[Federal Register Volume 59, Number 71 (Wednesday, April 13, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8861]
[[Page Unknown]]
[Federal Register: April 13, 1994]
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DEPARTMENT OF AGRICULTURE
Rural Telephone Bank
7 CFR Part 1610
Rural Electrification Administration
7 CFR Parts 1735, 1737, 1744, 1753
Rural Telephone Bank and Telephone Program Loan Policies,
Procedures, and Requirements; and Telecommunications System
Construction Policies and Procedures
AGENCY: Rural Electrification Administration and Rural Telephone Bank,
USDA.
ACTION: Final rule.
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SUMMARY: The Rural Electrification Administration (REA) adopts, except
for the State Telecommunications Modernization Plan, its interim rule
published December 20, 1993, as a final rule with minor technical
changes. This action makes changes to the telephone program required by
the Rural Electrification Loan Restructuring Act of 1993 (RELRA or
legislation).
EFFECTIVE DATE: May 13, 1994.
FOR FURTHER INFORMATION CONTACT: Matthew P. Link, Director, Rural
Telephone Bank Management Staff, Rural Electrification Administration,
U.S. Department of Agriculture, 14th & Independence Avenue, SW., room
2832-S, Washington, DC 20250-1500, telephone number (202) 720-0530.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be not-significant for
purposes of Executive Order 12866, Regulatory Planning and Review, and
therefore has not been reviewed by the Office of Management and Budget
(OMB). However the interim rule was reviewed by the OMB in conformance
with Executive Order 12291 and Departmental Regulation 1512-1, and was
subsequently exempted from the OMB review under 12866.
Information Collection and Recordkeeping Requirements
The reporting and recordkeeping requirements contained in the final
rule have been approved by the OMB in accordance with the Paperwork
Reduction Act of 1980 (44 U.S.C. 3501 et seq.). These requirements are
approved under OMB control number 0572-0079.
Send comments regarding this collection of information to:
Department of Agriculture, Clearance Office, Office of Information
Resources Management, Room 404-W, Washington, DC 20250, and to the
Office of Information and Regulatory Affairs of OMB, Attention: Desk
Officer for USDA, room 3201, New Executive Office Building, Washington,
DC 20503.
The information set forth in the interim rule regarding Executive
Orders 12778 and 12372, the Regulatory Flexibility Act Certification,
the National Environmental Policy Act Certification, and the Catalog of
Federal Domestic Assistance, applies to this final rule without change.
Background
On December 20, 1993, REA published an interim rule (58 FR 66250)
to incorporate changes to telephone loan policies required by RELRA
(107 Stat. 1356). RELRA amended several provisions of the Rural
Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.) (RE
Act), and mandated a restructuring of the telephone loan program.
REA received 81 comments regarding the interim rule. Overall, the
greatest concern on the part of the responding organizations was 7 CFR
part 1751, subpart B, the State Telecommunications Modernization Plan
(modernization plan). Because of the overwhelming response regarding
the modernization plan, related concerns and possible modifications
will be resolved in a separate notification.
This notice addresses comments on parts of the interim rule other
than 7 CFR part 1751, subpart B. All comments were taken into
consideration in preparing the final rule. Comments were received from
the following:
(1) Hills Telephone Company, Inc.
(2) Interstate Telecommunications Cooperative, Inc.
(3) Martin and Associates, Inc., submitted comments on behalf of 16
local exchange carriers located in South Dakota.
(4) Joint comments from the National Rural Telecom Association and
the Western Rural Telephone Association.
(5) National Telephone Cooperative Association.
(6) Joint comments from the Oklahoma Rural Telephone Coalition,
Rural Arkansas Telephone Systems, and Texas Statewide Telephone
Cooperative, Inc.
(7) Organization for the Protection and Advancement of Small
Telephone Companies.
(8) United States Telephone Association.
The comments will be discussed in the order in which they appear in
the final rule. This Federal Register notice serves to notify the
public that the interim rule, with the exception of 7 CFR part 1751,
subpart B (modernization plan regulations), is final.
Section 1610.1 General
Comment Summary: Two organizations objected to REA distinguishing
between authorized loan purposes for Rural Telephone Bank (RTB) loans
by establishing a preference for one classification of authorized
statutory loan purposes over another. Further, it was stated that RTB
is without authority to impose such a preference, and this provision
should be deleted from the final rule.
Response: While RELRA amended section 408(a)(2) of the RE Act to
revise certain purposes for RTB financing, section 408(a)(1) was not
amended and it references section 201 where such purposes are still
eligible for RTB financing. REA believes that RELRA, by amending
408(a)(2), indicated preference to loans for section 408(a)(2) purposes
over 408(a)(1) purposes to the extent that REA has completed
applications for loans for purposes set forth in 408(a)(2). This policy
is consistent with the RELRA provisions which provide (1) the same
purposes for REA cost-of-money loans as for 408(b)(2) loans, and (2)
that RTB and cost-of-money loans are to be concurrent.
Section 1610.6 Concurrent Bank and REA Cost-of-Money Loans
Comment Summary: Several organizations objected to REA requiring
that REA cost-of-money loans and RTB loans be made concurrently, and
stated that concurrence should remain an option of the borrower. Also,
there was concern that mandating RTB to make loans concurrently with
the REA cost-of-money program would compromise the independence of a
future, privatized RTB. Commenters requested that REA revise the
interim rule to provide borrowers with an option of selecting
concurrent RTB and REA cost-of-money loans.
Response: Concurrent loans are required by RELRA. This is also
consistent with RELRA's other amendments that only allow REA cost-of-
money and RTB loans to be made for the same purposes and that subject
those loans to the same eligibility requirements. This approach
facilitates the most effective administration of this policy.
Section 1610.10 Determination of Interest Rate on Bank Loans
Comment Summary: REA should acknowledge that future RTB interest
rates will be calculated taking into consideration RELRA's interest
rate amendment.
Response: The methodology for calculating interest rates charged on
RTB loans is provided in Sec. 1610.10. While the interest rate
amendment requires calculating a single RTB interest rate that applies
to all advances made within a given fiscal year, this amendment only
takes effect when funds have been appropriated by Congress to offset
any subsidy associated with charging a single rate. When such an
appropriation is made, RTB will calculate an interest rate in
accordance with the RELRA amendment. However, no revisions will be made
to Sec. 1610.10 because the methodology for calculating interest rates
remains unchanged.
Section 1610.11 Prepayments
Comment Summary: One commenter suggested that paragraph (b) be
changed to conform with the language of the RE Act. Others commented
that the elimination of prepayment premiums should apply to all
outstanding RTB loans, not just those approved after November 1, 1993.
Response: REA believes the language in this provision of the
interim rule correctly interprets RELRA's amendment to section
408(b)(8) of the RE Act. All RTB loan agreements entered into before
November 1, 1993, contain a prepayment premium provision. That
prepayment premium policy was determined by the RTB Board of Directors.
The original prepayment policy was established by the RTB Board of
Directors on February 10, 1972, and later revised on May 3, 1984. RELRA
eliminated the premiums only on loans approved after November 1, 1993.
Further, a provision to eliminate the prepayment premium for RTB loans
approved before November 1, 1993, was initially included in an early
draft of the legislation but was eventually removed.
Section 1735.10 General
Comment Summary: With regard to REA's use of borrower-funded
consultants (paragraph (e)), one organization commented that while the
interim rule follows the legislation, many question the intent, usage
and unfair advantages such activity could bring to small companies with
little or no capital resources.
Response: REA recognizes these concerns; however, the option of
hiring a consultant is necessary in order to adhere to the provision of
the legislation. In accordance with the legislation, the Administrator
is authorized to accept funds voluntarily provided by a borrower to be
used to obtain assistance from third party experts in the review of a
loan application. The purpose of this provision is to assist in the
expeditious review of numerous loan applications given limited REA
manpower and resources. The Administrator intends that the telephone
loan programs be administered in a fair and impartial manner.
Comment Summary: With regard to paragraph (b), one organization
commented that the language ``in REA's opinion'' should be deleted from
the final rule because REA does not possess the authority which this
reference implies to deny loans without a factual basis.
Response: This language was included to insure that (1) the main
objectives of the RE Act (i.e., provide service to the widest practical
number of rural subscribers), and (2) the provisions of the borrower's
modernization plan will be carried out by borrowers of REA telephone
loans. REA will not deny a loan without a factual basis. If the
purposes of a loan are not consistent with the goals of the
modernization plan for the borrower's State, then REA will deny the
loan. This determination will be based on the modernization plan
requirements and objectives provided in Sec. 1751.106. However, REA has
considered that strict conformity to the requirements of a borrower's
modernization plan could result in loans that would not be economically
or technically feasible. REA has expanded Sec. 1735.10(b) to take into
consideration these situations when making loans.
Section 1735.17 Facilities Financed
Comment Summary: One organization commented that the interim rule
correctly recognizes that under the legislation certain facilities and
purposes will not be financed depending on the type of loan. The
commenter further stated that the background statement fails to
acknowledge that RTB loans will still be made for section 201 loan
purposes and that loans that fall into the restricted purpose category
are the new cost-of-money loans.
Response: See the response to the comment on Sec. 1610.1.
Section 1735.22 Loan Security
Comment Summary: One commenter objected to the Times Interest
Earned Ratio (TIER) maintenance requirement stating that REA is without
authority to impose such requirement, and that the TIER range
established in the legislation as eligibility criteria is adequate to
protect loan security. Also, that the 1.75 TIER level is arbitrary.
Response: The TIER criteria put forth in the legislation determines
the borrower's loan eligibility, it does not imply that risks to loan
security are nonexistent if the borrower meets the eligibility
criteria. Using the TIER eligibility range for maintenance purposes
would require the borrower to maintain a minimum TIER of only 1.0.
Allowing the borrower to maintain net margins at a level sufficient
only to cover interest expenses does not offer much financial security
nor assure credit quality. However, during the forecast period (i.e.,
construction period) when interest expenses are higher and associated
revenues are not yet realized the borrower can maintain a TIER of 1.0.
Afterwards, the TIER maintenance requirement merely requires the
borrowers to maintain the TIER predicted by the projections given to
REA by the borrower and on which REA relied on making the loan, but not
to exceed 1.75. The TIER maintenance requirement provides some
assurance of adequate loan security without placing an additional
burden on the borrower. In fact, more than 93 percent of REA borrowers
have existing TIERS of 1.75 or greater. This standardized maintenance
requirement is needed because the new eligibility requirements rendered
the previous maintenance requirement inequitable and obsolete. As a
Federal lending institution, REA has the responsibility to protect the
Government's security interest.
Section 1735.30 Hardship Loans
Comment summary: Several commenters suggested that the priority
system established for approving REA hardship loans was unnecessary,
too complex, and non-statutory. While recognizing that one of the
objectives of the priority system is to ensure financing to the
neediest borrowers, the commenters stated that, overall, the system
would be burdensome on REA and its borrowers and would treat some
borrowers unfairly. One commenter stated that the current ``first come
first served'' policy for loan approval would be adequate for approving
loans in addition to assessing the urgency of each financing request.
Further, one commenter, stating that loan approval should be based only
on the eligibility criteria in the RELRA and not on specific plant
modifications (such as distance learning or medical link facilities),
commented that the method and criteria used in assigning points were
unfair to some borrowers. The commenters also stated borrowers may be
denied financing (within a reasonable time frame or perhaps altogether)
due to the nature of the point assignment and ranking system.
Response: The hardship loan program created by the RELRA is
intended to ensure that lower cost capital financing will be available
to those applicants most in need due to extreme operating conditions.
Since REA believes that the amount of financing available to fund the
hardship program will generally be more limited than the eligible loan
applications, it is necessary to implement a system that allows the
widest practical nationwide use of those limited funds.
The ranking criteria REA has established does not conflict with a
borrowers' eligibility to receive hardship financing. All borrowers
that meet the hardship eligibility requirements (TIER, density, and
modernization plan) will receive financing, subject to the availability
of funds. The ranking criteria does, however, provide REA with a
methodology of fairly assessing all eligible applications and provides
an equitable manner in which to disburse the limited amount of funds
available.
In addition, the ranking and subsequent prioritizing of a loan
application does not require any additional information on the part of
the borrower. All of the information needed is readily available in the
loan application and the loan study prepared by REA. Any additional
burden placed on REA is minimal and will not result in a delay in the
processing of an application.
Comment summary: Concerning paragraph (b), one commenter stated
that the size of an exchange within a borrower's service territory is
not relevant to the density provision which precludes borrowers from
receiving hardship financing for facilities in an exchange where the
average number of subscribers per mile of line is greater than 17.
Response: The RELRA clearly intended to avoid the use of lower-cost
hardship financing in densely populated ``semi-urban'' areas. RELRA
precluded borrowers from receiving hardship financing to be used in any
``area'' where the average number of subscribers per mile of line is
greater than 17. REA has defined ``area'' to mean an exchange of the
borrower. In addition, to further clarify the measure of a semi-urban
area, 1,000 existing subscribers is also used so that high density
exchanges with large populations can be distinguished from those remote
pockets of populations that have a high exchange density, but are
clearly rural areas.
Comment summary: With regard to the optimal use of loan funds
(Sec. 1735.30(e)), several commenters stated that there is no need for
REA to limit the amount of a hardship loan to any borrower. One
respondent commented that by ``splitting'' loan applications and
identifying the most urgent financing needs while seeking agreement
from all parties involved in a financing request, REA could effectively
ensure hardship financing in the neediest situations, without limiting
loan size.
Response: REA has limited the size of hardship loans for the
borrowers' (and its subscribers) benefit. Since eligible borrowers will
be competing for a limited amount of available financing, limiting the
loan size helps to ensure that (1) hardship funds will be provided for
the most urgent loan purposes and (2) the widest number of borrowers,
and consequently rural subscribers, will benefit from the hardship
program.
Section 1735.31 REA Cost-of-Money and RTB Loans
Comment Summary: With regard to Sec. 1735.31(e), one organization
commented that the TIER ratio contained in the REA cost-of-money and
RTB eligibility criteria seems to be at variance with the statutory
definition, and suggested that the final rule conform to the precise
language of the legislation.
Response: REA believes the language in the interim rule is
consistent with the language of the legislation.
Comment Summary: One organization commented that REA is without
authority to establish the requirement that interest rates on cost-of-
money loans be fixed at the time of advance rather than at the time of
loan approval. The commenter suggested that in the absence of statutory
direction to the contrary, interest rates on cost-of-money loans should
be fixed at the time of loan approval.
Response: The requirements of the interim rule reflect REA's
interpretation of the legislation, that is, interest rates based on the
cost of capital to the Government at the time of each advance of funds.
REA adopted this approach to ensure against rate disparity between the
time of loan approval and advance of funds. REA must borrow matching
funds from the U.S. Treasury when the borrower requests an advance. The
interest rate charged to the borrower is effectively the same interest
rate to be paid to Treasury on this borrowing by REA. REA believes that
such approach is true to Congress' intent that loans be made at the
then current cost of money to the Government. This is evident in the
amount of subsidy appropriated by Congress for cost-of-money loans.
Comment Summary: One organization commented that the procedure
outlined in paragraph (c)(2) for determination of the cost-of-money
interest rate is unnecessarily cumbersome and should be simplified in
the final rule. The commenter also suggested that paragraph (d) be
revised to make it clear that the borrower's request is a specific one
to conform to the language of the RE Act and Sec. 1735.32(a).
Response: With regard to paragraph (c)(2), the procedure as written
is necessary to ensure a clear and definitive method for all parties
when setting the interest rate on cost-of-money loans. Concerning
paragraph (d), REA believes the language in the interim rule is
consistent with the language of the legislation, and that it is evident
that REA will only make loan guarantees to those borrowers specifically
requesting a guarantee.
Section 1735.32 Guaranteed Loans
Comment Summary: With regard to paragraph (b), one organization
commented that the requirement to participate in a modernization plan
should be the same for all loan programs, and the rule as currently
written appears discriminatory.
Response: The legislation clearly states that the modernization
plan shall apply only to REA hardship, REA cost-of-money, and RTB
loans. The interim rule as written adheres to the legislation.
Sections 1735.74 Submission of data, and 1737.22 Supplementary
information
Comment Summary: One organization commented that the language
relating to the certification of participation in a modernization plan
should be revised to eliminate the restrictive reference to the
borrower's president by substituting chief executive officer or
preferably authorized corporate officer.
Response: Participating in a modernization plan and fulfilling its
goals may require a significant effort from the borrower, and may
effect whether a borrower receives a loan. Due to the critical nature
of these factors, REA believes it is in the interests of both the
borrower and REA to have the certification signed by the borrower's
president.
Simultaneous Loans
Comment Summary: One organization commented on REA's reference to
simultaneous loans, stating that it is not a defined term in the
interim rule nor is it a term utilized in either the legislation or the
existing RE Act. The commenter suggested this provision be deleted in
the final rule.
Response: Since certain purposes will not be financed depending on
the type of loan, REA has used the term ``simultaneously'' to clarify
that these types of loans may be made to the borrower at the same time
or in the same set of documents. The term ``simultaneously'' was used
so as not to confuse the reader since, historically, ``concurrent
loans'' has referred only to the combination of REA and RTB loans.
List of Subjects
7 CFR Part 1610
Accounting, Loan programs-communications, Reporting and
recordkeeping requirements, Rural areas, Telephone.
7 CFR Part 1735
Accounting, Loan programs-communications, Reporting and
recordkeeping requirements, Rural areas, Telephone.
7 CFR Part 1737
Accounting, Loan programs-communications, Reporting and
recordkeeping requirements, Rural areas, Telephone.
7 CFR Part 1744
Accounting, Loan programs-communications, Reporting and
recordkeeping requirements, Rural areas, Telephone.
7 CFR Part 1753
Loan programs-communications, Telecommunications, Telephone.
7 CFR CHAPTER XVI
PART 1610--LOAN POLICIES
Accordingly, the interim rule amending 7 CFR part 1610 which was
published at 58 FR 66252 on December 20, 1993, is adopted as a final
rule without change.
7 CFR CHAPTER XVII
PART 1735--GENERAL POLICIES, TYPES OF LOANS, LOAN REQUIREMENTS--
TELEPHONE PROGRAM
Accordingly, the interim rule amending 7 CFR part 1735 which was
published at 58 FR 66253 on December 20, 1993, is adopted as a final
rule with the following change:
1. The authority citation for part 1735 continues to read as
follows:
Authority: 7 U.S.C. 901 et seq., 1921 et seq.
2. Section 1735.10(b) is revised to read as follows:
Sec. 1735.10 General.
* * * * *
(b) REA will not make hardship loans, REA cost-of-money loans, or
RTB loans for any purposes that, in REA's opinion, are inconsistent
with the borrower achieving the requirements stated in the State's
telecommunications modernization plan within the time frame stated in
the plan (see 7 CFR part 1751, subpart B), unless REA has determined
that achieving the requirements as stated in such plan is not
technically or economically feasible.
* * * * *
PART 1737--PRE-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED
AND INSURED TELEPHONE LOANS
Accordingly, the interim rule amending 7 CFR part 1737 which was
published at 58 FR 66256 on December 20, 1993, is adopted as a final
rule without change.
PART 1744--POST-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED
AND INSURED TELEPHONE LOANS
Accordingly, the interim rule amending 7 CFR part 1744 which was
published at 58 FR 66257 on December 20, 1993, is adopted as a final
rule without change.
PART 1753--TELECOMMUNICATIONS SYSTEM CONSTRUCTION POLICIES AND
PROCEDURES
Accordingly, the interim rule amending 7 CFR part 1753 which was
published at 58 FR 66259 on December 20, 1993, is adopted as a final
rule with the following technical changes:
1. The authority citation for part 1753 continues to read as
follows:
Authority: 7 U.S.C. 901 et seq., 1921 et seq.
2. In Sec. 1753.2, remove the definition ``STMP (State
Telecommunications Modernization Plan)'' and add a new definition in
alphabetical order as follows:
Sec. 1753.2 Definitions.
* * * * *
Modernization plan. A plan, which has been approved by REA, for
improving the public switched network of a state. The modernization
plan must conform to the provisions of 7 CFR part 1751, subpart B, and
applies to all telecommunications providers in the state.
* * * * *
Secs. 1753.3, 1753.15, 1753.66 [Amended]
3. Sections 1753.3(a) introductory text and (a)(4), 1753.15(b)(4),
and 1753.66(d) are amended by adding the words ``modernization plan''
in place of the acronym ``STMP'' each place it appears.
Dated: April 6, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-8861 Filed 4-12-94; 8:45 am]
BILLING CODE 3410-15-P
