Background

This final rule updates the DOT regulation that outlines the requirements for Federal Awards adopted in OMB's Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR part 200). The purpose of this rule is to revise section cross-references to conform with the 2020 changes to the OMB Guidance for Grants and Agreements (85 FR 49506; Aug. 13, 2020).

This rule updates cross-references in three sections of part 1201. This rule revises the cross-references in 2 CFR 1201.80 that refer to the definitions of program income and period of performance to reflect the OMB changes to 2 CFR 200 that moved all definitions to 2 CFR 200.1. Second, this rule changes the cross-reference in 2 CFR 1201.206 to reflect revisions in the OMB Guidance for Grants and Agreements that moved “Standard application requirements” to section 2 CFR 200.207. Lastly, this rule changes the cross-reference in 2 CFR 1201.327 to reflect revisions in the OMB Guidance for Grants and Agreements that moved “Financial reporting” from 2 CFR 200.327 to 2 CFR 200.328.

This final rule does not impose substantive requirements on the public. It is ministerial and relates only to technical corrections. As these changes will not have a substantive impact on the public, the Department does not expect to receive substantive comments on the rule. Therefore, the Department has determined that notice and comment are unnecessary and that the rule is exempt from prior notice and comment requirements under 5 U.S.C. 553(b)(3)(A). Similarly, under 5 U.S.C. 553(d)(3), the Department finds good cause for this rule to be effective less than 30 days after its publication in the Federal Register .

The Department has determined that this final rule is not a significant regulatory action under Executive Order 12866 and DOT Regulatory Policies and Procedures (44 FR 11034). It was not reviewed by the Office of Management and Budget. There are no costs associated with this rule.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”). This final rule does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, the consultation requirements of Executive Order 13132 do not apply.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). Because this final rule does not significantly or uniquely affect the communities of the Indian tribal governments and does not impose substantial or direct compliance costs, the funding and consultation requirements of Executive Order 13175 do not apply.

Because no notice of proposed rulemaking is required for this rule under the Administrative Procedure Act, 5 U.S.C. 553, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply. We also do not believe this rule will impose any costs on small entities because it is merely organizational in nature. I hereby certify that this final rule will not have a significant economic impact on a substantial number of small entities.

This final rule contains no information collection requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) does not require a written statement for this final rule because the rule does not include a Federal mandate that may result in the expenditure in any one year of $100,000,000 or more (adjusted annually for inflation) by State, local, and tribal governments, or the private sector.

DOT has analyzed the environmental impacts of this action pursuant to the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq. ) and has determined that it is categorically excluded pursuant to DOT Order 5610.1C, Procedures for Considering Environmental Impacts (44 FR 56420, Oct. 1, 1979). Categorical exclusions are actions identified in an agency's NEPA implementing procedures that do not normally have a significant impact on the environment and therefore do not require either an environmental assessment (EA) or environmental impact statement (EIS). See 40 CFR 1508.4. In analyzing the applicability of a categorical exclusion, the agency must also consider whether extraordinary circumstances are present that would warrant the preparation of an EA or EIS. Id. Paragraph 3.c.5 of DOT Order 5610.1C incorporates by reference the categorical exclusions for all DOT Operating Administrations. This action is covered by the categorical exclusion listed in the Federal Highway Administration's implementing procedures, “[p]romulgation of rules, regulations, and directives.” 23 CFR 771.117(c)(20). The purpose of this rulemaking is to update the regulation that outlines the requirements for Federal Awards and to revise section cross-references to conform with the 2020 changes to the OMB Guidance for Grants and Agreements. The agency does not anticipate any environmental impacts, and there are no extraordinary circumstances present in connection with this rulemaking.

For the reasons stated in the preamble, the Department of Transportation amends 2 CFR part 1201 as set forth below:

I. Background

Rural Development (RD) is a mission area within the U.S. Department of Agriculture (USDA) comprising the Rural Utilities Service (RUS), Rural Housing Service, and Rural Business-Cooperative Service. RD's mission is to increase economic opportunity and improve the quality of life for all rural Americans. RD meets its mission by providing loans, loan guarantees, grants, and technical assistance through numerous programs aimed at creating and improving housing, business, and infrastructure throughout rural America. RUS loan, loan guarantee, and grant programs act as a catalyst for economic and community development. By financing improvements to rural electric, water and waste, and telecommunications and broadband infrastructure, RUS also plays a significant role in improving other measures of quality of life in rural America, including public health and safety, environmental protection, and cultural and historic preservation. The RUS Electric Program provides funding to maintain, expand, upgrade, and modernize America's rural electric infrastructure. The loans and loan guarantees finance the construction or improvement of electric distribution, transmission, and generation facilities in rural areas.

This rulemaking is part of the RUS Electric Program's continuing effort to improve customer service for its borrowers and to create a more efficient work process for its staff. This rulemaking will continue to streamline RUS Electric Program procedures and revise regulations, including removing unnecessary and outdated regulations and simplifying other policies and procedures that impose burdensome requirements on borrowers and applicants.

The intent of these proposed changes is to provide an additional method for complying with RUS's coverage ratio requirements. The goal is to (1) reduce the regulatory impact on RUS Electric Program borrowers, (2) ensure that loan funds will be repaid in the time agreed upon, and (3) that the RUS loans remain adequately secured. RUS expects that these actions will enhance RUS and customer efficiency, thereby increasing customer satisfaction and service. RUS uses these ratios as part of its loan application review and/or its annual review of the Financial and Operating Report data to monitor the financial stability of the borrowers to ensure loan security.

There are no alternatives except to maintain the current RUS Electric Program ratio coverage regulations. The proposed changes will improve customer experience and customer service, and allow RUS to better focus on feasibility and security issues while lessening the burdens on the RUS Electric Program borrowers. These changes provide added flexibility to borrowers to be in complaince with mortgage requirements without increasing rates to meet their operating coverage ratios when the borrower has cash reserves to cover debt service payments. This action should not impose additional costs on applicants or on electric borrowers as the additional ratios are already calculated as part of a Borrower's Statistical Profile which is currently calculated utilizing the data provided on the borrower's RUS Financial and Operating Reports. These changes will positively affect the RUS Electric borrower experience and enhance RUS customer service by removing unnecessary and burdensome requirements for electric borrowers and applicants, minimizing the regulatory impact of applying for loans made or guaranteed by RUS, and facilitating lending for construction of rural electric infrastructure.

The definitions MTIER (Modified Times Interest Earned Ratio) and MDSC (Modified Debt Service Coverage) are not currently in the regulation and are added to assist applicants in better understanding the program's requirements.

The definitions of TIER (Times Interest Earned Ratio Debt Service Coverage), OTIER (Operating Times Interest Earned Ratio), DSC (Debt Service Coverage) and ODSC (Operating Debt Service Coverage) are updated to remove outdated sections and references and by reorganizing remaining sections accordingly and improving logical flow.

Paragraphs (a) and (b) will be modified to remove outdated language and to reflect RUS' current Financial and Operating Reports.

Paragraph (b)1 will be modified to allow Modified Times Interest Earned Ratio (MTIER) and Modified Debt Service Coverage (MDSC) to be considered if a borrower does not meet the coverage requirements for Operating Times Interest Earned Ratio (OTIER) and Operating Debt Service Coverage (ODSC). This allows more flexibility to borrowers regarding the coverage requirements.

This rule has been determined to be non-significant for purposes of Executive Order (E.O.) 12866 and, therefore, has not been reviewed by the Office of Management and Budget (OMB).

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq. ), the Office of Information and Regulatory Affairs designated this rule as not a major rule, as defined by 5 U.S.C. 804(2).

The Assistance Listing Number assigned to the Rural Electrification Loans and Loan Guarantees Program is 10.850. The Assistance Listings are available on the internet at https://sam.gov/.

This rule is excluded from the scope of E.O. 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 E.O. 12372” (50 FR 47034) advising that RUS loans and loan guarantees were not covered by E.O. 12372.

This rule contains no new reporting or recordkeeping burdens under OMB control number 0572-0032 that would require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

In accordance with the National Environmental Policy Act of 1969, Public Law 91-190, this final rule has been reviewed in accordance with 7 CFR part 1970 (“Environmental Policies and Procedures”). RUS has determined that (i) this action meets the criteria established in 7 CFR 1970.53(f); (ii) no extraordinary circumstances exist; and (iii) the action is not “connected” to other actions with potentially significant impacts, is not considered a “cumulative action” and is not precluded by 40 CFR 1506.1. Therefore, RUS has determined that the action does not have a significant effect on the human environment, and therefore neither an Environmental Assessment nor an Environmental Impact Statement is required.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act (APA) or any other statute. The Administrative Procedure Act exempts from notice and comment requirements rules “relating to agency management or personnel or to public property, loans, grants, benefits, or contracts” (5 U.S.C. 553(a)(2)). This final rule is not subject to the APA under 5 U.S.C. 553(a)(2) and 5 U.S.C. 553(b)(3)(A) nor any other statute.

This rule has been reviewed under E.O. 12988, Civil Justice Reform. In accordance with this rule: (1) unless otherwise specifically provided, all State and local laws that conflict with this rule will be preempted; (2) no retroactive effect will be given to this rule except as specifically prescribed in the rule; and (3) administrative proceedings of the National Appeals Division of the Department of Agriculture (7 CFR part 11) must be exhausted before bringing suit in court that challenges action taken under this rule.

Title II of the UMRA, Public Law 104-4, establishes requirements for Federal Agencies to assess the effects of their regulatory actions on State, local, and Tribal governments and on the private sector. Under Section 202 of the UMRA, Federal Agencies generally must prepare a written statement, including cost-benefit analysis, for proposed and Final Rules with “Federal mandates” that may result in expenditures to State, local, or Tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires a Federal agency to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective, or least burdensome alternative that achieves the objectives of the rule.

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

It has been determined, under E.O. 13132, Federalism, that the policies contained in this rule do not have any substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

This executive order imposes requirements on RUS in the development of regulatory policies that have Tribal implications or preempt Tribal laws. RUS has determined that the rule does not have a substantial direct effect on one or more Indian Tribe(s) or on either the relationship or the distribution of powers and responsibilities between the Federal Government and Indian Tribes. Thus, this rule is not subject to the requirements of Executive Order 13175. If Tribal leaders are interested in consulting with RUS on this rule, they are encouraged to contact USDA's Office of Tribal Relations or RD's Native American Coordinator at: AIAN@usda.gov to request such a consultation.

Rural Development is committed to the E-Government Act of 2002, Public Law 107-347, which requires government agencies in general to provide the public the option of submitting information or transacting business electronically to the maximum extent possible and to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to government information and services, and for other purposes.

Rural Development has reviewed this rule in accordance with USDA Regulation 4300-004, “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, disability, marital or familial status. Based on the review and analysis of the rule and all available data, issuance of this final rule is not likely to negatively impact low and moderate-income populations, minority populations, women, Indian Tribes, or persons with disability, by virtue of their age, race, color, national origin, sex, disability, or marital or familial status.

In accordance with Federal civil rights laws and USDA civil rights regulations and policies, the USDA, its Mission Areas, agencies, staff offices, employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident.

Program information may be made available in languages other than English. Persons with disabilities who require alternative means of communication to obtain program information ( e.g., Braille, large print, audiotape, American Sign Language) should contact the responsible Mission Area, agency, or staff office; the USDA TARGET Center at (202) 720-2600 (voice and TTY); or the 711 Relay Service.

To file a program discrimination complaint, a complainant should complete a Form AD-3027, USDA Program Discrimination Complaint Form, which can be obtained online at

a. Mail: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 20250-9410; or

b. Fax: (833) 256-1665 or (202) 690-7442; or

c. Email: program.intake@usda.gov.

For the reason set forth in the preamble, RUS amends 7 CFR part 1710 as follows:

I. Introduction II. Overview of the Final Rule III. Legal Authority IV. Discussion of Public Comments Received on the Proposed Rule V. Regulatory Procedures I. Introduction A. Background

The NCUA's requirement that FICUs develop written security programs and report certain activity to the NCUA is codified in 12 CFR part 748. In July 2022, the NCUA Board (Board) approved a notice of proposed rulemaking (proposal or proposed rule) that would require a FICU to notify the NCUA of any cyber incident that rises to the level of a reportable cyber incident. 1 The proposed rule would require such notification as soon as possible but no later than 72 hours after a FICU reasonably believes that a reportable cyber incident has occurred.

As stated in the proposed rule, given the growing frequency and severity of cyber incidents within the financial services industry, it is important that the NCUA receive timely notice of cyber incidents that disrupt a FICU's operations, lead to unauthorized access to sensitive data, or disrupt members' access to accounts or services.

The proposed rule added a provision to 12 CFR 748.1 for the NCUA to require notification of any cyber incident that rises to the level of a reportable cyber incident as soon as possible but no later than 72 hours after a FICU reasonably believes that a reportable cyber incident has occurred. As first stated in the proposed rule and finalized here, in accordance with § 704.1(a) of the NCUA's regulations, this rule also applies to federally chartered corporate credit unions and federally insured, state-chartered corporate credit unions.

The proposed rule defined a cyber incident as an occurrence that actually or imminently jeopardizes, without lawful authority, the integrity, confidentiality, or availability of information on an information system or actually or imminently jeopardizes, without lawful authority, an information system. 2

The proposed rule defined a reportable cyber incident as any substantial cyber incident that leads to one or more of the following: a substantial loss of confidentiality, 3 integrity, 4 or availability of a network or member information system  5 that results from the unauthorized access to or exposure of sensitive data, 6 disrupts  7 vital member services, 8 or has a serious impact on the safety and resiliency of operational systems and processes; a disruption of business operations, vital member services, or a member information system resulting from a cyberattack  9 or exploitation of vulnerabilities; and/or a disruption of business operations or unauthorized access to sensitive data facilitated through, or caused by, a compromise  10 of a credit union service organization, cloud service provider, managed service provider, or other third-party data hosting provider or by a supply chain compromise.

The proposed rule definition excluded any event where the cyber incident was performed in good faith by an entity in response to a specific request by the owner or operator of the information system.

The Board is adopting this final rule largely as proposed to give the NCUA early notice of substantial cyber incidents that have consequences for FICUs as stated in the rule.

Shortly before the Board issued its proposed rule, Congress enacted the Cyber Incident Reporting for Critical Infrastructure Act of 2022 (Cyber Incident Reporting Act) requiring covered entities to report covered cyber incidents to the Cybersecurity and Infrastructure Security Agency (CISA) not later than 72 hours after the entity reasonably believes that a covered cyber incident has occurred. 11 CISA has until 2025 to publish a final rule implementing the Cyber Incident Reporting Act's requirements, including defining the terms used therein. Nevertheless, as stated in the proposed rule, the Board believes that it would be imprudent in light of the increasing frequency and severity of cyber incidents to postpone a notification requirement until after CISA promulgates a final rule. To the extent possible, and as appropriate for the credit union system, this final rule uses terminology and a reporting framework that Congress outlined in the Cyber Incident Reporting Act. The Board believes it is in the best interest of the credit union system to align the NCUA's rule with the Cyber Incident Reporting Act to provide uniform and timely cyber incident reporting. It is the intention of the Board for the NCUA to coordinate with CISA on any future credit union cyber incident reporting to avoid duplicate reporting to both the NCUA and CISA.

After carefully considering the comments received, the NCUA is issuing this final rule largely as proposed, as discussed in this section of the preamble.

The proposed rule defined a reportable cyber incident as, among other things, any substantial cyber incident that leads to a substantial loss of confidentiality, integrity, or availability of a network or member information system that results from the unauthorized access to or exposure of sensitive data, disrupts vital member services, or has a serious impact on the safety and resiliency of operational systems and processes. Some commenters felt that the duplicate use of the term substantial was redundant. That was the not the intent of the definition. While the word used is the same, substantial applies in two different contexts and thus is retained in both places to ensure that the agency receives notification of cyber incidents that are substantial. This terminology also aligns with the language used in the Cyber Incident Reporting Act. In the event such a cyber incident is one that leads to a substantial loss of confidentiality, integrity, or availability of a network or member information system, as opposed to a minimal loss, then such incident would be reportable to the agency.

The first prong of the reportable cyber incident definition will require a FICU to notify the NCUA of a cyber incident that leads to a substantial loss of confidentiality, integrity, or availability of a member information system as a result of the exposure of sensitive data, disruption of vital member services, or that has a serious impact on the safety and resiliency of operational systems and processes. For example, if a FICU becomes aware that a substantial level of sensitive data is unlawfully accessed, modified, or destroyed, or if the integrity of a network or member information system is compromised, the cyber incident is reportable. If the credit union becomes aware that a member information system has been unlawfully modified and/or sensitive data has been left exposed to an unauthorized person, process, or device, that cyber incident is also reportable, irrespective of intent.

There are many technological reasons why services may not be available at any given time as, for example, computer servers are offline, or systems are being updated. Such events are routine and thus would not be reportable to the NCUA. However, a failed system upgrade or change that results in unplanned widespread user outages for FICU members and employees would be reportable.

The second prong of the reportable cyber incident definition will require reporting to the NCUA in the event of a cyberattack that leads to a disruption of business operations, vital member services, or a member information system. Cyberattacks that cause disruption to a FICU's business operations, vital member services, or a member information system must be reported to the NCUA within 72 hours of a FICU's reasonable belief that it has experienced a cyberattack. For example, a distributed denial of service (DDoS) attack that disrupts member account access will be reportable under this prong.

Blocked phishing attempts, failed attempts to gain access to systems, or unsuccessful malware attacks do not have to be reported.

The third prong of the reportable cyber incident definition will require a FICU to notify the agency within 72 hours after a third-party has informed a FICU that the FICU's sensitive data or business operations have been compromised or disrupted as a result of a cyber incident experienced by the third-party or upon the FICU forming a reasonable belief this has occurred, whichever occurs sooner. A cyber incident, under the third prong would also only be reportable in the event that the third-party has a relationship with the FICU. The rule does not impose a notification requirement on a FICU for an incident occurring at any third-party that, unbeknownst and unrelated to the FICU, holds information about individuals who happen to be FICU members or employees.

A FICU will not be required to report an incident performed in good faith by an entity in response to a request by the owner or operator of the information system. An example of an incident excluded from reporting would be the contracting of a third-party to conduct a penetration test. 12

The Board issues this final rule pursuant to its authority under the Federal Credit Union Act (FCUA). Section 209 of the FCUA is a plenary grant of regulatory authority to the Board to issue rules and regulations necessary or appropriate to carry out its role as share insurer for all FICUs. 13 Section 206 of the FCUA requires the agency to impose corrective measures whenever, in the opinion of the Board, any FICU is engaged in or has engaged in unsafe or unsound practices in conducting its business. 14 Accordingly, the FCUA grants the Board broad rulemaking authority to ensure that the credit union industry and the National Credit Union Share Insurance Fund (Share Insurance Fund) remain safe and sound.

The proposed rule provided for a 60-day public comment period, which closed on September 26, 2022. The NCUA received 17 comments in response to the proposed rule. These comments came from credit unions, credit union trade associations and leagues, service providers, and individual members of the public.

Twelve commenters expressed support for the proposal. One commenter felt it was premature for the Board to issue a rule at this time because promulgating a rule now could lead to conflicts with standards yet to be determined by CISA, which Congress has tasked with issuing cybersecurity notification rules across many sectors, including financial services.

Four credit union commenters disagreed with the premise that knowing about and responding to cyber incidents is important to the NCUA's mission. These commenters stated that the preamble articulated no benefits to members and that members are already protected by a FICU's data security program, which the NCUA has the opportunity to evaluate during the examination cycle. These four commenters stated that the NCUA should show deference to a FICU's decision regarding whether or not to report an incident because the FICU will be in the best position to know whether it has met the elements of a reportable cyber incident.

The Board has considered these comments and has determined to proceed to a final rule at this time. As discussed in the preamble to the proposed rule, the financial services sector is one of the main critical infrastructure sectors targeted by cyberattacks. The agency has a statutory obligation to ensure the safety and soundness of the credit union system and the Share Insurance Fund. Thus, the NCUA must be made aware of cyber incidents that could significantly impact FICUs and their members. Commenters are correct in that this rule does not change the NCUA's ability to review data security programs during the examination cycle. This rule merely requires early notification to the agency of substantial cyber incidents. Early awareness can help the NCUA react to emerging threats to FICUs and the broader financial system before they become systemic. As stated in the proposed rule, this notification requirement is intended to serve as an early alert to the agency and is not intended to include a lengthy assessment of the incident. The NCUA will be providing additional reporting guidance prior to the final rule going into effect. However, anytime a FICU is unsure as to whether a cyber incident is reportable, the Board encourages the FICU to contact the agency.

Commenters focused on the following specific issues:

The proposed rule put forward a 72-hour reporting window for FICUs to notify the NCUA of a cyber incident that rises to the level of a reportable cyber incident . The proposal asked commenters to discuss whether 72 hours is appropriate or if another time frame is warranted, such as 36 hours as the Federal banking agencies require. Fourteen commenters expressed support for the 72-hour reporting window. Three of these commenters asked the agency to be aware that, while 72 hours is generally reasonable, even this may be burdensome for smaller institutions. One commenter stated that the proposed timeframe will correspond with additional administrative burden for credit unions. One commenter preferred the 36-hour time frame since this would be consistent with the Federal banking agencies' rule and should not be burdensome in light of the limited information being sought.

Three commenters recommended that the 72-hour reporting period begin only once a FICU has actually discovered a reportable cyber incident, as the Federal banking agencies require, rather than requiring FICUs to come to a reasonable belief that a reportable cyber incident has occurred. Another commenter stated that the Board should not require reporting until the FICU is aware of helpful details.

This final rule maintains the reporting period set forth in the proposed rule requiring a FICU to notify the NCUA as soon as possible but no later than 72 hours after the FICU reasonably believes that a reportable cyber incident has occurred. This is the same reporting requirement CISA must implement under the Cyber Incident Reporting Act. By maintaining the expectation that a FICU does not have a reporting obligation until it has a reasonable belief that a reportable cyber incident has occurred, the Board is providing flexibility based on specific circumstances that may occur. Only once the FICU has formed a reasonable belief that it has experienced a reportable cyber incident would the requirement to report within 72 hours be triggered. The Board does not believe this minimal notification requirement would be burdensome to even the smallest institutions. The burden is likely to result from the cyber incident itself. Early notification to the agency could be beneficial in a number of ways, including helping the FICU protect its members and obtaining the agency's guidance with the response.

With regard to where and how FICUs should report cyber incidents, two commenters stated that they would prefer a single point of contact in the NCUA's central office and multiple methods of reporting—secure online portal, email, and telephone. One commenter expressed a preference for reporting to the regional office but recognized that the NCUA may prefer all FICUs to report to the central office. This commenter suggested that if reporting is done via portal, then FICUs should be permitted to go back and edit their reporting. Two commenters asked the NCUA to develop a form or checklist that lists the information the agency is looking for. One commenter stated that the NCUA should provide a clear reporting mechanism via secure email or web form. Finally, one commenter expressed support for multiple methods of reporting but suggested that the NCUA permit FICUs to report to their regional office contacts so as to ensure that the NCUA staff evaluating the incident are familiar with the affected FICU's operations.

The proposed rule states that cyber incidents may be reported via email, telephone, or other similar methods that the NCUA may prescribe. The Board believes that this approach addresses the need for flexibility, including if one or more communication channels are impacted by the cyber incident. The NCUA will be providing more detailed reporting guidance before the effective date of the final rule.

One commenter asked for clarity on what follow up communications the agency expects after a FICU provides the initial notification of a reportable cyber incident. The proposed rule stated, “the NCUA anticipates that further follow-up communications between the FICU and the agency will occur through the supervisory process, as necessary,” but did not explain what such communications would entail or what the expected frequency or level of detail would be.

The NCUA will determine the necessity and frequency of follow-up communications on a case-by-case basis. Factors in making this determination may include the severity of impact, the ability to recover and restore services, and the potential risk to the financial system. These factors may evolve over time. The NCUA is aware that during a reportable cyber incident, FICUs will be focused on recovery and, thus, the agency will generally limit contact during such incidents to minimize burden on FICUs.

Five commenters expressed concern for the security of the information reported to the NCUA and the potential negative consequences to FICUs in the event sensitive information were to leak. These commenters stated that it is vital for the NCUA to have a secure infrastructure with confidentiality controls and limits on the number of agency personnel with access to the reported information. One commenter asked the NCUA to clarify that cyber incident reports are not only subject to part 792 of the NCUA's rules but are also exempt from Freedom of Information Act (FOIA) requests.

The NCUA receives confidential financial information from FICUs on a routine basis as a function of its role as a financial regulator and insurer. Like all federal agencies, the NCUA must comply with mandatory security standards for federal information and information systems. 15 The NCUA meets these requirements by employing a defense-in-depth  16 approach to information and system security, including robust technical and administrative controls and comprehensive procedures for preventing and addressing potential compromises to information in the NCUA's custody and control. 17

Reporting under this rule will be subject to part 792 of the NCUA's rules and exempt from FOIA requests under FOIA exemptions 4 and 8, and potentially exemptions 6 and 7(c). 18

Eight commenters suggested the NCUA provide more clarity around what the agency considers to be a substantial cyber incident. Of these, five commenters stated that the NCUA should focus on the materiality of the incident and include a materiality standard to avoid overreporting and to provide a sufficient threshold to ensure reporting only of major disruptions and not minor ones. One of these commenters stated that the definition of reportable cyber incident itself is acceptable and leaves room to enable ongoing alignment with other frameworks such as future CISA guidance. However, the commenter stated that the definition of substantial should include a materiality standard.

One commenter suggested that substantial could be defined based on the percentage of members impacted, duration of impact, or other similar metrics which scale with the size of the FICU. Another commenter suggested that any factors used to define substantial should be principles-based rather than enumerate different types of data, systems, or other static elements, which can quickly change as best practices and mitigation strategies evolve over time. This commenter noted that, however defined, the agency should grant appropriate deference to the reasonable judgment of the FICU. Another commenter expressed support for the definition of reportable cyber incident but stated that rather than just providing a definition of substantial, it would be more helpful if the NCUA were to provide examples of reportable incidents.

The Board agrees that a definition that relies on specific data points, systems, or other static elements may be unnecessarily complicated and may quickly become obsolete. By using the term substantial, the Board seeks to convey an expectation that the agency will be notified of cyber incidents that are extensive or significant to the FICU or its members (or both), rather than minor or inconsequential. The dictionary definition of substantial is “something that is important, essential, considerable in quantity, or significantly great.”  19 In lieu of a more complicated definition, the agency intends to add to the examples of reportable cyber incidents provided in the proposed rule. Commenters who requested that a materiality standard be added to the term substantial did not offer any definitions or suggest how a material cyber incident would be something other than a substantial cyber incident. If a FICU is unsure as to whether a cyber incident is reportable, the Board encourages the FICU to contact the agency. However, once the rule is implemented the agency will continue to assess whether further clarity or guidance is needed over time.

Three commenters stated that the list of reportable incidents in the proposed rule is helpful and should be kept current. One commenter stated that the NCUA should provide more examples of nonreportable incidents.

The NCUA will be providing additional reporting guidance and examples of reportable incidents and non-reportable incidents prior to the effective date of this final rule. In addition, the NCUA is retaining the examples provided in the proposed rule with some minor edits, as discussed below.

The agency is clarifying the following example which was cited in the proposed rule: “A systems compromise resulting from card skimming,” is being changed to “Member information compromised as a result of card skimming at a credit union's ATM.”  20

Two commenters noted that contracts with third-party service providers may not perfectly align with the reporting proposed in this rule. One commenter sought clarification that the NCUA is not intending to impact existing contractual relationships. Another commenter stated that FICU reporting of third-party breaches should only be required once the third-party notifies the FICU that its information has been materially compromised. Without receiving information from the third-party, the FICU has no way to know if it has experienced a cyber incident.

One commenter noted that third-parties only provide notification once their investigations are almost complete. Another commenter expressed concerns about the ability of FICUs to make decisions about third-party breaches when third-parties may be reluctant to offer information until they have done their own investigations. Thus, the commenter stated that the NCUA should defer to a FICU's judgment about whether a reportable cyber incident has occurred. Another commenter stated that the NCUA must focus on when the FICU formed a reasonable belief and not when a third-party made that determination. Finally, one commenter stated that the NCUA should not, as suggested by one example in the preamble to the proposed rule, impose a reporting requirement when a FICU employee's personally identifiable information (PII) is implicated in a data breach at another organization that has no affiliation with the FICU.

This rule does not impact existing contractual relationships. While the proposed rule asked FICUs to share how third-parties provide notice to FICUs in the event of a cyber incident, there is no requirement in the proposed or final rules that FICUs amend existing contracts to comply with this rule. The rule requires only that the agency receive notice of a reportable cyber incident that impacts a FICU either within 72 hours of being notified by a third-party or within 72 hours of a FICU forming a reasonable belief that it has experienced a reportable cyber incident. For example, a FICU reasonably may not be aware that a third-party has experienced a breach absent a notification from the third-party. However, if a FICU experiences a disruption by losing access to its member accounts, it reasonably should be aware that its core service provider has been compromised. The rule does not permit FICUs to provide notice only after the FICU or the third-party have completed all their investigations because the core purpose of the rule is for the agency to receive an early notification that an incident has occurred. The Board recognizes that a FICU's understanding of an incident is likely to evolve, and initial reporting can be incomplete or even inaccurate due to limited information. However, early notification, even if substantively limited, is preferable when compared to delayed notification which may have the effect of impeding the agency's situational awareness.

Finally, regarding the example referenced by one commenter, a substantial cyber incident that leads to the breach of a FICU employee's PII would only be reportable in the event that the third-party has an affiliation or relationship with the FICU by, for example, providing payroll services to the FICU. The example is not intended to impose a notification requirement on a FICU for an incident occurring at any third-party that, unbeknownst and unrelated to the FICU, holds information about individuals who happen to be FICU members or employees.

With regard to catastrophic act reporting under § 748.1(b), two commenters stated that there is insufficient clarity to differentiate this new proposed reporting requirement from the existing catastrophic act reporting requirement and, thus, the latter should be updated to state that it does not include cyber incident reporting. Another commenter stated that, in the event of any overlap between the two reporting requirements, the agency should permit such reporting to receive the longer five-day catastrophic act reporting timeframe.

The Board does not intend to amend the catastrophic act reporting requirement at this time. The Board believes that the two reporting requirements are sufficiently distinct. As stated in the proposed rule, while natural disasters were the leading concern in the aftermath of hurricanes Katrina and Rita, the use of the phrasing “any disaster, natural or otherwise” in the definition of catastrophic act was meant to illustrate other events, such as a power grid failure or physical attack, for example, could have a similar impact on access to member services and vital records. While some cyber-events may fall within the § 748.1(b) definition of catastrophic act, the Board believes they are sufficiently distinguishable and distinct to warrant separate consideration. The Board further believes that the longstanding requirement that FICUs be given five business days to report catastrophic acts, as defined in § 748.1(b), is still appropriate. However, the agency will continue to monitor the issue after this rule goes into effect, in the event clarification is needed.

With regard to Appendix B guidance, one commenter stated that Appendix B should be amended to state that it does not supersede this rule. Another commenter stated that the NCUA should remove the Appendix B language that refers to reporting to a FICU's regional director because most reportable incidents covered by Appendix B will be covered by this rule.

The Board does not intend to amend Appendix B at this time. However, Appendix B provides guidance on FICUs' obligations under § 748.0 and applicable statutes and, thus, does not supersede this rule. 21 If a FICU experiences a reportable cyber incident, that incident shall be reported under the requirements of this rule.

Finally, another commenter stated that while there is some overlap with existing Part 748 reporting requirements, the overlap is minimal, and the proposed rule sufficiently clarifies the requirements of each.

With regard to the definition of vital member services, one commenter stated that the definition needs to be updated to reflect changes in how vital services are delivered to members. Another commenter stated that the NCUA should not require reporting for non-malicious system outages; for example, incidents that involve a substantial loss of availability of a network that disrupts vital member services when a FICU undertakes a technology transition or system upgrade. In these situations, the commenter stated that reporting to the FICU's board of directors should be sufficient.

The NCUA recognizes that FICUs will have planned updates and planned outages that will not require notification. However, a failed system upgrade that causes widespread unplanned outages for members would be reportable under this final rule.

Five commenters stated that it is important to coordinate with other regulatory agencies to minimize redundancy and inconsistency. One of these commenters specifically noted the importance of coordinating with state regulators. One commenter encouraged the NCUA to engage with the Financial Services Information Sharing and Analysis Center. Another commenter noted the importance of coordinating with CISA and the U.S. Treasury to ensure harmonization with the Cyber Incident Reporting Act.

The final rule does not prevent existing supervisory information sharing frameworks. The Board agrees that voluntary information sharing is important and encourages FICUs to continue sharing information through established channels. The agency intends to coordinate with CISA, state and federal regulators, and the U.S. Treasury as much as possible.

Two commenters noted that it is important for the NCUA to define what its policy expectations are, to issue supervisory guidance for institutions to review in developing their policies and procedures, and to show how examiners will assess reported incidents during the annual exam. One commenter stated that it is unclear what follow up action the NCUA is expecting and, thus, this represents an unaccounted impact on FICUs. This commenter also suggested the NCUA create a safe harbor for FICUs that make good faith efforts to perform a reasonable assessment of a cyber incident.

The NCUA will be providing further supervisory guidance prior to the effective date of the final rule. However, cyber incidents may still be reviewed during an annual examination or as part of a supervision contact. This rule does not change the examination and supervision process.

Five commenters mentioned ransomware. Two commenters stated that ransomware reporting should be the same as for other cyber incidents. One commenter supported a shorter window for ransomware reporting. One commenter stated that the NCUA should follow CISA, and one commenter said more specifically that the agency should wait until we know how CISA will handle ransomware reporting.

Notification to the agency of ransomware incidents should be the same as the reporting required under this rule for other cyber incidents. While the Cyber Incident Reporting Act does require entities to report ransomware payments within 24-hours, CISA has not yet promulgated regulations to that effect and this rule does not create a separate reporting framework for ransomware payments. However, the Board encourages FICUs to contact law enforcement and CISA, as appropriate, in the event of a cyber incident that may be criminal in nature.

Application to federally chartered corporate credit unions and federally insured, state-chartered corporate credit unions .

The proposed rule applied to federally chartered and federally insured, state-chartered corporate credit unions. Only one commenter mentioned this point and stated that they support such application. The final rule does not amend this aspect of the proposed rule. Thus, the final rule applies to all FICUs including all federally insured corporate credit unions.

The Regulatory Flexibility Act requires the NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities. 22 For purposes of this analysis, the NCUA considers small credit unions to be those having under $100 million in assets. 23 The final rule requires a FICU to notify the NCUA upon experiencing a substantial cyber incident. This notification requirement is not expected to increase cost burdens on FICUs as it requires only that FICUs provide an early notification to the agency without requiring any detailed assessments or evaluations. Also, while the final rule could lead to cost savings for FICUs if the NCUA or other government agencies can help to mitigate the impact of a cyber incident, the Board does not expect the final rule to accord a significant economic benefit to a substantial number of FICUs. Accordingly, the NCUA certifies that the final rule will not have a significant economic impact on a substantial number of small credit unions.

The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq. ) requires that the Office of Management and Budget (OMB) approve all collections of information by a Federal agency from the public before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a valid OMB control number. In accordance with the PRA, the information collection requirements included in this final rule have been submitted to OMB for approval under control number 3133-0033, Security Program, 12 CFR 748.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, the NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the Executive order. This rulemaking will not have a substantial direct effect on the states, on the connection between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. Although the final rule applies to federally insured, state-chartered credit unions (FISCUs), it imposes only a minimal reporting requirement and does not affect the ability of state regulatory agencies to regulate, supervise, or examine FISCUs on this subject. Therefore, the NCUA has determined that this final rule does not constitute a policy that has federalism implications for purposes of the Executive order.

The NCUA has determined that this final rule will not affect family well-being within the meaning of Section 654 of the Treasury and General Government Appropriations Act, 1999. 24

The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) generally provides for congressional review of agency rules. 25 A reporting requirement is triggered in instances where the NCUA issues a final rule as defined by section 551 of the Administrative Procedure Act. An agency rule, in addition to being subject to congressional oversight, may also be subject to a delayed effective date if the rule is a “major rule.” The NCUA does not believe this rule is a “major rule” within the meaning of the relevant sections of SBREFA. As required by SBREFA, the NCUA will submit this final rule to OMB for it to determine whether the final rule is a “major rule” for purposes of SBREFA. The NCUA also will file appropriate reports with Congress and the Government Accountability Office so this rule may be reviewed.

For purposes of the Congressional Review Act, the OMB makes a determination as to whether a final rule constitutes a “major rule.” If a rule is deemed a “major rule” by the OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication. The Congressional Review Act defines a “major rule” as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in (1) an annual effect on the economy of $100 million or more; (2) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions, or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of U.S.-based enterprises to compete with foreign-based enterprises in domestic and export markets. 26

For the reasons stated in the preamble, the NCUA Board amends 12 CFR part 748, as follows:

Background

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Schempp-Hirth Flugzeugbau GmbH Model Duo Discus and Duo Discus T gliders. The NPRM published in the Federal Register on November 22, 2022 (87 FR 71264). The NPRM was prompted by AD 2022-0138, dated July 7, 2022 (referred to after this as “the MCAI”), issued by the European Union Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union. The MCAI states that an instance of the airbrake becoming blocked or jammed in an extended position during high airspeed on a Duo Discus glider occurred due to an incorrect adjustment on the airbrake system. A review of the manufacturer's maintenance manual revealed more maintenance information is needed to maintain the airbrake system in a serviceable condition. Accordingly, the MCAI requires repetitive inspections of the airbrake system and, depending on findings, accomplishing corrective actions in accordance with existing Schempp-Hirth Flugzeugbau GmbH maintenance instructions or instructions received by contacting Schempp-Hirth Flugzeugbau GmbH.

This condition, if not detected and corrected, could lead to blockage or jamming of the airbrake and result in reduced control of the glider.

In the NPRM, the FAA proposed to require accomplishing the actions specified in the MCAI, except as discussed under “Differences Between this Proposed AD and the MCAI.” The FAA is issuing this AD to address the unsafe condition on these products.

You may examine the MCAI in the AD docket at regulations.gov under Docket No. FAA-2022-1484.

The FAA received no comments on the NPRM or on the determination of the costs.

These products have been approved by the aviation authority of another country and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA reviewed the relevant data and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. This AD is adopted as proposed in the NPRM.

The FAA reviewed Schempp-Hirth Flugzeugbau GmbH Maintenance Information SHK-M-01-22 for the Duo Discus and Duo Discus T airbrake system, dated January 26, 2022, which specifies procedures for inspecting and adjusting the airbrake system.

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

The MCAI applies to Schempp-Hirth Flugzeugbau GmbH Model Duo Discus C gliders, and this AD does not because this model does not have an FAA type certificate.

The MCAI requires accomplishing applicable corrective action in accordance with approved Schempp-Hirth Flugzeugbau GmbH maintenance instructions or contacting Schempp-Hirth Flugzeugbau GmbH for approved instructions and accomplishing those instructions accordingly. This AD requires adjusting the airbrake system in accordance with a method approved by the FAA; EASA; or Schempp-Hirth Flugzeugbau GmbH's Design Organization Approval (DOA). If approved by the DOA, the approval must include the DOA-authorized signature.

The MCAI references incorporating maintenance tasks into the Schempp-Hirth Aircraft Maintenance Program (AMP) to ensure accomplishment of the tasks required in the MCAI. Because the AMP is not required by FAA regulations for U.S. operators of the affected gliders, this AD does not reference the AMP and the actions are contained within this AD.

The FAA estimates that this AD affects 32 gliders of U.S. registry.

The FAA estimates the following costs to comply with this AD:

The FAA estimates the following costs to do any necessary actions that would be required based on the results of the inspection. The agency has no data to determine the number of gliders that might need this action:

Background

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede AD 2015-09-04 R1, Amendment 39-18492 (81 FR 26124, May 2, 2016) (AD 2015-09-04 R1). AD 2015-09-04 R1 applied to DG Flugzeugbau GmbH Model DG-1000T gliders equipped with a Solo Model 2350 C engine. AD 2015-09-04 R1 prohibited operation of the engine and required performing a magnetic particle or dye penetrant inspection of the propeller shaft and reporting the results of the inspection to Solo. The FAA issued AD 2015-09-04 R1 to address failure of the engine shaft with consequent propeller detachment. The unsafe condition, if not addressed, could result in damage to the glider or injury of persons on the ground.

The NPRM published in the Federal Register on December 13, 2022 (87 FR 76166). The NPRM was prompted by AD 2022-0044R1, dated April 29, 2022 (referred to after this as “the MCAI”), issued by the European Union Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union. The MCAI states an occurrence of rupture of the eccentric axle on a Solo Model 2350 D engine (installed on Schempp-Hirth Model Duo Discus T gliders in the United States). The MCAI requires replacing the eccentric axle with a new part and establishing a life limit for this part.

You may examine the MCAI in the AD docket at regulations.gov under Docket No. FAA-2022-1406.

In the NPRM, the FAA proposed to retain a certain action from AD 2015-09-04 R1 in that the NPRM proposed to continue to allow the operating limitation for the DG Flugzeugbau GmbH Model DG-1000T gliders equipped with a Solo Model 2350 C instead of replacing the eccentric axle. The NPRM also proposed to add the Schempp-Hirth Model Duo Discus T gliders equipped with a Solo Model 2350 D engine to the applicability, and require repetitive replacement of the eccentric axle. The NPRM also proposed to require incorporation of the final rule into the Limitations section of the existing aircraft flight manual for your glider if the operator chooses to operate the glider with the engine inoperative. The owner/operator (pilot) holding at least a private pilot certificate may perform the proposed incorporation of the operating limitation into the flight manual of the glider and removal of the operating limitation, and the actions must be entered into the aircraft records showing compliance with this AD in accordance with 14 CFR 43.9(a) and 14 CFR 91.417(a)(2)(v). The record must be maintained as required by 14 CFR 91.417, 121.380, or 135.439. The proposed incorporation of the operating limitation into the existing flight manual of your glider and removal of the operating limitation are not considered maintenance actions and may be done equally by a pilot or a mechanic. This is an exception to the FAA's standard maintenance regulations.

The FAA is issuing this AD to address the unsafe condition on these products.

The FAA received no comments on the NPRM or on the determination of the costs.

These products have been approved by the aviation authority of another country and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA reviewed the relevant data and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. Except for minor editorial changes, this AD is adopted as proposed in the NPRM.

The FAA reviewed Solo Kleinmotoren GmbH Technische Mitteilung (English translation: Service Bulletin), Nr. 4603-19, datum (English translation: dated) January 31, 2022, which specifies procedures for replacing the eccentric axle with eccentric axle part number (P/N) 2031211V2 for Solo Model 2350 D engines, which are installed on Schempp-Hirth Model Duo Discus T gliders in the United States.

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

The MCAI, for the DG Flugzeugbau GmbH Model DG-1000T gliders equipped with a Solo Model 2350 C engine, has a compliance time for the initial eccentric axle replacement based on the effective date of superseded EASA AD 2015-0052-E, dated March 27, 2015. This AD has a compliance time for these gliders based on the effective date of the final rule because there was not a requirement in AD 2015-09-04 R1 to replace the eccentric axle.

The FAA estimates that this AD affects 8 gliders of U.S. registry. The FAA estimates the following costs to comply with this AD:

If any operator chooses to not replace the eccentric axle and instead operates the glider with the engine inoperative, the operating limitation incorporation will take .5 work-hour at $85 per hour for a total of $42.50 per glider. If at any time after, the operator chooses to remove the operating limitation, this action would also take .5 work-hour at $85 per hour for a total of $42.50 per glider.

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

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

The FAA has determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

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

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

I. Background Statutory Provisions

Section 251(a) of the National Housing Act (NHA) (12 U.S.C. 1715z-16(a)) authorizes HUD to insure ARMs and provides that adjustments to the interest rate shall correspond to a specified interest rate index approved in regulations by the Secretary, information on which must be readily accessible to mortgagors from generally available published sources. For HECMs, section 255(d) of the NHA (12 U.S.C. 1715z-20(d)) authorizes the Federal Housing Administration (FHA) to insure variable rate HECMs and imposes additional eligibility requirements on HECMs, which include requirements for HECM ARMs.

HUD initially provided mortgage insurance of ARMs for single family forward mortgages under 24 CFR part 203 and for part 234 condominium mortgages in 1984. 1 As provided in the statute at that time, the interest rate on ARMs had to be adjusted annually, and there was a one percent cap on annual adjustments and an overall cap of five percent above the initial interest rate over the term of the mortgage. The index originally used by HUD was the U.S. Constant Maturity Treasury (CMT). In 2001 and 2003, statutory changes to section 251 of the NHA, 12 U.S.C. 1715z-16 allowed HUD to insure ARMs that have fixed interest rates for 3 years or more and are not subject to interest rate caps if the interest rate remains fixed for more than 3 years. 2 In 2004, HUD issued a rule (“the 2004 rule”) implementing these statutory changes and providing mortgage insurance for forward ARMs with interest rates first adjustable in 1 year, 3 years, 5 years, 7 years, and 10 years. 3

Under the 2004 rule, 1, 3, and 5-year ARMs were capped, for each adjustment, in either direction at one percentage point from the interest rate in effect for the period immediately preceding the adjustment. For the life of the mortgage, the overall five percentage point cap in either direction remained. For 7 and 10-year ARMs, HUD raised the per-adjustment cap to 2 percent of the rate in effect for the immediately preceding period, and the life-of-mortgage cap to 6 percent. In all cases, changes that exceeded these amounts could not be carried over for inclusion in an adjustment for the subsequent year. In 2005, HUD revised the regulation to allow for annual adjustments of a 2 percent change in either direction, and a life-of-mortgage cap of 6 percent in either direction for 5-year ARMs in 2005, conforming 5-year ARMs to HUD's 7 and 10-year ARM products. 4

In 2007, HUD added LIBOR, along with the CMT, as an acceptable index for ARM adjustments for its ARM products (“the 2007 rule”). 5 For forward mortgages, the applicability of these indices is codified at 24 CFR 203.49. The cap on 1 and 3-year ARMs (no more than 1 percent in either direction per single adjustment, with a five percentage points from initial contract rate cap over the life of the loan) is codified at § 203.49(f)(1). The caps for the 5, 7 and 10-year ARMs (2 percent in either direction per adjustment, with a 6 percent from initial contract rate cap for the life of the mortgage) are codified at § 203.49(f)(2). HUD also created model note and mortgage documents for forward ARMs and revised those model documents over the years. The 2015 Model ARM Note  6 contains a provision for the substitution of an index by the note holder based on “comparable information,” should the index specified in the note become unavailable.

In 1989, the Home Equity Conversion Mortgage program rule (the HECM rule) provided for ARMs with both capped and uncapped interest rate adjustments. 7 For capped HECM ARMs, the HECM rule retained the five percentage point life-of-mortgage limit on interest rate increases and decreases in § 203.49, but increased the annual limit on rate increases and decreases from 1 percentage point to 2 percentage points. The HECM rule also provided for a HECM ARM that sets a maximum interest rate that could be charged without a cap on monthly or annual increases or decreases.

In the 2007 rule, in which LIBOR was added for forward mortgages, HUD also added LIBOR as an acceptable index for HECM ARM adjustments in current §§ 206.3 (definitions) and 206.21 (interest rate). 8 HUD's model HECM ARM note and mortgage documents have been revised over the years, but the 2015 version contains provisions for the substitution of a Secretary-prescribed index, should the index specified in the note become unavailable. 9

For the capped option at § 206.21(b)(1), the interest rate cap structure is the same as provided in forward mortgages under § 203.49(a), (b), (d), and (f), except that under § 203.49(d), the reference to first debt service payment means the closing in the HECM ARM context, and under § 203.49(f)(1), the cap on adjustments for one- and three-year mortgages is 2 percentage points in the HECM ARM context. Section 206.21(b)(1)(ii) applies the LIBOR and CMT index options in the same manner as forward ARMs at § 203.49(b) for both the capped and uncapped options. In addition, the uncapped option at § 206.21(b)(2) includes options to adjust based on the one-month CMT or one-month LIBOR index. Section 206.21(b)(1)(iii) also includes ARM interest rate adjustment options for HECMs in the same manner as forward mortgages at § 203.49(d).

On March 11, 2021, in Mortgagee Letter 2021-08, HUD removed LIBOR as an approved index and approved the SOFR index for annually adjustable HECM ARMs closed on or after May 3, 2021. 10 A mortgagee may set rates using CMT or SOFR for annually adjustable HECM ARMs and CMT only for monthly adjustable HECM ARMs. Also, among other changes to the ARM requirements in the Mortgagee Letter, HUD published revised model mortgage documents with “fallback” language intended to address future interest rate index transition events. This language was modeled after the Alternative Reference Rates Committee's (ARRC)  11 published fallback language for residential ARMs. 12

The financial industry is transitioning from use of the LIBOR index given its increasing unreliability and speculative nature. As noted by the Financial Stability Oversight Council, the scarcity of underlying transactions makes LIBOR potentially unsustainable, as many banks have grown uncomfortable in providing submissions based on expert judgment and may eventually choose to stop submitting altogether. 13 The relatively small number of transactions underpinning LIBOR has been driven by changing market structure, regulatory capital, and liquidity requirements as well as changes in bank risk appetite for short-term funding, thereby creating uncertainty as to the integrity of the index.

In July of 2017, the U.K. Financial Conduct Authority (FCA), the financial regulator of LIBOR, announced that it would no longer persuade or compel contributing banks to submit rates used to calculate LIBOR after December 31, 2021, further heightening the uncertainty of LIBOR. 14 On November 30, 2020, the Federal Reserve Board announced that regulators had proposed clear end dates for the USD LIBOR immediately following the December 31, 2021 publication for the one week and two month USD LIBOR settings, and immediately following the June 30, 2023 publication for other USD LIBOR tenors. 15 On March 5, 2021, the ICE Benchmark Administration Limited (IBA) published the feedback it received to a December, 2020, consultation, and announced it would cease publication of the one month and one year USD LIBOR immediately following the LIBOR publication on June 30, 2023. 16

With the uncertainty and upcoming phase-out of LIBOR, mortgagees have been working to transition to a new replacement interest rate index for existing ARM contracts. The ARRC, a group of private market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York to ensure the transition from USD LIBOR to a reliable reference rate, recommended the selection of SOFR for use in new USD contracts. 17 SOFR is published by the Federal Reserve Bank of New York in cooperation with the Office of Financial Research, an independent bureau with the U.S. Department of the Treasury, and “. . . is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities in the repurchase agreement (repo) market.”  18 HUD anticipates that a spread-adjusted SOFR will be published to minimize the impact of the transition on legacy ARMs and other LIBOR-based contracts.

According to the ARRC, “SOFR is suitable to be used across a broad range of financial products, including but not limited to, derivatives (listed, cleared, and bilateral-OTC), and many variable rate cash products that have historically referenced LIBOR.”  19

As part of the Consolidated Appropriations Act, 2022, 20 Congress passed the Adjustable Interest Rate (LIBOR) Act of 2021 (LIBOR Act)  21 to, in part, create a clear and uniform process, on a nationwide basis, for replacing LIBOR in existing contracts where the terms do not provide for the use of a clearly defined or practicable replacement benchmark rate, without affecting the ability of parties to use any appropriate benchmark rate in a new contract. 22 Generally, for LIBOR-based ARMs without language providing for a specific replacement index, the default replacement index will be a spread-adjusted SOFR as provided for under the LIBOR Act.

The LIBOR Act establishes that this spread-adjusted replacement index will replace LIBOR for existing contracts on the Replacement Date, specified in the LIBOR Act as the first London banking day after June 30, 2023, unless the Federal Reserve Board specifies another date (the “Replacement Date”). 23 The LIBOR Act also established a one-year linear basis to transition the tenor spread adjustment from LIBOR to the SOFR spread-adjusted index. 24 For FHA-insured LIBOR-based ARMs, the LIBOR Act authorizes HUD to approve the spread-adjusted SOFR index, or another benchmark replacement index selected by HUD, as a replacement to LIBOR for existing ARMs starting on the Replacement Date. 25

On October 5, 2021, HUD published an advanced notice of proposed rulemaking (ANPR) to seek input from the public on the transition away from LIBOR. 26 HUD sought comment on how to address a Secretary-approved replacement index for existing loans and provide for a transition date consistent with the cessation of the LIBOR index. HUD also sought comment on replacing the LIBOR index with the SOFR interest rate index, with a compatible spread adjustment to minimize the impact of the replacement index for existing ARMs. The comment period closed on December 6, 2021. HUD received nine comments on the ANPR, which were considered when drafting the proposed rule.

On October 19, 2022, HUD published for public comment a proposed rule to amend 24 CFR parts 203 and 206 (“the proposed rule”). 27 HUD proposed three changes. First, HUD proposed to transition from LIBOR to a spread-adjusted SOFR index for existing forward and HECM ARMs, update the HECM ARM regulation consistent with changes already made through Mortgagee Letter 2021-08 regarding new originations, and replace LIBOR with SOFR as a Secretary-approved index for new forward ARMs. HUD also proposed that the Secretary will publish through notice any additional requirements for transition of existing LIBOR-based ARMs to address technical aspects of the transition process, newly published SOFR tenors, and any developments arising from the transition.

Second, HUD proposed to clarify its regulations regarding the Monthly Adjustable Interest Rate HECMs at § 206.21(b)(2) to clarify the requirements applicable to monthly adjustments to align with those provided for annual adjustments.

Third, HUD proposed to establish a five percentage point lifetime cap on the adjustment of the HECM monthly ARM interest rate to align with similar ARM interest rate caps that are currently used for annual interest rate HECMs and forward ARMs in the mortgage industry.

In response to public comments as discussed further below, and in further consideration of issues addressed at the proposed rule stage, HUD is publishing this final rule with the following changes from the proposed rule.

HUD proposed to establish a five percentage point cap for monthly HECM ARMs. After consideration of comments, HUD is revising § 206.21(b)(2)(iii) to state that the maximum lifetime adjustment cap for monthly HECM mortgages will be set at no more than ten percentage points in either direction from the initial mortgage interest rate, and that HUD may revise this cap through notice.

In response to comments stating that the language regarding constant maturity is unique to the U.S. Treasury and does not apply to SOFR, HUD is removing the clause “adjusted to a constant maturity” from application to SOFR at §§ 203.49(b)(1) and 206.21(b)(1)(ii).

To make clear that the paragraph regarding application of the replacement index to existing mortgages applies to both annual and monthly HECM mortgages, HUD is moving the proposed § 206.21(b)(1)(ii)(B) to a new paragraph at § 206.21(b)(3).

In response to a comment suggesting that it is the index, not the mortgage rate, which should be prohibited from going below zero, HUD has revised § 206.21(b)(1)(ii) and (b)(2)(i) to replace “mortgage rate” with “index figure”.

HUD is also making two other clarifying changes to these paragraphs. First, HUD is revising the word “change” to “periodic adjustment” in both § 206.21(b)(1)(ii) and (b)(2)(i). Second, HUD is changing “Note rate” to “mortgage interest rate” in § 206.21(b)(2)(i) to align with § 206.21(b)(1)(ii).

The public comment period for the proposed rule closed on November 18, 2022. HUD received 4 comments relating to the rule.

Commenters supported the proposed rule. Commenters stated that SOFR rates are more accurate rates based off historical trends, more stable, less risky, and less prone to manipulation. A commenter stated that without a transition from LIBOR, forward mortgage borrowers could see their monthly payments become unaffordable and HECM borrowers could see their equity eroded. A commenter noted that SOFR is calculated from billions of dollars of actual daily transactions compared to LIBOR, which is calculated based on fewer transactions and often uses estimates or even simply expert judgment. A commenter stated that lenders have manipulated the LIBOR interest rate system and suggested that this manipulation contributed to the real estate crash of 2008. This commenter stated that LIBOR allowed lenders to manipulate interest rates over 3, 6, and 12 month periods. This commenter stated that these advantages of SOFR will lead to lower borrowing cost for companies, which should help improve the US economy. A commenter noted that SOFR is publicly available for free and maintained by an independent, quasi-governmental entity, compared to LIBOR, which is controlled by a private benchmark administrator that restricts access to those who pay for it.

A commenter noted that Fannie Mae and Freddie Mac have already replaced LIBOR with SOFR in their uniform instruments, giving substantial weight to the use of this index in the mortgage market. This commenter also noted that Ginnie Mae has already stopped purchasing loans that use LIBOR, and better alternatives ( e.g., the 30-day SOFR) are now available, so it is appropriate for HUD to formally prevent the issuance of any more LIBOR loans.

A commenter, in support of the proposed rule, emphasized that without a good transition off LIBOR, forward mortgage borrowers could see their monthly payments become unaffordable or more volatile, driving them into default and foreclosure, and HECM borrowers could see their equity be eroded at an unsustainable pace. This commenter also noted the Mutual Mortgage Insurance Fund (MMIF) would bear the financial cost of any mismanagement in the LIBOR transition. This commenter further noted that borrowers have no control over what happens in this process and mortgage contracts provide them with no say in the noteholder's decision, and so borrowers' only form of recourse would be to complain or initiate litigation.

This commenter also specifically supported HUD's proposal to require noteholders to follow the Alternative Reference Rates Committee's (ARRC) recommendation to replace LIBOR with the spread-adjusted SOFR in existing mortgages. This commenter asserted that the spread-adjusted SOFR accurately accounted for SOFR's slightly lower historical trend compared to LIBOR, and was therefore the best replacement index available.

HUD Response: HUD appreciates the support for its proposal to remove the LIBOR index and add SOFR as a Secretary-approved index for newly originated ARMs and to approve a spread-adjusted SOFR index as the replacement index for existing forward and HECM ARMs that will transition from LIBOR. HUD believes that following the ARRC recommendations to replace LIBOR with SOFR is a crucial step for aligning with the GSEs and is also in the best interest of borrowers and mortgagees. Using a spread-adjusted SOFR as the Secretary-approved replacement index should facilitate a smooth transition for existing mortgages. HUD will publish a Mortgagee Letter to implement the requirements in this final rule.

Commenters opposed HUD's proposal to cap HECM ARMs at five percentage points. A commenter disagreed with HUD's assertion that, currently, HECM ARMs may be uncapped. The commenter stated that lenders must set a maximum interest rate to comply with section 1204 of the Competitive Equality Banking Act of 1987 (“CEBA”). This commenter stated that CEBA does not specify what the rate cap might be, but in the commenter's experience, lenders set their rate caps between five and ten percentage points over the initial interest rate. The commenter objected to HUD's statement that setting a five percentage point rate cap would reduce risk to borrowers and the MMIF, stating that HUD offers no evidence to support the assertion. The commenter also objected that the statement ignores that lenders have been voluntarily offering monthly ARMs with a five percentage point rate cap. The commenter noted that if HUD required a five percentage point rate cap, lenders might increase the initial rate by increasing the margin, and suggested that lenders have indicated that the ability to set the rate cap at ten percentage points allows lenders to offer lower margins which could be more beneficial to borrowers and the MMIF than the proposed rate cap. This commenter also noted that taking away the lower rate option by mandating a specific rate cap would increase risk for GNMA and HMBS issuers, where in an increasing rate environment, participations subject to lower rate caps can trade below par. This commenter concluded by requesting that FHA recognize that monthly adjustable HECM ARMs per current law cannot be “uncapped,” recognize existing lender practice, and allow lenders to continue to set their own cap.

Another commenter referred to the ten percentage point cap as being “tried and true.” This commenter warned that the five percentage point cap would appear to, but would not actually, benefit senior borrowers. The commenter explained that the five percentage point cap would have a much more conservative limit to growth in situations where the borrower chooses not to access their line of credit immediately, and instead lets it grow over time. The commenter noted the importance to senior couples or surviving spouses of the ability to use this additional growth. This commenter also noted that the five percentage point cap would reduce lender participation in the current volatile interest rate environment where many of the recent loans in the pool are already pushing the limits of the five percentage point caps.

HUD Response: HUD recognizes that the reverse mortgage industry has a “self-imposed” ten percent maximum interest rate cap, and more recently, some mortgagees have used a maximum interest rate of five percent on a monthly ARM. HUD notes that CEBA does not mandate a specific cap and the current industry standard may change or may not be universally followed. HUD recognizes that there may be situations where a ten percent cap is beneficial both to the borrower and mortgagee. However, HUD also notes that HUD's responsibility for managing and mitigating risks to the MMIF, is challenged when house price appreciation slows, the housing market is volatile, or inflation is increasing. Therefore, after considering comments, HUD has determined it will establish a maximum interest rate cap of up to ten percent beyond the initial mortgage interest rate for monthly mortgages, but may adjust this cap in the future through notice.

Overall, setting a cap will reduce risk to the borrower and the MMIF by reducing potential loan balance growth and slow the rate at which the outstanding principal limit balance reaches 98% of the maximum claim amount while reserving the property's equity in a declining market. Borrowers would also be protected from the risk of entering into a financial product where the maximum interest rate could exceed the ten percent limit during a period of higher interest rates. This change will also permit mortgagees to continue to offer monthly ARMs that align with current mortgagee practices and supports the borrower's ability to negotiate with the mortgagee for best interest rate terms.

HUD initially intends to set the cap at up to ten percent above the initial mortgage interest rate. If HUD determines it is necessary to change the maximum mortgage interest rate range, HUD will examine a variety of market factors. These factors may include the FHA portfolio analysis of default and claim rates of HECMs with similar attributes, analysis of HECMs across geographical areas segmented by the maximum mortgage interest rate, and any other relevant factors.

A commenter noted that HUD proposed to use the 30-day average SOFR tenor “adjusted to a constant maturity of one year,” but the concept of adjustments to a constant maturity is a U.S. treasury concept and does not apply to SOFR. This commenter therefore suggested that HUD issue either in the final rule or in a concurrent mortgagee letter, that for the replacement index for existing ARMs indexed to LIBOR, that HUD approved SOFR tenors are the spread-adjusted SOFR rates published by Refinitiv for the one-, three-, six-, and twelve-month indices.

HUD Response: HUD appreciates the feedback and has adopted the change suggested by commenters to remove “adjusted to a constant maturity of one year” from §§ 203.49(b)(1) and 206.21(b)(1)(ii) since this reference is not applicable to the 30-day average SOFR tenor. HUD also recognizes the index selected must be appropriate and from a publicly available source such as the one suggested. HUD will take this suggestion into consideration when it publishes the notice establishing approved indices.

A commenter noted that the proposed rule established the replacement index for mortgages with an existing adjustable interest rate indexed to LIBOR in § 206.21(b)(1)(ii)(B), but the commenter noted that § 206.21(b)(1) addresses annually adjustable HECM ARMs, whereas monthly adjustable HECMs are primarily addressed in § 206.21(b)(2). This commenter requested that HUD make clear that the entirety of § 206.21(b)(1)(ii)(B) applies to monthly adjustable HECMs. This commenter also requested that HUD clarify that for any monthly adjustable HECM ARMs, the remainder of the contract provisions of the HECM loan notes will remain unchanged, which the commenter said was clearly required under § 206.21(b)(1)(ii)(B), but did not clearly also apply to § 206.21(b)(2).

HUD Response: HUD appreciates the concerns raised by this commenter and has restructured § 206.21(b) by creating a new paragraph (b)(3) to avoid confusion and ensure the requirements for transitioning existing HECMs from LIBOR to the Secretary-approved spread-adjusted SOFR replacement index is applicable to annual and monthly HECM ARMs.

A commenter noted that the proposed § 206.21(b)(2)(ii) differed from language included in section 5(C) of the Model Note for HECMs as updated in March of 2021 and suggested that HUD revise § 206.21(b)(2)(ii) to align with the Model Note.

This commenter also requested that HUD clarify that the index only needs to be rounded 3 digits to the right of the decimal point.

HUD Response: HUD appreciates the feedback provided; however, HUD believes the changes made to § 206.21(b)(2) accomplishes its intent to clarify the requirements applicable to monthly ARMs in a similar manner that is currently provided for annual ARMs. HUD will revise and publish a Model Note that corresponds to the requirements in this final rule.

Currently, the mortgage interest rate that is entered into HUD's systems must be rounded to 3 digits to the right of the decimal point. HUD does not anticipate making changes to this requirement.

A commenter noted HUD proposed that the downward change in the index “will not result in a mortgage interest rate that is less than zero” and suggested changing “mortgage interest rate” to “index”, consistent with HUD's Model HECM ARM Note.

HUD Response: HUD appreciates the feedback provided and has adopted the suggested language to replace “mortgage interest rate” with “index figure”.

A commenter requested that HUD issue guidance that SOFR rates “established on Mondays and going into effect on Tuesday and are good until the following week's index is established.” This commenter noted that this would be consistent with the method used for LIBOR rates under Mortgagee Letter 2007-13.

HUD Response: HUD will consider this comment when issuing guidance to implement the requirements in this final rule.

A commenter suggested the HECM program should align with the forward mortgage program and allow borrowers to immediately qualify by paying off unsecured debt. The commenter stated that not allowing a client to participate in the HECM program due to not being able to restructure debt in a better way had no justification.

HUD Response: HUD appreciates this comment, but this recommendation is outside the scope of this rulemaking.

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

The current rules providing for the use of LIBOR as an index for interest rate adjustments for ARMs in HUD's forward and reverse mortgage insurance programs are becoming obsolete as LIBOR is in the process of being phased out. HUD is required by statute to approve by regulation interest rate indices for its forward ARM products. HUD must also amend by regulation its permitted interest rate indices for HECM ARM products and permit lenders to transition from LIBOR to a replacement index for existing HECM ARMs. Therefore, this rule is necessary to prevent HUD's rules on ARMs from becoming obsolete as well as to avoid the risk of financial harm for all ARM lenders and borrowers, and the larger ARM market, and the MMIF.

HUD does not expect the rule to have an economic impact as a result of the transition to the alternative rate. For newly endorsed forward ARMs, SOFR will become an available index in addition to the one-year CMT index. HUD has already removed LIBOR and approved SOFR for new annually adjustable HECM ARM originations. As of the Effective Date or prior to the cessation of LIBOR, existing LIBOR indexed FHA-insured ARMs may transition to a spread-adjusted SOFR to make it a comparable rate for existing LIBOR-based ARMs. Transition to the spread-adjusted SOFR will align FHA-insured ARMs with other LIBOR contracts covered by the LIBOR Act.

For existing mortgages that transition to spread-adjusted SOFR, we do not anticipate a significant economic impact. For all existing FHA-insured ARMs, the per-adjustment and lifetime caps on total adjustments will continue to apply, minimizing the impact to borrowers or mortgagees as a result of the transition to SOFR.

This rule was not subject to OMB review. This rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not an economically significant regulatory action.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4; approved March 22, 1995) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments, and on the private sector. This rule does not impose any Federal mandates on any State, local, or tribal governments, or on the private sector, within the meaning of the UMRA.

This rule consists of statutorily required and/or discretionary establishment and review of interest rates and similar rate and cost determinations and related external administrative or fiscal requirements or procedures which do not constitute a development decision that affects the physical condition of specific project areas or building sites. Accordingly, under 24 CFR 50.19(c)(6), this rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This rule provides for the removal of LIBOR as an allowable index rate for adjustments for new FHA-insured forward ARMs and establish SOFR as a new index along with the CMT for new forward ARMs, aligning it with the available indices for annually adjustable HECM ARMs. There will be a Secretary-approved spread-adjusted SOFR for existing FHA-insured ARMs transitioning from LIBOR.

The rule requires mortgagees to, where appropriate, utilize a new approved index. Mortgagees are already required to substitute an index under the terms of their existing loan documents when the index used becomes unavailable. Additionally, this rule establishes a new index for origination of new forward ARMs, which mortgagees regularly provide when originating a loan. Therefore, the changes in this rule should not have a significant economic impact on mortgagees. If there is an economic effect on mortgagees, it would fall equally on all mortgagees who originate or service ARMs. Further, HUD anticipates that allowing an additional index for newly originated ARMs will have a net positive economic impact on borrowers and mortgagees by providing additional market opportunities, decreasing the cost of credit associated with these ARMs.

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

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either: (1) imposes substantial direct compliance costs on State and local governments and is not required by statute, or (2) preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

The information collection requirements contained in this rule are currently approved by OMB and have been given OMB Control Number 2502-0322 and OMB Control Number 2502-0524 and 2502-0611. In accordance with the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB control number.

For the reasons discussed in the preamble, HUD amends 24 CFR parts 203 and 206 as follows:

I. Table of Abbreviations CFR Code of Federal Regulations DHS Department of Homeland Security FR Federal Register NPRM Notice of proposed rulemaking § Section U.S.C. United States Code II. Background Information and Regulatory History

The Coast Guard is issuing this temporary rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because it is impracticable. We must establish this safety zone immediately to protect personnel, vessels, and the marine environment from potential hazards created by the fireworks display and lack sufficient time to provide a reasonable comment period and then to consider those comments before issuing the rule.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Delaying the effective date of this rule would be contrary to the public interest because immediate action is needed to respond to the potential safety hazards associated with fireworks launched from a barge in the waters of the Aransas Bay.

The Coast Guard is issuing this rule under authority in 46 U.S.C. 70034. The Captain of the Port Sector Corpus Christi (COTP) has determined that potential hazards associated with the fireworks display from 8 p.m. through 9 p.m. on March 2, 2023, will be a safety concern for anyone within the waters of the Aransas Bay area with a 400yds radius from the following point; 28°03′58.1″ N, 97°01′45.3″ W. The purpose of this rule is to ensure safety of vessels and persons on these navigable waters in the safety zone while the display of the fireworks takes place in the Aransas Bay.

This rule establishes a temporary safety zone from 8 p.m. through 9 p.m. on March 2, 2023. The safety zone will encompass certain navigable waters of the Aransas Bay and is defined by a 400yds radius around the launching platform. The regulated area encompasses a 400yds radius from the following point; 28°03′58.1″ N, 97°01′45.3″ W. The fireworks display will take place in waters of the Aransas Bay. No vessel or person is permitted to enter the temporary safety zone during the effective period without obtaining permission from the COTP or a designated representative, who may be contacted on Channel 16 VHF-FM (156.8 MHz) or by telephone at 361-939-0450. The Coast Guard will issue Broadcast Notices to Mariners, Local Notices to Mariners, and/or Safety Marine Information Broadcasts as appropriate.

We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, this rule has not been reviewed by the Office of Management and Budget (OMB).

This regulatory action determination is based on the size, location, and duration of the safety zone. The temporary safety zone will be enforced for a short period of one hour. The zone is limited to a 400yds radius from the launching position of in the navigable waters of the Aransas Bay. The rule does not completely restrict the traffic within a waterway and allows mariners to request permission to enter the zone.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the temporary safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this rule has implications for federalism or Indian tribes, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section above.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this rule under Department of Homeland Security Directive 023-01, and Environmental Planning, COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f) and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves establishment of a temporary safety zone for navigable waters of the Aransas Bay in a zone defined by a 400yds radius from the following coordinate: 28°03′58.1″ N, 97°01′45.3″ W. The safety zone is needed to protect personnel, vessels, and the marine environment from potential hazards created by fireworks display in the waters of the Aransas Bay. It is categorically excluded from further review under paragraph L60 of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 1. A Record of Environmental Consideration supporting this determination is available in the docket. For instructions on locating the docket, see the ADDRESSES section of this preamble.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

The Coast Guard will enforce a Safety Zone: Annual Events in the Captain of the Port Buffalo Zone listed in 33 CFR 165.939, Table 165.939(b)(6) for the Parade of Lights on July 22, 2023, in Cleveland, Ohio on the Cuyahoga River. Pursuant to 33 CFR 165.23, entry into, transiting, or anchoring within the safety zone during an enforcement period is prohibited unless authorized by the Captain of the Port Buffalo or a designated representative. Those seeking permission to enter the safety zone may request permission from the Captain of Port Buffalo via channel 16, VHF-FM. Requests must be made in advance and approved by the Captain of Port Buffalo before transits will be authorized. Approvals will be granted on a case-by-case basis. Vessels and persons granted permission to enter the safety zone shall obey the directions of the Captain of the Port Buffalo or a designated representative. While within a safety zone, all vessels shall operate at the minimum speed necessary to maintain a safe course.

This Notice of Enforcement is issued under authority of 33 CFR 165.939 and 5 U.S.C. 552 (a). In addition to this Notice of Enforcement in the Federal Register , the Coast Guard will provide the maritime community with advance notification of this enforcement period via Broadcast Notice to Mariners or Local Notice to Mariners. If the Captain of the Port Buffalo determines that the safety zone need not be enforced for the full duration stated in this notice, he or she may use a Broadcast Notice to Mariners to grant general permission to enter the respective safety zone.

I. Overview

On June 15, 2022, the Commonwealth of Kentucky submitted changes to the Jefferson County LIP for EPA approval. 1   2 EPA is approving changes to Section 4— Permit Applications of the District's Regulation 2.17— Federally Enforceable District Origin Operating Permits. 3 Under Regulation 2.17, Section 1.1, a FEDOOP is an operating permit that contains a federally enforceable condition, limit, or provision that is issued to a stationary source that is not, or would not subsequently be, required to obtain a permit under Regulation 2.16— Title V Operating Permits.

The changes in the June 15, 2022, submission add timing requirements for sources applying for FEDOOP permits that are similar to those in Regulation 2.16. Through a Notice of Proposed Rulemaking (NPRM) published on December 27, 2022 (87 FR 79261), EPA proposed to approve these changes as being consistent with the CAA. Additional details on Kentucky's June 15, 2022, revision and EPA's analysis of the changes can be found in the December 27, 2022, NPRM. Comments on the December 27, 2022, NPRM were due on or before January 26, 2023. EPA received one anonymous comment on the NPRM. That comment was unrelated to the specifics of the NPRM.

In this document, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with the requirements of 1 CFR 51.5, and as discussed in Section I of this preamble, EPA is finalizing the incorporation by reference of Jefferson County Regulation 2.17— Federally Enforceable District Origin Operating Permits, version 5, with a local-effective date of March 16, 2022, which adds timing requirements to the permit application process. EPA has made, and will continue to make, these materials generally available through www.regulations.gov and at the EPA Region 4 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). Therefore, these materials have been approved by EPA for inclusion in the SIP, have been incorporated by reference by EPA into that plan, are fully federally enforceable under sections 110 and 113 of the CAA as of the effective date of the final rulemaking of EPA's approval, and will be incorporated by reference in the next update to the SIP compilation. 4

EPA is approving the aforementioned changes to Regulation 2.17— Federally Enforceable District Origin Operating Permits, with a local-effective date of March 16, 2022, into the Jefferson County LIP. EPA is approving these changes because they are consistent with the CAA.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. See 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. This action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

The SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it impose substantial direct costs on tribal governments or preempt tribal law.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by May 1, 2023. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. See section 307(b)(2).

For the reasons stated in the preamble, the EPA amends 40 CFR part 52 as follows:

I. Background

On October 1, 2015, EPA promulgated revised primary and secondary NAAQS for ozone, revising the 8-hour ozone standards from 0.075 parts per million (ppm) to a new more protective level of 0.070 ppm. See 80 FR 65292 (October 26, 2015). Pursuant to section 110(a)(1) of the CAA, states are required to submit SIP revisions meeting the applicable requirements of section 110(a)(2) within three years after promulgation of a new or revised NAAQS or within such shorter period as EPA may prescribe. Section 110(a)(2) requires states to address basic SIP elements such as requirements for monitoring, basic program requirements, and legal authority that are designed to assure attainment and maintenance of the NAAQS. This particular type of SIP is commonly referred to as an “infrastructure SIP” or “iSIP.” States were required to submit such SIP revisions for the 2015 8-hour ozone NAAQS to EPA no later than October 1, 2018. 1

This action conditionally approves portions of Mississippi's January 25, 2021, SIP revision, as supplemented on November 18, 2022, 2 provided to EPA through the MDEQ for the applicable requirements of the 2015 8-hour ozone NAAQS regarding the PSD provisions related to major sources under sections 110(a)(2)(C), 110(a)(2)(D)(i)(II), and 110(a)(2)(J), and the air quality modeling element of section 110(a)(2)(K). 3 Mississippi's submission included a written commitment under CAA section 110(k)(4) to take action to meet the requirements of the PSD and air quality modeling elements for its 2015 ozone iSIP by adopting a rule revision no later than one year after EPA's conditional approval of these portions of Mississippi's ozone iSIP. Specifically, MDEQ intends to amend 11 Mississippi Administrative Code (MAC), Part 2, Chapter 2, as well as 11 MAC, Part 2, Chapter 5, to cite to the current version of 40 CFR part 51, Appendix W, Guideline on Air Quality Models. Separately, EPA took final action on the remaining elements of Mississippi's January 25, 2021, SIP revision with the exception of the visibility protection provisions of section 110(a)(2)(D)(i)(II). 4 EPA will consider the portion of Mississippi's January 25, 2021, SIP revision that addresses the visibility protection provisions in a separate rulemaking.

Through a notice of proposed rulemaking (NPRM) published on December 23, 2022 (87 FR 78896), EPA proposed to conditionally approve changes to portions of Mississippi's 2015 8-hour Ozone NAAQS iSIP contained in MDEQ January 25, 2021, submittal as supplemented November 18, 2022. The details of Mississippi's submission, as well as the background and EPA's rationale for conditionally approving the changes, are described in more detail in the December 23, 2022, NPRM. Comments on the December 23, 2022, NPRM were due on or before January 23, 2023. No comments were received.

EPA is conditionally approving the portions of the 2015 8-hour Ozone NAAQS iSIP that address the PSD related requirements of CAA sections 110(a)(2)(C), 110(a)(2)(D)(i)(II) (Prong 3), and 110(a)(2)(J), and the modeling requirements of 110(a)(2)(K). With the exception of the visibility provisions, EPA has already taken final action on the remainder of Mississippi's January 25, 2021, submittal. EPA will consider Mississippi's visibility provisions in the January 25, 2021, SIP revision through a future rulemaking.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. See 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. This action merely conditionally approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this final action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• Does not provide EPAwith the discretionary authorityto address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods,under Executive Order 12898 (59 FR 7629, February 16, 1994).

The SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it impose substantial direct costs on tribal governments or preempt tribal law.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by May 1, 2023. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. See section 307(b)(2) of the CAA.

For the reasons stated in the preamble, EPA amends 40 CFR part 52 as follows:

I. Background

Each state has a SIP containing the control measures and strategies used to attain and maintain the national ambient air quality standards (NAAQS). The SIP is extensive, containing such elements as air pollution control regulations, emission inventories, monitoring networks, attainment demonstrations, and enforcement mechanisms.

Each state must formally adopt the control measures and strategies in the SIP after the public has had an opportunity to comment on them and then submit the proposed SIP revisions to EPA. Once these control measures and strategies are approved by EPA, and after notice and comment, they are incorporated into the federally-approved SIP and are identified in part 52—“Approval and Promulgation of Implementation Plans,” Title 40 of the Code of Federal Regulations (40 CFR part 52). The full text of the state regulation approved by EPA is not reproduced in its entirety in 40 CFR part 52 but is “incorporated by reference.” This means that EPA has approved a given state regulation or specified changes to a given regulation with a specific effective date. The public is referred to the location of the full text version should they want to know which measures are contained in a given SIP. The information provided allows EPA and the public to monitor the extent to which a state implements a SIP to attain and maintain the NAAQS and to take enforcement action for violations of the SIP.

The SIP is a living document which the state can revise as necessary to address the unique air pollution problems in the state. Therefore, EPA from time to time must take action on proposed revisions containing new or revised state regulations. A submission from a state can revise one or more rules in their entirety or portions of rules. The state indicates the changes in the submission (such as by using redline/strikethrough text), and EPA then takes action on the requested changes. EPA establishes a docket for its actions using a unique Docket Identification Number, which is listed in each action. These dockets and the complete submission are available for viewing on www.regulations.gov.

On May 22, 1997 (62 FR 27968), EPA revised the procedures for incorporating by reference, into the Code of Federal Regulations, materials approved by EPA into each SIP. These changes revised the format for the identification of the SIP in 40 CFR part 52, streamlined the mechanisms for announcing EPA approval of revisions to a SIP, and streamlined the mechanisms for EPA's updating of the IBR information contained for each SIP in 40 CFR part 52. The revised procedures also called for EPA to maintain “SIP Compilations” that contain the federally approved regulations and source-specific permits submitted by each state agency. EPA generally updates these SIP Compilations on an annual basis. Under the revised procedures, EPA must periodically publish an informational document in the rules section of the Federal Register notifying the public that updates have been made to a SIP Compilation for a particular state. EPA began applying the 1997 revised procedures to Florida on June 16, 1999, and is providing this notice in accordance with such procedures. See 64 FR 32346.

In this action, EPA is providing notice of an update to the materials incorporated by reference into the Florida SIP as of August 31, 2022, and identified in 40 CFR 52.520(c) and (d). This update includes SIP materials approved by EPA since the last IBR update. See 83 FR 17081 (April 18, 2018). In addition, EPA is providing notice of the following corrections and clarifying changes to 40 CFR 52.520(c) and (d):

A. Correcting Table (c)'s title, from “ (c) EPA Approved Florida Regulations ” to “ (c) EPA-Approved Florida Laws and Regulations ”.

B. Correcting the header of paragraph (c), from “EPA Approved Florida Regulations” to “EPA-Approved Florida Laws and Regulations”.

C. Where applicable, under the “State effective date” and “EPA Approval Date,” removing the leading zero from the month and day, and change the 2-digit year to reflect a 4-digit year (for consistency), and correcting a Federal Register citation to reflect the beginning page of the preamble as opposed to that of the regulatory text.

D. Correcting a typographical error for State Statute 62-296.570 by changing the title, “Reasonably Available Control Technology (RACT)—Requirements for Major VOC and NO X - Emitting Facilities” to “Reasonably Available Control Technology (RACT)—Requirements for Major VOC- and NO X - Emitting Facilities”.

E. Correcting a typographical error for State Statute 62-296.705 by changing the title, “Phosphate Processing operations” to “Phosphate Processing Operations”.

F. Correcting a typographical error for State Statute 62-296.711 by changing the title, “Materials Handling, Sizing, Screening, Crushing and Grinding operations” to “Materials Handling, Sizing, Screening, Crushing and Grinding Operations”.

G. Changing the reference to State Statute 112.3143(4) by removing reference to subsection (4) and correcting a typographical error by changing the title, “Voting Conflict” to “Voting conflicts”.

H. Reformatting “State Statutes” 120.569 and 403.131 to be in sequential order.

I. Correcting state effective dates listed under State Statutes in paragraph 52.520(c), as described below:

a. 112.3143, Voting conflicts, State effective date is revised to read “6/29/1999.”

b. 112.3144, Full and public disclosure of financial interests, State effective date is revised to read “10/1/2006.”

c. 120.569, Decisions which affect substantial interests, State effective date is revised to read “6/24/2011.”

d. 403.131, Injunctive relief, remedies, State effective date is revised to read “6/15/2001.”

J. Adding language to the explanation column under State Statute 120.569, Decisions which affect substantial interests, to read as follows: “Paragraph (2)(n) only; to satisfy the requirements of section 110(a)(2)(G).”

A Correcting Table (d)'s title, from “ (d) EPA-approved State Source-specific requirements ” to “ (d) EPA-Approved State Source-Specific Requirements. ”

B. Correcting the header of paragraph (d) from “EPA-approved Florida source-specific requirements” to “EPA-Approved Florida Source-Specific Requirements.”

C. Where applicable, under the “State effective date” and “EPA Approval Date,” removing the leading zero from the month and day, changing the 2-digit year to reflect a 4-digit year (for consistency), and correcting a Federal Register citation to reflect the beginning page of the preamble as opposed to that of the regulatory text.

D. Correcting the explanation column listed in Table (d), as described below:

a. Mosaic Fertilizer, LLC, revised to read “Specific Conditions pertaining to EU004; EU005; and EU006.”

b. Rayonier Performance Fibers, LLC, revised to read “Specific Conditions pertaining to EU005; EU006; and EU022.”

c. Tampa Electric Company—Big Bend Station, Air Permit No. 0570039-074-AC, removing the word “only.”

d. Tampa Electric Company—Big Bend Station, Air Permit No.0570039-120-AC, removing the word “only.”

EPA has determined that this action falls under the “good cause” exemption in the section 553(b)(3)(B) of the Administrative Procedure Act (APA) which, upon finding “good cause,” authorizes agencies to dispense with public participation and section 553(d)(3) which allows an agency to make an action effective immediately (thereby avoiding the 30-day delayed effective date otherwise provided for in the APA). This administrative action simply codifies provisions which are already in effect as a matter of law in Federal and approved state programs, makes typographical/ministerial revisions to the tables in the CFR, and makes ministerial changes to the prefatory heading to the tables in the CFR. Under section 553(b)(3)(B) of the APA, an agency may find good cause where procedures are “impracticable, unnecessary, or contrary to the public interest.” Public comment for this administrative action is “unnecessary” and “contrary to the public interest” since the codification (and corrections) only reflect existing law and the changes to the prefatory heading to the tables are ministerial in nature. Immediate notice of this action in the Federal Register benefits the public by providing the public notice of the updated Florida SIP Compilation and notice of corrections to the Florida “Identification of Plan” portion of the CFR. Further, pursuant to section 553(d)(3), making this action immediately effective benefits the public by immediately updating both the SIP Compilation and the CFR “Identification of plan” section (which includes table entry corrections).

In this rule, EPA is finalizing regulatory text that includes incorporation by reference as described in Sections I and II of this preamble. In accordance with requirements of 1 CFR 51.5, EPA is finalizing the incorporation by reference of previously EPA-approved regulations promulgated by Florida and federally effective prior to August 31, 2022. EPA has made, and will continue to make, these materials generally available through www.regulations.gov and at the EPA Region 4 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. See 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this final rule and notification of administrative change does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

The SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it impose substantial direct costs on tribal governments or preempt tribal law.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

EPA also believes that the provisions of section 307(b)(1) of the CAA pertaining to petitions for judicial review are not applicable to this action. This is because prior EPA rulemaking actions for each individual component of the Florida SIP Compilation previously afforded interested parties the opportunity to file a petition for judicial review in the United States Court of Appeals for the appropriate circuit within 60 days of such rulemaking action. Thus, EPA believes judicial review of this action under section 307(b)(1) is not available.

40 CFR part 52, is amended as follows:

I. Executive Summary

OFCCP enforces Executive Order 11246, which prohibits Federal Government contractors and subcontractors from discriminating against employees in a manner that would impair the economy and efficiency of work performed on government contracts and would allow Federal tax dollars to be used to deny equal employment opportunities. Section 202 of Executive Order 11246, as amended, requires every non-exempt contract and subcontract to include an equal opportunity clause, which specifies the nondiscrimination and affirmative action obligations each contractor or subcontractor assumes as a condition of its Government contract or subcontract. Among other obligations, each contractor agrees, as a condition of its Government contract, not to discriminate in employment on the basis of race, color, religion, sex, sexual orientation, gender identity, or national origin.

As amended in 2002, Executive Order 11246 includes a limited exemption for certain religious organizations that is expressly modeled on the religious exemption in Title VII of the Civil Rights Act of 1964. Since 2003, this religious exemption has been included in OFCCP's regulations at 41 CFR 60-1.5(a)(5). For over 17 years, under the administrations of both President George W. Bush and President Barack Obama, OFCCP's policy was to determine the scope and applicability of the religious exemption, if invoked, by applying Title VII case law and principles to the facts and circumstances of each situation. In December 2020, OFCCP promulgated a rule that purported to clarify the scope and application of the Executive Order 11246 religious exemption (hereinafter “2020 rule”). On balance, however, the 2020 rule increased confusion and uncertainty about the religious exemption, largely because it departed from and questioned longstanding Title VII precedents. Upon further consideration, OFCCP now believes that this could have the effects of diminishing the economy and efficiency of work performed on Federal contracts and weakening nondiscrimination protections for workers. With the present action, for the reasons explained below, OFCCP is rescinding the entire 2020 rule so that the agency can return to its longstanding approach of aligning the Executive Order 11246 religious exemption with Title VII case law as applied to the facts and circumstances of each situation. OFCCP remains committed to protecting religious freedom in accordance with applicable law and will continue to provide any needed compliance assistance on the religious exemption.

Executive Order 11246, as amended, and its predecessors reflect the Government's longstanding policy of prohibiting Federal contractors from engaging in discrimination that undermines efficiency and economy as well as equal employment opportunity. See, e.g., E.O. 8802, 6 FR 3109 (June 27, 1941) (“reaffirm[ing] the policy of the United States that there shall be no discrimination in the employment of workers in defense industries or government because of race, creed, color, or national origin”); E.O. 10479, 18 FR 4899 (Aug. 18, 1953) (reiterating “the policy of the United States Government to promote equal employment opportunity for all qualified persons employed or seeking employment on government contracts because such persons are entitled to fair and equitable treatment in all aspects of employment on work paid for from public funds”); E.O. 10925, 26 FR 1977 (Mar. 8, 1961) (describing it as “the plain and positive obligation of the United States Government to promote and ensure equal opportunity for all qualified persons, without regard to race, creed, color, or national origin, employed or seeking employment with the Federal Government and on government contracts”); E.O. 13672, 79 FR 42971 (July 23, 2014) (amending Executive Order 11246 to include sexual orientation and gender identity to “provide for a uniform policy for the Federal Government to prohibit discrimination and take further steps to promote economy and efficiency in Federal Government procurement”). Presidents have long implemented this nondiscrimination policy, which also ensures that taxpayer funds are not used to discriminate, especially in the performance of functions for the Government itself and, thus, for the public, pursuant to the Federal Property and Administrative Services Act of 1949 (Procurement Act). See 40 U.S.C. 101, 121(a); Contractors Ass'n of E. Pa. v. Sec'y of Labor, 442 F.2d 159, 170 (3d Cir. 1971). 1

It is OFCCP's longstanding policy and practice, when analyzing potential discrimination under Executive Order 11246, to follow the principles of Title VII, which prohibits employers from discriminating against applicants and employees on the basis of race, color, religion, sex (including pregnancy, sexual orientation, and gender identity), or national origin. 42 U.S.C. 2000e-2; see OFCCP v. Bank of Am., No. 13-099, Final Decision & Order, 2016 WL 2892921, at *7 (ARB Apr. 21, 2016) (“[I]n addition to relevant provisions of E.O. 11246, its implementing regulations, and Department precedent, we also look to federal appellate court decisions addressing similar pattern or practice claims of intentional discrimination adjudicated under Title VII. . . .”); OFCCP v. Greenwood Mills, Inc., Nos. 00-044, 01-089, Final Decision & Order, 2002 WL 31932547, at *4 (ARB Dec. 20, 2002) (“The legal standards developed under Title VII of the Civil Rights Act of 1964 apply to cases brought under [Executive Order 11246]”). As amended in 1972, Title VII contains an exemption for religious corporations, associations, educational institutions, and societies with regard to the employment of individuals “of a particular religion” to perform work connected with their activities. Equal Employment Opportunity Act of 1972, Public Law 92-261, sec. 3, 86 Stat. at 104 (codified at 42 U.S.C. 2000e-1(a)). In the decades since the enactment of the Title VII religious exemption, a robust body of case law interpreting the exemption has developed.

In 2002, President George W. Bush amended Executive Order 11246 to include, almost verbatim, Title VII's exemption for religious organizations. Sec. 4, E.O. 13279, 67 FR 77143 (Dec. 16, 2002) (codified at sec. 204(c), E.O. 11246). The amendment was intended “to ensure the economical and efficient administration and completion of Government contracts.” Id. The only substantive difference between the text of the Title VII religious exemption and that of the Executive Order 11246 religious exemption is that the latter includes an express proviso that, although a Government contractor or subcontractor that is a religious corporation, association, educational institution, or society is exempt from having to comply with section 202 (the equal opportunity clause of Executive Order 11246) “with respect to the employment of individuals of a particular religion,” it is “not exempted or excused from complying with the other requirements contained in this Order.” Sec. 204(c), E.O. 11246.

In 2003, OFCCP published a final rule amending its Executive Order 11246 regulations to incorporate this religious exemption. 2 Affirmative Action and Nondiscrimination Obligations of Government Contractors, Executive Order 11246, as amended; Exemption for Religious Entities, Final Rule, 68 FR 56392 (Sept. 30, 2003) (codified at 41 CFR 60-1.5(a)(5)). In the preamble to that rule, OFCCP explained that the religious exemption recently added to Executive Order 11246 was “modeled on” the Title VII religious exemption. Id. In turn, OFCCP noted, the new regulation itself “directly tracks the President's amendment to” Executive Order 11246 and “simply incorporates” the amendment in the regulation. Id. The preamble and regulation did not provide further guidance regarding the scope or application of the religious exemption. OFCCP continued its longstanding policy and practice of applying Title VII principles and case law when analyzing claims of discrimination under Executive Order 11246. OFCCP provided compliance assistance on the interpretation and application of the religious exemption through hosting webinars and publishing guidance on its website. In doing so, OFCCP abided by relevant religious liberty authorities, including the Religious Freedom Restoration Act (RFRA) and the ministerial exception mandated by the religion clauses of the First Amendment; maintained a policy of considering RFRA claims raised by contractors on a case-by-case basis; and refrained from applying any regulatory requirement to a case in which it would violate RFRA. See, e.g., OFCCP Compliance Webinar (Mar. 25, 2015), https://www.dol.gov/ofccp/LGBT/FTS_TranscriptEO13672_PublicWebinar_ES_QA_508c.pdf ; OFCCP Frequently Asked Questions: E.O. 13672 Final Rule (2015), archived at https://web.archive.org/web/20150709220056/http:/www.dol.gov/ofccp/LGBT/LGBT_FAQs.html . OFCCP recommended that contractors with questions about the applicability of the religious exemption to their employment practices seek guidance from OFCCP. See, e.g., Discrimination on the Basis of Sex, Final Rule, 81 FR 39108, 39120 (June 15, 2016).

For over 17 years, under the administrations of both President George W. Bush and President Barack Obama, OFCCP continued this approach, applying the language of the religious exemption to the facts and circumstances at issue, in accordance with Title VII case law. Adhering to Title VII case law enabled OFCCP to conform to the President's original intent in modeling the religious exemption on that in Title VII, as noted above. This approach was also consistent with OFCCP's longstanding practice under Title VII more broadly, and moreover, it provided employers and employees with the efficiency and clarity of having a single standard for the religious exemption that applied under both Title VII and Executive Order 11246.

In 2020, for the first time since the religious exemption was added to Executive Order 11246, OFCCP promulgated a rule purporting to clarify the scope and application of the religious exemption. Implementing Legal Requirements Regarding the Equal Opportunity Clause's Religious Exemption, Final Rule, 85 FR 79324 (Dec. 9, 2020). Shortly after it took effect on January 8, 2021, the 2020 rule was challenged in two Federal district courts. 3 The 2020 rule made no changes to the text of the religious exemption at 41 CFR 60-1.5(a)(5); instead, it defined the terms “particular religion”; “religion”; “religious corporation, association, educational institution, or society”; and “sincere.” Id. at 79371-72 (codified at 41 CFR 60-1.3). The 2020 rule also established a rule of construction for all of subpart A of 41 CFR part 60-1, specifying that the subpart must be construed in favor of the broadest protection of religious exercise “permitted by the U.S. Constitution and law.” Id. at 79372 (codified at 41 CFR 60-1.5(e)).

The preamble to the 2020 rule accurately described section 204(c) of Executive Order 11246 as “expressly importing Title VII's exemption for religious organizations” and as “spring[ing] directly from the Title VII exemption.” Id. at 79324. The preamble continued that the Executive Order 11246 religious exemption should therefore “be given a parallel interpretation.” Id. (citing Northcross v. Bd. of Educ. of Memphis City Sch., 412 U.S. 427, 428 (1973) (per curiam) (“The similarity of language in [two statutes] is, of course, a strong indication that the two statutes should be interpreted pari passu.”). Nevertheless, the 2020 rule and its new definitions departed from OFCCP's longstanding reliance on Title VII principles and case law, disregarding the President's intent in Executive Order 13279 to incorporate the scope and application of the Title VII religious exemption into Executive Order 11246. Upon further consideration of the 2020 rule, including its departures from Title VII principles and case law, OFCCP believed that a return to its traditional approach of applying Title VII case law and principles to the facts and circumstances of each situation would better promote clarity and consistency for contractors and their employees. OFCCP also believed that returning to its traditional approach would better support its mission to promote equal employment opportunity, as well as advancing economy and efficiency in government contracting by preventing the arbitrary exclusion of qualified and talented employees on the basis of characteristics that have nothing to do with their ability to do work on government contracts. In November 2021, OFCCP proposed rescission of the 2020 rule and sought public comments on its proposal. 86 FR 62115 (Nov. 9, 2021).

OFCCP received 761 unique comments and 4,464 form letter comments on its proposal to rescind the 2020 rule. State officials, members of Congress, labor unions, contractor associations, think tanks, advocacy organizations, religious and civil liberties organizations, and individuals submitted comments supporting OFCCP's proposal to rescind the 2020 rule, including a number of comments with similar template language. These commenters supported rescission predominantly because, in their view, the 2020 rule impermissibly expanded the religious exemption, both as to which employers qualified for it and which actions those employers were permitted to take. Commenters supporting rescission viewed the 2020 rule as departing from established legal principles, as well as from OFCCP's longstanding policy and practice, without reasonable justification, which many commenters asserted was arbitrary and capricious in violation of the Administrative Procedure Act (APA). 5 U.S.C. 706(2). Many commenters asserted that the 2020 rule, by creating new standards that departed from precedent, increased confusion and uncertainty about the scope and application of the religious exemption. Commenters supporting rescission overwhelmingly criticized the 2020 rule for, in their view, reducing nondiscrimination protections for employees of Federal contractors, which commenters asserted conflicted both with legal precedent, including constitutional protections, and with OFCCP's stated policy of requiring Federal contractors to prevent discrimination and provide equal employment opportunity. Commenters also raised numerous other legal and policy criticisms of the 2020 rule, discussed in greater detail below.

Members of Congress, religious colleges and universities, religious advocacy organizations, religious and civil liberties litigation organizations, and individuals submitted comments opposing OFCCP's proposal, also including a number of comments with similar template language. These commenters generally supported the 2020 rule for, in their view, providing helpful, clear standards, which they believed encouraged religious organizations to become Federal contractors while appropriately protecting employers' religious liberties. Many of these commenters expressed the view that OFCCP's proposal to rescind the 2020 rule would have the effect of unduly narrowing the religious exemption, which they criticized on policy grounds or asserted was inconsistent with established legal principles. Commenters raised numerous other legal and policy arguments in defense of the 2020 rule and in opposition to the proposed rescission, discussed in greater detail below.

Having considered the comments submitted in response to the proposed rescission of the 2020 rule, OFCCP has decided to finalize the rescission. OFCCP has concluded that the standards in the 2020 rule were not warranted to the extent that they departed, without adequate justification, from applicable legal precedents, creating inconsistency with the application of Title VII's parallel religious exemption. Furthermore, the 2020 rule, on balance, increased confusion and uncertainty because of its divergence from the approach to the Title VII religious exemption taken by courts, the Equal Employment Opportunity Commission (EEOC), and the Department of Justice, as well as OFCCP's past practice. In addition to increasing confusion, the 2020 rule also weakened discrimination protections for workers, which was contrary not only to relevant legal authorities but also to the objective of Executive Order 11246, to ensure economy and efficiency in Federal contracting, and to OFCCP's policy goal of promoting equal employment opportunity. Moreover, OFCCP agrees with commenters that the 2020 rule, as a whole, was unnecessary. The comments that OFCCP received from existing religious contractors confirmed that they were able to participate in Federal contracting while relying on the Executive Order 11246 religious exemption as delineated in Title VII case law. As explained below, OFCCP is therefore rescinding the entire 2020 rule. OFCCP has determined that rescission of the entire rule is necessary to enable the agency to return to its longstanding approach of aligning the Executive Order 11246 religious exemption with Title VII principles and case law as applied to the facts and circumstances of each situation. OFCCP's responses to commenter feedback on specific aspects of the proposed rescission are also provided below.

For the reasons summarized above and detailed below, OFCCP has decided to rescind the 2020 rule in its entirety. OFCCP nonetheless intends for distinct portions of this rescission to be severable from each other. The rescissions of the 2020 rule's religious employer test, its other definitions, its inappropriately broad rule of construction, and its inappropriately categorical approach to RFRA analysis are distinct and function independently of each other.

Under both Title VII and Executive Order 11246, an employer that is determined to be a “religious corporation, association, educational institution, or society” qualifies for the religious exemption. As OFCCP noted in its rescission proposal, there is extensive Title VII case law interpreting this term. The courts' tests are not uniform, but in general they weigh the following factors to determine whether the employer's purpose and character are primarily religious:

In adopting this new test, the preamble to the 2020 rule characterized the multifactor approach described above as being among Federal appellate courts' “confusing variety of tests, [which] themselves often involve unclear or constitutionally suspect criteria.” Id. at 79331. It endorsed two concurring opinions in Spencer v. World Vision, which concluded that “assess[ing] the religiosity of an organization's various characteristics[ ] can lead the court into a `constitutional minefield.' ” 84 FR 41681 (quoting World Vision, 633 F.3d at 730 (O'Scannlain, J., concurring), and citing World Vision, 633 F.3d at 741 (Kleinfeld, J., concurring)); see also 85 FR 79361. The preamble asserted that courts' typical inquiry into whether a contractor is “primarily religious” requires a “ comparison between the amount of religious and secular activity at an organization,” which the preamble asserted created constitutional problems. 85 FR 79336. The 2020 rule thus adopted a definition of the term “religious corporation, association, educational institution, or society” that departed from the longstanding judicial approach of evaluating whether the employer's purpose and character are primarily religious. The 2020 rule further provided that for-profit organizations could qualify for the religious exemption if they presented “other strong evidence” that they possessed “a substantial religious purpose.” Id. at 79371 (codified at 41 CFR 60-1.3).

The 2020 rule's creation of a test that deviated from all established Title VII interpretations was the principal reason OFCCP proposed rescinding the 2020 rule. As OFCCP explained in its proposal, the religious employer test adopted by the 2020 rule cannot be squared with Executive Order 13279's incorporation of Title VII as the touchstone for the Executive Order 11246 religious exemption.

Numerous commenters agreed with OFCCP's concerns about the 2020 rule's religious employer test on both legal and policy grounds. These commenters overwhelmingly viewed the test as inappropriately broad; many commenters, including a group of state attorneys general (plaintiffs in one of the cases challenging the 2020 rule), a religious organization, and a lesbian, gay, bisexual, transgender, and queer (LGBTQ) rights advocacy organization, asserted that the 2020 rule's expansive test was inconsistent with both congressional intent and judicial interpretations under Title VII. Several of these commenters further asserted that the 2020 rule's departures from precedent, described in more detail below, were inadequately justified. Commenters including a contractor association, a civil liberties advocacy organization, an organization that advocates separation of church and state, and a think tank further asserted that the 2020 rule's religious employer test, in deviating from Title VII precedent, had increased rather than decreased confusion about the application of the Executive Order 11246 religious exemption. As the contractor association commented:

Some commenters observed that the 2020 rule deviated even from the World Vision opinions it commended. For example, a legal think tank stated that, rather than adopting the religious employer test from the World Vision per curiam opinion or the test from either concurring opinion, the 2020 rule “instead forge[d] its own test that would qualify more types of contractors for the exemption.” An LGBTQ rights advocacy organization noted that, despite the 2020 rule's praise for the test proposed in Judge O'Scannlain's concurring opinion, the 2020 rule rejected Judge O'Scannlain's prerequisite that the employer be nonprofit—but, the commenter asserted, “[o]mitting the requirement that an entity seeking a religious exemption be not-for-profit is not a minor alteration.” Commenters also criticized the 2020 rule for, in their view, reducing the objectivity of the factors described in World Vision for determining whether an employer qualifies for the religious exemption. A civil liberties advocacy organization, for example, asserted that the 2020 rule relied “only on the employer's own characterization of its activities, with no minimum, objective standards of evidence required,” which the commenter asserted “makes it easier for employers to claim the exemption.” Similarly, a women's rights legal advocacy organization asserted that “under the 2020 Rule, OFCCP had made clear that it would almost certainly not challenge a contractor's assertion that its sex discrimination was based on a religious belief, expressing a deference to any assertion of religious motivation that further tilted the scales towards allowing sex discrimination in federal contracting.” An LGBTQ rights advocacy organization agreed that the preamble to the 2020 rule rendered certain factors—such as being organized for a religious purpose and holding itself out as religious—“essentially meaningless” by lowering the standards by which organizations could demonstrate that they satisfied the factors.

Many commenters, including a contractor association, an affirmative action professionals association, and an LGBTQ rights advocacy organization, specifically criticized the 2020 rule's departure from a “primarily religious” inquiry, agreeing with OFCCP's rescission proposal that the 2020 rule's rationale of avoiding so-called constitutional minefields contradicted decades of Title VII case law successfully applying a “primarily religious” test. A contractor association agreed with OFCCP's proposal “that the intent of the religious exemption is to be limited to those organizations whose primary purpose is religious in nature and that the language of the 2020 rule inappropriately expands the scope of the exemption to entities that are not primarily religious in character.” Many commenters, including an international labor union, a legal professional organization, and a secular humanist advocacy organization, connected their criticism of the 2020 rule's departure from a “primarily religious” inquiry to their criticism of the 2020 rule's treatment of for-profit entities. A labor union commented, for example, that under the 2020 rule, “organizations whose purpose or character is not primarily religious ( e.g., construction contractors, food service providers, security services) are now able to discriminate against workers without fear of penalty simply by stating that their for-profit business aims to promote their religious values.” Several commenters, including a think tank, a national tradeswomen coalition, and a civil liberties advocacy organization, stated that there was no Title VII case in which a for-profit employer had qualified for the religious exemption.

Other commenters, however, praised the religious employer test in the 2020 rule and urged OFCCP not to rescind it. Many of these commenters believed the 2020 rule's test set forth “eminently clear and workable standards,” as one religious advocacy organization put it. Commenters including a religious advocacy organization pointed to the 2020 rule's examples as helpful illustrations of the test's application and asked OFCCP to address them. In the view of several commenters, including a religious advocacy organization, a religious university, and members of the U.S. House of Representatives, the 2020 rule's test was broad, but appropriately so.

Several commenters, including two religious advocacy organizations and an individual attorney, believed that the 2020 rule test was sufficiently rooted in key elements of Title VII case law, particularly in that it incorporated some of the elements from one or more World Vision opinions. In the view of one civil liberties litigation organization, the 2020 rule's “ `purpose and character' test” was appropriately based on World Vision in that “it avoids subjectivity inherent in other tests.” That commenter disagreed that the 2020 rule departed from Title VII case law because, it asserted, “[t]here is no coherent line of `Title VII case law' from which departure can be measured.”

Other commenters, including a religious advocacy organization and a civil liberties litigation organization, acknowledged that the religious employer test in the 2020 rule may have departed somewhat from Title VII case law, but they supported the departure because the multifactor LeBoon analysis, in their view, relies on “constitutionally suspect factors.” Commenters including religious advocacy organizations, a group of four religious associations and religious legal organizations, and two individual attorneys agreed with the 2020 rule's preamble that it was appropriate to reject the “primarily religious” inquiry because it raised constitutional difficulties. In support of this point, these commenters cited cases including McClure v. Salvation Army, 460 F.2d 553 (5th Cir. 1972), an early invocation of what is now recognized as the First Amendment ministerial exception to preclude application of Title VII's nondiscrimination requirements “to the employment relationship between a church and its ministers,” id. at 554, as well as non-Title VII cases such as New York v. Cathedral Academy, 434 U.S. 125 (1977), in which the Court invalidated a state law that authorized reimbursement to “sectarian” schools for expenses they incurred performing state-mandated services “because it will of necessity either have the primary effect of aiding religion” or, if an audit were to be conducted “to assure that state funds are not given for sectarian activities,” would “result in excessive state involvement in religious affairs,” id. at 131, 133, and Colorado Christian University v. Weaver, 534 F.3d 1245 (10th Cir. 2008), invalidating a state scholarship-funding law because it “expressly discriminates among religions, allowing aid to `sectarian' but not `pervasively sectarian' institutions, and . . . does so on the basis of criteria that entail intrusive governmental judgments regarding matters of religious belief and practice,” id. at 1256. 4

A group of four religious associations and religious legal organizations asserted that the “religious question” doctrine prohibits the use of a “primarily religious” inquiry to determine which contractors are entitled to the religious exemption. The commenters asserted that this position was supported by cases including Thomas v. Review Board, 450 U.S. 707 (1981), in which the Supreme Court held that when reviewing a state's denial of unemployment compensation benefits to a claimant who left his job because of religious objections, a court's “narrow function . . . is to determine whether there was an appropriate finding that petitioner terminated his work because of an honest conviction that such work was forbidden by his religion,” id. at 716. The commenters also pointed to Our Lady of Guadalupe School v. Morissey-Berru, 140 S. Ct. 2049 (2020), in which the Supreme Court held that the First Amendment ministerial exception barred the employment discrimination claims of two Catholic elementary school teachers, id. at 2066, as well as National Labor Relations Board v. Catholic Bishop of Chicago, 440 U.S. 490 (1979), in which the Court held that the National Labor Relations Board (NLRB) did not have jurisdiction over lay teachers at two groups of Catholic high schools because exercise of such jurisdiction by the Board would give rise to “serious First Amendment questions” and the Court did not find, either in the text of the National Labor Relations Act (NLRA) or its legislative history, a “clear expression of an affirmative intention of Congress that teachers in church-operated schools should be covered by the Act,” id. at 504.

A few commenters, including religious higher education associations and religious universities, suggested that OFCCP could avoid what they viewed as the constitutional difficulties of a “primarily religious” inquiry by instead using the test for religiously affiliated educational institutions under the NLRA established by the D.C. Circuit in University of Great Falls v. NLRB, 278 F.3d 1335 (D.C. Cir. 2002), and adopted by the NLRB in Bethany College, 369 NLRB No. 98, 2020 WL 3127965 (June 10, 2020). Under this three-factor test, the NLRB lacks jurisdiction over an educational institution if it “(1) holds itself out to the public as a religious institution ( i.e., as providing a `religious educational environment'); (2) is nonprofit; and (3) is religiously affiliated.” Duquesne Univ. of the Holy Spirit v. NLRB, 947 F.3d 824, 832 (D.C. Cir. 2020). The preamble to the 2020 rule asserted that the factors it adopted for its religious employer test were similar to the test used in the NLRA context. 85 FR 79334. According to one religious organization, this line of precedent under the NLRA is relevant because it “makes clear that it is not the place of government to determine whether an organization has religion as its `primary' or `central' purpose.”

Some commenters, including an individual attorney and a religious advocacy organization, stated that OFCCP should not use the “primarily religious” language because it does not appear in either the Title VII religious exemption or the Executive Order 11246 religious exemption. Individual attorneys and two religious organizations also asserted that not all courts have adopted the “primarily religious” language, citing Hall v. Baptist Memorial Health Care Corp., 215 F.3d 618, 624 (6th Cir. 2000), and Killinger v. Samford University, 113 F.3d 196, 198-99 (11th Cir. 1997). Some of these commenters observed that the EEOC's 2021 Compliance Manual on Religious Discrimination states that “engaging in secular activities does not disqualify an employer” from qualifying for the religious exemption. EEOC, Compliance Manual on Religious Discrimination, sec. 12-1.C.1. Commenters also criticized the “primarily religious” inquiry because, in their view, it is of limited utility. One commenter, an individual attorney, acknowledged that the “primarily religious” inquiry “derive[s] from the case law” but argued that it “unduly narrows the right of religious contractors to make employment decisions on the basis of religion.”

A few commenters, including an organization of religious employers and a religious advocacy organization, believed that OFCCP's proposal implied that for-profit organizations could not qualify for the Executive Order 11246 religious exemption. Some of these commenters noted that for-profit status is not mentioned in the text of Title VII or Executive Order 11246 and asserted that OFCCP thus should not limit the exemption to nonprofits. An individual attorney pointed to a statement in the EEOC's Compliance Manual that “Title VII case law has not definitively addressed whether a for-profit corporation that satisfies the other factors can constitute a religious corporation under Title VII.” EEOC, Compliance Manual on Religious Discrimination, sec. 12-1.C.1. A religious advocacy organization agreed with the 2020 rule's preamble that Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682 (2014), “demonstrates that for-profit corporations can exercise religion and supports that, in some circumstances, such for-profit organizations may be sufficiently religious to qualify for religious exemptions under Title VII and E.O. 11246.”

OFCCP has carefully considered the comments received on this aspect of its proposal. OFCCP recognizes that many of the commenters opposing rescission viewed the 2020 rule's religious employer test as providing helpful clarity. However, OFCCP believes—and numerous commenters agreed—that the test the 2020 rule adopted created uncertainty and confusion rather than providing clarity because it departed from Title VII precedent. Moreover, even if a contractor obtained an exemption under the 2020 rule that it would not have received under OFCCP's prior approach, the contractor could still be potentially liable for discrimination under Title VII on the same facts. There is little practical benefit to gaining a broader exemption under one standard while being liable for discrimination under another. OFCCP concludes that, rather than fostering clarity, adopting a new test that no court had ever applied promoted confusion and departed from governing Title VII precedent.

Regarding commenters' requests that OFCCP address the examples provided in the text of the 2020 rule, OFCCP notes that those examples were provided to illustrate the application of the 2020 rule's test. That test is expressly limited to consideration of only four factors (whether a potential or actual contractor is organized for a religious purpose, holds itself out to the public as carrying out a religious purpose, engages in activity consistent with and in furtherance of that religious purpose, and either is nonprofit or presents other strong evidence that its purpose is substantially religious). To address the 2020 rule's examples following the typical approach followed in Title VII case law, which OFCCP believes is the correct approach, OFCCP would need information as to all of the relevant factors—(1) whether the entity is for-profit or not-for-profit; (2) whether the entity produces a secular product; (3) whether the entity's pertinent documents, such as its articles of incorporation, state a religious purpose; (4) whether the entity is associated with (owned by, affiliated with, or financially supported by) a formally religious entity, such as a church or synagogue; (5) whether there is a formally religious entity that participates in its management, such as by having representatives on its board of trustees; (6) whether it holds itself out to the public as secular or sectarian; (7) whether it regularly includes forms of worship, such as prayer, in its activities; (8) if it is an educational institution, whether its curriculum includes religious instruction; and (9) whether its membership is composed of coreligionists—to make the determination whether the example employers' purpose and character were primarily religious. See, e.g., LeBoon, 503 F.3d at 226. The 2020 rule examples, however, included information relevant only to the four factors contained in the 2020 rule's test. See 85 FR 79334.

Moreover, OFCCP agrees with the many commenters who stated that the 2020 rule did not provide clarity. As stated in a comment submitted by a state tradeswomen organization, a national labor union LGBTQ constituency group, and a national labor union (plaintiffs in one of the cases challenging the 2020 rule): “Claiming that adopting an entirely new standard would resolve any uncertainty in the application of the religious exemption is irrational.” A group of state attorneys general commented that, “as a practical matter, the 2020 Rule subjects federal contractors to different sets of competing legal requirements. If these divergent standards persist, they will likely result in confusion, misunderstanding, and litigation.” OFCCP agrees that the 2020 rule created a troubling lack of clarity for employers, which could have pursued a course of action based on exemption under the 2020 rule, only to then find themselves subject to a meritorious Title VII discrimination action.

Furthermore, as commenters including an LGBTQ rights advocacy organization pointed out, “[t]he 2020 Rule left [employees] with profound uncertainty about whether their employer could newly claim the exemption.” OFCCP agrees with these commenters that the 2020 rule introduced significant uncertainty for employees of Federal contractors, including those who may have started their employment with an understanding that they were fully protected from the discrimination prohibited by Executive Order 11246 but may now be concerned about diminished protections because their employers may now claim the religious exemption under the 2020 rule.

OFCCP also recognizes that some commenters disagreed with its proposal to return to applying the religious exemption only to those contractors whose purpose and character are primarily religious, in accordance with the typical approach in Title VII case law. With regard specifically to commenters' assertions that a “primarily religious” inquiry raises constitutional concerns, OFCCP has carefully considered the issue, including reviewing the case law cited by commenters. As a threshold matter, although the 2020 rule's preamble asserted that the test avoided constitutional difficulties by using “objective” criteria—a claim echoed by some commenters—OFCCP notes that the test actually included factors that require subjective “religious characterizations” but simply defer to contractors' views of those factors. See 85 FR 79334. Moreover, OFCCP believes it is significant that most courts and the EEOC, as discussed next, have not viewed the constitutional concerns that motivated the adoption of the 2020 rule's test as preventing use of the traditional “primarily religious” inquiry. 5 Commenters generally supported their points in this area by citing to non-Title VII case law ( e.g., Thomas v. Review Board, Colorado Christian University v. Weaver, University of Great Falls v. NLRB ), none of which addresses the well-established Title VII religious employer test, and employment discrimination cases in which courts applied the First Amendment ministerial exception ( Our Lady of Guadalupe School v. Morissey-Berru, McClure v. Salvation Army ). However, none of these cases supports the conclusion that serious First Amendment questions arise by following Title VII precedent to evaluate whether contractors' purpose and character are primarily religious.

OFCCP also disagrees that this aspect of its rescission proposal is inconsistent with the EEOC's 2021 Compliance Manual, which provides expressly that the Title VII religious exemption “applies only to those organizations whose `purpose and character are primarily religious.' ” EEOC, Compliance Manual on Religious Discrimination, sec. 12-1.C.1 (quoting Garcia v. Salvation Army, 918 F.3d 997, 1003 (9th Cir. 2019)). EEOC's guidance then states that courts consider and weigh “ `the religious and secular characteristics' of the entity,” quoting Hall, 215 F.3d at 624 (one of the cases some commenters asserted did not endorse the “primarily religious” inquiry), and citing, among other cases, Killinger, 113 F.3d at 198-99 (the other case some commenters asserted did not endorse the “primarily religious” inquiry). The guidance explains that “[c]ourts have articulated different factors to determine whether an entity is a religious organization” and then proceeds to list the exact same nine LeBoon factors that OFCCP laid out in its proposal and repeats above, as well as to cite the same cases OFCCP cited in support of the approach, including Hall and Killinger. EEOC, Compliance Manual on Religious Discrimination, sec. 12-1.C.1; see also, e.g., Bear Creek Bible Church v. EEOC, 571 F. Supp. 3d 571, 591 (N.D. Tex. Nov. 22, 2021) (noting that “[a]t least ten courts” have adopted these nine factors), appeal pending, No. 22-10145 (5th Cir.).

In this respect, then, EEOC's guidance is consistent with both OFCCP's proposal and comments from numerous commenters observing that there is a substantial body of case law in which courts—including the Ninth Circuit post- World Vision —have applied the traditional Title VII test to identify employers with primarily religious purpose and character without infringing on employers' religious liberties or assessing the validity of doctrinal questions. See, e.g., Garcia, 918 F.3d 997; LeBoon, 503 F.3d 217; Hall, 215 F.3d 618; Killinger, 113 F.3d 196. Only in a parenthetical description in a footnote does EEOC's guidance mention Judge O'Scannlain's “constitutional minefield” concern ( i.e., that “several of the LeBoon factors could be constitutionally troublesome if applied to this case,” World Vision, 633 F.3d at 730 (O'Scannlain, J. concurring)). EEOC, Compliance Manual on Religious Discrimination, sec. 12-1.C.1 n.59. OFCCP does not believe it is necessary to abandon the “primarily religious” inquiry, which courts have long applied while avoiding any constitutional minefields.

OFCCP also believes the comments criticizing the rescission proposal as it relates to for-profit contractors are misplaced. For example, nothing in OFCCP's proposal is inconsistent with the statement in EEOC's guidance “that engaging in secular activities does not disqualify an employer from being a `religious organization' within the meaning of the Title VII statutory exemption.” Id. sec. 12-1.C.1. As noted above, both OFCCP's approach and EEOC's guidance require that a qualifying employer have a primarily religious purpose and character. Further, OFCCP agrees with the EEOC that “Title VII case law has not definitively addressed whether a for-profit corporation that satisfies the other factors can constitute a religious corporation under Title VII.” Id. As explained in OFCCP's proposal, Title VII case law gives weight to an entity's nonprofit status as one factor in a multifactor analysis but generally does not treat it as an absolute prerequisite. See, e.g., LeBoon, 503 F.3d at 226; Hall, 215 F.3d at 624; Killinger, 113 F.3d at 198-99. In fact, Judge O'Scannlain's concurring opinion in World Vision was unusual in that it would have explicitly limited the religious exemption to nonprofit entities. See World Vision, 633 F.3d at 734 (O'Scannlain, J., concurring). As Judge O'Scannlain explained, when the Supreme Court upheld the Title VII religious exemption against constitutional challenge in 1987, it “expressly left open the question of whether a for-profit entity could ever qualify for a Title VII exemption.” Id. at n.13 (citing Corp. of the Presiding Bishop of the Church of Jesus Christ of Latter-day Saints v. Amos, 483 U.S. 327, 349 (1987) (O'Connor, J., concurring)).

Having considered all relevant comments, OFCCP believes that the 2020 rule's adoption of an unprecedented religious employer test was unwarranted. Despite the 2020 rule's stated desire to provide clarity, the standard that the 2020 rule adopted departed from Title VII case law and principles, creating a lack of clarity as to the applicable legal standards. With this rescission, OFCCP will return to its previous approach, which makes the Executive Order 11246 religious exemption available to employers whose purpose and character are primarily religious, using the multi-factor LeBoon inquiry. OFCCP will consider the applicability of the religious exemption to the facts of each case in accordance with Title VII case law. This will provide contractors and potential contractors with the clarity of a single religious employer test under both Executive Order 11246 and Title VII.

Under both Title VII and Executive Order 11246, qualifying religious organizations are permitted to make decisions “with respect to the employment of individuals of a particular religion.” The 2020 rule's definition of “particular religion” authorizes the contractor to require, as a condition of employment, the applicant's or employee's “acceptance of or adherence to sincere religious tenets as understood by the employer.” 85 FR 79371 (codified at 41 CFR 60-1.3). As OFCCP explained in its rescission proposal, the weight of Title VII case law reflects that qualifying religious employers generally may make decisions about whether to employ individuals based on acceptance of and adherence to religious tenets, but only as long as those decisions do not violate the other nondiscrimination provisions of Title VII, apart from the prohibition on religious discrimination. See, e.g., Kennedy v. St. Joseph's Ministries, Inc., 657 F.3d 189, 190-92 (4th Cir. 2011) (stating that Title VII's religious exemption does not exempt religious organizations from complying with prohibitions on race, sex, or national origin discrimination, but holding that a Catholic nursing center's termination of a nursing assistant based on her non-Catholic religious attire was permissibly based on a preference for persons of a particular religion rather than on one of Title VII's other protected bases); Cline v. Catholic Diocese of Toledo, 206 F.3d 651, 658 (6th Cir. 2000) (“[W]hile Title VII exempts religious organizations for `discrimination based on religion,' it does not exempt them `with respect to all discrimination . . . . [ ] Title VII still applies . . . to a religious institution charged with sex discrimination.”) (quoting Boyd v. Harding Acad. of Memphis, Inc., 88 F.3d 410, 413 (6th Cir. 1996)); DeMarco v. Holy Cross High Sch., 4 F.3d 166, 173 (2d Cir. 1993) (“[R]eligious institutions that otherwise qualify as `employer[s]' are subject to Title VII provisions relating to discrimination based on race, gender and national origin.”); Little v. Wuerl, 929 F.2d 944, 946-48 (3d Cir. 1991) (stating that Title VII bars, for example, race and sex discrimination against non-minister employees, but holding that a Catholic school's decision not to rehire a Protestant teacher based on her remarriage without validation by the Catholic Church was permissibly based on the employee's religion).

There is nothing in the 2020 rule that expressly contradicts this understanding. Indeed, the preamble to the 2020 rule stated that “OFCCP ultimately does not need to answer” the allegedly “open” question about whether Executive Order 11246 would permit a qualifying organization to take adverse action against an employee who fails to comply with the employer's religious tenets when the tenets themselves implicate another form of prohibited discrimination—such as the prohibitions on discrimination on the basis of race, sex, or sexual orientation, and the prohibition on retaliation for an employee's assertion of his or her rights. 85 FR 79350. Instead, the 2020 rule relied on RFRA to guide its approach toward such cases. See id. at 79349-56.

OFCCP nevertheless expressed concern in its rescission proposal that the 2020 rule preamble's suggestion that qualifying religious organizations might be exempt from Executive Order 11246's nondiscrimination requirements where their tenets implicate other protected grounds is in serious tension with the text of the religious exemption itself, which permits the contractor to discriminate on the basis of religion in favor of “individuals of a particular religion” while expressly not exempting or excusing the contractor from the other requirements of Executive Order 11246. Sec. 204(c), E.O. 11246. OFCCP further explained in its proposal that this aspect of the 2020 preamble was also contrary to well-established Title VII case law, as cited above; with Congress's intent when it amended the Title VII religious exemption in 1972, see 118 Cong. Rec. 7167 (1972) (Senate Managers' section-by-section analysis presented by Sen. Williams) (“The limited exemption from coverage in this section for religious corporations, associations, educational institutions or societies has been broadened to allow such entities to employ individuals of a particular religion in all their activities. . . . Such organizations remain subject to the provisions of Title VII with regard to race, color, sex or national origin.” ) (emphasis added); and with an opinion of the Department of Justice's Office of Legal Counsel issued shortly before President Bush added the religious exemption to Executive Order 11246, see Memorandum for William P. Marshall, Deputy Counsel to the President, from Randolph D. Moss, Assistant Attorney General, Office of Legal Counsel, Re: Application of the Coreligionists Exemption in Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-1(a), to Religious Organizations that Would Directly Receive Substance Abuse and Mental Health Services Administration Funds Pursuant to Section 704 of H.R. 4923, the “Community Renewal and New Markets Act of 2000”, at 30-32, 31 n.62 (Oct. 12, 2000), https://www.justice.gov/olc/page/file/936211/download.

Commenters who supported rescission overwhelmingly agreed that the 2020 preamble raised a serious risk that the rule would be implemented to permit contractors to discriminate against individuals based on protected classes other than a preference for persons of a particular religion. Commenters stated that this outcome could result not only from the discussion in the preamble but also from the rule of construction in § 60-1.5(e) (discussed further below) and the application of the 2020 rule's definitions of “religion,” “particular religion, and “sincere.”  6

Commenters criticized the preamble's suggestion on both legal and policy grounds. A civil liberties organization, for example, noted that under Title VII, “a religious employer's religious motivation for discriminatory conduct does not convert unlawful discrimination into permissible religious discrimination.” Although many commenters acknowledged that some Title VII case law permits qualifying religious employers to fire or refuse to hire individuals for failure to adhere to certain religious tenets, they emphasized that that case law does not sanction such employment actions when such tenets themselves involve discrimination on the basis of a protected characteristic other than religion or where the employer applies such tenets in a way that discriminates on the basis of such other protected characteristics. For example, an organization that advocates separation of church and state observed that under Title VII a qualifying religious employer may lawfully require its employees to adhere to a particular religious code of conduct, but “`Title VII requires that this code of conduct be applied equally' to all employees regardless of sex” (quoting Boyd, 88 F.3d at 414).

Numerous commenters expressed concern that these aspects of the 2020 preamble and rule would increase prohibited discrimination against workers, which is a concern that OFCCP shares. A civil liberties organization stated that “religious contractors may claim, based on their religious beliefs, that it is permissible to fire a transgender woman for transitioning, or they may claim the right to reject a male applicant because he is married to a man or a woman applicant because she is an unmarried mother.”

Some commenters further stated that such effects could disproportionately impact workers of color who may “experience discrimination at the intersection of their race and gender, as well as other identities,” and who therefore “face greater barriers and fewer economic opportunities,” in the words of a civil rights legal advocacy organization.

With regard specifically to LGBTQ individuals, a religious organization and several other commenters cited a Williams Institute study that found widespread employment discrimination against LGBT individuals based on survey data collected in May 2021. Some of these commenters, including the Williams Institute itself, emphasized the study's finding that 57 percent of the LGBT individuals who experienced harassment or other forms of discrimination in the workplace “reported that their employer or co-workers did or said something to indicate that the treatment that they experienced was motivated by religious beliefs” (citing Brad Sears et al., Williams Inst., LGBT People's Experiences of Workplace Discrimination and Harassment 14 (2021), https://williamsinstitute.law.ucla.edu/wp-content/uploads/Workplace-Discrimination-Sep-2021.pdf ). As an LGBTQ rights advocacy organization observed, “[a]n employee who is fired for being in a same-sex marriage is equally harmed whether the employer did so based on religious belief about marriage or a non-religious bias.”

With regard to women, a tradeswomen advocacy organization asserted that “[w]omen workers have been subjected to a range of discrimination based on sex, justified by claims of religious beliefs.” It continued:

Some commenters also pointed to the facts of Herx v. Diocese of Ft. Wayne-South Bend, Inc., 48 F. Supp. 3d 1168 (N.D. Ind. 2014), to illustrate the harms they believed employers might inflict on women based on the suggestions in the 2020 preamble and rule that contractors can insist upon adherence to religious tenets even where such tenets themselves involve a form of discrimination on the basis of sex. Herx involved a language arts teacher's claim that a Catholic elementary school's application of the church's ban on in vitro fertilization discriminated against women because only women undergo the procedure. In dismissing the school's appeal of an order denying summary judgment, the Seventh Circuit observed that “[t]he district court has not ordered a religious question submitted to the jury for decision” and confirmed that the jury would be instructed “not to weigh or evaluate the Church's doctrine regarding in vitro fertilization.” Herx, 772 F.3d 1085, 1091 (7th Cir. 2014). The jury ultimately found that the school had discriminated against the plaintiff on the basis of sex by firing her based on her in vitro fertilization, to which the school objected based on religious grounds. Herx, No. 1:12-CV-122 RLM, 2015 WL 1013783, at *1 (N.D. Ind. Mar. 9, 2015). The resulting jury award, as modified by the court, quantified the harms that employment discrimination imposed on the plaintiff: more than $22,916 lost in income, $22,853 lost in health insurance benefits, and $7,500 lost in tuition for her son, as well as $299,999 to fairly compensate her for the mental and emotional pain and suffering she experienced as a result of her discriminatory job loss. Id at *8. A women's rights legal advocacy organization commented that “Ms. Herx's story underscores the harm that stems from this discrimination, as she felt she was forced to choose between starting a family and preserving her economic security.” And a civil liberties organization asserted that the plaintiff “is far from the only employee to be fired because her employer expressed religious objections to her pregnancy.”

However, other commenters, opposing rescission, commented that they approved of the 2020 rule's definition of “particular religion” and the approach described in the preamble to the 2020 rule. Comments from a religious association and a religious advocacy organization asserted that the Government's interest in equal employment opportunity simply did not extend to religious organizations' “employment of individuals of a particular religion.”

Some of the commenters who opposed rescission, including a religious association, two religious advocacy organizations, and a religious university, asserted that the Title VII religious exemption itself allows qualifying employers in certain situations to take employment actions based on sincere religious beliefs even where such actions constitute discrimination on the basis of a protected classification other than religion. A religious advocacy organization asserted that rescission “would allow OFCCP to recharacterize employment actions based on sincere religious tenets as unlawful discrimination in direct contradiction of the text, history, and purpose of the statutory exemption.” Many commenters, including religious organizations, religious colleges and universities, and a group of U.S. Senators, asserted that the plain text of 42 U.S.C. 2000e-1(a)—providing that the “title shall not apply” to qualifying religious employers “with respect to the employment of individuals of a particular religion”—when construed in conjunction with Title VII's definition of “religion” in section 2000e(j)—is properly read to provide a complete exemption to Title VII's nondiscrimination requirements in cases where qualifying religious employers insist upon employees' adherence to religious tenets in ways that would constitute discrimination on the basis of another characteristic protected by Title VII. Some of the same commenters, as well as others including a religious organization and individual attorneys, explicitly advocated a similar interpretation of the Executive Order 11246 religious exemption. A few commenters acknowledged the legislative history of the Title VII religious exemption, discussed previously, 7 but dismissed it.

Several commenters opposing rescission, including an organization of religious employers, two individual attorneys, and a religious association, asserted that OFCCP's proposal was inconsistent with the EEOC's 2021 Compliance Manual on this point. These commenters typically cited a sentence from the guidance stating that Title VII's religious exemptions “allow a qualifying religious organization to assert as a defense to a Title VII claim of discrimination or retaliation that it made the challenged employment decision on the basis of religion.” EEOC, Compliance Manual on Religious Discrimination, sec. 12-1.C.1. Several U.S. Senators asserted that Bostock v. Clayton County, 140 S. Ct. 1731 (2020), “further counsel[s] that the religious exemption does not just apply to claims of religious discrimination, but to the full scope of discrimination claims under Title VII.”

Some commenters opposing rescission raised constitutional concerns about OFCCP's proposal. Commenters including religious higher education institutions and associations cautioned that OFCCP's proposed rescission could lead to “greater church-state entanglement regarding employment decisions based on sincerely held religious beliefs.” A religious advocacy organization commented that “no OFCCP bureaucrat can be lawfully empowered to determine what it truly means to be Catholic or any other `particular' religion without violating the Free Exercise and Establishment Clauses.” A few commenters also mentioned the First Amendment's “ministerial exception” in this context. An individual attorney, for example, asserted that “the Proposal attempts to limit the employment decisions of religious contractors to decisions concerning `ministerial employees'—which the Constitution itself protects—and essentially asserts that decisions based on sincere religious beliefs and tenets are immaterial.” A religious advocacy organization insisted that “[r]eligious organizations that exercise religious exemptions are not engaged in invidious discrimination. A Catholic church that only `hires' men as priests and women as nuns is not a den of bigotry as the OFCCP Proposal would suggest. It's a Catholic church.”

After careful consideration of all these comments, OFCCP concludes that rescission is appropriate. The combination of (i) the 2020 preamble's discussion of Title VII; (ii) the 2020 rule's adoption of a definition of “particular religion” derived from 42 U.S.C. 2000e(j); and (iii) the 2020 rule's rule of construction that this subpart be construed “in favor of a broad protection of religious exercise, to the maximum extent permitted by [law],” 41 CFR 60-1.5(e), could well be understood by contractors and contracting agencies to provide qualifying religious organizations a right to insist upon adherence to the employer's religious tenets in a way that would result in discrimination that Executive Order 11246 prohibits, which would thereby not only deviate from the Presidential directive but also decrease procurement efficiency. As one contractor association explained, the 2020 rule and preamble “created uncertainty and implicitly sanctioned discrimination on other characteristics when based on a sincerely held religious belief.” A state tradeswomen organization, a national labor union LGBTQ constituency group, and a national labor union likewise commented:

OFCCP emphasizes that, absent strong evidence of insincerity, OFCCP would accept a religious organization's own assertions regarding doctrinal questions. However, OFCCP believes it is important to clarify that it is not appropriate to construe the Executive Order 11246 religious exemption to permit a qualifying religious organization to discriminate against employees on the basis of any protected characteristics other than religion. Executive Order 11246 itself expressly states that the exemption does not exempt or excuse the contractor in question “from complying with the other requirements contained in this Order.” Sec. 204(c). And when President Bush promulgated the religious exemption and section 204(c) in 2002, he did so in order to incorporate established Title VII doctrine that clearly precluded the broader reading of the religious exemption that some commenters espoused. Indeed, just two years before that amendment to Executive Order 11246, the Department of Justice had specifically described that case law and explained that it faithfully reflected congressional intent. See Memorandum for William P. Marshall, Deputy Counsel to the President, from Randolph D. Moss, Assistant Attorney General, Office of Legal Counsel, Re: Application of the Coreligionists Exemption in Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-1(a), to Religious Organizations that Would Directly Receive Substance Abuse and Mental Health Services Administration Funds Pursuant to Section 704 of H.R. 4923, the “Community Renewal and New Markets Act of 2000”, at 30-32, 31 n.62 (Oct. 12, 2000), https://www.justice.gov/olc/page/file/936211/download.

Even in the preamble to the 2020 rule, OFCCP repeatedly stated, as it had in the preceding notice of proposed rulemaking (NPRM), “that the religious exemption does not permit discrimination on the basis of other protected categories.” 85 FR 79329; see also id. at 79347. The preamble, however, in conjunction with the provisions of the 2020 rule identified above, argued that it was unclear how to reconcile this basic, uncontroverted principle with the fact that the Title VII exemption also allows qualifying organizations to insist that employees comply with the employer's sincere religious tenets—tenets that may themselves incorporate a form of discrimination that Title VII otherwise forbids: “The question posed here . . . is the interaction of those two principles[—][s]pecifically, the outcome when a religion organization's action is based on and motivated by the employee's adherence to religious tenets yet implicates another category protected by E.O. 11246.” Id. at 79349. The 2020 preamble ultimately decided not to answer this question, id. at 79350, but it insisted that courts had “left the question open,” id. at 79349.

That was incorrect. As OFCCP explained in its proposal to rescind the 2020 rule, 86 FR 62119-20, at the time President Bush amended Executive Order 11246, and indeed until very recently, courts had uniformly held that a qualifying employer in such a case may not insist upon adherence to tenets that violate another ground of discrimination that Title VII prohibits. The 2020 preamble stated that some courts “have indicated that the religious exemption may be preeminent in such a situation,” 85 FR 79350, but neither of the cases cited issued such a holding—or even an indication to that effect. And as the Department of Justice has explained, Congress's intent was to the contrary. See Memorandum for William P. Marshall, Deputy Counsel to the President, from Randolph D. Moss, Assistant Attorney General, Office of Legal Counsel, Re: Application of the Coreligionists Exemption in Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-1(a), to Religious Organizations that Would Directly Receive Substance Abuse and Mental Health Services Administration Funds Pursuant to Section 704 of H.R. 4923, the “Community Renewal and New Markets Act of 2000”, at 30-31 (Oct. 12, 2000), https://www.justice.gov/olc/page/file/936211/download; see also DeMarco v. Holy Cross High Sch., 4 F.3d 166, 173 (2d Cir. 1993) (“As several courts have noted, the legislative history of Title VII makes clear that Congress formulated the limited exemptions for religious institutions to discrimination based on religion with the understanding that provisions relating to non-religious discrimination would apply to such institutions.”) (citing Martin v. United Way of Erie, 829 F.2d 445, 449 (3d Cir. 1987) and Rayburn, 772 F.2d at 1166).

The principal counterargument offered by some commenters is that, notwithstanding Congress's intent and the holdings of many courts, the plain language of Title VII—and, by extension, Executive Order 11246—affords qualifying employers a right to insist on employees' adherence to religious tenets even where that will result in another form of discrimination that Title VII otherwise forbids. This argument is predicated on two textual provisions in Title VII: (i) the religious exemption itself, 42 U.S.C. 2000e-1(a), which states “[t]his subchapter” ( i.e., Title VII) “shall not apply . . . to a religious corporation, association, educational institution, or society with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution, or society of its activities” (emphasis added); and (ii) the definition of “religion” that appears in 42 U.SC. 2000e(j), which provides that for purposes of Title VII “[t]he term `religion' includes all aspects of religious observance and practice, as well as belief, unless an employer demonstrates that he is unable to reasonably accommodate to an employee's or prospective employee's religious observance or practice without undue hardship on the conduct of the employer's business” (emphasis added).

Two judges in recent months have suggested, as did several commenters, that in light of these two provisions, “when the [qualifying employer's] decision is founded on religious beliefs, then all of Title VII drops out.” Starkey v. Roman Catholic Archdiocese of Indianapolis, Inc., 41 F.4th 931, 946 (7th Cir. 2022) (Easterbrook, J., concurring); see also Bear Creek Bible Church v. EEOC, 571 F. Supp. 3d 571, 590-91 (N.D. Tex. 2021) (“Read plainly then, Title VII does not apply to religious employers when they employ individuals based on religious observance, practice, or belief. . . . The plain text of this exemption . . . is not limited to religious discrimination claims; rather, it also exempts religious employers from other forms of discrimination under Title VII, so long as the employment decision was rooted in religious belief.”). 8

After careful consideration, OFCCP has concluded that that is neither a common nor a compelling understanding of Title VII's religious exemption that should govern the interpretation of the cognate exemption in Executive Order 11246.

Most importantly, this recent reading by two judges does not reflect the dominant view of the courts that have considered the question over the course of many years or the view of the Department of Justice just two years before Executive Order 13279 was promulgated.

Moreover, this textual argument misidentifies the source of the conclusion of some courts that a qualifying organization not only may generally insist upon its employees' membership in a particular religious denomination but also “employ only persons whose beliefs and conduct are consistent with the employer's religious precepts.” Little, 929 F.2d at 951. Indeed, in the case where that proposition was first accepted, the court expressly rejected the argument that the definition of “religion” in section 2000e(j) bears upon the scope of the religious exemption in section 2000e-1(a). The section 2000e(j) definition of “religion,” the court explained, was designed “to broaden the prohibition against discrimination” on the basis of religion for the benefit of employees — “so that religious practice as well as religious belief and affiliation would be protected.” Id. at 950. The function of section 2000e(j), in fact, is to require employers under certain circumstances to accommodate employees' religion, including their “observance and practice” thereof, even where the employer is not expressly discriminating on the basis of religion. As the Supreme Court has explained, “[t]he intent and effect of this definition was to make it an unlawful employment practice under [section 703(a)(1) of Title VII, 42 U.S.C. 2000e-2(a)(1)], for an employer not to make reasonable accommodations, short of undue hardship, for the religious practices of his employees and prospective employees.” Trans World Airlines, Inc. v. Hardison, 432 U.S. 63, 74 (1977); see also Ansonia Bd. of Educ. v. Philbrook, 479 U.S. 60, 63 n.1 (1986) (“The reasonable accommodation duty was incorporated into the statute, somewhat awkwardly, in the definition of religion.”); EEOC v. Abercrombie & Fitch Stores, Inc., 575 U.S. 768, 775 (2015) (by virtue of the definition, “religious practice is one of the protected characteristics that cannot be accorded disparate treatment and must be accommodated”). The section 2000e(j) definition has not historically been understood by courts to bear upon what it means for an employee to be “of a particular religion” for purposes of the section 2000e-1(a) religious exemption. 9 See Little, 929 F.2d at 950 (“There appears to be no legislative history to indicate that Congress considered the effect of this definition on the scope of the exemptions for religious organizations.”).

According to the court of appeals that first recognized it, a qualifying employer's right to insist on employee adherence to religious “tenets” or “precepts” derives not from that or any other textual command but instead from implications in the 1972 legislative history of the exemption, which “suggest[ ] that the sponsors of the broadened exception were solicitous of religious organizations' desire to create communities faithful to their religious principles.” Id. It was that legislative history that “persuaded” the court of appeals in Little “that Congress intended the explicit exemptions to Title VII to enable religious organizations to create and maintain communities composed solely of individuals faithful to their doctrinal practices, whether or not every individual plays a direct role in the organization's `religious activities.' ” Id. at 951. (The court in Little did not address whether the religious exemption applies when the religious tenet on which the challenged employment action was based directly implicates another of Title VII's protected classes.)

The reading urged by commenters and recently suggested by two judges also would lead to results that are inconsistent with the 1972 Congress's intent and President Bush's 2002 Executive order. For example, if a qualifying religious organization had a religious tenet prohibiting interracial marriage, that reading would permit the qualifying organization to refuse to employ an applicant with a spouse of a different race. An organization whose tenets provide that a husband is the head of a household and should provide for his family but that a woman's place is in the home could refuse to hire women or could offer higher benefits to male employees. But see EEOC v. Fremont Christian School, 781 F.2d 1362 (9th Cir. 1986). An organization with a tenet prohibiting congregants from seeking civil relief against religious authorities could dismiss an employee who had brought an EEOC claim for sex discrimination, in violation of the Title VII ban on retaliation. But see EEOC v. Pacific Press Pub. Ass'n, 676 F.2d 1272 (9th Cir. 1982). 10 There is no basis for concluding that that is what President Bush intended when he incorporated the Title VII exemption into Executive Order 11246.

This reading would also be inconsistent with President Obama's amendment of Executive Order 11246, which generally prohibits contractors from discriminating against applicants and employees on the bases of sexual orientation and gender identity, even when they cite a sincere religious reason for doing so.

Not only would these results not be permissible under the longstanding judicial and executive branch readings of Title VII but in the context of government contracting they would also undermine efficiency and economy—something OFCCP recognized in the preamble to the 2020 rule. See 85 FR 79364 (“OFCCP continues to believe that discrimination by federal contractors generally has a negative impact on the economy and efficiency of government contracting.”). Indeed, the 2020 rule did not amend the regulations to expressly permit contractors to invoke the Executive Order 11246 religious exemption to insist upon adherence to religious tenets in a way that would result in forms of prohibited discrimination other than discrimination in favor of coreligionists. 85 FR 79350. 11 OFCCP declines the suggestion of several commenters that it should do so now—an amendment that would be inconsistent with both congressional and Presidential intent.

OFCCP recognizes, as it did in its rescission proposal, that the Constitution might impose limits on the application of Executive Order 11246. For example, as explained in the proposal, in assessing an employer's assertion of the religious exemption, courts and agencies must be careful not to interrogate the plausibility of the employer's description of its religious purposes, functions, and tenets. See, e.g., Curay-Cramer, 450 F.3d at 141; Miss. Coll., 626 F.2d at 485; Little, 929 F.2d at 948. OFCCP is fully able to exercise that caution, where constitutionally required, on a case-by-case basis, without unduly broadening the religious exemption. See, e.g., Curay-Cramer, 450 F.3d at 142 (“Whether the proffered comparable conduct is sufficiently similar to avoid raising substantial constitutional questions must be judged on a case-by-case basis.”).

OFCCP also recognizes that the religion clauses of the First Amendment require a “ministerial exception” from certain nondiscrimination laws, including Title VII, for positions of particular religious significance in certain religious organizations. See Our Lady of Guadalupe Sch. v. Morrissey-Berru, 140 S. Ct. 2049 (2020); Hosanna-Tabor Evangelical Lutheran Church & Sch. v. EEOC, 565 U.S. 171 (2012). As OFCCP explained in its rescission proposal, where the ministerial exception applies, “judicial intervention into disputes between the [religious organization] and the [employee] threatens the [religious organization's] independence in a way that the First Amendment does not allow.” Our Lady of Guadalupe Sch., 140 S. Ct. at 2069. There is not yet any case law assessing whether and to what extent the ministerial exemption might apply in the context of a government contract (particularly with respect to employees who are engaged in secular activities required by the contract), but OFCCP acknowledges that if the ministerial exception does apply, it would supersede the prohibitions of Executive Order 11246.

OFCCP also acknowledges, as it did in the proposal, that RFRA “might supersede Title VII's commands in appropriate cases,” Bostock, 140 S. Ct. at 1754, although OFCCP also observes that RFRA's legislative history indicated that “[n]othing in this bill shall be construed as affecting Title VII of the Civil Rights Act of 1964,” H.R. Rep. No. 103-88, at 9 (1993).

Finally, OFCCP does not agree that the EEOC's 2021 Compliance Manual on Religious Discrimination compels a different conclusion. The EEOC's 2021 Compliance Manual correctly states that “[r]eligious organizations are subject to the Title VII prohibitions against discrimination on the basis of race, color, sex, national origin . . . , and may not engage in related retaliation,” and in support of that proposition it cites cases including Kennedy v. St. Joseph's Ministries, Inc., 657 F.3d 189, 192 (4th Cir. 2011) (holding that the exemption “does not exempt religious organizations from Title VII's provisions barring discrimination on the basis of race, gender, or national origin”); Boyd v. Harding Academy of Memphis, Inc., 88 F.3d 410, 413 (6th Cir. 1996) (stating that the exemption “does not . . . exempt religious educational institutions with respect to all discrimination”); DeMarco v. Holy Cross High School, 4 F.3d 166, 173 (2d Cir. 1993) (stating that “religious institutions that otherwise qualify as `employer[s]' are subject to Title VII provisions relating to discrimination based on race, gender and national origin”); and Rayburn v. General Conference of Seventh-day Adventists, 772 F.2d 1164, 1166 (4th Cir. 1985) (“While the language of § 702 makes clear that religious institutions may base relevant hiring decisions upon religious preferences, Title VII does not confer upon religious organizations a license to make those same decisions on the basis of race, sex, or national origin.”). All of the cases cited are consistent with OFCCP's view expressed in this preamble. OFCCP recognizes that the EEOC's 2021 Compliance Manual also states that a qualifying religious organization can “assert as a defense to a Title VII claim of discrimination or retaliation that it made the challenged employment decision on the basis of religion.” EEOC, Compliance Manual on Religious Discrimination, sec. 12-1.C.1. In OFCCP's view, however, the cases cited in the EEOC's 2021 Compliance Manual do not support the proposition that asserting such a defense exempts the organization from the Title VII prohibitions against discrimination on the basis of race, color, sex, and national origin. Nor does the EEOC's 2021 Compliance Manual address the exemption in Executive Order 11246, which is properly understood to incorporate the established judicial construction of the Title VII exemption reflected in many cases, including those cited in the EEOC's 2021 Compliance Manual. For the reasons explained above, the exemption in Executive Order 11246 should be construed consistent with those judicial rulings.

The 2020 rule added a rule of construction at 41 CFR 60-1.5(e) requiring that subpart A of 41 CFR part 60-1 be construed “in favor of a broad protection of religious exercise, to the maximum extent permitted by the U.S. Constitution and law, including [RFRA].” See 85 FR 79372. OFCCP proposed to remove this provision.

A legal professional association, a coalition of organizations opposing religious discrimination, and a reproductive rights advocacy organization, among others, asserted that the rule's mandate to interpret the Executive Order 11246 religious exemption as broadly as law would allow is contrary to Title VII precedent that establishes the proper construction of the Executive Order 11246 religious exemption.

A religious organization, by contrast, urged retention of that rule of construction on the ground that it “reflected the very best of American traditions in that it gave religious exercise the special, indeed paramount, protection that constitutional text and history counsel.” A comment from two religious higher education associations and two religious universities stated that “[t]he OFCCP proposal to rescind appears to be an attempt to restrict the protections provided by Congress under RFRA.” Another commenter that opposed rescission, a religious advocacy organization, asserted that if OFCCP does not incorporate RFRA's protections into the regulations themselves, OFCCP will substantially burden religious organizations by forcing them to choose between participating in a Federal contract and “abandoning their faith.”

A civil liberties litigation organization asserted that when an agency “promulgates regulations concerning religious entities or beliefs, it must” not only “consider RFRA” but also “create appropriate exemptions to ensure religious beliefs are not unduly burdened,” citing Little Sisters of the Poor v. Pennsylvania, 140 S. Ct. 2367, 2384 (2020). Another civil liberties organization asserted that a case-by-case approach “inserts additional uncertainty in the government contracting process,” thereby undermining economy and efficiency in procurement. Similarly, a religious university called the case-by-case approach “cumbersome,” predicting that it “would require dedication of additional resources to carefully consider the mission of each religious entity” and “would doubtless result in disputes and litigation.”

Having reviewed these comments, OFCCP finds that removal of the rule of construction is appropriate and consistent with law. A rule that would require the Executive Order 11246 religious exemption to be construed as broadly as the law allows would be inconsistent with the Presidential intent that that exemption should be construed consistent with the Title VII exemption on which it is based, and would be inconsistent with the broader objective of Executive Order 11246 to ensure economy and efficiency in government contracts.

Contrary to the assumption of some commenters, the absence of any reference to RFRA in OFCCP's regulations does not mean that OFCCP will not apply RFRA. To the contrary, by its terms RFRA presumptively applies to the application of all Federal law, including Executive Order 11246 and its implementing regulations.

Nor does the law require that the regulations themselves contain certain categorical or bright-line religious exemptions—something that most Federal regulations do not do and, notably, something that the 2020 rule itself did not do. It is sufficient that OFCCP will comply with the law: OFCCP will apply the religious exemption of Executive Order 11246 and RFRA on a case-by-case basis, where applicable—a time-tested practice that allows OFCCP sufficient flexibility to weigh governmental, claimant, and third-party burdens and interests and that ensures that exemptions are applied consistent with RFRA and Executive Order 11246. Attention to third-party harms, in particular, enables OFCCP to ensure that any exemptions do not extend beyond what the Establishment Clause allows. See Cutter, 544 U.S. at 722; Texas Monthly, Inc. v. Bullock, 489 U.S. 1, 18 n.8 (1989) (Brennan, J., plurality op.); Estate of Thornton v. Caldor, Inc., 472 U.S. 703, 709-10 (1985). 12

OFCCP acknowledges commenters' concerns that the case-by-case approach to exemptions requires agency resources, but OFCCP believes that an individualized, fact-specific approach is an appropriate use of agency resources because it enables OFCCP to meet its legal obligations to evaluate a particular contractor's assertion that its religious exercise is substantially burdened by enforcement of an aspect of Executive Order 11246, as well as to assess OFCCP's possible compelling interests and narrow tailoring with specific regard to application of the burden to that contractor. See 42 U.S.C. 2000bb-1(b).

As explained in OFCCP's rescission proposal, the preamble to the 2020 rule expressed views about RFRA's application that were both questionable and not pertinent to the proper construction of Executive Order 11246 or to the text of the 2020 rule itself.

RFRA provides that when application of a Federal Government rule or other law would substantially burden a person's exercise of religion, the Government must afford that person an exemption to the rule unless it can demonstrate that applying the burden to that person furthers a compelling governmental interest and is the least restrictive means of doing so. 42 U.S.C. 2000bb-1(b). Prior to the 2020 rule, recognizing that “claims under RFRA are inherently individualized and fact specific,” OFCCP's express policy was to consider RFRA claims, if they ever arose, based on the facts of the particular case, and to refrain from applying any regulatory requirement that would violate RFRA. Discrimination on the Basis of Sex, Final Rule, 81 FR 39119; see also 85 FR 79353; OFCCP Frequently Asked Questions: Religious Employers and Religious Exemption, https:// www.dol.gov/agencies/ofccp/faqs/religious-employers-exemption.

The preamble to the 2020 rule, however, announced—apparently as a categorical matter for purposes of assessing future RFRA claims—that OFCCP “has less than a compelling interest in enforcing E.O. 11246 when a religious organization takes employment action solely on the basis of sincerely held religious tenets that also implicate a protected classification, other than race.” 85 FR 79354. As discussed above in section III.A.2, the preamble repeatedly mentioned marriage and sexual intimacy as likely subjects of such religious beliefs requiring accommodation, see id. at 79349, 79352, 79364, which commenters rightly viewed as indicating that protection from discrimination on the bases of sex, sexual orientation, and gender identity in particular would be compromised under this analysis. 13

OFCCP explained in its rescission proposal that the categorical approach to RFRA reflected in the preamble to the 2020 rule is inappropriate both because it would extend exemptions more broadly than RFRA requires and because it fails to allow sufficient flexibility to weigh competing governmental and third-party interests against the interests of individuals asserting religious exemptions. Cf., e.g., Cutter v. Wilkinson, 544 U.S. 709, 720 (2005) (“Properly applying [the Religious Land Use and Institutionalized Persons Act, to which Congress carried over from RFRA the “compelling governmental interest”/“least restrictive means” standard], courts must take adequate account of the burdens a requested accommodation may impose on nonbeneficiaries . . . .”).

Many commenters agreed with OFCCP's assessment that the 2020 rule preamble's categorical approach to RFRA was unsupported. These commenters, including a contractor association, LGBTQ rights advocacy organizations, reproductive rights advocacy organizations, and a women's rights advocacy organization, agreed that a case-by-case analysis of RFRA claims is appropriate.

Citing both policy and legal grounds, several commenters agreed that the 2020 preamble's categorical approach to RFRA was problematic in part because it “prevents the government from considering the harms that an exemption under RFRA may cause,” as stated by an organization that advocates separation of church and state. In addition, as discussed above in section III.A.2, a wide range of commenters noted that the First Amendment requires the Government to consider burdens that granting an exemption or accommodation would impose on third parties. See Cutter, 544 U.S. at 722; Texas Monthly, Inc. v. Bullock, 489 U.S. 1, 18 n. 8 (1989) (Brennan, J., plurality op.); Estate of Thornton v. Caldor, Inc., 472 U.S. 703, 709-10 (1985).

Commenters also criticized the position taken in the 2020 rule's preamble that the agency's compelling interest in enforcing Executive Order 11246 categorically would not extend to religious contractors' employment actions based on sincerely held religious beliefs that implicate protected characteristics other than race. Commenters including a civil rights legal advocacy organization, an LGBTQ rights advocacy organization, and an organization that advocates separation of church and state agreed with OFCCP's proposal that treating protected classes differently conflicts with the text of the Executive Order 11246 religious exemption, as well as with Title VII case law.

Other commenters, however, also approved specifically of the 2020 preamble's discussion of the extent to which OFCCP has a compelling interest in enforcing Executive Order 11246. A comment from religious higher education associations and religious universities asserted that the Government “has no compelling interest in restricting a religious institution from employing adherents to its religion, including those who adhere to `all aspects of religious observance and practice, as well as belief,' as contemplated by Title VII.” And a religious advocacy organization agreed with the 2020 rule that Bob Jones University v. United States, 461 U.S. 574 (1983), provides “support for treating race discrimination as a special case.”

Having reviewed all relevant comments, OFCCP reiterates its view that the categorical approach to RFRA recommended in the 2020 preamble would be inappropriate. The question of whether a particular requirement of a Government contract would substantially burden the religious exercise of an employer would necessarily be very fact- and context-specific. Significantly, in the context of contracting, entities are free not to bid on a contract where they would prefer not to adhere to its conditions—a common occurrence. Moreover, it is beyond dispute that the Government's interests in preventing and remedying the harms of discrimination, and in ensuring equal employment opportunity, are “weighty.” Fulton v. City of Philadelphia, 141 S. Ct. 1868, 1882 (2021). And the Government's interest in the economy and efficiency of government contracts—and therefore its interest in ensuring that skilled employees are not excluded from the workforce with respect to such contracts—is the same, regardless of whether an employer wishes to exclude certain employees on the basis of race or any other protected characteristic.

OFCCP explained in its rescission proposal that it had applied the religious exemption in Executive Order 11246 for 17 years prior to 2020 without needing to codify its scope and application in regulatory language beyond that contained in 41 CFR 60-1.5(a)(5). During that time, OFCCP's policy with respect to the religious exemption was to apply Title VII case law as it developed, with reference to relevant religious liberty authorities where appropriate. As recognized even in the preamble to the 2020 rule, comparatively few contractors and subcontractors are affected by the religious exemption. See 85 FR 79367 (“[T]his rule will have no effect on the overwhelming majority of federal contractors.”). Given the relatively low number of contractors requesting religious exemptions, a case-by-case approach is not only preferable for the reasons addressed in the previous sections but also entirely workable and practical, as OFCCP's 17 years of prior experience attest.

Numerous commenters who supported OFCCP's rescission proposal agreed that the 2020 rule was unnecessary and, moreover, asserted that the agency did not adequately establish the need for the 2020 rule in proposing or finalizing it. Many of these commenters, including a women's rights legal advocacy organization, an LGBTQ rights advocacy organizations, a think tank, and a civil liberties advocacy organization, noted that the preambles to the religious exemption NPRM and the final 2020 rule asserted that the rule was necessary to expand access to Federal contracting for religious entities reluctant to contract because the scope of the religious exemption was unclear, see, e.g., 85 FR 79328, 79370, but the preambles failed to provide evidence to substantiate that claim.

For example, as stated in a comment from a state tradeswomen organization, a national labor union LGBTQ constituency group, and a national labor union, the 2020 rule preamble did “not identify any organizations that lost contracting opportunities because of the nondiscrimination requirements lifted by the 2020 Rule, or any that previously desired to apply for federal contracts, but declined to do so because of those nondiscrimination requirements” or because of the purported lack of clarity regarding the application of those requirements. A group of state attorneys general similarly stated that the 2020 rule did not “present evidence that religious organizations avoided applying for contracts before the Rule, basing its assertions that they may have been `reluctant to participate as federal contractors' on three unidentified commenters, who are not themselves organizations that have been reluctant.” A think tank asserted that the 2020 rule's “vague statement that it received `feedback' from `some organizations' is . . . insufficient to establish any need for this dramatic shift in position, particularly in light of the tremendous harms articulated above.”

Commenters who opposed rescission, however, asserted that the 2020 rule was needed. Many of these commenters agreed that religious entities were only a fraction of Federal contractors but asserted, as a religious college put it, that “[i]t is precisely because religious institutions are comparatively few that their constitutional rights and interests should be articulated and affirmed in this executive order.” Many commenters who opposed rescission expressed concern that rescinding the 2020 rule would deter the full participation of religious organizations in contracting. One religious university stated that, in its view, “the reason there are comparatively few federal religious contractors and subcontractors is because of the ambiguity and associated risks [particularly the “penalties involved in being accused of impermissible discrimination”] that existed in the interpretation of religious exemptions for federal contractors prior to the 2020 rule.” The university asserted that “the increased level of certainty as to the interpretation of its constitutionally protected religious exemption offered by the 2020 Rule actually opened the door for [the university] to consider pursuing a federal contract.” Several commenters asserted that religious organizations provide valuable services and therefore should not be discouraged from participating in Federal contracting. A few commenters, including U.S. Senators and a religious advocacy organization, asserted that the supplies and services provided by religious contractors, such as hospitals, were particularly important to the country and the economy during the Covid-19 pandemic.

Although the great majority of commenters opposing rescission did not assert that they themselves held Federal contracts, several religious colleges and universities submitted comments stating that they held Federal contracts and broadly asserted that such institutions rely on the religious exemption. For example, one religious university commented: “Religious institutions need the exemption in order to become federal contractors and provide important educational opportunities to their students.” Although it provided no specifics, the commenter continued that “[r]eligious institutions have in fact relied on the exemption provided under Title VII, and rescinding the 2020 rule would raise uncertainty about their ability to do so in the future.” A comment from religious higher education associations and religious universities asserted that “sponsored research on wide-ranging subjects has been conducted by religious higher education institutions for the Department of Agriculture, Department of Defense, Department of Energy, Department of Interior, NASA [National Aeronautics and Space Administration], National Institutes of Health, U.S. Fish and Wildlife Service, and others.” Another commenter identified itself as a religious university that had “successfully performed under federal contracts in various academic and scientific areas.”

One commenter, Brigham Young University (BYU), specifically commented that it was a Federal contractor that had invoked the religious exemption during past compliance evaluations. Attached to BYU's comment on the proposal were letters sent by its counsel to an OFCCP regional office on March 24, 2016, and June 18, 2010. OFCCP has confirmed that BYU has invoked the religious exemption. OFCCP's records reflect that, on at least two occasions, BYU was selected for a compliance review during OFCCP's neutral scheduling process. BYU responded to OFCCP's scheduling letter by asserting that it was exempt from Executive Order 11246 and requesting that the compliance review be administratively closed. OFCCP reviewed BYU's response and determined that BYU was entitled to Executive Order 11246 religious exemptions under two provisions, one as a religious entity pursuant to the exemption at issue here and also as a religious educational institution. 14 OFCCP explained, however, that the religious exemption did not provide a total exemption from evaluation, emphasizing the proviso in 41 CFR 60-1.5(a)(5) that “[s]uch contractors and subcontractors are not exempted or excused from complying with the other requirements contained in this Order.” OFCCP conducted a desk audit of the documentation submitted by BYU, and OFCCP ultimately closed the review with a Notice of Compliance to BYU.

In its recission proposal, OFCCP stated that it had no record of any request for a religious exemption. See 86 FR 62118 n.3. OFCCP corrects this statement to confirm that, during the 20 years that the religious exemption has been included in Executive Order 11246, at least one contractor has invoked the religious exemption during a compliance review.

OFCCP disagrees with a religious advocacy organization's assertion that OFCCP's rescission proposal assumes “the participation of religious organizations in the federal procurement system is unimportant.” On the contrary, OFCCP acknowledges that Executive Order 13279 established the importance to Federal procurement of religious organizations, in part through “the removal of barriers to faith-based organizations participating in procurements beneficial to the government,” as a religious litigation organization put it. OFCCP also fully recognizes the importance of the Executive Order 11246 religious exemption for religious contractors. However, as discussed in the sections above, OFCCP believes that the 2020 rule impermissibly disregarded Executive Order 13279's intent to incorporate the scope and application of the Title VII religious exemption into Executive Order 11246.

Also, while acknowledging that one commenter asserted that the 2020 rule “opened the door” for it “to consider pursuing a federal contract,” the comments that OFCCP received from existing religious contractors establish the importance of Executive Order 11246's religious exemption as delineated in Title VII case law, not as broadened in the 2020 rule. BYU's experience during OFCCP compliance reviews prior to the 2020 rule shows that it was able to assert the religious exemption while complying with the other Executive Order 11246 obligations it agreed to as a Federal contractor. And another religious university commented that it had “successfully performed under federal contracts in various academic and scientific areas.”

OFCCP's rescission proposal stated that, if the 2020 rule were rescinded, OFCCP would return to its policy and practice of interpreting and applying the religious exemption in section 204(c) of Executive Order 11246, as codified in OFCCP's regulations at 41 CFR 60-1.5(a)(5), in accordance with Title VII principles and case law. OFCCP stated that it would abide by relevant religious liberty obligations and would consider any RFRA claims raised by contractors on a case-by-case basis and refrain from applying any regulatory requirement to a case in which it would violate RFRA.

Many commenters who opposed rescission believed that rescinding the 2020 rule would have negative effects. These commenters believed that rescission would undermine employers' religious freedom by revoking key religious liberty protections for their employment decisions. Some commenters, including several religious universities and a religious advocacy organization, asserted that OFCCP's rescission proposal did not adequately account for the constitutional protections for religious employers, which they stated extend further than the ministerial exception. Several of these commenters asserted that rescission of the 2020 rule would impermissibly force religious entities to choose between maintaining their faith and participating in Federal contracts. Many of these commenters asserted that OFCCP was without authority to limit religious freedom protections. Commenters including U.S. Senators and a religious advocacy organization cited cases including Fulton v. City of Philadelphia, 141 S. Ct. 1868 (2021); Trinity Lutheran Church of Columbia, Inc. v. Comer, 137 S. Ct. 2012 (2017); and Thomas v. Review Board, 450 U.S. 707 (1981), to support their assertion that faith-based organizations cannot be forced to choose between exercising religion and participating in Government programs.

Many commenters who opposed rescission also asserted that rescinding the 2020 rule, which they viewed as providing clarity and predictability to the regulated community, would lead to confusion and uncertainty. A religious university, for example, asserted that OFCCP's rescission proposal would remove helpful regulations and “leave nothing in their place” to provide “guidance . . . as to the meaning and scope of the religious exemption.” A few commenters expressed concern that OFCCP, in the absence of regulations to guide and constrain its authority, would simply indulge its “policy preferences,” such as by “target[ing] religious groups and individuals that do not comply with their agenda,” in the words of a religious organization. A religious advocacy organization asserted that, despite the administration's “claims to promote diversity,” rescission of the 2020 rule would entail “simultaneously shunning and singling-out religious organizations and companies who represent Americans from incredibly diverse races, ethnic groups, backgrounds, and socioeconomic status.” On a more neutral note, U.S. Senators commented that “[i]t remains a basic principle of public policy and good governance that federal contractors deserve to understand at the outset of the contract how the terms of such contract will be interpreted and enforced.”

OFCCP appreciates contractors' and potential contractors' desire for clarity and certainty regarding the scope and application of the religious exemption. OFCCP does not agree that leaving the 2020 rule in place would achieve clarity and certainty for all stakeholders. As discussed above and as asserted by many other commenters, the 2020 rule's departure from Title VII case law and principles actually increased confusion among contractors and created uncertainty for workers about their protections from discrimination. OFCCP's rescission of the entire 2020 rule is necessary to achieve consistency with the text of Executive Order 11246 and with Title VII case law and principles, as discussed above in response to comments. As many commenters thus agreed, with rescission of the entire 2020 rule, religious contractors will no longer be subject to different exemption standards under Executive Order 11246 and Title VII, and workers can avail themselves of consistent protections. Furthermore, OFCCP is committed to promoting religious liberty, and there is simply no basis for any concern that OFCCP intends to target, shun, or otherwise be hostile to religious contractors. OFCCP fully intends to continue respecting contractors' religious liberty interests as well as the interests of other stakeholders, including the employees of religious contractors.

OFCCP also notes that commenters who opposed rescission, although they predicted that rescission would have negative effects, did not claim serious reliance interests that would be harmed by rescission. This may be because, as a religious advocacy organization commented, the 2020 rule has not been in place long enough “to affect the universe of potential contractors who submit their bids in cycles.” Further, as noted in a comment submitted by a state tradeswomen organization, a national labor union LGBTQ constituency group, and a national labor union, the 2020 rule was challenged in court within a few weeks of its effective date, and the Department shortly thereafter confirmed in a public filing that it intended to propose rescission of the 2020 rule. Defs.' Unopposed Mot. for Stay, Or. Tradeswomen, Inc. v. U.S. Dep't of Labor, No. 21-cv-00089 (D. Or. filed Jan. 21. 2021), ECF No. 15. By contrast, as asserted by a group of state attorneys general, the 2020 rule harmed the reliance interests of employees of Federal contractors “that will newly claim the exemption,” given that those employees depend “on the protections of E.O. 11,246 to shield them from their employer imposing its religious tenets in the workplace.” OFCCP believes that rescission of the 2020 rule will create more certainty for employees.

OFCCP also carefully considered commenters' concerns that rescinding the 2020 rule would impermissibly undermine employers' religious freedom. At the outset, OFCCP reiterates that rescission will simply return the agency to its longstanding approach to the religious exemption, which entails following Title VII principles and case law—that is, interpreting and applying the religious exemption in accordance with precedents in which courts have not impermissibly undermined employers' religious freedom. OFCCP has also reviewed the cases that commenters cited in support of their concerns about employers' religious liberty, and OFCCP believes that rescinding the 2020 rule is consistent with those decisions.

As discussed above, OFCCP and some commenters view rescission as consistent with Fulton, which emphasized the inadequacy of a categorical approach to religious exemptions by noting that the relevant question “is not whether the [government] has a compelling interest in enforcing its non-discrimination policies generally, but whether it has such an interest in denying an exception to [the particular religious claimant].” 141 S. Ct. at 1881. With regard to Trinity Lutheran, a labor union commented that the Court's decision there “simply affirmed that the Free Exercise clause ensures religious institutions are protected from `unequal treatment' and prohibits targeting the religious for `special disabilities.' It does not condone a broad, religiously predicated exemption to nondiscrimination laws . . . .” And a women's rights legal advocacy organization commented that “the Court's narrow decision” in Masterpiece Cakeshop v. Colorado Civil Rights Comm'n, 138 S. Ct. 1719 (2018), involving a baker asserting that compliance with a general nondiscrimination law would cause him to violate his religious beliefs, did not find that the baker was entitled to a religious exemption; instead, it “found that statements made during a hearing suggested some government actors had hostility to the baker's beliefs, concluding that this hostility toward religion as manifested in the particular hearing process violated the baker's rights, not the law itself.”

OFCCP agrees that these cases bar Government from expressing hostility toward religious institutions and require that religious institutions be treated on an equal basis with secular institutions in certain contexts. See, e.g., Masterpiece Cakeshop, 138 S. Ct. at 1729 (invalidating a state civil rights commission's cease and desist order issued to a bakery that refused to sell a wedding cake to a same-sex couple because the commission's treatment of the case “has some elements of a clear and impermissible hostility toward the sincere religious beliefs that motivated his objection”); Trinity Lutheran, 137 S. Ct. at 2021 (invalidating a state's policy of denying grants to religiously affiliated applicants because it “expressly discriminates against otherwise eligible recipients by disqualifying them from a public benefit solely because of their religious character”). These cases do not, however, support retention of the 2020 rule. There is no basis for any assertion that the present administration seeks to “impose regulations that are hostile to the religious beliefs of affected citizens,” Masterpiece Cakeshop, 138 S. Ct. at 1721-22, or that OFCCP's approach following rescission will “single out the religious for disfavored treatment,” Trinity Lutheran, 137 S. Ct. at 2020. On the contrary, with this rescission, OFCCP seeks to consider religious objections with neutrality, neither favoring nor disfavoring religion, consistent with the Court's direction in these cases. See, e.g., Masterpiece Cakeshop, 138 S. Ct. at 1722 (observing that, under the correct approach, the “State's interest could have been weighed against Phillips' sincere religious objections in a way consistent with the requisite religious neutrality that must be strictly observed”).

In addition, several commenters who supported rescission asserted that cases addressing religious liberty in the context of public benefits were not directly relevant in the context of Federal contracts, particularly in determining the proper scope and application of religious exemptions. 15 In general, OFCCP agrees that procurement contracts are distinct as an area in which the Government has considerable discretion to impose conditions. See, e.g., Perkins v. Lukens Steel Co., 310 U.S. 113, 127-28 (1940) (“Government enjoys the unrestricted power to produce its own supplies, to determine those with whom it will deal, and to fix the terms and conditions upon which it will make needed purchases.”); Martin Marietta Materials, Inc. v. Kansas Dep't of Transp., 810 F.3d 1161, 1178 (10th Cir. 2016) (citing Perkins ); John Cibinic Jr. et al., Formation of Government Contracts 409 (4th ed. 2011) (relying on Perkins for the proposition that “[i]t has long been recognized that the government has broad discretion in determining those firms with which it will enter into contractual agreements”).

Finally, OFCCP agrees with the numerous commenters who asserted that rescission would be consistent with the policy goal of promoting equal employment opportunity, which in turn enhances economy and efficiency in Federal contracting. A member of the U.S. House of Representatives, for example, asserted that the 2020 rule “undermined [OFCCP's] mission by issuing a deeply flawed rule that significantly weakened anti-discrimination protections for employees who work on taxpayer-funded federal contracts.” An international labor union commented that, given the negative effects of workplace discrimination on employee productivity and turnover, “OFCCP, the federal agency whose mission is to `protect workers, promote diversity, and enforce the law,' should be working to enhance protections for vulnerable worker populations, not broadening permissible discrimination in the workplace.” A national labor union commented that “[c]ontractors that exclude entire classes of otherwise qualified workers from employment or treat such workers unequally based on irrelevant individual characteristics likely will underperform relative to contractors that do not discriminate.” In support, the commenter cited studies showing, among other findings, “that employers' unfair employment practices cost employers $64 billion per year in direct costs from unwanted employee turnover, not counting other hard-to-measure effects like reputational damage, which could further inhibit an employer's ability to attract qualified employees.”  16 And an organization that advocates separation of church and state commented that rescission of the 2020 rule “would reverse the Trump administration's harmful expansion of the exemption, restore longstanding policy that actually provides equal employment opportunity for workers, and promote economy and efficiency in contracting.”

With this rescission, nothing in the 2020 rule or its preamble may be relied on as a statement of OFCCP's interpretation or application of the Executive Order 11246 religious exemption or relevant religious liberty authorities. OFCCP remains committed to protecting religious freedom in accordance with applicable law and will continue to provide compliance assistance on the religious exemption, including issuing frequently asked questions, conducting webinars, and providing other compliance assistance requested by stakeholders.

Under Executive Order 12866, the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB) determines whether a regulatory action is significant and, therefore, subject to the requirements of Executive Order 12866 and OMB review. Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action that is likely to result in a rule that: (1) has an annual effect on the economy of $100 million or more, or adversely affects in a material way a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities (also referred to as economically significant); (2) creates serious inconsistency or otherwise interferes with an action taken or planned by another agency; (3) materially alters the budgetary impacts of entitlement grants, user fees, or loan programs, or the rights and obligations of recipients thereof; or (4) raises novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in Executive Order 12866. This rescission has been designated a “significant regulatory action,” although not economically significant, under section 3(f)(1) of Executive Order 12866. The Office of Management and Budget has reviewed the rescission. Pursuant to Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996, also known as the Congressional Review Act (5 U.S.C. 801 et seq. ), OIRA designated this rescission as not a “major rule,” as defined by 5 U.S.C. 804(2).

Executive Order 13563 directs agencies to adopt a regulation only upon a reasoned determination that its benefits justify its costs; tailor the regulation to impose the least burden on society, consistent with obtaining the regulatory objectives; and in choosing among alternative regulatory approaches, select those approaches that maximize net benefits. Executive Order 13563 recognizes that some benefits are difficult to quantify and provides that, where appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.

As discussed in the preamble, OFCCP received numerous comments addressing the need for the rescission. Commenters who supported the rescission believed the 2020 rule impermissibly expanded the religious exemption, departed from established legal principles and OFCCP's longstanding policy and practice, increased confusion about the scope and application of the religious exemption, weakened nondiscrimination protections for employees of Federal contractors, and failed to account for the harm to employees who would face discrimination under the amended provisions.

For example, a civil liberties organization stated, “By allowing federal contractors to discriminate against employees who do not abide by the employer's religious beliefs, employees who follow dominant religious beliefs will have an economic advantage over employees who are secular, who follow a less popular religion, or who interpret a dominant religion differently than their employer.” An LGBTQ rights advocacy organization noted the 2020 rule permitted increased discrimination against workers and, thus, “leads to increased and extensive costs for those workers, their families, and society, including lost wages and benefits, negative impacts on mental and physical health and related out-of-pocket healthcare expenses, and costs associated with job searches.” A civil rights legal advocacy organization noted the confusion and inconsistencies caused by the 2020 rule, stating, “[T]he discrepancies between the [2020] rule, OFCCP enforcement, EEOC enforcement, and federal court enforcement could result in federal contractors relying upon the OFCCP interpretation only to be later found liable for discrimination under Title VII.”

As described in more detail below, OFCCP also received comments objecting to the rescission. Commenters who opposed the rescission supported the 2020 rule, stating that it provided helpful, clear standards, which they believed encouraged religious organizations to become Federal contractors while protecting employers' religious liberties. Some of these commenters also believed that rescinding the 2020 rule would unduly narrow the religious exemption.

After considering the comments received, OFCCP has concluded that the standards established in the 2020 rule were not warranted to the extent that they departed, without adequate justification, from applicable legal precedents and created uncertainty in the applicable legal standards. Rather than provide clarity, the 2020 rule increased confusion because of its divergence from courts' and the EEOC's approach to the Title VII religious exemption. Further, rescinding the 2020 rule will not unduly narrow the religious exemption but will simply return to OFCCP's past practice of applying Title VII principles and case law. The 2020 rule also reduced discrimination protections for employees of Federal contractors, which was contrary not only to relevant legal authorities but also to OFCCP's policy goal of promoting equal employment opportunity.

For these reasons, OFCCP is finalizing this rescission to enable the agency to properly apply and enforce Executive Order 11246 by returning to its policy and practice of interpreting and applying the religious exemption contained in section 204(c) of Executive Order 11246 to the facts and circumstances of each situation consistent with Title VII principles and case law.

OFCCP received comments from religious advocacy organizations and individuals disagreeing with the agency's assessment that the proposed rescission would not impose any new costs. The commenters stated that rescinding the 2020 rule would result in religious contractors dealing with a less clear standard, less certainty, and increased difficulty in determining whether they qualify for an exemption. For example, an organization of religious employers stated, “The Proposal's contradictions of and inconsistencies with Title VII, EEOC Guidance, and Sections 202 and 204 of E.O. 11246, will decrease consistency and stability for religious contractors, resulting in self-exclusion of some qualified and talented contractors solely on the basis of their sincere religious beliefs.” A religious advocacy organization stated, “The Proposal ignores the costs on religious organizations in determining whether they qualify for the exemption under its opaque standard, the costs of not being able to make employment decisions based on religion, and the costs associated with losing current and prospective federal contractors which may produce goods and services more efficiently, effectively, or at a lower price for the federal government.” Other commenters asserted that religious contractors would be deterred from participating in government contracting and lose all of its benefits. For example, a religious association stated, “[T]here is a cost to the federal government and the American people with excluding qualified religious organizations from federal contracts based not on their ability to do the work required by the government contract, but solely on their desire to make employment decisions based on their sincere religious beliefs and tenets.”

OFCCP carefully reviewed the comments received on the proposal's potential costs to religious organizations. In response, OFCCP emphasizes that the language of the Executive Order 11246 religious exemption, as well as the original regulation implementing the religious exemption at 41 CFR 60-1.5(a)(5), remains unchanged. In rescinding the 2020 rule, OFCCP will simply return to its longstanding approach, in effect from the addition of the religious exemption until January 2021, of aligning the Executive Order 11246 religious exemption with Title VII case law as applied to the facts and circumstances of each situation. Indeed, all contractors that are covered by Title VII have been required to be in compliance with Title VII throughout the period during which the 2020 rule was in effect, so there should be no additional compliance costs involved. In addition, OFCCP notes that none of the commenters who asserted that the proposal would impose costs on religious organizations and the Government provided additional information or data to support their claims.

For these reasons, OFCCP maintains that the rescission does not include any quantifiable costs because it returns to the agency's prior policy and practice; adds no new compliance requirements for contractors; and the 2020 rule did not result in cost savings attributable to reduced risk of noncompliance and potential legal costs. The rescission removes the definitions of “particular religion,” “religion,” “religious corporation, association, educational institution, or society,” and “sincere” from 41 CFR 60-1.3; removes paragraphs (a) and (b) from 41 CFR 60-1.3; and removes paragraphs (e) and (f) from 41 CFR 60-1.5.

Executive Order 13563 recognizes that some rules have benefits that are difficult to quantify or monetize but are nevertheless important, and states that agencies may consider such benefits. OFCCP received a number of comments on the benefits of rescinding the 2020 rule. For example, a civil liberties advocacy organization stated that the discrimination permitted by the 2020 rule creates intangible costs by “reducing equity, fairness, and personal freedom; impeding the ability of workers to make deeply personal decisions regarding expression of their gender identity or sexual orientation, relationships and families, or regarding medical treatment; eroding protections for employees' personal privacy regarding protected characteristics; and decreasing the dignity and rights of stigmatized minorities.” A civil rights legal advocacy organization commented that female and LGBTQ workers of color “face greater barriers and fewer economic opportunities” as a result of multiple intersecting forms of workplace discrimination. A national labor union further noted, “Discrimination leads to higher unemployment rates and lower wages among impacted workers, as well as lower investment in their education and training, resulting in lower overall economic performance for the country.” Similarly, a group of state attorneys general asserted that “the 2020 Rule's likely effect of increased employment discrimination over time will have negative effects on businesses overall, including in lost revenue, recruitment, retention, and employee productivity.”

Commenters including a religious organization agreed with OFCCP that the rescission will promote economy and efficiency in Federal procurement by preventing the arbitrary exclusion of qualified and talented employees on the basis of characteristics that have nothing to do with their ability to do work on Government contracts. The rescission will also ensure that taxpayer funds are not used to discriminate and that Federal contractors provide equal employment opportunity. Finally, the rescission will provide clarity and consistency for contractors and would-be contractors that are religious corporations, associations, educational institutions, and societies through a single religious employer test: those with a primarily religious purpose and character, that are eligible for the Title VII religious exemption, are also eligible for the Executive Order 11246 religious exemption.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation.” Pub. L. 96-354, section 2(b). The RFA requires agencies to consider the impact of a regulatory action on a wide range of small entities, including small businesses, nonprofit organizations, and small governmental jurisdictions.

Agencies must review whether a regulatory action would have a significant economic impact on a substantial number of small entities. See 5 U.S.C. 603. If the regulatory action would, then the agency must prepare a regulatory flexibility analysis as described in the RFA. See id. However, if the agency determines that the regulatory action would not be expected to have a significant economic impact on a substantial number of small entities, then the head of the agency may so certify and the RFA does not require a regulatory flexibility analysis. See 5 U.S.C. 605. The certification must provide the factual basis for this determination.

The rescission will not have a significant economic impact on a substantial number of small entities because it will not impose any new costs. Accordingly, OFCCP certifies that the rescission will not have a significant economic impact on a substantial number of small entities.

The Paperwork Reduction Act of 1995 requires that OFCCP consider the impact of paperwork and other information collection burdens imposed on the public. See 44 U.S.C. 3507(d). An agency may not collect or sponsor the collection of information or impose an information collection requirement unless the information collection instrument displays a currently valid OMB control number. See 5 CFR 1320.5(b)(1).

OFCCP has determined that no new requirement for information collection is associated with this rescission. Consequently, this rescission does not require review by OMB under the authority of the Paperwork Reduction Act.

For purposes of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1532, this rescission does not include any Federal mandate that will result in excess of $100 million in expenditures by state, local, and tribal governments in the aggregate or by the private sector.

OFCCP has reviewed this rescission in accordance with Executive Order 13132 regarding federalism and has determined that it does not have “federalism implications.” The rescission will not “have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”

This rescission does not have tribal implications under Executive Order 13175 that would require a tribal summary impact statement. The rescission does not “have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.”

For the reasons set forth in the preamble, OFCCP amends 41 CFR part 60-1 as follows:

I. Background

DoD published an interim rule in the Federal Register at 87 FR 52339 on August 25, 2022, to implement section 855 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L. 117-81, 10 U.S.C. 4651 note prec.). Section 855 requires offerors, when submitting a bid or proposal for a covered contract, to disclose their use of workforce and facilities in the People's Republic of China, if they employ one or more individuals who will perform work in the People's Republic of China, unless a national security waiver has been granted. A recurring disclosure is also required for fiscal years 2023 and 2024, for contractors that are covered entities and are a party to one or more covered contracts in each fiscal year, to disclose if the contractor employs one or more individuals who perform work in the People's Republic of China on any such contract. One respondent submitted a public comment in response to the interim rule.

DoD reviewed the public comment in the development of the final rule. No changes were made to the rule as a result of the comment. A discussion of the public comment, which stated support for the rule, is provided as follows:

Comment: The respondent supported the disclosure requirement in the interim rule, stating that an outright ban for contracts exceeding the $5 million threshold would be inappropriate and would not allow a follow-on investigation to reach a determination that protects our national security interests while minimizing the effects on businesses and individuals.

Response: DoD acknowledges the support for the rule.

The requirements of section 855 of the NDAA for FY 2022 apply to covered contracts valued in excess of $5 million, excluding contracts for commercial products or commercial services. Therefore, DoD is not applying the rule to contracts at or below the SAT or to contracts for the acquisition of commercial services or commercial products, including COTS items.

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

As required by the Congressional Review Act (5 U.S.C. 801-808) before an interim or final rule takes effect, DoD will submit a copy of the interim or final rule with the form, Submission of Federal Rules under the Congressional Review Act, to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. A major rule under the Congressional Review Act cannot take effect until 60 days after it is published in the Federal Register . The Office of Information and Regulatory Affairs has determined that this rule is not a major rule as defined by 5 U.S.C. 804.

A final regulatory flexibility analysis (FRFA) has been prepared consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:

This rule is required to implement section 855 of the National Defense Authorization Act (NDAA) for Fiscal Year 2022 (Pub. L. 117-81, 10 U.S.C. 4651 note prec.). The objective of the rule is to implement section 855 of the NDAA for FY 2022 to require offerors, when submitting a proposal for a covered contract, to disclose their use of workforce and facilities in the People's Republic of China if they employ one or more individuals who will perform work in the People's Republic of China, unless a national security waiver has been granted. A national security waiver may be granted if a determination is made that such disclosure would not be in the interest of national security. Recurring disclosures are required following contract award for contractors that are covered entities for fiscal years 2023 and 2024. The initial and recurring disclosures must include the total number of individuals who will perform work in the People's Republic of China on the covered contracts and a description of the physical presence of the facility, including the street address, where work on the covered contract will be performed.

There were no significant issues raised by the public comments in response to the initial regulatory flexibility analysis.

Federal Procurement Data System (FPDS) data was analyzed for fiscal years 2019, 2020, and 2021, purchases of supplies or end products and services for which the place of manufacture, place of performance, or country of the product's origin is China; with a value above $5 million; and excluding commercial services, commercial products, and commercially available off-the-shelf (COTS) items. The FPDS data revealed no awards that met these criteria.

In addition, a data analysis was performed on the North Atlantic Treaty Organization (NATO) Commercial and Government Entity (NCAGE) codes from the NATO Support and Procurement Agency (NSPA) for entities located in the People's Republic of China, including Hong Kong. This review revealed a total of 5,143 entities. There were 4,706 entities in the People's Republic of China with NCAGE codes, and 437 entities in Hong Kong with NCAGE codes. This list of NCAGE codes was compared to any People's Republic of China or Hong Kong NCAGE codes from the FPDS data results for a list of contract awards in fiscal years 2019, 2020 and 2021. Similarly, there were no contract awards to any unique entities or small business entities meeting the criteria.

There are projected reporting or recordkeeping requirements, and there may be costs to ensure compliance. The contractor's postaward disclosure is required for fiscal years 2023 and 2024, to disclose if a contractor that is a covered entity employs one or more individuals who perform work in the People's Republic of China on a covered contract. The disclosure must include the total number of individuals who will perform work in the People's Republic of China on the contract and a description of the exact street location of the physical presence in China where the work on the contract will be performed.

There are no known alternate approaches to the rule that would meet the objectives of the statute.

This rule contains information collection requirements that have been approved by the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35). This information collection requirement has been assigned OMB Control Number 0750-0005, entitled Defense Federal Acquisition Regulation Supplement (DFARS), Disclosure of Employment of Individuals Who Work in the People's Republic of China.

I. Background

This rule implements section 815 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021 (Pub. L. 116-283), which strengthened the requirement that DoD establish a goal to pay small business contractors within 15 days of receipt of an invoice. In particular, section 815(1) of the NDAA for FY 2021 amended 10 U.S.C. 2307(a)(2)(A) (now located in 10 U.S.C. 3801) by striking the language “if a specific payment date is not established by contract.” Section 815(2) of the NDAA for FY 2021 amended 10 U.S.C. 2307(a)(2)(B) by striking the language “if the prime contractor agrees” and replacing it with the language “if the prime contractor agrees or proposes.” Section 814 of the NDAA for FY 2022 (Pub. L. 117-81) rescinded section 815(2) of the NDAA for FY 2021.

In related Federal Acquisition Regulation (FAR) Case 2020-007, DoD, GSA, and NASA published a proposed rule at 86 FR 53923 on September 29, 2021, to implement a policy that provides for accelerated payments to contractors that are small businesses and to small business subcontractors by accelerating payments to their prime contractors. This change to the FAR implements section 873 of the NDAA for FY 2020 (Pub. L. 116-92). Section 873 requires agencies to establish an accelerated payment date for small business prime contractors, to the fullest extent permitted by law, with a goal of 15 days after receipt of a proper invoice, if a specific payment date is not established by contract. Section 873 also requires that, to the fullest extent permitted by law, the head of an agency establish an accelerated payment date for prime contractors that subcontract with small businesses, with a goal of 15 days after receipt of a proper invoice, if—

(1) A specific payment date is not established by contract; and

(2) The contractor agrees to make accelerated payments to the subcontractor without any further consideration from, or fees charged to, the subcontractor.

FAR Case 2020-007 implements portions of 10 U.S.C. 2307 (now located in 10 U.S.C. 3801-3808) stating requirements regarding accelerated payments applicable only to DoD. The FAR case implements section 815(1) of the NDAA for FY 2021 by excluding from DoD contracts the condition reflected in the language “a specific payment date is not established by contract.” Therefore, separate implementation of section 815(1) in the DFARS is not required.

DFARS Case 2021-D008 now rescinds portions of the DFARS that FAR Case 2020-007 renders moot. In particular, DFARS clause 252.232-7017, Accelerating Payments to Small Business Subcontractors—Prohibition on Fees and Consideration, prohibits the contractor requiring any further consideration from or charging fees to the small business subcontractor in exchange for making accelerated payments. DFARS 232.009-2 prescribes inclusion of the clause at DFARS 252.232-7017 in solicitations and contracts, including those using FAR part 12 procedures for the acquisition of commercial products and commercial services, that include the clause at FAR 52.232-40, Providing Accelerated Payments to Small Business Subcontractors. FAR Case 2020-007 amends FAR clause 52.232-40 to include the same information as DFARS clause 252. 232-7017, so the DFARS clause is duplicative and no longer necessary. Therefore, it can be removed from the DFARS along with the prescription at 232.009-2.

The statute that applies to the publication of the FAR is 41 U.S.C. 1707, Publication of Proposed Regulations. Subsection (a)(1) of the statute requires that a procurement policy, regulation, procedure, or form (including an amendment or modification thereof) must be published for public comment if it relates to the expenditure of appropriated funds, and has either a significant effect beyond the internal operating procedures of the agency issuing the policy, regulation, procedure, or form, or has a significant cost or administrative impact on contractors or offerors. This final rule is not required to be published for public comment, because this rule merely removes an obsolete clause and the associated prescription from the DFARS.

This rule only removes obsolete DFARS clause 252.232-7017, Accelerating Payments to Small Business Subcontractors—Prohibition on Fees and Consideration, and the associated prescription. This rule does not create any new solicitation provisions or contract clauses that apply to contracts at or below the simplified acquisition threshold, for commercial products, including commercially available off-the-shelf items, or for commercial services.

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

As required by the Congressional Review Act (5 U.S.C. 801-808) before an interim or final rule takes effect, DoD will submit a copy of the interim or final rule with the form, Submission of Federal Rules under the Congressional Review Act, to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. A major rule under the Congressional Review Act cannot take effect until 60 days after it is published in the Federal Register . The Office of Information and Regulatory Affairs has determined that this rule is not a major rule under 5 U.S.C. 804.

The Regulatory Flexibility Act does not apply to this rule because this final rule does not constitute a significant DFARS revision within the meaning of FAR 1.501-1, and 41 U.S.C. 1707 does not require publication for public comment.

This rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

Therefore, 48 CFR parts 212, 232, and 252 are amended as follows:

I. Background

DoD published a proposed rule in the Federal Register at 87 FR 65505 on October 28, 2022, to amend the DFARS to update the quick-closeout procedures and expand contracts eligible for quick-closeout. There were no public comments submitted in response to the proposed rule. There are no changes made to the final rule.

This rule does not create any new solicitation provisions or contract clauses. It does not impact any existing solicitation provisions or contract clauses.

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

As required by the Congressional Review Act (5 U.S.C. 801-808) before an interim or final rule takes effect, DoD will submit a copy of the interim or final rule with the form, Submission of Federal Rules under the Congressional Review Act, to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. A major rule under the Congressional Review Act cannot take effect until 60 days after it is published in the Federal Register . The Office of Information and Regulatory Affairs has determined that this rule is not a major rule as defined by 5 U.S.C. 804.

A final regulatory flexibility analysis (FRFA) has been prepared consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:

This rule revises the DFARS to implement changes to the indirect cost rate quick-closeout procedures. Government Accountability Office Report 17-738, Federal Contracting: Additional Management Attention and Action Needed to Close Contracts and Reduce Audit Backlog, published September 2017 recommended that DoD develop a means for Department-wide oversight into both components' progress in meeting goals on closing contracts and the status of contracts eligible for closeout. The Advisory Panel on Streamlining and Codifying Acquisition Regulations (Section 809 Panel) was established pursuant to section 809 of the National Defense Authorization Act for Fiscal Year 2016 (Pub. L. 114-92) to deliver recommendations that could transform the defense acquisition system to meet the threats and demands of the 21st century. Additionally, the Section 809 Panel recommended authorizing the settlement of final overhead rates when it is in the best interest of the Government and closing complete contracts regardless of dollar value or the percentage of unsettled direct and indirect costs allocable to the contracts (recommendation 58).

This rule states that the amount of unsettled direct costs and indirect costs to be allocated to the contract, task order, or delivery order will be considered relatively insignificant when the total unsettled direct costs or indirect costs to be allocated do not exceed $2 million. Additionally, DCMA administrative contracting officers may negotiate the settlement of direct and indirect costs for a specific contract, task order, or delivery order to be closed in advance of the determination of final direct costs and indirect rates set forth in FAR 42.705 regardless of the dollar value or percentage of unsettled direct or indirect costs allocable to the contract.

There were no public comments submitted in response to the proposed rule.

This rule will likely affect small entities that have been or will be awarded contracts, task orders, and delivery orders valued over $2 million. Data was obtained from the Procurement Business Intelligence Service (PBIS) for contracts that were awarded in fiscal years 2019 through 2021 and eligible for quick-closeout procedures, were valued at more than $2 million, and contained one of the following FAR clauses:

• 52.216-7, Allowable Cost and Payment (including Alternates I, II, IV);

• 52.216-17, Incentive Price Revision—Successive Targets (including Alternate I);

• 52.242-3, Penalties for Unallowable Costs; and

• 52.242-4, Certification of Final Indirect Costs.

Data from PBIS revealed DoD awarded contracts to an average of 832 small businesses per year in fiscal years 2019 through 2021. Therefore, this rule may apply to approximately 832 unique small entities.

The rule does not impose any new reporting, recordkeeping, or compliance requirements.

DoD did not identify any significant alternatives that would minimize or reduce the significant economic impact on small entities because this rule is not expected to have a significant impact on small entities.

This rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

Therefore, 48 CFR 242 is amended as follows:

The Pacific Coast Groundfish Fishery Management Plan (PCGFMP) and its implementing regulations at title 50 in the Code of Federal Regulations (CFR), part 660, subparts C through G, regulate fishing for over 90 species of groundfish seaward of Washington, Oregon, and California. The Pacific Fishery Management Council (Council) develops groundfish harvest specifications and management measures for 2 year periods ( i.e., a biennium). NMFS published the final rule to implement harvest specifications and management measures for the 2023-2024 biennium for most species managed under the PCGFMP on December 16, 2022 (87 FR 77007). That final rule was effective January 1, 2023. After publication of the final rule, NMFS noted the need for corrections to accurately implement the intent of the Council.

The final rule inadvertently omitted clarifications regarding declaration codes for non-bottom contact hook and line gear for groundfish ( e.g., troll, jig gear, rod and reel gear) (declaration code 35), open access non-bottom contact stationary vertical jig gear (declaration code 36) and open access non-bottom contact troll gear (declaration code 37). The final rule implementing requirements for a Federal non-trawl logbook (87 FR 59724, October 3, 2022) revised and added declaration codes to ensure codes better aligned with the gear profiles described in the electronic non-trawl logbook application. The final rule implementing harvest specifications and management measures for the 2023-2024 biennium (87 FR 77007, December 16, 2022) allowed for vessels in the directed open access fishery targeting groundfish to operate inside the non-trawl Rockfish Conservation Area (NT-RCA) from 46°16′ N lat. to the U.S./Mexico border with non-bottom contact hook-and-line gear only. The final rule inadvertently did not add clarifying language to the declaration codes to indicate which codes could be used to fish inside the NT-RCA. This correcting amendment revises § 660.13(d)(4)(iv)(A)(27) through (29) to clarify that declaration code 35 may be used only outside the NT-RCA, and declaration codes 36 and 37 may be used inside and outside of the NT-RCA. After the final rule was published, NMFS received questions on which declaration code applies when fishing inside or outside the NT-RCA. This non-substantive clarification is consistent with the intent described in the preamble of the final rule. It provides needed clarity around the requirements for non-trawl RCA access implemented in the final rule.

On page 77016 of the final rule, paragraph (o)(219) mistakenly re-published the existing text at that time instead of revised text. On page 77020 of the final rule, paragraph (q)(4) also mistakenly re-published the existing text at that time instead of revised text. The need for the intended revisions was described on page 77013 of the final rule in the section “Changes from the Proposed Rule” and would move two boundary line waypoints from locations outside the Exclusive Economic Zone (EEZ) to inside the EEZ. However, the revisions were mistakenly omitted in the regulatory text. This correcting amendment revises § 660.71(o)(219) and § 660.74(q)(4), consistent with the final rule.

On page 77020 of the final rule, paragraph (p)(7) inadvertently omitted an “and” at the end of the subparagraph, as is the convention in these regulations. Adding “and” to the end of this paragraph is an administrative change for clarity. This correcting amendment adds the word “and” to § 660.74(p)(7).

The final rule mistakenly omitted lingcod south of 40°10′ N lat. from the list of Individual Fishing Quota species allocated through the biennial specifications and management measures process. This correcting amendment revises the list at § 660.140 (c)(3)(iv) to include lingcod south of 40°10′ N lat. consistent with the intentions described in the preamble of the final rule and Section 6.3.2 of the PCGFMP, and alphabetizes the list for clarity.

This correcting amendment revises Table 1c and Table 2c to § 660, subpart C to address formatting errors and increase clarity for the public regarding the allocations for sablefish north of 36° N lat.

At its June 2022 meeting, the Council adopted a management measure allowing directed open access fishery vessels to fish inside and outside of the non-trawl RCA on the same trip but those vessels can only carry one type of legal non-bottom contact hook-and-line gear on-board the vessel when fishing occurs in the NT-RCA; no other gear type may be on deck vessel or stowed. These provisions were adopted by the Council based on recommendations from the Groundfish Management Team (GMT) in its June 2022 Report (Agenda Item f.6.a, Supplemental GMT Report 3). The section of the GMT report on this management measure refers to a June 2022 NMFS report (Agenda Item f.6.a, NMFS Report 1) which describes the management measure exactly as it is being implemented in this correcting amendment. Therefore, it was the clear intent of the Council to adopt this management measure as it is being implemented in this rule. The preamble to the proposed rule (87 FR 62676, October 14, 2022), in Section III.J, specifically discusses the management measure that the Council adopted as being part of the regulations implemented through the proposed rule. However, NMFS inadvertently omitted these provisions from the proposed regulatory text and therefore the management measure was mistakenly not included in the final rule. This correcting amendment, which adds these provisions at § 660.330(b)(3), is necessary to ensure the regulations are consistent with the intent of the Council and the expectation of the public.

The final rule defined legal non-bottom contact hook-and-line gear to include stationary vertical jig gear “attached to the vessel.” This management measure was adopted by the Council based on recommendations from the GMT in its June 2022 Report (Agenda Item f.6.a, Supplemental GMT Report 3). The section of the GMT report on this management measure refers to a June 2022 NMFS report (Agenda Item f.6.a, NMFS Report 1) which includes the phrase “attached to the vessel.” However, the intent of the Council, as described in the June 2022 NMFS report and an April 2022 NMFS Report (Agenda Item F.4.a, Supplemental NMFS Report 1), was to allow the use of stationary jig gear inside the non-trawl RCA in gear configurations that had been tested through the Emley-Platt Exempted Fishing Permit, which included vessels fishing with stationary jig gear, not just jig gear attached to the vessel (stationary jig gear includes both gear attached to the vessel and gear fished by hand). After the publication of the final rule, fishermen raised concerns and confusion over whether this phrase could be interpreted as only allowing fishing with gear physically attached to the vessel and not allowing fishing with gear fished from the vessel but unattached. NMFS and NMFS Office of Law Enforcement reviewed the concerns of the fishermen and agree that this provision mistakenly would exclude jigging from a hand-held rod inside the non-trawl RCA. By including the phrase “attached to the vessel”, the final rule inadvertently imposed a restriction that was not intended by the Council. This phrase unintentionally adds a restriction that was not anticipated by the public, is causing confusion by fishery participants, and raises questions for how to enforce the provision. In order to correct this error, this correcting amendment corrects the definition at § 660.330(b)(3) by removing the phrase “attached to the vessel.” The final rule mistakenly deleted recreational fishery regulations seaward of California for the Rockfish, Cabezon, and Greenling (RCG) complex from the CFR due to a technical error in the amendatory instruction. The mistaken amendatory instruction revised paragraph (c)(3)(ii) but inadvertently deleted all the subparagraphs within (c)(3)(ii), including the revised subparagraphs that were included in the final rule. This correcting amendment reinstates all subparagraphs within § 660.360 (c)(3)(ii), including those that were revised in the final rule, to make the regulations for the RCG complex consistent with those published in the proposed rule and recommended by the Council.

NMFS is issuing this rule pursuant to 304(b) of the Magnuson-Stevens Fishery Conservation and Management Act (MSA). The NMFS Assistant Administrator for Fisheries (AA) has determined that this final rule is consistent with the PCGFMP and other applicable law.

Pursuant to 5 U.S.C. 553(b)(B), the AA finds there is good cause to waive prior notice and an opportunity for public comment on this action, as notice and comment would be unnecessary and contrary to public interest in clear and accurate regulations. This action corrects inadvertent errors and makes necessary clarifications for to the December 16, 2022 final rule (87 FR 77007). Expeditious correction of the errors and clarification is necessary to prevent confusion among participants in the fishery, as the fishery has already begun. In addition, notice and comment is unnecessary because this notice makes only minor changes to correct inadvertent errors and make minor clarifications related to the December 16, 2022 final rule (87 FR 77007). These corrections will not affect the results of analyses conducted to support management decisions in the Pacific Coast groundfish fishery. These corrections are consistent with the Council's intent for regulations, and the public expects the regulations to be written as in the correction. No change in operating practices in the fishery is required.

Similarly, the AA has determined good cause exists to waive the 30-day delay in effectiveness pursuant to 5 U.S.C. 553(d). The changes in this action should be effective immediately to prevent further confusion among participants in the fishery. This notice makes only minor corrections to the final rule which was effective January 1, 2023. Delaying effectiveness of these corrections would result in conflicts in the regulations and confusion among fishery participants.

Because prior notice and an opportunity for public comment are not required to be provided for this rule by 5 U.S.C. 553, or any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., are not applicable. Accordingly, no Regulatory Flexibility Analysis is required for this rule and none has been prepared.

This final rule is not significant under Executive Order 12866.

This final rule contains no information collection requirements under the Paperwork Reduction Act of 1995.

For the reasons set out in the preamble, 50 CFR part 660 is corrected by making the following amendments:

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The A season allowance of the 2023 Pacific cod TAC apportioned to vessels using pot gear in the Central Regulatory Area of the GOA is 1,963 metric tons (mt) as established by the final 2022 and 2023 harvest specifications for groundfish in the GOA (87 FR 11599, March 2, 2022) and inseason adjustment (87 FR 80088, December 29, 2022).

In accordance with § 679.20(d)(1)(i), the Regional Administrator has determined that the A season allowance of the 2023 Pacific cod TAC apportioned to vessels using pot gear in the Central Regulatory Area of the GOA will soon be reached. Therefore, the Regional Administrator is establishing a directed fishing allowance of 1,953 mt and is setting aside the remaining 10 mt as bycatch to support other anticipated groundfish fisheries. In accordance with § 679.20(d)(1)(iii), the Regional Administrator finds that this directed fishing allowance has been reached. Consequently, NMFS is prohibiting directed fishing for Pacific cod by vessels using pot gear in the Central Regulatory Area of the GOA.

While this closure is effective, the maximum retainable amounts at § 679.20(e) and (f) apply at any time during a trip.

NMFS issues this action pursuant to section 305(d) of the Magnuson-Stevens Act. This action is required by 50 CFR part 679, which was issued pursuant to section 304(b), and is exempt from review under Executive Order 12866.

Pursuant to 5 U.S.C. 553(b)(B), there is good cause to waive prior notice and an opportunity for public comment on this action, as notice and comment would be impracticable and contrary to the public interest, as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the closure of Pacific cod by vessels using pot gear in the Central Regulatory Area of the GOA. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of February 23, 2023.

The Assistant Administrator for Fisheries, NOAA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.