[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Proposed Rules]
[Pages 48075-48097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23082]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 61, No. 178 / Thursday, September 12, 1996 /
Proposed Rules
[[Page 48075]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency
7 CFR Part 1780
RIN 0572-AB20
Streamlining the Rural Utilities Service Water and Waste Program
Regulations
AGENCIES: Rural Housing Service, Rural Business-Cooperative Service,
Rural Utilities Service, and Farm Service Agency; USDA.
ACTION: Proposed rule.
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SUMMARY: The Rural Utilities Service (RUS) hereby amends the
regulations utilized to administer the water and waste loan and grant
programs. The proposed rule will combine the water and waste loan and
grant regulations into one regulation. Unnecessary and burdensome
requirements for entities seeking financial assistance under the
programs will be eliminated. The streamlining of the regulation will
allow RUS to provide better service to rural entities needing
assistance in correcting and alleviating health and sanitary problems
in their communities, and in general improve the quality of life in
rural areas. This rule will also incorporate changes in the water and
waste loan and grant program mandated by the 1996 Farm Bill. This rule
could impact the amount of loan and grant an applicant could receive.
Therefore, RUS will honor all written commitments of loan and grant
amounts issued prior to the effective date of this rule.
DATES: Comments on the proposed rule must be received on or before
October 15, 1996.
ADDRESSES: Submit written comments on the proposed rule. RUS requires a
signed original and 3 copies of all comments (7 CFR 1700.30(e)) to the
Program Support and Regulatory Analysis Group, Rural Utilities Service,
14th & Independence Avenue SW., AG Box 1522, Washington, DC 20250,
Telephone: (202) 720-0736.
FOR FURTHER INFORMATION CONTACT: Jerry W. Cooper, Loan Specialist,
Water and Waste Division, Rural Utilities Service, USDA, South
Agriculture Building, Room 6328, AG Box 1548, Washington, DC 20250,
telephone: (202) 720-9589.
SUPPLEMENTARY INFORMATION:
Classification
We are issuing this proposed rule in conformance with Executive
Order 12866 and the Office of Management and Budget has determined that
it is a ``significant regulatory action''.
Intergovernmental Review
These programs are listed in the Catalog of Federal Domestic
Assistance under number 10.760, Water and Waste Systems For Rural
Communities and are subject to the provisions of Executive Order 12372
which requires intergovernmental consultation with State and local
officials.
Environmental Impact Statement
This action has been reviewed in accordance with FmHA Instruction
1940-G, ``Environmental Program.'' It has been determined that the
action does not constitute a major Federal action significantly
affecting the quality of the human environment, and in accordance with
the National Environmental Policy Act of 1969, Public Law 91-190, an
Environmental Impact Statement is not required.
Compliance With Executive Order 12778
The regulation has been reviewed in light of Executive Order 12778
and meets the applicable standards provided in sections 2(a) and
(2)(b)(2) of that Order. Provisions within this part which are
inconsistent with State law are controlling. All administrative
remedies pursuant to 7 CFR part 11 must be exhausted prior to filing
suit.
Information Collection and Paperwork Requirements
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35, as amended) RUS is requesting comments on the information
collection incorporated in this proposed rule.
Comments are invited on: (a) Whether the proposed collection of
information is necessary for the proper performance of the functions of
the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden of the
proposed collection of information including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility and clarity of the information to be collected; and (d) ways to
minimize the burden of the collection of information on those who are
to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology.
For further information contact Jerry W. Cooper, Loan Specialist,
Water and Waste Division, Rural Utilities Service, U.S. Department of
Agriculture, 1400 Independence Ave., SW., STOP 1548, Washington, DC
20250-1548, telephone: (202) 720-9589.
Title: Water and Waste Disposal Loan and Grant Program.
OMB Control Number: 0575-0015.
Type of Request: Addendum to a previously approved information
collection.
The program provides loan and grant funds for water and waste
disposal projects serving the most financially needy rural communities.
Financial assistance should result in reasonable user costs for rural
residents, rural businesses, and other rural users. The program is
limited to rural areas and small towns with a population of 10,000 or
less. Communities seeking financial assistance through the program must
provide certain detailed information to RUS that is used to determine
eligibility and the credit worthiness of the applicant. Additional
information is needed to assure that proposed projects will meet the
needs of the community, are properly constructed, and that the
financial interest of the Government is protected. All the information
collected is used by RUS to manage and account for Government
resources. The reports and forms are required to ensure the proper and
judicious use of public funds.
This proposed rule eliminates the pre-application procedures which
were previously required under 7 CFR part 1940 subpart A. The addendum
will reflect the reduction in reporting burden by 8,726 hours due to
the elimination of this reporting requirement.
[[Page 48076]]
Estimate of Burden: The public reporting burden for this collection
of information is estimated to average 2.7 hours per respondent.
Respondents: Non-profit institutions and state, local or tribal
governments.
Estimated Number of Respondents: 10,520.
Estimated Number of Responses: 85,182.
Estimated Total Annual Burden on Respondents: 227,128 hours.
Copies of this information collection can be obtained from Dawn
Wolfgang, Program Support and Regulatory Analysis, Rural Utilities
Service, U.S. Department of Agriculture, 1400 Independence Ave., SW.,
STOP 1522, Washington, DC 20250-1522. Telephone: (202) 720-0812. Fax:
(202) 720-4120.
Comments may be sent to F. Lamont Heppe, Jr., Director, Program
Support and Regulatory Analysis, Rural Utilities Service, U.S.
Department of Agriculture, 1400 Independence Ave., SW, STOP 1522,
Washington, DC 20250-1522. Telephone: (202) 720-0812. Fax: (202) 720-
4120.
A comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication of this rule.
All comments will become a matter of public record.
National Performance Review
This regulatory action is being taken as part of the National
Performance Review program to eliminate unnecessary regulations and
improve those that remain in force.
Unfunded Mandate Reform Act
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the Unfunded Mandate Reform Act of 1995) for
State, local, and tribal governments or the private sector. Thus
today's rule is not subject to the requirements of sections 202 and 205
of the Unfunded Mandate Reform Act of 1995.
Cross References of Regulations
The Rural Utilities Service is an Agency resulting from a
reorganization of programs administered by the former Farmers Home
Administration, the former Rural Development Administration, and the
former Rural Electrification Administration. Dual-references or cross-
references to former Farmers Home Administration regulations and forms
are provided for by the Department of Agriculture Reorganization Act of
1994.
Regulatory Flexibility Act Certification
The Administrator of RUS has determined that the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this rule.
Background
The water and waste loan and grant programs are authorized by
various sections of the Consolidated Farm and Rural Development Act, (7
U.S.C. 1921 et seq.), as amended. The regulations for these programs,
particularly the loan program, have not been completely reviewed for
many years. The recent streamlining and reorganization of the
Department of Agriculture provided an opportunity to review and rewrite
the water and waste loan and grant regulations. A task force, was
formed to review and rewrite the regulations. The aim of the task force
was to make the regulations easier to understand, eliminate unnecessary
requirements, and continue to protect the interest of the U.S.
taxpayer.
The program provides loan and grant funds for water and waste
disposal projects serving the most financially needy rural communities.
Financial assistance should result in reasonable user costs for rural
residents, rural businesses, and other rural users. The program is
limited to rural areas and small towns with a population of 10,000 or
less.
The proposed rule will divide the regulation into four subparts: A,
B, C, and D. Subpart A contains the general policies and requirements
of the loan and grant program. Subpart B contains the loan and grant
application processing requirements. Subpart C contains all the
requirements for planning, designing, bidding, contracting,
constructing, and inspections. Subpart D has information required in
the preparation of notes or bonds and bond transcript documents for
public body applicants.
Major changes are:
1. Redirects additional grant funds to communities that truly need
the assistance in order to construct a project. Communities with
incomes over 100 percent of the State nonmetropolitan median household
income will not qualify for any grant funds as in the current
regulations.
2. Stretches the grant dollars appropriated by Congress to help
more communities by changing the maximum percentage of grant funds that
a higher income community can receive from 55 percent to 45 percent of
RUS's share of the project costs. This change could have an indirect
effect of having an incentive for development of regional projects.
3. The process used to select projects for funding has been revised
to direct funds to low income, small communities that need to correct
health problems. Also, the priority points awarded for regional systems
have been increased.
4. The application process has been streamlined to reduce
unnecessary paperwork and improve service to the rural communities.
There will be less regulations and the number of pages will be greatly
reduced.
5. The application process has been shortened by eliminating the
preapplication process.
6. A preliminary engineering report (PER) must be submitted earlier
in the application process. The requirement of submitting a PER earlier
in the process will assist the staff in making better decisions. Also,
applicants have to have this type of document to help them determine
what, where, and how they are going to build needed facilities. This
change will force applicants to have a clear picture of what they want
to construct prior to applying for assistance. A majority of applicants
have a PER at the preapplication stage now, therefore the change will
tend to put all applicants on a level field.
The major 1996 Farm Bill changes are:
1. Funds made available for these programs may be made available
for a water system that is making significant progress toward meeting
the Safe Drinking Water Act standards.
2. Funds made available for water treatment discharge or waste
disposal system must meet applicable Federal and State water pollution
control standards.
3. Not earlier than 60 days before filing an application for loan
or grant assistance, a notice of intent shall be published in a general
circulation newspaper.
4. When applicants hire outside engineers, the selection of an
engineer for a project design shall be done by a request for proposals.
5. Assistance under any rural development program administered by
the Secretary or any agency of the Department of Agriculture shall not
be conditioned on any requirement that the recipient of the assistance
accept or receive electric service from any particular utility,
supplier, or cooperative. This is being implemented for the water and
waste loan and grant programs.
List of Subjects in 7 CFR Part 1780
Community development, Community facilities, Grant programs-Housing
and community development, Rural areas, Waste treatment and
[[Page 48077]]
disposal-Domestic, Water supply-Domestic.
Therefore, RUS proposes to amend chapter XVII, title 7, Code of
Federal Regulations as follows:
PART 1780--WATER AND WASTE LOANS AND GRANTS
1. Part 1780, is added to read as follows:
PART 1780--WATER AND WASTE LOANS AND GRANTS
Subpart A--General Policies and Requirements
Sec.
1780.1 General.
1780.2 Purpose.
1780.3 Definitions and grammatical rules of construction.
1780.4 Availability of forms and regulations.
1780.5 [Reserved]
1780.6 Application information.
1780.7 Eligibility.
1780.8 [Reserved]
1780.9 Eligible loan and grant purposes.
1780.10 Limitations.
1780.11 Service area requirements.
1780.12 [Reserved]
1780.13 Rates and terms.
1780.14 Security.
1780.15 Other Federal, state, and local requirements.
1780.16 [Reserved]
1780.17 Selection priorities and process.
1780.18 Public information.
1780.19-1780.22 [Reserved]
1780.23 [Reserved]
1780.24 Approval authorities.
1780.25 Exception authority.
1780.26-1780.30 [Reserved]
Subpart B--Loan and Grant Application Processing
1780.31 General.
1780.32 Timeframes for application processing.
1780.33 Application requirements.
1780.34 [Reserved]
1780.35 Processing office review.
1780.36 Approving official review.
1780.37 Applications determined ineligible.
1780.38 [Reserved]
1780.39 Application processing.
1780.40 [Reserved]
1780.41 Loan or grant approval.
1780.42 Transfer of obligations.
1780.43 [Reserved]
1780.44 Actions prior to loan or grant closing or start of
construction, whichever occurs first.
1780.45 Loan and grant closing and delivery of funds.
1780.46 [Reserved]
1780.47 Borrower accounting methods, management reporting and
audits.
1780.48 Regional commission grants.
1780.49 Rural or Native Alaskan villages.
1780.49-1780.52 [Reserved]
Subpart C--Planning, Designing, Bidding, Contracting, Constructing and
Inspections
1780.53 General.
1780.54 Technical services
1780.55 Preliminary engineering reports.
1780.56 [Reserved]
1780.57 Design policies.
1780.58-1780.60 [Reserved]
1780.61 Construction contracts.
1780.62 Utility purchase contracts.
1780.63 Sewage treatment and bulk water sales contracts.
1780.64-1780.66 [Reserved]
1780.67 Performing construction.
1780.68 Owner's contractual responsibility.
1780.69 [Reserved]
1780.70 Owner's procurement regulations.
1780.71 [Reserved]
1780.72 Procurement methods.
1780.73 [Reserved]
1780.74 Contracts awarded prior to applications.
1780.75 Contract provisions.
1780.76 Contract administration.
1780.77-1780.79 [Reserved]
Subpart D--Information Pertaining to Preparation of Notes or Bonds and
Bond Transcript Documents for Public Body Applicants
1780.80 General.
1780.81 Policies related to use of bond counsel.
1780.82 [Reserved]
1780.83 Bond transcript documents.
1780.84-1780.86 [Reserved]
1780.87 Permanent instruments for Agency loans.
1780.88 [Reserved]
1780.89 Multiple advances of Agency funds using permanent
instruments.
1780.90 Multiple advances of Agency funds using temporary debt
instruments.
1780.91-1780.93 [Reserved]
1780.94 Minimum bond specifications.
1780.95 Public bidding on bonds.
1780.96-1780.100 [Reserved]
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.
Subpart A--General Policies and Requirements
Sec. 1780.1 General.
(a) This part outlines the policies and procedures for making and
processing direct loans and grants for water and waste projects. The
Rural Utilities Service (RUS) shall cooperate fully with State and
local agencies in making loans and grants to assure maximum support to
the State strategy for rural development. Agency officials and their
staffs shall maintain coordination and liaison with State agency and
substate planning districts.
(b) The income data used in this part to determine median household
income must be that which most accurately reflects the income of the
service area. The median household income of the service area and the
nonmetropolitan median household income of the State will be determined
from income data from the most recent decennial census of the United
States. If there is reason to believe that the census data is not an
accurate representation of the median household income within the area
to be served, the reasons will be documented and the applicant may
furnish, or the Agency may obtain, additional information regarding
such median household income. Information will consist of reliable data
from local, regional, State or Federal sources or from a survey
conducted by a reliable impartial source. The nonmetropolitan median
household income of the State may only be updated on a national basis
by the RUS National Office. This will be done only when median
household income data for the same year for all Bureau of the Census
areas is available from the Bureau of the Census or other reliable
sources. Bureau of the Census areas would include areas such as:
Counties, County Subdivisions, Cities, Towns, Townships, Boroughs, and
other places.
(c) RUS debt instruments will require an agreement that if at any
time it shall appear to the Government that the borrower is able to
refinance the amount of the indebtedness to the Government then
outstanding, in whole or in part, by obtaining a loan for such purposes
from responsible cooperative or private credit sources, at reasonable
rates and terms for loans for similar purposes and periods of time, the
borrower will, upon request of the Government, apply for and accept
such loan in sufficient amount to repay the Government and will take
all such actions as may be required in connection with such loan.
(d) Funds allocated for use under this part are also for the use of
Indian tribes within the State, regardless of whether State development
strategies include Indian reservations within the State's boundaries.
Native Americans residing on such reservations must have equal
opportunity to participate in the benefits of these programs as
compared with other residents of the State. Such tribes might not be
subject to State and local laws or jurisdiction. However, any
requirements of this part that affect applicant eligibility, the
adequacy of RUS's security, or the adequacy of service to users of the
facility and all other requirements of this part must be met.
(e) RUS financial programs must be extended without regard to race,
color, religion, sex, national origin, marital status, age, or physical
or mental handicap.
(f) Any processing or servicing activity conducted pursuant to this
part involving authorized assistance to Agency employees, members of
their
[[Page 48078]]
families, known close relatives, or business or close personal
associates, is subject to the provisions of subpart D of part 1900 of
this title. Applicants for assistance are required to identify any
known relationship or association with a RUS employee.
(g) Water and waste facilities will be designed, installed, and
operated in accordance with applicable laws which include but are not
limited to the Safe Drinking Water Act, Clean Water Act and the
Resource Conservation and Recovery Act.
(h) RUS financed facilities will be consistent with any current
development plans of State, multijurisdictional areas, counties, or
municipalities in which the proposed project is located.
(i) Each RUS financed facility will be in compliance with
appropriate State or Federal agency regulations which have control of
the appropriation, diversion, storage and use of water and disposal of
excess water.
(j) Water and waste applicants must demonstrate that they possess
the financial, technical, and managerial capability necessary to
consistently comply with pertinent Federal and State laws and
requirements. In developing water and waste systems, applicants must
consider alternatives of ownership, system design, and the sharing of
services.
(k) Applicants should be aware of and comply with other Federal
statute requirements including but not limited to:
(1) Section 504 of the Rehabilitation Act of 1973. Under section
504 of the Rehabilitation Act of 1973, as amended (29 U.S.C. 794), no
handicapped individual in the United States shall, solely by reason of
their handicap, be excluded from participation in, be denied the
benefits of, or be subjected to discrimination under any program or
activity receiving RUS financial assistance;
(2) Civil Rights Act of 1964. All borrowers are subject to, and
facilities must be operated in accordance with, title VI of the Civil
Rights Act of 1964 and subpart E of part 1901 of this title,
particularly as it relates to conducting and reporting of compliance
reviews. Instruments of conveyance for loans and/or grants subject to
the Act must contain the covenant required by Sec. 1901.202(e) of this
title;
(3) The Americans with Disabilities Act (ADA) of 1990. This Act
prohibits discrimination on the basis of disability in employment,
State and local government services, public transportation, public
accommodations, facilities, and telecommunications. Title II of the Act
applies to facilities operated by State and local public entities which
provides services, programs and activities. Title III of the Act
applies to facilities owned, leased, or operated by private entities
which accommodate the public; and
(4) Age Discrimination Act of 1975. This Act provides that no
person in the United States shall on the basis of age, be excluded from
participation in, be denied the benefits of, or be subjected to
discrimination under any program or activity receiving Federal
financial assistance.
Sec. 1780.2 Purpose.
Provide loan and grant funds for water and waste projects serving
the most financially needy communities. Financial assistance should
result in reasonable user costs for rural residents, rural businesses,
and other rural users.
Sec. 1780.3 Definitions and grammatical rules of construction.
(a) Definitions. For the purposes of this part:
Agency means any United States Department of Agriculture (USDA)
employee acting on behalf of the Rural Utilities Service in accordance
with appropriate delegations of authority.
Approval official means the USDA official at the State level who
has been delegated the authority to approve loans or grants.
Equivalent Dwelling Unit (EDU) means the level of service provided
to a typical rural residential dwelling.
Parity bonds means bonds which have equal standing with other bonds
of the same Issuer.
Poverty line means the level of income for a family of four, as
defined in section 673(2) of the Community Services Block Grant Act (42
U.S.C. 9902(2)).
Processing office means the office designated by the State program
official to accept and process applications for water and waste
disposal assistance.
Project means all activity that an applicant is currently
undertaking to be financed in whole or part with RUS assistance.
Protective advances are payments made by a lender for items such as
insurance or taxes in order to preserve and protect the security or the
lien or priority of the lien securing the loan.
Rural and Rural Areas means any area not in a city, or town with a
population in excess of 10,000 inhabitants, according to the latest
decennial census of the United States.
Rural Development means the mission area of the Under Secretary for
Rural Development. Rural Development State and local offices will
administer this water and waste program on behalf of the Rural
Utilities Service.
RUS means the Rural Utilities Service, an agency of the United
States Department of Agriculture established pursuant to section 232 of
the Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-
354), successor to the Farmer's Home Administration and the Rural
Development Administration with respect to certain water and waste
disposal loan and grant programs.
Service area means the area reasonably expected to be served by the
project.
Servicing office means the office designated by the State program
official to service water and waste disposal loans and grants.
Similar system cost means the average annual EDU user cost of a
system within a community having similar economic conditions and being
served by the same type of established system. Similar system cost
shall include all charges, taxes, and assessments attributable to the
system including debt service, reserves and operation and maintenance
costs.
State program official means the USDA official at the State level
who has been delegated the responsibility of administering the water
and waste disposal programs under this regulation for a particular
State or States.
Statewide nonmetropolitan median household income means the median
household income of all rural areas of a state.
(b) Rules of grammatical construction. Unless the context
otherwise indicates, ``includes'' and ``including'' are not limiting,
and ``or'' is not exclusive. The terms defined in paragraph (a) of this
section include the plural as well as the singular, and the singular as
well as the plural.
Sec. 1780.4 Availability of forms and regulations.
Information about the availability of forms, regulations, bulletins
and publications cited in this part is available from any USDA/Rural
Development office or the Rural Utilities Service, United States
Department of Agriculture, Washington, DC 20250-1500.
Sec. 1780.5 [Reserved]
Sec. 1780.6 Application information.
(a) The Rural Development State Director in each State will
determine the office and staff that will be responsible for delivery of
the program (processing office) and designate an approving
[[Page 48079]]
office. Applications will be accepted by the processing office.
(b) The applicant's governing body should designate one person to
act as contact person with the Agency during loan and grant processing.
Agency personnel should make every effort to involve the applicant's
contact person when meeting with the applicant's professional
consultants or agents.
Sec. 1780.7 Eligibility.
Facilities financed by water and waste disposal loans or grants
must serve rural areas.
(a) Eligible applicant. An applicant must be:
(1) A public body, such as a municipality, county, district,
authority, or other political subdivision of a State, territory or
commonwealth,
(2) An organization operated on a not-for-profit basis, such as an
association, cooperative, or private corporation. The organization must
be an association controlled by a local public body or bodies, or have
a broadly based ownership by or membership of people of the local
community, or
(3) Indian tribes on Federal and State reservations and other
Federally recognized Indian tribes.
(b) Eligible facilities. Facilities financed by RUS may be located
in non-rural areas. However, loan and grant funds may be used to
finance only that portion of the facility serving rural areas,
regardless of facility location.
(c) Eligible projects. (1) Projects must serve a rural area which,
if such project is completed, is not likely to decline in population
below that for which the project was designed.
(2) Projects must be designed and constructed so that adequate
capacity will or can be made available to serve the present population
of the area to the extent feasible and to serve the reasonably
foreseeable growth needs of the area to the extent practicable. Water
systems should have sufficient capacity to provide for reasonable fire
protection to the extent practicable.
(3) Projects must be necessary for orderly community development
and consistent with a current comprehensive community water, waste
disposal, or other current development plan for the rural area.
(d) Credit elsewhere. Applicants must certify in writing and the
Agency shall determine and document that the applicant is unable to
finance the proposed project from their own resources, through
commercial credit at reasonable rates and terms, or other funding
sources.
(e) Legal authority and responsibility. Each applicant must have or
will obtain the legal authority necessary for owning, constructing,
operating, and maintaining the proposed facility or service and for
obtaining, giving security for, and repaying the proposed loan. The
applicant shall be responsible for operating, maintaining, and managing
the facility, and providing for its continued availability and use at
reasonable rates and terms. This responsibility shall be exercised by
the applicant even though the facility may be operated, maintained, or
managed by a third party under contract or management agreement.
Guidance for preparing a management agreement is available from the
Agency. Such contracts, management agreements, or leases must not
contain options or other provisions for transfer of ownership.
(f) Economic feasibility. All projects financed under the
provisions of this section must be based on taxes, assessments, income,
fees, or other satisfactory sources of revenues in an amount sufficient
to provide for facility operation and maintenance, reasonable reserves,
and debt payment. If the primary use of the facility is by business and
the success or failure of the facility is dependent on the business,
then the economic viability of that business must be assessed.
(g) Federal Debt Collection Act of 1990. An outstanding judgment
obtained by the United States in a Federal Court (other than in the
United States Tax Court), which has been recorded, shall cause the
applicant to be ineligible to receive a loan or grant until the
judgment is paid in full or otherwise satisfied.
(h) Expanded eligibility for timber-dependent communities in
Pacific Northwest. In the Pacific Northwest, defined as an area
containing national forest covered by the Federal document entitled,
``Forest Plan for a sustainable Economy and a Sustainable
Environment,'' dated July 1, 1993, the population limits contained in
section 1780.3(a) of this part are expanded to include communities with
not more than 25,000 inhabitants until September 30, 1998, if:
(1) Part or all of the community lies within 100 miles of the
boundary of a national forest covered by the Federal document entitled,
``Forest Plan for a Sustainable Economy and a Sustainable
Environment,'' dated July 1, 1993; and
(2) The community is located in a county in which at least 15
percent of the total primary and secondary labor and proprietor income
is derived from forestry, wood products, or forest-related industries
such as recreation and tourism.
Sec. 1780.8 [Reserved]
Sec. 1780.9 Eligible loan and grant purposes.
Loan and grant funds may be used only for the following purposes:
(a) To construct, enlarge, extend, or otherwise improve rural
water, sanitary sewage, solid waste disposal, and storm wastewater
disposal facilities;
(b) To construct or relocate public buildings, roads, bridges,
fences, or utilities, and to make other public improvements necessary
for the successful operation or protection of facilities authorized in
paragraph (a) of this section;
(c) To relocate private buildings, roads, bridges, fences, or
utilities, and other private improvements necessary for the successful
operation or protection of facilities authorized in paragraph (a) of
this section;
(d) For payment of other utility connection charges as provided in
service contracts between utility systems; and
(e) When a necessary part of the project relates to those
facilities authorized in paragraphs (a), (b), (c) or (d) of this
section the following may be considered:
(1) Loan or grant funds may be used for:
(i) Reasonable fees and costs such as: legal, engineering,
administrative services, fiscal advisory, recording, environmental
analyses and surveys, possible salvage or other mitigation measures,
planning, establishing or acquiring rights;
(ii) Costs of acquiring interest in land; rights, such as water
rights, leases, permits, rights-of-way; and other evidence of land or
water control or protection necessary for development of the facility;
(iii) Purchasing or renting equipment necessary to install,
operate, maintain, extend, or protect facilities;
(iv) Cost of applicant labor necessary to install and extend
service; and
(v) In unusual cases, the cost for connecting the user to the main
service line.
(2) Only loan funds may be used for:
(i) Interest incurred during construction in conjunction with
multiple advances or interest on interim financing;
(ii) Initial operating expenses, including interest, for a period
ordinarily not exceeding one year when the applicant is unable to pay
such expenses;
(iii) The purchase of existing facilities when it is necessary
either to improve service or prevent the loss of service; and
[[Page 48080]]
(iv) Refinancing debts incurred by, or on behalf of, an applicant
when all of the following conditions exist:
(A) The debts being refinanced are a secondary part of the total
loan;
(B) The debts were incurred for the facility or service being
financed or any part thereof;
(C) Arrangements cannot be made with the creditors to extend or
modify the terms of the debts so that a sound basis will exist for
making a loan; and
(v) Prepayment of costs for which RUS grant funds were obligated.
(3) Grant funds may be used to restore loan funds used to prepay
grant obligated costs.
(f) Construction incurred before loan or grant approval.
(1) Funds may be used to pay obligations for construction incurred
before loan or grant approval if such requests are made in writing by
the applicant and the Agency determines that:
(i) Compelling reasons exist for incurring obligations before loan
or grant approval;
(ii) The obligations will be incurred for authorized loan or grant
purposes; and
(iii) The Agency's authorization to pay such obligations is on the
condition that it is not committed to make the loan or grant; it
assumes no responsibility for any obligations incurred by the
applicant; and the applicant must subsequently meet all loan or grant
approval requirements, including environmental and contracting
requirements.
(2) If construction is started without Agency approval, post-
approval in accordance with this section may be considered, provided
the construction meets applicable requirements including those
regarding approval and environmental matters.
(g) Water or sewer service may be provided through individual
installations or small clusters of users within an applicant's service
area. The approval official should consider items such as: Quantity and
quality of the individual installations that may be developed; cost
effectiveness of the individual facility compared with the initial and
long term user cost on a central system; health and pollution problems
attributable to individual facilities; operational or management
problems peculiar to individual installations; and permit and
regulatory agency requirements.
(1) Applicants providing service through individual facilities must
meet the eligibility requirements in Sec. 1780.7.
(2) The Agency must approve the form of agreement between the
applicant and individual users for the installation, operation,
maintenance and payment for individual facilities.
(3) If taxes or assessments are not pledged as security, applicants
providing service through individual facilities must obtain security
necessary to assure collection of any sum the individual user is
obligated to pay the applicant.
(4) Notes representing indebtedness owed the applicant by a user
for an individual facility will be scheduled for payment over a period
not to exceed the useful life of the individual facility or the RUS
loan, whichever is shorter. The interest rate will not exceed the
interest rate charged the applicant on the RUS indebtedness.
(5) Applicants providing service through individual or cluster
facilities must obtain:
(i) Easements for the installation and ingress to and egress from
the facility if determined necessary by RUS; and
(ii) An adequate method for denying service in the event of
nonpayment of user fees.
Sec. 1780.10 Limitations.
(a) Loan and grant funds may not be used to finance:
(1) Facilities which are not modest in size, design, and cost;
(2) Loan or grant finder's fees;
(3) The construction of any new combined storm and sanitary sewer
facilities;
(4) Any portion of the cost of a facility which does not serve a
rural area;
(5) That portion of project costs normally provided by a business
or industrial user, such as wastewater pretreatment, etc.;
(6) Rental for the use of equipment or machinery owned by the
applicant;
(7) For other purposes not directly related to operating and
maintenance of the facility being installed or improved; and
(8) A judgment which would disqualify an applicant for a loan or
grant as provided for in Sec. 1780.7(g) of this part.
(b) Grant funds may not be used to:
(1) Reduce EDU costs to a level less than similar system cost;
(2) Pay any costs of a project when the median household income of
the service area is and more than 100 percent of the nonmetropolitan
median household income of the State;
(3) Pay project costs when other loan funding for the project is
not at reasonable rates and terms; and
(4) Pay project costs when other funding is a guaranteed loan
obtained in accordance with subpart I of part 1980 of this chapter.
(c) Grants may not be made in excess of the following percentages
of the RUS funded project development costs. Facilities previously
installed will not be considered in determining the development costs.
(1) 75 percent when the median household income of the service area
is below the higher of the poverty line or 80% of the state
nonmetropolitan median income and the project is necessary to alleviate
a health or sanitary problem.
(2) 45 percent when the median household income of the service area
exceeds the 80 percent requirements described in paragraph (c)(1) of
this section but is not more than 100 percent of the statewide
nonmetropolitan median household income.
(3) Applicants are advised that the percentages contained in
paragraph (c)(1) and (c)(2) of this section are maximum amounts and may
be further limited due to availability of funds or the grant
determination procedures contained in Sec. 1780.35 (d) of this part.
Sec. 1780.11 Service area requirements.
(a) All facilities financed under the provisions of this part shall
be for public use. The facilities will be installed so as to serve any
potential user within the service area who desires service and can be
feasibly and legally served. This does not preclude:
(1) Financing or constructing projects in phases when it is not
practical to finance or construct the entire project at one time; and
(2) Financing or constructing facilities where it is not
economically feasible to serve the entire area, provided economic
feasibility is determined on the basis of the entire system and not by
considering the cost of separate extensions to or parts thereof; the
applicant publicly announces a plan for extending service to areas not
initially receiving service from the system; and potential users
located in the areas not to be initially served receive written notice
from the applicant that service will not be provided until such time as
it is economically feasible to do so.
(b) Should the Agency determine that inequities exist within the
applicants service area for the same type service proposed (i.e., water
or waste disposal) such inequities will be remedied by the applicant
prior to loan or grant approval or included as part of the project.
Inequities are defined as unjustified variations in availability,
adequacy or quality of service. User rate schedules for portions of
existing systems that were developed under different financing, rates,
terms or conditions do not necessarily constitute inequities.
[[Page 48081]]
(c) Developers are normally expected to provide utility-type
facilities in new or developing areas in compliance with appropriate
State statutes. RUS financing will be considered to an eligible
applicant only in such cases when failure to complete development would
result in an adverse economic condition for the rural area (not the
community being developed); the proposal is necessary to the success of
a current area development plan; and loan repayment can be assured by:
(1) The applicant already having sufficient assured revenues to
repay the loan; or
(2) Developers providing a bond or escrowed security deposit as a
guarantee sufficient to meet expenses attributable to the area in
question until a sufficient number of the building sites are occupied
and connected to the facility to provide enough revenues to meet
operating, maintenance, debt service, and reserve requirements. Such
guarantees from developers will meet the requirements in
Sec. 1780.39(c)(4)(ii); or
(3) Developers paying cash for the increased capital cost and any
increased operating expenses until the developing area will support the
increased costs; or
(4) The full faith and credit of a public body where the debt is
evidenced by general obligation bonds; or
(5) The loan is to a public body evidenced by a pledge of tax
revenue or assessments; or
(6) The user charges can become a lien upon the property being
served and income from such lien can be collected in sufficient time to
be used for its intended purposes.
Sec. 1780.12 [Reserved]
Sec. 1780.13 Rates and terms.
(a) General. (1) Each loan will bear interest at the rate
prescribed in FmHA Instruction 440.1, exhibit B. The interest rates
will be set by the Agency for each quarter of the fiscal year. All
rates will be adjusted to the nearest one-eighth of one per centum. The
rate will be the lower of the rate in effect at the time of loan
approval or the rate in effect at the time of loan closing unless the
applicant otherwise chooses.
(2) If the interest rate is to be that in effect at loan closing on
a loan involving multiple advances of RUS funds using temporary debt
instruments, the interest rate charged shall be that in effect on the
date when the first temporary debt instrument is issued.
(b) Poverty rate. The poverty interest rate will not exceed 5 per
centum per annum. All poverty rate loans must comply with the following
conditions:
(1) The primary purpose of the loan is to upgrade existing
facilities or construct new facilities required to meet applicable
health or sanitary standards; and
(2) The median household income of the service area is below the
higher of the poverty line, or 80 percent of the Statewide
nonmetropolitan median household income.
(c) Intermediate rate. The intermediate interest rate will be set
at the poverty rate plus one-half of the difference between the poverty
rate and the market rate, not to exceed 7 percent per annum. It will
apply to loans that do not meet the requirements for the poverty rate
and for which the median household income of the service area is not
more than 100 percent of the nonmetropolitan median household income of
the State.
(d) Market rate. The market interest rate will be set using as
guidance the average of the Bond Buyer Index for the four weeks prior
to the first Friday of the last month before the beginning of the
quarter. The market rate will apply to all loans that do not qualify
for a different rate under paragraph (b) or (c) of this section.
(e) Repayment terms. The loan repayment period shall not exceed the
useful life of the facility, State statute or 40 years from the date of
the note or bond, whichever is less. Where RUS grant funds are used in
connection with an RUS loan, the loan will be for the maximum term
permitted by this part, State statute, or the useful life of the
facility, whichever is less, unless there is an exceptional case where
circumstances justify making an RUS loan for less than the maximum term
permitted. In such cases, the reasons must be fully documented.
(1) Principal payments may be deferred in whole or in part for a
period not to exceed 36 months following the date the first interest
installment is due. If for any reason it appears necessary to permit a
longer period of deferment, the Agency may authorize such deferment.
Deferments of principal will not be used to:
(i) Postpone the levying of taxes or assessments;
(ii) Delay collection of the full rates which the borrower has
agreed to charge users for its services as soon as those services
become available;
(iii) Create reserves for normal operation and maintenance;
(iv) Make any capital improvements except those approved by the
Agency which are determined to be essential to the repayment of the
loan or to maintain adequate security; and
(v) Make payment on other debt.
(2) Payment date. Loan payments will be scheduled to coincide with
income availability and be in accordance with State law. If State law
only permits principal plus interest (P&I) type bonds, annual or
semiannual payments will be used. Insofar as practical monthly payments
will be scheduled one full month following the date of loan closing; or
semiannual or annual payments will be scheduled six or twelve full
months, respectively, following the date of loan closing or any
deferment period. Due dates falling on the 29th, 30th or 31st day of
the month will be avoided.
(3) In all cases, including those in which RUS is jointly financing
with another lender, the RUS payments of principal and interest should
approximate amortized installments.
Sec. 1780.14 Security.
Loans will be secured by the best security position practicable in
a manner which will adequately protect the interest of RUS during the
repayment period of the loan. Specific security requirements for each
loan will be included in a letter of conditions.
(a) Public bodies. Loans to such borrowers, including Federally
recognized Indian tribes as appropriate, will be evidenced by notes,
bonds, warrants, or other contractual obligations as may be authorized
by relevant laws and by borrower's documents, resolutions, and
ordinances. Security, in the following order of preference, will
consist of:
(1) The full faith and credit of the borrower when the debt is
evidenced by general obligation bonds; and/or
(2) Pledges of taxes or assessments; and/or
(3) Pledges of facility revenue and, when it is the customary
financial practice in the State, liens will be taken on the interest of
the applicant in all land, easements, rights-of-way, water rights,
water purchase contracts, water sales contracts, sewage treatment
contracts, and similar property rights, including leasehold interests,
used or to be used in connection with the facility whether owned at the
time the loan is approved or acquired with loan funds.
(b) Other-than-public bodies. Loans to other-than-public body
applicants and Federally recognized Indian tribes, as appropriate, will
be secured in the following order of preference:
(1) Assignments of borrower income will be taken and perfected by
filing, if legally permissible; and
(2) A lien will be taken on the interest of the applicant in all
land, easements, rights-of-way, water rights, water purchase contracts,
water sales
[[Page 48082]]
contracts, sewage treatment contracts and similar property rights,
including leasehold interest, used, or to be used in connection with
the facility whether owned at the time the loan is approved or acquired
with loan funds. In unusual circumstances where it is not legally
permissible or feasible to obtain a lien on such land (such as land
rights obtained from Federal or local government agencies, and from
railroads) and the approval official determines that the interest of
RUS is otherwise adequately secured, the lien requirement may be
omitted as to such land rights. For existing borrowers where the Agency
already has a security position on real property, the approval official
may determine that the interest of the Government is adequately secured
and not require additional liens on such land rights. When the
subsequent loan is approved or the acquisition of real property is
subject to an outstanding lien indebtedness, the next highest priority
lien obtainable will be taken if the approval official determines that
the loan is adequately secured.
(c) Joint financing security. For projects utilizing joint
financing, when adequate security of more than one type is available,
the other lender may take one type of security with RUS taking another
type. For projects utilizing joint financing with the same security to
be shared by RUS and another lender, RUS will obtain at least a parity
position with the other lender. A parity position is to ensure that
with joint security, in the event of default, each lender will be
affected on a proportionate basis. A parity position will conform with
the following unless an exception is granted by the approval official:
(1) It is not necessary for loans to have the same repayment terms.
Loans made by other lenders involved in joint financing with RUS should
be scheduled for repayment on terms similar to those customarily used
in the State for financing such facilities.
(2) The use of a trustee or other similar paying agent by the other
lender in a joint financing arrangement is acceptable to RUS. A trustee
or other similar paying agent will not normally be used for the RUS
portion of the funding unless required to comply with State law. The
responsibilities and authorities of any trustee or other similar paying
agent on projects that include RUS funds must be clearly specified by
written agreement and approved by the State program official and the
Office of the General Counsel (OGC). RUS must be able to deal directly
with the borrower to enforce the provisions of loan and grant
agreements and perform necessary servicing actions.
(3) In the event adequate funds are not available to meet regular
installments on parity loans, the funds available will be apportioned
to the lenders based on the respective current installments of
principal and interest due.
(4) Funds obtained from the sale or liquidation of secured property
or fixed assets will be apportioned to the lenders on the basis of the
pro rata amount outstanding; provided, however, funds obtained from
such sale or liquidation for a project that included RUS grant funds
will be apportioned as required by the grant agreement.
(5) Protective advances must be charged to the borrower's account
and be secured by a lien on the security property. To the extent
consistent with State law and customary lending practices in the area,
repayment of protective advances made by either lender, for the mutual
protection of both lenders, should receive first priority in
apportionment of funds between the lenders. To ensure agreement between
lenders, efforts should be made to obtain the concurrence of both
lenders before one lender makes a protective advance.
Sec. 1780.15 Other Federal, State, and local requirements.
Proposals for facilities financed in whole or in part with RUS
funds will be coordinated with appropriate Federal, State and local
agencies. If there are conflicts between this part and State or local
laws or regulatory commission regulations, the provisions of this part
will control. Applicants will be required to comply with Federal,
State, and local laws and any regulatory commission rules and
regulations pertaining to:
(a) Organization of the applicant and its authority to own,
construct, operate, and maintain the proposed facilities;
(b) Borrowing money, giving security therefore, and raising
revenues for the repayment thereof;
(c) Land use zoning; and
(d) Health and sanitation standards and design and installation
standards unless an exception is granted by RUS.
Sec. 1780.16 [Reserved]
Sec. 1780.17 Selection priorities and process.
When ranking eligible applications for consideration for limited
funds, Agency officials must consider the priority items met by each
application and the degree to which those priorities are met. Points
will be awarded as follows:
(a) Population priorities. (1) The proposed project will primarily
serve a rural area having a population not in excess of 1,000--20
points;
(2) The proposed project primarily serves a rural area having a
population between 1,001 and 2,500--15 points;
(3) The proposed project primarily serves a rural area having a
population between 2,501 and 5,500--5 points.
(b) Health priorities. The proposed project is:
(1) Needed to alleviate an emergency situation, correct
unanticipated diminution or deterioration of a water supply, or to meet
Safe Drinking Water Act requirements which pertain to a water system--
25 points;
(2) Required to correct inadequacies of a wastewater disposal
system, or to meet health standards which pertain to a wastewater
disposal system--25 points;
(3) Required to meet administrative orders issued to correct local,
State, or Federal solid waste violations--15 points.
(c) Income priorities. The median household income of the
population to be served by the proposed project is:
(1) Less than the poverty line if the poverty line is less than 80%
of the statewide nonmetropolitan median income--30 points;
(2) Less than 80 percent of the statewide nonmetropolitan median
household income--20 points;
(3) Equal to or more than the poverty line and between 80% and
100%, inclusive, of the State's nonmetropolitan median household
income--15 points.
(d) Other priorities. (1) The proposed project will: merge
ownership, management, and operation of smaller facilities providing
for more efficient management and economical service--15 points;
(2) The proposed project will enlarge, extend, or otherwise modify
existing facilities to provide service to additional rural areas--10
points;
(3) Applicant is a public body or Indian tribe--5 points;
(4) Amount of other than RUS funds committed to the project is:
(i) 50% or more--15 points;
(ii) 20% to 49%--10 points;
(iii) 5%--19% --5 points.
(5) Projects that will serve Agency identified target areas--10
points;
(6) Projects that primarily recycle solid waste products thereby
limiting the need for solid waste disposal--5 points;
(7) The proposed project will serve an area that has an unreliable
quality or supply of drinking water--10 points.
(e) In certain cases the State program official may assign up to 15
points to a project. The points may be awarded to projects in order to
improve compatibility and coordination between RUS's and other
agencies' selection
[[Page 48083]]
systems, to ensure effective RUS fund utilization, and to assist those
projects that are the most cost effective. A written justification must
be prepared and placed in the project file each time these points are
assigned.
(f) Cost overruns. An application may receive consideration for
funding before others at the State or National Office level when it is
a subsequent request for a previously approved project which has
encountered construction cost overruns. The cost overruns must be due
to high bids or unexpected construction problems that cannot be reduced
by negotiations, redesign, use of bid alternatives, rebidding or other
means. Cost overruns exceeding 20% of the development cost at time of
loan or grant approval or where the scope of the original purpose has
changed will not be considered under this paragraph.
(g) National office priorities. In selecting projects for funding
at the National Office level State program official points may or may
not be considered. The Administrator may assign up to 15 additional
points to account for items such as geographic distribution of funds,
the highest priority projects within a State, and emergency conditions
caused by economic problems or natural disasters. The Administrator may
delegate the authority to assign up to 15 of the administrator's points
to appropriate National Office staff.
Sec. 1780.18 Public information.
(a) Public notice of intent to file an application with the Agency.
Within 60 days of filing an application with the Agency the applicant
must publish a notice of intent to apply for a RUS loan or grant. The
notice of intent must be published in a newspaper of general
circulation in the proposed area to be served.
(b) General public meeting. Applicants should inform the general
public regarding the development of any proposed project. Any applicant
not required to obtain authorization by vote of its membership or by
public referendum, to incur the obligations of the proposed loan or
grant, must hold at least one public information meeting. The public
meeting must be held after the application is filed and not later than
loan or grant approval. The meeting must give the citizenry an
opportunity to become acquainted with the proposed project and to
comment on such items as economic and environmental impacts, service
area, alternatives to the project, or any other issue identified by the
Agency. To the extent possible, this meeting should cover items
necessary to satisfy all public information meeting requirements for
the proposed project. To minimize duplication of public notices and
public involvement, the applicant shall, where possible, coordinate and
integrate the public involvement activities of the environmental review
process into this requirement. The applicant will be required, at least
10 days prior to the meeting, to publish a notice of the meeting in a
newspaper of general circulation in the service area, to post a public
notice at the applicant's principal office, and to notify the Agency.
The applicant will provide the Agency a copy of the published notice
and minutes of the public meeting. A public meeting is not normally
required for subsequent loans or grants which are needed to complete
the financing of a project.
Secs. 1780.19-1780.23 [Reserved]
Sec. 1780.24 Approval authorities.
Appropriate reviews, concurrence, and authorization must be
obtained for all loans or grants in excess of the amounts indicated in
RUS Staff Instruction 1780-1.
(a) Redelegation of authority by State Directors. Unless restricted
by memorandum from the RUS Administrator, State Directors can
redelegate their approval authorities to State employees by memorandum.
(b) Restriction of approval authority by the RUS Administrator. The
RUS Administrator can make written restrictions or revocations of the
authority given to any approval official.
Sec. 1780.25 Exception Authority.
The Administrator may, in individual cases, make an exception to
any requirement or provision of this part which is not inconsistent
with the authorizing statute or other applicable law and is determined
to be in the Government's interest.
Secs. 1780.26-1780.30 [Reserved]
Subpart B--Loan and Grant Application Processing
Sec. 1780.31 General.
(a) Applicants are encouraged to contact the Agency processing
office early in the planning stages of their project. Agency personnel
are available to provide general advice and assistance regarding RUS
programs, other funding sources, and types of systems or improvements
appropriate for the applicant's needs. The Agency can also provide
access to technical engineering and environmental assistance and
information resources for other project development issues such as
public information, income surveys, developing rate schedules, system
operation and maintenance, and environmental compliance requirements.
Throughout the planning, application processing and construction of the
project, Agency personnel will work closely and cooperatively with the
applicant and their representatives, other State and Federal agencies
and technical assistance providers.
(b) The processing office will handle initial inquiries and provide
basic information about the program. They are to provide the
application, SF 424.2, ``Application for Federal Assistance (For
Construction),'' assist applicants as needed in completing SF 424.2,
and in filing a request for intergovernmental review. Federally
recognized Indian tribes are exempt from intergovernmental review. The
processing office will explain eligibility requirements and meet with
the applicant whenever necessary to discuss application processing.
(c) Applications that are not developed in a reasonable period of
time taking into account the size and complexity of the proposed
project may be removed from the State's active file. Applicants will be
consulted prior to taking such action.
(d) Starting with the earliest discussions with prospective
applicants or review of applications and continuing throughout
application processing, environmental issues must be considered.
Throughout the application process the State Environmental Coordinator
will discuss with the applicant and their engineer, environmental
review requirements for evaluating a project's potential for
environment impacts. This should provide flexibility to consider
alternatives to the project and develop methods to mitigate identified
adverse environmental impacts. The environmental review requirements
shall be performed simultaneously and concurrently with the project's
engineering design and mitigation measures integrated into the design
to minimize any adverse environmental impacts.
Sec. 1780.32 Timeframes for application processing.
(a) The processing office will determine if the application is
properly assembled. If not, the applicant will be notified within
fifteen days as to what additional submittal items are needed.
(b) The processing and approval offices will coordinate their
reviews to ensure that the applicant is advised about eligibility and
anticipated fund
[[Page 48084]]
availability within 45 days of the receipt of a completed application.
Sec. 1780.33 Application requirements.
An initial application consists of the following:
(a) One copy of a completed SF 424.2;
(b) A copy of the State intergovernmental comments or one copy of
the filed application for State intergovernmental review; and
(c) Two copies of the preliminary engineering report (PER) for the
project. The PER should be completed in accordance with RUS Bulletins
1780-2 through 1780-5.
(1) The PER may be submitted to the processing office prior to the
rest of the application material if the applicant desires a preliminary
review.
(2) The processing office will forward one copy of the PER with
comments and recommendations to the State staff engineer for review
upon receipt from the applicant.
(3) The State staff will consult with the applicant's engineer as
appropriate to resolve any questions concerning the PER and any
environmental concerns. Written comments will be provided by the State
staff engineer and State Environmental Coordinator to the processing
office to meet eligibility determination time lines.
(d) Written certification that other credit is not available.
(e) Supporting documentation necessary to make an eligibility
determination such as financial statements, audits, organizational
documents, or existing debt instruments. The processing office will
advise applicants regarding the required documents. Applicants that are
indebted to RUS will not need to submit documents already on file with
the processing office.
(f) Form FmHA 1940-20, ``Request for Environmental Information.''
The applicant should consult with the processing office to determine
what information should be included with this form.
(g) The applicants Internal Revenue Service Taxpayer Identification
Number (TIN). The TIN will be used by the Agency to assign a case
number which will be the applicant's or transferee's TIN preceded by
State and County Code numbers. Only one case number will be assigned to
each applicant regardless of the number of loans or grants or number of
separate facilities, unless an exception is authorized by the National
Office.
(h) Other Forms and certifications. Applicants will be required to
submit the following items to the processing office, upon notification
from the processing office to proceed with further development of the
full application:
(1) Form FmHA 442-7, ``Operating Budget'';
(2) Form FmHA 1910-11, ``Application Certification, Federal
Collection Policies for Consumer or Commercial Debts'';
(3) Form FmHA 400-1, ``Equal Opportunity Agreement'';
(4) Form FmHA 400-4, ``Assurance Agreement'';
(5) Form AD-1047, ``Certification Regarding Drug-Free Workplace
requirements (Grants) Alternative I for Grantees Other Than
Individuals';
(6) Form AD-1049, Certification regarding Drug-Free Workplace
Requirements (Grants) Alternative I For Grantees Other Than
Individuals;
(7) Certifications for Contracts, Grants, and Loans (Regarding
Lobbying); and
(8) Certification regarding prohibited tying arrangements.
Applicants that provide electric service must provide the Agency a
certification that they will not require users of a water or waste
facility financed under these regulations to accept electric service as
a condition of receiving assistance.
Sec. 1780.34 [Reserved]
Sec. 1780.35 Processing office review.
Review of the application will usually include the following:
(a) Nondiscrimination. Boundaries for the proposed service area
must not be chosen in such a way that any user or area will be excluded
because of race, color, religion, sex, marital status, age, handicap,
or national origin. This does not preclude construction of the project
in phases as noted in Sec. 1780.11 as long as it is not done in a
discriminatory manner.
(b) Grant determination. Grants will be determined by the
processing office in accordance with the following provisions and will
not result in EDU costs below similar system user cost.
(1) Maximum grant. Grants may not exceed the percentages in
Sec. 1780.10(c) of this part of the eligible RUS funded project
development costs listed in Sec. 1780.9 of this part.
(2) Debt service. Applicants will be considered for grant
assistance when the debt service portion of the average annual EDU
cost, for users in the applicant's service area, exceeds the following
percentages of median household income:
(i) 0.5 percent when the median household income of the service
area is equal to or below 80% of the statewide nonmetropolitan median
income.
(ii) 1.0 percent when the median household income of the service
area exceeds the 0.5 percent requirement but is not more than 100
percent the statewide nonmetropolitan household income.
(3) Similar system cost. If the grant determined in paragraph
(b)(2) of this section results in an annual EDU cost that is not
comparable with similar systems, the Agency will determine a grant
amount based on achieving EDU costs that are not below similar system
user costs.
(4) Wholesale service. When an applicant provides wholesale sales
or services on a contract basis to another system or entity, similar
wholesale system cost will be used in determining the amount of grant
needed to achieve a reasonable wholesale user cost.
(5) Subsidized cost. When annual cost to the applicant for delivery
of service is subsidized by either the State, commonwealth, or
territory, and uniform flat user charges regardless of usage are
imposed for similar classes of service throughout the service area, the
Agency may proceed with a grant in an amount necessary to reduce such
delivery cost to a reasonable level.
(c) User charges. The user charges should be reasonable and produce
enough revenue to provide for all costs of the facility after the
project is complete. The planned revenue should be sufficient to
provide for all debt service, debt reserve, operation and maintenance,
and if appropriate, additional revenue for facility replacement of
short lived assets without building a substantial surplus. Ordinarily,
the total debt reserve will be equal to one average annual loan
installment which will accumulate at the rate of one-tenth of the total
each year.
Sec. 1780.36 Approving official review.
Projects may be obligated as their applications are completed and
approved.
(a) Selection of applications for further processing. The
application and supporting information submitted will be used to
determine the applications selected for further development and
funding. After completing the review, the approval official will
normally select those eligible applications with the highest priority
scores for further processing. When authorizing the development of an
application for funding, the following will be considered:
(1) Funds available in State allocation;
(2) Anticipated allocation of funds for the next fiscal year; and
(3) Time necessary for applicant to complete the application.
[[Page 48085]]
(b) Lower scoring projects. (1) In cases where preliminary cost
estimates indicate that an eligible, high scoring application is
unfeasible or would require an amount of funding from RUS that exceeds
either 25 percent of a State's current annual allocation or an amount
greater than that remaining in the State's allocation, the approval
official may instead select the next lower scoring application for
further processing provided the high scoring applicant is notified of
this action and given an opportunity to revise the proposal and
resubmit it.
(2) If it is found that there is no effective way to reduce costs,
the approval official, after consultation with applicant, may submit a
request for an additional allocation of funds for the proposed project
to the National Office. The request should be submitted during the
fiscal year in which obligation is anticipated. Such request will be
considered along with all others on hand. A written justification must
be prepared and placed in the project file.
Sec. 1780.37 Applications determined ineligible.
If at any time an application is determined ineligible, the
processing office will notify the applicant in writing of the reasons.
The notification to the applicant will state that an appeal of this
decision may be made by the applicant under 7 CFR part 11.
Sec. 1780.38 [Reserved]
Sec. 1780.39 Application processing.
(a) Processing conference. Before starting to assemble the full
application and after the applicant selects its professional and
technical representatives, it should arrange with the processing office
for an application conference to provide a basis for orderly
application assembly. The processing office will explain program
requirements, public information requirements and provide guidance on
preparation of items necessary for approval.
(b) Professional services and contracts related to the facility.
Fees provided for in contracts or agreements shall be reasonable. The
Agency shall consider fees to be reasonable if they are not in excess
of those ordinarily charged by the profession as a whole for similar
work when RUS financing is not involved. Applicants will be responsible
for providing the services necessary to plan projects including design
of facilities, preparation of cost and income estimates, development of
proposals for organization and financing, and overall operation and
maintenance of the facility. Contracts or other forms of agreement
between the applicant and its professional and technical
representatives are required and are subject to RUS concurrence.
(1) Engineering services. Applicants selection of engineering
services for project design shall be done by publishing a request for
proposal in a newspaper of general circulation. Guidance on entering
into an agreement for engineering services is available from the
Agency.
(2) Other professional services. Professional services of the
following may be necessary: Attorney, bond counsel, accountant,
auditor, appraiser, environmental professionals, and financial advisory
or fiscal agent (if desired by applicant). Guidance on entering into an
agreement for legal services is available from the Agency.
(3) Bond counsel. Unless otherwise provided by subpart D of this
part, public bodies are required to obtain the service of recognized
bond counsel in the preparation of evidence of indebtedness.
(3) Contracts for other services. Contracts or other forms of
agreements for other services including management, operation, and
maintenance will be developed by the applicant and presented to the
Agency for review and concurrence. Guidance on entering into an
management agreement is available from the Agency.
(c) User estimates. Applicants dependent on users fees for debt
payment or operation and maintenance expenses shall base their income
and expense forecast on realistic user estimates. For users presently
not receiving service, consideration must be given to the following:
(1) An estimated number of maximum users should not be used when
setting user fees and rates since it may be several years before all
residents will need service by the system. In establishing rates a
realistic number of users should be employed.
(2) Meaningful user cash contributions. The amount of cash
contributions required will be set by the applicant and concurred in by
the approval official. Contributions should be an amount high enough to
indicate sincere interest on the part of the potential user, but not so
high as to preclude service to low income families. Contributions
ordinarily should be an amount approximating one year's minimum user
fee, and shall be paid in full before loan closing or commencement of
construction, whichever occurs first. Once economic feasibility is
ascertained based on a demonstration of meaningful potential user cash
contributions, the contribution, membership fee or other fees that may
be imposed are not a loan requirement under this section. A meaningful
user cash contribution is not required when:
(i) The Agency determines that the potential users as a whole in
the applicant's service area cannot make cash contributions, or
(ii) State statutes or local ordinances require mandatory use of
the system and the applicant or legal entity having such authority
agrees in writing to enforce such statutes, or ordinances.
(3) An enforceable user agreement with a penalty clause is required
(RUS Bulletin 1780-9 can be used) except:
(i) For users presently receiving service; or
(ii) Where mandatory use of the system is required.
(4) Individual vacant property owners will not be considered when
determining project feasibility unless:
(i) The owner has plans to develop the property in a reasonable
period of time and become a user of the facility; and
(ii) The owner agrees in writing to make a monthly payment at least
equal to the proportionate share of debt service attributable to the
vacant property until the property is developed and the facility is
utilized on a regular basis. A bond or escrowed security deposit must
be provided to guarantee this monthly payment and to guarantee an
amount at least equal to the owner's proportionate share of
construction costs. If a bond is provided, it must be executed by a
surety company that appears on the Treasury Department's most current
list (Circular 570, as amended) and be authorized to transact business
in the State where the project is located. The guarantee shall be
payable jointly to the borrower and the United States of America.
(5) Applicants must provide a positive program to encourage
connection by all users as soon as service is available. The program
will be available for review and concurrence by the processing office
before loan closing or commencement of construction, whichever occurs
first. Such a program shall include:
(i) An aggressive information program to be carried out during the
construction period. The applicant should send written notification to
all signed users in advance of the date service will be available,
stating the date users will be expected to have their connections
completed, and the date user charges will begin;
(ii) Positive steps to assure that installation services will be
available. These may be provided by the contractor installing the
system, local
[[Page 48086]]
plumbing companies, or local contractors;
(iii) Aggressive action to see that all signed users can finance
their connections.
(d) Interim financing. For all loans exceeding $500,000, where
funds can be borrowed at reasonable interest rates on an interim basis
from commercial sources for the construction period, such interim
financing may be obtained so as to preclude the necessity for multiple
advances of RUS loan funds. However, the approval official may make an
exception when interim financing is cost prohibitive or unavailable.
Guidance on informing the private lender of RUS's commitment is
available from the Agency. When interim commercial financing is used,
the application will be processed, including obtaining construction
bids, to the stage where the RUS loan would normally be closed, that is
immediately prior to the start of construction. The RUS loan should be
closed as soon as possible after the disbursal of all interim funds.
(e) Reserve requirements. Provision for the accumulation of
necessary reserves over a reasonable period of time will be included in
the loan documents.
(1) General obligation or special assessment bonds. Ordinarily, the
requirements for reserves will be considered to have been met if
general obligation or other bonds which pledge the full faith and
credit of the political subdivision are used, or special assessment
bonds are used, and if such bonds provide for the annual collection of
sufficient taxes or assessments to cover debt service.
(2) Other than general obligation or special assessment bonds. Each
borrower will be required to establish and maintain reserves sufficient
to assure that loan installments will be paid on time, for emergency
maintenance, for extensions to facilities, and for replacement of
short-lived assets which have a useful life significantly less than the
repayment period of the loan. Borrowers issuing bonds or other
evidences of debt pledging facility revenues as security will plan
their reserve to provide for a annual reserve equal to one-tenth of an
average annual loan installment each year for the life of the loan
unless prohibited by state law.
(f) Membership authorization. For organizations other than public
bodies, the membership will authorize the project and its financing.
Form FmHA 1942-8, ``Resolution of Members or Stockholders'' may be used
for this authorization. The approval official may, with the concurrence
of OGC, accept the loan resolution without such membership
authorization when State statutes and the organization's charter and
bylaws do not require such authorization; and
(1) The organization is well established and is operating with a
sound financial base; or
(2) The members of the organization have all signed an enforceable
user agreement with a penalty clause and have made the required
meaningful user cash contribution.
(g) Insurance. The purpose of RUS's insurance requirements is to
protect the government's financial interest based on the facility
financed with loan funds. It is the responsibility of the applicant and
not that of RUS to assure that adequate insurance and fidelity or
employee dishonesty bond coverage is maintained. The requirements below
apply to all types of coverage determined necessary. The approval
official may grant exceptions to normal requirements when appropriate
justification is provided establishing that it is in the best interest
of the applicant and will not adversely affect the government's
interest.
(1) Insurance requirements proposed by the applicant will be
accepted if the processing office determines that proposed coverage is
adequate to protect the government's financial interest. Applicants are
encouraged to have their attorney, consulting engineer, and/or
insurance provider(s) review proposed types and amounts of coverage,
including any deductible provisions.
(2) The use of deductibles may be allowed by RUS providing the
applicant has financial resources which would likely be adequate to
cover potential claims requiring payment of the deductible.
(3) Fidelity or employee dishonesty bonds. Applicants will provide
coverage for all persons who have access to funds, including persons
working under a contract or management agreement. Coverage may be
provided either for all individual positions or persons, or through
``blanket'' coverage providing protection for all appropriate
employees. An exception may be granted by the approval official when
funds relating to the facility financed are handled by another entity
and it is determined that the entity has adequate coverage or the
government's interest would otherwise be adequately protected. The
amount of coverage required by RUS will normally approximate the total
annual debt service requirements for the RUS loans.
(4) Property insurance. Fire and extended coverage will normally be
maintained on all structures except as noted below. Ordinarily, RUS
should be listed as mortgagee on the policy when RUS has a lien on the
property. Normally, major items of equipment or machinery located in
the insured structures must also be covered. Exceptions:
(i) Reservoirs, pipelines and other structures if such structures
are not normally insured;
(ii) Subsurface lift stations except for the value of electrical
and pumping equipment therein.
(5) General liability insurance, including vehicular coverage.
(6) Flood insurance required for facilities located in special
flood- and mudslide-prone areas.
(7) Worker's compensation. The borrower will carry worker's
compensation insurance for employees in accordance with State laws.
(h) The processing office will conduct appropriate environmental
reviews in accordance with RUS requirements.
(i) The processing office will assure that appropriate forms and
documents listed in RUS Bulletin 1780-6 are complete. Letters of
conditions will not be issued unless funds are available.
Sec. 1780.40 [Reserved]
Sec. 1780.41 Loan or grant approval.
(a) The processing office will submit the following to the approval
official:
(1) Form FmHA 1942-45, ``Project Summary'';
(2) Form FmHA 442-7, ``Operating Budget'';
(3) Form 442-3, ``Balance Sheet'' or a financial statement or audit
that includes a balance sheet;
(4) Form FmHA 442-14, ``Association Project Fund Analysis'';
(5) Letter of Conditions'';
(6) Form FmHA 1942-46, ``Letter of Intent to Meet Conditions'';
(7) Form FmHA 1940-1, ``Request for Obligation of Funds'';
(8) Completed environmental review documents including copies of
required publication evidence; and
(9) Grant determination, if applicable.
(b) Approval and applicant notification will be accomplished by
mailing to the applicant on the obligation date a copy of Form FmHA
1940-1. The date the applicant is notified is also the date the
interest rate at loan approval is established.
Sec. 1780.42 Transfer of obligations.
An obligation of funds established for an applicant may be
transferred to a different (substituted) applicant provided:
(a) The substituted applicant is eligible and has the authority to
receive
[[Page 48087]]
the assistance approved for the original applicant; and
(b) The need, purpose(s) and scope of the project for which RUS
funds will be used remain substantially unchanged.
Sec. 1780.43 [Reserved]
Sec. 1780.44 Actions prior to loan or grant closing or start of
construction, whichever occurs first.
(a) Applicants must provide evidence of adequate insurance and
fidelity or employee dishonesty bond coverage.
(b) Verification of users and other funds. In connection with a
project that involves new users and will be secured by a pledge of user
fees or revenues, the processing office will authenticate the number of
users. Ordinarily each signed user agreement will be reviewed and
checked for evidence of cash contributions. If during the review any
indication is received that all signed users may not connect to the
system, there will be such additional investigation made as deemed
necessary to determine the number of users who will connect to the
system.
(c) Initial compliance review. An initial compliance review should
be completed under subpart E of part 1901 of this chapter.
(d) Applicant contribution. An applicant contributing funds toward
the project cost shall deposit these funds in its project account
before start of construction. Project costs paid with applicant funds
prior to the required deposit time shall be appropriately accounted
for.
(e) Excess RUS loan and grant funds. If there is a significant
reduction in project cost, the applicant's funding needs will be
reassessed. Decreases in RUS funds will be based on revised project
costs and current number of users, however, other factors including RUS
regulations used at the time of loan or grant approval will remain the
same. Obligated loan or grant funds not needed to complete the proposed
project will be deobligated. Any reduction will be applied to grant
funds first. In such cases, applicable forms, the letter of conditions,
and other items will be revised.
(f) Evidence of and disbursement of other funds. Applicants
expecting funds from other sources for use in completing projects being
partially financed with RUS funds will present evidence of the
commitment of these funds from such other sources. An agreement should
be reached with all funding sources on how funds are to be disbursed
before the start of construction. RUS funds will not be used to pre-
finance funds committed to the project from other sources.
(g) Acquisition of land, easements, water rights, and existing
facilities. Applicants are responsible for acquisition of all property
rights necessary for the project and will determine that prices paid
are reasonable and fair. RUS may require an appraisal by an independent
appraiser or Agency employee.
(1) Rights-of-way and easements. Applicants will obtain valid,
continuous and adequate rights-of-way and easements needed for the
construction, operation, and maintenance of the facility.
(i) The applicant must provide a legal opinion relative to the
title to rights-of-way and easements. Form FmHA 442-22, ``Opinion of
Counsel Relative to Rights-of-Way,'' may be used. When a site is for
major structures such as a reservoir or pumping station and the
applicant is able to obtain only a right-of-way or easement on such a
site rather than a fee simple title, the applicant will furnish a title
report thereon by the applicant's attorney showing ownership of the
land and all mortgages or other lien defects, restrictions, or
encumbrances, if any.
(ii) For user connections funded by RUS, applicants will obtain
adequate rights to construct and maintain the connection line or other
facilities located on the users property. This right may be obtained
through formal easement or user agreements.
(2) Title for land or existing facilities. Title to land essential
to the successful operation of facilities or title to facilities being
purchased, must not contain any restrictions that will adversely affect
the suitability, successful operation, security value, or
transferability of the facility. Preliminary and final title opinions
must be provided by the applicant's attorney. The opinions must be in
sufficient detail to assess marketability of the property. Form FmHA
1927-9, ``Preliminary Title Opinion,'' and Form FmHA 1927-10, ``Final
Title Opinion,'' may be used to provide the required title opinions.
(i) In lieu of receiving title opinions from the applicant's
attorney, the applicant may use a title insurance company. If a title
insurance company is used, the company must provide the Agency a title
insurance binder, disclosing all title defects or restrictions, and
include a commitment to issue a title insurance policy. The policy
should be in an amount at least equal to the market value of the
property as improved. The title insurance binder and commitment should
be provided to the Agency prior to requesting closing instructions. The
Agency will be provided a title insurance policy which will insure
RUS's interest in the property without any title defects or
restrictions which have not been waived by the Agency.
(ii) The approval official may waive title defects or restrictions,
such as utility easements, that do not adversely affect the
suitability, successful operation, security value, or transferability
of the facility.
(3) Water rights. The following will be furnished as applicable:
(i) A statement by the applicant's attorney regarding the nature of
the water rights owned or to be acquired by the applicant (such as
conveyance of title, appropriation and decree, application and permit,
public notice and appropriation and use).
(ii) A copy of a contract with another company or municipality to
supply water; or stock certificates in another company which represents
the right to receive water.
(4) Lease agreements. Where the right of use or control of real
property not owned by the applicant is essential to the successful
operation of the facility during the life of the loan, such right will
be evidenced by written agreements or contracts between the owner of
the property and the applicant. Lease agreements shall not contain
provisions for restricted use of the site of facility, forfeiture or
summary cancellation clauses. Lease agreements shall provide for the
right to transfer, encumber, assign and sub-lease without restriction.
Lease agreements will ordinarily be written for a term at least equal
to the term of the loan. Such lease contracts or agreements will be
approved by the approval official with the advice and counsel of OGC,
as necessary.
(h) Obtaining loan closing instructions. The information required
by OGC will be transmitted to OGC with request for closing
instructions. Upon receipt of closing instructions, the processing
office will discuss with the applicant and its engineer, attorney, and
other appropriate representatives, the requirements contained therein
and any actions necessary to proceed with closing. State program
officials have the option to work with OGC to obtain waivers for
closing instructions in certain cases. Closing instructions are not
required for grants.
Sec. 1780.45 Loan and grant closing and delivery of funds.
(a) Loan closing. Notes and bonds will be completed on the date of
loan closing except for the entry of subsequent RUS multiple advances
where applicable. The amount of each note will be in multiples of not
less than $100. The
[[Page 48088]]
amount of each bond will ordinarily be in multiples of not less than
$1,000.
(1) Form FmHA 440-22, ``Promissory Note (Association or
Organization),'' will ordinarily be used for loans to nonpublic bodies.
(2) Forms FmHA 1942-47, ``Loan Resolution (Public Bodies),'' or
FmHA 1942-9, ``Loan Resolution (Security Agreement)'' will be adopted
by public and other-than-public bodies. These resolutions supplement
other provisions in this part.
(3) Subpart D of this part contains instructions for preparation of
notes and bonds evidencing indebtedness of public bodies.
(b) Loan disbursement.
(1) Multiple advances. Multiple advances will be used only for
loans in excess of $100,000. Advances will be made only as needed to
cover disbursements required by the borrower over a 30-day period.
(i) Subpart D of this part contains instructions for making
multiple advances to public bodies.
(ii) Advances will be requested by the borrower in writing. The
request should be in sufficient amounts to pay cost of construction,
rights-of-way and land, legal, engineering, interest, and other
expenses as needed. The borrower may use Form FmHA 440-11, ``Estimate
of Funds Needed for 30 Day Period Commencing XXX,'' to show the amount
of funds needed during the 30-day period.
(2) RUS loan funds obligated for a specific purpose, such as the
paying of interest, but not needed at the time of loan closing will
remain in the Finance Office until needed unless State statutes require
all funds to be delivered to the borrower at the time of closing. Loan
funds may be advanced to prepay costs under Sec. 1780.9(e)(2)(iv). If
all funds must be delivered to the borrower at the time of closing to
comply with State statutes, funds not needed at loan closing will be
handled as follows:
(i) Deposited in an appropriate borrower account, such as debt
service or construction accounts, or
(ii) Deposited in a joint bank account under paragraph (e)(3) of
this section.
(c) Grant closing. RUS Bulletin 1780-12 ``Water or Waste System
Grant Agreement'' of this part will be completed and executed in
accordance with the requirements of grant approval. The grant will be
considered closed when RUS Bulletin 1780-12 has been properly executed.
Processing or approval officials are authorized to sign the grant
agreement on behalf of RUS. For grants that supplement RUS loan funds,
the grant should be closed simultaneously with the closing of the loan.
However, when grant funds will be disbursed before loan closing, as
provided in paragraph (d)(1) of this section, the grant will be closed
not later than the delivery date of the first advance of grant funds.
(d) Grant disbursements. RUS policy is not to disburse grant funds
from the Treasury until they are actually needed by the applicant.
Applicant funds will be disbursed before the disbursal of any RUS grant
funds. RUS loan funds will be disbursed before the disbursal of any RUS
grant funds except when:
(1) Interim financing of the total estimated amount of loan funds
needed during construction is arranged, and
(2) All interim funds have been disbursed, and
(3) RUS grant funds are needed before the RUS loan can be closed.
(e) Use and accountability of funds.--(1) Arrangements will be
agreed upon for the prior concurrence by the Agency of the bills or
vouchers upon which warrants will be drawn. Form FmHA 402-2,
``Statement of Deposits and Withdrawals,'' or similar form will be used
by the Agency to monitor funds. Periodic reviews of these accounts
shall be made by the Agency.
(2) Pledge of collateral for grants to nonprofit organizations.
Grant funds must be deposited in a bank with Federal Deposit Insurance
Corporation (FDIC) insurance coverage. Also, if the balance in the
account containing grant funds exceeds the FDIC insurance coverage, the
excess amount must be collaterally secured. The pledge of collateral
for the excess will be in accordance with Treasury Circular 176.
(3) Joint RUS/borrower bank account. RUS funds and any funds
furnished by the borrower including contributions to purchase major
items of equipment, machinery, and furnishings will be deposited in a
joint RUS/borrower bank account if determined necessary by the approval
official. When RUS has a Memorandum of Understanding with another
agency that provides for the use of joint RUS/borrower accounts, or
when RUS is the primary source of funds for a project and has
determined that the use of a joint RUS/borrower bank account is
necessary, project funds from other sources may also be deposited in
the joint bank account. RUS shall not be accountable to the source of
the other funds nor shall RUS undertake responsibility to administer
the funding program of the other entity. Joint RUS/borrower bank
accounts should not be used for funds advanced by an interim lender.
When funds exceeds the FDIC insurance coverage, the excess must have a
pledge of collateral in accordance with Treasury Circular 176.
(4) Payment for project costs. Project costs will be monitored by
the RUS processing office. Invoices will be approved by the borrower
and their engineer, as appropriate, and submitted to the processing
office for concurrence. The review and acceptance of project costs,
including construction pay estimates, by RUS does not attest to the
correctness of the amounts, the quantities shown or that the work has
been performed under the terms of the agreements or contracts.
(f) Use of remaining funds. Funds remaining after all costs
incident to the basic project have been paid or provided for will not
include applicant contributions. Funds remaining, may be considered in
direct proportion to the amounts obtained from each source. Remaining
funds will be handled as follows:
(1) Remaining funds may be used for eligible loan or grant
purposes, provided the use will not result in major changes to the
facility design or project scope and that the purpose of the loan or
grant remains the same;
(2) RUS loan funds that are not needed will be applied as an extra
payment on the RUS indebtedness unless other disposition is required by
the bond ordinance, resolution, or State statute; and
(3) Grant funds not expended under paragraph (f)(1) of this section
will be cancelled. Prior to the actual cancellation, the borrower, its
attorney and its engineer will be notified of RUS's intent to cancel
the remaining funds. The applicant will be given appropriate appeal
rights.
(g) Post review of loan closing. In order to determine that the
loan has been properly closed the loan docket will be reviewed by OGC.
The State program official has the option to consult with OGC to obtain
waivers of this review.
Sec. 1780.46 [Reserved]
Sec. 1780.47 Borrower accounting methods, management reporting and
audits.
(a) Borrowers are required to provide RUS an annual audit or
financial statements.
(b) Method of accounting and preparation of financial statements.
Annual organization-wide financial statements must be prepared on the
accrual basis of accounting, in accordance with generally accepted
accounting principles (GAAP), unless State statutes or regulatory
agencies provide otherwise, or an exception is granted by the Agency.
An organization
[[Page 48089]]
may maintain its accounting records on a basis other than accrual
accounting, and make the necessary adjustments so that annual financial
statements are presented on the accrual basis.
(c) Record retention. Each borrower shall retain all records,
books, and supporting material for 3 years after the issuance of the
audit or management reports. Upon request, this material will be made
available to RUS, Office of the Inspector General (OIG), United States
Department of Agriculture (USDA), the Comptroller General, or to their
assignees.
(d) Audits. All audits are to be performed in accordance with the
latest revision of the generally accepted government auditing standards
(GAGAS), developed by the Comptroller General of the United States. In
addition, the audits are also to be performed in accordance with
various Office of Management and Budget (OMB) Circulars. The type of
audit each borrower is required to submit will be designated by RUS.
Further guidance on preparing an acceptable audit can be obtained from
RUS. It is not intended that audits required by this part be separate
and apart from audits performed in accordance with State and local
laws. To the extent feasible, the audit work should be done in
conjunction with those audits. Audits shall be annual unless otherwise
prohibited and supplied to the processing office as soon as possible
but in no event later than 150 days following the period covered by the
audit. OMB Circulars are available in any USDA/RUS office.
(e) Borrowers exempt from audits. All borrowers who are exempt from
audits, will, within 60 days following the end of each fiscal year,
furnish the RUS with annual financial statements, consisting of a
verification of the organization's balance sheet and statement of
income and expense by an appropriate official of the organization.
Forms FmHA 442-2, ``Statement of Budget, Income and Equity,'' and 442-3
may be used.
(f) Management reports. These reports will furnish management with
a means of evaluating prior decisions and serve as a basis for planning
future operations and financial strategies. In those cases where
revenues from multiple sources are pledged as security for an RUS loan,
two reports will be required; one for the project being financed by RUS
and one combining the entire operation of the borrower. In those cases
where RUS loans are secured by general obligation bonds or assessments
and the borrower combines revenues from all sources, one management
report combining all such revenues is acceptable. The following
management data will be submitted by the borrower to the processing
office. These reports at a minimum will include a balance sheet and
income and expense statement.
(1) Quarterly reports. A quarterly management report will be
required for the first year for new borrowers and for all borrowers
experiencing financial or management problems for one year from the
date problems were noted. If the borrower's account is current at the
end of the year, the processing office may waive the required reports.
(2) Annual management reports. Prior to the beginning of each
fiscal year the following will be submitted to the processing office.
(If Form FmHA 442-2 is used as the annual management report, enter data
in column three only of Schedule 1, and complete all of Schedule 2.)
(i) Two copies of the management reports and proposed ``Annual
Budget''.
(ii) Financial information may be reported on Form FmHA 442-2 which
includes Schedule 1, ``Statement of Budget, Income and Equity'' and
Schedule 2, ``Projected Cash Flow'' or information in similar format.
(iii) A copy of the rate schedule in effect at the time of
submission.
(g) Substitute for management reports. When RUS loans are secured
by the general obligation of the public body or tax assessments which
total 100 percent of the debt service requirements, the State program
official may authorize an annual audit to substitute for other
management reports if the audit is received within 150 days following
the period covered by the audit.
Sec. 1780.48 Regional commission grants.
Grants are sometimes made by regional commissions for projects
eligible for RUS assistance. RUS has agreed to administer such funds in
a manner similar to administering RUS assistance.
(a) When RUS has funds in the project, no charge will be made for
administering regional commission funds.
(b) When RUS has no loan or grant funds in the project, an
administrative charge will be made pursuant to the Economy Act of 1932,
as amended (31 U.S.C. 1535). A fee of 5 percent of the first $50,000 of
a regional commission grant and 1 percent of any amount over $50,000
will be paid RUS by the commission.
(1) Appalachian Regional Commission (ARC). RUS Bulletin 1780-23 of
this part will be followed in determining the responsibilities of RUS.
The ARC Federal Co-chairman and the State program official will provide
each other with the necessary notification and certification.
(2) Other regional commissions. Title V of the Public Works and
Economic Development Act of 1965 authorizes other commissions similar
to ARC. RUS Bulletin 1780-23 of this part will be used to develop a
separate project management agreement between RUS and the commission
for each project. The agreement should be prepared by the State program
official as soon as notification is received that a commission grant
will be made and the amount is confirmed.
(c) Regional commission grants should be obligated as soon as
possible in accordance with Sec. 1780.41 of this part, except that the
announcement procedure referred to in Sec. 1780.41(c) is not
applicable. Regional commission grants will be disbursed from the
Finance Office in the same manner as RUS funds.
Sec. 1789.49 Rural or Native Alaskan villages.
(a) General.--(1) This section contains regulations for providing
grants to remedy the dire sanitation conditions in rural Alaskan
villages using funds specifically made available for this purpose.
(2) Unless specifically modified by this section, grants will be
made, processed, and serviced in accordance with this subpart.
(b) Definitions.--(1) Dire sanitation condition. For the purpose of
this section a dire sanitation condition exists where:
(i) Recurring instances of a waterborne communicable disease has
been documented; or
(ii) No community-wide water and sewer system exists and individual
residents must haul water to or human waste from their homes and/or use
pit privies.
(2) Rural or Native Alaskan village. A rural or Native Alaskan
community which meets the definition of a village under State statutes
and does not have a population in excess of 10,000 inhabitants,
according to the latest decennial Census of the United States.
(c) Eligibility.--(1) The applicant must be a rural or Native
Alaskan village.
(2) The median household income of the village cannot exceed 110
percent of the statewide nonmetropolitan household income.
(3) A dire sanitation condition must exist in the village.
(4) The applicant must obtain 50 percent of project development
costs from State or local contributions. The local contribution can be
from loan funds authorized under subpart A of this part.
[[Page 48090]]
(d) Grant amount. Grants will be made for up to 50 percent of the
project development costs.
(e) Use of funds. Grant funds can be used to pay reasonable costs
associated with providing potable water or waste disposal services to
residents of rural or Native Alaskan villages.
(f) Construction. (1) If the State of Alaska is contributing to the
project costs, the project does not have to meet the construction
requirements of this subpart.
(2) If a loan is made in accordance with this part for part of the
local contribution, all of the requirements of this part apply.
Secs. 1780.50-1780.52 [Reserved]
Subpart C--Planning, Designing, Bidding, Contracting, Constructing
and Inspections.
Sec. 1780.53 General.
This subpart is specifically designed for use by owners including
the professional or technical consultants or agents who provide
assistance and services such as engineering, environmental, inspection,
financial, legal or other services related to planning, designing,
bidding, contracting, and constructing water and waste disposal
facilities. These procedures do not relieve the owner of the
contractual obligations that arise from the procurement of these
services. For this subpart, an owner is defined as an applicant,
borrower, or grantee.
Sec. 1780.54 Technical services.
Owners are responsible for providing the engineering and
environmental services necessary for planning, designing, bidding,
contracting, inspecting, and constructing their facilities. Services
may be provided by the owner's ``in house'' engineer or through
contract, subject to Agency concurrence. Engineers must be licensed in
the State where the facility is to be constructed.
Sec. 1780.55 Preliminary engineering reports.
Preliminary engineering reports (PER)s must conform with customary
professional standards. PER guidelines for water, sanitary sewer, solid
waste, and storm sewer are available from the Agency.
Sec. 1780.56 [Reserved]
Sec. 1780.57 Design policies.
Facilities financed by the Agency will be designed and constructed
in accordance with sound engineering practices, and must meet the
requirements of Federal, State and local agencies.
(a) Environmental review. Facilities financed by the Agency must
undergo an environmental impact analysis in accordance with RUS
requirements. Facility planning and design must not only be responsive
to the owner's needs but must consider the environmental impacts of the
proposed project. Facility designs shall incorporate and integrate,
where practicable, mitigation measures that avoid or minimize adverse
environmental impacts. Environmental reviews serve as a means of
assessing environmental impacts of project proposals, rather than
justifying decisions already made. Applicants may not take any action
on a project proposal that will have an adverse environmental impact or
limit the choice of reasonable project alternatives being reviewed
prior to the completion of the Agency's environmental review.
(b) Architectural barriers. All facilities intended for or
accessible to the public or in which physically handicapped persons may
be employed or reside must be developed in compliance with the
Architectural Barriers Act of 1968 (Pub. L. 90-480) as implemented by
41 CFR 101-19.6, section 504 of the Rehabilitation Act of 1973 (Pub. L.
93-112) as implemented by 7 CFR, parts 15 and 15b, and Titles II and
III of the Americans with Disabilities Act of 1990.
(c) Energy conservation. Facility design should consider cost
effective energy saving measures.
(d) Fire protection. Water facilities should have sufficient
capacity to provide reasonable fire protection to the extent
practicable.
(e) Growth capacity. Facilities should have sufficient capacity to
provide for reasonable growth to the extent practicable.
(f) Water conservation. Owners are encouraged, when economically
feasible, to incorporate water conservation practices into a facility's
design. For existing water systems, evidence must be provided showing
that the distribution system water losses do not exceed reasonable
levels.
(g) Conformity with state drinking water standards. No funds shall
be made available under this regulation for a water system unless the
Agency determines that the water system will make significant progress
toward meeting the standards established under title XIV of the Public
Health Service Act (commonly known as the `Safe Drinking Water Act')
(42 U.S.C. 300f et seq.).
(h) Conformity with federal and state water pollution control
standards. No funds shall be made available under this regulation for a
water treatment discharge or waste disposal system unless the Agency
determines that the effluent from the system conforms with applicable
Federal and State water pollution control standards.
(i) Combined sewers. New combined sanitary and storm water sewer
facilities will not be financed by the Agency. Extensions to existing
combined systems can only be financed when separate systems are
impractical.
(j) Dam safety. Projects involving any artificial barrier which
impounds or diverts water, or the rehabilitation or improvement of such
a barrier, must comply with the provisions for dam safety as set forth
in the Federal Guidelines for Dam Safety (Government Printing Office
stock No. 041-001-00187-5) as prepared by the Federal Coordinating
Council for Science, Engineering and Technology.
(j) Pipe. All pipe used shall meet current American Society for
Testing Materials (ASTM) or American Water Works Association (AWWA)
standards.
(k) Water system testing. For new water systems or extensions to
existing water systems, leakage shall not exceed limits set by either
ASTM or AWWA whichever is the more stringent.
(l) Metering devices. Water facilities financed by the Agency will
have metering devices for each connection. An exception to this
requirement may be granted by the State program official when the owner
demonstrates that installation of metering devices would be a
significant economic detriment and that environmental consideration
would not be adversely affected by not installing such devices.
Sanitary sewer projects should incorporate water system metering
devices whenever practicable.
(m) Economical service. The facility's design must provide the most
economical service practicable.
Secs. 1780.58-1780.60 [Reserved]
Sec. 1780.61 Construction contracts.
Contract documents must be sufficiently descriptive and legally
binding in order to accomplish the work as economically and
expeditiously as possible.
(a) Standard construction contract documents. If the construction
contract documents utilized are not in the format previously approved
by the Agency, OGC's review of the construction contract documents will
be obtained prior to their use.
(b) Contract review and concurrence. The owner's attorney will
review the executed contract documents, including performance and
payment bonds, and will certify that they are adequate, and that the
persons executing these
[[Page 48091]]
documents have been properly authorized to do so. The contract
documents, engineer's recommendation for award, and bid tabulation
sheets will be forwarded to the Agency for concurrence prior to
awarding the contract. All contracts will contain a provision that they
are not effective until they have been concurred in by the Agency. The
State program official or designee is responsible for concurring in
construction contracts with the legal advice and guidance of the OGC
when necessary.
Sec. 1780.62 Utility purchase contracts.
Applicants proposing to purchase water or other utility service
from private or public sources shall have written contracts for supply
or service which are reviewed and concurred in by the Agency. To the
extent practical, the Agency review and concurrence of such contracts
should take place prior to their execution by the owner. OGC advice and
guidance may be requested. Form FmHA 442-30, ``Water Purchase
Contract,'' may be used when appropriate. If the Agency loan will be
repaid from system revenues, the contract will be pledged to the Agency
as part of the security for the loan. Such contracts will:
(a) Include a commitment by the supplier to furnish, at a specified
point, an adequate quantity of water or other service and provide that,
in case of shortages, all of the supplier's users will proportionately
share shortages.
(b) Set out the ownership and maintenance responsibilities of the
respective parties including the master meter if a meter is installed
at the point of delivery.
(c) Specify the initial rates and provide a type of escalator
clause which will permit rates for the association to be raised or
lowered proportionately as certain specified rates for the supplier's
regular customers are raised or lowered. Provisions may be made for
altering rates in accordance with the decisions of the appropriate
State agency which may have regulatory authority.
(d) Cover period of time which is at least equal to the repayment
period of the loan. State program officials may approve contracts for
shorter periods of time if the supplier cannot legally contract for
such period, or if the owner and supplier find it impossible or
impractical to negotiate a contract for the maximum period permissible
under State law, provided:
(1) The supplier is subject to regulations of the Federal Energy
Regulatory Commission or other Federal or State agency whose
jurisdiction can be expected to prevent unwarranted curtailment of
supply; or
(2) The contract contains adequate provisions for renewal; or
(3) A determination is made that in the event the contract is
terminated, there are or will be other adequate sources available to
the owner that can feasibly be developed or purchased.
(e) Set out in detail the amount of connection or demand charges,
if any, to be made by the supplier as a condition to making the service
available to the owner. However, the payment of such charges from loan
funds shall not be approved unless the Agency determines that it is
more feasible and economical for the owner to pay such a connection
charge than it is for the owner to provide the necessary supply by
other means.
(f) Provide for a pledge of the contract to the Agency as part of
the security for the loan.
(g) Not contain provisions for:
(1) Construction of facilities which will be owned by the supplier.
This does not preclude the use of money paid as a connection charge for
construction to be done by the supplier.
(2) Options for the future sale or transfer. This does not preclude
an agreement recognizing that the supplier and owner may at some future
date agree to a sale of all or a portion of the facility.
(h) If it is impossible to obtain a firm commitment for either an
adequate quantity or sharing shortages proportionately, a contract may
be executed and concurred in provided adequate evidence is furnished to
enable the Agency to make a determination that the supplier has
adequate supply and/or treatment facilities to furnish its other users
and the applicant for the foreseeable future; and
(1) The supplier is subject to regulations of the Federal Energy
Regulatory Commission or other Federal or State agency whose
jurisdiction can be expected to prevent unwarranted curtailment of
supply; or
(2) A suitable alternative supply could be arranged within the
repayment ability of the borrower if it should become necessary; or
(3) Concurrence in the proposed contract is obtained from the
National Office.
Sec. 1780.63 Sewage treatment and bulk water sales contracts.
Owners entering into agreements with private or public parties to
treat sewage or supply bulk water shall have written contracts for such
service and all such contracts shall be subject to the Agency
concurrence. Section 1780.62 of this part should be used as a guide to
prepare such contracts.
Secs. 1780.64-1780.66 [Reserved]
Sec. 1780.67 Performing construction.
Owners are encouraged to accomplish construction through contracts
with qualified contractors. Owners may accomplish construction by using
their own personnel and equipment provided the owners possess the
necessary skills, abilities and resources to perform the work and
provided a licensed engineer prepares design drawings and
specifications and inspects construction and furnishes inspection
reports as required by Sec. 1780.76 of this part. Inspection services
may be provided by individuals as approved by the State staff engineer.
Payments for construction will be handled under Sec. 1780.76(d) of this
part.
Sec. 1780.68 Owner's contractual responsibility.
This part does not relieve the owner of any responsibilities under
its contract. The owner is responsible for the settlement of all
contractual and administrative issues arising out of procurement
entered into in support of a loan or grant. These include, but are not
limited to: source evaluation, protests, disputes, and claims. Matters
concerning violation of laws are to be referred to the applicable
local, State, or Federal authority.
Sec. 1780.69 [Reserved]
Sec. 1780.70 Owner's procurement regulations.
Owner's procurement requirements must comply with the following
standards:
(a) Code of conduct. Owners shall maintain a written code or
standards of conduct which shall govern the performance of their
officers, employees or agents engaged in the award and administration
of contracts supported by Agency funds. No employee, officer or agent
of the owner shall participate in the selection, award, or
administration of a contract supported by Agency funds if a conflict of
interest, real or apparent, would be involved. Examples of such
conflicts would arise when: the employee, officer or agent; any member
of their immediate family; their partner; or an organization which
employs, or is about to employ, any of the above; has a financial or
other interest in the firm selected for the award.
(1) The owner's officers, employees or agents shall neither solicit
nor accept gratuities, favors or anything of
[[Page 48092]]
monetary value from contractors, potential contractors, or parties to
subagreements.
(2) To the extent permitted by State or local law or regulations,
the owner's standards of conduct shall provide for penalties,
sanctions, or other disciplinary actions for violations of such
standards by the owner's officers, employees, agents, or by contractors
or their agents.
(b) Maximum open and free competition. All procurement
transactions, regardless of whether by sealed bids or by negotiation
and without regard to dollar value, shall be conducted in a manner that
provides maximum open and free competition. Procurement procedures
shall not restrict or eliminate competition. Examples of what are
considered to be restrictive of competition include, but are not
limited to: placing unreasonable requirements on firms in order for
them to qualify to do business; noncompetitive practices between firms;
organizational conflicts of interest; and unnecessary experience and
bonding requirements. In specifying materials, the owner and its
consultant will consider all materials normally suitable for the
project commensurate with sound engineering practices and project
requirements. The Agency shall consider fully any recommendation made
by the owner concerning the technical design and choice of materials to
be used for a facility. If the Agency determines that a design or
material, other than those that were recommended should be considered
by including them in the procurement process as an acceptable design or
material in the water or waste disposal facility, the Agency shall
provide such owner with a comprehensive justification for such a
determination. The justification will be documented in writing.
(c) Owner's review. Proposed procurement actions shall be reviewed
by the owner's officials to avoid the purchase of unnecessary or
duplicate items. Consideration should be given to consolidation or
separation of procurement items to obtain a more economical purchase.
Where appropriate, an analysis shall be made of lease versus purchase
alternatives, and any other appropriate analysis to determine which
approach would be the most economical. To foster greater economy and
efficiency, owners are encouraged to enter into State and local
intergovernmental agreements for procurement or use of common goods and
services.
(d) Solicitation of offers, whether by competitive sealed bid or
competitive negotiation, shall:
(i) Incorporate a clear and accurate description of the technical
requirements for the material, product or service to be procured. When
it is impractical or uneconomical to make a clear and accurate
description of the technical requirements, a ``brand name or equal''
description may be used to define the performance or other salient
requirements of a procurement. The specific feature of the name brands
which must be met by the offeror shall be clearly stated; and
(ii) Clearly specify all requirements which offerors must fulfill
and all other factors to be used in evaluating bids or proposals.
(e) Affirmative steps should be taken to assure that small,
minority, and women businesses are utilized when possible as sources of
supplies, equipment, construction and services.
(f) Contract pricing. Cost plus a percentage of cost method of
contracting shall not be used.
(g) Unacceptable bidders. The following will not be allowed to bid
on, or negotiate for, a contract or subcontract related to the
construction of the project:
(1) An engineer as an individual or firm who has prepared plans and
specifications or who will be responsible for monitoring the
construction;
(2) Any firm or corporation in which the owner's engineer is an
officer, employee, or holds or controls a substantial interest;
(3) The governing body's officers, employees, or agents;
(4) Any member of the immediate family or partners in the entities
referred to in paragraphs (g)(1), (g)(2) or (g)(3) of this section; or
(5) An organization which employs, or is about to employ, any
person in the entities referred to in paragraph (g)(1), (g)(2) or
(g)(3) or (g)(4) of this section.
(h) Contract award. Contracts shall be made only with responsible
parties possessing the potential ability to perform successfully under
the terms and conditions of a proposed procurement. Consideration shall
include but not be limited to matters such as integrity, record of past
performance, financial and technical resources, and accessibility to
other necessary resources. Contracts shall not be made with parties who
are suspended or debarred by any Agency of the United States
Government.
Sec. 1780.71 [Reserved]
Sec. 1780.72 Procurement methods.
Procurement shall be made by one of the following methods: small
purchase procedures; competitive sealed bids (formal advertising);
competitive negotiation; or noncompetitive negotiation. Competitive
sealed bids (formal advertising) is the preferred procurement method
for construction contracts.
(a) Small purchase procedures. Small purchase procedures are those
relatively simple and informal procurement methods that are sound and
appropriate for a procurement of services, supplies or other property,
costing in the aggregate not more than $100,000. If small purchase
procedures are used for a procurement, written price or rate quotations
shall be requested from at least three qualified sources.
(b) Competitive sealed bids. In competitive sealed bids (formal
advertising), an invitation for sealed bids is publicly advertised and
a firm-fixed-price contract (lump sum or unit price) is awarded to the
responsible bidder whose bid, conforming with all the material terms
and conditions of the invitation for bids, is lowest, price and other
factors considered. When using this method the following shall apply:
(1) The invitation for bids shall be publicly advertised at a
sufficient time prior to the date set for opening of bids. The
invitation shall comply with the requirements in Sec. 1780.70(d). Bids
shall be solicited from an adequate number of qualified sources;
(2) All bids shall be opened publicly at the time and place stated
in the invitation for bids;
(3) A firm-fixed-price contract award shall be made by written
notice to that responsible bidder whose bid, conforming to the
invitation for bids, is lowest. When specified in the bidding
documents, factors such as discounts and transportation costs shall be
considered in determining which bid is lowest; and
(4) Any or all bids may be rejected by the owner when it is in its
best interest.
(c) Competitive negotiation. Competitive negotiation is required
for the procurement of engineering services for project design. In
competitive negotiations, proposals are requested from a number of
sources and the Request for Proposal is publicized. Negotiations are
normally conducted with more than one of the sources submitting offers.
Competitive negotiation may be used if conditions are not appropriate
for the use of formal advertising and where discussions and bargaining
with a view to reaching
[[Page 48093]]
agreement on the technical quality, price, other terms of the proposed
contract and specifications may be necessary. If competitive
negotiation is used for a procurement, the following requirements shall
apply:
(1) Proposals shall be solicited from an adequate number of
qualified sources to permit reasonable competition consistent with the
nature and requirements of the Procurement. The Request for Proposal
shall be publicized and reasonable requests by other sources to compete
shall be honored to the maximum extent practicable;
(2) The Request for Proposal shall identify all significant
evaluation factors, including price or cost where required, and their
relative importance;
(3) The owner shall provide mechanisms for technical evaluation of
the proposals received, determination of responsible offerors for the
purpose of written or oral discussions, and selection for contract
award;
(4) Award may be made to the responsible offeror whose proposal
will be most advantageous to the owner, price and other factors
considered. Unsuccessful offerors should be promptly notified; and
(5) Owners may utilize competitive negotiation procedures for
procurement of other professional services, whereby competitors'
qualifications are evaluated and the most qualified competitor is
selected, subject to negotiations of fair and reasonable compensation.
(d) Noncompetitive negotiation. Noncompetitive negotiation is
procurement through solicitation of a proposal from only one source, or
after solicitation of a number of sources, competition is determined
inadequate. Noncompetitive negotiation may be used when the award of a
contract is not feasible under small purchase or competitive sealed
bids. Circumstances under which a contract may be awarded by
noncompetitive negotiations are limited to the following:
(1) The item is available only from a single source; or
(2) There exists a public exigency or emergency and the urgency for
the requirement will not permit a delay incident to competitive
solicitation; or
(3) After solicitation of a number of sources, competition is
determined inadequate; or
(4) No acceptable bids have been received after formal advertising;
or
(5) The procurement is for professional services other than design
engineering; or
(6) The aggregate amount does not exceed $100,000.
Sec. 1780.73 [Reserved]
Sec. 1780.74 Contracts awarded prior to applications.
Owners awarding construction or other procurement contracts prior
to filing an application, must provide evidence that is satisfactory to
the Agency that the contract was entered into without intent to
circumvent the requirements of Agency regulations.
(a) Modifications. The contract shall be modified to conform with
the provisions of this part. Where this is not possible, modifications
will be made to the extent practicable and, as a minimum, the contract
must comply with all State and local laws and regulations as well as
statutory requirements and executive orders related to the Agency
financing. When all construction is complete and it is impracticable to
modify the contracts, the owner must provide the certification required
by paragraph (d) of this section.
(b) Consultant's certification. Provide a certification by an
engineer, licensed in the State where the facility is constructed, that
any construction performed complies fully with the plans and
specifications.
(c) Owner's certification. Provide a certification by the owner
that the contractor has complied with applicable statutory and
executive requirements related to Agency financing for construction
already performed.
Sec. 1780.75 Contract provisions.
In addition to provisions required for a valid and legally binding
contract, any recipient of Agency funds shall include the following
contract provisions in all contracts.
(a) Remedies. Contracts other than small purchases shall contain
provisions or conditions which will allow for administrative,
contractual, or legal remedies in instances where contractors violate
or breach contract terms, and provide for such sanctions and penalties
as may be appropriate. A realistic liquidated damage provision should
also be included.
(b) Termination. All contracts exceeding $10,000, shall contain
suitable provisions for termination by the owner including the manner
by which it will be affected and the basis for settlement. In addition,
such contracts shall describe conditions under which the contract may
be terminated for default as well as conditions where the contract may
be terminated because of circumstances beyond the control of the
contractor.
(c) Surety. In all contracts for construction or facility
improvements exceeding $100,000, the owner shall require bonds or cash
deposit in escrow assuring performance and payment each in the amount
of 100 percent of the contract cost. The surety will be in the form of
performance bonds and payment bonds. For contracts of lesser amounts,
the owner may require surety. When a surety is not provided,
contractors will furnish evidence of payment in full for all materials,
labor, and any other items procured under the contract. Form FmHA 1924-
10, ``Release by Claimants,'' and Form FmHA 1924-9, ``Certificate of
Contractor's Release,'' may be used for this purpose. Companies
providing performance bonds and payment bonds must hold a certificate
of authority as an acceptable surety on Federal bonds as listed in
Treasury Circular 570 as amended and be legally doing business in the
State where the facility is located.
(d) Equal Employment Opportunity. All contracts awarded in excess
of $10,000 by owners shall contain a provision requiring compliance
with Executive Order 11246, entitled, ``Equal Employment Opportunity,''
as amended by Executive Order 11375, and as supplemented by Department
of Labor regulations 41 CFR part 60.
(e) Anti-kickback. All contracts for construction shall include a
provision for compliance with the Copeland ``Anti-Kickback'' Act (18
U.S.C. 874). This Act provides that each contractor shall be prohibited
from inducing, by any means, any person employed in the construction,
completion, or repair of public work, to give up any part of the
compensation to which they are otherwise entitled. The owner shall
report suspected or reported violations to the Agency.
(f) Records. All negotiated contracts (except those of $10,000 or
less) awarded by owners shall include a provision to the effect that
the owner, the Agency, the Comptroller General of the United States, or
any of their duly authorized representatives, shall have access to any
books, documents, papers, and records of the contractor which are
directly pertinent to a specific Federal loan or grant program for the
purpose of making audits, examinations, excerpts, and transcriptions.
Owners shall require contractors to maintain all required records for 3
years after making final payment and all other pending matters are
closed.
(g) State Energy Conservation Plan. Contracts shall incorporate
mandatory standards and policies relating to energy efficiency which
are contained in the State energy conservation plan issued in
compliance with the Energy Policy and Conservation Act (Pub. L. 94-
163).
[[Page 48094]]
(h) Change orders. The construction contract shall require that all
contract change orders be concurred in by the Agency.
(i) Agency concurrence. All contracts must contain a provision that
they shall not be effective unless and until the State program official
or designee concurs in writing.
(j) Retainage. All construction contracts shall contain adequate
provisions for retainage. No payments will be made that would deplete
the retainage nor place in escrow any funds that are required for
retainage nor invest the retainage for the benefit of the contractor.
The retainage shall not be less than an amount equal to 5 percent of an
approved partial payment estimate until the project is substantially
complete and accepted by the owner, consulting engineer and Agency. The
contract must provide that additional amounts may be retained if the
job is not proceeding satisfactorily.
(k) Other compliance requirements. Contracts in excess of $100,000
shall contain a provision which requires compliance with all applicable
standards, orders, or requirements issued under section 306 of the
Clean Air Act (42 U.S.C. 1857(h)), section 508 of the Clean Water Act
(33 U.S.C. 1368), Executive Order 11738, and Environmental Protection
Agency (EPA) regulations 40 CFR part 15, which prohibit the use under
non-exempt Federal contracts, grants or loans of facilities included on
the EPA List of Violating Facilities. The provision shall require
reporting of violations to the Agency and to the U.S. Environmental
Protection Agency, Assistant Administrator for Enforcement.
Solicitations and contract provisions shall include the requirements of
4 CFR 15.4(c) as set forth in RUS Bulletin 1780-14 of this part.
Sec. 1780.76 Contract administration.
Owners shall be responsible for maintaining a contract
administration system to monitor the contractors' performance and
compliance with the terms, conditions, and specifications of the
contracts.
(a) Preconstruction conference. Prior to beginning construction,
the owner will schedule a preconstruction conference where the
consulting engineer will review the planned development with the
Agency, owner, resident inspector, attorney, contractor, and other
interested parties. The conference will thoroughly cover applicable
items included in Form FmHA 1924-16, ``Record of Pre-construction
Conference,'' and the discussions and agreements will be documented.
(b) Monitoring reports. The owner is required to monitor
construction and provide a report to the Agency giving a full
explanation under the following circumstances:
(1) Reasons why approved construction schedules were not met.
(2) Analysis and explanation of cost overruns and how payment is to
be made for the same; and
(3) If events occur which have a significant impact upon the
project.
(c) Inspection. Full-time resident inspection is required for all
construction unless a written exception is made by the Agency upon
written request of the owner. Unless otherwise agreed, the resident
inspector will be provided by the consulting engineer. Prior to the
preconstruction conference, the consulting engineer will submit a
resume of qualifications of the resident inspector to the owner and to
the Agency for acceptance in writing. If the owner provides the
resident inspector, it must submit a resume of the inspector's
qualifications to the project engineer and the Agency for acceptance in
writing prior to the preconstruction conference. The resident inspector
will work under the technical supervision of the project engineer and
the role and responsibilities will be defined in writing.
(d) Inspector's daily diary. The resident inspector will maintain a
record of the daily construction progress in the form of a daily diary
and daily inspection reports. The daily entries shall be made available
to the Agency personnel and will be reviewed during project
inspections. The original complete set will be furnished to the owner
upon completion of construction. RUS Bulletin 1780-18 is available from
the Agency for preparing daily inspection reports.
(e) Payment for Construction. Form FmHA 1924-18, ``Partial Payment
Estimate,'' or other similar form may be used for construction
payments. If Form 1924-18 is not used, prior concurrence by the State
staff engineer must be obtained.
(1) Payment of contract retainage will not be made until such
retainage is due and payable under the terms of the contact.
(2) Invoices for the payment of construction costs must be approved
by the owner, project engineer and concurred in by the Agency.
(3) The review and acceptance of project costs, including
construction payment estimates by the Agency shall not attest to the
correctness of the amounts, the quantities shown, or that the work has
been performed under the terms of agreements or contracts.
(f) Prefinal inspections. A prefinal inspection will be made by the
owner, resident inspector, project engineer, contractor,
representatives of other agencies involved, and Agency representative
(preferably the State staff engineer or designee). The inspection
results will be recorded by the project engineer and a copy provided to
all interested parties.
(g) Final inspection. A final inspection will be made by the Agency
before final payment is made.
(h) Changes in development plans. (1) Changes in development plans
shall be reviewed and approved by the Agency provided:
(i) Funds are available to cover any additional costs; and
(ii) The change is for an authorized loan or grant purpose; and
(iii) It will not adversely affect the soundness of the facility
operation or the Agency's security; and
(iv) The change is within the scope of the contract,
(2) Changes will be recorded on Form FmHA 1924-7, ``Contract Change
Order,'' or other similar form if approved by the State program
official or designee. Regardless of the form, change orders must be
approved by the State program official or designee.
(3) Changes should be accomplished only after Agency approval and
shall be authorized only by means of contract change order. The change
order will include items such as:
(i) Any changes in labor and material;
(ii) Changes in facility design;
(iii) Any decrease or increase in quantities based on final
measurements that are different from those shown in the bidding
schedule; and
(iv) Any increase or decrease in the time to complete the project.
(4) All changes shall be recorded on chronologically numbered
contract change orders as they occur. Change orders will not be
included in payment estimates until approved by all parties.
Secs. 1780.77-1780.79 [Reserved]
Subpart D--Information Pertaining to Preparation of Notes or Bonds
and Bond Transcript Documents for Public Body Applicants
Sec. 1780.80 General.
This subpart includes information for use by public body applicants
in the preparation and issuance of evidence of debt (bonds, notes, or
debt instruments, herein referred to as bonds) and other necessary loan
documents.
[[Page 48095]]
Sec. 1780.81 Policies related to use of bond counsel.
The applicant is responsible for preparation of bonds and bond
transcript documents. The applicant will obtain the services and
opinion of recognized bond counsel experienced in municipal financing
with respect to the validity of a bond issue, except for issues of
$100,000 or less. With prior approval of the approval official, the
applicant may elect not to use bond counsel. Such issues will be closed
in accordance with the following:
(a) The applicant must recognize and accept the fact that
application processing may require additional legal and administrative
time;
(b) It must be established that not using bond counsel will produce
significant savings in total legal costs;
(c) The local attorney must be able and experienced in handling
this type of legal work;
(d) The applicant must understand that it will likely have to
obtain an opinion from bond counsel at its expense should the Agency
require refinancing of the debt;
(e) Bonds will be prepared in accordance with this regulation and
conform as closely as possible to the preferred methods of preparation
stated in section 1780.94; and
(f) Closing instructions must be issued by OGC.
Sec. 1780.82 [Reserved]
Sec. 1780.83 Bond transcript documents.
Any questions relating to Agency requirements should be discussed
with Agency representatives. Bond counsel or local counsel, as
appropriate, must furnish at least two complete sets of the following
to the applicant, who will furnish one complete set to the Agency:
(a) Copies of all organizational documents;
(b) Copies of general incumbency certificate;
(c) Certified copies of minutes or excerpts from all meetings of
the governing body at which action was taken in connection with the
authorizing and issuing of the bonds;
(d) Certified copies of documents evidencing that the applicant has
complied fully with all statutory requirements incident to calling and
holding a favorable bond election, if one is necessary;
(e) Certified copies of the resolutions, ordinances, or other
documents such as the bond authorizing resolutions or ordinances and
any resolution establishing rates and regulating use of facility, if
such documents are not included in the minutes furnished;
(f) Copies of the official Notice of Sale and the affidavit of
publication of the Notice of Sale when State statute requires a public
sale;
(g) Specimen bond, with any attached coupons;
(h) Attorney's no-litigation certificate;
(i) Certified copies of resolutions or other documents pertaining
to the bond award;
(j) Any additional or supporting documents required by bond
counsel;
(k) For loans involving multiple advances of Agency loan funds, a
preliminary approving opinion of bond counsel (or local counsel if no
bond counsel is involved) if a final unqualified opinion cannot be
obtained until all funds are advanced. The preliminary opinion for the
entire issue shall be delivered at or before the time of the first
advance of funds. It will state that the applicant has the legal
authority to issue the bonds, construct, operate and maintain the
facility, and repay the loan, subject only to changes occurring during
the advance of funds, such as litigation resulting from the failure to
advance loan funds, and receipt of closing certificates.
(l) Final unqualified approving opinion of bond counsel, (and
preliminary approving opinion, if required) or local counsel if no bond
counsel is involved, including an opinion as to whether interest on
bonds will be exempt from Federal and State income taxes. With approval
of the State program official, a final opinion may be qualified to the
extent that litigation is pending relating to Indian claims that may
affect title to land or validity of the obligation. It is permissible
for such opinion to contain language referring to the last sentence of
section 306 (a)(1) or to Section 309A (h) of the Consolidated Farm and
Rural Development Act (7 U.S.C. 1926 (a)(1) or 1929a (h)).
Secs. 1780.84 and 1780.86 [Reserved]
Sec. 1780.87 Permanent instruments for Agency loans.
Agency loans will be evidenced by an instrument determined legally
sufficient and in accordance with the following order of preference:
(a) First preference--Form FmHA 440-22, ``Promissory Note''. Refer
to paragraph (b) of this section for methods of various frequency
payment calculations; and
(b) Second preference--single instruments with amortized
installments. A single instrument providing for amortized installments
which follows Form FmHA 440-22 as closely as possible. The full amount
of the loan must show on the face of the instrument, and there must be
provisions for entering the date and amount of each advance on the
reverse or an attachment. When principal payments are deferred, the
instrument will show that ``interest only'' is due on interest-only
installment dates, rather than specific dollar amounts. The payment
period including the ``interest only'' installment cannot exceed 40
years, the useful life of the facility, or State statute limitations,
whichever occurs first. The amortized installment, computed as follows,
will be shown as due on installment dates thereafter.
(1) Monthly payments. Multiply by twelve the number of years
between the due date of the last interest-only installment and the
final installment to determine the number of monthly payments. When
there are no interest-only installments, multiply by twelve the number
of years over which the loan is amortized. Then multiply the loan
amount by the amortization factor and round to the next higher dollar.
(2) Semiannual payments.--Multiply by two the number of years
between the due date of the last interest-only installment and the due
date of the final installment to determine the correct number of
semiannual periods. When there are no interest-only installments,
multiply by two the number of years over which the loan is amortized.
Then multiply the loan amount by the applicable amortization factor.
(3) Annual payments. Subtract the due date of the last interest-
only installment from the due date of the final installment to
determine the number of annual payments. When there are no interest-
only installments, the number of annual payments will equal the number
of years over which the loan is amortized. Then multiply the loan
amount by the applicable amortization factor and round to the next
higher dollar.
(c) Third preference--single instruments with installments of
principal plus interest. If a single instrument with amortized
installments is not legally permissible, use a single instrument
providing for installments of principal plus interest accrued on the
principal balance. For bonds with semiannual interest and annual
principal, the interest is calculated by multiplying the principal
balance times the interest rate and dividing this figure by two.
Principal installments are to be scheduled so that total combined
interest and principal payments closely approximate amortized payments.
(1) The repayment terms concerning interest only installments
described in paragraph (b) of this section apply.
[[Page 48096]]
(2) The instrument shall contain in substance provisions
indicating:
(i) Principal maturities and due dates;
(ii) Regular payments shall be applied first to interest due
through the next principal and interest installment due date and then
to principal due in chronological order stipulated in the bond; and
(iii) Payments on delinquent accounts will be applied in the
following sequence:
(A) billed delinquent interest;
(B) past due interest installments;
(C) past due principal installments;
(D) interest installment due; and
(E) principal installment due.
(d) Fourth preference--serial bonds with installments of principal
plus interest. If instruments described under the first, second, and
third preferences are not legally permissible, use serial bonds with a
bond or bonds delivered in the amount of each advance. Bonds will be
numbered consecutively and delivered in chronological order. Such bonds
will conform to the minimum requirements of Sec. 1780.94 of this part.
Provisions for application of payments will be the same as those set
forth in paragraphs (c)(2)(ii) of this section.
(e) Coupon bonds. Coupon bonds will not be used unless required by
State statute. Such bonds will conform to the minimum requirements of
Sec. 1780.94 of this part.
Sec. 1780.88 [Reserved]
Sec. 1780.89 Multiple advances of Agency funds using permanent
instruments.
Where interim financing from commercial sources is not used, Agency
loan proceeds will be disbursed on an ``as needed by borrower'' basis
in amounts not to exceed the amount needed during 30-day periods.
Sec. 1780.90 Multiple advances of Agency funds using temporary debt
instruments.
When none of the instruments described in Sec. 1780.87 of this part
are legally permissible or practical, a bond anticipation note or
similar temporary debt instrument may be used. The debt instrument will
provide for multiple advances of Agency funds and will be for the full
amount of the Agency loan. The instrument will be prepared by bond
counsel, or local counsel if bond counsel is not involved, and approved
by the State program official and OGC. At the same time the Agency
delivers the last advance, the borrower will deliver the permanent bond
instrument and the canceled temporary instrument will be returned to
the borrower. The approved debt instrument will show at least the
following:
(a) The date from which each advance will bear interest;
(b) The interest rate as determined by Sec. 1780.13 of this part;
(c) A payment schedule providing for interest on outstanding
principal at least annually; and
(d) A maturity date which shall be no earlier than the anticipated
issuance date of the permanent instruments and no longer than the 40-
year statutory limit.
Secs. 1780.91-1780.93 [Reserved]
Sec. 1780.94 Minimum bond specifications.
The provisions of this paragraph are minimum specifications only
and must be followed to the extent legally permissible.
(a) Type and denominations. Bond resolutions or ordinances will
provide that the instruments be either a bond representing the total
amount of the indebtedness or serial bonds in denominations customarily
accepted in municipal financing (ordinarily in multiples of not less
than $1,000). Single bonds may provide for repayment of principal plus
interest or amortized installments. Amortized installments are
preferred by the Agency.
(b) Bond registration. Bonds will contain provisions permitting
registration for both principal and interest. Bonds purchased by the
Agency will be registered in the name of ``United States of America''
and will remain so registered at all times while the bonds are held or
insured by the Government. The Agency address for registration purposes
will be that of the Finance Office.
(c) Size and quality. Size of bonds and coupons should conform to
standard practice. Paper must be of sufficient quality to prevent
deterioration through ordinary handling over the life of the loan.
(d) Date of bond. Bonds will normally be dated as of the day of
delivery. However, the borrower may use another date if approved by the
Agency. Loan closing is the date of delivery of the bonds or the date
of delivery of the first bond when utilizing serial bonds, regardless
of the date of delivery of the funds. The date of delivery will be
stated in the bond if different from the date of the bond. In all
cases, interest will accrue from the date of delivery of the funds.
(e) Payment date. Loan payments will be scheduled to coincide with
income availability and be in accordance with State law.
(1) If income is available monthly, monthly payments are
recommended unless precluded by State law. If income is available
quarterly or otherwise more frequently than annually, payments must be
scheduled on such basis. However, if State law only permits principal
plus interest (P&I) type bonds, annual or semiannual payments will be
used.
(2) The payment schedule will be enumerated in the evidence of
debt, or if that is not feasible, in a supplemental agreement.
(3) If feasible, the first payment will be scheduled one full
month, or other period, as appropriate, from the date of loan closing
or any deferment period. Due dates falling on the 29th, 30th, and 31st
day of the month will be avoided. When principal payments are deferred,
interest-only payments will be scheduled at least annually.
(f) Extra payments. Extra payments are derived from the sale of
basic chattel or real estate security, refund of unused loan funds,
cash proceeds of property insurance and similar actions which reduce
the value of basic security. At the option of the borrower, regular
facility revenue may also be used as extra payments when regular
payments are current. Unless otherwise established in the note or bond,
extra payments will be applied as follows:
(1) For loans with amortized debt instruments, extra payments will
be applied first to interest accrued to the date of receipt of the
payment and second to principal.
(2) For loans with debt instruments with P&I installments, the
extra payment will be applied to the final unpaid principal
installment.
(3) For borrowers with more than one loan, the extra payment will
be applied to the account secured by the lowest priority of lien on the
property from which the extra payments was obtained. Any balance will
be applied to other Agency loans secured by the property from which the
extra payment was obtained.
(4) For assessment bonds, see paragraph (m) of this section.
(g) The place of payments on bonds purchased by the Agency will be
determined by the Agency.
(h) Redemptions. Bonds will normally contain customary redemption
provisions. However, no premium will be charged for early redemption on
any bonds held by the Government.
(i) Additional revenue bonds. Parity bonds may be issued to
complete the project. Otherwise, parity bonds may not be issued unless
acceptable documentation is provided establishing that net revenues for
the fiscal year following the year in which such bonds are to be issued
will be at least 120
[[Page 48097]]
percent of the average annual debt serviced requirements on all bonds
outstanding, including the newly-issued bonds. For purposes of this
section, net revenues are, unless otherwise defined by State statute,
gross revenues less essential operation and maintenance expenses. This
limitation may be waived or modified by the written consent of
bondholders representing 75 percent of the then-outstanding principal
indebtedness. Junior and subordinate bonds may be issued in accordance
with the loan resolution.
(j) Precautions. The following types of provisions in debt
instruments should be avoided:
(1) Provisions for the holder to manually post each payment to the
instrument.
(2) Provisions for returning the permanent or temporary debt
instrument to the borrower in order that it, rather than the Agency,
may post the date and amount of each advance or repayment on the
instrument.
(3) Provisions that amend covenants contained in Forms FmHA 1942-47
or FmHA 1942-9.
(4) Defeasance provisions in loan or bond resolutions. When a bond
issue is defeased, a new issue is sold which supersedes the contractual
provisions of the prior issue, including the refinancing requirement
and any lien on revenues. Since defeasance in effect precludes the
Agency from requiring refinancing before the final maturity date, it
represents a violation of the statutory refinancing requirement;
therefore, it is disallowed. No loan documents shall include a
provision of defeasance.
(k) Assessment bonds. When security includes special assessment to
be collected over the life of the loan, the instrument should address
the method of applying any payments made before they are due. It may be
desirable for such payments to be distributed over remaining payments
due, rather than to be applied in accordance with normal procedures
governing extra payments, so that the account does not become
delinquent.
(l) Multiple debt instruments. The following will be adhered to
when preparing debt instruments:
(1) When more than one loan type is used in financing a project,
each type of loan will be evidenced by a separate debt instrument or
series of debt instruments;
(2) Loans obligated in different fiscal years and those obligated
with different terms in the same fiscal year will be evidenced by
separate debt instruments;
(3) Loans obligated for the same loan type in the same fiscal year
with the same term may be combined in the same debt instrument;
(4) Loans obligated in the same fiscal year with different interest
rates that will be closed at the same interest rate may be combined in
the same debt instrument.
Sec. 1780.95 Public bidding on bonds.
Bonds offered for public sale shall be offered in accordance with
State law and in such a manner to encourage public bidding. The Agency
will not submit a bid at the advertised sale unless required by State
law, nor will reference to Agency's rates and terms be included. If no
acceptable bid is received, the Agency will negotiate the purchase of
the bonds.
Secs. 1780.96-1780.100 [Reserved]
Dated: September 4, 1996.
Inga Smulkstys,
Acting Under Secretary for Rural Development.
[FR Doc. 96-23082 Filed 9-11-96; 8:45 am]
BILLING CODE 3410-15-P
