Sec.   1738.54 Eligible service      B........................  Sec.   1738.103         C.
 area Exceptions for Broadband                                   Eligible service area
 Facility Upgrades.                                              exceptions for
                                                                 broadband facility
                                                                 upgrades.
Sec.   1738.55 Broadband Lending     B........................  New...................  New.
 Speed Requirements.
Sec.   1738.56 Eligible Assistance   B........................  Sec.   1738.51          Unchanged.
 Purposes.                                                       Eligible loan
                                                                 purposes.
Sec.   1738.57 Ineligible            B........................  Sec.   1738.52          B.
 Assistance Purposes.                                            Ineligible loan
                                                                 purposes.
Sec.   1738.101 Grant Assistance...  C........................  New...................  New.
Sec.   1738.102 Payment Assistance   C........................  New...................  New.
 for loans.
Sec.   1738.103 Substantially        C........................  Sec.   1738.3           A.
 underserved trust areas.                                        Substantially
                                                                 underserved trust
                                                                 areas.
Sec.   1738.104 Technical            C........................  New...................  New.
 Assistance.
Sec.   1738.105 Priorities for       C........................  Sec.   1738.203         E.
 approving assistance.                                           Priority for
                                                                 approving loan
                                                                 applications.
Sec.   1738.106 Public Notice......  C........................  Sec.   1738.204 Public  E.
                                                                 notice.
Sec.   1738.107 Additional           C........................  New...................  New.
 Reporting for Awardees.
Sec.   1738.108 Environmental        C........................  New...................  New.
 Reviews.
Sec.   1738.109 Civil Rights         C........................  New...................  New.
 procedures and requirements.
Sec.   1738.151 General............  D........................  New...................  New.
Sec.   1738.152 Interest rates.....  D........................  Unchanged.............  Unchanged.
Sec.   1738.153 Terms and            D........................  Unchanged.............  Unchanged.
 conditions.
Sec.   1738.154 Security...........  D........................  Sec.   1738.154 Loan    Unchanged.
                                                                 security.
Sec.   1738.155 Advance of Funds...  D........................  New...................  New.
Sec.   1738.156 Buy American         D........................  New...................  New.
 Requirement.
Sec.   1738.201 Application          E........................  Unchanged.............  Unchanged.
 submission.
Sec.   1738.202 Elements of a        E........................  Unchanged.............  Unchanged.
 complete application.
Sec.   1738.203 Notification of      E........................  Sec.   1738.205         Unchanged.
 completeness.                                                   Notification of
                                                                 completeness.
Sec.   1738.204 Evaluation for       E........................  Sec.   1738.206         Unchanged.
 feasibility.                                                    Evaluation for
                                                                 feasibility.
Sec.   1738.205 Competitive          E........................  Sec.   1738.210         Unchanged.
 Analysis.                                                       Competitive Analysis.
Sec.   1738.206 Financial            E........................  Sec.   1738.211         Unchanged.
 information.                                                    Financial information.
Sec.   1738.207 Network design.....  E........................  Sec.   1738.212         Unchanged.
                                                                 Network design.
Sec.   1738.208 Award                E........................  Sec.   1738.213 Loan    Unchanged.
 determinations.                                                 determination.
Sec.   1738.251 Offer and Closing..  F........................  Sec.   1738.251 Loan    Unchanged.
                                                                 offer and loan
                                                                 closing.
Sec.   1738.252 Construction.......  F........................  Unchanged.............  Unchanged.
Sec.   1738.253 Servicing of loan    F........................  Unchanged.............  Unchanged.
 and loan/grant combinations.
Sec.   1738.254 Accounting,          F........................  Unchanged.............  Unchanged.
 reporting, and monitoring
 requirements.
Sec.   1738.255 Default and de-      F........................  Unchanged.............  Unchanged.
 obligation.
Sec.   1738.301 General............  G........................  Unchanged.............  Unchanged.
Sec.   1738.302 Fees...............  G........................  New...................  New.
Sec.   1738.350 OMB control number.  G........................  Unchanged.............  Unchanged.
----------------------------------------------------------------------------------------------------------------

    The following summarizes the substantive changes introduced in this 
rule. The changes are presented in the order in which they appear 
within the interim rule.

Subpart A

    Section 1738.1--Overview
    In this section, the Agency simplified the title of the ``Rural 
Broadband Access Loan and Loan Guarantee Program'' to the ``Rural 
Broadband Program,'' and added ``loan/grant combinations'' as an 
eligible Award category. The Agency anticipates that the addition of 
grant funding will help the financial feasibility of projects in rural 
areas with low density.

[[Page 14395]]

Section 1738.2--Definitions
    The Agency amended the definition section to add additional terms 
to comply with changes to the 2018 Farm Bill and to clarify and 
standardize definitions.

Subpart B

Section 1738.52--Eligible Projects
    The Agency revised the required time to complete the build-out of 
the broadband system described in the application from 3 years to 5 
years from the day the Applicant is notified that loan funds are 
available and revised the commencement period from 120 days after the 
date of the contract to begin from the date that the legal documents 
are cleared and funds are made available to the Awardee. Also, the 
Agency removed the required equity position percentage for Applicants.
Section 1738.53--Eligible Service Area
    As per the 2018 Farm Bill, the Agency revised eligible service 
areas to open up, starting after October 1, 2020, those service areas 
of grantees that are not providing service at least 10 Mbps downstream 
or 1 Mbps upstream. This ensures that certain rural communities that 
received prior, older grants are not excluded from receiving Federal 
assistance to modernize their facilities. Additionally, as required by 
the 2018 Farm Bill, this section specifies that mobile and satellite 
services will not be considered when determining the number of 
households in the proposed service area that do not have access to 
broadband service.
Section 1738.55--Broadband Lending Speed Requirements
    This section outlines the required broadband lending speeds, which 
are now tied to the term of the Award, as required by the 2018 Farm 
Bill. This is to ensure, for example, that projects with 20-year loan 
terms will be capable of providing broadband service at the necessary 
projected speeds during the entire term of the loan.

Subpart C

Section 1738.101--Grant Assistance
    This section outlines the requirements of receiving grant 
assistance, the correlation between the levels of grant assistance and 
the density of the rural areas to be served, as well as lays out the 
requirement to receive additional grant funding for development costs. 
This new authority is intended to assist the neediest of rural areas 
that lack sufficient levels of broadband service in recovering costs 
associated with putting together a broadband application. These costs 
are often a bar to applying to the program for such areas. As a result, 
the Agency anticipates that funding will be better directed to those 
areas that are in most need of broadband service.
Section 1738.102--Payment Assistance for Loans
    The 2018 Farm Bill not only provided newly available grant 
assistance, but authorized significant assistance to loans. This 
section outlines the conditions under which Applicants would be 
eligible to receive loans with subsidized interest rates.
Section 1738.104--Technical Assistance
    This section outlines the conditions under which RUS will provide 
technical assistance and training through grant funding. This new 
authority is intended to help the most rural areas without sufficient 
access to broadband actually prepare applications for submission. As 
with the assistance for development costs, this should direct funding 
to where it is most needed.
Section 1738.105--Priorities for Approving Assistance
    The 2018 Farm Bill extensively revised the criteria for 
prioritizing applications. Most significantly, however, the Agency will 
now prioritize applications for rural areas that do not have access to 
service of at least 10 Mbps upstream and 1 Mbps downstream.

Subpart D

Section 1738.156--Buy American Requirement
    Executive Order 13858 directs Federal agencies to encourage 
recipients of Federal funds on infrastructure projects to use those 
funds, to the greatest extent practicable, to purchase goods and 
products that are produced in the United States. As a result, RUS will 
apply its Buy American requirement, promulgated under 7 CFR part 1787, 
to grants funds under the Broadband Program and Community Connect 
Programs. The Buy American requirement is already a statutory 
requirement for loan funds.

Subpart G

Section 1738.301--General
    The Agency revised this section to outline loan guarantee 
application requirements and conditions for Agency approval of loan 
guarantees. Applicants are also directed to the applicable guarantee 
regulations in 7 CFR parts 4279 and 4287.
Section 1738.302--Fees
    This section was added pursuant to the 2018 Farm Bill, which now 
requires that fees be collected from the lender when issuing loan 
guarantees, in order to lower the costs of such guarantees to the 
Federal Government.

7 CFR Part 1739 Community Connect Program

Subpart A

Section 1739.3--Definitions
    The Agency updated the definition of Critical Community Facilities 
to be in alignment with 7 U.S.C 1926(a).
    The Agency updated the definition of Broadband Service to remove 
mobile and satellite service from being included in the definition.
Section 1739.8--Buy American Requirement
    Executive Order 13858 directs Federal agencies to encourage 
recipients of Federal funds on infrastructure projects to use those 
funds, to the greatest extent practicable, to purchase goods and 
products that are produced in the United States. As a result, RUS will 
apply its Buy American requirement, promulgated under 7 CFR part 1787, 
to grants funds under the Broadband Program and Community Connect 
Programs. The Buy American requirement is already a statutory 
requirement for loan funds.
Section 1739.15--Completed Application
    The Agency added a requirement to publish a public notice 
requirement for each application.

IV. Procedural Matters

Executive Order 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches to 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 determined to be economically significant and 
was reviewed by the Office of Management and Budget under Executive 
Order 12866. In accordance with Executive Order 12866, a Regulatory 
Impact Analysis was completed, outlining the costs and benefits of 
implementing this

[[Page 14396]]

program in rural America. A brief summary can be found below or for the 
complete analysis please see Regulations.gov with the Docket number 
RUS-19-Telecom-0003.

Regulatory Impact Analysis

    USDA's RUS programs improve the quality of life in rural America by 
providing investment capital for deployment of rural telecommunications 
infrastructure in a financially responsible manner. Financial 
assistance is provided to corporations, limited liability companies, 
cooperative or mutual organizations, Indian tribes or tribal 
organizations, or State and local governments.
    Unfortunately, too many rural Americans still lack access to 
broadband service today. The Federal Communications Commission's (FCC) 
2019 Broadband Deployment Report (https://docs.fcc.gov/public/attachments/FCC-19-44A1.pdf), which was issued in May, noted that over 
21 million Americans lack access to broadband service of 25 Mbps 
download and 3 Mbps upload. More than 26 percent of Americans in rural 
areas and 32 percent of Americans in Tribal lands lack broadband 
service.
    Remoteness, mountainous and difficult terrain, and sparsely 
populated areas can make it difficult for service providers to make a 
business case to extend broadband service. As noted in a report by the 
National League of Cities regarding bridging the urban-rural divide, 
``broadband access tends to cluster in urban areas because it is a 
guaranteed market for private providers, unlike less densely populated 
rural areas.'' Furthermore, the report noted that rural communities 
have 37 percent more residents without broadband access when compared 
to their urban counterparts. Alaska has the most significant divide, 
with a gap of 62 percent (https://www.nlc.org/sites/default/files/2018-03/nlc-bridging-the-urban-rural-divide.pdf).
    There are numerous technologies and network configurations that 
service providers can utilize to extend broadband service. The Rural 
Broadband Program is technology neutral, meaning that any technology 
that can meet RUS' broadband lending speed threshold (currently set at 
25 Mbps download and 3 Mbps upload) is eligible for program funding. 
The current broadband lending speed standard of 25 Mbps download and 3 
Mbps upload was first established in 2017. The standard for the 2016 
fiscal year was 10 Mbps download and 1 Mbps upload. The table below 
identifies the type of technology deployed for the Rural Broadband 
Program projects which have been funded since 2016.
    The Rural Broadband Program provides important funding to help 
address these issues and enable rural service providers to make the 
business case to build-out broadband service in rural communities 
across the nation. Through this program, the number of subscribers that 
are expected to benefit from each project can vary greatly between 
projects, depending on the density, remoteness, and topography of the 
communities being served. Additionally, RUS expects the number of 
households and businesses benefiting from these projects to grow over 
time.
    Rural communities benefit tremendously from the availability of 
broadband service that results from the awards from RUS' Rural 
Broadband Program. Some of these benefits have can clearly be observed 
with the previous Broadband program. These benefits include more 
service to underserved areas, more consistent technology and speed of 
service.
    The following table summarizes the benefits and costs of this rule, 
as required by OMB's Circular A-4. Given that future appropriations 
will dictate the size of this program going forward, RUS has elected to 
conduct an annual analysis based on the current best estimate of 
program size, with the implicit assumption of a constant program size 
in the absence of more reasonable assumptions. The costs of this rule 
are estimated as the annual information collection burden and occur in 
the year of application/award. Because of the significant changes to 
program operation, any estimate of the benefits would be speculative, 
and based on the projected increase in the number of applications. 
Thus, the benefits of this rule qualitatively described, in Section C. 
The benefits from each year's awards likely accrue over a number of 
years, although RUS can only describe this time frame qualitatively. 
The main economic impact of this rule is the potential annual transfer 
associated with the $350 million of authorized funding. Given the 
speculative nature of assumptions about the future time stream of 
costs, benefits and transfer other than these amounts as constant 
annual levels, applying the 3% and 7% discount rates would produce 
results equivalent to the annual estimates reported here.

------------------------------------------------------------------------
                 Category                     Annual estimate (2019 $)
------------------------------------------------------------------------
Costs.....................................  2,189,350
Benefits..................................  Qualitative
Transfers.................................  350,000,000
------------------------------------------------------------------------

    RUS has not presented an in-depth alternatives analysis with this 
rule, because the 2018 Farm Bill is fairly prescriptive regarding this 
rule. That being said, one possible option would be for RUS to forgo 
the loan/grant opportunities and provide broadband services directly. 
There are a few issues with this option, however, which include the 
lack of resources within RUS to manage these types of projects. This 
option would also lead to the choice of technology being dictated by 
the Government. The costs of this option would be significantly higher, 
the transfers would be significantly lower, and the benefits could be 
similar or lower, depending on the technology choice.

Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as a major rule, as defined by 5 U.S.C. 804(2).

Executive Order 12372

    This rule is excluded from the scope of Executive Order 12372 
(Intergovernmental Consultation), which may require a consultation with 
State and local officials. See the final rule related notice entitled, 
``Department Programs and Activities Excluded from Executive Order 
12372'' (50 FR 47034).

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance (CFDA) number assigned 
to this program is 10.886, Rural Broadband Program. The Catalog is 
available on the internet at https://beta.sam.gov. The SAM.gov website 
also contains a PDF file version of the Catalog that, when printed, has 
the same layout as the printed document that the Government Publishing 
Office (GPO) provides. GPO prints and sells the CFDA to interested 
buyers. For information about purchasing the Catalog of Federal 
Domestic Assistance from GPO, call the Superintendent of Documents at 
202-512-1800 or toll free at 866-512-1800, or access GPO's online 
bookstore at http://bookstore.gpo.gov.

Information Collection and Recordkeeping Requirements

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35, as amended), the RUS invites comments on this information

[[Page 14397]]

collection for which approval from the Office of Management and Budget 
(OMB) will be requested. These requirements have been approved by 
emergency clearance under OMB Control Number 0572-0154.
    Comments must be received by May 11, 2020.
    Comments are invited on (a) whether the collection of information 
is necessary for the proper performance of the functions of the Agency, 
including whether the information will have practical utility; (b) the 
accuracy of the Agency's estimate of burden including the validity of 
the methodology and assumption used; (c) ways to enhance the quality, 
utility and clarity of the information to be collected; and (d) ways to 
minimize the burden of the collection of information on those who are 
to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques on 
other forms of information technology.
    Title: 7 CFR 1738, Rural Broadband Program.
    OMB Control Number: 0572-0154.
    Type of Request: Extension of an existing collection.
    Abstract: The Rural Utilities Service is authorized under Title VI 
of the Rural Electrification Act of 1936, as amended (RE Act), to 
provide loans, loan/grant combinations and loan guarantees to fund the 
cost of construction, improvement, or acquisition of facilities and 
equipment for the provision of broadband service in eligible rural 
areas in States and Territories of the United States. In conjunction 
with this interim final rulemaking, RUS is submitting an information 
collection package to OMB as required by the Paperwork Reduction Act of 
1995. The information collection package for 7 CFR part 1738 includes 
the estimated burden related to the application process for the Rural 
Broadband Program. Since the inception of the program in 2003, the 
Agency has tried to accurately determine the burden to respondents 
applying for assistance, including soliciting comments from the public. 
The items covered by this collection include forms and related 
documentation to support an application for financial assistance, 
including all information required by RUS' online application system.
    The 2018 Farm Bill added a new type of loan mechanism that included 
a grant portion to that loan. This provides a new opportunity for 
entities to apply with the hope of minimizing the loan portion based on 
how much of the service area is provided to underserved locations.
    The Agency has addressed these issues as follows:
    (1) Adding additional respondents based on the new loan/grant 
combination opportunity. The increase is based on an estimate of how it 
is believed this new opportunity will impact how new applications are 
received. Since this is a new opportunity for this program, other 
similar programs were reviewed to help provide a realistic number.
    (2) The Rural Broadband Program, currently, has the public notice 
aspect accounted for, however, there were two programs impacted by the 
program notice supplement under the 2018 Farm Bill. The 
Telecommunication Infrastructure Program and the Community Connect 
Program were impacted by the changes to the public notice item and were 
incorporated into this Paperwork reduction Act package, thus increasing 
the overall burden of the program.
    The Agency seeks comments on its estimate of burden related to the 
application process for the Rural Broadband Program and welcomes 
comments related to further reducing application paperwork and costs. 
Comments may be submitted by, identified by docket number RUS-19-
Telecom-0003 and RIN number 0572-AC46, through the Federal eRulemaking 
Portal: https://www.regulations.gov.
    Estimate of Burden: Public reporting for this collection of 
information is estimated to average 134 hours per response.
    Respondents: Businesses and Not-for-profit institutions.
    Estimated Number of Respondents: 156.
    Estimated Total Annual Burden on Respondents: 20,942 hours.
    Copies of this information collection can be obtained from Jeanne 
Jacobs, Rural Development Innovation Center--Regulations Support 
Branch--1, USDA, 1400 Independence Avenue SW, STOP 1522, South 
Building, Washington, DC 20250-1522. Telephone: (202) 692-0040 or via 
email: [email protected]. Regulation Management Division.
    All responses to this information collection and recordkeeping 
notice will be summarized and included in the request for OMB approval. 
All comments will also become a matter of public record.

National Environmental Policy Act Certification

    The Administrator has determined that this rule will not 
significantly affect the quality of the human environment as defined by 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). 
Therefore, this action does not require an environmental impact 
statement or assessment.

Regulatory Flexibility Act Certification

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule because the Agency is not required by 5 U.S.C. 
553 or any other provision of law to publish a notice of proposed 
rulemaking with respect to the subject matter of this rule.

Executive Order 12988, Civil Justice Reform

    This rule has been reviewed under Executive Order 12988. The Agency 
has determined that this rule meets the applicable standards provided 
in section 3 of the Executive order. In addition, all state and local 
laws and regulations that are in conflict with this rule will be 
preempted. No retroactive effort will be given to this rule.

Unfunded Mandates Reform Act

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

Executive Order 13132, Federalism

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

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This rule has been reviewed in accordance with the requirements of 
Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments.'' Executive Order 13175 requires Federal agencies 
to consult and coordinate with tribes on a government-to-government 
basis on policies that have tribal implications, including regulations, 
legislative comments or proposed legislation, and other policy 
statements or actions that have substantial direct effects on one or 
more Indian tribes, on the relationship between the Federal Government 
and Indian tribes or on the distribution of

[[Page 14398]]

power and responsibilities between the Federal Government and Indian 
tribes.
    Rural Development has assessed the impact of this rule on Indian 
tribes and determined that this rule does not, to our knowledge, have 
tribal implications that require tribal consultation under Executive 
Order 13175. However, since deploying broadband infrastructure 
throughout Indian Country presents unique challenges, the Agency 
commits to provide at least one Tribal listening session focused on 
those unique challenges (and potential solutions) prior to the 
implementation of this rule. If a Tribe requests government-to-
government consultation, Rural Development will work with the Office of 
Tribal Relations to ensure meaningful consultation is provided where 
changes, additions and modifications identified herein are not 
expressly mandated by Congress. If a tribe would like to engage in 
government-to-government consultation with Rural Development on this 
rule, please contact Rural Development's Native American Coordinator at 
(720) 544-2911 or [email protected].

E-Government Act Compliance

    The Agency is committed to the E-Government Act, which requires 
Government agencies in general to provide the public the option of 
submitting information or transacting business electronically to the 
maximum extent possible. The Agency is updating its online system for 
submitting applications.

Civil Rights Impact Analysis

    Rural Development has reviewed this rule in accordance with USDA 
Regulation 4300-4, Civil Rights Impact Analysis, to identify any major 
civil rights impacts the rule might have on program participants on the 
basis of age, race, color, national origin, sex or disability. After 
review and analysis of the rule and available data, it has been 
determined that implementation of the rule will not adversely or 
disproportionately impact very low, low- and moderate-income 
populations, minority populations, women, Indian tribes or persons with 
disability by virtue of their race, color, national origin, sex, age, 
disability, or marital or familiar status. No major civil rights impact 
is likely to result from this rule.

List of Subjects

7 CFR Part 1738

    Loan programs--communications, Rural areas, Telecommunications, 
Telephone.

7 CFR Part 1739

    Grant programs--communications, Rural areas, Telecommunications, 
Telephone.

    For the reasons discussed in the preamble, the Agency amends 7 CFR 
parts 1738 and 1739 as follows:

0
1. Revise part 1738 to read as follows:

PART 1738--RURAL BROADBAND LOANS, LOAN/GRANT COMBINATIONS, AND LOAN 
GUARANTEES

Subpart A--General
Sec.
1738.1 Overview.
1738.2 Definitions.
1738.3 Funding parameters.
1738.4-1738.50 [Reserved]
Subpart B--Eligibility Requirements
1738.51 Eligible entities.
1738.52 Eligible projects.
1738.53 Eligible service area.
1738.54 Eligible service area exceptions for broadband facility 
upgrades.
1738.55 Broadband lending speed requirements.
1738.56 Eligible assistance purposes.
1738.57 Ineligible assistance purposes.
1738.58-1738.100 [Reserved]
Subpart C--Award Requirements
1738.101 Grant assistance.
1738.102 Payment assistance for loans.
1738.103 Substantially Underserved Trust Areas (SUTA).
1738.104 Technical assistance.
1738.105 Priorities for approving assistance.
1738.106 Public notice.
1738.107 Additional reporting requirements for Awardees.
1738.108 Environmental reviews.
1738.109 Civil rights procedures and requirements.
1738.110-1738.150 [Reserved]
Subpart D--Loan and Loan/Grant Combination Award Terms
1738.151 General.
1738.152 Interest rates.
1738.153 Terms and conditions.
1738.154 Security.
1738.155 Advance of funds.
1738.156 Buy American requirement.
1738.157-1738.200 [Reserved]
Subpart E--Loan and Loan/Grant Combination Application Review and 
Underwriting
1738.201 Application submission.
1738.202 Elements of a complete application.
1738.203 Notification of completeness.
1738.204 Evaluation for feasibility.
1738.205 Competitive analysis.
1738.206 Financial information.
1738.207 Network design.
1738.208 Award determinations.
1738.209-1738.250 [Reserved]
Subpart F--Closing, Servicing, and Reporting for Loan and Loan/Grant 
Combination Awards
1738.251 Offer and closing.
1738.252 Construction.
1738.253 Servicing of loan and loan/grant combinations.
1738.254 Accounting, reporting, and monitoring requirements.
1738.255 Default and deobligation.
1738.256-1738.300 [Reserved]
Subpart G--Loan Guarantee
1738.301 General.
1738.302 Fees.
1738.303-1738.349 [Reserved]
1738.350 OMB control number.

    Authority:  7 U.S.C. 901 et seq.

Subpart A--General


Sec.  1738.1  Overview.

    (a) The Rural Broadband Program furnishes loans, loan/grant 
combinations, and loan guarantees for the costs of construction, 
improvement, or acquisition of facilities and equipment needed to 
provide service at the broadband lending speed in eligible rural areas. 
This part sets forth the general policies, eligibility requirements, 
types and terms of loans, loan/grant combinations and loan guarantees, 
and program requirements under 7 U.S.C. 901 et seq.
    (b) Additional information and application materials regarding the 
Rural Broadband Program can be found on the Rural Development website.


Sec.  1738.2  Definitions.

    (a) The following definitions apply to this part:
    Acquisition means the purchase of assets by an eligible entity as 
defined in Sec.  1738.51 to acquire facilities, equipment, operations, 
licenses, or majority stock interest of one or more organizations. 
Stock acquisitions must be arm's-length transactions.
    Administrator means the Administrator of the Rural Utilities 
Service (RUS).
    Advance means the transfer of loan or grant funds from the Agency 
to the Awardee.
    Affiliate or affiliated company of any specified person or entity 
means any other person or entity directly or indirectly controlling of, 
controlled by, under direct or indirect common control with, or related 
to, such specified entity, or which exists for the sole purpose of 
providing any service to one company or exclusively to companies which 
otherwise meet the definition of affiliate. For the purpose of this 
definition, ``control'' means the possession directly or indirectly, of 
the power to direct or cause the direction of

[[Page 14399]]

the management and policies of a company, whether such power is 
exercised through one or more intermediary companies, or alone, or in 
conjunction with or pursuant to an agreement with, one or more other 
companies, and whether such power is established through a majority or 
minority ownership voting of securities, common directors, officers, or 
stockholders, voting trust, or holding trusts (other than money 
exchanged) for property or services.
    Agency means the Rural Utilities Service (RUS).
    Applicant means an entity requesting approval of assistance under 
this part.
    Assistance means a request for a loan, loan/grant combination, or 
loan guarantee.
    Associated loan means any loan that is granted in association with 
a grant. Every grant will have an associated loan.
    Award means a loan, loan/grant combination, or loan guarantee made 
under this part.
    Award documents means, as applicable, all associated loan 
agreements, loan/grant combination agreements, or loan guarantee 
documents.
    Award term means the term of the loan as defined in the Award 
documents. The Award term shall be equal to the composite economic life 
of the facilities being financed with RUS loan or grant funding plus 3 
years.
    Awardee means an entity that has applied for and been awarded 
assistance under this part.
    Borrower means an entity that has applied for and been awarded loan 
funding under this part.
    Broadband grant means a Community Connect, Broadband Initiatives 
Program, ReConnect Program, or Rural Broadband Program grant approved 
by the Agency.
    Broadband lending speed means the minimum bandwidth requirements, 
as published by the Agency in its latest notice in the Federal Register 
that Applicants must propose to deliver to every customer in the 
proposed funded service area in order for the Agency to approve a 
broadband Award. Broadband lending speeds will vary depending on the 
technology proposed and the term of the average composite economic life 
of the facilities. Initially, the broadband lending speed for 
terrestrial service, whether fixed or wireless, as well as mobile 
broadband serving ranches and farmland is 25 megabits per second (Mbps) 
downstream and 3 Mbps upstream, until further amended by notice. If a 
new broadband lending speed is published in the Federal Register while 
an application is pending, the pending application will be processed 
based on the broadband lending speed that was in effect when the 
application was submitted.
    Broadband loan means any loan approved under Title VI of the Rural 
Electrification Act of 1936, as amended (RE Act).
    Broadband service means any technology identified by the 
Administrator as having the capacity to provide transmission facilities 
that enable the subscriber to receive a minimum level of service equal 
to at least a downstream transmission capacity of 25 Mbps and an 
upstream transmission capacity of 3 Mbps. The Agency will publish the 
minimum transmission capacity with respect to terrestrial service that 
will qualify as broadband service in a notice in the Federal Register. 
If a new minimum transmission capacity is published in the Federal 
Register while an application is pending, broadband service for the 
purpose of reviewing the application will be defined by the minimum 
transmission capacity that was required at the time the application was 
received by the Agency.
    Build-out means the construction, improvement, or acquisition of 
facilities and equipment, except for customer premises equipment (CPE).
    Competitive analysis means a study that identifies service 
providers and products in the service area that will compete with the 
Applicant's operations.
    Composite economic life means the weighted (by dollar amount of 
each class of facility in the requested assistance) average economic 
life as determined by the Agency of all classes of facilities financed 
by the award.
    Current Ratio (CR) means the current assets divided by the current 
liabilities.
    Customer premises equipment (CPE) means any network-related 
equipment used by a customer to connect to a service provider's 
network.
    Debt Service Coverage Ratio (DSCR) means the ratio of the sum of 
the Awardee's total net income or margins, depreciation and 
amortization expense, and interest expense, minus an allowance for 
funds used during construction and amortized grant revenue, all divided 
by the sum of interest on funded debt, other interest, and principal 
payment on debt and capital leases.
    Density means the total population to be served by the project 
divided by the total number of square miles to be served by the 
project. If multiple service areas are proposed, the density 
calculation will be made on the combined areas as if they were a single 
area, and not the average densities.
    Development costs mean the pre-application costs associated with 
construction, design of the system, and other professional labor, as 
approved by the Agency. Further guidance on what constitutes approved 
development costs will be outlined in the Agency's application guide.
    Economic life means the estimated useful service life of an asset 
financed by the loan or grant, as determined by the Agency.
    Feasibility study means the pro forma financial analysis performed 
by the Agency, based on the financial projections prepared by the 
Applicant, to determine the financial feasibility of a loan or loan/
grant combination request.
    Financial feasibility means the Applicant's ability to generate 
sufficient revenues to cover its expenses, sufficient cash flow to 
service its debts and obligations as they become due and meet the Net 
worth and minimum Times Interest Earned Ratio (TIER), CR, or DSCR 
requirements of Sec.  1738.206(b)(2)(i) by the end of the forecast 
period. Financial feasibility of an application is based on a 
projection that spans the forecast period and the entire operation of 
the Applicant, not just the proposed project.
    Fiscal year refers to the Applicant or awardee's fiscal year, 
unless otherwise indicated.
    Forecast period means the time period used in the feasibility study 
to determine if an application is financially feasible.
    GAAP means generally accepted accounting principles in the United 
States of America.
    Grant documents means the grant contract and security agreement 
between the Agency and the Awardee securing the grant.
    Grantee means an entity that has an outstanding broadband grant 
made by the Agency, with outstanding obligations under the Award 
documents.
    Incumbent service provider means a service provider that provides 
terrestrial broadband service to at least 5 percent of the households 
in the proposed funded service area at the time of application 
submission. Resellers are not considered incumbent service providers. 
If an Applicant proposes an acquisition, the Applicant will be 
considered a service provider for that area. The Agency will not 
consider mobile or satellite providers when determining the incumbent 
service providers in the area.

[[Page 14400]]

    Indefeasible right to use (IRU) means the long-term agreement of 
the rights to capacity, or a portion thereof specified in terms of a 
certain amount of bandwidth or number of fibers.
    Interim financing means funds used for eligible Award purposes 
after an Award offer has been extended to the Applicant by the Agency. 
Such funds may be eligible for reimbursement from Award funds if an 
Award is made.
    Loan guarantee means Federal assistance in the form of a guarantee 
of a loan, or a portion thereof, made by another lender.
    Loan funds means funds provided pursuant to a broadband loan made 
or guaranteed under this part by the Agency.
    Market survey means the collection of information on the supply, 
demand, usage, and rates for proposed services to be offered by an 
Applicant in support of the Applicant's financial projections.
    Net worth means the difference between an entity's total assets and 
total liabilities.
    Project means all work to be performed to bring broadband service 
to all premises in the proposed funded service area under the 
Application that is approved for assistance. This includes the 
construction, purchase and installation of equipment, and professional 
services including engineering and accountant/consultant fees. A 
project may be funded with Federal assistance or other funds.
    Project completion means that all Award funds for construction of 
the broadband system, excluding those funds for subscriber connections 
and CPE, have been advanced to the Awardee by RUS.
    Proposed funded service area means the geographic service territory 
within which the Applicant is proposing to offer service at the 
broadband lending speed.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Reseller means a company that purchases network services from 
service providers in bulk and resells them to commercial businesses and 
residential households. Resellers are not considered incumbent service 
providers.
    Rural area(s) means any area which is not located within:
    (i) A city, town, or incorporated area that has a population of 
greater than 20,000 inhabitants; or
    (ii) An urbanized area contiguous and adjacent to a city or town 
that has a population of greater than 50,000 inhabitants. For purposes 
of this definition, an urbanized area means a densely populated 
territory as defined in the latest decennial census of the U.S. Census 
Bureau; and
    (iii) Which excludes certain populations pursuant to 7 U.S.C. 
1991(a)(13), or as otherwise provided by law.
    RUS Borrower or RUS Grantee means any recipient of a loan or grant 
administered by the RUS Telecommunications Program that has a loan 
outstanding, or a grant which still has unadvanced funds available.
    Security documents means any mortgage, deed of trust, security 
agreement, financing statement, or other document which grants or 
perfects to the Agency a security interest in collateral given as 
security for the assistance under this part.
    Service area or Service territory means the geographic area within 
which a service provider offers broadband service.
    Service provider means an entity providing broadband service.
    System of accounts means the Agency's system of accounts for 
maintaining financial records as described in 7 CFR part 1770, subpart 
B.
    TIER means times interest earned ratio. TIER is the ratio of an 
Applicant's net income (after taxes) plus interest expense, all divided 
by interest expense and with all financial terms customarily-required 
by GAAP or by the Uniform System of Accounts (USOA).
    Total project cost means all eligible costs associated with the 
project that are laid out in the application budget schedule, including 
RUS loan and grant funding and non-RUS funds, as approved by the 
Agency.
    (b) Accounting terms not otherwise defined in this part shall have 
the commonly-accepted meaning under GAAP and shall be recorded using 
the Agency's system of accounts.


Sec.  1738.3  Funding parameters.

    (a) The amount of funds available for assistance, as well as the 
maximum and minimum Award amounts, will be published in the Federal 
Register. Applicants may apply for loans, loan/grant combinations, and 
loan guarantees.
    (b) An Applicant that provides telecommunications or broadband 
service to at least 20 percent of the households in the United States 
is limited to an Award amount that is no more than 15 percent of the 
funds available to the Rural Broadband Program for the Federal fiscal 
year.


Sec. Sec.  1738.4-1738.50  [Reserved]

Subpart B--Eligibility Requirements


Sec.  1738.51  Eligible entities.

    (a) To be eligible for funding, an Applicant may be either a 
nonprofit or for-profit organization, and must take one of the 
following forms:
    (1) Corporation;
    (2) Limited liability company (LLC);
    (3) Cooperative or mutual organization;
    (4) Indian tribe or tribal organization as defined in 25 U.S.C. 
5304; or
    (5) State or local government, including any agency, subdivision, 
or instrumentality thereof.
    (b) For loan guarantees, the underlying loan must be issued to an 
entity that meets the requirements in this part.


Sec.  1738.52  Eligible projects.

    To be eligible for assistance under this part, the Applicant must:
    (a) Agree to complete the build-out of the broadband system 
described in the application within 5 years from the day the Applicant 
is notified that funds are available. Under the terms of the Award 
documents, this 5-year period will commence from the date that the 
legal documents are cleared, and funds are made available to the 
Awardee. The application must demonstrate that all proposed 
construction can be completed within this 5-year period with the 
exception of CPE;
    (b) Demonstrate an ability to provide service at the broadband 
lending speed to all premises in the proposed funded service area; and
    (c) Provide additional equity, if necessary, to ensure financial 
feasibility (see Sec.  1738.204) as determined by the Administrator.
    (d) For loan guarantees, the underlying loan must be issued on a 
project that meets all eligibility requirements required in this part.


Sec.  1738.53  Eligible service area.

    (a) A service area may be eligible for assistance as follows:
    (1) For loan and loan/grant combinations, the proposed funded 
service area is completely contained within a rural area. For loan 
guarantee applications, the proposed funded service area must be 
contained within an area with a population of 50,000 or less, as 
defined in 7 U.S.C. 1991(a)(13);
    (2) For loan/grant combinations, at least 90 percent of the 
households in the proposed service area must not have access to 
broadband service. For loans and loan guarantees, at least 50 percent 
of the households in the proposed

[[Page 14401]]

service area must not have access to broadband service;
    (3) No part of the proposed funded service area has three or more 
incumbent service providers; and
    (4) No part of the proposed funded service area overlaps with the 
service area of current RUS borrowers or grantees with outstanding 
obligations. Notwithstanding, after October 1, 2020, the service areas 
of grantees that are providing service that is less than 10 Mbps 
downstream or less than 1 Mbps upstream will be considered unserved 
unless, at the time of the proposed application, the grantee has begun 
to construct broadband facilities that will meet the minimum acceptable 
level of service established in Sec.  1738.55.
    (b) Non-contiguous areas in the same application will be considered 
separate service areas and must be treated separately for the purpose 
of determining service area eligibility. If one or more non-contiguous 
areas within an application are is determined to be ineligible, the 
Agency may consider the remaining areas in the application for 
eligibility.
    (c) When determining the eligibility of a proposed funded service 
area, the Agency will use the information submitted through the public 
notice response (see Sec.  1738.106) as well as all available 
information collected through various means by the Agency, including 
but not limited to consultation with other Federal and State agencies 
and RUS' own site-specific assessment of the level of service in an 
area.
    (d) Mobile and satellite services will not be considered in making 
the determination that households in the proposed service area do not 
have access to broadband service.


Sec.  1738.54  Eligible service area exceptions for broadband facility 
upgrades.

    (a) Applicants upgrading existing broadband facilities in their 
existing service area are exempt from the requirement concerning the 
limit of incumbent service providers in Sec.  1738.53(a)(3). 
Additionally, applicants for loans or loan guarantee funding that have 
received a broadband loan under Section 601 of the RE Act are exempt 
from the requirement concerning the number of households in Sec.  
1738.53(a)(2) without access to broadband service.
    (b) Applicants submitting one application to upgrade existing 
broadband facilities and to expand service beyond their existing 
service area must segregate the upgrade and expansion into two service 
areas, even if the upgrade and expansion areas are contiguous. The 
expansion service area will not be subject to any exemptions.
    (c) Applicants will be asked to remove areas determined to be 
ineligible from their proposed funded service area. The application 
will then be evaluated based on what remains if the resultant service 
territory is de minimis in change. Otherwise, the Applicant will be 
requested to provide additional information to the Agency relating to 
the ineligible areas, such as updated pro forma financials. If the 
Applicant fails to respond, the application may be returned.


Sec.  1738.55  Broadband lending speed requirements.

    (a) Projects must meet the broadband build-out standards in 
paragraphs (a)(1) through (5) of this section in order to be considered 
for assistance.
    (1) Projects with an Award term of less than 5 years must provide 
service at the broadband lending speed;
    (2) Projects with an Award term of 5 to 10 years must provide 
service at four times the broadband lending speed;
    (3) Projects with an Award term of 11 to 15 years must provide 
service at six times the broadband lending speed;
    (4) Projects with an Award term of 16 to 20 years must provide 
service at eight times the broadband lending speed; and
    (5) Projects with an Award term over 20 years must provide service 
at ten times the broadband lending speed.
    (b) If an Applicant demonstrates that it would be cost prohibitive 
to meet the broadband lending speed in paragraph (a) of this section in 
the proposed funded service area due to the unique characteristics of 
the service territory, the Administrator may agree to utilize 
substitute service standards. In such cases, Applicants must document 
in their application why the unique characteristics of such an area 
make it cost prohibitive to provide service at the broadband lending 
speed. Note that the proof of burden on Applicants will be extremely 
high.


Sec.  1738.56  Eligible assistance purposes.

    Assistance under this part may be used to pay for any of the 
following expenses:
    (a) To fund the construction, improvement, or acquisition of all 
facilities required to provide service at the broadband lending speed 
to rural areas, including facilities required for providing other 
services over the same facilities.
    (b) To fund the cost of leasing facilities required to provide 
service at the broadband lending speed if such lease qualifies as a 
capital/finance lease under GAAP. Notwithstanding, assistance can only 
be used to fund the cost of the capital/finance lease for no more than 
the first three years of the lease period. If an IRU qualifies as a 
capital/finance lease, the entire cost of the lease will be amortized 
over the life of the lease and only the first 3 years of the amortized 
cost can be funded.
    (c) To fund an acquisition, provided that:
    (1) The acquisition is necessary for furnishing or improving 
service at the broadband lending speed;
    (2) The acquired service area, if any, meets the eligibility 
requirements set forth in Sec.  1738.53;
    (3) The acquisition cost does not exceed 50 percent of the 
broadband assistance; and
    (4) For the acquisition of another entity, the purchase provides 
the Applicant with a controlling majority interest in the entity 
acquired.
    (d) To refinance an outstanding obligation of the Applicant on 
another telecommunications loan made under the RE Act or on a non-RUS 
loan if that loan would have been for an eligible purpose under the 
Rural Broadband Program provided that:
    (1) No more than 50 percent of the broadband assistance amount is 
used to refinance a non-RUS loan;
    (2) The Applicant is current with its payments on the RUS 
telecommunications loan(s) to be refinanced; and
    (3) The amortization period for that portion of the broadband loan 
that will be needed for refinancing will not exceed the remaining 
amortization period for the loan(s) to be refinanced. If multiple notes 
are being refinanced, an average remaining amortization period will be 
calculated based on the weighted dollar average of the notes being 
refinanced.
    (e) To fund development costs in an amount not to exceed 5 percent 
of the total Award amount excluding amounts requested to refinance 
outstanding telecommunications loans. Development costs may be 
reimbursed only if they are incurred prior to the date on which 
notification of a complete application is issued (see Sec.  1738.203) 
and a loan contract is entered into with RUS. Entities that meet the 
requirements in Sec.  1738.101(d) may request this funding be provided 
as a grant. Otherwise, the funding will be provided in the form of a 
loan.


Sec.  1738.57   Ineligible assistance purposes.

    Assistance under this part must not be used for any of the 
following purposes:
    (a) To fund operating expenses of the Applicant except for eligible 
development costs under Sec.  1738.56(e).
    (b) To fund any costs associated with the project incurred prior to 
the date on

[[Page 14402]]

which notification of a complete application is issued (see Sec.  
1738.203), except for eligible development costs under Sec.  
1738.56(e).
    (c) To fund the acquisition of the stock of an affiliate.
    (d) To fund the purchase or acquisition of any facilities or 
equipment of an affiliate.
    (e) To fund the purchase of CPE and the installation of associated 
inside wiring, unless the CPE will be owned by the Applicant throughout 
its economic life.
    (f) To fund the purchase or lease of any vehicle unless it is used 
primarily in construction or system improvements.
    (g) To fund the cost of systems or facilities that have not been 
designed and constructed in accordance with the Award contract and 
other applicable requirements.
    (h) To fund broadband facilities leased under the terms of an 
operating lease, a short-term lease, or more than 3 years of a capital/
finance lease.
    (i) To fund merger or consolidation of entities.
    (j) To fund non-capitalized labor in accordance with 2 CFR part 200 
except for eligible development costs under Sec.  1738.56(e).
    (k) To provide grant funding, a subsidized loan or payment 
assistance to cover the costs to refinance an outstanding loan.


Sec. Sec.  1738.58-1738.100   [Reserved]

Subpart C--Award Requirements


Sec.  1738.101   Grant assistance.

    (a) To be eligible for grant funding, the Applicant must:
    (1) Submit an application for an associated loan component under 
Title I, Title II, or Title VI of the RE Act; and
    (2) Not be the recipient of any other broadband grant from RUS with 
unadvanced grant funds.
    (b) The amount of grant funding on any project shall not exceed:
    (1) 75 percent of the total project cost when the proposed funded 
service area has a density of fewer than 7 people per square mile;
    (2) 50 percent of the total project cost when the proposed funded 
service area has a density of 7 or more and fewer than 12 people per 
square mile; and
    (3) 25 percent of the total project cost with respect to an area 
with a density of 12 or more and 20 or fewer people per square mile.
    (c) Subsequent density determinations, as well as density 
requirements for projects on tribal lands will be set by notice in the 
Federal Register.
    (d) The Agency may provide additional grant funding of up to 75 
percent of the development costs of projects requesting funding under 
Title VI that serve rural areas that:
    (1) Lack access to broadband service with speeds of at least 10 
Mbps downstream and 1 Mbps upstream; and
    (2) Meet any one of the priorities set forth in Sec.  
1738.105(a)(3)(i).


Sec.  1738.102   Payment assistance for loans.

    (a) Grant funding may also be used to provide assistance to Title 
VI Awardees in the form of subsidized loans at such rates as the Agency 
will issue from time to time by notice in the Federal Register, or in 
the form of a payment assistance loan, which shall require no interest 
and principal payments or require nominal periodic payments as 
determined by the Agency and published in the Federal Register.
    (b) Subsidized loans shall only be available to projects which will 
serve rural areas lacking access to service with speeds of at least 10 
Mbps downstream and 1 Mbps upstream and meets any one of the priorities 
set forth in Sec.  1738.105(a)(3)(i).
    (c) The Agency may determine, at its sole discretion, to provide a 
payment assistance loan which shall require no interest and principal 
payments or such nominal payments as the Secretary determines to be 
appropriate. Such loans will only be provided to projects which will 
serve rural areas lacking access to service of speeds of 10 Mbps 
downstream and 1 Mbps upstream and meets any two of the priorities set 
forth in Sec.  1738.105(a)(3)(i). When considering the authority to 
provide a payment assistance loan, the Agency will consider how such 
assistance will:
    (1) Improve the Applicant's compliance with the commitments of the 
Agency's standard Award agreement, in addition to any additional 
requirements imposed by the Agency specific to the project;
    (2) Promote the completion of the broadband project;
    (3) Protect taxpayer resources; and
    (4) Support the integrity of the Agency's broadband programs.
    (d) The Agency and recipients of payment assistance loans must 
agree to specific milestones and objectives for the project which must 
be met, in addition to the other requirements of this part. Such terms 
may be amended by mutual agreement for good cause. Failure to meet the 
agreed upon terms, upon the Agency's determination that such failure 
was a direct result of the Awardee's own actions, may result in the 
Agency's request to the return of all, or any portion, of the grant 
funds used for the payment assistance loan.
    (e) Additionally, Applicants with an associated loan under Title I 
and Title II of the RE Act and which are seeking any grant assistance 
under this part, are not eligible for a subsidized loan or payment 
assistance loans.


Sec.  1738.103   Substantially Underserved Trust Areas (SUTA).

    Applicants seeking assistance may request consideration under the 
SUTA provisions in 7 U.S.C. 936f.
    (a) If the Administrator determines that a community within ``trust 
land'' (as defined in 38 U.S.C. 3765) has a high need for the benefits 
of the Rural Broadband Program, he/she may designate the community as a 
``substantially underserved trust area'' (as defined in section 306F of 
the RE Act).
    (b) To receive consideration under SUTA, the Applicant must submit 
to the Agency a completed application that includes all of the 
information requested in 7 CFR part 1700, subpart D. In addition, the 
Applicant must notify the Agency in writing that it seeks consideration 
under SUTA and identify the discretionary authorities of 7 CFR part 
1700, subpart D, it seeks to have applied to its application. Note, 
however, that the two years of historical audited financial statements 
and Net worth requirement for loan and loan/grant combination 
Applicants in Sec.  1738.206(b)(2)(i) cannot be waived.


Sec.  1738.104   Technical assistance.

    Projects which will serve communities that meet, at least, three of 
the priorities as identified in Sec.  1738.105(a)(3)(i) may request 
technical assistance and training from the Agency to:
    (a) Prepare reports and surveys necessary to request grants, loans, 
and loan guarantees for broadband deployment;
    (b) Improve management, including financial management, relating to 
the proposed broadband deployment;
    (c) Prepare applications for grants, loans, and loan guarantees; 
and
    (d) Assist with other areas of need as identified by the Agency 
through a notice in the Federal Register.


Sec.  1738.105   Priorities for approving assistance.

    (a) The Agency will compare and evaluate all applications for 
assistance and shall give priority to applications in the manner set 
out in paragraphs (a)(1) through (4) of this section, which shall be 
scored as outlined in a notice published in the Federal Register. (Note

[[Page 14403]]

that for applications containing multiple proposed funded service 
areas, the percentage will be calculated combining all proposed funded 
service areas.)
    (1) Applicant's providing broadband service to rural areas that do 
not have access to service of at least 10 Mbps upstream and 1 Mbps 
downstream.
    (2) Projects that provide the maximum level of broadband service to 
the greatest proportion of rural households.
    (3) Projects that:
    (i) Serve rural areas:
    (A) With a population of less than 10,000 permanent residents;
    (B) Are experiencing outmigration and have adopted a strategic 
community investment plan under section 379H(d) of the Consolidated 
Farm and Rural Development Act (7 U.S.C. 2008v) that includes 
considerations for improving and expanding broadband service;
    (C) With a high percentage of low-income families or persons (as 
defined in section 501(b) of the Housing Act of 1949 (42 U.S.C. 
1471(b)));
    (D) That are isolated from other significant population centers; or
    (E) That provide rapid and expanded deployment of fixed and mobile 
broadband on cropland and ranchland within a service territory for use 
in various applications of precision agriculture; and
    (ii) Were developed with the participation of, and will receive a 
substantial portion of the funding for the project from two or more 
stakeholders, including:
    (A) State, local, and tribal governments;
    (B) Nonprofit institutions; and
    (C) Community anchor institutions, such public libraries, schools, 
institutions of higher education, health care facilities, private 
entities, philanthropic organizations and cooperatives.
    (4) New construction projects requesting no refinancing.
    (b) The Agency may assign special consideration priority points 
that will be issued in a notice in the Federal Register with respect to 
any funding opportunity.
    (c) With respect to two or more applications that have the same 
priority, as outlined in paragraphs (a) and (b) of this section, the 
Agency shall give priority to the application that requests the least 
amount of grant funding as calculated based on the total amount of 
grant funds requested.


Sec.  1738.106   Public notice.

    (a) The Agency will publish a public notice of each application 
requesting assistance under this part. The application must provide a 
summary of the information required for such public notice including 
all of the following information:
    (1) The identity of the Applicant;
    (2) A map of each proposed funded service area showing the rural 
area boundaries and the areas without broadband service using the 
Agency's mapping tool;
    (3) The amount and type of support requested;
    (4) The estimated number of households in each proposed funded 
service area without broadband service, excluding mobile and satellite 
service; and
    (5) A description of all the types of services that the Applicant 
proposes to offer in each proposed funded service area.
    (b) The public notice will remain available for 45 calendar days on 
the Agency's website, and will request existing service providers to 
submit to the Agency, within the same period, the following 
information:
    (1) The number of residential and business customers within the 
Applicant's proposed funded service area that are currently offered, 
and that are purchasing, broadband service by the existing service 
provider, and the cost of each level of broadband service charged by 
the existing service provider;
    (2) The number of residential and business customers within the 
Applicant's proposed funded service area that receive non-broadband 
services from the existing service provider, and the associated rates 
for these other services; and
    (3) A map showing where the existing service provider's services 
coincide with the Applicant's proposed funded service area using the 
Agency's mapping tool.
    (c) For purposes of 5 U.S.C. 552, information received from 
existing service providers under paragraph (b) of this section shall be 
exempt from disclosure.
    (d) If an application is approved, an additional notice will be 
published on the Agency's website that will include the following 
information:
    (1) The name of the entity receiving the financial assistance;
    (2) The amount and type of assistance being received;
    (3) The purpose of the assistance; and
    (4) Each annual report submitted under Sec.  1738.107, redacted as 
appropriate to protect any proprietary information in the report.


Sec.  1738.107   Additional reporting requirements for Awardees.

    (a) Entities receiving assistance from the USDA to provide retail 
broadband service must submit annual reports for 3 years after project 
completion. The reports must include the following information:
    (1) The purpose of the financing, including new equipment and 
capacity enhancements that support high-speed broadband access for 
educational institutions, health care providers, and public safety 
service providers (including the estimated number of end users who are 
currently using or forecasted to use the new or upgraded 
infrastructure); and
    (2) The progress towards fulfilling the objectives for which the 
assistance was granted, including:
    (i) The number of service points that will receive new broadband 
service, existing network service improvements, and facility upgrades 
resulting from the Federal assistance;
    (ii) The speed of broadband services;
    (iii) The average price of the most subscribed tier of broadband 
service in each proposed service area; and
    (iv) The number of new subscribers generated from the project.
    (b) Awardees must provide complete, reliable, and precise 
geolocation information that indicates the location of new broadband 
service that is being provided or upgraded within the service territory 
supported by the assistance no later than 30 days after the earlier of 
the date of:
    (1) Completion of the project milestone established in the 
applicable assistance contract; or
    (2) Project completion.
    (c) Any other reporting requirements established by the 
Administrator by notice in the Federal Register before an application 
is submitted.


Sec.  1738.108   Environmental reviews.

    (a) Federal agencies are required to analyze the potential 
environmental impacts, as required by the National Environmental Policy 
Act (NEPA) and the National Historic Preservation Act (NHPA) for 
Applicant projects or proposals seeking funding. Please refer to 7 CFR 
part 1970 for all of Rural Development's environmental policies. All 
Applicants are required to provide environmental review documents, 
provide a description of program activities, and to submit all other 
required environmental documentation as requested in the application 
system or by the Agency after the application is submitted. It is the 
Applicant's responsibility to obtain all necessary Federal, tribal, 
State, and local governmental permits and approvals necessary for the 
proposed work to be conducted. Applicants are expected to design their 
projects so that they

[[Page 14404]]

minimize the potential for adverse impacts to the environment. 
Applicants also will be required to cooperate with the granting 
agencies in identifying feasible measures to reduce or avoid any 
identified adverse environmental impacts of their proposed projects. 
The failure to do so may be grounds for not making an Award.
    (b) The Agency may obligate, but not disperse, funds under Title VI 
of the Rural Electrification Act of 1936, before the completion of the 
otherwise required environmental historical, or other types of reviews 
if the Secretary determines that subsequent site-specific review shall 
be adequate and easily accomplished for the location of towers, poles, 
or other broadband facilities in the service area of the awardee 
without compromising the project or the required reviews.


Sec.  1738.109   Civil rights procedures and requirements.

    (a) Equal opportunity and nondiscrimination. The agency will ensure 
that equal opportunity and nondiscriminatory requirements are met in 
accordance with the Equal Credit Opportunity Act and 7 CFR part 15. In 
accordance with Federal civil rights law and USDA civil rights 
regulations and policies, the USDA, its agencies, offices, and 
employees, and institutions participating in or administering USDA 
programs are prohibited from discriminating based on race, color, 
national origin, religion, sex, gender identity (including gender 
expression), sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior civil 
rights activity, in any program or activity conducted or funded by USDA 
(not all bases apply to all programs).
    (b) Civil rights compliance. Recipients of Federal assistance under 
this part must comply with the Americans with Disabilities Act of 1990, 
Title VI of the Civil Rights Act of 1964, and Section 504 of the 
Rehabilitation Act of 1973. In general, recipients should have 
available for the Agency racial and ethnic data showing the extent to 
which members of minority groups are beneficiaries of federally 
assisted programs. The Agency will conduct compliance reviews in 
accordance with 7 CFR part 15. Awardees will be required to complete 
Form RD 400-4, ``Assurance Agreement,'' for each Federal Award 
received.
    (c) Discrimination complaints. Persons believing they have been 
subjected to discrimination prohibited by this section may file a 
complaint personally or by an authorized representative with USDA, 
Director, Office of Adjudication, 1400 Independence Avenue SW, 
Washington, DC 20250. A complaint must be filed no later than 180 days 
from the date of the alleged discrimination, unless the time for filing 
is extended by the designated officials of USDA or the Agency.


Sec. Sec.  1738.110-1738.150   [Reserved]

Subpart D--Loan and Loan/Grant Combination Award Terms


Sec.  1738.151   General.

    Direct loans shall be in the form of a cost-of-money loan except as 
detailed in Sec.  1738.152.


Sec.  1738.152   Interest rates.

    (a) Direct cost-of-money loans shall bear interest at a rate equal 
to the cost of borrowing to the Department of Treasury for obligations 
of comparable maturity unless the project qualifies for a reduced 
interest rate as detailed in Sec.  1738.102. The applicable interest 
rate will be set at the time of each advance.
    (b) The interest rate for Applicants receiving payment assistance 
or Substantially Underserved Trust Areas (SUTA) consideration will be 
set at the time of the Award.


Sec.  1738.153   Terms and conditions.

    Terms and conditions of the loan and loan/grant combinations are 
set forth in a mortgage, note, and loan contract. Samples of the 
mortgage, note, and loan contract can be found on the Agency's website.
    (a) Unless requested to be shorter by the Applicant, loans must be 
repaid with interest within a period that, rounded to the nearest whole 
year, is equal to the expected composite economic life of the assets to 
be financed, as determined by the Agency based upon acceptable 
depreciation rates. Expected composite economic life means the weighted 
average economic life of all classes of facilities necessary to 
complete construction of the broadband facilities plus 3 years.
    (b) Principal payments for each advance are amortized over the 
remaining term of the loan and are due monthly. Principal payments will 
be deferred until 3 years after the date of the first advance of loan 
funds. Interest begins accruing when the first advance of loan funding 
is made and interest payments are due monthly, with no deferral period.
    (c) Awardees are required to carry fidelity bond coverage. 
Generally, this amount will be 15 percent of the loan or loan/grant 
combination Award amount, not to exceed $5 million. The Agency may 
reduce the percentage required if it determines that the amount is not 
commensurate with the risk involved.


Sec.  1738.154   Security.

    (a) The broadband loan or loan/grant combination must be secured by 
the assets purchased with the loan or loan/grant combination funds, as 
well as all other assets of the Applicant and any other cosigner of the 
Award documents except as allowed under section 601(h)(2) of the RE 
Act. With respect to loan/grant combinations, all grant assets must 
also be covered by a security interest in favor of the Government for 
the average composite economic life of all project assets financed with 
assistance, regardless of whether the loan is paid off before the 
maturity date. Additionally, the sale of all such grant assets shall be 
governed by 2 CFR part 200, regardless of the entity type of the 
Awardee.
    (b) The Agency must be given an exclusive first lien, in form and 
substance satisfactory to the Agency, on all of the Applicant's 
property and revenues and such additional security as the Agency may 
require. The Agency may share its first lien position with another 
lender on a pari passu, prorated basis if security arrangements are 
acceptable to the Agency.
    (c) Unless otherwise designated by the Agency, all property 
purchased with loan and loan/grant combination funds must be owned by 
the Applicant.
    (d) In the case of loan and loan/grant combinations that include 
financing of facilities that do not constitute self-contained operating 
systems, the Applicant shall furnish assurance, satisfactory to the 
Agency, that continuous and efficient service that meets the broadband 
build-out requirements as noted in Sec.  1738.55 will be rendered.
    (e) The Agency will require adequate financial, investment, 
operational, reporting, and managerial controls in the Award documents.


Sec.  1738.155   Advance of funds.

    RUS loan and grant advances are made at the request of the Awardee 
according to the procedures stipulated in the Award documents. For loan 
and loan/grant combination Awards, all non-RUS funds must be expended 
first, followed by loan funds and then grant funds, except for RUS 
approved development costs. Grant funds for eligible development costs, 
if any, will be used only on the first advance request.

[[Page 14405]]

Sec.  1738.156   Buy American requirement.

    Awardees shall use in connection with the expenditure of loan and 
grant funds only such unmanufactured articles, materials, and supplies, 
as have been mined or produced in the United States or in any eligible 
country, and only such manufactured articles, materials, and supplies 
as have been manufactured in the United States or in any eligible 
country, substantially all from articles, materials, or supplies mined, 
produced, or manufactured, as the case may be, in the United States or 
in any eligible country. For purposes of this section, an ``eligible 
country'' is any country that applies with respect to the United States 
an agreement ensuring reciprocal access for United States products and 
services and United States suppliers to the markets of that country, as 
determined by the United States Trade Representative. The Buy American 
regulations may be found at, and any requests for waiver must be 
submitted pursuant to, 7 CFR part 1787.


Sec. Sec.  1738.155-1739.200   [Reserved]

Subpart E--Loan and Loan/Grant Combination Application Review and 
Underwriting


Sec.  1738.201   Application submission.

    (a) Loan and loan/grant combination applications must be submitted 
through the Agency's online application system.
    (b) The Agency may publish additional application submission 
requirements in the Federal Register.


Sec.  1738.202   Elements of a complete application.

    (a) Online application system. Loan and loan/grant combination 
applications must be submitted through RUS' online application system 
and include all information as required by that system and detailed in 
the Rural Broadband Program Application Guide (the Application Guide), 
available on the Agency's website, so that applications can be 
uniformly evaluated and compared.
    (b) DUNS registration. All Applicants must register for a Dun and 
Bradstreet Universal Numbering System (DUNS) number as part of the 
application. The Applicant can obtain the DUNS number free of charge by 
calling Dun and Bradstreet. Go to http://fedgov.dnb.com/webform for 
more information on assignment of a DUNS number or confirmation.
    (c) SAM registration. Prior to submitting an application, all 
Applicants requesting loan/grant combination funds must register in the 
System for Award Management (SAM) at https://www.sam.gov/SAM/ and 
supply a Commercial and Government Entity (CAGE) code number as part of 
the application. SAM registration must be active with current data at 
all times, from the application review throughout the active Federal 
Award funding period. To maintain active SAM registration, the 
Applicant must review and update the information in the SAM database 
annually from the date of initial registration or from the date of the 
last update. The Applicant must ensure that the information in the 
database is current, accurate, and complete.
    (d) Contents of the application. A complete application will 
include the following information as requested in the RUS online 
application system and Application Guide:
    (1) General information on the Applicant and the project including:
    (i) A description of the project that will be made public 
consistent with the requirements in this part; and
    (ii) The estimated dollar amount of the funding request.
    (2) An executive summary of the proposed project. The summary shall 
include, but not be limited to, a detailed description of the existing 
operations, discussion of key management, description of the workforce 
and a detailed description of the proposed project.
    (3) A description of the proposed funded service area including the 
number of premises passed.
    (4) Subscriber projections including the number of subscribers for 
broadband, video and voice services and any other service that may be 
offered. A description of the proposed service offerings and the 
associated pricing plan that the Applicant proposes to offer, and an 
explanation showing that the proposed service offerings are affordable.
    (5) A map, utilizing the RUS mapping tool, of the proposed funded 
service areas identifying the areas lacking access to broadband service 
and the areas lacking access to service of speeds of at least 10 Mbps 
downstream and 1 Mbps upstream and any non-funded service areas of the 
Applicant
    (6) A competitive analysis of the entire proposed service 
territory(ies) as required by Sec.  1738.205.
    (7) A network design which includes a description of the proposed 
technology used to deliver service at the required broadband lending 
speed (see Sec.  1738.55) to all premises in the proposed funded 
service area, a network diagram, a build-out timeline and milestones 
for implementation of the project, and a capital investment schedule 
showing that the system can be built within 5 years from the date funds 
are made available to the Awardee. All of which must be certified by a 
professional engineer who is certified in at least one of the states 
where the project is to be constructed. The certification from the 
professional engineer must clearly state that the proposed network can 
deliver service at the required broadband lending speed (see Sec.  
1738.55) to all premises in the proposed funded service area.
    (8) All environmental information as required by Sec.  1738.108.
    (9) Resumes of key management personnel, a description of the 
organization's readiness to manage a broadband services network, and an 
organizational chart showing all parent organizations and/or holding 
companies (including parents of parents, etc.) and all subsidiaries and 
affiliates.
    (10) A legal opinion that addresses the Applicant's ability to 
enter into loan or loan/grant combination as requested in the 
application for financial assistance, to pledge security as required by 
the Agency, to describe all pending litigation matters, and such other 
requirements as are detailed in the Application Guide.
    (11) A summary and itemized budgets of the infrastructure costs of 
the proposed project, including if applicable, the ratio of loans to 
grants, and any other sources of outside funding.
    (12) A detailed description of working capital requirements and the 
sources of those funds.
    (13) Complete copies of audited financial statements for the two 
years preceding the application submission as detailed in Sec.  
1738.206.
    (14) The historical and projected financial information required in 
Sec.  1738.206.
    (15) Documentation proving that all required licenses and 
regulatory approvals for the proposed operation have been obtained, or 
the status of obtaining such licenses or approvals.
    (16) If service is being proposed on tribal land, a certification 
from the proper tribal official that they are in support of the project 
and will allow construction to take place on tribal land. The 
certification must:
    (i) Include a description of the land proposed for use as part of 
the proposed project;
    (ii) Identify whether the land is owned, held in Trust, land held 
in fee simple by the Tribe, or land under a long-term lease by the 
Tribe;
    (iii) If owned, identify the land owner; and
    (iv) Provide a commitment in writing from the land owner 
authorizing the

[[Page 14406]]

Applicant's use of that land for the proposed project.
    (17) Scoring sheet, analyzing the scoring criteria set forth in 
this part and most recent funding opportunity announcement.
    (18) Additional items that may be required by the Administrator 
through a notice in the Federal Register.
    (e) Material representations. The application, including 
certifications and all forms submitted as part of the application, will 
be treated as material representations upon which RUS will rely in 
awarding loans and loan/grant combinations.


Sec.  1738.203   Notification of completeness.

    If all proposed funded service areas in a loan or loan/grant 
combination application are eligible, the Agency will review the 
application for completeness. The completeness review will include an 
assessment of whether all required documents and information have been 
submitted and whether the information provided is of adequate quality 
to allow further analysis.
    (a) If the application contains all documents and information 
required by this part and is sufficient, in form and substance 
acceptable to the Agency, the Agency will notify the Applicant, in 
writing, that the application is complete. A notification of 
completeness is not a commitment that assistance will be approved. By 
submitting an application, the Applicant acknowledges that no 
obligation to enter into an agreement exists until the actual Award 
documents have been executed.
    (b) If the application is considered to be incomplete or 
inadequate, the Agency will notify the Applicant, in writing, with 
detailed information regarding the reasons the applications was found 
to be incomplete or inadequate.


Sec.  1738.204   Evaluation for feasibility.

    After a loan or loan/grant combination Applicant is notified that 
the application is complete, the Agency will evaluate the application's 
financial and technical feasibility. Only applications that, as 
determined by the Agency, are technically and financially feasible will 
be considered for funding.
    (a) The Agency will determine financial feasibility by evaluating 
the impact of the facilities financed with the proceeds of the loan and 
the associated debt, the Applicant's equity, competitive analysis, 
financial information--including the Applicant's ability to meet the 
Agency's Net worth and TIER, DSCR, or CR requirements in Sec.  
1738.206(b)(2)(i)--and other relevant information in the application.
    (b) The Agency will determine technical feasibility by evaluating 
the Applicant's network design and other relevant information in the 
application.


Sec.  1738.205   Competitive analysis.

    The Applicant must submit a competitive market analysis for each 
service area regardless of projected penetration rates. Each analysis 
must identify all existing service providers and all resellers in each 
service area regardless of the provider's market share, for each type 
of service the Applicant proposes to provide. The analysis must compare 
the rates, services, and the quality of that service being offered by 
competitors against those that will be offered by the Applicant. The 
analysis must also discuss strategies the Applicant will use to 
compete, as well as the impacts of the competitors on the projected 
penetration rates for the project.


Sec.  1738.206   Financial information.

    (a) The Applicant must submit financial information acceptable to 
the Agency that demonstrates that the Applicant has the financial 
capacity to fulfill the loan or loan/grant combination requirements in 
this part and to successfully complete the proposed project.
    (1) Applicants must provide complete copies of audited financial 
statements (opinion letter, balance sheet, income statement, statement 
of changes in financial position, and notes to the financial statement) 
for the two years preceding the application submission. For 
governmental entities financial statements must be accompanied with 
certifications identifying unrestricted cash that will be available on 
a yearly basis to the Applicant. Subsidiary operations formed from 
existing utility providers may provide audited financial statements for 
the two previous years from the parent company, as long as the parent 
will be a cosigner of the loan or loan/grant documents, pledging its 
assets in accordance with Sec.  1738.154(a), or will guarantee the 
debt.
    (2) If the Applicant relies on services provided by a parent or 
affiliated operation, it must also provide complete copies of audited 
financial statements for those entities for the fiscal year preceding 
the application submission. If audited statements are not available, 
unaudited statements and tax returns for the previous year must be 
submitted.
    (3) Applicants must provide detailed information for all 
outstanding obligations. Copies of existing notes, loan agreements, 
security agreement, or other legal documents covering loans, grants, 
leases, or other loan guarantees must be included in the application.
    (4) Applicants must provide a detailed description of working 
capital requirements and the source of these funds, if internally 
generated funds are insufficient.
    (b) Applicants must submit the following documents that demonstrate 
the proposed project's financial viability and ability to repay the 
requested loan.
    (1) Customer projections for the 5-year forecast period that 
substantiate the projected revenues for each service that is to be 
provided. The projections must be provided on at least an annual basis 
and must be developed separately for each service area and must be 
clearly supported by evidence such as market surveys or current company 
take rates.
    (2) Pro forma financial forecast, including a balance sheet, income 
statement, and statement of cash flows. For non-regulated entities, the 
pro forma should be prepared in conformity with U.S. GAAP and the 
Agency's guidance on grant accounting found at https://www.rd.usda.gov/files/AccountingGuidance10.pdf. Regulated telecommunications providers 
may follow the USOA and RUS accounting standards for their pro forma, 
including accounting for grant-funded assets as a contribution, in 
accordance with 47 CFR 32.2, if the project assets will be treated as 
regulated plant. The pro forma should validate the sustainability of 
the project by including subscriber estimates related to all proposed 
service offerings; annual financial projections with balance sheets, 
income statements, and cash flow statements; supporting assumptions for 
a 5-year forecast period and a depreciation schedule for existing 
facilities and those funded with Federal assistance, and other funds. 
This pro forma should indicate the committed sources of capital funding 
and include a bridge year prior to the start of the forecast period. 
This bridge year is the year in which the application is submitted and 
serves as a buffer between the historical financial information and the 
forecast period. Including the bridge year, the pro forma statements 
span a 6-year period.
    (i) The financial projections submitted by Applicants must 
demonstrate that their entire operation will be able to meet two of the 
following three ratio requirements: A minimum TIER, CR, or DSCR equal 
to 1.25 by the end of the 5-year forecast period. Additionally, the 
projections must demonstrate the Applicant's ability to maintain a Net 
worth of at least 20 percent throughout the forecast period. 
Demonstrating that the operation can achieve a projected

[[Page 14407]]

Net worth of 20 percent and TIER, CR, or DSCR of 1.25 does not ensure 
that the Agency will approve the loan or loan/grant combination.
    (ii) If the financial analysis suggests that the operation will not 
be able to achieve the Net worth requirement or two of the required 
TIER, CR, or DSCR in paragraph (b)(2)(i) of this section, the Agency 
will not approve the loan or loan/grant combination Award without 
additional capital, additional cash, additional security, and/or a 
change in the Award terms.
    (c) Based on the financial evaluation, the Award documents will 
specify the Net worth and TIER, CR, or DSCR requirements in paragraph 
(b)(2)(i) of this section that must be met throughout the amortization 
period.


Sec.  1738.207   Network design.

    (a) Applications for loan or loan/grant combinations must include a 
network design that demonstrates the project's technical feasibility. 
The network design must fully support the delivery of service to meet 
the broadband build-out requirements specified in Sec.  1738.55, 
together with any other services to be provided. In measuring speed, 
the Agency will take into account industry and regulatory standards. 
The design must demonstrate that the project will be complete within 
the 5-year forecast period and must include the following items:
    (1) A detailed description of the proposed technology that will be 
used to provide service at the broadband lending speed. This 
description must clearly demonstrate that all premises in the proposed 
funded service area will be able to receive service at the broadband 
lending speed;
    (2) A detailed description of the existing network. This 
description should provide a synopsis of the current network 
infrastructure;
    (3) A detailed description of the proposed network. This 
description should provide a synopsis of the proposed network 
infrastructure;
    (4) A description of the approach and methodology for monitoring 
ongoing service delivery and service quality for the services being 
deployed;
    (5) Estimated project costs detailing all facilities that are 
required to complete the project. These estimated costs must be broken 
down to indicate costs associated with each proposed service area and 
must specify how Agency and non-Agency funds will be used to complete 
the project;
    (6) A construction build-out schedule of the proposed facilities by 
service area on an annual basis. The build-out schedule must include:
    (i) A description of the workforce that will be required to 
complete the proposed construction;
    (ii) A timeline demonstrating project completion within the 
forecast period; and
    (iii) Detailed information showing that all premises within the 
proposed funded service area will be offered service at the broadband 
lending speed when the system is complete;
    (7) A depreciation schedule for all facilities financed with loan 
and loan/grant combination funds;
    (8) An environmental report prepared in accordance with 7 CFR part 
1970; and
    (9) Any other system requirements required by the Administrator 
through a notice published in the Federal Register.
    (b) The network design must be prepared by a registered 
Professional Engineer with telecommunications experience who is 
certified in at least one of the states where a project is to be 
constructed or by qualified personnel on the Applicant's staff. If the 
network design is prepared by the Applicant's staff, the application 
must clearly demonstrate the staff's qualifications, experience, and 
ability to complete the network design. To be considered qualified, 
staff must have at least 3 years of experience in designing the type of 
broadband system proposed in the application.


Sec.  1738.208   Award determinations.

    (a) If the loan or loan/grant combination application meets all 
statutory and regulatory requirements and the feasibility study 
demonstrates that the Net worth and TIER, CR, or DSCR requirements in 
Sec.  1738.206(b)(2)(i) can be satisfied and the business plan is 
sustainable, the application will be submitted to the Agency's credit 
committees for consideration according to the priorities in Sec.  
1738.105. Such submission of an application to the Agency's credit 
committees does not guarantee that a loan or loan/grant combination 
will be approved. In making a loan and/or loan/grant combination Award 
determination, the Administrator shall consider the recommendations of 
the credit committees.
    (b) The Applicant will be notified of the Agency's decision in 
writing. If the Agency does not approve the loan or loan/grant 
combination, a rejection letter will be sent to the Applicant, and the 
application will be returned with an explanation of the reasons for the 
rejection.


Sec. Sec.  1738.209-1738.250   [Reserved]

Subpart F--Closing, Servicing, and Reporting for Loan and Loan/
Grant Combination Awards


Sec.  1738.251   Offer and closing.

    The Agency will notify the Applicant of the loan or loan/grant 
combination offer in writing, and the date by which the Applicant must 
accept the offer. If the Applicant accepts the terms of the offer, a 
loan or loan/grant combination contract, note, security agreement, and 
any other necessary documents will be executed by the Agency and sent 
to the Applicant. The Applicant must execute the Award documents and 
satisfy all conditions precedent to closing within the timeframe 
specified by the Agency. If the conditions are not met within this 
timeframe, the loan or loan/grant combination offer may be terminated, 
unless the Applicant requests and the Agency approves, an extension. 
The Agency may approve such a request if the Applicant has diligently 
sought to meet the conditions required for closing and has been unable 
to do so for reasons outside its control.


Sec.  1738.252   Construction.

    (a) Construction paid for with loan or loan/grant combination funds 
must comply with 7 CFR parts 1787, 1788, and 1970, the RUS Broadband 
Construction Procedures located at https://reconnect.usda.gov, and any 
other guidance from the Agency.
    (b) Once the Agency has extended a loan or loan/grant combination 
offer, the Applicant, at its own risk, may start construction that is 
included in the application on an interim financing basis. For this 
construction to be eligible for reimbursement with loan or loan/grant 
combination funds, all construction procedures contained in this part 
must be followed. Note, however, that the Agency's extension of a loan 
or loan/grant combination offer is not a guarantee that a loan or loan/
grant combination will be made, unless and until a contract has been 
entered into between the Applicant and RUS.
    (c) All Awardees must complete build-out within 5 years from the 
date that funds have been made available. Build-out is considered 
complete when the network design has been fully implemented, the 
service operations and management systems infrastructure is 
operational, and the awardee is ready to support the activation and 
commissioning of individual customers to the new system.

[[Page 14408]]

Sec.  1738.253   Servicing of loan and loan/grant combinations.

    (a) Borrowers must make payments on the broadband loan as required 
in the note.
    (b) Awardees must comply with all terms, conditions, affirmative 
covenants, and negative covenants contained in the Award documents.
    (c) In the event of default of any required payment or other term 
or condition:
    (1) The Agency may exercise the default remedies provided in the 
Award documents and any remedy permitted by law but is not required to 
do so.
    (2) If the Agency chooses not to exercise its default remedies, it 
does not waive its right to do so in the future.


Sec.  1738.254   Accounting, reporting, and monitoring requirements.

    (a) Loan and loan/grant combination Awardees must adopt a system of 
accounts for maintaining financial records acceptable to the Agency, as 
described in 7 CFR part 1770, subpart B.
    (b) Loan and loan/grant combination Awardees must submit annual 
audited financial statements along with a report on compliance and on 
internal control over financial reporting and management letter in 
accordance with the requirements of 7 CFR part 1773. The Certified 
Public Accountant (CPA) conducting the annual audit is selected by the 
awardee and must be approved by RUS as set forth in 7 CFR 1773.4.
    (c) Loan and loan/grant combination Awardees must submit to RUS 30 
calendar days after the end of each calendar year quarter, balance 
sheets, income statements, statements of cash flow, rate package 
summaries, and the number of customers subscribing to broadband service 
from the Awardee utilizing RUS' online reporting system. These reports 
must be submitted throughout the loan amortization period.
    (d) Loan and loan/grant combination Awardees must submit annually 
updated service area maps through the RUS mapping tool showing the 
areas where construction has been completed and premises are receiving 
service until the entire proposed funded service area can receive 
service at the broadband lending speed. At the end of the project, 
Awardees must submit a service area map indicating that all 
construction has been completed as proposed in the application. If 
parts of the proposed funded service area have not been constructed, 
RUS may require a portion of the Award to be rescinded and/or paid 
back.
    (e) Loan and loan/grant combination Awardees must comply with all 
reasonable Agency requests to support ongoing monitoring efforts. The 
Awardee shall afford RUS, through its representatives, reasonable 
opportunity, at all times during business hours and upon prior notice, 
to have access to and the right to inspect the broadband system, and 
any other property encumbered by the mortgage or security agreement, 
and any or all books, records, accounts, invoices, contracts, leases, 
payrolls, timesheets, cancelled checks, statements, and other 
documents, electronic or paper of every kind belonging to or in the 
possession of the Awardee or in any way pertaining to its property or 
business, including its subsidiaries, if any, and to make copies or 
extracts therefore.
    (f) Awardee records shall be retained and preserved in accordance 
with the provisions of 7 CFR part 1770, subpart A.


Sec.  1738.255   Default and deobligation.

    If a default under the loan or loan/grant combination documents 
occurs and such default has not been cured within the timeframes 
established in the Award documents, the Applicant acknowledges that the 
Agency may, depending on the seriousness of the default, take any of 
the following actions:
    (a) To the greatest extent possible recover the maximum amount of 
grant and loan funds;
    (b) De-obligate all funds that have not been advanced or 
demonstrate an insufficient level of performance or fraudulent 
spending; and
    (c) Reallocate recovered funds to the extent possible.


Sec. Sec.  1738.256-1738.300   [Reserved]

Subpart G--Loan Guarantee


Sec.  1738.301   General.

    (a) To be eligible for a loan guarantee, the Applicant must submit 
an application that meets the requirements in this part along with the 
requirements as stated in 7 CFR part 4279, subparts A and B, as well as 
any additional requirements published in the Federal Register.
    (b) The Agency may approve Rural Broadband Program loan guarantees 
in excess of $10 million but less than $25 million when the project 
meets one of the priorities in Sec.  1738.105(a)(3)(i).
    (c) The lender will service the loan in accordance with 7 CFR part 
4287, subpart B.
    (d) Any reference to priorities in 7 CFR part 4279 or 4287 shall 
have the meaning as stated in Sec.  1738.105 and any reference to 
Administrator or Agency shall have the meaning as defined in Sec.  
1738.2.


Sec.  1738.302   Fees.

    The Agency shall charge and collect from the lender fees in such 
amounts as to bring down the costs of subsidies for guaranteed loans, 
except that such fees shall not act as a bar to participation in the 
programs nor be inconsistent with current practices in the marketplace.


Sec. Sec.  1738.303-1738.349   [Reserved]


Sec.  1738.350   OMB control number.

    The information collection requirements in this part are approved 
by the Office of Management and Budget (OMB) and assigned OMB control 
number 0572-0154.

PART 1739--BROADBAND GRANT PROGRAM

0
2. The authority citation for part 1739 continues to read as follows:

    Authority: Title III, Public Law 108-199, 118 Stat. 3.

Subpart A--Community Connect Grant Program

0
3. In Sec.  1739.3, revise the definition of ``Broadband service'' and 
``Critical Community Facilities'' to read as follows:


Sec.  1739.3   Definitions.

* * * * *
    Broadband service means any terrestrial technology having the 
capacity to provide transmission facilities that enable subscribers of 
the service to originate and receive high-quality voice, data, 
graphics, and video at the minimum rate of data transmission described 
in the funding opportunity. Satellite and mobile services are not 
considered broadband service. The broadband service speed may be 
different from the broadband grant speed for the Community Connect 
program.
* * * * *
    Critical Community Facilities means an essential community facility 
as defined pursuant to section 306(a) of the Consolidated Farm and 
Rural Development Act (7 U.S.C. 1926(a)).
* * * * *

0
4. Add Sec.  1739.8 to read as follows:


Sec.  1739.8   Buy American requirement.

    Awardees shall use in connection with the expenditure of grant 
funds only such unmanufactured articles, materials, and supplies, as 
have been mined or produced in the United States or in any eligible 
country, and only such manufactured articles, materials, and

[[Page 14409]]

supplies as have been manufactured in the United States or in any 
eligible country, substantially all from articles, materials, or 
supplies mined, produced, or manufactured, as the case may be, in the 
United States or in any eligible country. For purposes of this section, 
an ``eligible country'' is any country that applies with respect to the 
United States an agreement ensuring reciprocal access for United States 
products and services and United States suppliers to the markets of 
that country, as determined by the United States Trade Representative. 
The Buy American regulations may be found at, and any requests for 
waiver must be submitted pursuant to, 7 CFR part 1787.

0
5. Amend Sec.  1739.15 as follows:
0
a. In paragraph (d) introductory text, after the text ``in accordance 
with 7 CFR part 1970'' add the text ``and as supplemented by 7 CFR 
1738.108'';
0
b. Redesignate paragraph (l) as paragraph (m);
0
c. In newly redesignated paragraph (m)(8), after the text ``in 
accordance with 7 CFR part 1970'' add the text ``and as supplemented by 
7 CFR 1738.108''; and
0
d. Add a new paragraph (l).
    The addition reads as follows:


Sec.  1739.15   Completed application.

* * * * *
    (l) Public notice. The Agency will publish a public notice of each 
application requesting assistance under this part. The application must 
provide a summary of the information required for such public notice. 
The information required can be found in 7 CFR 1738.106.
* * * * *

0
6. Amend Sec.  1739.19 by adding paragraph (f) to read as follows:


Sec.  1739.19   Reporting and oversight requirements.

* * * * *
    (f) Entities that receive assistance from the Agency under this 
part to provide retail broadband service must submit annual reports for 
3 years after project completion. The information required can be found 
in 7 CFR 1738.107(a) and (c).

Chad Rupe,
Administrator, Rural Utilities Service.
[FR Doc. 2020-04086 Filed 3-11-20; 8:45 am]
 BILLING CODE P