Comment on FR Doc # E8-23286

This proposed rule is deceptive in that it not only seeks to consolidate the various grant regulations, it also make substantive changes in the rules governing at least some of the programs. As such, it would implement very significant changes and at the same time hide them up with changes in the jumbled new layout of the regulations. Significant and serious changes are made in VAPG eligibility. Significant and important changes are made in the REAP scoring. None of this is mentioned in the preamble or discussion. A fuller, clearer representation of all of the changes is needed to permit a valid public comment period. The goal of a single unified USDA grant regulation seems like an attractive ideal, but upon examination it is too ambitious and it is impractical. The consolidation of grant rules should be developed based on the type of eligible applicant instead on the simple fact that the assistance is a grant. Programs like the Rural Energy for America Grant and Value-Added Producer Grant are targeted to individuals, farmers, and small businesses. That would be a logical grouping, allowing a focus on simplicity. Likewise programs like Water & Waste grants and Community Facility grants that are targeted to local governments and public bodies, with their greater institutional capacity and longer timelines for operations, can and must be more complex. Efforts to consolidate such dissimilar grantees makes for overly complex rules for the one and insufficiently detailed ones for the other. Given the radical and experimental nature of this grant regulation re-write, I recommend that if a decision is made to move forward with it, that it exclude both the VAPG and REAP program in the initial roll-out. That way nonprofits and public bodies will be the only applicants affected, and small farmers and small businesses can be spared from being guinea pigs. Only when the system is proven to be working smoothly, these programs can be added into the regulations. One of the great disadvantages of consolidating all of these grant regulations under one rule is that it will make it harder to change when the need arises. If one program under the consolidated rule needs a minor revision, the change will have to be weighed against its impact on all of the other programs. Every other agency and program area will have to review, analyze, and evaluate the proposed modification. Rather than allowing a quick fix, the new weighty rule will lock every grant program into place because of the tremendous inertia. Who is benefited by this consolidation of disparate regulations? It is not the rural applicant or grantee, since s/he is confronted with a confusing series of cross-references placed amongst often inapplicable sections of rules that relate to other programs than the one at issue. Neither is it for the USDA staff who administer the programs; true they may have the time to discern and untangle what applies to which program, but they will be forced to spend considerable time at least initially doing so; furthermore, the burden will fall on them to decode the regulations for the confused pubic. The main beneficiary appears to be the national USDA staffs who occasionally are confronted with a need to create a new grant regulation when Congress creates a new grant program; this consolidated approach may make their task somewhat easier. So, one has to conclude that the effort saved is for a very few at the expense of most everyone in rural America. The ill-advised nature of the approach is shown in the initial Definitions section of the proposed rule. The definitions span technical terms across the spectrum of grant programs covered. The result is that any public person who is attempting to understand say the VAPG program is confronted with perplexing and inapplicable definitions relating to DLT and Community Programs. It would be much better to move the program specific definitions directly into the specific grant sections. The weakness of the approach becomes even more serious as one reads through Subpart A and realizes that it is only possible to understand it if one simultaneously reads the applicable section of Subpart B and compares back and forth. The user ends up having to read two sets of rules and then must determine if differences exists, what they are, and which of the two rules governs. This is an impractical and inefficient approach. Take for instance the discussion of Eligible applicants in Subpart A relating to citizenship or permanent resident requirement. This is meaningless for grants to public bodies and nonprofits but somehow must be reconciled by the reader. If the goal is to have a truly consolidated regulation, the rule is unsuccessful because it does not alter the already-existing “single set” of grant rules governing USDA grants – 7 CFR 3015, 3016, 3017, 3018, 3019, etc. These CFR’s are “incorporated by reference” at §5002.1(d), showing that this “consolidated regulation” is not actually a consolidation at all, but just another rewrite that multiplies regulations rather than simplifies them. §5002.1(c) Applicability. This is very unclear. §5002.2 Definitions. Only the definitions that apply to ALL of the programs should be listed here. Most of those that are listed are program specific and should be placed in the specific grant appendices so that they do not clutter up or confuse the reader. §5002.2 Definitions – Rural or rural area. This section is very confusing. §5002.2 Definitions – Small business. This definition should be expanded to include tribally- owned entities as described in RD AN No. 4376(1942-G), dated 6/4/2008. §5002.22(a) “The project or purse must primarily serve a rural area.” What does “serve” mean? This seems to add a “rural area” requirement to the VAPG program that does not now exist and should not be added. §5002.23(e) Packager and application fees. Reasonable costs to prepare these increasingly complex grant applications should be an authorized use of grant funds. The centralization and national competition processes that USDA has moved toward with many of its grants has greatly increased the cost to apply and compete successfully in these programs. If USDA persists in national competitions, it needs to resign itself to paying the cost of application packages. Alternatively, redesign the delivery programs to allow state level processing and awards, which can be done much more simply and with less extensive application writing. §5002.32(a) Application forms. The use of the SF-424 series forms has resulted in a very confused set of applicants among farmers and rural small businesses who seek VAPG and REAP assistance. The questions are formatted in a manner that is not consistent with the information that is needed for processing and selection, so the applicant is required to submit an extensive narrative that accompanies these forms. This is very burdensome. A much simpler solution would be to develop a clear, concise application for each program that asks exactly the questions that need to be answered without lengthy narratives. §5002.32(b) Other forms. A common occurrence now in grant applications is a request for numerous certifications – e.g., Forms RD 400-1, 400-4, Form AD-1047, 1940-Q Exhibit A-1, etc. All of these supplemental certifications should be consolidated into a single certification that accompanies the program specific application mentioned above. This approach was used successfully by USDA in its B&I application – Form RD 4279-1 – and it eliminated many separate and confusing forms. §5002.40-42 Processing and scoring applications. State allocations and state level award decisions should be used in every case unless it is statutorily prohibited. USDA officials that are closer to the applicants will be in a better position to evaluate their relative merit than remote application reviewers who have no direct knowledge beyond what they read in the application packagers. A state-level approach better leverages the resources of USDA staff and expertise in the field. The regulations are virtually silent on the grant servicing. This is a major omission. §5002.102 REAP. REAP is set up as a “nationally competed grant program”. This is not in the statute, and it is a practice that should be replaced by state allocations and delivery. §5002.102(c)(1). This provision would lock the REAP program into a single round of applications and awards each year. This is a bad model for a program designed to provide assistance to businesses who need just-in-time financing opportunities. A once-a-year opportunity to adopt energy efficiency and renewable energy practices is a poor model for something we should be promoting year-round, over-the-counter. At the very least the program should provide for quarterly application and awards. §5002.102(c)(1). Furthermore, the selection of January 15 is arbitrary. If there is to be a preapplication deadline, why not make it as early as possible in the federal fiscal year, such as November 1, so that the Agency has most of the year to process, evaluate and award projects after all necessary due diligence and environmental investigation. §5002.102(c)(2). The selection of June 15 as the application deadline is likewise arbitrary. It should not take 6 months to move from preapplication to application. And pushing the application deadline back to within 3 months of the end of the fiscal year will make for a chaotic summer of processing after an idle spring, followed by late September awards. §5002.102(c)(2)(ii). There should be no need for business plans at all in connection with REAP projects. The viability of nearly all renewable energy or energy efficiency projects are self- contained – i.e., they offset utility costs. So there is no need for a Business Plan, let alone for a 3-year projection of financials. These are grants we are talking about, so such intensive underwriting is simply overkill. §5002.102(d)(5). Given the complexity of the applications that are required, we should definitely allow applicants to recapture reasonable application preparation costs. You can’t expect farmers and rural businesspeople to respond to these highly complex, narrative-based applications without paying the price in professional grant writing costs. §5002.102(e)(3). This section is extremely confusing and its purpose is unclear. Why for instance does (ii)(A) disallow a combination guaranteed loan and grant? Especially when (ii)(B) expressly allows it? §5002.102(f). This section introduces a whole new incongruous concept – that the “amount” of the grant will depend on 8 criteria. The entire approach is contrary to previous practice of either awarding the grant requested in full or not. How will this work exactly? – e.g., when will 50% of the requested amount be awarded vs. 100%? No explanation is given. Without these details, no meaningful comments can be gathered. Details need to be provided and a second opportunity for public comment provided. §5002.102(f)(5). This refers to energy savings based on an energy audit “under 7 U.S.C. 8105”. What is this? Without explanation, there is no way to meaningfully comment. Details need to be provided and a second opportunity for public comment provided. §5002.102(g). The scoring system proposed is largely the same as the old §9006 scoring system. That system was an abject failure in differentiating among projects. It is far to subjective and complex. Projects are not widely spread by the system, causing selections to be made based on the smallest point differences, many times differentiated only by subject, reviewer-based opinions, rather than the merit of the proposal. A much better approach is a very simple one that asks how many units of energy will realistically be generated or saved per grant dollar awarded. Then simply select the projects that give the biggest “bang” for the buck until the funds run out. Such a system would be very easy to understand and justify, and best of all, it is totally objective. There is no explanation of how awards will be divvyed up among the multiple technology types. The past use of normalization is not mentioned, and if it is going to be used, it needs to be fully spelled out here. If there will be an allocation of funding among technologies that needs to be set forth and opened to public comment before being adopted. §5002.102(g)(1)(ii) Environmental benefits is a subjective criteria that should not be the basis for funding a project or not. You cannot objectively distinguish between the various goals and objects of government programs, and even if you could, does it make sense to not select a project because it is in a state or locality without elaborate environmental goals? §5002.102(g)(1)(iv) Technical merit is highly subjective and largely irrelevant when it comes to most small projects (under $200,000 total cost). There is not a lot of technical merit differentiation amongst energy efficiency projects and small solar or small wind projects. Thus, these criteria simply result in extensive narrative and subject interpretation and point-awards. Since the grant is only paid when the project is built up to specs, the proof is in the pudding, and there is no need for up-front narrative. §5002.102(g)(1)(v) Readiness is a largely irrelevant criterion since the REAP grant is only paid when the project is built up. If the project isn’t ready, funds won’t be paid out and the grant will ultimately be deobligated. §5002.102(g)(1)(vi) The “smallness” criteria here is so small that these applicants end up being more residential than business projects. It is not appropriate to favor such small scale users. §5002.102(g)(1)(viii) Adding “hybrid” technologies as another point adding criterion is odd and inappropriate. Why would USDA want to favor hybrid projects over single technology projects? §5002.102(g)(1)(ix) If Return on Investment is used, the value of documented incentives that will accompany the REAP grant should also be taken into account. Tax credits, utility incentives, etc., as well as the REAP grant, are all motivating factors to businesses because they are real. They should be included as real factors in calculating return on investment. §5002.102(h). Two rankings per year, but it is unclear how this matches up with the January 15 preapplication deadline and the June 15 application deadline. Again, the goal would be over-the- counter delivery, or at least quarterly selections of applicants, which is much more business- friendly in approach. Additional comment on REAP #1. The current rules governing contracting for the 9006 program are far too restrictive. When USDA is only providing 25% of the project cost or less, it is not appropriate or practical for USDA to expect to control or mandate the contract process. Contracting controls should be kept to the minimum, especially if REAP funds are disbursed AFTER project completion. Additional comment on REAP #2. The current rules governing grant recapture for the 9006 program are excessive. No grant recapture should be undertaken on successfully completed and installed energy projects. If energy efficiency improvements or renewable energy system in put in place, REAP assistance has been successful even if the beneficiary of the assistance sells the property after the improvements. The benefits will continue to accrue to the economy and the nation. Grant recapture rules, on the other hand, act to discourage program use and are complex and difficult to enforce. §5002.105 VAPG. VAPG is set up as a “nationally completed grant program”. This is not in the statute, and it is a practice that should be replaced by state allocations and delivery. §5002.105(a) Definition – agricultural producer. Here the confusion of the consolidated regulation is demonstrated by two parallel definition of the term “agricultural producer”. There is one here and one at §5002.2. Which is correct and how do the two terms interact? §5002.105(a) Definition – agricultural producer. The requirement that the producer have a majority ownership interest in the agricultural product (commodity?) to which value-added is to accrue is very problematic. A producer should be able to develop and support a value-added enterprise regardless ownership interests. The complexities of modern business often call for differing ownership interests, and this requirement unnecessarily limits farmers options in developing a value-added venture. If an ag producer wants to apply for a VAPG, their self- benefit is clearly demonstrated, so there is no need to insist they also retain a majority ownership. §5002.105(a) Definition – beginning farmer or rancher. This is not a clear definition since it includes a reference to an undefined section of statute. §5002.105(a) Definition – socially disadvantaged farmer or rancher. This is not a clear definition since it includes a reference to an undefined section of statute. §5002.105(c)(1) The requirement that the venture be located in a rural area is new, and it is unnecessarily restrictive. §5002.105(c)(2) The requirement that working capital grants have a feasibility study and a business plan is excessive. There are many instances of independent producers who have been operating a value-added venture successfully for years (which is allowed since they are not covered by the “emerging market” requirement) without ever having obtained a feasibility study or a business plan. Why should such independent producers take the time and expense to obtain these when they have documented performance to show? Therefore, independent producers who have been operating a value-added venture for at least 2 years should be exempted from the feasibility study and business plan requirement for working capital grants. §5002.105(c)(6). The requirement that the ag producer have a majority interest in the value- added ag product is unnecessarily restrictive. A producer should be able to develop and support a value-added enterprise regardless ownership interests. The complexities of modern business often call for differing ownership interests, and this requirement unnecessarily limits farmers options in developing a value-added venture. If an ag producer wants to apply for a VAPG, their self-benefit is clearly demonstrated, so there is no need to insist they also retain a majority ownership. §5002.105(e)(1). This is very confusing and unclear. §5002.105(f)(2)(ii). A business plan should not be required to have 3 years of financial statements. The definition should be simpler and more flexible, simply calling for an explanation of the business and its viability. §5002.105(f)(2)(iii). The feasibility study definition found in 5002.2(a) is completely adequate. The one used here is overkill and excessive in its specificity. §5002.105(f)(3). The simplified application is not sufficiently described, making this paragraph meaningless. §5002.105(h)(2)(v). In-kind matching funds should be limited to not more than 10% of the total project cost, just as is done in the REAP program. In-kind match is hard to value and document and leaves the program open to misuse and misunderstanding. §5002.105(i). Scoring should be less dependent on subject categories and more conducive to projects that request smaller VAPG awards and provide greater leveraging than 1:1. Each state should be given the opportunity to establish their own VAPG Independent Review Panel per 4284-J, §4284.912(a). Any state that does so will evaluate their state’s applications and establish their priority scores entirely within their state and simply submit their score sheets to the national competition. States that cannot or do not wish to establish their own State Independent Review Panel may continue to rely on the national review panels and process. This gives states a choice. State panels are more likely to be genuine experts in local agricultural conditions and therefore can better evaluate the merits of proposals within their states. VAPG processing. State allocations with State Office judgment permitted in deciding whether to award all or part of the grants being requested. REEXAMINE VAPG CATEGORY 3 (MARKET DIFFERENTIATION) ELIGIBILITY. The statute and the 4284-A, §4284.3 state that “differentiated production or marketing, as demonstrated in a business plan,” is a value-added activity. Note that there is no mention of a feasibility study. Therefore, category 3 value-added projects should be permitted to apply for VAPG planning grants without a feasibility study, provided that they have a business plan. Entrepreneurs may well be operating a category 3 venture with a business plan, but still need a feasibility study, or a market study, or legal planning. They should not be disqualified so long as they have a business plan. REEXAMINE THE VAPG REQUIREMENT FOR A FEASIBILITY STUDY FOR WORKING CAPITAL GRANTS. I do not believe anything in 4284-A or 4284-J require that VAPG working capital applicants have a feasibility study. There are many instances of independent producers who have been operating a value-added venture successfully for years (which is allowed since they are not covered by the “emerging market” requirement) without ever having obtained a feasibility study. Why should such independent producers take the time and expense to obtain a feasibility study when they have documented performance to show? Therefore, independent producers who have been operating a value-added venture for at least 2 years should be exempted from the feasibility study requirement for working capital grants. This is not to say that Independent Reviewers might not look more favorably on applicants that provide a feasibility study; rather it means such applicants are not required to submit a feasibility study. For all grant programs, incorporate the 2002 Farm Bill’s flexibility on use, transfer, and sale of USDA grant-financed property. The permissive authorities established by Section 6018 of the 2002 Farm Bill are not contained anywhere in the proposed rule, yet they should be implemented along with any revision of the regulations. Section 6018 directed USDA to allow flexibility in the use, transfer, and sale of RBEG-financed property: “Section 310G. USE OF RURAL DEVELOPMENT … GRANTS FOR OTHER PURPOSES. If, after making a … grant …, [USDA] determines that the circumstances under which the …grant was made have sufficiently changed to make the project or activity for which the … grant was made available no longer appropriate, [USDA] may allow the … grant recipient to use property (real and personal) purchased or improved with the … grant funds, or proceeds from the sale of property (real and personal) purchased with such funds, for another project or activity that (as determined by [USDA]) – (1) will be carried out in the same area as the original project or activity; (2) meets the criteria for a… grant …; and (3) satisfies such additional requirements as are established by [USDA].” The implementation of this authority is sorely needed and already long overdue. Thank you for carefully considering these comments.