[Federal Register Volume 59, Number 49 (Monday, March 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5740]
[[Page Unknown]]
[Federal Register: March 14, 1994]
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DEPARTMENT OF AGRICULTURE
Rural Electrification Administration
7 CFR Part 1703
RIN 0572-AA87
Rural Economic Development Loan and Grant Program; Grants
AGENCY: Rural Electrification Administration, USDA.
ACTION: Final rule.
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SUMMARY: The Rural Electrification Administration (REA) hereby amends
its regulation on the Rural Economic Development Loan and Grant
Program. This amended regulation establishes procedures for approving
and administering grants, clarifying the eligible uses of grant funds,
supplemental funds requirements, and administrative requirements for
grant funds. The amendments contained in this final rule will
facilitate the process whereby REA borrowers can apply to REA for
community development grant funding.
EFFECTIVE DATE: This regulation is effective April 13, 1994.
FOR FURTHER INFORMATION CONTACT: Blaine D. Stockton, Jr., Assistant
Administrator, Economic Development and Technical Services, Rural
Electrification Administration, telephone number (202) 720-9552.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be not significant for purposes of
Executive Order 12866 and therefore has not been reviewed by OMB.
Executive Order 12778
This rule has been reviewed under Executive Order 12778, Civil
Justice Reform. This rule: (1) Will not preempt any State or local
laws, regulations, or policies, unless they present an irreconcilable
conflict with this rule; (2) will not have any retroactive effect; and
(3) will not require administrative proceedings before parties may file
suit challenging the provisions of this rule.
Regulatory Flexibility Act
The Administrator certifies that this final rule will not have a
significant economic impact on a substantial number of small entities
as defined in the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
Based on current and historical funding levels for this program and a
projected average size loan and/or grant in the range of $300,000 to
$400,000, it is estimated that 50 to 60 loans and/or grants will be
made nationwide each year. It is projected that the Rural Economic
Development Loan and Grant Program will have a limited impact upon
small businesses because of the program's unique delivery system; i.e.,
loans and grants will be made through REA financed electric and
telephone cooperatives or companies. These entities do not operate as
credit institutions, thus they do not seek funds for the expressed
purpose of loan portfolio expansion. Rather, REA financed entities
request REA funding through this program to enhance economic
development in rural areas by funding a limited number of selected
development projects. Since credit is channeled to areas which are
generally underdeveloped and financially depressed, job creation and
economic development resulting from newly emerging businesses and
community facilities funded by REA does not pose undue competition or
other adverse effects upon existing businesses. Therefore, this final
rule will have no effect upon businesses or entities other than those
to be funded through this program.
National Environmental Policy Act Certification
The Administrator has determined that this final rule will not
significantly affect the quality of the human environment as defined by
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).
Therefore, this action does not require an environmental impact
statement or assessment.
Intergovernmental Review
The program is subject to the provisions of Executive Order 12372,
which requires intergovernmental consultation with State and local
officials, with the exception of applications for Project Feasibility
Studies. A notice informing the public of the intergovernmental review
coverage was published in the Federal Register on March 20, 1989, at 54
FR 11426.
Catalog of Federal Domestic Assistance
This program is listed in the Catalog of Federal Domestic
Assistance under No. 10.854, Rural Economic Development Loans and
Grants. This catalog is available on a subscription basis from the
Superintendent of Documents, the United States Government Printing
Office, Washington, DC 20402-9325.
Information Collection and Recordkeeping Requirements
In compliance with the Office of Management and Budget (OMB)
regulations (5 CFR part 1320) which implement the Paperwork Reduction
Act of 1980 (Pub. L. 9609511) and section 3504 of that Act, the
information collection and recordkeeping requirements contained in this
final rule have been approved by OMB under control number 0572-0090.
Comments concerning these requirements should be directed to the Office
of Information and Regulatory Affairs of OMB, Attention: Desk Officer
for USDA, room 3201, NEOB, Washington, DC 20503.
Background
On February 15, 1989, REA published the final rule, 7 CFR 1709,
subpart B, in the Federal Register (54 FR 6867), implementing the Rural
Economic Development Loan and Grant Program to provide funds to REA
Borrowers under the Rural Electrification Act of 1936, as amended (7
USC 901 et seq.) (Act). This program provides zero-interest loans to
REA Borrowers for the promotion of rural economic development and job
creation projects. On September 27, 1990, REA changed the designation
of this rule from 7 CFR part 1709 to part 1703 (55 FR 39394). On
September 25, 1992, REA published a final rule in 7 CFR 1703 subpart B
(57 FR 44317) to revise the loan program. The revision provided
additional information to potential applicants on the selection factors
and rating criteria, allowed monthly submittal of applications and
established a maximum amount of project funding as a fixed percentage
of allocated funds. Subsequently, a proposed rule was published on
October 12, 1993 (58 FR 52688), to establish procedures for approving
and administering grants and make minor changes to enhance the overall
program delivery for the zero-interest loan and grant program. This
final rule contains the provisions set forth in the proposed rule
published October 12, 1993.
This rule contains provisions for grant funds to be used for the
following purposes:
1. The establishment and/or operation of a revolving loan fund by
REA Borrowers; and,
2. Pass-through grants in conjunction with loans for: (a) Project
feasibility studies and technical assistance for community development,
business start-ups, business planning, and market research, (b)
business incubators established by non-profit organizations, (c)
community development assistance by non-profit organizations, (d)
projects operated on a profit or non-profit basis that enhance the
overall quality of medical care of rural residents, and (e) projects by
profit or non-profit organizations which encourage the use of advanced
telecommunications for educational and medical services.
Several conditions for grant making have been established under
this program in order to maximize the benefits of the grant program,
conserve the limited funds available, and provide for the efficient
administration of grant making by REA:
1. With the exception of the establishment and/or operation of a
revolving loan program, grants will be made only in conjunction with
rural development loans. For grants to REA Borrowers to establish
revolving loan funds, REA Borrowers will be required to commit their
funds in an amount no less than 20 percent of the REA grant. For all
other projects eligible for loan and grant funding, that portion of
project cost eligible for REA funding may be funded up to 20 percent
with grant funds.
2. As with zero-interest loans, all REA projects funded with grants
will require a minimum of 20 percent supplemental funding for project
costs. Supplemental funds may come from the project owner in the form
of equity funds, private sources, state and local government sources,
other Federal Government sources, the borrower, or other sources.
3. For grants made in conjunction with zero-interest loans, grant
funding will be provided only in sufficient amount necessary for a
feasible project. A project which generates sufficient revenue to show
feasibility without grant funds is not eligible for a grant.
4. In determining the eligible amount of a grant, REA will base the
appropriate amount of grant funding on a typical year of operation,
when the project has generally reached its target income earning
potential.
5. Grant funding will be channeled, to the extent practicable, to
non-profit entities which have a broad impact on rural economies.
However, grant funding will be available for project feasibility
studies and technical assistance irrespective of entity status. Also,
grant funding will be provided irrespective of entity status for
enhancement of medical care and advanced telecommunications for
educational and medical services.
In addition to grant making provisions, several changes have been
made to the loan provisions of the Rural Economic Development Loan and
Grant Program. These changes, addressed in detail in the proposed rule
published on October 12, 1993, are as follows:
(1) Paragraph (d) of Sec. 1703.21 has been revised to require
Borrowers to deposit zero-interest loan funds into their construction
accounts.
(2) Paragraph (b) of Sec. 1703.28 has been revised to eliminate the
$400,000 limitation on the size of zero-interest loans and grants and
set the maximum amount not to exceed 3 percent of the projected amount
of zero-interest loan and grant funds available each year. However, the
REA Administrator will retain the authority to limit funding below the
3 percent level, and a decision in this regard will be published in the
Federal Register for each fiscal year. For fiscal year 1994, the REA
Administrator has determined the maximum amount of a loan and grant to
be $400,000.
(3) To provide REA Borrowers additional flexibility to fund
worthwhile community development projects, paragraph (e) of
Sec. 1703.46 has been eliminated to remove the prohibition against
funding recreational facilities unless they convincingly demonstrate
that they would be an integral part of a tourism industry in their
area.
(4) Paragraph (b) of Sec. 1703.61 has been amended to clarify that
the grant portion of the zero-interest loan and grant will be disbursed
to the borrower only upon completion of the project. This will ensure
that grant funds are handled so as to minimize the time between
disbursement and authorized use to comply with USDA's Federal
Assistance Uniform Regulation, 7 CFR parts 3015 and 3016.
(5) Paragraph (b) of Sec. 1703.66 has been revised to require the
recipients of pass-through loans and grants to furnish a record of
receipts showing total project costs to verify that no greater than 80
percent of project costs have been funded with REA zero-interest loan
and grant funds.
(6) Paragraph (e) of Sec. 1703.66 has been revised to allow REA
field accountants to provide a rural economic development review of
zero-interest loans and grant funds. This revision will, in many cases,
save REA Borrowers thousands of dollars by eliminating costs of formal
audits which were previously required in accordance with the provisions
of 7 CFR part 1773, ``REA Policy on Audits of Electric and Telephone
Borrowers.''
(7) Paragraph (g) of Sec. 1703.66 has been revised to clarify that
for pass-through zero-interest loans and grants, REA Borrowers must
require project owners to provide sufficient financial, accounting and
budget information, and other records deemed necessary to facilitate
audits in accordance with 7 CFR part 3015 and 7 CFR part 3016, as
appropriate for non-profit entities, and REA rural economic development
loan reviews for projects in a for-profit status. Likewise, paragraph
(g) has been revised to require REA Borrowers receiving grants for
establishment of revolving loan funds to furnish information to allow
audits in accordance with USDA departmental grant regulations. Copies
of these grant regulations are available to REA Borrowers by request.
Comments
REA received 24 comments regarding the proposed rule which were
taken into consideration in preparing the final rule. Comments were
received from the following:
(1) Visions Five Group.
(2) Southeast Alabama Regional Planning and Development
Commission.
(3) Coastal Area District Development Authority.
(4) LaCreek Electric Association, Inc.
(5) Nebraska Rural Electric Association.
(6) National Rural Electric Cooperative Association.
(7) National Telephone Cooperative Association.
(8) Edison Electric Institute.
(9) East River Electric Power Cooperative.
(10) Carolina Electric Cooperatives.
(11) Sequachee Valley Electric Cooperative.
(12) Mid-Cumberland Area Development Corporation.
(13) Mid-East Commission.
(14) McIntosh Trail Regional Development Center.
(15) North Dakota Association of Rural Electric Cooperatives/
North Dakota Association of Telephone Cooperatives.
(16) Greater Egypt Regional Planning.
(17) Southwest Tennessee Development District.
(18) Southwest Arkansas Planning and Development District.
(19) Eastern Panhandle Regional Planning and Development
Council.
(20) Northeast South Dakota Energy Conservation Corporation.
(21) National Association of Development Organizations.
(22) North Dakota Commissioner of Agriculture.
(23) Region Nine Development Commission.
(24) Purchase Area Development District.
The comments from various organizations including REA Borrowers,
electric and telephone utility trade organizations, economic
development organizations and state governments reflected broad support
for the proposed rule.
Most of the organizations made specific recommendations on the
proposed rule. REA has considered all comments in finalizing this
regulation.
A number of the comments were from entities that administer
existing Revolving Loan Funds (RLFs) or organizations representing
entities that administer revolving loan programs. These organizations
feel that grants should not be directed to REA Borrowers exclusively,
but also to existing organizations not financed by REA that operate
RLFs, since REA Borrowers do not serve all of rural America. They also
are concerned that they would be unable to compete with the REA
Borrowers' revolving funds zero-interest rate loans.
First, grants, as well as zero-interest loans administered
exclusively through REA Borrowers are in accordance with directives
established in the Omnibus Reconciliation Act of 1987, (Pub. L. 100-
102, 101 Stat. 1330-20). This law was created in a context where
electric and telephone Borrowers who had made prepayments on loans into
cushion of credit accounts could utilize a Rural Development Subaccount
to collectively draw from the interest earnings from the Borrowers'
cumulative credit resources to reinvest into local economic development
projects. The provisions of the proposed rule making grant funds
available exclusively to REA Borrowers, as a result of their
prepayments, are governed by legislation.
REA acknowledges, however, that many rural development
organizations are well qualified to administer grant funds, and they
provide a valuable resource for local or regional rural economic
development efforts. REA will strongly encourage Borrowers operating
revolving loan funds to collaborate with existing organizations
involved in rural development activities, and those organizations are
urged to work with REA Borrowers in facilitating rural development
projects. This collaboration and assistance could include performing
local or regional studies to identify area economic development needs,
assisting community leaders and other project owners in planning and
implementing projects, loan packaging, technical assistance to REA
Borrowers in reviewing loan applications and administering the
revolving loan fund, and coordinating efforts between other entities,
including public and private lending institutions, that provide
assistance and/or funding to rural development projects. REA also
encourages state Rural Development Councils to become active
participants in planning rural development projects and coordinating
activities between local governments, economic development districts,
REA Borrowers and other entities operating RLFs. However, although
collaboration between REA Borrowers and other enitities is strongly
encouraged, legislation requires that REA Borrowers retain the ultimate
decision-making authority and responsibility for REA rural development
loan and grant funds.
Regarding possible competition between REA Borrowers and other
lenders, it should be emphasized that REA does not intend for REA
Borrowers to compete with or replace existing services of RLFs, or
other public or private lenders, but merely to augment or supplement
those sources of funds. To clarify this policy, and ensure effective
implementation, Sec. 1703.22(b) has been revised to require Borrowers,
within their RLF rural development plan, to document coordination of
lending activities with local organizations operating RLFs and other
area lenders. The rule requires such documentation to indicate that
Borrowers will not compete with, but will supplement other legal
sources of financing. Rural development plan documentation which
complies with REA policy will be stipulated in RLF agreements between
Borrowers and REA.
Some commenters expressed concern that the administrative burden
for operating RLFs would be too great and REA Borrowers may choose not
to participate. REA has minimized administrative requirements; thus the
burden should be no greater for the RLFs than for zero-interest loans.
Although the REA Borrowers will decide whether or not to establish
RLFs, REA believes the potential of significant benefits to rural
residents through the RLF provisions will encourage participation.
There were a number of recommendations concerning purposes eligible
for funding, including comments that REA should make grant funds
available for businesses in a for-profit status. REA believes there is
adequate flexibility with the rule as written regarding eligible
projects. The quality of the proposal and the degree of benefit to the
rural community or the potential for economic development are
determining factors in application approval. It should be noted that
rural for-profit and non-profit projects alike may be able to obtain
grant funds in conjunction with zero-interest loans for feasibility
studies and technical assistance. In addition, for-profit as well as
non-profit entities that enhance the overall quality of medical care or
provide advanced telecommunications services or computer networks for
medical and educational services may be considered for grants because
they may facilitate projects which will improve the rural communities
overall and provide needed services to rural America. However,
generally, REA desires to fund non-profit entities, since grants to
for-profit entities for direct business start-up costs could result in
the possibility or perception that grants would provide certain for-
profit entities an unfair competitive advantage over those entities not
receiving REA funding.
It was also suggested that housing be included as eligible for
funding under the regulation. REA recognizes the value of adequate
housing in developing rural areas. However, REA believes other federal
programs are available to provide housing, and grant funds will be
better utilized to provide broader community-wide facilities and
infrastructure improvements. REA Borrowers may, in accordance with a
rural development plan for a revolving loan fund, provide housing
assistance from those funds classified as non-Federal.
Further, it was suggested that grant funds be used for venture
capital purposes. The focus of the rural economic development loan and
grant program is to allow REA Borrowers to assist projects that will
promote rural development. REA intends to be flexible in meeting this
objective; thus, applications will be evaluated on a case by case
basis.
There were several objections to linking grants to zero-interest
loans. Some comments urged direct grants for feasibility studies and
technical assistance be provided to non-profit entities and that grants
be made outright, without loans, to economically distressed local
governments. REA feels that grants for feasibility studies or technical
assistance will most likely be effectively used in conjunction with
loans. Grants in conjunction with loans strengthen the loan program and
maximize the benefits derived from the limited amount of grant funding
available. No change is being made to allow direct grants to
economically distressed local governments; however, provisions of the
program as written will enable REA Borrowers to facilitate economic
development in distressed rural areas by funding worthwhile community
development and job creation projects.
Two commenters suggested that the 10 percent limitation for using
grant funds for administrative costs of the RLFs be revised to provide
more flexibility in determining these costs. No change is being made to
the program at this time. REA feels that limiting the funds used for
administrative costs will be an incentive to encourage REA Borrowers to
stress prudent management of the funds and maximize the benefits for
rural development. REA encourages interested rural development
organizations to work with REA Borrowers to minimize overhead costs.
Some commenters felt REA's grant funding limitation of 80 percent
of the cost of establishing the revolving fund, which will require 20
percent supplemental funding to the revolving loan fund by the
Borrower, is overly restrictive. These organizations stated that this
Borrower supplemental funding requirement, and the supplemental funding
requirement for individual projects, was too burdensome. Additionally,
commentors objected to requiring projects be funded by REA Borrowers
``up-front.'' This requirement was set forth in the proposed rule's
preamble paragraph entitled ``The establishment and/or Operation of a
Revolving Loan Fund by REA Borrowers'', Sec. 1703.22(a)(3) relating to
supplemental funding requirements, and Sec. 1703.22(h)(2),
``Requisition requirements'', which requires Borrowers be reimbursed 80
percent of funds expended for approved projects. REA believes the
supplemental funding requirement should remain applicable for Borrowers
establishing revolving loan funds, as well as supplemental funding for
individual projects presently required for zero-interest pass-through
loans. REA has found that the supplemental funding requirement
specified in Sec. 1703.23 of the regulation, as applied to individual
projects, has been beneficial for the zero-interest loan program by
maximizing the use of outside funds. Likewise, REA believes the
Borrower supplemental funding requirement for the revolving loan fund
will be equally beneficial for the grant selection process by
evidencing a degree of Borrower support and commitment to the revolving
loan fund, and it will provide REA adequate assurance of effective
project review and oversight resulting in projects having a high
probability of success.
However, REA recognizes that reimbursing Borrowers only 80 percent
of funds expended ``up front'' for community development projects, in
order to achieve Borrowers' 20 percent required contribution to RLFs,
may place an undue financial burden upon some Borrowers and discourage
program participation. In addition, REA recognizes that requiring
Borrowers to initially exhaust their financial resources, as well as
the REA grant funds, will result in no available funds for Borrowers'
revolving funds during the first year or two of operation until
payments from the funded community development projects are received.
Therefore, REA has modified the proposed rule in Sec. 1703.22(h)(2),
``Requisition requirements'', to remove the 80 percent reimbursement
provision and allow for full reimbursement of Borrowers' expended funds
for approved projects funded. However, consistent with the supplemental
funding requirements for individual projects, as well as revolving loan
funds set forth in the proposed rule, Borrowers' supplemental funding
requirements to the revolving loan fund will be maintained.
Accordingly, paragraph (a)(5) in Sec. 1703.22 of the final rule has
been added to require REA Borrowers establishing RLFs to submit a
commitment, in the form of a board resolution, to provide supplemental
funding, referred to as ``additional funding'' in an amount no less
than 20 percent of the REA grant approved. The Borrower will be
required to provide documentation that the additional funding has been
deposited in the appropriate account in Sec. 1703.22(h)(1) of this
final rule prior to grant disbursement. This paragraph also reiterates
the requirement in Sec. 1703.22(g)(2) in the proposed rule requiring
additional funding be retained within the revolving loan fund.
Additional funding for revolving loan funds may be retained initially
as non-Federal funds for any rural economic development project(s),
subject to the normal requirements outlined in Sec. 1703.22(g). For
example, for a $400,000 revolving loan fund grant from REA, the
Borrower may requisition 100 percent of REA's portion of eligible
project costs. However, the REA Borrower will commit at least $80,000
(20 percent of $400,000) of additional funds to be used for rural
economic development projects in accordance with an approved rural
development plan for non-Federal funds. Since the Borrower's funds
provided as additional funds may be considered non-Federal monies and
not subject to ``Federal monies'' restrictions for the Rural Economic
Loan and Grant Program as outlined in the regulation, the REA Borrower
can retain a worthwhile degree of flexibility to fund projects during
the first year of the revolving loan fund. It should be noted, however,
that as with pass-through zero-interest loans and grants, projects
funded with Federal grant funds under the revolving loan provision will
be subject to the supplemental funding requirements as outlined in
Sec. 1703.23 of the Rural Economic Loan and Grant Program regulation.
As pointed out in the comments, REA recognizes that many projects may
have limited sources of supplemental funding available. In this regard,
therefore, REA has provided a provision in Sec. 1703.22(a)(5), whereby
Borrowers, with prior approval from REA, may use all or a portion of
their additional funding to assist project owners receiving funding
through the revolving loan provisions to meet their supplemental
funding requirements required by Sec. 1703.23. In this case, such
additional funding will be considered as Federal funds and subject to
the requirements and restrictions of the regulation.
Finally, several technical changes have been made to the proposed
regulation for clarification as follows: (1) Section 1703.21(d) has
been revised to clarify that excess interest returned to REA will not
be used to reduce principal indebtedness. (2) For revolving loan funds,
Sec. 1703.22(a)(4) has been revised to clarify that reasonable
servicing fees may be charged regardless of whether Federal or non-
Federal funds are involved. (3) Section 1703.20(a)(8) has been revised
to clarify that the overall restriction for using zero-interest loan
and grant funds for payment of Borrower salaries is subject to the
operating expense allowance for revolving loan funds. (4) Section
1703.22(h)(1) has been revised to add to the accounting requirements,
additional ledger accounts to record interest income. (5) Section
1703.22(g)(2) has been clarified to require Borrowers to retain
interest earned from non-Federal funds within the revolving fund to be
used in accordance with their approved Rural Development Plan and Scope
of Work Plan. (6) Section 1703.22(g)(3) has been revised to require REA
Borrowers that terminate the revolving loan program without obtaining
approval by the REA Administrator to return the amount of the original
grant to REA. (7) Section 1703.22(h)(2) has been revised to delete the
requirement for account ledgers to be submitted as a prerequisite for
requisitioning grant funds for revolving loan funds. (8) Section
1703.66(g) has been revised to require REA Borrowers to include in
their legal documents the requirement for project owners to provide
sufficient financial, accounting and budget information and other
records deemed necessary to facilitate audits in accordance with 7 CFR
part 3015 and 7 CFR part 3016 for non-profit entities, and REA rural
economic development loan reviews for projects in a for-profit status.
List of Subjects in 7 CFR Part 1703
Community development, Grant programs--housing and community
development, Loan programs--housing and community development,
Reporting and recordkeeping requirements, Rural areas.
For the reasons set out in the preamble, chapter XVII of title 7 of
the Code of Federal Regulations is amended as follows:
PART 1703--RURAL DEVELOPMENT
1. The authority citation for 7 CFR part 1703 continues to read as
follows:
Authority: 7 U.S.C. 901 et seq. and 950aaa et seq.
Subpart B--Rural Economic Development Loan and Grant Program
2. In Sec. 1703.12 of this subpart B, the following definitions are
added in alphabetical order to read as follows:
Sec. 1703.12 Definitions.
* * * * *
Revolving loan program--a program established and operated by the
Borrower, using grant funds, the Borrower's contribution and loan
repayments to make loans to businesses or others for rural economic
development and job creation purposes.
RTB--the Rural Telephone Bank, established as a body corporate and
an instrumentality of the United States, to obtain supplemental funds
from non-Federal sources and utilize them in making loans, for the
purposes of financing, or refinancing, the construction, improvement,
expansion, acquisition, and operation of telephone lines, facilities,
or systems, for REA Borrowers financed under sections 201 and 408 of
the Act.
* * * * *
Rural economic development--job creation or preservation or
community facilities improvement projects in rural areas.
* * * * *
Scope of work--a detailed plan, which has been approved by the
Administrator, covering the work to be performed by the loan and/or
grant recipient using the loan and/or grant funds.
* * * * *
Technical assistance--analysis of facilities or processes,
managerial, financial and operational consultation by independent
qualified entities to assist project owners to identify and evaluate
problems or potential problems and provide training to enable project
owners to successfully implement, manage, operate and maintain viable
projects.
* * * * *
3. Paragraph (c) of Sec. 1703.17 is added to read as follows:
Sec. 1703.17 Uses of zero-interest loans and grants.
* * * * *
(c) Zero-interest loans and grants may be used for Projects that
enhance rural economic development by providing advanced
telecommunications services and computer networks for medical and
educational services, as follows: (1) For telecommunications end use
and/or transmission facilities; and (2) Other portions of the project,
such as modifications to buildings necessary to accommodate
telecommunications equipment for medical care and other services,
public or private education, and employment training.
4. Sections 1703.18 and 1703.19 are added to read as follows:
Sec. 1703.18 Types of projects eligible for grant funding.
Grants may be made for the following purposes:
(a) The establishment and operation of a revolving loan program by
Borrowers in accordance with Sec. 1703.22;
(b) Project feasibility studies to assist for-profit and non-profit
entities in conjunction with a loan for an authorized project.
Feasibility studies will include management assistance, consultation,
and research for planning individual projects that the Borrower has
determined will benefit the rural community. Feasibility studies which
may be financed under this section must be performed by qualified
entities subject to Sec. 1703.19(i), General requirements for grant
funding. Feasibility studies must address the important aspects of
project assessment and planning to ensure, to the extent practicable,
the success of projects. These include the market, technical, economic,
financial, and managerial issues related to project feasibility.
Feasibility studies may be funded in connection with viable projects as
a reimbursement to the project owner for expenses incurred during the
initial planning stages of the project prior to project funding by REA;
(c) The acquisition of technical assistance in conjunction with
projects funded with zero-interest loans to enable for-profit and non-
profit entities to obtain analysis of facilities and processes,
managerial, financial and operational consultation. Grant funds may
also be used in conjunction with zero-interest loans to enable non-
profit business incubators to provide technical assistance. Technical
assistance will enable project owners to identify and evaluate problems
or potential problems and provide training in order that they may
ultimately implement, manage, operate and maintain viable projects
which are financed with zero-interest loan funds. Technical assistance
financed under this section must be performed by qualified entities
which are independent of the project owner subject to Sec. 1703.19(i),
General requirements for grant funding;
(d) Business incubators established by non-profit organizations to
assist in developing emerging enterprises. Business incubators funded
in conjunction with zero-interest loans will include those facilities
in which single or multiple businesses may use premises, support staff,
computer software, hardware, telecommunications equipment, machinery,
janitorial services, utilities, or other overhead facilities. Grant
funding may also be provided to allow business incubators to provide
feasibility studies and technical assistance in accordance with
paragraphs (b) and (c) of this section;
(e) Community development assistance to non-profit entities and
public bodies for employment creation projects, or other projects which
provide needed community facilities and services;
(f) Facilities and equipment to public, for-profit and non-profit
entities to provide education and training to rural residents to
facilitate economic development. Equipment and facilities may be funded
to enable rural businesses to provide educational and job enhancement
skills to employees;
(g) Facilities and equipment to public, for-profit and non-profit
entities to provide medical care to rural residents. Equipment and
facilities may be funded to enable eligible entities to provide medical
training and related professional health care skills to rural health
care providers;
(h) Projects which utilize advanced telecommunications and/or
computer networks to facilitate medical or educational services or job
training in accordance with paragraphs (f) and (g) of this section.
Sec. 1703.19 General requirements for grant funding.
(a) Grants made under Sec. 1703.18(a), establishment and operation
of a revolving loan program by Borrowers, will be limited to Borrowers
and can be made without zero-interest loans. Grants made under
Sec. 1703.18 (b) through (h) will be made only in conjunction with
zero-interest loans, and on a pass-through basis.
(b) Pass-through grant funding for projects under Sec. 1703.18 (b),
(c), (f), (g) and (h) will be available for non-profit and for-profit
entities. Pass-through grant funding for projects under Sec. 1703.18
(d) and (e) will be available only for non-profit entities.
(c) All projects funded with zero-interest loans and grants will
require supplemental funding in accordance with Sec. 1703.23. For
grants made under Sec. 1703.18(a), the portion eligible for REA funding
may be fully funded with grant funds. For all other grants funded under
=1703.18, the portion of project costs eligible for REA funding may be
funded up to 20 percent with grant funds.
(d) Grant funding will be provided only to the extent necessary for
a feasible project. A feasible project is a project which expects to
generate sufficient income to pay operating expenses and debts and
compensate for depreciation of equipment and facilities for the project
which is to be funded by REA. Depreciation must be based on allowable
depreciation schedules as set forth by the United States Internal
Revenue Service. Borrowers whose analyses of projects show feasibility
without grant funds should not apply for grant funding. Borrowers
requesting pass-through grant funds will base grant funding requests on
borrower projected income and expense projections for the project, and
documentation regarding depreciation of the equipment and facilities
for the project. The Administrator will determine whether the
Borrower's projections of income, expenses and depreciation are
reasonable.
(e) For projects that project insufficient operating revenue the
first two years to show feasibility, borrowers should first consider
the deferral provisions set forth in Sec. 1703.29(b) before determining
the appropriate level of requested grant funding. Zero-interest loan
and grant funding will be approved in accordance with paragraph (d) of
this section based on the option which results in the lowest required
grant percentage.
(f) The owner of the pass-through project that receives grant funds
will be encouraged to commit that the project will be a demonstration
project.
(g) Borrowers or project owners must demonstrate the availability
and commitment of other sources of funding needed to complete a project
in addition to REA loan and/or grant funds, prior to the first advance
of REA funds.
(h) Feasibility studies and/or technical assistance funded with
grants under Sec. 1703.18 (b) and (c) must be performed by entities
which are independent of the Borrower and qualified to provide such
services. The project owner, if deemed qualified in accordance with
this paragraph, may furnish a feasibility study under Sec. 1703.18(b).
Entities furnishing technical assistance under Sec. 1703.18(c), must be
independent of the project owner. To be deemed qualified, entities
providing feasibility studies and/or technical assistance must:
(1) Provide sufficient documentation evidencing their proven
ability, background and experience to furnish such services; and
(2) Provide sufficient documentation evidencing their legal
authority and capacity to furnish such services.
5. Section 1703.20 is revised to read as follows:
Sec. 1703.20 Ineligible uses of zero-interest loans and grants.
(a) Zero-interest loans and grants must not be used:
(1) To fund or assist projects of which any director, officer,
general manager or significant stockholder of the Borrower, or close
relative thereof, is an owner, stockholder, partner or director, or
which would, in the judgment of the Administrator, create a conflict of
interest or the appearance of a conflict of interest. The Borrower must
disclose to the Administrator information regarding any conflict of
interest, potential conflict of interest or any appearance of a
conflict of interest. The Administrator will determine whether there is
a conflict of interest or whether any potential conflict of interest or
appearance of a conflict of interest may adversely affect REA's
interests. A Borrower organized as, or consisting of a cooperative,
widely held mutual corporation, tribal government, municipal power
corporation, public power district, or a similar widely held
organization would ordinarily be able to have an ownership interest in
or manage a project operated on either a for-profit or non-profit
basis. A Borrower organized as a closely held, for-profit corporation
with more than 5 percent of its stock held by one legal person, its
subsidiary or an affiliate, would ordinarily be able to own or manage a
project operated on a non-profit basis only;
(2) For any costs incurred on the project: (i) Prior to receipt of
the Borrower's completed application by REA during an application
period unless the Administrator has specifically approved such usage in
writing; or
(ii) For site development, the destruction or alteration of
buildings, or other activities that would adversely affect the
environment or limit the choice of reasonable alternatives prior to
satisfying the requirements of Sec. 1703.32;
(3) By the Borrower to purchase or lease any real property,
materials, equipment, or services from its subsidiary, an affiliate, or
significant stockholders, officers, managers or directors of the
Borrower, or close relatives thereof, where the purchase or lease has
not been fully disclosed to the Administrator and received the
Administrator's prior written approval;
(4) By the recipient of a pass-through-loan or pass-through-grant
to purchase or lease any real property, materials, equipment, or
services from the Borrower, its subsidiary, an affiliate of the
Borrower, or significant stockholders, officers, managers or directors
of the Borrower, or close relatives thereof, where the purchase or
lease has not been fully disclosed to the Administrator and received
the Administrator's prior written approval;
(5) To pay off or refinance existing indebtedness incurred prior to
receipt of the Borrower's completed application by REA or for
refinancing or repaying a loan made under the Act or a program
administered by the Administrator;
(6) For any electric or telephone purpose, as determined by the
Administrator;
(7) For the Borrower's electric or telephone operations or for any
operations affiliated with the Borrower unless the Administrator has
specifically informed the Borrower in writing that the operations are
part of the approved purposes;
(8) To pay the salaries of any employee or owner of the Borrower,
its subsidiaries, or affiliates. This restriction does not prohibit the
use of loan or grant funds for printing and similar costs for project
feasibility studies it has prepared, commissioned or purchased if
specifically approved by the Administrator. This restriction is subject
to the operating expense allowance for revolving loan funds set forth
in Sec. 1703.22 (a)(6);
(9) To fund feasibility studies and technical assistance as set
forth in Sec. 1703.18 independently of projects which are funded under
the zero-interest loan and grant program;
(10) For proposed projects located in areas covered by the Coastal
Barrier Resources Act (16 U.S.C. 3501 et seq.); or
(11) For anything other than an approved purpose.
(b) [Reserved]
6. Section 1703.21 is amended by adding a sentence at the end of
paragraph (b) and revising paragraph (d) to read as follows:
Sec. 1703.21 Limitations on the use of zero-interest loan and grant
funds.
* * * * *
(b) * * * Grant funds will be disbursed to the Borrower in
accordance with Sec. 1703.61(b).
* * * * *
(d) The Borrower may not requisition zero-interest loan funds
unless those funds are deposited into the Borrower's REA construction
fund trustee account. The Borrower will be required to set up a
separate Federally insured account called the Rural Economic
Development Account, if loan funds are not expected to be disbursed
within two months after receipt from REA. All interest earned on
temporarily deposited zero-interest loan funds in excess of $500 per
12-month period must be used for approved purposes or returned to REA.
Interest earned in excess of $500 per 12 month period and returned to
REA will not be used to reduce the Borrower's principal indebtedness.
Grant funds will be disbursed by REA in accordance with 7 CFR parts
3015 and 3016, and Sec. 1703.61 (b).
* * * * *
7. Section 1703.22 is added to read as follows:
Sec. 1703.22 Revolving loan program.
Grant funds under this section will be provided only to REA
Borrowers on a non pass-through basis. REA Borrowers will, in turn,
provide loans to foster rural economic development in accordance with
this subpart and the specific requirements of this section.
(a) General. Grant funds disbursed to REA Borrowers to establish
revolving loan programs under this section are subject to the following
requirements: (1) The uses, restrictions and limitations for zero-
interest loans set forth in Secs. 1703.17, 1703.20 and 1703.21
respectively;
(2) Loans made by REA Borrowers initially lending grant funds
disbursed by REA are limited to types of projects specified in
Sec. 1703.18 (d), (e), (f), (g) and (h). Loans may also be made for
feasibility studies and technical assistance in accordance with
Sec. 1703.18 (b) and (c), respectively, but only for those types of
projects specified in this paragraph (a)(2). Loans made from repayments
of the initial loans made by REA Borrowers may be used for any rural
economic development purpose in accordance with a prior agreement
between the Borrower and REA;
(3) All other requirements relevant to zero-interest pass-through
loans and grants outlined in this subpart, except the minimum size of a
zero-interest loan as specified in Sec. 1703.28(f);
(4) The initial loans made from the revolving loan fund using the
grant funds must carry an interest rate of zero percent; however, loans
made from repayments of the initial loan may carry an interest rate in
accordance with prior agreement with REA. In either case, the Borrower
may charge reasonable loan servicing fees;
(5) The Borrower will provide a board resolution certifying a
commitment to provide and maintain additional funding to the revolving
loan fund in an amount no less than 20 percent of the REA grant
approved. The Borrower will provide documentation that the additional
funding has been deposited in the appropriate account in
Sec. 1703.22(h)(1) prior to grant disbursement. This requirement does
not pertain to supplemental funding requirements for individual
projects as set forth in Sec. 1703.23. Additional funding required in
this paragraph pertains only to borrowers establishing revolving loan
funds, with the following provisions: (i) Use of additional funding is
subject to requirements set forth in paragraph (b) of this section and
with REA concurrence;
(ii) Individual projects funded under this section are subject to
supplemental funds requirements set forth in Sec. 1703.23;
(iii) At the Borrower's option with REA concurrence, all or a
portion of the additional funding may be used to assist project owners
receiving funding from Federal grant funds under this section to meet
their supplemental funding requirements set forth in Sec. 1703.23 of
this subpart. Such additional funding will be deemed as Federal funds
and accounted for in accordance with paragraph (h)(1)(i)(A) of this
section for electric borrowers or paragraph (h)(1)(ii)(A) of this
section for telephone borrowers, as appropriate;
(iv) At the Borrower's option, all or a portion of the additional
funding may be retained as non-Federal funds, for any rural economic
development project(s), subject to paragraph (g) of this section and
REA concurrence. Additional funding committed as non-Federal will be
accounted for in accordance with paragraph (h)(1)(i)(E) of this section
for electric borrowers or paragraph (h)(1)(ii)(E) of this section for
telephone borrowers, as appropriate;
(6) Grant funds will only be provided to an REA Borrower for a
revolving loan program when a proposed budget submitted to REA
demonstrates and the Borrower agrees in writing that no more than 10
percent of grant funds received are used to cover operating expenses of
the revolving loan program. Operating expenses include the costs of
administering the revolving loan fund and the provision of technical
assistance to project owners. All proceeds in excess of those needed to
cover authorized expenses, as described above, must revert to the
revolving fund and be available for re-lending for eligible projects.
Budgets which reflect expenses incurred in operating the fund must be
submitted to REA annually;
(7) The Borrower may charge reasonable loan servicing charges. For
purposes of this section, loan servicing charges must not exceed an
amount equal to the sum of one percent per year of the outstanding
principal on the first day of each year on each project owner's zero-
interest loan which is made from the REA grant proceeds;
(8) The Borrower will submit documentation indicating that
potential projects which are eligible for funding have sufficiently
progressed in the planning stage to allow grant funding approved for a
revolving loan program to be requisitioned by the Borrower, disbursed
by REA, and loaned to recipients within 3 years of the date of grant
approval by REA. Grant funds that have not been requisitioned within 3
years will be cancelled, unless the Administrator has approved an
extension in writing. Grant funds will be disbursed by REA in
accordance with paragraphs (d) and (g) of this section;
(9) If the revolving loan program is terminated, further
disbursement of grant funds will be cancelled. Repayments of loans made
using grant funds which have been disbursed will be used in accordance
with the Borrower's rural development plan;
(10) Payment of creditors which provide interim or construction
financing to a viable project for eligible purposes as set forth in
Sec. 1703.17 of this subpart may be authorized. Refinancing for the
sole purpose of replacing higher interest conventional financing with
zero-interest revolving loan funds is not authorized.
(b) The Borrower's rural development plan. REA requires that the
revolving loan program be administered in accordance with a rural
development plan, developed by the Borrower and approved by REA. The
plan must be of sufficient detail to provide REA with a complete
understanding of what the Borrower intends to accomplish by
administering a revolving loan program. The rural development plan will
provide the mechanics of how the revolving loan funds will be disbursed
to the project owner. The rural development plan must outline the
Borrower's plans for administering the revolving loan program, during
the initial period when REA grant funds are lent by the Borrower and
after the revolving fund becomes non-Federal in accordance with
paragraph (g) of this section. The plan must outline the following: (1)
Specific objectives for the revolving loan program, revolving loan
operating procedures, lending parameters, maximum and minimum loan
amount, and types of projects to be funded;
(2) Documentation of Borrower's coordination of lending activities
with other local entities that provide financing for rural economic
development projects. Such documentation will indicate that the
Borrower will not compete with, but supplement other sources of legal
financing;
(3) Eligibility criteria if other than outlined in this subpart;
(4) The application process and method of disposition of the funds
to the project owner; and
(5) A procedure for monitoring the project owner's accomplishments
and reporting requirements by the project owner's management.
(c) The Borrower's scope of work. Borrowers applying for grant
funding under this section must submit a scope of work to REA.
Applications for grants under this section will be evaluated for
funding based on the Borrower's rural development plan in paragraph (b)
of this section and the scope of work. The scope of work must contain
the following items: (1) Documented need for grant funds. The Borrower
must identify a sufficient number of rural development projects of the
type specified in Sec. 1703.18 (d), (e), (f), (g), and (h) which are
currently being planned requiring zero-interest loans equal to the
amount of grant assistance requested from REA. These projects may be
supported with a community facilities plan, or other development plan,
prepared by local community leaders in cooperation with the Borrower.
For each project, the Borrower will submit information required under
Sec. 1703.34;
(2) Documented authority and ability of the Borrower to administer
a revolving rural development loan program in accordance with the
provisions of this subpart. The Borrower must provide a complete
listing of all personnel responsible for administering this program
along with a statement of their qualifications and experience;
(3) Documented ability of the Borrower to commit financial
resources under the control of the Borrower to assist in the
establishment of a rural development revolving loan program. This
should include a statement of the sources of funding for the
administration of the Borrower's operations, as well as financial and
technical assistance for projects;
(4) Documentation that the Borrower has secured commitments of
significant financial support from public agencies and/or private
organizations for supplemental funding to support a rural development
loan program;
(5) A list of proposed fees and other charges the Borrower will
assess the projects it funds; and
(6) The Borrower's rural development policy for non-Federal funds
in accordance with paragraphs (b) and (g) of this section.
(d) Grant processing and approval. Applications for grants to
establish revolving loan funds will be reviewed in accordance with
Secs. 1703.45 and 1703.46, and with the Borrower's rural development
plan and scope of work outlined in paragraphs (b) and (c) of this
section. Grants will be processed in accordance with Secs. 1703.58 and
1703.59.
(e) Disbursement of grant funds. Borrowers are not authorized to
commence projects to be funded under this section until those projects
have been submitted for authorization in accordance with paragraph
(c)(1) of this section, or the projects have been submitted for
authorization subsequent to grant approval in accordance with paragraph
(e)(2) of this section. REA grant funds will be disbursed in accordance
with the provisions of 7 CFR part 3015, Uniform Federal Assistance
Regulations, on a reimbursement basis, the applicable requirements of
this subpart, the administrative provisions outlined in paragraph (g)
of this section, and the following requirements:
(1) Only projects authorized by REA in accordance with paragraphs
(c)(1) and (e)(2) of this section, for which adequate documentation,
including receipts for expenditures and certification of approved
purposes, are submitted will be considered for reimbursement;
(2) A project which was not submitted prior to grant approval in
accordance with paragraph (c)(1) of this section, may be authorized for
funding subsequent to grant approval. A project which is authorized for
funding under this paragraph will be considered for disbursement at the
first allowable time period after project authorization in accordance
with paragraphs (e)(3) and (e)(4) of this section. Project
authorization after grant approval is subject to the following
requirements: (i) The project meets the specific objectives for the
Borrower's revolving loan program as outlined in paragraph (b)(1) of
this section;
(ii) The Borrower presents evidence that the project requested for
authorization can be funded prior to projects which were authorized
prior to grant approval in accordance with paragraph (b)(1) of this
section; and
(iii) REA approves the project for funding in accordance with
Sec. 1703.34;
(3) Grant funds requisitioned for individual projects in increments
of less than $100,000, or less than 25 percent of the amount approved
for the revolving loan fund, whichever is less, may be reimbursed semi-
annually. Submission periods for requisitioning grant funds on a semi-
annual disbursement basis will be 14 days commencing from the 6-month
anniversary date of grant approval;
(4) Grant funds requisitioned for individual projects in increments
of $100,000 or greater, or at least 25 percent of the amount approved
for the revolving loan fund, whichever is less, may be submitted for
reimbursement at any time.
(f) Reporting requirements. (1) The Borrower must maintain
financial management systems and retain financial records in accordance
with 7 CFR part 3015, Uniform Federal Assistance Regulations.
(2) Borrower records must include an accurate accounting and source
documentation to support each transaction involving the revolving loan
fund. Records are subject to a rural economic loan review as set forth
in Sec. 1703.66(g).
(3) SF-269, ``Financial Status Report,'' and a revolving loan
program activity report will be required of all Borrowers on an annual
basis. Reports will be submitted no later than 90 days after December
31 of each year. The program activity report will contain an aggregate
list of projects funded, the amount funded for each project, the
project repayment schedule, a brief description of each project, the
project objectives, whether or not the project has been completed, and
the projected number of jobs created or saved by each project. Reports
under this paragraph will be required until all grant funds have been
disbursed and projects completed.
(4) A performance report will be required for each project funded
on an annual basis. Performance reports will be due no later than 90
days after December 31 of each year. Performance reports will be
submitted until one year after project completion. Project performance
reports will contain the following: (i) A comparison of actual
accomplishments during the reporting period to the objectives
established for the project and, if not attained, reasons why
established objectives were not met;
(ii) Problems, delays, or adverse conditions which will materially
affect attainment of planned project objectives, prevent the meeting of
time schedules or objectives, or preclude the attainment of project
work elements during established time periods. This disclosure shall be
accompanied by a statement of the action taken or contemplated to
resolve the situation;
(iii) Projected accomplishments for the next reporting period, if
applicable; and
(iv) Status of compliance with any special conditions for project
funding, if applicable.
(5) Borrowers must report and remit interest earned on advances of
grant funds deposited in interest accounts to REA on a quarterly basis
in accordance with 7 CFR part 3015, Uniform Federal Assistance
Regulations.
(g) Non-Federal funds. Once all REA-derived grant funds have been
utilized by the Borrower to fund rural development projects according
to the provisions of this section and the applicable provisions of this
subpart, loans made by the Borrower thereafter from repayments to the
revolving loan fund shall not be considered as being derived from
Federal funds and the requirements of these regulations will not be
imposed on the Borrower or project owners. However, the Borrower will,
as a condition for receiving a grant under this section, agree to the
following conditions: (1) To maintain a revolving loan account to
promote rural economic development in accordance with the Borrower's
rural development plan for non-Federal funds submitted in accordance
with paragraph (b) of this section;
(2) To maintain the additional funding supplied by the Borrower in
accordance with paragraph (a)(5) of this section and interest earnings
within the revolving loan fund;
(3) Approval may be granted by the Administrator to terminate the
revolving loan program, or modify the requirements set forth in
paragraphs (g)(1) and (g)(2) of this section, upon written request and
justification by the Borrower. Should the Borrower terminate the
revolving loan program without obtaining approval by the REA
Administrator, the Borrower will return the amount of the original
grant to REA.
(h) Administrative provisions. The requirements of this paragraph
set forth the procedures for accounting, requisitioning and
disbursement of Federal funds, those funds initially disbursed for
projects which may be funded in accordance with an approved rural
development plan and scope of work submitted by the Borrower.
Disbursement of grant funds will be approved on a reimbursement basis
after the grant agreement is executed by REA and the Borrower, the
applicable provisions of this subpart are met, subject to disbursement
restrictions in paragraph (e) of this section, and the requirements in
paragraphs (h) (1) through (3) of this section.
(1) Accounting requirements. Accounting will be performed in
accordance with 7 CFR part 1767, Accounting Requirements for REA
Electric Borrowers, or 7 CFR part 1770, Accounting Requirements for REA
Telephone Borrowers, as appropriate. The Borrower will maintain
accounts for the revolving funds as follows:
(i) REA electric Borrowers. (A) A general ledger Account 131.13,
``Cash-General--Economic Development Grant Funds.'' The Borrower will
debit this account in an amount equal to the amount of the grant
received from REA, any additional funds deemed Federal from the
Borrower as required by paragraph (a)(5)(iii) of this section, and all
other funds advanced for the project, regardless of the source, if
controlled by the Borrower. The Borrower will credit this account for
all expenditures made with Federal funds on behalf of the rural
development project.
(B) A general ledger Account 124.1, ``Other Investments--Federal
Economic Development Loans.'' The Borrower will debit this account in
the amount of Federal funds the Borrower advances to non-associated
organizations for authorized rural economic development projects. For
each debit in this account, a corresponding credit will be made in
Account 131.13 in paragraph (h)(1)(i)(A) of this section. This account
will be credited with repayments of loans made with Federal economic
development grant funds.
(C) A general ledger Account 123.3, ``Investment in Associated
Companies--Federal Economic Development Loans.'' The Borrower will
debit this account in the amount of Federal funds the Borrower advances
to associated organizations for authorized rural economic development
projects. For each debit in this account, a corresponding credit will
be made in Account 131.13 in paragraph (h)(1)(i)(A) of this section.
This account will be credited with repayments of loans made with
Federal economic development grant funds.
(D) Account 421, ``Miscellaneous Non-operating Income.'' The
Borrower will credit this account in the amount of grant funds
disbursed by REA resulting from an approved requisition request in
accordance with paragraph (h)(2) of this section.
(E) A general ledger Account 131.14, ``Cash-General--Economic
Development Non-Federal Revolving Funds.'' The Borrower will debit this
account with any additional funds deemed non-Federal from the borrower
as required by paragraph (a)(5)(iv) of this section, cash received from
the repayment of loans made from accounts in paragraphs (h)(1)(i)(B),
(h)(1)(i)(C), (h)(1)(i)(F), and (h)(1)(i)(G) of this section. The
Borrower will credit this account to reflect loans made for rural
economic development projects from non-Federal funds from accounts
specified in paragraphs (h)(1)(i)(F) and (h)(1)(i)(G) of this section.
(F) A general ledger Account 124.2, ``Other Investments--Non-
Federal Economic Development Loans.'' The Borrower will debit this
account in the amount of non-Federal funds the Borrower advances to
non-associated organizations for authorized rural economic development
projects. For each debit in this account, a corresponding credit will
be made in Account 131.14, in paragraph (h)(1)(i)(E) of this section.
This account will be credited with repayments of loans made from non-
Federal economic development funds.
(G) A general ledger Account 123.4, ``Investment in Associated
Companies--Non-Federal Economic Development Loans.'' The Borrower will
debit this account in the amount of non-Federal funds the Borrower
advances to associated organizations for authorized rural economic
development projects. For each debit in this account, a corresponding
credit will be made in Account 131.14, in paragraph (h)(1)(i)(E) of
this section. This account will be credited with repayments of loans
made from non-Federal economic development funds.
(H) A general ledger Account 171 ``Interest and Dividends
Receivable.'' The Borrower will debit this account with the amount of
interest earned on the revolving loan fund. The Borrower will credit
this account and debit the appropriate cash account when the cash is
received.
(I) A general ledger Account 419, ``Interest and Dividend Income.''
The Borrower will credit this account with the amount of interest
earned on the revolving loan fund.
(ii) REA telephone Borrowers. (A) A general ledger Account 1130.4,
``Cash--General Fund--Economic Development Grant Funds (Class A
Companies)'', or Account 1120.14, ``Cash-General Fund--Economic
Development Grant Funds (Class B Companies).'' The Borrower will debit
the appropriate account in an amount equal to the amount of the grant
received from REA, any additional funds deemed Federal from the
Borrower required by paragraph (a)(5)(iii) of this section, and all
other funds advanced for the project, regardless of the source, if
controlled by the Borrower. The Borrower will credit the appropriate
account for all expenditures made with Federal funds on behalf of the
rural development project.
(B) A general ledger Account 1402.4, ``Other Investments in
Nonaffiliated Companies--Federal Economic Development Grant Loans.''
The Borrower will debit this account in the amount of Federal funds the
Borrower advances to nonaffiliated organizations for authorized rural
economic development projects. For each debit in this account, a
corresponding credit will be made in the appropriate account in
paragraph (h)(1)(ii)(A) of this section. This account will be credited
with repayments of loans made from Federal economic development grant
funds.
(C) A general ledger Account 1401.1, ``Other Investments in
Affiliated Companies--Federal Economic Development Grant Loans.'' The
Borrower will debit this account in the amount of Federal funds the
Borrower advances to affiliated organizations for authorized rural
economic development projects. For each debit in this account, a
corresponding credit will be made in the appropriate account in
paragraph (h)(1)(ii)(A) of this section. This account will be credited
with repayments of loans made from Federal economic development grant
funds.
(D) Account 7360, ``Other Non-operating Income (Class A
Companies)'', or Account 7300, Non-operating Income and Expense (Class
B Companies), as appropriate. The Borrower will credit these accounts,
as appropriate, in the amount of grant funds disbursed by REA resulting
from an approved requisition request in accordance with paragraph
(h)(2) of this section.
(E) A general ledger Account 1130.5, ``Cash--General Fund--Economic
Development Non-Federal Revolving Funds (Class A Companies)'', or
Account 1120.15, ``Cash--General Fund--Economic Development Non-Federal
Revolving Funds (Class B Companies)'', as appropriate. The Borrower
will debit the appropriate account with any additional funds deemed
non-Federal from the Borrower as required by paragraph (a)(5) of this
section, cash received from the repayment of loans made from accounts
in paragraphs (h)(1)(ii)(B), (h)(1)(ii)(C), (h)(1)(ii)(F), and
(h)(1)(ii)(G) of this section. The Borrower will credit the appropriate
account to reflect loans made for rural economic development projects
from non-Federal funds from accounts specified in paragraphs
(h)(1)(ii)(F) and (h)(1)(ii)(G) of this section.
(F) A general ledger Account 1402.5, ``Other Investments in
Nonaffiliated Companies-Non-Federal Economic Development Grant Loans.''
The Borrower will debit this account in the amount of non-Federal funds
the Borrower advances to nonaffiliated organizations for authorized
rural economic development projects. For each debit in this account, a
corresponding credit will be made in the appropriate account in
paragraph (h)(1)(ii)(E) of this section. This account will be credited
with repayments of loans made from non-Federal economic development
funds.
(G) A general ledger Account 1401.2, ``Other Investments in
Affiliated Companies--Non-Federal Economic Development Grant Loans.''
The Borrower will debit this account in the amount of non-Federal funds
the Borrower advances to affiliated organizations for authorized rural
economic development projects. For each debit in this account, a
corresponding credit will be made in the appropriate account in
paragraph (h)(1)(ii)(E) of this section. This account will be credited
with repayments of loans made from non-Federal economic development
funds.
(H) A general ledger Account 1210, ``Interest and Dividends
Receivable.'' The Borrower will debit this account with the amount of
interest earned on the revolving fund loan. The borrower will credit
this account and debit the appropriate cash account when the cash is
received.
(I) A general ledger Account 7320, ``Interest Income (Class A
Companies)'', or Account 7300.2, ``Interest Income (Class B
Companies)'', as appropriate. The Borrower will credit this account
with the amount of interest earned on the revolving fund loans.
(2) Requisition requirements. Grant funds may be requisitioned by
REA Borrowers in accordance with disbursement requirements in paragraph
(e) of this section. Borrowers will be fully reimbursed for funds
expended for approved projects funded. For each completed project, the
Borrower will submit the following for reimbursement: (i) Standard Form
270, ``Request for Advance of Reimbursement'';
(ii) Copies of cancelled checks and other verifiable source records
supporting the transactions; and
(iii) Certification and evidence that the project costs to be
reimbursed are for a project which has been authorized by REA and are
authorized costs for that project.
(3) REA review. Requisition requests will be evaluated for
compliance with loan purposes previously submitted by the Borrower for
project authorization in accordance with paragraphs (c)(1) or (e)(2) of
this section, compliance with the Borrower's rural development plan,
accounting documentation submitted in paragraph (h)(1) of this section,
and the cancelled checks and source records submitted.
8. Paragraph (b) of Sec. 1703.28 is revised to read as follows:
Sec. 1703.28 Maximum and minimum sizes of a zero-interest loan or
grant application.
* * * * *
(b) Regardless of the projected total amount that will be
available, the maximum size may not be lower than $200,000.
* * * * *
9. Section 1703.30 is amended by revising the parenthetical
containing the OMB control number at the end of the section to read as
follows:
Sec. 1703.30 Approval of agreements.
* * * * *
(Approved by the Office of Management and Budget under control
number 0572-090090)
10. Section 1703.34 is amended by revising paragraphs (b)(5) (ii)
and (iii), and adding paragraphs (b)(5) (iv) and (v) to read as
follows:
Sec. 1703.34 Applications.
* * * * *
(b) * * *
(5) * * *
(ii) A section entitled ``Project Description'' as set forth in
Sec. 1703.36;
(iii) Except for applications for project feasibility studies, a
section entitled ``Environmental Impact of the Project'' as set forth
in Sec. 1703.37;
(iv) Monitoring plan. For a pass-through loan and/or grant, a copy
of the Borrower's plan to monitor the loan and/or grant and ensure that
the requirements of this subpart are met; and
(v) Scope of work. For an application for a loan and/or grant, a
proposed scope of work for the project.
* * * * *
11. Section 1703.46 is amended by revising the first sentence of
paragraph (a); by removing paragraph (e), and redesignating paragraphs
(f), (g), (h), (i), (j), (k), and (l) as paragraphs (e), (f), (g), (h),
(i), (j), and (k), respectively; and by adding a sentence at the end of
newly designated paragraph (g)(6)(iv) to read as follows:
Sec. 1703.46 Documenting the evaluation and selection of applications
for zero-interest loans and grants.
(a) The Administrator will only consider for selection applications
that request funds for purposes as set forth in Sec. 1703.17 and
Sec. 1703.18 and are not ineligible under Sec. 1703.20, as determined
by the Administrator. * * *
* * * * *
(g) * * *
(6) * * *
(iv) * * * For a pass-through loan and grant, the quality of the
Borrower's plan to monitor the loan and grant and assure that the
requirements of this subpart and 7 CFR parts 3015 and 3016 are met will
also be considered.
* * * * *
12. Section 1703.61 is amended by adding two sentences at the end
of paragraph (a) and three sentences at the end of paragraph (b) to
read as follows:
Sec. 1703.61 Disbursement of zero-interest loan and grant funds.
(a) * * * The Borrower or project owner's share in the cost of the
project must be utilized in advance of REA zero-interest loan funds, or
upon REA approval, on a pro-rata distribution basis with loan funds
during the disbursement period. The Borrower or project owner will not
be permitted to provide its contribution at the end of the loan
disbursement period.
(b) * * * Prior to the disbursement of grant funds under this
subpart, the Borrower will provide evidence of fidelity bond coverage
as required by 7 CFR 3015.17. The grant portion of a pass-through zero-
interest loan and grant will be disbursed to the Borrower on a
reimbursement basis after all other project funds have been utilized
and evidence is provided that the project has been completed. Grants to
Borrowers for establishment of revolving loan funds will be disbursed
in accordance with Sec. 1703.22 of this subpart.
* * * * *
13. Section 1703.66 is amended by revising paragraphs (b), (d), (e)
and (g), and by adding paragraphs (h), (i), and (j), to read as
follows:
Sec. 1703.66 Review and other requirements.
* * * * *
(b) The Borrower must require the recipient of a pass-through loan
and grant to provide an itemized list to the Borrower that shows the
expenditures made on the project for approved purposes, including a
certification to that effect. The Borrower will also require the
recipient to attach invoices, receipts, bills of sale, and other
evidence representing the items on the list of expenditures that at
least total the amount of the REA zero-interest loan and grant. In
addition, the Borrower will also require the recipient to furnish a
record of itemized receipts showing total project costs in such detail
that will permit auditors to establish the REA funding percentage.
REA's legal agreements will include the terms and conditions that the
Borrower must require in its agreement with the recipient of a pass-
through loan and grant covering the use and intended schedule of
expenditures of the loan funds.
* * * * *
(d) The legal documents executed between the Borrower and the
Administrator in connection with a zero-interest loan and/or grant must
contain certain provisions giving the Administrator discretionary
rights and remedies in the event a Borrower fails to comply with this
subpart, other Federal regulations and statutes, or the terms,
conditions and requirements of the executed legal documents. Regardless
of any right or remedy the Administrator chooses to assert, if the
Borrower uses any zero-interest loan and/or grant funds other than for
approved purposes, the Borrower will be required to return to REA the
amount used for unapproved purposes. An unauthorized zero-interest loan
amount which is returned will be considered a prepayment on the REA
note.
(e) Borrowers receiving zero-interest loans and/or grants will be
subject to a rural economic development review of zero-interest loan
and grant funds.
* * * * *
(g) Grants provided under this program will be administered in
accordance with 7 CFR part 3015 and 7 CFR part 3016, as appropriate.
Copies of these USDA Uniform Assistance regulations can be obtained by
contacting REA in Washington, DC. A Borrower that receives a grant for
the establishment of a revolving loan fund, or project owner that
receives a pass-through loan and grant, will be subject to requirements
under these regulations which cover, among other things, financial
reporting, accounting records, budget controls, record retention and
audit requirements. For pass-through loans and grants, REA Borrowers
will be required to include in their legal documents the requirement
for project owners to provide sufficient financial, accounting and
budget information and other records deemed necessary to facilitate
audits in accordance with 7 CFR part 3015 and 7 CFR part 3016 for non-
profit entities, and REA rural economic development loan reviews for
projects in a for-profit status.
(h) For pass-through loans and grants awarded under this subpart,
the Borrower must diligently monitor performance to ensure that time
schedules are being met, projected work by time periods is being
accomplished, and other performance objectives are being achieved. The
Borrower must submit an original and one copy of each report to REA on
an annual basis. The project performance reports shall include, but not
be limited to, the following:
(1) A comparison of actual accomplishments to the objectives
established for that period;
(2) Reasons why any established objectives were not met;
(3) A description of any problems, delays, or adverse conditions
which have occurred, or are anticipated, and which may affect the
attainment of overall project objectives, prevent meeting of time
schedules or objectives, or preclude the attainment of particular
project work elements during established time periods. This disclosure
shall be accompanied by a statement of the action taken or planned to
resolve the situation; and
(4) Objectives and timetable established for the next reporting
period.
(i) For pass-through loans and grants, a final project performance
report will be required with the last SF 269, ``Financial Status
Report,'' available from REA in Washington, DC. The final report also
must provide an evaluation of the success of the project in meeting the
objectives of the program. The final report may serve as the last
annual report.
(j) Monitoring requirements for Borrowers receiving grants for
revolving loan funds are specified in Sec. 1703.22.
14. Sections 1703.67 and 1703.68 are added to read as follows:
Sec. 1703.67 Changes in project objective or scope.
For loans and grants awarded under this subpart, the Borrower must
obtain prior approval for any material change to the scope or
objectives of the approved project, including changes to the scope of
work or budget. Failure to obtain prior approval of changes can result
in suspension or termination of grant funds.
Sec. 1703.68 Loan and grant termination provisions.
(a) Termination for cause. The Administrator may terminate any loan
and/or grant in whole, or in part, at any time before the date of
completion of loan and/or grant disbursement, whenever the Borrower has
failed to comply with the conditions of the loan and/or grant. The
Administrator will promptly notify the Borrower in writing of the
determination and the reasons for the termination, together with the
effective date. The termination date will be no less than 30 days
following receipt of the termination notice. The Borrower will have
such time to cure the default, or to state why it feels the loan and/or
grant should not be terminated. The Administrator will stay the
termination upon the curing of the default, and may delay termination
if, sufficient cause has been given by the Borrower.
(b) Termination for convenience. The Administrator or the Borrower
may terminate a loan and/or grant in whole, or in part, when both
parties agree that the continuation of the project would not produce
beneficial results commensurate with further expenditure of funds. The
two parties will agree upon termination conditions, including the
effective date, and in the case of partial terminations, the portion to
be terminated. The Borrower will not incur new obligations for the
terminated portion after the effective date, and will cancel as many
outstanding obligations as possible. The Administrator will allow full
credit to the Borrower for the Federal share of unfulfilled contractual
obligations which were incurred in good faith by the Borrower prior to
grant termination.
Subpart C--[Amended]
Secs. 1703.80-1703.99 [Reserved]
15. Sections 1703.80 through 1703.99, which are presently reserved
in subpart B, are transferred to subpart C.
Dated: March 7, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-5740 Filed 3-11-94; 8:45 am]
BILLING CODE 3410-15-P
