issue-1995-10-27•Federal Register proposed rules — 1995-10-27
Federal Register proposed rules — 1995-10-27
issue-1995-10-27Federal Register proposed rules — 1995-10-27Proposed Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 95-26684 Defense Federal Acquisition Regulation Supplement; Contractor Purchasing System Reviews
[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 55001-55002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26684]
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DEPARTMENT OF DEFENSE
48 CFR Part 244 and Appendix C to Chapter 2
Defense Federal Acquisition Regulation Supplement; Contractor
Purchasing System Reviews
AGENCY: Department of Defense (DoD).
ACTION: Proposed rule with request for comment.
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SUMMARY: The Director of Defense Procurement is proposing to amend the
Defense Federal Acquisition Regulation Supplement (DFARS) to provide
guidance on the need to conduct limited Contractor Purchasing System
Reviews (CPSRs) based on risk assessments, and to delete DFARS Appendix
C, which contains detailed procedures for the conduct and review of
CPSRs.
DATES: Comment Date: Comments on the proposed rule should be submitted
in writing to the address below on or before December 26, 1995, to be
considered in the formulation of the final rule.
ADDRESSES: Interested parties should submit written comments to:
Defense Acquisition Regulations Council, Attn: Mr. Rick Layser,
PDUSD(A&T)DP(DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC
20301-3062. Telefax number (703) 602-0350. Please cite DFARS Case 95-
D026 in all correspondence related to this issue.
[[Page 55002]]
FOR FURTHER INFORMATION CONTACT:
Mr. Rick Layser, (703) 602-0131.
SUPPLEMENTARY INFORMATION:
A. Background
These proposed DFARS revisions are based on the recommendation of a
Contractor Purchasing System Review Process Action Team established by
the Defense Contract Management Command. The team recommended changes
to CPSR procedures to permit the agency conducting the CPSR to have the
latitude to determine the scope of the CPSR, based on risk assessment.
B. Regulatory Flexibility Act
The proposed rule will not have a significant economic impact on a
substantial number of small entities within the meaning of the
Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because CPSRs are
generally only conducted for contractors whose sales to the Government
exceed $10 million during a twelve month period. Therefore, an Initial
Regulatory Flexibility Analysis has not been prepared. Comments from
small entities concerning the affected DFARS subparts will be
considered in accordance with Section 610 of the Act. Such comments
must be submitted separately and cite DFARS Case 95-D026 in
correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the rule does
not impose any additional information collection requirements which
require the approval of the Office of Management and Budget under 44
U.S.C. 3501, et seq.
List of Subjects in 48 CFR Part 244 and Appendix C
Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.
Therefore, 48 CFR Part 244 and Appendix C is proposed to be amended
as follows:
PART 244--SUBCONTRACTING POLICIES AND PROCEDURES
1. The authority citation for 48 CFR Part 244 and Appendix C
continues to read as follows:
Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.
2. Section 244.303 is revised to read as follows:
244.303 Extent of review.
An initial risk assessment will be conducted on each request for a
contractor purchasing system review (CPSR) to determine if a CPSR is
needed. The assessment will be conducted jointly by the cognizant
contract administration office CPSR personnel and the contracting
officer requesting the CPSR.
Appendix C to Chapter 2--Contractor Purchasing System Reviews
Appendix C [Removed]
3. Appendix C to 48 CFR Chapter 2, Contractor Purchasing Systems
Reviews, is removed.
[FR Doc. 95-26684 Filed 10-26-95; 8:45 am]
BILLING CODE 5000-04-M
Complete official Federal Register PDF
FR Doc. 95-26659 Section 8 Moderate Rehabilitation; Rent Adjustments; Annual and Special Adjustments; Comparability Studies; Rent Reductions; Technical Correction
[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 54979-54981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26659]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Public and Indian Housing
24 CFR Part 882
[Docket No. FR-3709-C-02]
RIN 2577-AB48
Section 8 Moderate Rehabilitation; Rent Adjustments; Annual and
Special Adjustments; Comparability Studies; Rent Reductions; Technical
Correction
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Proposed rule; technical correction.
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SUMMARY: On October 2, 1995 (60 FR 51658), HUD published a proposed
rule that would revise the current regulations on adjusting Section 8
Moderate Rehabilitation Contract Rents. The rule proposed to modify the
method used by Public Housing Agencies (PHAs) to determine the amount
of the annual increase in the Contract Rents by providing for PHAs to
conduct comparability studies for Moderate Rehabilitation projects to
prevent the application of the Annual Adjustment Factors from resulting
in a material difference between rents charged for assisted units and
similar unassisted units.
The purpose of this document is to correct certain technical errors
that appeared in the October 2, 1995 proposed rule.
DATES: Comment Due Date: December 1, 1995.
[[Page 54980]]
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Rules Docket Clerk, Office of General
Counsel, room 10276, Department of Housing and Urban Development, 451
Seventh Street SW, Washington, DC 20410. Communications should refer to
the above docket number and title. Facsimile (FAX) comments are not
acceptable. A copy of each communication submitted will be available
for public inspection and copying during regular business hours.
FOR FURTHER INFORMATION CONTACT: Madeline Hastings, Rental Assistance
Division, Room 4226, Department of Housing and Urban Development, 451
Seventh Street SW, Washington, D.C. 20410; telephone (202) 708-2841
(voice) or (202) 708-4594 (TDD). (These are not toll free numbers.)
SUPPLEMENTARY INFORMATION: On October 2, 1995 (60 FR 51658), HUD
published a proposed rule that would revise the current regulations on
adjusting Section 8 Moderate Rehabilitation Contract Rents. The rule
proposed to modify the method used by Public Housing Agencies (PHAs) to
determine the amount of the annual increase in the Contract Rents by
providing for PHAs to conduct comparability studies for Moderate
Rehabilitation projects to prevent the application of the Annual
Adjustment Factors from resulting in a material difference between
rents charged for assisted units and similar unassisted units.
The proposed rule also provides a substitute method of determining
the initial difference between Moderate Rehabilitation rents and rents
charged for comparable unassisted units, if the PHA failed to establish
the amount of the difference when the initial Contract Rents were
determined. Additionally, the proposed rule provides, subject to the
availability of appropriations, for special adjustments when an
exemption from real property tax expires under certain circumstances,
and insurance to the categories of cost increases that may result in a
special adjustment.
The October 2, 1995 proposed rule would be applicable to all
projects which are currently, or will be in the future, under a Section
8 Moderate Rehabilitation Housing Assistance Payments (HAP) Contract,
as provided in the regular Section 8 Moderate Rehabilitation Program,
and the Section 8 Moderate Rehabilitation Single Room Occupancy (SRO)
Program for Homeless Individuals.
The purpose of this document is to correct certain technical errors
that appeared in the October 2, 1995 proposed rule.
Technical Corrections to October 2, 1995 Proposed Rule
Corrections to the Preamble. In the preamble to the proposed rule,
under the discussion in Section B on Comparability Studies, which
begins at the bottom of page 51658, HUD notes in the last paragraph of
this section (page 51659, first column) that: ``The rule also would
provide that Contract Rents will never be reduced as a result of a
comparability study.'' The word ``never'' also should have been
inserted in the last sentence of the first full paragraph, first column
of that page. The last sentence of the first paragraph should read:
``However, the Contract Rent would never be reduced below its current
level based upon the comparability study.''
In the second full paragraph of the first column on page 51659, a
phrase was inadvertently omitted from the first sentence pertaining to
monthly rehabilitation debt service. The first sentence should have
read as follows: ``A material difference between the assisted and
comparable unassisted rents exists if the adjusted base rent plus any
amount attributable to the monthly rehabilitation debt service is
greater than the maximum allowable Contract rent plus any amount
attributable to an initial difference.''
In the second sentence of that same second paragraph, the word
``contract'' rather than ``base'' should have been inserted in between
the words ``allowable'' and ``rent'' so that it reads as follows: ``The
maximum allowable Contract rent is a dollar amount equal to 105 percent
of the comparable rent.''
Corrections to Regulatory Text. Two corrections need to be made to
the text of the regulation, and both corrections involve substituting
the word ``contract'' for ``base.'' This correction needs to be made in
the last sentence of Sec. 882.410(b)(1) and in the last clause of
Sec. 882.410(c)(3).
Accordingly, the foregoing corrections are made by this document.
List of Subjects in 24 CFR Part 882
Grant programs--housing and community development, Homeless, Lead
poisoning, Manufactured homes, Rent subsidies, Reporting and
recordkeeping requirements.
Accordingly, FR Doc. 95-24368, Section 8 Moderate Rehabilitation;
Rent Adjustments; Annual and Special Adjustments; Comparability
Studies, Rent Reductions, Proposed Rule, published on October 2, 1995
at 60 FR 51658 is corrected as follows.
1. On page 51659, in the preamble, in column one, under item B.,
the last sentence of the first full paragraph beginning with ``Under
the proposed rule, when the application of the AAF to the base rent,* *
*'', and the second full paragraph, are corrected to read as follows:
B. Comparability Studies
* * * * *
Under the proposed rule, when the application of the AAF to the
base rent, * * *. However, the Contract Rent would never be reduced
below its current level based upon the comparability study.
A material difference between the assisted and comparable
unassisted rents exists if the adjusted base rent plus any amount
attributable to the monthly rehabilitation debt service is greater than
the maximum allowable Contract rent plus any amount attributable to an
initial difference. The maximum allowable Contract rent is a dollar
amount equal to 105 percent of the comparable rent.
* * * * *
2. On page 51661, in column one, in Sec. 882.410, paragraphs (b)(1)
and (c)(3) are corrected, to read as follows:
Sec. 882.410 Rent adjustments.
* * * * *
(b) Overall limitation. (1) Notwithstanding any other provisions of
this part, adjustments as provided in this section must not result in
material differences between the rents charged for assisted and
unassisted units of similar age, quality, and type in the same market
area, as determined by the PHA (and approved by HUD in the case of
adjustments under paragraph (d) of this section). A material difference
between the assisted and comparable unassisted rent is determined to
exist if the adjusted Contract rent is greater than the maximum
allowable Contract rent plus any difference which may have existed
initially. The maximum allowable Contract rent is a dollar amount equal
to 105 percent of the comparable rent.
* * * * *
(c) * * *
(3) If the Contract rent, adjusted by the AAF, plus the utility
allowance, is 110 percent or more of the current Existing Housing FMR
or if an exception rent limit (if granted for a geographical area in
accordance with Sec. 882.408(b)), the PHA will conduct a comparability
study to determine and approve an adjusted Contract rent that is not
materially different from rents charged for comparable unassisted
units.
* * * * *
[[Page 54981]]
Dated: October 20, 1995.
Kevin Emanual Marchman,
Deputy Assistant Secretary for Distressed and Troubled Housing
Recovery.
[FR Doc. 95-26659 Filed 10-26-95; 8:45 am]
BILLING CODE 4210-33-P
Complete official Federal Register PDF
FR Doc. 95-26658 Clean Air Act Proposed Disapproval or in the Alternative, Proposed Interim Approval Operating Permits Program; State of Idaho
[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 54990-55001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26658]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 70
[AD-FRL-5319-9]
Clean Air Act Proposed Disapproval or in the Alternative,
Proposed Interim Approval Operating Permits Program; State of Idaho
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed disapproval or in the alternative, proposed interim
approval
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SUMMARY: EPA proposes alternative actions on the operating permits
program submitted by the Idaho Department of Health and Welfare,
Division of Environmental Quality, for the purpose of complying with
Federal requirements for an approvable State program to issue operating
permits to all major stationary sources, and to certain other sources.
EPA proposes disapproval of the Idaho program based on existing
deficiencies in Idaho's excess emissions and administrative amendments
regulations. The State has advised EPA, however, that it intends to
adopt and submit to EPA revised regulations that address these
deficiencies before EPA takes final action on this proposal. Therefore,
EPA proposes in the alternative that, if these deficiencies are
addressed to EPA's satisfaction before EPA takes final action on this
proposal, the Idaho program be granted interim approval.
DATES: Comments on this proposed action must be received in writing by
November 27, 1995.
ADDRESSES: Comments must be submitted to Elizabeth Waddell at the
address indicated. Copies of the State's submittal and other supporting
information used in developing this action are available for inspection
during normal business hours at the following location: U.S.
Environmental Protection Agency, Region 10, 1200 Sixth Avenue, Seattle,
Washington.
FOR FURTHER INFORMATION CONTACT: Elizabeth Waddell, 1200 Sixth Avenue,
AT-082, Seattle, WA 98101, (206) 553-4303.
SUPPLEMENTARY INFORMATION:
I. Background and Purpose
A. Background
As required under title V of the 1990 Clean Air Act Amendments
(sections 501-507 of the Clean Air Act (``the Act'')), EPA has
promulgated rules which define the minimum elements of an approvable
State operating permits program and the corresponding standards and
procedures by which the EPA will approve, oversee, and withdraw
approval of State operating permits programs (see 57 FR 32250 (July 21,
1992)). These rules are codified at 40 Code of Federal Regulations
(CFR) part 70. Title V requires States to develop, and submit to EPA,
programs for issuing these operating permits to all major stationary
sources and to certain other sources.
The Act requires that States develop and submit these programs to
EPA by November 15, 1993, and that EPA act to approve or disapprove
each program within 1 year after receiving the submittal. EPA's program
review occurs pursuant to section 502 of the Act and the part 70
regulations, which together outline criteria for approval or
disapproval. Where a program substantially, but not fully, meets the
requirements of part 70, EPA may grant the program interim approval for
a period of up to 2 years. If EPA has not fully approved a program by 2
years after the November 15, 1993 date, or by the end of an interim
program, it must establish and implement a Federal program.
B. Federal Oversight and Sanctions
EPA must apply sanctions to a State for which 18 months have passed
since EPA disapproved the program. In addition, discretionary sanctions
may be applied any time during the 18 month period following the date
required for program submittal or program revision. If the State has no
approved program 2 years after the date required for submission of the
program, EPA will impose additional sanctions, where applicable, and
EPA must promulgate, administer, and enforce a Federal permits program
for the State. EPA has the authority to collect reasonable fees from
the permittees to cover the costs of administering the program.
II. Proposed Action and Implications
A. Analysis of State Submission
1. Support Materials
On November 15, 1993, the Idaho Department of Health and Welfare,
Division of Environmental Quality (referred to herein as ``IDEQ,''
``the Department,'' ``Idaho'' or ``the State''), submitted a title V
program for EPA review. EPA notified the State in writing on January
13, 1994, that the submittal was incomplete and advised the State of
the changes needed for EPA to find the submittal complete. On January
20, 1995, Idaho resubmitted the State's title V program and requested
approval of
[[Page 54991]]
the program. EPA notified Idaho by letter dated March 14, 1995, that
this submittal was complete. The State submitted additional information
to EPA to supplement its January 1995 submittal on July 14, 1995, and
September 15, 1995. Although EPA considers these supplemental
submittals to be material changes to Idaho's January 1995 program
submittal, EPA has chosen not to extend its review period beyond the
initial 1 year.
Section 2 of the Idaho submittal addresses the requirement of 40
CFR 70.4(b)(1) by describing how the State intends to carry out its
responsibilities under the part 70 regulations. An implementation
agreement is currently being developed between Idaho and EPA. EPA has
deemed the program description to be sufficient for meeting the
requirement of 40 CFR 70.4(b)(1).
Section 3 of the Idaho submittal includes a legal opinion from the
Attorney General of Idaho addressing the thirteen program elements set
forth in 40 CFR part 70 that are specifically required by title V and
40 CFR part 70, as well as several additional program elements.
Together with a supplemental opinion submitted on July 20, 1995, these
opinion letters demonstrate adequate legal authority to implement all
aspects of the title V operating permit program in Idaho.
Appendix V of the Idaho submittal contains the relevant permitting
program documentation which is not contained in regulations, such as
permit application forms, permit forms and relevant guidance to assist
in the State's implementation of its permit program, as required by
Sec. 70.4(b)(4). EPA has determined that the forms meet the
requirements of 40 CFR 70.5(c) for standard permit application forms.
In summary, EPA believes that Idaho's title V operating permits
program substantially meets the requirements of 40 CFR part 70,
Secs. 70.2 and 70.3 for applicability; Secs. 70.4, 70.5, and 70.6 for
permit content, including operational flexibility; Sec. 70.7 for public
participation and minor permit modifications; Sec. 70.8 for permit
review by EPA and affected States; Sec. 70.5 for criteria which define
insignificant activities; Sec. 70.11 for requirements for enforcement
authority; and Sec. 70.5 for complete application forms. The issues
that EPA proposes the State must address in order to obtain interim
approval and full approval are discussed below under ``Options for
Program Approval and Implications.''
The full program submittal and the Technical Support Document (TSD)
are contained in the docket at the address noted above and provide more
detailed information on the State's program.
2. Regulations and Program Implementation
a. Regulations
The Idaho title V operating permit program, known as the Tier I
operating permit program, is authorized by the Environmental Protection
and Health Act (EPHA), Idaho Code 39-101, et seq.. The State of Idaho
revised its Rules for the Control of Air Pollution in Idaho, Volume 16,
Title 1, Chapter 1 of the Idaho Administrative Code (IDAPA) to
implement the requirements of 40 CFR part 70. These revisions were
adopted on April 8, 1994, and became effective May 1, 1994. Additional
revisions to IDAPA 16.01.01 and to 39 of the Idaho Code were made by
the legislature in March of 1995 and by the Department in June of 1995
and are currently in effect. These rules and statute, as well as other
rules and statutes governing State permitting and administrative
actions, were submitted by Idaho with evidence of procedurally correct
adoption as required by 40 CFR 70.4(b)(2).
IDAPA 16.01.01 contains regulations pertaining to both title V and
non-title V sources. Therefore, this notice proposes to approve certain
regulations within IDAPA 16.01.01 as part of Idaho's title V program.
The Technical Support Document identifies the regulations approved in
this rulemaking. The remainder of IDAPA 16.01.01 has been submitted by
the State as a revision to the Idaho State Implementation Plan (SIP)
and will be approved or disapproved as part of the Idaho SIP.
b. Scope of Proposed Action
The Governor's January 20, 1995, letter to EPA contains the
statement that IDEQ is ``the sole implementing agency in the State of
Idaho and will provide coverage to all geographic regions state-wide.''
The State also submitted a list of title V sources in Idaho which
included sources within the exterior boundaries of several Indian
reservations in Idaho. The Shoshone-Bannock Tribes and the Kootenai
Tribe of Idaho interpreted the State's submittal as an assertion by
Idaho of permitting authority over sources on Tribal lands and have
requested EPA to deny Idaho authority to implement Idaho's operating
permits program within the exterior boundaries of Indian reservations
in Idaho. These letters and EPA's response are contained in the docket.
An April 5, 1995, letter from Wally N. Cory, IDEQ Administrator, to EPA
clarified that Idaho did not intend for its submittal to address
jurisdictional issues over Tribal lands.
Because Idaho has neither claimed nor demonstrated authority to
implement and enforce its operating permits program for sources located
within the exterior boundaries of Indian Reservations, EPA proposes
that interim approval of the Idaho operating permits program not extend
to any lands within the exterior boundaries of any Indian Reservation
in Idaho.1 See 59 FR 55813, 55815-55817 (Nov. 9, 1994) (detailed
discussion of EPA's views on implementation of title V programs on
Tribal lands). Title V sources located within the exterior boundaries
of Indian Reservations in Idaho will be subject to the Federal
operating permits program, to be promulgated at 40 CFR part 71
(proposed at 60 FR 20804 (April 27, 1995)), or subject to the operating
permits program of any Tribe approved after issuance of regulations
under 301(d) of the Clean Air Act authorizing EPA to treat Tribes in
the same manner as States for appropriate Clean Air Act provisions
(proposed at 59 FR 43956 (August 25, 1994)).2
\1\This is not a determination that Idaho could not possibly
demonstrate jurisdiction over sources within the exterior boundaries
of Indian Reservations in Idaho. The State has made no such showing,
however. In addition, a December 18, 1985, memorandum from Cheryl
Koshuta, Deputy Attorney General of Idaho, to Ken Brooks, Air
Quality Bureau Chief, states that ``only the federal government and
the Indian tribes have jurisdiction to enforce environmental
regulations on Indian reservations; state regulations do not
apply.''
\2\Tribes may also have inherent sovereign authority to regulate
air pollutants from sources on Tribal lands.
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c. Program Implementation
There are several areas where the Idaho program does not directly
address certain requirements of part 70, but EPA believes either that:
(1) The Idaho program, as a whole, satisfies the requirements of part
70 in that particular respect, or (2) no changes are currently required
to the Idaho program to comply with part 70, but that changes will
likely be required some time in the future.
i. Applicability. With one exception discussed below in the list of
proposed interim approval issues, the Idaho operating permits program
currently meets the requirements of 40 CFR 70.2 and 70.3 regarding
sources subject to the program. See IDAPA 16.01.01.006.99 (definition
of ``Tier I source''); 16.01.01.008.14 (definition of ``major
facility''); 16.01.01.006.35 (definition of ``facility''). EPA notes,
however, two additional areas in which Idaho's rules regarding
applicability differ from the
[[Page 54992]]
requirements of part 70 and will require revision at some later date.
First, part 70's definition of ``major source'' includes a ``major
source'' of radionuclides, as specified by EPA by rule. The Idaho
definition of ``major facility'' in IDAPA 16.01.01.008.14 does not
include a comparable provision. EPA has not yet promulgated a rule
defining a ``major source'' of radionuclides. This deficiency in
Idaho's program will therefore have no immediate effect on the
applicability of Idaho's title V operating permits program. At such
time as EPA promulgates a definition of a ``major source'' of
radionuclides, however, Idaho must revise its rules to incorporate the
EPA definition.
In addition, part 70 requires the permitting of any source in a
source category designated by EPA pursuant to 40 CFR 70.3. See
70.3(a)(5). The Idaho rules require the permitting of any source in a
source category designated by the Department. See IDAPA
16.01.01.006.99.e. At this time, EPA has not designated any additional
sources for permitting under 40 CFR 70.3. At such time as EPA makes
such a designation, however, Idaho will be required to revise its
program to cover sources so designated in order to maintain title V
approval.
ii. Applicable requirements. Part 70 requires all ``applicable
requirements'' to be included in a permit application and permit, and
defines ``applicable requirement'' to include, among other things, any
standard or other requirement provided for in the applicable
implementation plan approved or promulgated by EPA through rulemaking
under title I of the Clean Air Act that implements the relevant
requirements of the Act. See 40 CFR 70.2. Idaho has defined
``applicable requirements'' to include ``Any standard or other
requirement provided for in the applicable state implementation plan,
including any revisions to that plan that are specified in 40 CFR Parts
52.70 though 52.690.'' See IDAPA 16.01.01.008.05.b. EPA interprets this
definition as including as applicable requirements all provisions
promulgated by EPA under title I of the Act (known as Federal
Implementation Plans or ``FIPs''), because it references all of the
plan provisions applicable in Idaho, not just 40 CFR 52.679, which only
lists the provisions of the Idaho SIP. In any event, there is currently
only one FIP in effect in Idaho, a control strategy for sulfur oxides
that applies to The J.R. Simplot Company's facility in Power County,
Idaho. See 40 CFR 52.675. If, during program implementation, Idaho
issues a permit to the Simplot facility that does not include the
applicable provisions of 40 CFR 52.675, EPA would have the authority to
object to issuance of the permit on the grounds that the permit was not
in compliance with applicable requirements. See 40 CFR 70.8(c).
iii. Acid rain permits. The Idaho program does not specifically
require a title V permit to include a statement that, where an
applicable requirement of the Act is more stringent than an applicable
requirement of regulations promulgated under title IV (the acid rain
program), both provisions shall be incorporated into the permit and
shall be enforceable by EPA. See 40 CFR 70.6(a)(1)(ii). IDAPA
16.01.01.322.03, however, specifically requires that a title V
operating permit in Idaho contain at least one permit term or condition
for every applicable requirement specifically identified in the
application. In addition, IDAPA 16.01.01.322.16.m.iv requires a title V
permit to specifically state that nothing in the permit shall alter or
affect the applicable requirements of the acid rain program consistent
with 42 U.S.C. 7651g(a). EPA believes that these provisions are
together adequate to meet the requirement of 40 CFR 70.6(a)(1)(ii).
iv. Group processing of minor permit modifications. Part 70 allows
a permitting authority to process as a group certain categories of
applications for minor permit modifications at a single source. See 40
CFR 70.7(e)(3). 70.7(e)(3)(iii) requires the permitting authority to
notify EPA and affected States of requested permit modifications on a
quarterly basis or within five business days of receipt of an
application demonstrating that the aggregate of a source's pending
applications equals or exceeds the approved threshold levels. The Idaho
program contains procedures for group processing of minor permit
modifications. See IDAPA 16.01.01.385.07. Idaho regulations, however,
give the Department five business days in which to identify the permit
modifications that will be processed as a group and then requires the
Department to notify EPA and affected States of the modifications
``promptly thereafter.'' See IDAPA 16.01.01.385.07.d. EPA proposes to
give full approval to this aspect of Idaho's group processing
procedures because EPA believes that Idaho's regulations are
substantially equivalent to the requirements of part 70 in this
respect, as required by 40 CFR 70.7(e)(1). EPA will review the Idaho
program during implementation, however, to ensure that Idaho is
``promptly notifying'' EPA and affected States of minor modifications
processed as a group.
v. Variances. IDAPA 16.01.01.140 to -.149 establish procedures for
the granting of variances under certain conditions from compliance with
State air pollution control rules. EPA has previously disapproved these
provisions as part of the Idaho SIP. See 58 FR 39466 (July 23, 1993).
EPA regards IDAPA 16.01.01.140 to -.149 as wholly external to the
program submitted by the State of Idaho for approval under part 70, and
consequently proposes to take no action on these provisions of State
law in this rulemaking. EPA does not recognize the ability of a
permitting authority to grant relief from the duty to comply with a
Federally-enforceable title V permit, except where such relief is
granted through procedures allowed by part 70. In other words, a
variance does not affect the title V source until the title V permit is
modified pursuant to procedures approved under part 70. EPA reserves
the right to enforce the terms of the title V permit where the
permitting authority purports to grant relief from the source's duty to
comply with a title V permit in a manner inconsistent with procedures
approved under part 70. A title V permit may also incorporate, via part
70 permit issuance or modification procedures, a schedule of compliance
incorporated into a variance. EPA reserves the right, however, to
pursue enforcement of applicable requirements notwithstanding the
existence of a compliance schedule in a permit to operate. This is
consistent with 40 CFR 70.5(c)(8)(iii)(C), which states that a schedule
of compliance ``shall be supplemental to, and shall not sanction
noncompliance with, the applicable requirements on which it is based.''
3. Permit Fee Demonstration
Section 502(b)(3) of the Clean Air Act requires each permitting
authority to collect fees sufficient to cover all reasonable direct and
indirect costs necessary for the development and administration of its
title V operating permit program. Each title V program submittal must
contain either a detailed demonstration of fee adequacy or a
demonstration that aggregate fees collected from title V sources meet
or exceed $25 per ton of emission per year (adjusted from 1989 by the
Consumer Price Index). See 40 CFR 70.4(b)(7); 40 CFR 70.9. The adjusted
amount is currently $30.07. The $30.07 per ton is presumed, for
purposes of program approval, to be sufficient to cover all reasonable
program costs and is thus referred to as the ``presumptive minimum.''
[[Page 54993]]
The Idaho fee program requires that title V sources pay an annual
registration fee of thirty dollars per ton of oxides of sulfur, oxides
of nitrogen, particulate matter, volatile organic compounds, and five
dollars per curie of radionuclides. There is relief from fees for
fugitive emissions and for hazardous air pollutants (other than
radionuclides) but no relief for emissions in excess of 4,000 tons per
year. See IDAPA 16.01.01.525 to .538. The State submittal included a
demonstration that this program will result in the collection of fees
equivalent to $31.58 per ton of regulated air pollutant and, therefore,
meets the presumptive minimum requirement of 40 CFR 70.9.
The State also included in their submittal a detailed resource
needs and financial analysis study for Idaho's Air Quality Program
which includes its title V program. This study concluded that permit
fees should be set at between $55 and $71 per ton of pollutant in order
to meet the full cost of the title V program. 40 CFR 70.9(5) directs
the Administrator to require the State to provide a detailed accounting
that its fee schedule will cover the permit program costs if there are
serious questions regarding the sufficiency of the fee program to cover
all permit program costs. Since there were many uncertainties in the
State study, EPA has not concluded that this study alone is sufficient
to raise serious questions. However, EPA will closely monitor the
adequacy of the State's fee program during implementation to assure
that adequate fees are collected.
4. Provisions Implementing the Requirements of Other Titles of the Act
a. Authority for Section 112 Implementation
In its program submittal, Idaho demonstrates adequate legal
authority to implement and enforce all section 112 requirements through
the title V permit. Idaho defines the term ``applicable requirement''
to include, among other things, all standards under section 112 of the
Clean Air Act. IDAPA 16.01.01.008.05.d. All title V permit applications
are required to cite and describe all applicable requirements and all
title V permits issued by the State are required to include conditions
that assure compliance with all applicable requirements. IDAPA
16.01.01.314.06; 16.01.01.322.01.
b. Program for Delegation of 112 Standards as Promulgated
The requirements for part 70 program approval, specified in 40 CFR
70.4(b), encompass section 112(l)(5) requirements for approval of a
State program for delegation of section 112 standards promulgated by
EPA as they apply to title V sources. Section 112(l)(5) requires that
the State's program contain adequate authorities, adequate resources
for implementation, and an expeditious compliance schedule, which are
also requirements under part 70. Therefore, EPA also proposes to grant
approval, under section 112(l)(5) and 40 CFR 63.91, of Idaho's program
for receiving delegation of section 112 standards that are unchanged
from the Federal standards as promulgated. This approval applies to
future standards but is limited to sources covered by Idaho's title V
program. In addition, EPA proposes delegation of all existing standards
and programs under 40 CFR parts 61 and 63 for title V sources.3
Under this approval, Idaho will automatically assume delegation of
future section 112 standards for title V sources. Details of this
delegation mechanism will be set forth in an implementation agreement
to be negotiated before final program approval.
\3\The radionuclide National Emission Standards for Hazardous
Air Pollutant (NESHAP) is a section 112 regulation and therefore,
also an applicable requirement under the State operating permits
program for part 70 sources. There is not yet a Federal definition
of ``major'' for radionuclide sources. Therefore, until a major
source definition for radionuclide is promulgated, no source would
be a major section 112 source solely due to its radionuclide
emissions. However, a radionuclide source may, in the interim, be a
major source under part 70 for another reason, thus requiring a part
70 permit. EPA will work with the State in the development of its
radionuclide program to ensure that permits are issued in a timely
manner.
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c. Implementation of Title IV of the Act
In its program submittal, Idaho demonstrates adequate legal
authority to implement title IV of the Clean Air Act through the title
V permit. Idaho defines the term ``applicable requirement'' to include,
among other things, any standard or other requirement of the acid rain
program under title V of the Act. IDAPA 16.01.01.008.05.e. As discussed
above, all title V permit applications are required to cite and
describe all applicable requirements and all title V permits issued by
the State are required to include conditions that assure compliance
with all applicable requirements.
As discussed below under ``Options for Program Approval and
Implications,'' IDAPA 16.01.01.301.02.b.ii does not require Phase II
sources to obtain a title V permit until June 1, 1999, in direct
conflict with the Federal requirement that Phase II sources obtain
permits by December 31, 1997 (See section 408(d)(3) of the Act).
Because Idaho has the discretion to issue permits to Phase II sources
prior to June 1, 1999, and has committed to meeting the Federal
permitting deadline, EPA does not consider this conflict between the
State and Federal permitting deadlines to be a disapproval issue. EPA
proposes, however, that Idaho must correct this inconsistency as a
condition of full approval.
B. Options for Program Approval and Implications
1. Proposed Disapproval
EPA believes that the excess emissions provisions and
administrative amendment provisions of Idaho's title V program require
disapproval of the program for the following reasons.
a. Excess Emissions
IDAPA 16.01.01.326 to .332 establishes procedures and requirements
related to excess emissions for title V sources in Idaho. With the
exception of IDAPA 16.01.01.332, which provides an affirmative defense
for emissions in excess of a technology-based permit limit due to
``emergency'' as authorized by 40 CFR 70.6(g), Idaho's excess emissions
provisions for title V sources go well beyond what is authorized by
part 70. For example, IDAPA 16.01.01.328 requires Idaho to incorporate
into a permit all startup, shutdown and scheduled maintenance
procedures if it determines that such procedures are consistent with
good air pollution control practices, will minimize emissions during
such period to the extent practicable and that no adverse health impact
on the public will occur. IDAPA 16.01.01.329 contains a similar
provision for excess emissions due to upsets and breakdowns. IDAPA
16.01.01.327.02 then allows a permittee to exceed emission limits in
applicable requirements if the permittee demonstrates that the excess
emissions were caused by startup, shutdown, scheduled maintenance,
upset or breakdown and follows certain other procedures. Because the
Idaho program requires that these provisions be included in title V
permits, EPA believes that title V permits in Idaho will not assure
compliance with all applicable requirements. This is a requirement for
interim approval of a State operating permits program. See 40 CFR
70.4(c)(1) and 70.4(d)(3)(ii). EPA therefore believes that it must
disapprove Idaho's program unless it demonstrates that its excess
emissions provisions for title V sources are consistent with the
requirements of part 70.
[[Page 54994]]
b. Administrative Amendments
Part 70 allows the requirements of a preconstruction permit to be
incorporated into a title V permit by administrative amendment,
provided that such a preconstruction permit is issued under an EPA-
approved program that meets procedural requirements substantially
equivalent to the part 70 procedures for public, affected State and EPA
review that apply to permit modifications and compliance requirements
substantially equivalent to those required for part 70 permits. See 40
CFR 70.7(d)(1)(v). The Idaho program allows the incorporation of terms
of preconstruction permits by administrative amendment. See IDAPA
16.01.01.384.01.a.v. There is no requirement, however, that
preconstruction permits incorporated by administrative amendment
contain compliance requirements substantially equivalent to the
requirements of a title V permit. Therefore, title V permits modified
by administrative amendments through the incorporation of
preconstruction permits would not be required to assure compliance with
all applicable requirements, which is a requirement for interim
approval of a State operating permits program. See 40 CFR 70.4(c)(1)
and 70.4(d)(3)(ii). Accordingly, EPA believes that it must disapprove
Idaho's program unless Idaho demonstrates that terms of preconstruction
permits incorporated into a title V permit by administrative amendment
must contain compliance requirements substantially equivalent to the
requirements of a title V permit.4
\4\As discussed below, an additional change appears to be
necessary to the Idaho provision authorizing administrative
amendments, IDAPA 16.01.01.01.01.384, before EPA can give full
approval to the Idaho program.
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2. Proposed Interim Approval
Idaho has advised EPA that it intends to revise its regulations
governing excess emissions and administrative amendments in order to
make them consistent with the requirements of part 70 before EPA takes
final action on this proposal. Based on this assurance, EPA is
proposing in the alternative to grant interim approval to the Idaho
program. If promulgated, Idaho must address to EPA's satisfaction the
following issues in order to receive full approval.
a. Applicability
The definition of major source in 40 CFR 70.2 requires that
fugitive emissions of a stationary source be considered in determining
if a source is a major stationary source under section 302(j) of the
Clean Air Act if the source is in a source category regulated by a
standard promulgated under section 111 or 112 of the Act, but only with
respect to those air pollutants that have been regulated for that
category. The comparable provision of Idaho's regulations requires that
fugitive emissions of such sources be counted only if the source
category was regulated by such a standard promulgated as of August 7,
1980, and then only to the extent that the fugitive emissions of such
sources are regulated in those source categories. See IDAPA
16.01.01.008.14.h.iii. Although EPA has proposed a change to the part
70 rules that would make the definition of ``major source'' in 40 CFR
70.2 consistent with the August 7, 1980, limitation in the Idaho rule,
see 59 FR 44460, 44527 (August 29, 1994), EPA has not yet taken final
action on that proposed change. If EPA finalizes its proposed revision
to the definition of ``major source'' before the end of Idaho's interim
approval period, Idaho will no longer be required to revise its
definition of ``major facility'' to delete the ``August 7, 1980,''
limitation. In any case, however, Idaho must revise the reference to
``fugitive emissions'' in IDAPA 16.01.01.008.14.h.iii to refer instead
to any ``air pollutant.'' As currently drafted, the Idaho definition
would require that fugitive emissions be considered in determining
whether a source is a title V source only if the standard in question
regulates fugitive emissions at that source, whereas part 70 requires
fugitive emissions to be considered if the standard in question
regulates any air pollutant from that source.
The State of Idaho has stated that it is ``not aware of any
sources'' that would be considered a major source, and thus a title V
source under part 70, but would not be required to obtain a permit
under Idaho's title V program. In addition, one of the deficiencies in
Idaho's definition of ``major facility'' may be eliminated through
proposed revisions to part 70 in the next 2 years. EPA therefore
believes that Idaho's program may be granted source category-limited
interim approval, rather than disapproval, based on the deficiency in
the Idaho definition of ``major facility.'' See 57 FR 32250, 32270
(July 21, 1992). If EPA takes final action on this proposal, Idaho must
demonstrate to EPA's satisfaction by the end of the interim approval
period that its program covers all sources required to be permitted
under part 70.
b. Temporarily Exempt Sources
Part 70 allows States to defer the permitting of sources that would
otherwise be subject to part 70 but that are not major sources,
affected sources (sources subject to the acid rain provisions of title
IV of the Act) or solid waste incineration units required to obtain a
permit under section 129(e) of the Act until such time as EPA conducts
additional rulemaking. See 40 CFR 70.3(b)(1). Idaho rules, however,
allow the State to defer the permitting of acid rain sources (known as
``Phase II sources'' in Idaho) and sources subject to title V solely
because of a solid waste incineration unit until June 1, 1999. See
IDAPA 16.01.01.301.02.b. Idaho rules also allow sources subject to
title V solely because of a solid waste incineration unit until January
1, 1998, to file an application for a title V permit. See IDAPA
16.01.01.313.01.b. Idaho's submittal states that this deferral will
have a minimal impact in Idaho for several reasons. With respect to
Phase II sources, IDAPA 16.01.01.313.01.3 requires permit applications
for such sources to be submitted by January 1, 1996, for sulfur dioxide
and by January 1, 1998, for nitrogen oxides and IDAPA 16.01.01.367.05
provides that the permitting of Phase II sources shall occur in
accordance with the deadlines specified in the Clean Air Act. The
Attorney General has opined that IDAPA 16.01.01.367 gives Idaho the
discretion to issue permits to Phase II sources within the time periods
required by part 70. The State has advised EPA that there is currently
only one Phase II source in Idaho, that the facility intends to submit
a timely application to receive an operating permit prior to the
Federally-mandated date of December 31, 1997, and that the State
intends to meet the permitting deadlines required by part 70 for Phase
II sources notwithstanding IDAPA 16.01.01.301.02.b.ii.
With respect to sources subject to title V solely because of a
solid waste incineration unit, the Attorney General opines that the
State has the authority under IDAPA 16.01.01.313.01 to require earlier
submittal of title V applications for such sources. In addition, Idaho
has advised EPA that there are no sources in Idaho which are currently
subject to any solid waste incineration rules promulgated pursuant to
section 129 of the Act and that, if any such sources are discovered,
Idaho intends to meet the application and permitting deadlines required
under part 70 for such sources.
Based on these opinions and commitments, EPA agrees that the impact
of the difference between Idaho law and part 70 with respect to the
permitting of Phase II sources and sources with solid waste
incineration units is likely to be minimal during the
[[Page 54995]]
interim approval period and that these difference to do not pose a bar
to interim approval. As a condition of full approval, however, EPA
proposes that Idaho be required to demonstrate to EPA's satisfaction
that the application and permitting deadlines for Phase II sources and
sources with solid waste incineration units meet the requirements of
part 70.
c. New Sources
Part 70 requires title V sources applying for a permit for the
first time to submit a permit application within 12 months after the
source becomes subject to the permit program or on or before such
earlier date as the permitting authority may establish. See 40 CFR
70.5(a)(1)(i). IDAPA 16.01.01.313 ties the date by which a title V
source is required to submit an application to whether the source was
in existence on or before May 1, 1994. Sources existing before that
date are, subject to certain exceptions, required to submit an
application by the earlier of January 1, 1996, and 12 months after EPA
approval of Idaho's program. Sources that become title V sources ``due
to construction, reconstruction or modification'' after May 1, 1994,
are, subject to certain extensions, required to submit an application
within 12 months of commencing operation. IDAPA 16.01.01.313.01. The
Idaho regulations do not appear to include a permit application date
for sources that become subject to title V after May 1, 1994, by means
other than construction, reconstruction or modification, such as
relaxation of a limit on potential to emit or by EPA lowering a
threshold for determining major source status.
Again, Idaho asserts that this gap will have a minimal impact in
Idaho because there are few sources that will become subject to title V
through something other than construction, reconstruction or
modification, the State is authorized to set permit application
deadlines for sources and the State intends to require a permit
application from any source that becomes subject to title V in this
manner within 12 months after such source becomes subject to title V.
Based on these assurances, EPA believes that this gap in the
application submission dates does not pose a bar to interim approval of
the Idaho program, but that, in order to receive full approval, Idaho
must demonstrate to EPA's satisfaction that all sources in Idaho
applying for a title V permit for the first time are required to submit
a permit application within 12 months after becoming subject to title
V.
d. Option to Obtain Permit
Part 70 requires States to allow any source exempt under 40 CFR
70.3(b) to opt to obtain a part 70 permit. See 40 CFR 70.3(b)(3). Idaho
has no comparable provision and the State has not demonstrated that it
has authority to issue title V permits to exempt sources. Few, if any,
exempt sources would be expected to apply for a title V permit in
Idaho, however, because Idaho's Tier II operating permit program
provides sources with a mechanism for obtaining Federally-enforceable
operating permit limits through a means other than a title V permit.
See 16.01.01.400-.499. As a condition of full approve, EPA proposes
that Idaho demonstrate to EPA's satisfaction that it has the authority
required by 40 CFR 70.3(b)(3).
e. Fugitive Emissions
Part 70 requires that fugitive emissions from part 70 sources be
included in permit applications and permits in the same manner as stack
emissions regardless of whether the source category in question is
included in the list of sources contained in the definition of major
source. See 40 CFR 70.3(d). The Idaho regulations do not contain such a
provision, and EPA proposes that Idaho address this requirement of part
70 as a condition of full approval.
f. Insignificant Activities
Part 70 authorizes EPA to approve as part of a State program a list
of insignificant activities and emissions levels which need not be
included in the permit application, provided that an application may
not omit information needed to determine the applicability of, or to
impose, any applicable requirement, or to evaluate the fee amount
required under the EPA-approved schedule. IDAPA 16.01.01.317 contains
criteria for identifying insignificant activities and consists of one
list of units and activities that are defined as ``categorically
exempt'' and may be omitted from the permit application, and another
list of units and activities that are defined as ``insignificant''
based on size or production rate, but must be listed in the permit
application. Importantly, that provision includes a so-called
``gatekeeper,'' which expressly states that no emission unit or
activity subject to an applicable requirement, such as an opacity
standard, may qualify as an insignificant emission unit or activity
under Idaho's rules. See IDAPA 16.01.01.317.01.
EPA believes that, notwithstanding the gatekeeper, full approval of
the lists contained in IDAPA 16.01.01.317 is inappropriate for several
reasons. First, the lists use many terms and acronyms that do not
appear to be defined in regulation or in guidance and Idaho has
provided insufficient documentation that the units and activities
included on the lists are appropriate for industries in Idaho. This
will make the regulation very difficult, if not impossible, to
implement. As an example, IDAPA 16.01.01.317.01.a.52 lists as a
categorically insignificant activity ``materials and equipment used by,
and activity related to operation of infirmary; infirmary is not the
source's business activity.'' This provision could be interpreted to
apply to and thus impermissibly exclude from the permit application
activities subject to the radionuclide NESHAP. Similarly, IDAPA
16.01.01.317.01.a.54.d. and -317.01.a.65 define as categorically exempt
certain units and activities with ``de minimis'' emissions. Again, the
term ``de minimis'' is not defined. Second, IDAPA
16.01.01.317.01.a.54.d., -317.01.a.65 and -317.01.a.122 must be moved
to IDAPA 16.01.01.317.01.b, which requires the identified units and
activities to be listed in the application, because whether these units
and activities are ``insignificant'' depends on size or production
rate. Finally, IDAPA 16.01.01.317.01.b.29 defines as insignificant
``[a]ny other activity that is requested to be listed as insignificant
by the applicant and agreed to by the department.'' Such a ``director's
discretion'' provision is contrary to the requirement of 40 CFR 70.5(c)
that EPA approve the activities and emissions limits defined as
``insignificant'' by the State because it gives the Director completes
discretion to determine on a case-by-case basis that a particular
activity is ``insignificant.'' EPA does not believe that these problems
with Idaho's list of insignificant activities preclude interim approval
of the Idaho program, however, because the ``gatekeeper'' provision of
IDAPA 16.01.01.317.01 adequately assures that Idaho has authority to
issue permits that assure compliance with all applicable requirements
to subject sources during the interim approval period, as required by
40 CFR 70.4(d)(3)(ii) and 70.6(a)(1). EPA proposes that Idaho must
address these identified issues with its designation and definition of
insignificant activities, however, as a condition of full approval.
g. Permit Content
Part 70 requires that the permitting authority include in a title V
permit all emission limitations and standards, including those
operational
[[Page 54996]]
requirements and limitations that assure compliance with all applicable
requirements at the time of permit issuance. See 40 CFR 70.6(a)(1).
IDAPA 16.01.01.322.01 and 16.01.01.322.03 qualify this requirement in
that they require inclusion of only those requirements that are
``identified in the application'' at the time of permit issuance. This
qualification impermissibly relieves the permitting authority from
including in a permit applicable requirements that are not identified
in a permit application. EPA believes that this qualification must be
revised before the Idaho program qualifies for full approval. EPA does
not believe this deficiency precludes interim approval, however,
because sources are obligated under the Idaho program to include all
applicable requirements affecting the source in the permit application,
IDAPA 16.01.01.314.06, and are obligated to supplement and correct a
permit application upon becoming aware that an application contains
incorrect information or omits necessary information. EPA believes that
these provisions minimize the likelihood that applicable requirements
will be omitted from the permit during the interim approval period and
that the Idaho program therefore provides the State with adequate
authority to issue permits that assure compliance with the requirements
of 40 CFR 70.4(c)(1), as required by 40 CFR 70.4(d)(3)(ii).
h. Exemption From Applicable Requirements
IDAPA 16.01.01.325.01.c allows Idaho to exempt sources from
otherwise applicable requirements provided the source submits specified
information, the exemption is included in the title V permit, the
Department has determined in writing that the permittee should be
exempted and the title V permit includes a concise summary of the
Department's determination. Although part 70 authorizes a permitting
authority to determine that a certain requirement is inapplicable to a
source and to provide a source with a shield from a later determination
that the source was subject to such requirement, part 70 does not
authorize a permitting authority to exempt a source from otherwise
applicable requirements. EPA proposes that, as a condition of full
approval, Idaho must eliminate this provision or demonstrate to EPA's
satisfaction that this provision is consistent with the requirements of
part 70. EPA does not believe this deficiency precludes interim
approval, however, because the State is not required to grant such
exemptions and EPA believes it would have the authority to veto any
title V permit issued by Idaho that purported to exempt a source from
an otherwise applicable requirement. See 40 CFR 70.8(c)(EPA will object
to the issuance of any proposed permit determined by EPA not to be in
compliance with applicable requirements).
i. Emissions Trading
Part 70 requires a permitting authority, if a permit applicant so
requests, to issue permits allowing for the trading of increases and
decreases within the permitted facility solely for the purposes of
complying with a Federally-enforceable emissions cap that is
established in the permit independent of otherwise applicable
requirements. See 40 CFR 70.4(b)(12)(iii). The Idaho program authorizes
the permitting authority to issues permits containing emissions trading
provisions. See IDAPA 16.01.01.322.05 and 16.01.01.383.01.a.iii. The
Idaho program does not require, however, an applicant requesting a
permit with emissions trading provisions to include in its permit
application proposed replicable procedures and permit terms that ensure
emission trades are quantifiable and enforceable, as required by 40 CFR
70.4(b)(12)(iii). Nor does the Idaho program require the permitting
authority to include in the emissions trading provisions only those
emission units for which emissions are quantifiable and for which there
are replicable procedures to enforce the emissions trades, as is also
required by that section. Finally, the Idaho regulations do not appear
to require each permit to state that no permit revision is required,
under any approved economic incentives, marketable permits, emissions
trading or other similar programs or processes for changes that are
provided for in the permit, as is required by 40 CFR 70.6(a)(8). As a
condition of full approval, EPA proposes that Idaho be required to
demonstrate that its emissions trading provisions meet the requirements
of 40 CFR 70.4(b)(12)(iii) and 40 CFR 70.6(a)(8). EPA also recommends
that the requirement of IDAPA 16.01.01.322.05 that the company
contemporaneously record in a company log a change from one trading
scenario to another be specifically referred to in the list of
requirements a source must meet in IDAPA 16.01.01.383.03 in order to
make a ``Type II'' permit deviation.
j. Alternative Emission Limits
Part 70 requires that, if an applicable implementation plan allows
a determination of an alternative emission limit, equivalent to that
contained in the plan, to be made in the permit issuance, renewal or
significant modification process and the State elects to use such
process, any permit containing such an equivalency determination shall
contain provisions to ensure that any resulting emissions limit has
been demonstrated to be quantifiable, accountable, enforceable and
based on replicable procedures. See 40 CFR 70.6(a)(1)(iii). Although
the Idaho regulations require such permit terms for permits with
emission trading provisions, see IDAPA 16.01.01.322.05, there is no
such requirement for permits in which alternative emission limits are
established. As a condition of full approval, EPA proposes that the
State be required to demonstrate to EPA's satisfaction that its
operating permit program meets the requirements of 40 CFR
70.6(a)(1)(iii).
k. Reporting of Permit Deviations
Part 70 requires that each permit require the prompt reporting of
deviations5 from permit requirements, including those attributable
to upset conditions as defined in the permit, the probable cause of
such deviations and any corrective actions or preventative measures
taken, and authorizes the permitting authority to define ``prompt'' in
relation to the degree and type of deviation likely to occur and the
applicable requirement. See 40 CFR 70.6(a)(3)(iii)(B). Although the
Idaho regulations contain detailed requirements for defining, limiting,
and reporting permit deviations due to excess emissions caused by
startup, shutdown, scheduled maintenance, upset or breakdown, see IDAPA
16.01.01.326 to -332, they do not address other permit deviations. In
order to receive full approval, EPA proposes that the Idaho program
must be revised to require prompt reporting of deviations from all
permit requirements.
\5\The Idaho regulations use the term ``permit deviation'' to
refer to certain changes authorized by the permit flexibility
provisions contained in 40 CFR 70.6 (9) and (10) and section
502(b)(10) of the Act. See IDAPA 16.01.01.383. The part 70
regulations use the term ``permit deviation'' to refer to permit
violations. See 40 CFR 70.6(a)(3)(iii)(B). This notice uses the term
``permit deviation'' in the same way as the part 70 regulations.
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l. Acid Rain Provisions
Part 70 requires a permit to state that no permit revision is
required for increases in emissions that are
[[Page 54997]]
authorized by allowances acquired pursuant to the acid rain program,
provided that such increases do not require a permit revision under any
other applicable requirement. See 40 CFR 70.6(a)(4)(i). The Idaho
regulations do not appear to contain a comparable provision. EPA
proposes that Idaho must revise its regulations to address the
requirements of 40 CFR 70.6(a)(4)(i) in order to obtain full approval.
m. State-Only Enforceable Requirements
Part 70 requires the permitting authority to specifically designate
as not being Federally enforceable under the Clean Air Act any terms
and conditions included in the permit that are not required under the
Act or under any of its applicable requirements. See 40 CFR 70.6(b)(2).
The Idaho regulations require a permit to state that provisions
specifically identified as ``State Only'' are enforceable only by the
Department and not by EPA. See 16.01.01.322.16.k. The Idaho
regulations, however, do not specify which provisions shall be
designated as ``State Only,'' that is, that Idaho shall designate as
``State Only'' those provisions that are not required under the Act or
under any of its applicable requirements. In order to receive full
approval, EPA proposes that Idaho be required to revise its regulations
to define ``State Only'' provisions in a manner consistent with 40 CFR
70.6(b)(2).
n. General Permits
Part 70 allows States to issue a ``general permit,'' which is a
permit issued after notice and opportunity for public participation,
that covers numerous similar sources. See 40 CFR 70.6(d). The Idaho
program includes regulations authorizing the issuance of general
permits. See IDAPA 16.01.01.335. These regulations fail to comply with
the requirements of part 70, however, in several respects. First, part
70 requires that, if a permitting authority has issued a general
permit, the permitting authority must grant the conditions and terms of
the general permit to sources that qualify. See 40 CFR 70.6(d)(1). The
Idaho program does not contain a comparable requirement. Second, part
70 allows permitting authorities to provide for applications for
general permits which deviate from the requirements of 40 CFR 70.5,
provided that such applications otherwise meet the requirements of
title V. The Idaho regulations allow for specialized applications for
general permits, but do not require that such specialized applications
meet the requirements of title V. See IDAPA 16.01.01.335.02.c. Third,
part 70 allows the permitting authority to grant a source's request for
authorization to operate under a general permit without repeating the
public participation procedures, provided that such grant shall not be
a final permit action for purposes of judicial review. See 40 CFR
70.6(d)(2). IDAPA 16.01.01.335.05, however, provides that the issuance
of authorization to operate under a general operating permit is a final
agency action for purposes of administrative and judicial review. This
directly conflicts with the requirements of 40 CFR 70.6(d)(2). Finally,
section 70.6(d)(1) provides that, notwithstanding the shield provisions
of 40 CFR 70.6(f), a source shall be subject to enforcement action for
operation without a permit if the source is later determined not to
qualify for the conditions and terms of the general permit. IDAPA
16.01.01.335.06 limits this requirement by stating that the source is
subject to enforcement action in such a case only if the source
submitted an incomplete or inaccurate application. In order to receive
full approval, EPA proposes that Idaho must revise its regulations
authorizing general permits to be consistent with 40 CFR 70.6(d).
o. Operational Flexibility
Part 70 requires permit programs to include certain ``operational
flexibility'' provisions and authorizes permit programs to include
certain other ``operational flexibility'' provisions in an approved
title V program. See 40 CFR 70.4(b)(12). These provisions allow a
source to make certain types of changes without a permit modification
but require the permittee to provide notice of the change to EPA and
the permitting authority, and require the permittee, the permitting
authority and EPA to each attach a copy of such notice to the relevant
permit. The Idaho program meets all of the requirements of 40 CFR
70.4(b)(12), except that neither the Idaho regulations nor the rest of
the program submittal require or commit the State of Idaho to attach a
copy of any such notice to the relevant permit. In order to receive
full approval, EPA proposes that Idaho address this requirement to
EPA's satisfaction.
p. Off-Permit Provisions
Part 70 authorizes an approved permit program to include certain
``off-permit'' provisions whereby a source can make a change at the
permitted facility without the need for a permit revision. See 40 CFR
70.4(b)(14) and (15). These provisions require the permittee to keep a
record at the facility describing each off-permit change and to provide
``contemporaneous'' notice of each off-permit change to EPA and the
permitting authority. See 40 CFR 70.4(b)(14). The Idaho program
authorizes off-permit changes, and allows a source seven days in which
to make a record at the facility describing the change and to provide
written notice to Idaho and EPA. See IDAPA 16.01.01.382.02. EPA
believes that seven days qualifies as ``contemporaneous,'' within the
meaning of 40 CFR 70.4(b)(14)(ii), and is an acceptable period of time
to allow a source to report an off-permit change to EPA and the
permitting authority. EPA also believes, however, that 40 CFR
70.4(b)(14)(iv) requires a source to record an off-permit change in a
log at the time the change is being implemented and does not allow a
permitting authority to afford a source seven days in which to record
an off-permit change in the facility log. EPA therefore proposes that,
in order to receive full approval, Idaho must revise its regulations to
require a source to record an off-permit change in a log at the
facility on the same day that the change is made.
q. Permit Renewals
Part 70 defines a timely application for a permit renewal as one
that is submitted at least six months prior to the date of permit
expiration or such longer time as may be approved by EPA, but not to
exceed 18 months. See 40 CFR 70.5(a)(iii). The Idaho regulations define
a timely application for a permit renewal as one that is submitted at
least nine months prior to the date of permit expiration. See IDAPA
16.01.01.313.03. The Idaho regulations do not place a limit, however,
on how long before permit expiration a source may submit an application
for a permit renewal. EPA agrees that nine months prior to permit
expiration is an appropriate deadline for the submission of renewal
applications in the State of Idaho. In order to receive full approval,
however, EPA proposes that Idaho be required to revise its regulations
to ensure that an application for a permit renewal will not be
considered timely if it is filed more than 18 months before permit
expiration.
r. Completeness Determination
Part 70 requires that a permit application be deemed complete
within 60 days of receipt unless the permitting authority determines in
that period that the application is not complete or requests additional
information. See 40 CFR 70.5(a)(2) and 70.7(a)(3). The Idaho
regulations meet this requirement except for permit applications which
were due before the effective date of
[[Page 54998]]
EPA approval of Idaho's program but were not subject to a specific
deadline established by the Department under IDAPA 16.01.01.313.01. See
IDAPA 16.01.01.361.02.a.ii. The Department is required to make
completeness determinations for these permit applications as promptly
as practicable or within 90 days of EPA approval of Idaho's title V
program, whichever is earlier, but Idaho's regulations do not specify a
date by which such applications will be deemed complete. In order to
obtain full approval, EPA proposes that Idaho be required to revise its
regulations to ensure that applications will be deemed complete within
60 days of receipt for all sources or establish to EPA's satisfaction
that no sources will in fact fall within the exception of IDAPA
16.01.01.361.02.a.ii.
s. Administrative Amendments
In addition to the deficiency in Idaho's administrative amendment
procedures discussed above, which EPA believes compels disapproval if
not addressed before final action, there is one other deficiency in
Idaho's administrative amendment procedures which EPA believes must be
addressed for full approval. 40 CFR 70.7(d)(1)(vi) authorizes EPA to
approve as appropriate for incorporation by administrative amendment
other types of changes which are similar to those specifically
enumerated in 40 CFR 70.7(d)(1). The Idaho program allows sources to
incorporate into a title V permit by administrative amendment terms and
conditions consistent with a compliance schedule developed in
accordance with IDAPA 16.01.01.322.13.d.6 and the terms and
conditions of an applicable consent order, judicial consent decree,
judicial order, administrative order, settlement agreement or
judgement. See IDAPA 16.01.01.384.01.a.vi and -vii. EPA does not
believe that compliance orders, judicial consent decrees and
administrative orders are similar to the other truly ``administrative''
types of changes specified in part 70 as appropriate for administrative
amendment, such as a change in name or correction of a typo. See 40 CFR
70.7(d)(1). In addition, compliance schedules, which are required to be
at least as stringent as judicial consent decrees and administrative
orders, become additional ``applicable requirements'' once incorporated
into a title V permit. Like any other change to an applicable
requirement, they must therefore be processed as a permit modification.
Accordingly, EPA proposes to require Idaho to delete these items from
the list of changes in IDAPA 16.01.01.384.01.a that may be accomplished
by administrative amendment in order to receive full approval.
\6\The reference in IDAPA 16.01.01.384.01.a.vi to IDAPA
16.01.01.322.13.d appears to be in error. The reference should
instead be to IDAPA 16.01.01.322.12.d.
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t. Minor Permit Modifications
Part 70 requires States to establish procedures for minor permit
modifications which are substantially equivalent to those set forth in
40 CFR 70.7(e). The Idaho program contains such procedures, but fails
to meet the requirements of part 70 in one respect. 70.7(e)(2)(iv)
prohibits a permitting authority from issuing a final minor permit
modification until after the earlier of expiration of EPA's 45-day
review period or until EPA has notified the permitting authority that
EPA will not object to issuance of the permit modification, although
the permitting authority can approve the minor permit modification
prior to that time. IDAPA 16.01.01.385.04.c, however, requires Idaho to
issue minor permit modifications prior to the end of EPA's 45-day
review period if more than 60 days have elapsed since receipt of a
complete permit application. As a condition for full approval, EPA
proposes that Idaho must revise its rules to prohibit the issuance of
any permit until after the earlier of expiration of EPA's 45-day review
period or until EPA has notified the permitting authority that EPA will
not object to issuance of the permit modification.
u. Group Processing of Minor Permit Modifications
Part 70 allows a permitting authority to process as a group certain
categories of applications for minor permit modifications at a single
source. See 40 CFR 70.7(e)(3). 70.7(e)(3)(i) establishes standard
thresholds for determining whether requests for permit modifications
can be grouped, but allows EPA to approve alternative thresholds, if
the permitting authority can justify the alternative thresholds based
on two specified criteria. In addition to establishing emissions
thresholds for group processing of minor permit modification that are
consistent with the Federal program, IDAPA 16.01.01.385.7.b.iv gives
the Director of the Department the discretion to establish any limit,
on a case-by-case basis, for which minor permit modifications may be
processed as a group. The State has provided no information, however,
showing that it considered the factors identified in section
70.7(e)(3)(i)(B) in setting this standard. EPA does not believe that a
provision which gives the permitting authority complete discretion to
establish any threshold for group processing on a case-by-case basis
could ever be approvable under 40 CFR 70.7(e)(3)(i)(B). At a minimum,
however, such a provision must be supported by a showing consistent
with 40 CFR 70.7(e)(3)(i)(B) for alternative thresholds. In order to
receive full approval, EPA proposes that Idaho be required to delete
the ``director's discretion'' provision of IDAPA 16.01.01.385.07.b.iv
or make a showing consistent with 40 CFR 70.7(e)(3)(i)(B) for
alternative thresholds.
In addition, as with Idaho's procedures for minor modifications,
Idaho's regulations regarding group processing of minor modifications
fail to contain the prohibition on issuance of any such permit
modification until after the earlier of expiration of EPA's 45-day
review period or until EPA has notified the permitting authority that
EPA will not object to issuance of the permit modification. EPA
therefore proposes that Idaho be required to address this requirement
as a condition of full approval.
v. Reopenings
Part 70 establishes minimum requirements a State must meet where
EPA determines that cause exists to terminate, modify or revoke and
reissue a permit. See 40 CFR 70.7(g). The Idaho program meets these
requirements, with one exception. IDAPA 16.01.01.387.02.b requires that
EPA initiate permit reopenings7 for cause by providing written
notification to the Department and the permittee that cause exists to
reopen the permit, as required by 40 CFR 70.7(g)(1). That regulation
goes on, however, to require that EPA include certain information in
the notice that is not required by part 70, such as a brief summary of
all the alterations recommended by EPA. Under the Supremacy Clause of
the United States Constitution, a State regulation is invalid if it
regulates the United States directly, North Dakota v. United States,
495 U.S. 423, 435 (1990), as the Idaho regulation does here by
directing the EPA notice to contain certain information. EPA does not
consider itself bound to issue a notice in the form and containing the
information specified by IDAPA 16.01.01.387.01.b and therefore proposes
to require, as a condition of full approval, that Idaho
[[Page 54999]]
revise its regulations to require that the notice contain no more
information than that specified by 40 CFR 70.7(g)(1).
\7\IDAPA 16.01.01.387.01.a defines ``reopening'' to include
permit termination, revocation, revision or revocation and
reissuance.
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w. Public Participation
Part 70 requires that the permitting authority make available to
the public any permit application, compliance plan, permit, and
monitoring and compliance certification report pursuant to section
503(e) of the Clean Air Act, except for information entitled to
confidential treatment pursuant to section 114(c) of the Act, and
expressly provides that the contents of a title V permit are not be
entitled to confidential treatment. See 40 CFR 70.4(b)(3)(viii). EPA
has carefully reviewed Idaho's statutory and regulatory provisions and
the opinion of the Idaho Attorney General regarding confidentiality.
See Idaho Code 9-301 to -350; Idaho Code 39-111; IDAPA 16.01.01.126;
IDAPA 16.01.01.365.02; Letter from Curt A. Fransen, Deputy Attorney
General, to Jon Sandoval, Acting Administrator, Division of
Environmental Quality, dated January 17, 1995. Based on this review,
EPA believes that Idaho's confidentiality provisions allow far more
information to be kept confidential from the public than is authorized
under part 70 and section 114 of the Act. First, there is no assurance
under Idaho law that the terms and conditions of a title V permit will
not be entitled to confidential treatment. Second, there is no
assurance under Idaho law that ``emission data,'' which is defined very
broadly under 40 CFR 2.301(a)(2), will not be entitled to confidential
treatment. To the contrary, any such information appears to be entitled
to confidential treatment under Idaho law if it relates ``to production
or sales figures or to processes or production unique to the owner or
operator or which tend[s] to affect adversely the competitive position
of such owner or operator'' and the owner or operator follows the
procedures for having such information held by the State as
confidential. Finally, the Idaho standard also appears to be broader
than the standard under the Clean Air Act for what information, other
than emission data and permit terms, may be entitled to confidential
treatment. Section 114(c) of the Clean Air Act allows a source to claim
as confidential only that information which, if made public, would
divulge methods or processes entitled to protection as trade secrets.
EPA is very concerned that the Idaho confidentiality provisions
could substantially interfere with the public's right to participate in
the issuance of title V permits to Idaho sources. EPA believes that the
Idaho program can nonetheless qualify for interim approval at this
time, notwithstanding its potentially restrictive confidentiality
provisions. Part 70 provides that EPA will grant interim approval to
any program that, among other requirements, provides for adequate
public notice of and an opportunity for public comment and a hearing on
draft permits and revisions, except for permits qualifying for minor
permit modification. See 40 CFR 70.4(d)(3)(iv). EPA believes that the
Idaho program meets all of the public participation requirements of
part 70 except with respect to the treatment of confidential
information.
In addition, there are three checks on the possibility that Idaho's
confidentiality provisions will unduly interfere with the public
participation requirements of part 70. First, 40 CFR 70.8(c)(1)
authorizes EPA to object to the issuance of any proposed permit
determined by EPA not to be in compliance with applicable requirements
or the requirements of part 70. EPA intends to exercise its authority
to object to issuance of a proposed permit if a source's
confidentiality claims under Idaho law interfere with the public's
access to information required to be available to the public under 40
CFR 70.4(b)(3)(viii). Second, pursuant to 40 CFR 70.5(a)(3), Idaho law
requires sources to submit directly to EPA any information claimed as
confidential under State law in connection with a title V operating
permit or application. See IDAPA 16.01.01.126. Once in the hands of
EPA, such information will be kept confidential only if it is entitled
to confidential treatment under the Clean Air Act. This safety valve
will provide additional assurance that the public will have access
during the interim approval period to all information that the public
would be able to obtain from the State of Idaho if its confidentiality
provisions were consistent with the Clean Air Act. Finally, 40 CFR
70.10(c)(1)(ii) allows EPA to withdraw approval of an approved title V
operating permit program if the operation of the State program fails to
comply with the requirements of part 70, including failure to comply
with the public participation requirements. If, during the interim
approval period, Idaho's confidentiality provisions are interfering
with the public's right to review and comment on permits, EPA will
consider whether to withdraw program approval on this basis. In any
event, in order to obtain full approval, Idaho must demonstrate to
EPA's satisfaction that its restrictions on the release to the public
of permits, permit applications and other related information do not
exceed those allowed by 40 CFR 70.4(b)(3)(viii) and 114(c) of the Clean
Air Act.
x. Permits for Solid Waste Incineration Units
Part 70 requires an opinion from the Attorney General stating that
no permit for a solid waste incineration unit may be issued by an
agency, instrumentality or person that is also responsible, in whole or
in part, for the design and construction or operation of the unit. See
40 CFR 70.4(b)(3)(iv). The opinion of the Idaho Attorney General
states, however, that the Idaho Department of Health and Welfare, the
agency that issues title V permits in Idaho, is responsible for the
design, construction and operation of a limited number of solid waste
incineration units, namely, units in mental hospitals and other
institutions run by the Department. As stated previously, however,
there are currently no solid waste incineration units in Idaho that are
now subject to a standard under Section 129 of the Act, and therefore
subject to the title V program in Idaho. EPA therefore does not see
this issue as a bar to interim approval in Idaho, but proposes to
require, as a condition of full approval, that Idaho ensure that no
permit for a solid waste incineration unit may be issued by an agency,
instrumentality or person that is also responsible, in whole or in
part, for the design and construction or operation of the unit.
y. Maximum Criminal Penalties
Part 70 requires a State to have authority to recover criminal
penalties for violation of any applicable requirement; any permit
condition; any fee or filing requirement; any duty to allow or carry
out inspections, entry or monitoring activities; or any regulation or
orders issued by the permitting authority in the maximum amount of not
less than $10,000 per day per violation. See 40 CFR 70.11(a)(3)(ii).
Idaho law authorizes criminal penalties for such violations but states
that such violations are punishable by ``a fine of not more than ten
thousand dollars ($10,000) for each separate violation or for each day
of continuing violation.'' See Idaho Code 39-117(2). This appears to
limit penalties to a maximum of $10,000 per day even when there is more
than one violation on each day. As a condition of full approval, EPA
proposes that Idaho be required to demonstrate that it has sufficient
authority to recover criminal penalties in the maximum amount of not
less than
[[Page 55000]]
$10,000 per day per violation, as required by 40 CFR 70.11(a)(3)(ii).
z. False Statements and Tampering
Part 70 also requires that criminal fines be recoverable in a
maximum amount of $10,000 per day per violation against any person who
knowingly makes any false material statement, representation or
certification in any form, in any notice or report required by a
permit, or who knowingly renders inaccurate any required monitoring
device or method. See 40 CFR 70.11(a)(3)(iii). Idaho law does not
appear to contain such authority. The Idaho Attorney General has stated
that the Department has the authority to include such a prohibition in
each permit and intends to do so. This authority, coupled with the
general criminal provisions of Idaho Code 39-117(2), could provide
sufficient authority for making knowing violations of such requirements
subject to criminal liability, but only if the Department is
specifically required to include such prohibitions in each title V
permit. As a condition of full approval, the State must demonstrate to
EPA's satisfaction that it has the criminal enforcement authorities
required by 40 CFR 70.11(a)(3)(iii).
aa. Environmental Audit Statute
In 1995, the Idaho legislature enacted an environmental audit
statute, which prohibits the State from compelling a source, with
certain limited exceptions, to provide the State a report that meets
the definition of an ``environmental audit report.'' See Idaho Code 9-
804. The statute also grants a source immunity from civil or criminal
liability for any violations voluntarily disclosed by the source to the
State in an environmental audit report. See Idaho Code 9-809.
Although EPA is concerned that the audit privilege of Idaho Code 9-
804 could be misused to shield bad actors and frustrate access to
crucial factual information, EPA does not believe that the statute
poses a bar to full approval of Idaho's operating permit program. As
EPA has recently stated, however, EPA intends to scrutinize enforcement
more closely in States, such as Idaho, with broad audit privileges to
ensure such statutes do not prevent States from pursuing appropriate
enforcement action and obtaining appropriate penalties. See 60 CFR
16875 (April 3, 1995) (Voluntary Environmental Self-Policing and Self-
disclosure Interim Policy Statement). If, during program
implementation, EPA determines that Idaho Code 9-804 unduly interferes
with Idaho's enforcement responsibilities under part 70, EPA will
consider this grounds for withdrawing program approval in accordance
with 40 CFR 70.10(c).
EPA believes, however, that Idaho Code 9-809, which grants a source
immunity from civil or criminal prosecution for violations discovered
during an environmental audit which are voluntarily disclosed, does
impermissibly interfere with the Idaho's enforcement requirements under
40 CFR 70.11 and thus poses a bar to full approval. Part 70 requires a
State to have authority to recover penalties for each day of violation.
By granting a source absolute immunity for certain voluntarily
disclosed violations, the State has restricted its authority to collect
penalties for each day of violation. EPA therefore proposes to require,
as a condition of full approval, that Idaho eliminate the immunity
currently granted under Idaho Code 9-809 for voluntarily disclosed
violations discovered through an environmental audit report or to
demonstrate to EPA's satisfaction that Idaho Code 9-809 does not
impermissibly interfere with the enforcement requirements of part 70.
bb. Correction of Typographical Errors and Cross-references
The operating permit regulations submitted by the State of Idaho
contain several typographical errors and erroneous cross references
that could interfere with application and implementation of the Idaho
operating permits program. In reviewing the Idaho program, EPA has made
the following assumptions in interpreting the Idaho regulations and
proposes to require, as a condition of full approval, that Idaho be
required to correct these errors in order to obtain full approval.
i. IDAPA 16.01.01.006.31: The reference in the definition of
``emissions unit'' should be to 42 U.S.C. sections 7561 through 7561o
rather than to 42 U.S.C. sections 7561 through 7561.
ii. IDAPA 16.01.01.008.05.f: The reference in subsection (f) of the
definition of ``applicable requirement'' should be to 42 U.S.C. section
7661c(b), rather than to section 7661a(b) (i.e. to section 504(b) of
the Clean Air Act rather than to section 502(b)).
iii. IDAPA 16.01.01.008.12: The reference to the general permit
regulation in the definition of ``general permit'' should be to section
335 (i.e., IDAPA 16.01.01.335), rather than to 322.
iv. IDAPA 16.01.01.008.14: The reference in the definition of
``major facility'' to the definition of ``facility'' should be to
section 006.35 (i.e., IDAPA 16.01.01.006.35), rather than to 006.34.
v. IDAPA 16.01.01.322.10.1.i: The reference in the requirements for
the initial compliance plan should be to ``a verifiable sequence of
actions'' rather than to ``a variable sequence of actions.''
vi. IDAPA 16.01.01.384.01.a.vi: The reference to compliance
schedule in this subsection should be to section 322.12.d (i.e., IDAPA
16.01.01.322.12.d), rather than to section 322.13.d.
vii. IDAPA 16.01.01.385.01.a.iv: The words ``of Title I of the
Clean Air Act'' or some other description of the type of provisions
being referred to appears to have been deleted after the phrase ``as a
modification under any provision.''
viii. IDAPA 16.01.01.387.02.a.iii: The word ``least'' appears to
have been deleted from the phrase ``shall be sent at one (1) day.''
3. Effect of Proposed Action
a. Effect of Disapproval
If EPA were to take final action disapproving the State of Idaho's
title V submittal, EPA would be required to apply one of the sanctions
in section 179(b) of the Clean Air Act on the date 18 months after the
effective date of the disapproval, unless prior to that date the State
had submitted a revised program and EPA had determined that the revised
program corrected the deficiencies that prompted the disapproval.
Moreover, if the Administrator found a lack of good faith on the part
of the State, both sanctions under section 179(b) would apply after the
expiration of the 18-month period until the Administrator determined
that the State had come into compliance. In all cases, if, six months
after EPA applied the first sanction, the State had not submitted a
revised program that EPA had determined corrected the deficiencies that
prompted disapproval, a second sanction would be required.
In addition, discretionary sanctions may be applied where warranted
any time after EPA has disapproved a State program. Moreover, if EPA
were to disapprove the State program and had not granted full approval
to a corrective submittal by November 15, 1995, EPA must promulgate,
administer and enforce a Federal permits program for Idaho.
b. Effect of Interim Approval
Final interim approval may be granted for up to 2 years following
the effective date of final interim approval, and can not be renewed.
During the interim approval period, Idaho would be protected from
sanctions, and EPA would not be obligated to promulgate, administer and
enforce a Federal permits program for the State of Idaho.
[[Page 55001]]
Permits issued under a program with interim approval have full standing
with respect to part 70. In addition, the 1-year time period for
submittal of permit applications by subject sources and the 3-year time
period for processing the initial permit applications begins upon the
effective date of interim approval.
If, following the grant of interim approval, Idaho were to fail to
submit a complete corrective program for full approval by the date 6
months before expiration of the interim approval, EPA would start an
18-month clock for mandatory sanctions. If Idaho then failed to submit
a corrective program that EPA found complete before the expiration of
that 18-month period, EPA would be required to apply one of the section
179(b) sanctions, which would remain in effect until EPA determined
that Idaho had corrected the deficiency by submitting a complete
corrective program. Moreover, if the Administrator finds a lack of good
faith on the part of the State, both sanctions under section 179(b)
would apply after the expiration of the 18-month period until the
Administrator determined that the State had come into compliance. In
any case, if, six months after application of the first sanction, Idaho
still had not submitted a corrective program that EPA found complete, a
second sanction would be required.
If, following final interim approval, EPA were to disapprove
Idaho's complete corrective program, the consequences would be the same
as if EPA were to disapprove, rather than to grant interim approval to,
Idaho's submittal.
4. Scope of Proposed Interim Approval
If EPA grants final interim approval to the Idaho program, EPA
proposes that the program would apply to all title V sources (as
defined in the approved program) within Idaho, except for any sources
within the exterior boundaries of Indian Reservations in Idaho. See,
e.g., 59 FR 55813, 55815-18 (Nov. 9, 1994).
5. Proposed Action on Section 112(l) Submittal
Requirements for title V approval, specified in 40 CFR 70.4(b),
encompass section 112(l)(5) requirements for approval of a program for
delegation of section 112 standards as promulgated by EPA as they apply
to title V sources. Section 112(l)(5) requires that the State's program
contain adequate authorities, adequate resources for implementation,
and an expeditious compliance schedule, which are also requirements
under part 70. Therefore, if EPA grants interim approval to Idaho's
operating permits program, EPA also proposes to grant approval under
section 112(l)(5) of the Act and 40 CFR 63.91 of the State of Idaho's
program for receiving delegation of section 112 standards that are
unchanged from Federal standards as promulgated. This program for
delegations would apply only to sources covered by Idaho's title V
operating permits program.
III. Administrative Requirements
A. Request for Public Comments
EPA is requesting comments on all aspects of this proposed action.
Copies of the State's submittal and other information relied upon for
the proposed action are contained in a docket maintained at the EPA
Regional Office. The docket is an organized and complete file of all
the information submitted to, or otherwise considered by, EPA in the
development of this proposed action. The principal purposes of the
docket are:
(1) To allow interested parties a means to identify and locate
documents so that they can effectively participate in the process, and
(2) To serve as the record in case of judicial review.
EPA will consider any comments received by November 27, 1995.
B. Executive Order 12866
The Office of Management and Budget has exempted this action from
Executive Order 12866 review.
C. Regulatory Flexibility Act
EPA's actions under section 502 of the Act do not create any new
requirements, but simply address operating permits programs submitted
to satisfy the requirements of 40 CFR part 70. Because this action does
not impose any new requirements, it does not have a significant impact
on a substantial number of small entities.
D. Unfunded Mandates
Under Section 202 of the Unfunded Mandates Reform Act of 1995,
signed into law on March 22, 1995, EPA must prepare a budgetary impact
statement to accompany any proposed or final rule that includes a
Federal mandate that may result in estimated costs to State, local, or
tribal governments in the aggregate; or to the private sector, of $100
million or more. Under Section 205, EPA must select the most cost-
effective and least burdensome alternative that achieves the objectives
of the rule and is consistent with statutory requirements. Section 203
requires EPA to establish a plan for informing and advising any small
governments that may be significantly or uniquely impacted by the rule.
EPA has determined that the action proposed today does not include
a Federal mandate that may result in estimated costs of $100 million or
more to either State, local, or tribal governments in the aggregate, or
to the private sector. This Federal action approves pre-existing
requirements under State or local law, and imposes no new Federal
requirements. Accordingly, no additional costs to State, local, or
tribal governments, or to the private sector, result from this action.
List of Subjects in 40 CFR Part 70
Environmental protection, Administrative practice and procedure,
Air pollution control, Intergovernmental relations, Operating permits,
Reporting and recordkeeping requirements.
Authority: 42 U.S.C. 7401-7671q.
Dated: October 17, 1995.
Chuck Clarke,
Regional Administrator.
[FR Doc. 95-26658 Filed 10-26-95; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 95-26655 Approval and Promulgation of Implementation Plans; Ohio
[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 54989-54990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26655]
=======================================================================
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[[Page 54990]]
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[OH70-1-6780b; AD-FRL-5302-7]
Approval and Promulgation of Implementation Plans; Ohio
AGENCY: Environmental Protection Agency (SEPA).
ACTION: Proposed rule.
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SUMMARY: The USEPA proposes to approve the State Implementation Plan
(SIP) revision submitted by the State of Ohio for lead. USEPA further
proposes to conclude that this revision resolves the prior inadequacy
in limiting lead concentrations in central Cleveland. In the Final
Rules section of this Federal Register, USEPA is fully approving the
State's SIP revision as a direct final rule without prior proposal,
because the USEPA views this as a noncontroversial revision and
anticipates no adverse comments. A detailed rationale for the approval
is set forth in the direct final rule. If no adverse comments are
received in response to these actions, no further activity is
contemplated in relation to this proposed rule. If USEPA receives
adverse comments, the direct final rule will be withdrawn and all
public comments received will be addressed in a subsequent final rule
based on this proposed rule. Any parties interested in commenting on
this action should do so at this time.
DATES: Comments must be received on or before November 27, 1995.
ADDRESSES: Written comments should be mailed to: J. Elmer Bortzer,
Chief, Regulation Development Section, Regulation Development Branch
(AR-18J), United States Environmental Protection Agency, Region 5, 77
West Jackson Boulevard, Chicago, Illinois 60604.
Copies of the State submittal and USEPA's analysis of it are
available for inspection at: Regulation Development Section, Regulation
Development Branch (AR-18J), United States Environmental Protection
Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604.
FOR FURTHER INFORMATION CONTACT: John Summerhays, Regulation
Development Section, Regulation Development Branch (AR-18J), United
States Environmental Protection Agency, Region 5, Chicago, Illinois
60604, (312) 886-6067.
SUPPLEMENTARY INFORMATION: For additional information, see the direct
final rule published in the rules section of this Federal Register.
Authority: 42 U.S.C. 7401-7671q.
Dated: September 13, 1995.
David A. Ullrich,
Acting Regional Administrator.
[FR Doc. 95-26655 Filed 10-26-95; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 95-26652 Rangeland Research Grants Program; Administrative Provisions
[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 55160-55167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26652]
[[Page 55159]]
_______________________________________________________________________
Part VI
Department of Agriculture
_______________________________________________________________________
Cooperative State Research, Education, and Extension Service
_______________________________________________________________________
7 CFR Part 3401
Rangeland Research Grants Program; Administrative Provisions; Proposed
Rule
Federal Register / Vol. 60, No. 208 / Friday, October 27, 1995 /
Proposed Rules
[[Page 55160]]
DEPARTMENT OF AGRICULTURE
Cooperative State Research, Education, and Extension Service
7 CFR Part 3401
Rangeland Research Grants Program; Administrative Provisions
AGENCY: Cooperative State Research, Education, and Extension Service,
USDA.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Cooperative State Research, Education, and Extension
Service (CSREES) proposes to amend its regulations relating to the
administration of the Rangeland Research Grants Program, which
prescribe the procedures to be followed annually in the solicitation of
rangeland research grant proposals, the evaluation of such proposals,
and the award of rangeland research grants under this program. This
proposed amendment: Implements the requirements of the National
Environmental Policy Act as outlined in Sec. 3401.6(c)(16), revises the
objectives of the program as stated in Sec. 3401.17(a), changes the
agency name to reflect the Departmental Reorganization, and makes a few
additional minor changes. CSREES is publishing these regulations in
their entirety to enhance their use by the public and to ensure
expeditious submission and processing of grant proposals.
DATES: Comments are invited from interested individuals and
organizations. To be considered in the formulation of the final rule
all relevant material must be received on or before November 27, 1995.
ADDRESSES: Comments should be sent to Louise Ebaugh, Director, Awards
Management Division, Competitive Research Grants and Awards Management,
Cooperative State Research, Education, and Extension Service, United
States Department of Agriculture, AG Box 2245, Room 322, Aerospace
Center, Washington, DC 20250-2245.
FOR FURTHER INFORMATION CONTACT:
Louise Ebaugh at (202) 401-5024.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction
The Office of Management and Budget has previously approved the
information collection requirements contained in the current
regulations at 7 CFR part 3401 under the provisions of 44 U.S.C.
Chapter 35 and OMB Document No. 0524-0022 has been assigned. Public
reporting burden for the information collections contained in these
regulations is estimated to vary from \1/2\ hour to 3 hours per
response, including the time for reviewing instructions, searching
existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments
regarding this burden estimate or any other aspect of this collection
of information, including suggestions for reducing this burden, to
Department of Agriculture, Clearance Officer, OIRM, Room 404-W,
Washington, DC 20250; and to the Office of Management and Budget,
Paperwork Reduction Project (OMB Document No. 0524-0022), Washington,
DC 20503.
Classification
This rule has been reviewed under Executive Order 12866, and it has
been determined that it is not a ``significant regulatory action'' rule
because it will not have an annual effect on the economy of $100
million or more or adversely and materially affect a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities. This proposed rule will not create any serious
inconsistencies or otherwise interfere with any actions taken or
planned by another agency. It will not materially alter the budgetary
impact of entitlements, grants, user fees or loan programs and does not
raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or principles set forth in Executive Order No.
12866.
Executive Order No. 12778
The following information is given in compliance with Executive
Order No. 12778. All State and local laws and regulations that are in
conflict with this rule are preempted. No retroactive effect is to be
given to this rule. This rule does not require administrative
proceedings before parties may file suit in court.
Executive Order No. 12612
This proposed rule has been reviewed under Executive Order No.
12612 pertaining to Federalism. While this proposed rule will affect
institutions of higher education and other nonprofit organizations, it
will do so only to the extent of requiring that applicants and grantees
comply with existing laws, regulations, public policies, and the
dictates of good management to ensure the safeguarding of public funds.
For this reason, CSREES has determined that this proposed rule will not
have sufficient Federalism implications to warrant the preparation of a
Federalism Assessment.
Regulatory Flexibility Act
The Department certifies that this proposed rule will not have a
significant impact on a substantial number of small entities as defined
in the Regulatory Flexibility Act, Pub. L. No. 96-534 (5 U.S.C. 601 et
seq).
Regulatory Analysis
Not required for this rulemaking.
Environmental Impact Statement
This proposed regulation does not significantly affect the
environment. Therefore, an environmental impact statement is not
required under the National Environmental Policy Act of 1969, as
amended. (42 U.S.C. 4321 et seq.)
Catalog of Federal Domestic Assistance
The Rangeland Research Grants Program is listed in the Catalog of
Federal Domestic Assistance under No. 10.200. For reasons set forth in
the Final Rule-related Notice to 7 CFR part 3015, subpart V (48 FR
29115, June 24, 1983), this program is excluded from the scope of
Executive Order 12372 which requires intergovernmental consultation
with State and local officials.
Background and Purpose
Under the authority of section 1480 of the National Agricultural
Research, Extension, and Teaching Policy Act of 1977, as amended, the
Secretary of Agriculture is authorized to make grants to land-grant
colleges and universities, State agricultural experiment stations, and
colleges, universities, and Federal laboratories having a demonstrable
capacity in rangeland research, as determined by the Secretary, to
carry out rangeland research. 76 CFR 2.107(a)(21) delegates this
authority to the Administrator of CSREES. On April 23, 1993, the
Rangeland Research Program regulations, 7 CFR part 3401, were formally
set out and published in the Federal Register. CSREES now proposes to
amend the administrative regulations governing the Rangeland Research
Grant Program authorized by section 1480 in order to implement the
requirements of the National Environmental Policy Act in
Sec. 3401.6(c)(16), revise the program objectives in Sec. 3401.17,
change the Agency name from the Cooperative State Research Service to
the Cooperative State Research, Education, and Extension Service, and
make a few minor changes.
[[Page 55161]]
List of Subjects in 7 CFR Part 3401
Grant programs--agriculture, Grants administration.
For the reasons set out in the preamble, title 7, subtitle B,
chapter XXXIV, part 3401 of the Code of Federal Regulations, is
proposed to be revised to read as follows:
CHAPTER XXXIV--COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION
SERVICE, DEPARTMENT OF AGRICULTURE
PART 3401--RANGELAND RESEARCH GRANTS PROGRAM
Subpart A--General
Sec.
3401.1 Applicability of regulations of this part.
3401.2 Definitions.
3401.3 Eligibility requirements.
3401.4 Matching funds requirement.
3401.5 Indirect costs and tuition remission costs.
3401.6 How to apply for a grant.
3401.7 Evaluation and disposition of applications.
3401.8 Grant awards.
3401.9 Use of funds; changes.
3401.10 Other Federal statutes and regulations that apply.
3401.11 Other conditions.
Subpart B--Scientific Peer Review of Research Applications for Funding
3401.12 Establishment and operation of peer review groups.
3401.13 Composition of peer review groups.
3401.14 Conflicts of interest.
3401.15 Availability of information.
3401.16 Proposal review.
3401.17 Review criteria.
Authority: Section 1470 of the National Agricultural Research,
Extension and Teaching Policy Act of 1977 (7 U.S.C. 3316).
Subpart A--General
Sec. 3401.1 Applicability of regulations of this part.
(a) The regulations of this part apply to rangeland research grants
awarded under the authority of section 1480 of the National
Agricultural Research, Extension, and Teaching Policy Act of 1977, as
amended (7 U.S.C. 3333) to land-grant colleges and universities, State
agricultural experiment stations, and colleges, universities, and
Federal laboratories having a demonstrable capacity in rangeland, as
determined by the Secretary, to carry out rangeland research. The
Administrator of the Cooperative State Research, Education, and
Extension Service (CSREES) shall determine and announce, through
publication each year of a Notice in the Federal Register, professional
trade journals, agency or program handbooks, the Catalog of Federal
Domestic Assistance or any other appropriate means, research program
areas for which proposals will be solicited, to the extent that funds
are available.
(b) The regulations of this part do not apply to research grants
awarded by the Department of Agriculture under any other authority.
Sec. 3401.2 Definitions.
As used in this part:
(a) Administrator means the Administrator of CSREES and any other
officer or employee of the Department of Agriculture to whom the
authority involved may be delegated.
(b) Department means the Department of Agriculture.
(c) Principal investigator means a single individual designated by
the grantee in the application for funding and approved by the
Administrator who is responsible for the scientific and technical
direction of the project.
(d) Grantee means the entity designated in the grant award document
as the responsible legal entity to whom a grant is awarded under this
Part.
(e) Research project grant means the award by the Administrator of
funds to a grantee to assist in meeting the costs of conducting, for
the benefit of the public, an identified project which is intended and
designed to establish, discover, elucidate, or confirm information or
the underlying mechanisms relating to a research program area
identified in the annual solicitation of applications.
(f) Project means the particular activity within the scope of one
or more of the research program areas identified in the annual
solicitation of applications, which is supported by a grant award under
this part.
(g) Project period means the total length of time that is approved
by the Administrator for conducting the research project as outlined in
an approved application for funding.
(h) Budget period means the interval of time (usually 12 months)
into which the project period is divided for budgetary and reporting
purposes.
(i) Awarding official means the Administrator and any other officer
or employee of the Department to whom the authority to issue or modify
research project grant instruments has been delegated.
(j) Peer review group means an assembled group of experts or
consultants qualified by training or experience in particular
scientific or technical fields to give expert advice, in accordance
with the provisions of this part, on the scientific and technical merit
of applications for funding in those fields.
(k) Ad hoc reviewers means experts or consultants qualified by
training or experience in particular scientific or technical fields to
render special expert advice, whose written evaluations of applications
for funding are designed to complement the expertise of the peer review
group, in accordance with the provisions of this part, on the
scientific or technical merit of Applications for Funding in those
fields.
(l) Research means any systematic study directed toward new or
fuller knowledge and understanding of the subject studied.
(m) Methodology means the project approach to be followed and the
resources needed to carry out the project.
Sec. 3401.3 Eligibility requirements.
(a) Except where otherwise prohibited by law, any land-grant
college and university, State agricultural experiment station, and
college, university, and Federal laboratory have a demonstrable
capacity in rangeland research, as determined by the Secretary, shall
be eligible to apply for and to receive a project grant under this
part, provided that the applicant qualifies as a responsible grantee
under the criteria set forth in paragraph (b) of this section.
(b) To qualify as responsible, an applicant must meet the following
standards as they relate to a particular project:
(1) Have adequate financial resources for performance, the
necessary experience, organizational and technical qualifications, and
facilities, or a firm commitment, arrangement, or ability to obtain
such (including proposed subagreements);
(2) Be able to comply with the proposed or required completion
schedule for the project;
(3) Have a satisfactory record of integrity, judgment, and
performance, including, in particular, any prior performance under
grants and contracts from the Federal government;
(4) Have an adequate financial management system and audit
procedure which provide efficient and effective accountability and
control of all property, funds, and other assets; and
(5) Be otherwise qualified and eligible to receive a research
project grant under applicable laws and regulations.
(c) Any applicant who is determined to be not responsible will be
notified in writing of such findings and the basis therefor.
Sec. 3401.4 Matching funds requirement.
In accordance with section 1480 of the National Agricultural
Research,
[[Page 55162]]
Extension, and Teaching Policy Act of 1977, as amended (7 U.S.C. 3333),
except in the case of Federal laboratories, each grant recipient must
match the Federal funds expended on a research project based on a
formula of 50 percent Federal and 50 percent non-Federal funding.
Sec. 3401.5 Indirect costs and tuition remission costs.
Pursuant to section 1473 of the National Agricultural Research,
Extension, and Teaching Policy Act of 1977, as amended (7 U.S.C. 3319),
funds made available under this program to recipients other than
Federal laboratories shall not be subject to reduction for indirect
costs or tuition remission costs. Since indirect costs and tuition
remission costs, except in the case of Federal laboratories, are not
allowable costs for purposes of this program, such costs may not be
used to satisfy the matching requirement set forth in Sec. 3401.4.
Sec. 3401.6 How to apply for a grant.
(a) General. After consultation with the Rangeland Research
Advisory Board, established pursuant to section 1482 of the National
Agricultural Research, Extension, and Teaching Policy Act of 1977, as
amended (7 U.S.C. 3335), a request for proposals will be prepared and
announced through publications such as the Federal Register,
professional trade journals, agency or program handbooks, the Catalog
of Federal Domestic Assistance, or any other appropriate means of
solicitation, as early as practicable each fiscal year. It will contain
information sufficient to enable all eligible applicants to prepare
rangeland research grant proposals and will be as complete as possible
with respect to:
(1) Descriptions of specific research program areas which the
Department proposes to support during the fiscal year involved,
including anticipated funds to be awarded;
(2) Deadline dates for having proposal packages postmarked;
(3) Name and address where proposals should be mailed;
(4) Number of copies to be submitted;
(5) Forms required to be used when submitting proposals; and
(6) Special requirements.
(b) Application kit. An Application Kit will be made available to
any potential grant applicant who requests a copy. This kit contains
required forms, certifications, and instructions applicable to the
submission of grant proposals.
(c) Format for research grant proposals. Unless otherwise stated in
the specific program solicitation, the following format applies:
(1) Application for funding. All research grant proposals submitted
by eligible applicants should contain an Application for Funding form,
which must be signed by the proposing principal investigator(s) and
endorsed by the cognizant authorized organizational representative who
possesses the necessary authority to commit the applicant's time and
other relevant resources.
(2) Title of project. The title of the project must be brief (80-
character maxim), yet represent the major thrust of the research. This
title will be used to provide information to the Congress and other
interested parties who may be unfamiliar with scientific terms;
therefore, highly technical words or phraseology should be avoided
where possible. In addition, phrases such as ``investigation of'' or
``research on'' should not be used.
(3) Objectives. Clear, concise, complete, enumerated, and logically
arranged statement(s) of the specific aims of the research must be
included in all proposals.
(4) Procedures. The procedures or methodology to be applied to the
proposed research plan should be stated explicitly. This section should
include but not necessarily be limited to:
(i) A description of the proposed investigations and/or experiments
in the sequence in which it is planned to carry them out;
(ii) Techniques to be employed, including their feasibility;
(iii) Kinds of results expected;
(iv) Means by which data will be analyzed or interpreted;
(v) Pitfalls which might be encountered; and
(vi) Limitations to proposed procedures.
(5) Justification. This section of the grant proposal should
describe:
(i) The importance of the problem to the needs of the Department
and to the Nation, including estimates of the magnitude of the problem;
(ii) The importance of starting the work during the current fiscal
year; and
(iii) Reasons for having the work performed by the proposing
organization.
(6) Literature review. A summary of pertinent publications with
emphasis on their relationship to the research should be provided and
should include all important and recent publications. The citations
should be accurate, complete, written in acceptable journal format, and
be appended to the proposal.
(7) Current research. The relevancy of the proposed research to
ongoing and, as yet, unpublished research of both the applicant and any
other institutions should be described.
(8) Facilities and equipment. All facilities, including
laboratories, that are available for use or assignment to the proposed
research project during the requested period of support, should be
reported and described. Any materials, procedures, situations, or
activities, whether or not directly related to a particular phase of
the proposed research, and which may be hazardous to personnel, must be
explained fully, along with an outline of precautions to be exercised.
All items of major instrumentation available for use or assignment to
the proposed research project during the requested period of support
should be itemized. In addition, items of nonexpendable equipment
needed to conduct and bring the proposed project to a successful
conclusion should be listed.
(9) Collaborative arrangements. If the proposed project requires
collaboration with other research scientists, corporations,
organizations, agencies, or entities, such collaboration must be
explained fully and justified. Evidence should be provided to assure
peer reviewers that the collaborators involved agree with the
arrangements. It should be specifically indicated whether or not such
collaborative arrangements have the potential for any conflict(s) of
interest. Proposals which indicate collaborative involvement must state
which applicant is to receive any resulting grant award, since only one
eligible applicant, as provided in Sec. 3401.3 may be the recipient of
a research project grant under one proposal.
(10) Research timetable. The applicant should outline all important
research phases as a function of time, year by year.
(11) Personnel support. All personnel who will be involved in the
research effort must be identified clearly. For each scientist
involved, the following should be included:
(i) An estimate of the time commitments necessary;
(ii) Vitae of the principal investigator(s), senior associate(s),
and other professional personnel to assist reviewers in evaluating the
competence and experience of the project staff. This section should
include curricula vitae of all key persons who will work on the
proposed research project, whether or not Federal funds are sought for
their support. The vitae are to be no more than two pages each in
length, excluding publication listings; and
(iii) A chronological listing of the most representative
publications during
[[Page 55163]]
the past five years shall be provided for each professional project
member for whom a curriculum vitae appears under this section. Authors
should be listed in the same order as they appear on each paper cited,
along with the title and complete reference as these usually appear in
journals.
(12) Budget. A detailed budget is required for each year of
requested support. In addition, a summary budget is required detailing
requested support for the overall project period. A copy of the form
which must be used for this purpose, along with instructions for
completion, is included in the Application Kit identified under
Sec. 3401.6(b) and may be reproduced as needed by applicants. Funds may
be requested under any of the categories listed, provided that the item
or service for which support is requested is allowable under applicable
Federal cost principles and can be identified as necessary for
successful conduct of the proposed research project. As stated in
Sec. 3401.4 each grant recipient must match the Federal funds expended
on a research project based on a formula of 50 percent Federal and 50
percent non-Federal funding. As stated in Sec. 3401.5, indirect costs
and tuition remission costs are not allowable costs for purposes of
this program and, thus, may not be used to satisfy the matching
requirement set forth in Sec. 3401.4.
(13) Research involving special considerations. A number of
situations encountered in the conduct of research require special
information and supporting documentation before funding can be approved
for the project. If such situations are anticipated, the proposal must
so indicate. It is expected that a significant number of rangeland
grant proposals will involve the following:
(i) Recombinant DNA molecules. All key personnel identified in a
proposal and all endorsing officials of a proposed performing entity
are required to comply with the guidelines established by the National
Institutes of Health entitled, ``Guidelines for Research Involving
Recombinant DNA Molecules,'' as revised. The Application Kit,
identified above in Sec. 3401.6(b), contains a form which is suitable
for such certification of compliance. In the event a project involving
recombinant DNA and RNA molecules results in a grant award, the
Institutional Biosafety Committee must approve the research before
CSREES funds will be released.
(ii) Human subjects at risk. Responsibility for safeguarding the
rights and welfare of human subjects used in any research project
supported with grant funds provided by the Department rests with the
performing entity. Regulations have been issued by the Department under
7 CFR part 1c, Protection of Human Subjects. In the event that a
project involving human subjects at risk is recommended for award, the
applicant will be required to submit a statement certifying that the
research plan has been reviewed and approved by the Institutional
Review Board at the proposing organization or institution. The
Application Kit, identified above in Sec. 3401.6(b), contains a form
which is suitable for such certification. In the event a project
involving human subjects results in a grant award, funds will be
released only after the Institutional Committee has approved the
project.
(iii) Laboratory animal care. The responsibility for the humane
care and treatment of any laboratory animal, which has the same meaning
as ``animal'' in section 2(g) of the Animal Welfare Act of 1966, as
amended (7 U.S.C. 2132(g)), used in any research project supported with
Rangeland Research Grant Program funds rests with the performing
organization. In this regard, all key personnel identified in a
proposal and all endorsing officials of the proposed performing entity
are required to comply with the applicable provisions of the Animal
Welfare Act of 1966, as amended (7 U.S.C. 2131 et seq.) and the
regulations promulgated thereunder by the Secretary of Agriculture in 9
CFR parts 1, 2, 3, and 4. In the event that a project involving the use
of a laboratory animal is recommended for award, the applicant will be
required to submit a statement certifying such compliance. The
Application Kit, identified above in Sec. 3401.6(b), contains a form
which is suitable for such certification. In the event a project
involving the use of living vertebrate animals results in a grant
award, funds will be released only after the Institutional Animal Care
and Use Committee has approved the project.
(14) Current and pending support. All proposals must list any other
current public or private research support, in addition to the proposed
project, to which key personnel listed in the proposal under
consideration have committed portions of their time, whether or not
salary support for the person(s) involved is included in the budgets of
the various projects. This section must also contain analogous
information for all projects underway and for pending research
proposals which are currently being considered by, or which will be
submitted in the near future to, other possible sponsors, including
other Departmental programs or agencies. Concurrent submission of
identical or similar projects to other possible sponsors will not
prejudice its review or evaluation by the Administrator or experts or
consultants engaged by the Administrator for this purpose. The
Application Kit, identified above in Sec. 3401.6(b), contains a form
which is suitable for listing current and pending support.
(15) Additions to project description. Each project description is
expected by the Administrator, members of peer review groups, and the
relevant program staff to be complete in itself. However, in those
instances in which the inclusion of additional information is
necessary, the number of copies submitted should match the number of
copies of the application requested in the annual solicitation of
proposals as indicated in Sec. 3401.6(a)(4). Each set of such materials
must be identified with the title of the research project as it appears
in the Application for Funding and the name(s) of the principal
investigator(s). Examples of additional materials may include
photographs which do not reproduce well, reprints, and other pertinent
materials which are deemed to be unsuitable for inclusion in the
proposal.
(16) National Environmental Policy Act. As outlined in CSREES's
implementing regulations of the National Environmental Policy Act of
1969 (NEPA) at 7 CFR part 3407, environmental data or documentation for
the proposed project is to be provided to CSREES in order to assist
CSREES in carrying out its responsibilities under NEPA. These
responsibilities include determining whether the project requires an
Environmental Assessment or an Environmental Impact Statement or
whether it can be excluded from this requirement on the basis of
several categorical exclusions listed in 7 CFR part 3407. In this
regard, the applicant should review the categories defined for
exclusion to ascertain whether the proposed project may fall within one
ore more of the exclusions, and should indicate if it does so on the
National Environmental Policy Act Exclusions Form (Form CSREES--1234)
provided in the Application Kit. Even though the applicant considers
that a proposed project may fall within a categorical exclusion, CSREES
may determine that an Environmental Assessment or an Environmental
Impact Statement is necessary for a proposed project should substantial
controversy on environmental grounds exist or if other extraordinary
conditions or circumstances are present that may
[[Page 55164]]
cause such activity to have a significant environmental effect.
(17) Organizational management information. Specific management
information relating to an applicant shall be submitted on an one-time
basis prior to the award of a research project grant identified under
this part if such information has not been provided previously under
this or another program for which the sponsoring agency is responsible.
Copies of forms recommended for use in fulfilling the requirements
contained in this section will be provided by the agency specified in
this part once a research project grant has been recommended for
funding.
Sec. 3401.7 Evaluation and disposition of applications.
(a) Evaluation. All proposals received from eligible applicants in
accordance with eligible research problem or program areas and
deadlines established in the applicable request for proposals shall be
evaluated by the Administrator through such officers, employees, and
others as the Administrator determines are particularly qualified in
the areas of research represented by particular projects. To assist in
equitably and objectively evaluating proposals and to obtain the best
possible balance of viewpoints, the Administrator may solicit the
advice of peer scientists, ad hoc reviewers, or others who are
recognized specialists in the research program areas covered by the
applications received. Specific evaluations will be based upon the
criteria established in subpart B of this part, Sec. 3401.17, unless
CSREES determines that different criteria are necessary for the proper
evaluation of proposals in one or more specific program areas, and
announces such criteria and their relative importance in the annual
program solicitation. The overriding purpose of such evaluations is to
provide information upon which the Administrator can make informed
judgments in selecting proposals for ultimate support. Incomplete,
unclear, or poorly organized applications will work to the detriment of
applicants during the peer evaluation process. To ensure a
comprehensive evaluation, all applications should be written with the
care and thoroughness accorded papers for publication.
(b) Disposition. On the basis of the Administrator's evaluation of
an application in accordance with paragraph (a) of this section, the
Administrator will approve support using currently available funds,
defer support due to lack of funds or a need for further evaluations,
or disapprove support for the proposed project in whole or in part.
With respect to approved projects, the Administrator will determine the
project period (subject to extension as provided in Sec. 3401.9(c))
during which the project may be supported. Any deferral or disapproval
of an application will not preclude its reconsideration or a
reapplication during subsequent fiscal years.
Sec. 3401.8 Grant awards.
(a) General. Within the limit of funds available for such purpose,
the awarding official shall make research project grants to those
responsible, eligible applicants whose proposals are judged most
meritorious in the announced program areas under the evaluation
criteria and procedures set forth in this part. The date specified by
the Administrator as the beginning of the project period shall be no
later than September 30 of the Federal fiscal year in which the project
is approved for support and funds are appropriated for such purpose,
unless otherwise permitted by law. All funds granted under this part
shall be expended solely for the purpose for which the funds are
granted in accordance with the approved application and budget, the
regulations of this part, the terms and conditions of the award, the
applicable Federal cost principles, and the Department's ``Uniform
Federal Assistance Regulations'' (parts 3015 and 3019 of this title).
(b) Grant award document and notice of grant award.--(1) Grant
award document. The grant award document shall include at a minimum the
following:
(i) Legal name and address of performing organization or
institution to whom the Administrator has awarded a rangeland research
project grant under the terms of this part;
(ii) Title of project;
(iii) Name(s) and address(es) of principal investigator(s) chosen
to direct and control approved activities;
(iv) Identifying grant number assigned by the Department;
(v) Project period, which specifies how long the Department intends
to support the effort without requiring recompetition for funds;
(vi) Total amount of Departmental financial assistance approved by
the Administrator during the project period;
(vii) Legal authority(ies) under which the research project grant
is awarded to accomplish the purpose of the law;
(viii) Approved budget plan for categorizing allocable project
funds to accomplish the stated purpose of the research project grant
award; and
(ix) Other information or provisions deemed necessary by the
Department to carry out its granting activities or to accomplish the
purpose of a particular research project grant.
(2) Notice of grant award. The notice of grant award, in the form
of a letter, will be prepared and will provide pertinent instructions
or information to the grantee that is not included in the grant award
document.
(c) Categories of grant instruments. The major categories of grant
instruments by which the Department may provide support are as follows:
(1) Standard grant. This is a grant instrument by which the
Department agrees to support a specified level of research effort for a
predetermined project period without the announced intention of
providing additional support at a future date. This type of research
project grant is approved on the basis of peer review and
recommendation and is funded for the entire project period at the time
of award.
(2) Renewal grant. This is a document by which the Department
agrees to provide additional funding under a standard grant as
specified in paragraph (c)(1) of this section for a project period
beyond that approved in an original or amended award, provided that the
cumulative period does not exceed the statutory limitation. When a
renewal application is submitted, it should include a summary of
progress to date under the previous grant instrument. Such a renewal
shall be based upon new application, de novo peer review and staff
evaluation, new recommendation and approval, and a new award
instrument.
(3) Continuation grant. This is a grant instrument by which the
Department agrees to support a specified level of effort for a
predetermined period of time with a statement of intention to provide
additional support at a future date, provided that performance has been
satisfactory, appropriations are available for this purpose, and
continued support would be in the best interests of the Federal
government and the public. It involves a long-term research project
that is considered by peer reviewers and Departmental officers to have
an unusually high degree of scientific merit, the results of which are
expected to have a significant impact on the productivity of the
Nation's rangelands, and it supports the efforts of experienced
scientists with records of outstanding research accomplishments. This
kind of document normally will be awarded for an initial one-year
period and any subsequent continuation research project grants also
will be
[[Page 55165]]
awarded in one-year increments, but in no case may the cumulative
period of the project exceed the statutory limit. The award of a
continuation research project grant to fund an initial or succeeding
budget period does not constitute an obligation to fund any subsequent
budget period. A grantee must submit a separate application for
continued support for each subsequent fiscal year. Requests for such
continued support must be submitted in duplicate at least three months
prior to the expiration date of the budget period currently being
funded. Such requests must include: An interim progress report
detailing all work performed to date; An Application for Funding; a
proposed budget for the ensuing period, including an estimate of funds
anticipated to remain unobligated at the end of the current budget
period; and current information regarding other extramural support for
senior personnel. Decisions regarding continued support and the actual
funding levels of such support in future years usually will be made
administratively after consideration of such factors as the grantee's
progress and management practices and within the context of available
funds. Since initial peer reviews were based upon the full term and
scope of the original rangeland research application for funding,
additional evaluations of this type generally are not required prior to
successive years' support. However, in unusual cases (e.g., when the
nature of the project or key personnel change or when the amount of
future support requested substantially exceeds the application for
funding originally reviewed and approved), additional reviews may be
required prior to approval of continued funding.
(4) Supplemental grant. This is an instrument by which the
Department agrees to provide small amounts of additional funding under
a standard, renewal, or continuation grant as specified in paragraphs
(c)(1), (c)(2), and (c)(3) of this section and may involve a short-term
(usually six months or less) extension of the project period beyond
that approved in an original or amended award, but in no case may the
cumulative period of the project, including short term extensions,
exceed the statutory time limitation. A supplement is awarded only if
required to assure adequate completion of the original scope of work
and if there is sufficient justification of need to warrant such
action. A request of this nature normally does not require additional
peer review.
(d) Obligation of the Federal government. Neither the approval of
any application nor the award of any research project grant shall
commit or obligate the United States in any way to make any renewal,
supplemental, continuation, or other award with respect to any approved
application or portion of an approved application.
Sec. 3401.9 Use of funds; changes.
(a) Delegation of fiscal responsibility. The grantee may not
delegate or transfer in whole or in part, to another person,
institution, or organization the responsibility for use or expenditure
of grant funds.
(b) Change in project plans. (1) The permissible changes by the
grantee, principal investigator(s), or other key project personnel in
the approved research project grant shall be limited to changes in
methodology, techniques, or other aspects of the project to expedite
achievement of the projects' approved goals. If the grantee or the
principal investigator(s) is uncertain as to whether a change complies
with this provision, the question shall be referred to the
Administrator for a final determination.
(2) Changes in approved goals, or objectives, shall be requested by
the grantee and approved in writing by the Department prior to
effecting such changes. In no event shall requests for such changes be
approved which are outside the scope of the original approved project.
(3) Changes in approved project leadership or the replacement or
reassignment of other key project personnel shall be requested by the
grantee and approved in writing by the Department prior to effecting
such changes.
(4) Transfers of actual performance of the substantive programmatic
work in whole or in part and provisions for payment of funds, whether
or not Federal funds are involved, shall be requested by the grantee
and approved in writing by the Department prior to effecting such
changes, except as may be allowed in the terms and conditions of a
grant award.
(c) Changes in project period. The project period determined
pursuant to Sec. 3401.7(b) may be extended by the Administrator without
additional financial support, for such additional period(s) as the
Administrator determines may be necessary to complete, or fulfill the
purposes of, an approved project. Any extension, when combined with the
originally approved or amended project period, shall be conditioned
upon prior request by the grantee and approval in writing by the
Department, unless prescribed otherwise in the terms and conditions of
a grant award.
(d) Changes in approved budget. The terms and conditions of a grant
will prescribe circumstances under which written Departmental approval
will be requested and obtained prior to instituting changes in an
approved budget.
Sec. 3401.10 Other Federal statutes and regulations that apply.
Several other Federal statutes and/or regulations apply to grant
proposals considered for review or to research project grants awarded
under this part. These include but are not limited to:
7 CFR part 1c--USDA implementation of the Federal Policy for the
Protection of Human Subjects;
7 CFR part 1.1--USDA implementation of Freedom of Information
Act;
7 CFR part 3--USDA implementation of OMB Circular A-129
regarding debt collection;
7 CFR part 15, Subpart A--USDA implementation of Title VI of the
Civil Rights Act of 1964;
7 CFR part 3015--USDA Uniform Federal Assistance Regulations,
implementing OMB directives (i.e., Circular Nos. A-110, A-21, and A-
122) and incorporating provisions of 31 U.S.C. 6301-6308 (formerly,
the Federal Grant and Cooperative Agreement Act of 1977), as well as
general policy requirements applicable to recipients of Departmental
financial assistance;
7 CFR part 3017, as amended--USDA implementation of
Governmentwide Debarment and Suspension (Nonprocurement) and
Governmentwide Requirements for Drug-Free Workplace (Grants);
7 CFR part 3018--USDA implementation of New Restrictions on
Lobbying. Imposes new prohibitions and requirements for disclosure
and certification related to lobbying on recipients of Federal
contracts, grants, cooperative agreements, and loans;
7 CFR part 3019--USDA Uniform Administrative Requirements for
Grants and Agreements with Institutions of Higher Education,
Hospitals, and Other Non-profit Organizations;
7 CFR part 3051--Audits of Institutions of Higher Education and
Other Nonprofit Institutions;
7 CFR part 3407--CSREES procedures to implement the National
Environmental Policy Act;
29 U.S.C. 794 (section 504, Rehabilitation Act of 1973) and 7
CFR part 15B (USDA implementation of statute)--prohibiting
discrimination based upon physical or mental handicap in Federally
assisted programs; and
35 U.S.C. 200 et seq.--Bayh-Dole Act, controlling allocation of
rights to inventions made by employees of small business firms and
domestic nonprofit organizations, including universities, in
Federally assisted programs (implementing regulations are contained
in 37 CFR part 401).
Sec. 3401.11 Other conditions.
The Administrator may, with respect to any research project grant
or to any
[[Page 55166]]
class of awards, impose additional conditions prior to or at the time
of any award when, in the Administrator's judgment, such conditions are
necessary to assure or protect advancement of the approved project, the
interests of the public, or the conservation of grant funds.
Subpart B--Scientific Peer Review of Research Applications for
Funding
Sec. 3401.12 Establishment and operation of peer review groups.
Subject to Sec. 3401.7, the Administrator will adopt procedures for
the conduct of peer reviews and the formulation of recommendations
under Sec. 3401.16.
Sec. 3401.13 Composition of peer review groups.
Peer review group members will be selected based upon their
training or experience in relevant scientific or technical fields,
taking into account the following factors:
(a) The level of formal scientific or technical education by the
individual;
(b) The extent to which the individual has engaged in relevant
research, the capacities in which the individual has done so (e.g.,
principal investigator, assistant), and the quality of such research;
(c) Professional recognition as reflected by awards and other
honors received from scientific and professional organizations outside
of the Department;
(d) The need of the group to include within its membership experts
from various areas of specialization within relevant scientific or
technical fields;
(e) The need of the group to include within its membership experts
from a variety of organizational types (e.g., universities, industry,
private consultant(s)) and geographic locations; and
(f) The need of the group to maintain a balanced membership, e.g.,
minority and female representation and an equitable age distribution.
Sec. 3401.14 Conflicts of interest.
Members of peer review groups covered by this Part are subject to
relevant provisions contained in Title 18 of the United States Code
relating to criminal activity, Department regulations governing
employee responsibilities and conduct (part O of this title), and
Executive Order 11222 (3 CFR, 1964-1965 Comp., p. 306), as amended.
Sec. 3401.15 Availability of information.
Information regarding the peer review process will be made
available to the extent permitted under the Freedom of Information Act
(5 U.S.C. 552), the Privacy Act (5 U.S.C. 552a.), and implementing
Departmental regulations (part 1 of this title).
Sec. 3401.16 Proposal review.
(a) All research Applications for Funding will be acknowledged.
Prior to technical examination, a preliminary review will be made for
responsiveness to the request for proposals (e.g., relationship of
application to research program area). Proposals that do not fall
within the guidelines as stated in the annual request for proposals
will be eliminated from competition and will be returned to the
applicant. Proposals whose budgets exceed the maximum allowable amount
for a particular program area as announced in the request for proposals
may be considered as lying outside the guidelines.
(b) All applications will be reviewed carefully by the
Administrator, qualified officers or employees of the Department, the
respective merit review panel, and ad hoc reviewers, as required.
Written comments will be solicited from ad hoc reviewers when required,
and individual written comments and in-depth discussions will be
provided by peer review group members prior to recommending
applications for funding. Applications will be ranked and support
levels recommended within the limitation of total available funding for
each research program area as announced in the applicable request for
proposals.
(c) Except to the extent otherwise provided by law, such
recommendations are advisory only and are not binding on program
officers or on the awarding official.
Sec. 3401.17 Review criteria.
(a) Federally funded research supported under these provisions
shall be designed to, among other things, accomplish one or more of the
following purposes:
(1) Improve management of rangelands as an integrated system and/or
watershed;
(2) remedy unstable or unsatisfactory rangeland conditions;
(3) increase revegetation and/or rehabilitation of rangelands/
(4) examine the health of rangelands; and
(5) define economic parameters associated with rangelands.
(b) In carrying out its review under Sec. 3401.16, the peer review
panel will use the following form upon which the evaluation criteria to
be used are enumerated, unless, pursuant to Sec. 3401.7(a), different
evaluation criteria are specified in the annual solicitation of
proposals for a particular program:
Peer Panel Scoring Form
Proposal Identification No.--------------------------------------------
Institution and Project Title------------------------------------------
I. Basic Requirement:
Proposal falls within guidelines? ________Yes ________No. If no,
explain why proposal does not meet guidelines under comment section
of this form.
II. Selection Criteria:
----------------------------------------------------------------------------------------------------------------
Score X
Score 1-10 Weight weight Comments
factor factor
----------------------------------------------------------------------------------------------------------------
1. Overall scientific and technical quality of proposal..... ........... 10 ........... ...........
2. Scientific and technical quality of the approach......... ........... 10 ........... ...........
3. Relevance and importance of proposed research to solution
of specific areas of inquiry............................... ........... 6 ........... ...........
4. Feasibility of attaining objectives; adequacy of
professional training and experience, facilities and
equipment.................................................. ........... 5 ........... ...........
----------------------------------------------------------------------------------------------------------------
[[Page 55167]]
Score------------------------------------------------------------------
Summary Comments-------------------------------------------------------
(c) Proposals satisfactorily meeting the guidelines will be
evaluated and scored by the peer review panel for each criterion
utilizing a scale of 1 through 10. A score of one (1) will be
considered low and a score of ten (10) will be considered high for each
selection criterion. A weighted factor is used for each criterion.
Done at Washington, DC, this 19th day of October 1995.
Colien Hefferan,
Acting Administrator, Cooperative State Research, Education, and
Extension Service.
[FR Doc. 95-26652 Filed 10-26-95; 8:45 am]
BILLING CODE 3410-22-M
Complete official Federal Register PDF
FR Doc. 95-26635 Safety Standards for First Aid at Metal and Nonmetal Mines
[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 55150-55151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26635]
[[Page 55149]]
_______________________________________________________________________
Part IV
Department of Labor
_______________________________________________________________________
Mine Safety and Health Administration
_______________________________________________________________________
30 CFR Parts 56 and 57
Safety Standards for First Aid at Metal and Nonmetal Mines; First Aid
Training for Selected Supervisors; Proposed Rule and Notice
Federal Register / Vol. 60, No. 208 / Friday, October 27, 1995 /
Proposed Rules
[[Page 55150]]
DEPARTMENT OF LABOR
Mine Safety and Health Administration
30 CFR Parts 56 and 57
Safety Standards for First Aid at Metal and Nonmetal Mines
AGENCY: Mine Safety and Health Administration, Labor.
ACTION: Proposed rule; notice of public hearings; close of record.
-----------------------------------------------------------------------
SUMMARY: This proposal would revise existing standards for metal and
nonmetal mines requiring operators to have supervisors trained in first
aid. The proposed rule is based on a petition for rulemaking from the
National Mining Association (NMA).
If public hearings are requested by commenters, the Mine Safety and
Health Administration (MSHA) will hold public hearings on its proposed
rule.
DATES: Written comments must be submitted on or before December 11,
1995.
If requested, hearings will be held in Pittsburgh, Pennsylvania and
Denver, Colorado in December 1995. Both hearings will begin at 9:00
a.m. The record for the rulemaking will close on January 8, 1996.
ADDRESSES: Send comments and requests to make oral presentations to the
Mine Safety and Health Administration, Office of Standards, Regulations
and Variances; Room 631, Ballston Towers No. 3; 4015 Wilson Boulevard,
Arlington, Virginia 22203. The exact location of the public hearings,
if held, will be contained in a later notice.
FOR FURTHER INFORMATION CONTACT: Patricia W. Silvey, Director; Office
of Standards, Regulations, and Variances, MSHA; 703-235-1910. FAX:
(703) 235-5551.
SUPPLEMENTARY INFORMATION:
I. Paperwork Reduction Act
This proposed rule contains no information collection or paperwork
requirements subject to the Paperwork Reduction Act of 1995.
II. Introduction and Rulemaking Background
Existing MSHA standards at Secs. 56/57.18010 state, ``Selected
supervisors shall be trained in first aid. First aid training shall be
made available to interested employees.'' The primary purpose of these
standards is to assure that a responsible person, trained to provide
first aid treatment, is available to render assistance in the event a
miner is injured. An additional purpose is to encourage first aid
education among miners so they may be able to help an injured fellow
worker.
These provisions were originally promulgated as advisory standards
on July 31, 1969, by the United States Department of the Interior,
Bureau of Mines, predecessor Agency to MSHA. The standards were made
mandatory on August 29, 1973, following a recommendation by the Federal
Metal and Nonmetal Mine Safety Advisory Committee, which was appointed
pursuant to Section 7 of the Federal Metal and Nonmetallic Mine Safety
Act and composed of mining industry and labor representatives. On March
19, 1975 a policy notice was issued giving guidance on the standard's
application.
In response to determinations of repeated instances of
noncompliance with Secs. 56/57.18010, on October 3, 1994, MSHA issued
Program Policy Letter (PPL) No. P94-IV-2, First Aid Training for
Selected Supervisors, to underscore the standard's intent. The policy
letter emphasized that the requirement for first aid training is
separate from 30 CFR part 48, training and retraining for miners, and
also addressed frequently asked questions concerning the standards.
MSHA received a number of objections and withdrew the October
policy letter by Federal Register notice of February 22, 1995 (60 FR
9986). The Agency began a new process of seeking public comment on
certain policies. In an accompanying notice, MSHA requested comments on
the October policy letter for first aid training.
MSHA received written comments from labor and industry
representatives and subsequently held two public meetings. Although the
mining industry supported MSHA's new process for public input into the
development of certain policies, it continued to object to the draft
policy for first aid training as an expansion of the existing standard
which should be addressed through rulemaking. Labor representatives
requested a more expansive interpretation of the standard.
By letter of August 25, 1995, the NMA petitioned the Secretary of
Labor requesting that MSHA institute rulemaking on the first aid issue
and suggested language for a new standard. The recommended revision
would require that an individual capable of providing first aid be
available on all shifts. The NMA recommendation would also retain the
existing requirement that first aid training be made available to all
interested employees.
MSHA believes that NMA's recommendation promotes the original
intent of the first aid training standard in a positive way. MSHA,
therefore, is revising the existing standard, based in part on the
NMA's petition, and will not finalize the draft policy letter. Notice
of the Agency's decision not to finalize the draft policy is published
elsewhere in this issue of the Federal Register.
Written comments previously submitted to MSHA concerning the
Agency's draft policy letter on first aid will be included in the
rulemaking record. Members of the public are encouraged to submit new
comments pursuant to this notice.
III. Discussion and Summary of Proposed Rule
Sections 56/57.18010, First Aid
Current MSHA standards require that selected supervisors be trained
in first aid and that first aid training be made available to
interested miners. Although the specific language of this standard does
not preclude mine operators from using medical professionals and
certified emergency medical technicians (EMT) in the treatment of
injured miners, it does specify that ``selected supervisors'' receive
first aid training.
The proposed standard would revise the language in the first
sentence of the existing standards to require that mine operators have
an ``individual capable of providing first aid available on all
shifts.'' The revision would broaden the scope of the persons who could
meet the requirements of the rule. This change would recognize that
many metal and nonmetal operations employ physicians, EMTs, first
responders, and registered nurses who are trained to render first aid
and in some cases medical treatment.
For clarity, MSHA is modifying the suggested language in the NMA
petition. The proposal specifies what skills a person must be able to
perform to be considered capable. These skills include: Patient
assessment and artificial respiration; control of bleeding; treatment
of shock, wounds, burns, and musculoskeletal injuries; and handling and
transporting injured persons. Nationally recognized and other quality
first aid courses include these in their programs and they have
historically formed the basis for adequate first aid response.
During deliberations on the draft policy letter, commenters
questioned whether part 48 training would provide persons with skills
necessary to meet the first aid capability under the proposal. MSHA is
concerned that part 48 training may not accomplish this
[[Page 55151]]
goal. Training under part 48 is intended to impart skills and knowledge
to all miners in a broad range of job-related safety and health
subjects. The first aid portion of this training is frequently an
abridged course which would not develop the skills needed to achieve
the objectives of the proposed rule. The agency believes that all part
48 training is important for the safety and health of miners. First aid
training of sufficient duration to produce the necessary skill levels
could impact the time allotted for other subjects important to miner
safety.
Currently, MSHA determines compliance with the existing first aid
training required by reviewing course documentation and, under the
proposal, MSHA would continue this practice. The Agency believes it is
not imposing any paperwork burden on the industry because MSHA accepts
available documentation, such as course completion certificates,
maintained in the normal course of a mine operator's business.
The proposed standard would require operators to have a person
available on all shifts capable of providing first aid. MSHA
anticipates applying this requirement consistent with the existing
standard. The standard would not apply to off-shift activities such as
those performed by a security person. At multi-shift operations, a
person capable of providing first aid would be required to be available
on each shift.
The proposal would retain the language in the second sentence of
the existing rule, which requires operators to make first aid training
available to all interested miners. Consistent with the existing
standard and past MSHA policy, this provision applies to mine employees
and training must be offered at an accessible location. Operators are
also expected to inform employees in a timely manner of scheduled first
aid training so they may take the training.
IV. Executive Order 12866 and the Regulatory Flexibility Act
Executive Order 12866 requires that regulatory agencies assess both
the costs and benefits of proposed regulations. MSHA has determined
that this rulemaking is not a significant regulatory action and,
therefore, has not prepared a separate analysis of costs and benefits.
The Regulatory Flexibility Act requires regulatory agencies to consider
a rule's impact on small entities. This proposed rule would not have a
significant economic impact on a substantial number of small entities.
The analysis contained in this preamble meets MSHA's responsibilities
under Executive Order 12866 and the Regulatory Flexibility Act.
MSHA does not believe that this rule will result in any increased
costs to the mining industry since the proposal broadens the scope of
persons who could provide the first aid capability required by the
standard. In some cases, this would mean that a mine operator could
rely on existing personnel who possess these special skills.
Dated: October 20, 1995.
J. Davitt McAteer,
Assistant Secretary for Mine Safety and Health.
It is proposed to amend parts 56 and 57, subchapter N, chapter I,
title 30 of the Code of Federal Regulations as follows:
PART 56--[AMENDED]
1. The authority citation for part 56 continues to read as follows:
Authority: 30 U.S.C. 811, 956 and 961.
2. Section 56.18010 is revised to read as follows:
Sec. 56.18010 First aid.
An individual capable of providing first aid shall be available on
all shifts. The individual shall have the skills to perform patient
assessment and artificial respiration; control bleeding; treat shock,
wounds, burns, and musculoskeletal injuries; and handle and transport
injured persons. First aid training shall be made available to all
interested miners.
PART 57--[AMENDED]
3. The authority citation for part 57 continues to read as follows:
Authority: 30 U.S.C. 811, 956 and 961.
4. Section 57.18010 is revised to read as follows:
Sec. 57.18010 First aid.
An individual capable of providing first aid shall be available on
all shifts. The individual shall have the skills to perform patient
assessment and artificial respiration; control bleeding; treat shock,
wounds, burns, and musculoskeletal injuries; and handle and transport
injured persons. First aid training shall be available to all
interested miners.
[FR Doc. 95-26635 Filed 10-26-95; 8:45 am]
BILLING CODE 4510-43-P
Complete official Federal Register PDF
FR Doc. 95-26554 Rules of Practice and Procedure
[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 54981-54989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26554]
=======================================================================
-----------------------------------------------------------------------
POSTAL RATE COMMISSION
[Docket No. RM95-4, Order No. 1084]
39 CFR Part 3001
Rules of Practice and Procedure
AGENCY: Postal Rate Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Commission is proposing amendments to its rules of
practice and procedure that would facilitate expedited consideration of
requests of the United States Postal Service to: Conduct market tests
of new postal services in order to develop information necessary to
support a permanent mail classification change; adopt, on a provisional
basis, mail classification and associated rate changes that supplement,
but do not alter, existing rates and mail classifications; and adopt
permanent but narrowly focused mail classification changes that
supplement, but do not alter, existing rates and mail classifications.
In addition to these amendments, the Commission is proposing a rule
that would allow the Postal Service to use a multi-year test period for
the purpose of demonstrating the financial viability of potential new
services that are the subject of a concurrent Postal Service request.
DATES: Comments must be submitted on or before December 26, 1995.
ADDRESSES: Comments and correspondence should be sent to Margaret P.
Crenshaw, Secretary of the Commission, 1333 H Street NW, Suite 300,
Washington, DC 20268-0001 (telephone: 202/789-6840).
FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, Legal Advisor,
Postal Rate Commission, 1333 H Street NW, Suite 300, Washington, DC
20268-0001 (telephone: 202/789-6820).
SUPPLEMENTARY INFORMATION: On April 24, 1995, the Commission issued an
Advance Notice of Proposed Rulemaking in response to a petition
submitted by the United States Postal Service. The Postal Service's
petition, filed April 13, 1995, asked the Commission to initiate a
rulemaking with a view to adopting new procedural rules applicable to
seven ratemaking and mail classification topics, for the purpose of
facilitating expedited consideration and review of Postal Service
requests in those areas. For the most part, the rules proposed in the
Postal Service's petition pursue specific recommendations of the Joint
Task Force on Postal Ratemaking.1 The Commission summarized the
Postal Service's seven proposed rules and solicited the views of
interested parties on the draft rules and six other topics in the
Advance Notice. 60 FR 22017-19 (May 4, 1995).
\1\See Postal Ratemaking in a Time of Change: A Report by the
Joint Task Force on Postal Ratemaking (June 1, 1992).
---------------------------------------------------------------------------
The Commission received 21 sets of comments in response to the
Advance Notice.2 In addition to their views on the merits of the
Postal Service's proposed rules, several parties submitted that it
would be inappropriate to go forward with the requested rulemaking in
light of the current focus on mail classification reform and the
parties significant commitment of resources in Docket No. MC95-1. In
contrast, the Postal Service commented that it sees no utility in
deferring consideration of any of its proposed rules, and that
simultaneous consideration of all of them is warranted.
\2\The Association of American Publishers, American Bankers
Association, American Business Press, Air Courier Conference of
America, Advo, Inc., Advertising Mail Marketing Association, Direct
Marketing Association, Inc., Dow Jones & Company, Inc., Federal
Express Corporation, Florida Gift Fruit Shippers Association,
McGraw-Hill Companies, Inc., Major Mailers Association, Mail Order
Association of America, Magazine Publishers of America, National
Newspaper Association, Newspaper Association of America, the
Commission's Office of the Consumer Advocate, Quality Letter
Service, Inc., Time Warner Inc., United Parcel Service, and the
United States Postal Service submitted comments in response to the
Advance Notice.
---------------------------------------------------------------------------
The Commission concurs in the Postal Service's initiative ``to
reopen the dialogue over administrative reform to a new chapter, and to
focus on procedural changes designed to provide more expedition and
flexibility.'' Petition of United States Postal Service to Initiate
Rulemaking, April 13, 1995, at 5. However, the Commission is also
mindful of the current workload imposed on all those involved in Docket
No. MC95-1 and mail classification reform generally, and is disinclined
to occasion additional efforts now without a realistic prospect of
procedural enhancements in the near term. An additional consideration,
which the Postal Service acknowledges in its petition, is the existence
of potential legal impediments to implementing at least some of the
concepts recommended by the Joint Task Force.
In view of these competing considerations, the Commission has
determined to promulgate draft rules which would implement a majority,
but not all, of the Postal Service's seven procedural initiatives.
Specifically, the Commission has drafted proposed rules for application
in the areas of market tests, provisional new services, minor changes
in permanent mail classifications, and multi-year financial test
periods for new services. At this point, these initiatives appear to
hold the greatest promise for procedural improvement in the near term.
The Commission will endeavor to pursue the remaining initiatives, which
appear to present somewhat greater challenges under the Postal
Reorganization Act as currently interpreted, in subsequent proceedings.
Market tests of potential new services. While one commenter, United
Parcel Service, disputes the necessity of adopting a market test rule,
the Joint Task Force Report correctly observes that there is no ``well-
worn path'' in Commission procedure for obtaining information that
could shed light on the prospects of potential service innovations
through limited testing in the marketplace. Sections 67 through 67d of
the current rules of practice (39 CFR 3001.67 through .67d) establish
procedures for considering mail classification requests that the Postal
Service denominates as ``experimental'' in character. However, this
pre-existing mechanism may not be the most efficient and effective way
to facilitate market testing, as the Postal Service has commented. The
Commission agrees with the Postal Service and the Governors that it
would be useful to explore new procedures explicitly designed for
limited market tests that would enable the Service to gain ``real
world'' experience with innovative services, and that would at the same
time generate information needed to support recommendation of such
services as permanent mail classifications. Employing these procedures
within the larger context of an ongoing proceeding to consider a Postal
Service request for a permanent classification change would also assist
in establishing the objectives of market tests and defining their
reasonable limits.
The Postal Service's proposed market test rules would apply to
requests which seek ``changes in rates or mail classification preceded
by testing in the market in order to develop information necessary to
support a permanent change.'' Proposed 39 CFR 3001.121. Insofar as the
Postal Service has proposed rules that would apply to requests for
expedited market tests of changes in existing rates only,
[[Page 54982]]
unaccompanied by a proposed service innovation, the Service's proposal
exceeds the scope of the Joint Task Force's recommendations. Those
recommendations were directed toward ``potential service
innovations[,]'' and contemplated implementation through ``rules for
the consideration of mail classification proposals to allow market data
to be obtained from limited tests * * *'' Joint Task Force Report at
47, 48. (Emphasis added.) In the Commission's view, market testing of
pure rate changes for existing services could raise difficult issues of
consistency with the fairness and equity factor in 39 U.S.C. 3622(b)(1)
and the prohibition of undue discrimination or preferences among mail
users in 39 U.S.C. 403(c). Accordingly, to foreclose these potential
issues and thereby simplify the market testing initiative, the
Commission's draft rules are limited to market tests of proposed
changes in mail classification, together with the rates proposed for
the proposed new mail classification.
One commenter, the Newspaper Association of America, has suggested
that the Commission must reject the Service's proposed market test
rules because they are unlawful in several respects: They limit the
Commission's review to a ``yes or no'' determination, thereby limiting
analysis and potentially precluding consideration of some applicable
statutory factors; they incorporate too short a deadline for Commission
action; and they set no outside parameters for the duration of a market
test. Other commenters--the American Bankers Association, Air Courier
Conference of America, Federal Express Corporation, and United Parcel
Service--presented similar criticisms of the Service's proposed rules
regarding the limited scope of the Commission's review, attenuated data
requirements, and the indefinite scope and duration of market tests
permissible under the rules.
At the outset, the Commission believes that it is possible to craft
rules for the expedited consideration and recommendation of market
tests that are consistent with both the substantive and procedural
requirements of the Postal Reorganization Act. Substantively, the Act
requires that the Commission's recommendations be in accordance with
the policies of Title 39 and the factors specified in sections 3622 and
3623. Under ordinary circumstances, if a Postal Service request appears
to be incompatible with established postal policy or applicable
statutory factors, the Commission endeavors to cure those deficiencies
by recommending modifications in the Service's proposal, if that is
feasible and appropriate. This would certainly be the case with respect
to a permanent mail classification change requested by the Postal
Service. However, in the case of a market test, the Postal Service's
evident intention would be to implement a plan both expeditiously and
in the form in which it was designed by management. A recommendation to
modify the proposed plan in any significant respect--even if the
Commission considered modification to be compelled by applicable
factors--could jeopardize the timeliness of the test and seriously
impair its usefulness. This being the case, a relatively inflexible
``yes or no'' determination by the Commission might be viewed as the
necessary price of expedition, but it seems to be a reasonable one
under the terms of the Reorganization Act. The risk of proposing a
market test that the Commission would find itself unable to recommend
under the policies and factors of the Act would be borne entirely by
the Postal Service.3
\3\Of course, in any such case the Commission would express its
specific concerns in its Opinion and Recommended Decision, and would
provide guidance on how the identified deficiencies could be
remedied.
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For these reasons, the Commission believes that it would be
feasible to implement an expedited, ``yes or no'' review of proposed
market tests, provided the objectives and criteria applicable to such
tests are clearly specified. Accordingly, the first section of the new
Subpart I proposed for addition to the Commission's rules begins by
stating that the procedures apply in cases in which the Postal Service
has requested a recommended decision pursuant to section 3623
``preceded by testing in the market in order to develop information
necessary to support a permanent change.'' Proposed Sec. 3001.161. The
section also declares a Commission policy in favor of recommending
``market tests that are reasonably calculated to produce information
needed to support a permanent change in mail classification, and that
are reasonably limited in scope, scale, duration and potential adverse
impact.'' In order to clarify the issue of maximum duration, upon which
some parties commented, the proposed rule would declare a limit of one
year, except in extraordinary circumstances and for good cause shown.
With regard to procedural requirements, the Commission believes
that it is possible to fashion expedited procedures that would
accommodate the due process rights of participants and enable it to
review all issues presented, but agrees with various comments that
claimed the Postal Service's proposed market test rule would provide
for unduly attenuated proceedings. First, the artificial limitation of
issues to be considered by the Commission under the Service's proposed
rule cannot be justified, as the comments of American Bankers
Association and Newspaper Association of America observe. It is
altogether likely that a proposed market test, conducted within the
larger context of a Postal Service request for a permanent change in
mail classification, will involve the determination of relatively few
issues. However, in order to be able to recommend to the Governors that
a proposed market test be conducted, the Commission is obliged by the
Reorganization Act to assure itself that all applicable statutory
factors have been duly considered. Consequently, the Commission's
proposed rules do not contain any issue-limiting provision, but instead
adopt a procedural mechanism for narrowing the issues that might
require a hearing. See proposed Sec. 3001.163(e).
The Commission also believes that the 60-day schedule dictated by
the Postal Service's rules may be insufficient to provide interested
parties an adequate opportunity to exercise their due process rights
under section 3624. For this reason, the Commission's proposed market
test rules incorporate a 90-day decisional schedule. The proposed rules
also are designed to maximize the opportunity of potential participants
to examine and respond to the Postal Service's request through
inclusion of expedited public notice provisions similar to those in the
Commission's rules applicable to Express Mail Market Response requests.
These provisions allow interested persons to register for expedited
receipt of Postal Service requests to conduct market tests, and direct
the Service to serve copies of such requests on the registrants either
by hand delivery or Express Mail service. They also direct the Postal
Service to serve copies of its request on all participants in the most
recent omnibus rate proceeding. See proposed Sec. 3001.163 (b) through
(d).
The Commission's proposed rules would require the Postal Service to
describe the features of its requested market test in some detail,
identifying the services to be provided, the rates to be charged, the
number and extent of the areas to be served, the test's duration, and
the anticipated number of customers who will participate. Proposed
Sec. 3001.162 would also require the Service to describe the means by
which it plans to provide equal access to all potential users in the
test market service areas, and its plan for gathering
[[Page 54983]]
and reporting the data needed to support a permanent mail
classification change.
However, the rules would also afford the Postal Service
considerable flexibility in conducting market tests, and in acting upon
their results. If the Service anticipates that periodic reporting of
test data would be harmful to the purposes of the test--for example, by
revealing information that might lead mailers or competitors to take
actions that would influence the test results--its plan could provide
for presenting the test data as part of the information to be filed
subsequently in support of a permanent mail classification change.
Additionally, if the experience gained from the market test leads the
Postal Service to change its plans regarding the new service, proposed
Sec. 3001.166(b) would allow the Service to move for revision or
withdrawal of its request for a permanent mail classification change. A
motion to withdraw its request would relieve the Postal Service of any
obligation to produce the test data that would otherwise be submitted.
Finally, while market tests to be recommended by the Commission
ordinarily would be limited to one year in duration, proposed
Sec. 3001.161 states that this limitation would not necessarily bar the
Postal Service from conducting more than one market test in support of
a potential classification change, under appropriate circumstances.
Requests for provisional service changes of limited duration. The
Joint Task Force Report recommended that the Commission adopt rules
providing fast-track, ``yes or no'' review of proposed service
innovations that would supplement existing rates and classifications
without altering any of them. The purpose of the rules would be to
enable the Postal Service to introduce a new service offering quickly,
while allowing postal customers to ``either try the new service or
stick with the existing service menu, or both.'' Report at 52. The
Report also recommended that the Service's request for the new service
denominate it as provisional, and specify an ending date in its filing.
The Postal Service has proposed provisional service change rules
that nominally would apply to ``requests that the Commission recommend
changes in rates or mail classification which supplement, but do not
alter, existing classification and rates. * * *'' USPS proposed
Sec. 3001.131. (Emphasis added.) While it is unclear how a rate change
unaccompanied by a change in mail classification could supplement, yet
not alter, existing classification and rates, the Service's proposed
rule could be read to extend to provisional changes in rates alone.
Such changes would be beyond the scope of the Joint Task Force's
recommendations, and the Commission's proposed Sec. 3001.171 includes
alternative language.
Several commenters--including American Bankers Association, Federal
Express Corporation, and United Parcel Service--questioned the
potential application of the Postal Service's proposed rules, or
whether rules for provisional services would accomplish any purposes
different from those addressed by the market test rules. At this point,
the Commission believes that separate provisional service rules could
be employed to accomplish objectives similar to those for market tests,
but in somewhat different ways. For example, in appropriate instances
provisional services might be introduced simultaneously throughout the
postal system, rather than in just a few market testing areas. In any
event, these issues merit further consideration, and the Commission
invites both the Postal Service and other interested parties to submit
further comments.
In light of the similarities in purpose and overall structure
between the Service's proposed market test rules and the rules for
provisional services, the Commission's proposed Subpart J parallels the
provisions in proposed Subpart I. Proposed Sec. 3001.171 would define
applicability of the rules, and declare as Commission policy the
recommendation of provisional services that enhance the range of postal
services available to the public, without producing a material adverse
effect overall on postal revenues or costs, and without causing
unnecessary or unreasonable harm to competitors of the Postal Service.
The latter criteria follow both the Joint Task Force Report's
recommendations and the language of the Postal Service's proposed
rules. The proposed section would also limit recommended provisional
services to two years' duration ordinarily, but provide for extension
to an additional year if the Postal Service has filed a request to
establish the provisional service as a permanent mail classification.
Proposed Sec. 3001.172 establishes the filing requirements
applicable to requests for provisional services. Each formal request
would be required to include descriptive and proposed Domestic Mail
Classification Schedule language and rate schedules, documentation to
support the rates proposed for the provisional service, a termination
date on which the proposed service would be discontinued, and an
estimate of the effect of implementing the proposal on overall Postal
Service costs and revenues. The section would also establish compliance
with subpart C of the current rules applicable to mail classification
requests as a general standard applicable to the contents of formal
requests, but would allow the Postal Service to seek waiver of
particular requirements by explaining why responsive information is
unavailable.
The Postal Service's proposed rules would allow requests for
provisional services to include proposed rates ``which may encompass a
range of rates.'' USPS proposed Sec. 3001.132(a). As noted above, the
Commission is not proposing rules at this time that would establish the
concept of rate bands in Commission proceedings, and the Postal
Service's proposed language is not included in the Commission's rules
for provisional services. However, in light of the ``yes or no''
feature of the Service's proposal in this area, which has been
retained, the Commission is reluctant to adopt rules that would compel
rejection of a requested provisional service solely because of
deficiencies in a single proposed rate. Interested parties are invited
to comment on how this potential problem should be addressed, and to
suggest specific language for inclusion in the rules.
Proposed Sec. 3001.173 would establish expedited procedures for
public notice of the Postal Service's request and for conducting the
proceeding. The section closely tracks the procedures specified for
market test requests in proposed Sec. 3001.163 in order to give
interested parties the earliest feasible notice of the requested
provisional service and to establish whether a hearing will be
necessary.
As with the Commission's proposed market test rules, proposed
Subpart J does not include the issue-limiting provisions contained in
the Postal Service's proposed rules, but substitutes a procedural
mechanism for narrowing the issues that might require a hearing. This
accommodates the concerns of commenters Air Courier Conference of
America and Newspaper Association of America that the Service's
proposed rules would fail to provide the thorough review provided by
current procedures. The rule for decision in proposed Sec. 3001.164
provides for issuance of a ``yes or no'' Commission decision in
accordance with all applicable policies of the Postal Reorganization
Act, and declares the objective of completing consideration of proposed
provisional services within 90 days, consistent with the procedural due
process rights of interested persons.
[[Page 54984]]
Proposed Sec. 3001.175 would direct the Postal Service to collect
and report data pertaining to provisional services that have been
recommended by the Commission and implemented by the Board of
Governors. The Service's data collection and reporting requirements
would generally correspond to the periodic reporting requirements
specified in Sec. 3001.102 of the current rules. However, if the
Service does not revise its regular data reporting systems to include
the provisional service while it is in effect, the section would direct
the Service to perform and file the results of special studies on a
corresponding schedule to provide equivalent information to the extent
reasonably practicable.
Finally, proposed Sec. 3001.176 would provide for formal Postal
Service requests that provisional services currently in effect be
terminated, or established as permanent mail classifications either as
originally recommended or in modified form. Following the provisional
service's termination date, the section would allow the Postal Service
to submit a request for its re-establishment under any subpart of the
Commission's rules which would otherwise apply.
Expedited consideration of requests for minor mail classification
changes. Noting that requests for permanent mail classification changes
have been held to a uniform set of requirements regardless of whether
the proposed change is complex or relatively simple, the Joint Task
Force recommended that the Commission establish a streamlined version
of its rules to consider ``appropriately limited proposals'' within the
framework of a 90- to 150-day procedural schedule. Report at 55.
The Postal Service proposes rules that would provide expedited
review of requested classification changes that are ``minor,'' which
would be defined as changes that do not involve changes in current
rates or fees, and which: (a) Involve only changes in current mailing
requirement or eligibility standards; (b) pertain to existing or
proposed mail types or services estimated to provide less than 10
percent of total Postal Service revenues; or (c) are otherwise found by
the Commission to be appropriately limited. USPS proposed Sec. 3001.69.
As commenters Federal Express Corporation and United Parcel Service
have noted, the 10 percent standard is problematical because of its
potential scope: A threshold as high as Sec. 5.5 billion could be
expected to encompass quite a few classification changes of more than
``minor'' consequence. For this reason, the Commission's proposed
Sec. 3001.69 adopts a different standard that includes classification
changes which ``would only affect categories of service with low
aggregate costs and revenues.''
The Commission's proposed Sec. 3001.69a would impose somewhat more
stringent requirements on the contents of formal requests for minor
classifications than the Postal Service's proposed provision. The
section would require: Descriptive and proposed Domestic Mail
Classification Schedule language, as well as any pertinent rate
schedules; a thorough explanation of the grounds on which the Service
submits that the requested change is minor in character; and an
estimate, in the greatest level of detail practicable, of the overall
impact of the requested change on postal costs and revenues, mail
users, and competitors of the Postal Service. As with the proposed
rules for provisional service requests, the section would establish
compliance with subpart C as the general standard applicable to the
contents of formal requests, but would allow the Postal Service to seek
waiver of particular requirements by explaining why responsive
information is unavailable, or should not be required in light of the
minor character of the requested classification change. These
provisions are intended to assure the availability of all information
genuinely necessary for evaluation of the proposed classification
change.
Proposed Sec. 3001.69b specifies expedited procedures for noticing
the Postal Service's request, allowing interventions and responses to
the Service's request for consideration under the expedited rules, and
the Commission's determination whether the request is appropriate for
consideration as a minor classification change. If the Commission
determines that the request is not appropriate for consideration as a
minor change, the expedited rules will not apply, and the request will
be considered under other appropriate provisions. If the Commission
determines that the expedited rules should apply, respondents who
requested a hearing will be directed to identify the material issues of
fact that require a hearing, and identify the facts presented in the
Postal Service's filing that it disputes. The section states that
hearings will be held if the Commission determines that there are
genuine issues of material fact to be resolved, and that a hearing is
needed to resolve them. Unlike the Postal Service's proposed provision,
this section would not exclude any category of factual issue from
consideration.
The Postal Service's proposed rules would require the Commission to
issue a recommended decision within 60 days after filing of the request
if no party challenges it, and within 90 days if an on-the-record
inquiry is conducted. The Commission is concerned that these deadlines
would not allow adequate opportunities for interested persons to
participate meaningfully in every phase of the proceeding, particularly
in ascertaining if a hearing may be necessary. Consequently, proposed
Sec. 3001.69c provides for issuance of a recommended decision within 90
days after filing if no hearing is held, and 120 days if a hearing is
held. The intervals between procedural milestones specified in proposed
Sec. 3001.69b are designed to accommodate these time limits.
Multi-year test periods for proposed new services. The Joint Task
Force Report concluded that the single-year test period prescribed in
the Commission's rules tends to restrict opportunities for new service
innovation by the Postal Service. Such services can entail substantial
initial expenditures for equipment, marketing, or other introductory
investments that will not be recovered in their early, low-volume
startup periods. In order to allow new services an opportunity to
mature and achieve financial breakeven, the Report recommended that the
Commission adopt rules providing for a multi-year test period of at
least four or five years for proceedings involving new service
offerings. Report at 50-52.
The Commission concurs with this rationale for multi-year test
periods, but believes that their use must be supported by convincing
substantial evidence in each case. Commenters Air Courier Conference of
America and Federal Express Corporation expressed concerns that a
multi-year test period could become a vehicle for allowing rates for
new services to be set below attributable costs, and argued that it
would be impermissible for the Commission to delegate a decision on
breakeven to the Postal Service. These are legitimate concerns, but in
the Commission's view they can be addressed by crafting a rule that
will provide for full disclosure of available information and
exploration on the record. Also, as a general matter, it would appear
that to merit recommendation a multi-year test period should be
commensurate with the horizon of the Postal Service's financial
planning and be fully supported by financial analysis.
In light of these considerations, the Commission's proposed Subpart
K would adopt a policy of allowing the use of multi-year test periods
of up to 5 fiscal years in support of requests to
[[Page 54985]]
establish new postal services ``where the Postal Service has presented
convincing substantial evidence in support of the test period
proposed.'' Proposed Sec. 3001.181. The new subpart would require that
each such request be supported by the testimony of a witness on behalf
of the Postal Service, who would be responsible for providing a
complete description of the proposed multi-year test period, a detailed
explanation of the Service's bases for requesting the period, and a
complete description of the Service's plan for achieving an appropriate
contribution to institutional costs from the new service. The rules
would also require the provision of complete documentary support for,
and detail underlying, the requested test period, including cost,
revenue and volume estimates, Return on Investment projections, and any
other pertinent analyses prepared by the Postal Service.
The remaining Postal Service initiatives. As noted in the
introduction to the discussion of the proposed rules, the Commission
has determined to defer consideration of the Postal Service's remaining
three initiatives: rules for limited scope rate cases, rate bands for
competitive services, and Negotiated Service Agreements. Each of these
areas merits further study and deliberation before proposing
implementation in procedural rules.
With regard to limited scope rate cases, the Commission agrees in
principle that it should be possible to consider Postal Service
requests for relatively minor rate adjustments on an expedited basis.
However, at this juncture it is not evident that a prescriptive rule of
the sort proposed by the Postal Service is either necessary or would be
beneficial. As commenters American Bankers Association, Newspaper
Association of America, and United Parcel Service noted, such rules
present problems in defining what is a ``relatively minor adjustment''
in current rates, and the preclusion of certain potential issues from
consideration may trench upon interested parties' rights to an adequate
opportunity for a hearing. Additionally, it is unclear how the possible
effects of the proposed rate change upon other classes and subclass of
mail could be accommodated. In light of the Commission's generally
favorable experience in expediting consideration of the Postal
Service's omnibus rate request in Docket No. R94-1, the Commission
believes it would be preferable at this point to devise measures for
expediting consideration of rate requests on a case-by-case basis.
The Commission also believes it would be advisable to defer
consideration of rules incorporating special procedures to establish
rate bands for competitive services. The commenters generally agreed
that defining what constitutes a ``competitive service'' is
problematical, especially when the influence of the Private Express
Statutes is taken into consideration. Additionally, as commenters Air
Courier Conference of America, Florida Gift Fruit Shippers Association,
Newspaper Association of America, and United Parcel Service noted, the
proposed procedures raise significant statutory and public policy
issues concerning the respective roles of the Postal Service and the
Commission in the ratemaking process. When the Commission last
addressed the rate band concept, in Docket No. RM91-1, it declined to
adopt rules incorporating the concept in the absence of the four-year
strategic ratemaking cycle it had proposed in furtherance of the Joint
Task Force's recommended new model for the ratemaking process.4
The Commission stated:
\4\See Postal Ratemaking in a Time of Change, supra, at 10-38.
(W)ithout the regular scrutiny of the institutional cost
contributions made by competitive categories of service which the
regular cycle of omnibus and midcycle rate cases provides, the
implementation of band rates would revive concerns expressed by
other commenters regarding the risk of predation, exploitation of
---------------------------------------------------------------------------
monopoly customers, and evasion of statutory requirements.
58 FR 16393 (March 26, 1993). (Footnote omitted.) The same concerns
remain pertinent today.
Finally, the concept of Negotiated Service Agreements presents its
own singular set of difficulties. In responding to earlier initiatives,
the Commission has expressed doubt about the utility of ``contract
rate'' procedures under the Postal Reorganization Act as it has been
construed by the courts.5 In this docket, commenters have cited
the decision in UPS Worldwide Forwarding, Inc. v. United States Postal
Service,6 in which an international mail service that featured
prices negotiated between the Postal Service and large-volume-capable
customers was found to violate several requirements of the Postal
Reorganization Act. Since those comments were filed, the District
Court's decision has been reversed. However, in doing so the Court of
Appeals was careful to distinguish the Reorganization Act's provisions
governing international rate setting, which it characterized as a
``model of simplicity,'' from the open and more technically rigorous
process required for adopting domestic rates.7 It is by no means
apparent that the reviewing court's approbation would extend to
domestic Negotiated Service Agreements.8 An additional
administrative consideration, which the petition of the Postal Service
reflects, is the necessity of conducting a classification proceeding to
recommend the adoption of Negotiated Service Agreements as a discrete
type of mail classification before procedural rules can be published
for notice and comment. In view of these potential impediments and
uncertainties, the Commission will defer the consideration of
Negotiated Service Agreements to subsequent proceedings.
\5\See Docket No. RM89-5, Notice Inviting Further Comments, 54
FR 47223 (November 13, 1989).
\6\853 F. Supp. 800 (D. Del. 1994), rev'd, No. 94-7423 (3d Cir.,
September 15, 1995).
\7\No. 94-7423, supra, slip op. 20.
\8\``In challenging the Postal Service, its competitors
characterize it as a `public service' and `essentially a public
utility.' In the domestic area, we believe those descriptions are
apt. In some ways, the skepticism surrounding the ICM service exists
because the program seems antithetical to traditional notions of the
Postal Service. We expect to pay the same price for a postage stamp
as everyone else, not to have to bargain for the best rate. In this
sense, the Postal Service is properly compared to a public utility
that charges the same rate to all customers.'' Slip op. at 31.
Issued by the Commission on October 13, 1995.
Margaret P. Crenshaw,
Secretary.
List of Subjects in 39 CFR Part 3001
Administrative practice and procedure, Postal Service.
Accordingly, 39 CFR part 3001 is amended as follows:
1. The authority citation for 39 CFR part 3001 continues to read as
follows:
Authority: 39 U.S.C. 404(b), 3603, 3622-3624, 3661, 3662.
2. Sections 3001.69 through 3001.69c are added to Subpart C to read
as follows:
Sec. 3001.69 Expedited minor classification cases--applicability.
This section and Secs. 3001.69a through 3001.69c apply in cases
where the Postal Service requests a recommended decision pursuant to
section 3623 and seeks expedited review on the ground that the
requested change in mail classification is minor in character. The
requirements and procedures specified in these sections apply
exclusively to the Commission's consideration of requested mail
classification changes which the Postal Service denominates as, and the
Commission finds to be,
[[Page 54986]]
minor in character. A requested classification change may be considered
to be minor in character if it would not involve a change in any
existing rate or fee and:
(a) Involves only changes in eligibility standards or requirements
applicable to mail classes or services; or
(b) Would only affect categories of service with low aggregate
costs and revenues.
Sec. 3001.69a Expedited minor classification cases--filing of formal
request and prepared direct evidence.
(a) Whenever the Postal Service determines to request that the
Commission submit a decision recommending a mail classification change,
and to seek expedited review on the ground that the requested change is
minor in character, it shall file a request for a change in mail
classification pursuant to section 3623 that comports with the
requirements of subpart C, part 3001, of the rules of practice and of
this section. Each such formal request shall include the following
particular information:
(1) A description of the proposed classification change or changes,
including proposed changes in the text of the Domestic Mail
Classification Schedule and any pertinent rate schedules;
(2) A thorough explanation of the grounds on which the Postal
Service submits that the requested change in mail classification is
minor in character; and
(3) An estimate, prepared in the greatest level of detail
practicable, of the overall impact of the requested change in mail
classification on postal costs and revenues, mail users, and
competitors of the Postal Service.
(b) If the Postal Service believes that data required to be filed
under Sec. 3001.64 are unavailable, it shall explain their
unavailability, as required by Sec. 3001.64(a)(2) (i), (ii), and (iv).
If the Postal Service believes that any of the data or other
information required to be filed under Sec. 3001.64 should not be
required in light of the minor character of the requested change in
mail classification, it shall move for a waiver of that requirement,
stating with particularity the reasons why the character of the request
and its circumstances justify a waiver of the requirement. A
satisfactory explanation of the unavailability of information required
under Sec. 3001.64, or of why it should not be required to support a
particular request, will be grounds for excluding from the proceeding a
contention that the absence of the information should form a basis for
rejection of the request, unless the party desiring to make such
contention:
(1) Demonstrates that, having regard to all the facts and
circumstances of the case, it was clearly unreasonable for the Postal
Service to propose the change in question without having first secured
the information and submitted it in accordance with Sec. 3001.64; or
(2) Demonstrates other compelling and exceptional circumstances
requiring that the absence of the information in question be treated as
bearing on the merits of the proposal.
Sec. 3001.69b Expedited minor classification cases--expedition of
procedural schedule.
(a) The purpose of this section is to provide a schedule for
expediting proceedings in which the Postal Service requests that the
Commission recommend a change in mail classification and expedite
consideration of that request on the ground that the change is minor in
character.
(b) Within 5 days after receipt of a Postal Service request
invoking the operation of Secs. 3001.69 through 3001.69c, the
Commission shall issue a notice of proceeding and provide for
intervention by interested parties pursuant to Sec. 3001.20. The notice
of proceeding shall state that the Postal Service has denominated the
mail classification change it requests a minor change, and has
requested expedited consideration pursuant to Secs. 3001.69 through
3001.69c. The notice shall further state the grounds on which the
Postal Service submits that the requested change in mail classification
is minor in character, and shall afford all interested parties 21 days
after publication within which to intervene, submit responses to the
Postal Service's request for consideration of its proposed mail
classification change under the terms of Secs. 3001.69 through
3001.69c, and request a hearing.
(c) Within 28 days after publication of the notice of proceeding
pursuant to paragraph (b) of this section, the Commission shall decide
whether to consider the request of the Postal Service as a minor
classification change request under Secs. 3001.69 through 3001.69c, and
shall issue an order in the proceeding incorporating that ruling. The
Commission shall order a request to be considered under Secs. 3001.69
through 3001.69c if it finds that:
(1) The requested classification change is minor in character, and
(2) The effects of the requested change are likely to be
appropriately limited in scope and overall impact.
(i) If the Commission determines that the request of the Postal
Service is not appropriate for consideration as a minor classification
change request, no further procedures under Secs. 3001.69 through
3001.69c shall be ordered, and the request will be considered in
accordance with other appropriate provisions of subpart C of this part.
(ii) If the Commission determines that the Postal Service request
is appropriate for consideration under Secs. 3001.69 through 3001.69c,
those respondents who request a hearing shall be directed to state with
specificity within 14 days after publication of the notice the issues
of material fact that require a hearing for resolution. Respondents
shall also identify the fact or facts set forth in the Postal Service's
filing that the party disputes, and when possible, what the party
believes to be the true fact or facts and the evidence it intends to
provide in support of its position.
(d) The Commission will hold hearings on a Postal Service request
which is considered under Secs. 3001.69 through 3001.69c when it
determines that there are genuine issues of material fact to be
resolved, and that a hearing is needed to resolve those issues.
Hearings on the Postal Service request will commence within 21 days
after issuance of the Commission order pursuant to paragraph (c) of
this section. Testimony responsive to the Postal Service request will
be due 14 days after the conclusion of hearings on the Postal Service
request.
Sec. 3001.69c Expedited minor classification cases--time limits.
The Commission will treat cases to which Secs. 3001.69 through
3001.69c apply as subject to the maximum expedition consistent with
procedural fairness. The schedule for adoption of a recommended
decision will therefore be established, in each such case, to allow for
issuance of such decision not more than 90 days after the filing of the
request of the Postal Service if no hearing is held, and not more than
120 days after the filing of the request if a hearing is scheduled.
3. Subpart I is added to read as follows:
Subpart I--Rules for Expedited Review to Allow Market Tests of Proposed
Mail Classification Changes
Sec.
3001.161 Applicability.
3001.162 Filing of market test proposal and supporting direct
evicence.
3001.163 Procedures--expedition of public notice and procedural
schedule.
3001.164 Rule for decision.
3001.165 Data collection and reporting requirements.
3001.166 Suspension, continuation or termination of proceeding.
[[Page 54987]]
Subpart I--Rules for Expedited Review to Allow Market Tests of
Proposed Mail Classification Changes
Sec. 3001.161 Applicability.
The rules in this subpart apply in cases in which the Postal
Service requests a recommended decision pursuant to section 3623
preceded by testing in the market in order to develop information
necessary to support a permanent change. The requirements and
procedures specified in this subpart apply exclusively to the
Commission's determination to recommend in favor of or against a market
test proposed by the Postal Service, and do not supersede any other
rules applicable to the Postal Service's request for recommendation of
a permanent change in mail classification. In administering this
subpart, it shall be the policy of the Commission to recommend market
tests that are reasonably calculated to produce information needed to
support a permanent change in mail classification, and that are
reasonably limited in scope, scale, duration, and potential adverse
impact. Except in extraordinary circumstances and for good cause shown,
the Commission shall not recommend market tests of more than one year
in duration; however, this limitation is not intended to bar the Postal
Service from conducting more than one market test in support of a
potential permanent change in mail classification in appropriate
circumstances.
Sec. 3001.162 Filing of market test proposal and supporting direct
evidence.
Whenever the Postal Service determines to request that the
Commission submit a recommended decision on a change in mail
classification preceded by testing in the market, the Postal Service
shall file with the Commission, in addition to its request for a
permanent change in mail classification pursuant to section 3623, a
request for a recommended decision in favor of its proposed market test
of the requested change in mail classification. Each formal request
filed under this subpart shall include such information and data and
such statements of reasons and bases as are necessary and appropriate
fully to inform the Commission and the parties of the nature, scope,
significance and impact of the proposed market test, and to show that
it is in the public interest and in accordance with the policies of the
Act and the applicable criteria of the Act. Each formal request shall
also include the following particular information:
(a) A description of the services to be provided in the market
test, and the relationship between the services to be provided and the
permanent change or changes in the mail classification schedule
requested by the Postal Service;
(b) A statement of each rate or fee to be charged for each service
to be provided during the market test, together with all information
relied upon to establish consistency of those rates and fees with the
factors specified in section 3622(b);
(c) A description of the number and extent of the service areas in
which the market test will be conducted, including the number and type
of postal facilities which will be used;
(d) A statement of the planned duration of the market test;
(e) Proposed Domestic Mail Classification Schedule provisions which
incorporate the information required in paragraphs (a) through (d) of
this section;
(f) An estimate of the number of customers who will participate in
the market test, together with a description of the means by which the
Postal Service plans to provide equal access to all potential users in
the test market service areas; and
(g) A plan for testing the proposed change or changes in the
market, including a plan for gathering the data needed to support a
permanent change in mail classification and for reporting the test data
to the Commission. If periodic reporting of the test data would be
harmful to the purposes of the test, such as by revealing information
that might encourage competitors or mailers to take actions that would
affect the test results, the plan may provide for presentation of the
test data as part of the subsequent filing of data supporting a
permanent mail classification change.
Sec. 3001.163 Procedures--expedition of public notice and procedural
schedule.
(a) The purpose of this section is to provide a schedule for
expediting proceedings in which the Postal Service proposes to conduct
a market test of a requested change in mail classification it has
submitted to the Commission pursuant to section 3623.
(b) Persons who are interested in participating in proceedings to
consider Postal Service requests to conduct a market test may register
at any time with the Secretary of the Postal Rate Commission, who shall
maintain a publicly available list of the names and business addresses
of all such registrants. Persons whose names appear on this list will
automatically become parties to each proceeding in which the Postal
Service requests to conduct a market test pursuant to this subpart.
Other interested persons may intervene pursuant to Sec. 3001.20 within
28 days after the filing of a formal request made under the provisions
of this subpart. Parties may withdraw from the register or a particular
case by filing a notice with the Commission.
(c) When the Postal Service files a request under the provisions of
this subpart, it shall on that same day effect service by hand delivery
of the complete filing to each person registered pursuant to paragraph
(b) of this section who maintains an address for service within the
Washington metropolitan area and service the complete filing by Express
Mail service on all other registrants. Each registrant is responsible
for insuring that his or her address remains current.
(d) When the Postal Service files a request under the provisions of
this subpart, it shall on that same day send by Express Mail to all
participants in the most recent omnibus rate case a notice which
briefly describes its proposal. This notice shall indicate on its first
page that it is a notice of a Market Test Request to be considered
under this subpart, and identify the last day for filing a notice of
intervention with the Commission.
(e) Within 5 days after receipt of a Postal Service request under
the provisions of this subpart, the Commission shall issue a notice of
proceeding and provide for intervention by interested parties pursuant
to Sec. 3001.20. In the event that a party wishes to dispute a genuine
issue of material fact to be resolved in the consideration of the
Postal Service's request, that party shall file with the Commission a
request for a hearing within the time allowed in the notice of
proceeding. The request for a hearing shall state with specificity the
fact or facts set forth in the Postal Service's filing that the party
disputes, and when possible, what the party believes to be the true
fact or facts and the evidence it intends to provide in support of its
position. The Commission will hold hearings on a Postal Service request
made pursuant to this subpart when it determines that there is a
genuine issue of material fact to be resolved, and that a hearing is
needed to resolve that issue.
Sec. 3001.164 Rule for decision.
The Commission will issue a decision in accordance with the
policies of the Postal Reorganization Act recommending either in favor
of or against the Postal Service's proposed market test. The purpose of
this subpart is to allow for consideration of proposed market tests
within 90 days, consistent
[[Page 54988]]
with the procedural due process rights of interested persons.
Sec. 3001.165 Data collection and reporting requirements.
In any case in which the Commission has issued a recommended
decision in favor of a market test requested by the Postal Service, and
the Board of Governors has put the market test recommended by the
Commission into effect, the Postal Service shall gather test data and
report them to the Commission in accordance with the plan submitted
pursuant to Sec. 3001.162(f). If the Postal Service's plan for
reporting test data does not provide for periodic reporting during the
conduct of the test, the Postal Service shall submit all test data to
the Commission no later than 60 days following the conclusion of the
test.
Sec. 3001.166 Suspension, continuation or termination of proceeding.
(a) In any case in which the Commission has issued a recommended
decision in favor of a market test requested by the Postal Service, and
the Board of Governors has put the market test recommended by the
Commission into effect, the Postal Service may move for suspension of
the proceeding in which its request for a permanent change in mail
classification is to be considered. The Commission shall grant the
Postal Service's motion for suspension if, in the Commission's opinion,
it would be reasonable under the circumstances to defer consideration
of the request until the information to be produced in connection with
the market test becomes available.
(b) At any time during the pendency of a market test recommended by
the Commission pursuant to this subpart, or following the completion of
such a market test, the Postal Service may move to revise or withdraw
its request for a permanent change in mail classification. If the
Postal Service moves to revise its request, it shall file with the
Commission all data necessary to support its amended request. If the
Postal Service moves to withdraw its request, it need not produce the
test data that would otherwise be submitted pursuant to Sec. 3001.165.
4. Subpart J is added to read as follows:
Subpart J--Rules for Expedited Review of Requests for Provisional
Service Changes of Limited Duration
Sec.
3001.171 Applicability.
3001.172 Filing of formal request and prepared direct evidence.
3001.173 Procedures--expedition of public notice and procedural
schedule.
3001.174 Rule for decision.
3001.175 Data collection and reporting requirements.
3001.176 Continuation or termination of provisional service.
Subpart J--Rules for Expedited Review of Requests for Provisional
Service Changes of Limited Duration
Sec. 3001.171 Applicability.
The rules in this subpart apply in cases in which the Postal
Service requests that the Commission recommend the establishment of a
provisional service which will supplement, but will not alter, existing
mail classifications and rates for a limited and fixed duration. The
requirements and procedures specified in this subpart apply exclusively
to the Commission's determination to recommend in favor of or against a
provisional service proposed by the Postal Service, and do not
supersede the rules applicable to requests for permanent changes in
rates, fees, mail classifications, and in the nature of postal
services. In administering this subpart, it shall be the policy of the
Commission to recommend the introduction of provisional services that
enhance the range of postal services available to the public, without
producing a material adverse effect overall on postal revenues or
costs, and without causing unnecessary or unreasonable harm to
competitors of the Postal Service. Except in extraordinary
circumstances and for good cause shown, the Commission shall not
recommend provisional services of more than two years in duration;
however, the Commission may grant a request to extend a provisional
service for an additional year if a Postal Service request to establish
the provisional service as a permanent mail classification is pending
before the Commission.
Sec. 3001.172 Filing of formal request and prepared direct evidence.
(a) Whenever the Postal Service determines to request that the
Commission submit a decision recommending the establishment of a
provisional service of limited and fixed duration, it shall file a
request for a change in mail classification pursuant to section 3623
that comports with the requirements of subpart C of the rules of
practice and of this subpart. Each formal request shall include the
following particular information:
(1) A description of the proposed classification, including
proposed Domestic Mail Classification Schedule language and rate
schedules;
(2) An explanation and complete documentation of the development of
the rates proposed for the provisional service;
(3) A termination date on which the proposed provisional service
will be discontinued;
(4) An estimate of the effect of implementing the proposed
provisional service on overall Postal Service costs and revenues during
the period in which it is in effect; and
(5) A plan for meeting the data collection and reporting
requirements specified in Sec. 3001.175.
(b) If the Postal Service believes that data required to be filed
under Sec. 3001.64 are unavailable, it shall explain their
unavailability, as required by Sec. 3001.64(a)(2)(i), (ii), and (iv).
In particular, if the provisional character of the request bears on the
unavailability of the data in question, the Postal Service shall
explain in detail the nexus between these circumstances. A satisfactory
explanation of the unavailability of data will be grounds for excluding
from the proceeding a contention that the absence of the data should
form a basis for rejection of the request, unless the party desiring to
make such contention:
(1) Demonstrates that, having regard to all the facts and
circumstances of the case, it was clearly unreasonable for the Postal
Service to propose the change in question without having first secured
the data which are unavailable, or
(2) Demonstrates other compelling circumstances requiring that the
absence of the data in question be treated as bearing on the merits of
the proposal.
Sec. 3001.173 Procedures--expedition of public notice and procedural
schedule.
(a) The purpose of this section is to provide a schedule for
expediting proceedings in which the Postal Service requests that the
Commission recommend the establishment of a provisional service which
will supplement, but will not alter, existing mail classifications and
rates for a limited and fixed duration.
(b) Persons who are interested in participating in proceedings to
consider Postal Service requests to establish a provisional service may
register at any time with the Secretary of the Postal Rate Commission,
who shall maintain a publicly available list of the names and business
addresses of all such registrants. Persons whose names appear on this
list will automatically become parties to each proceeding in which the
Postal Service requests establishment of a provisional service pursuant
to this subpart. Other
[[Page 54989]]
interested persons may intervene pursuant to Sec. 3001.20 within 28
days after the filing of a formal request made under the provisions of
this subpart. Parties may withdraw from the register or a particular
case by filing a notice with the Commission.
(c) When the Postal Service files a request under the provisions of
this subpart, it shall on that same day effect service by hand delivery
of the complete filing to each person registered pursuant to paragraph
(b) of this section who maintains an address for service within the
Washington metropolitan area and serve the complete filing by Express
Mail service on all other registrants. Each registrant is responsible
for insuring that his or her address remains current.
(d) When the Postal Service files a request under the provisions of
this subpart, it shall on that same day send by Express Mail service to
all participants in the most recent omnibus rate case a notice which
briefly describes its proposal. Such notice shall indicate on its first
page that it is a notice of a Request for Establishment of a
Provisional Service to be considered under this subpart, and identify
the last day for filing a notice of intervention with the Commission.
(e) Within 5 days after receipt of a Postal Service request under
the provisions of this subpart, the Commission shall issue a notice of
proceeding and provide for intervention by interested parties pursuant
to Sec. 3001.20. In the event that a party wishes to dispute a genuine
issue of material fact to be resolved in the consideration of the
Postal Service's request, that party shall file with the Commission a
request for a hearing within the time allowed in the notice of
proceeding. The request for a hearing shall state with specificity the
fact or facts set forth in the Postal Service's filing that the party
disputes, and when possible, what the party believes to be the true
fact or facts and the evidence it intends to provide in support of its
position. The Commission will hold hearings on a Postal Service request
made pursuant to this subpart when it determines that there is a
genuine issue of material fact to be resolved, and that a hearing is
needed to resolve that issue.
Sec. 3001.174 Rule for decision.
The Commission will issue a decision in accordance with the
policies of the Postal Reorganization Act recommending either in favor
of or against the Postal Service's proposed provisional service of
limited duration. The purpose of this subpart is to allow for
consideration of proposed provisional services within 90 days,
consistent with the procedural due process rights of interested
persons.
Sec. 3001.175 Data collection and reporting requirements.
In any case in which the Commission has issued a recommended
decision in favor of a provisional service of limited duration
requested by the Postal Service, and the Board of Governors has put the
provisional service recommended by the Commission into effect, the
Postal Service shall collect and report data pertaining to the
provisional service during the period in which it is in effect in
accordance with the periodic reporting requirements specified in
Sec. 3001.102 . If the Postal Service's regular data reporting systems
are not revised to include the provisional service during the period of
its effectiveness, the Postal Service shall perform, and provide to the
Commission on a schedule corresponding to Sec. 3001.102 reports,
special studies to provide equivalent information to the extent
reasonably practicable.
Sec. 3001.176 Continuation or termination of provisional service.
At any time during the period in which a provisional service
recommended by the Commission and implemented by the Board of Governors
is in effect, the Postal Service may submit a formal request that the
provisional service be terminated, or that it be established, either as
originally recommended by the Commission or in modified form, as a
permanent mail classification. Following the conclusion of the period
in which the provisional service was effective, the Postal Service may
submit a request to establish the service as a mail classification
under any applicable subpart of the Commission's rules.
5. Subpart K is added to read as follows:
Subpart K--Rules for Use of Multi-Year Test Periods
Sec.
3001.181 Use of multi-year test period for proposed new services.
3001.182 Filing of formal request and prepared direct evidence.
Subpart K--Rules for Use of Multi-Year Test Periods
Sec. 3001.181 Use of multi-year test period for proposed new services.
The rules in this subpart apply to Postal Service requests pursuant
to section 3623 for the establishment of a new postal service, with
attendant rates, which in the estimation of the Postal Service cannot
generate sufficient volumes and revenues to recover all costs
associated with the new service in the first full fiscal year of its
operation. In administering these rules, it shall be the Commission's
policy to adopt tests periods of up to 5 fiscal years for the purpose
of determining breakeven for newly introduced postal services where the
Postal Service has presented convincing substantial evidence in support
of the test period proposed.
Sec. 3001.182 Filing of formal request and prepared direct evidence.
In filing a request for establishment of a new postal service
pursuant to section 3623, the Postal Service may request that its
proposal be considered for a test period of longer duration than the
test period prescribed in Sec. 3001.54(f)(2). Each such request shall
be supported by the following information:
(a) The testimony of a witness on behalf of the Postal Service, who
shall provide:
(1) A complete definition of the multi-year test period requested
for the proposed new service;
(2) A detailed explanation of the Postal Service's preference of a
multi-year test period, including the bases of the Service's
determination that the test period prescribed in Sec. 3001.54(f)(2)
would be inappropriate; and
(3) A complete description of the Postal Service's plan for
achieving an appropriate contribution to institutional costs from the
new service by the end of the requested test period.
(b) Complete documentary support for, and detail underlying, the
test period requested by the Postal Service, including:
(1) Estimated costs, revenues, and volumes of the proposed new
service for the entire requested test period;
(2) Return on Investment projections and all other financial
analyses prepared in connection with determining the cost and revenue
impact of the proposed new service; and
(3) Any other analyses prepared by the Postal Service that bear on
the overall effects of introducing the proposed new service during the
requested test period.
[FR Doc. 95-26554 Filed 10-26-95; 8:45 am]
BILLING CODE 7710-FW-P
Complete official Federal Register PDF
FR Doc. 95-25823 Membership Approval
[Federal Register Volume 60, Number 208 (Friday, October 27, 1995)]
[Proposed Rules]
[Pages 54958-54979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25823]
========================================================================
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.
========================================================================
Federal Register / Vol. 60, No. 208 / Friday, October 27, 1995 /
Proposed Rules
[[Page 54958]]
FEDERAL HOUSING FINANCE BOARD
12 CFR Part 933
[No. 95-34]
Membership Approval
AGENCY: Federal Housing Finance Board.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing
to amend its regulation on membership in the Federal Home Loan Banks
(Bank). The proposed rule will allow the 12 Banks, rather than the
Finance Board, to approve applications for Bank membership subject to
the standards provided in the rule. The proposed rule will require the
Banks to apply tests and criteria for determining compliance with the
statutory eligibility requirements for Bank membership currently used
by the Finance Board in approving applications. The proposed rule is
part of an effort by the Finance Board and the Banks to transfer as
many governance functions as possible from the Finance Board to the
Banks.
DATES: Comments must be submitted in writing to the Finance Board by
December 26, 1995.
ADDRESSES: Written comments may be mailed to: Elaine L. Baker,
Executive Secretary, Federal Housing Finance Board, 1777 F Street NW.,
Washington, DC 20006. Comments will be available for public inspection
at this address.
FOR FURTHER INFORMATION CONTACT: Amy R. Maxwell, Associate Director,
District Banks Secretariat, Office of Managing Director, (202) 408-
2882, or James H. Gray Jr., Associate General Counsel, Office of
General Counsel, (202) 408-2538, Federal Housing Finance Board, 1777 F
Street NW., Washington, DC 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
In its role as primary regulator of the savings association
industry and as overseer of the Banks, the Finance Board's predecessor
agency, the former Federal Home Loan Bank Board (FHLBB), reviewed and
approved all applications for Bank membership from federal and state
chartered savings associations, institutions for which Bank membership
was required. The FHLBB delegated the authority to approve membership
applications from insurance companies and state-chartered savings banks
insured by the Federal Deposit Insurance Corporation (FDIC), for which
Bank membership was voluntary, to the Bank presidents acting as
Principal Supervisory Agents of the FHLBB. See 12 U.S.C. 1437 (1988),
repealed by Financial Institutions Reform, Recovery and Enforcement Act
of 1989, Pub. L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989) (FIRREA).
FIRREA amended the membership provisions of the Federal Home Loan
Bank Act, 12 U.S.C. 1421-1449 (Bank Act). Section 704 of FIRREA amended
section 4 of the Bank Act to make commercial banks and credit unions
eligible for Bank membership for the first time. Section 704 of FIRREA
also revised the membership eligibility criteria. Section 702 of FIRREA
added sections 2A and 2B to the Bank Act, establishing the Finance
Board and enumerating its powers and duties. Section 2B of the Bank Act
limited the Finance Board's authority to delegate responsibilities to
the Banks. From the enactment of FIRREA in 1989 until July, 1993, all
Bank membership applications were reviewed and approved by the Finance
Board. In July 1993, the Finance Board delegated to its Managing
Director the authority to approve all applications for Bank membership
from institutions that met all of the statutory criteria and received a
composite rating of ``1,'' ``2'' or ``3'' under the Uniform Financial
Institutions Rating System (the regulatory examination rating system).
See Finance Board Res. No. 90-143 (Dec. 18, 1990); Chairman's Order No.
93-05 (July 19, 1993).
In August 1993, the Finance Board amended its membership regulation
to incorporate the FIRREA changes to the Bank Act. The revised
membership regulation established the Finance Board's general policies
pertaining to Bank membership, including specifying the appropriate
Bank district for applicants and, member stock requirements, outlining
procedures for consolidation of members with other members and with
nonmembers, and for withdrawal and removal from membership. Other than
defining certain terms, the membership regulation did not establish
standards for compliance with the statutory membership eligibility
criteria. See 58 FR 43542 (1993), codified at 12 CFR Part 933.
In November 1993, the Finance Board adopted policy guidelines to
assist staff in processing applications for Bank membership. See
Membership Application Processing Guidelines, Finance Board Res. No.
93-88 (Nov. 17, 1993) (Guidelines). The purpose of the Guidelines was
to clarify the more subjective membership eligibility criteria in the
Bank Act, such as ``character of management and * * * home-financing
policy * * * consistent with sound and economical home financing * *
*.'' 12 U.S.C. 1424(a)(2)(C). In the Guidelines, the Finance Board also
delegated to the Banks authority to approve a delineated subset of
membership applications; that is, applications from institutions
meeting all of the criteria in the Bank Act, the membership regulation
and the Guidelines.
The Guidelines set forth specific, objective primarily financial
criteria to be met in order for an applicant to be deemed in compliance
with the statutory criteria. However, the Guidelines establish neither
a minimum level of financial performance nor standards for evaluating
applicants that fail to meet the requirements in the Guidelines. So,
for instance, an application from an institution with a minimum
composite regulatory examination rating that does not satisfy the
criteria for delegated approval by the Banks must be evaluated by
Finance Board staff and approved by the Managing Director pursuant to
delegated authority. The Board of Directors of the Finance Board has
not itself considered or acted upon any membership applications since
authority to approve membership applications was delegated to the
Managing Director in July 1993. Since December 1993, the Banks have
approved 778 membership applications and the Finance Board's Managing
Director has approved 834 membership applications, all pursuant to
delegated authority.
[[Page 54959]]
The Finance Board and the Banks have been considering ways to
transfer a variety of governance responsibilities from the Finance
Board to the Banks since the completion of studies required by the
Housing and Community Development Act of 1992, Pub. L. No. 102-550, 106
Stat. 3672 (Oct. 28, 1992), including the Finance Board's own study
completed in April 1993. See Report on the Structure and Role of the
Bank System 153 (Apr. 28, 1993). Finance Board staff and Bank staff
have consistently identified membership application approval as one of
the governance responsibilities that should be devolved from the
Finance Board to the Banks because the Banks should be allowed broad
discretion to manage their affairs as long as the Banks comply with the
Bank Act and Finance Board regulations. This proposed rule is designed
to transfer authority to approve all Bank membership applications from
the Finance Board to the Banks. The proposed rule will codify many of
the tests and criteria for determining compliance with the statutory
eligibility requirements that are currently in the Finance Board's
Guidelines for approving applications.
II. Analysis of the Proposed Rule
A. Membership Application Process
1. Requirements
Section 933.2 of the proposed rule sets forth the procedures for
submission and review of membership applications. Under Sec. 933.2(a),
an applicant is required to submit an application which satisfies the
requirements of part 933 and to certify in writing that it has reviewed
the requirements of part 933, provided the most recent, accurate and
complete information available, and will supplement the application if
additional relevant information becomes available prior to the Bank's
decision on whether to approve the application and where applicable,
prior to the Finance Board's resolution of any appeal.
Under Sec. 933.2(b), a Bank is required to prepare a written digest
for each applicant that describes the reasons and findings that support
the Bank's determination whether the applicant meets the requirements
of this part. This requirement is consistent with the requirements in
the Guidelines.
Under Sec. 933.2(c), the Banks are required to maintain a
membership file for each applicant for at least three years that
includes the digest, all documents the Bank is required to obtain and
review under this part, any additional documents the Bank obtains
during the application process, and the Bank's decision resolution.
Under Sec. 933.2(d), the Banks are required to use regulatory
financial reports and other sources independent of the applicant to
evaluate and analyze all conclusions offered by the applicant regarding
its membership eligibility. ``Regulatory financial report'' is defined
in Sec. 933.1(z) of the proposed rule to include periodic financial
reports filed by the applicant with its primary regulator, including
quarterly call reports for commercial banks, thrift financial reports
for thrifts, quarterly or semi-annual call reports for credit unions,
the National Association of Insurance Commissioners' (NAIC) annual
statements or quarterly reports for insurance companies, and other
similar reports. ``Primary regulator'' is defined in Sec. 933.1(x) of
the proposed rule as the chartering authority for federally chartered
applicants, the insuring authority for federally-insured applicants
that are not federally chartered, or the appropriate state agency for
all other applicants. The Finance Board included Sec. 933.2(d) to
ensure that the Banks evaluate membership applications without relying
unduly on representations made by the applicants.
2. Decision on Application
Section 933.3 of the proposed rule establishes the Banks' authority
and method for making decisions on applications. Under Sec. 933.3(a),
the Finance Board authorizes the Banks to approve membership
applications, subject to the appeal procedure in proposed Sec. 933.5.
The proposed rule requires that the authority to approve applications
be exercised only by the Bank's board of directors, a committee of the
Bank's board of directors, the Bank president, or a senior officer who
reports directly to the Bank president other than an officer who has
responsibility for business development. Section 933.3(b) requires the
Bank to prepare for each applicant a decision resolution that includes
the Bank's decision on whether to approve the applicant and the reasons
therefor, and states that the information in the digest is accurate and
based on a diligent and comprehensive review of all available
information. If the application is approved, the decision resolution
also must state that the applicant is authorized under the laws of the
United States and the appropriate state to become a member of, purchase
stock in, do business with and maintain deposits in the Bank to the
which the applicant has applied, and that the applicant meets all of
the eligibility criteria set forth in the Bank Act and part 933. The
Guidelines currently require the Banks to make these certifications to
the Finance Board when recommending an application for approval.
Section 933.3(c) requires the Bank to act on an application within
60 calendar days of the date the Bank deems the application to be
complete. Within three business days of the Bank's decision on an
application, the Bank must provide the applicant and the Finance
Board's Executive Secretary with a copy of the Bank's decision
resolution. Section 933.3(c) is intended to ensure expeditious action
on membership applications. The current Guidelines do not establish
applications-processing time frames.
3. Automatic Membership
Section 933.4 of the proposed rule provides for automatic Bank
membership in appropriate circumstances. Section 933.4(a) continues the
automatic membership provision in current Sec. 933.2(d) for applicants
required by law to become a member of a Bank. Section 5(f) of the Home
Owners' Loan Act (HOLA) requires all federally chartered savings
associations and savings banks to be members of a Bank and to qualify
for Bank membership in the manner provided in the Bank Act. 12 U.S.C.
1464(f). The factors considered by the Office of Thrift Supervision
when reviewing an application for a federal charter include the factors
considered in determining eligibility for Bank membership. See 12
U.S.C. 1464(e). Therefore, it would be duplicative and unnecessarily
burdensome to require these institutions to file an additional
application for Bank membership. Section 933.4(b) continues the
provision in current Sec. 933.2(e) for automatic membership for insured
depository institution members that convert from one charter type to
another, provided that the converting institution continues to be an
insured depository institution and the assets of the institution
immediately before and immediately after the conversion are identical.
All relationships existing between the member and the Bank at the time
of such conversion may continue. Section 933.4(c) adds a new automatic
membership provision for members that transfer membership from one Bank
to another pursuant to Sec. 933.18(d) of this part.
4. Appeals
Section 933.5 of the proposed rule establishes a process for
appealing Bank membership decisions to the Finance Board. The appeal
procedure is intended to ensure that membership standards are applied
consistently by
[[Page 54960]]
the Banks, and that similarly situated applicants are treated
similarly. Under Sec. 933.5(a), applicants denied membership by a Bank
may, within 90 calendar days of the Bank's decision, appeal the denial
to the Finance Board by writing the Finance Board's Executive
Secretary, with a copy to the Bank. The applicant's appeal must include
a copy of the Bank's decision resolution, and a detailed statement of
the basis for the appeal, including sufficient supporting facts,
information, analysis and explanation.
Under Sec. 933.5(b), within 60 calendar days of the date that a
Bank approves an application for membership, another Bank (appellant
Bank) may appeal to the Finance Board the determination of the
appropriate district for membership, pursuant to Sec. 933.18 of this
part. The appeal must be in writing and addressed to the Finance
Board's Executive Secretary with a copy to the Bank that granted
membership, and must include a statement of the basis for the appeal
with sufficient facts, information, analysis and explanation to support
the appellant Bank's contentions. As the banking industry consolidates,
the Finance Board anticipates more questions from the Banks regarding
the determination of an applicant's principal place of business. The
appeals procedure will permit recourse to the Finance Board when Banks
cannot agree on an applicant's principal place of business. The Finance
Board invites comment on alternative means of addressing this concern.
-
Section 933.5(c) explains how the Finance Board will obtain the
information necessary to decide appeals under Sec. 933.5(a) and (b).
The Bank whose action has been appealed (appellee Bank) must provide to
the Finance Board a complete copy of the applicant's membership file
within five business days of receiving an appeal. Until the Finance
Board resolves the appeal, the appellee Bank is required to provide to
the Finance Board any new materials it receives. The Finance Board also
may request additional information from the appellant (Bank or
applicant), the appellee Bank, or any other party the Finance Board
deems appropriate.
Section 933.5(d) provides that the Finance Board must resolve
appeals based on the requirements of the Bank Act and part 933, within
90 calendar days of the date the appeal is filed with the Finance
Board, after considering the record for appeal described in
Sec. 933.5(c). When it decides an appeal, the Finance Board must follow
the presumptions in part 933, unless the appellant or appellee Bank
presents compelling evidence to rebut a presumption. The current
Guidelines do not include any provision for appeals.
B. Membership Eligibility Requirements
1. Setting Membership Standards
Like the current Guidelines, the proposed rule establishes
objective standards for approving applications for Bank membership. The
standard for each of the two objective statutory membership eligibility
criteria and each of the four subjective statutory membership
eligibility criteria are discussed below. For the objective statutory
eligibility criteria, failure to comply with the standards established
by the proposed rule will render an applicant ineligible for
membership.
For the subjective statutory eligibility criteria, including the
requirement that an applicant's financial condition be such that
advances may be safely made, id. Sec. 1424(a)(2)(B), and that the
character of an applicant's management and its home financing policy be
consistent with sound and economical home financing, id.
Sec. 1424(a)(2)(C), the proposed rule, like the Guidelines, establishes
objective, yet flexible, standards.
The proposed rule establishes the presumption that if an applicant
complies with the regulatory standards, it will be deemed to satisfy
the statutory criteria; conversely, if an applicant does not meet the
regulatory standards, it will be presumed, subject to rebuttal, not to
satisfy the statutory eligibility criteria. The proposed rule, like the
Guidelines, does allow an applicant to rebut any negative presumption,
by presenting additional information.
The Finance Board considered establishing more rigid ``bright-
line'' standards, but believed that the results--i.e., that an
applicant not meeting every standard would be ineligible for
membership, regardless of any other evidence the applicant could have
presented to demonstrate its compliance with the statutory eligibility
criteria--would be too harsh. ``Bright-line'' tests eliminate all
discretion in the approval process. The Finance Board specifically
requests comment on whether the membership eligibility standards should
be adopted as ``bright-line'' tests or as presumptions.
2. General Eligibility Requirements
Section 4(a)(1) of the Bank Act defines the types of financial
institutions eligible to become Bank members as any building and loan
association, savings and loan association, cooperative bank, homestead
association, insurance company, savings bank, or any insured depository
institution. Id. Sec. 1424(a)(1). The definition of insured depository
institution in the Bank Act includes commercial banks and credit
unions. Id. Sec. 1422(12).
The eligibility criteria set forth in section 4(a)(1) of the Bank
Act apply to all applicants for Bank membership. Under section 4(a)(1)
of the Bank Act, an institution is eligible for Bank membership if the
institution:
(A) Is duly organized under the laws of any State or of the
United States;
(B) Is subject to inspection and regulation under the banking
laws, or under similar laws, of the State or of the United States;
and
(C) Makes such home mortgage loans as, in the judgment of the
[Finance] Board, are long-term loans * * *.
Id. Sec. 1424(a)(1).
Section 4(a)(2) of the Bank Act establishes the following
membership eligibility criteria for ``insured depository institutions''
that were not Bank members on January 1, 1989 (section 4(a)(2)
criteria):
(A) The insured depository institution has at least 10 percent
of its total assets in residential mortgage loans;
(B) The insured depository institution's financial condition is
such that advances may be safely made to such institution; and
(C) The character of its management and its home-financing
policy are consistent with sound and economical home financing.
Id. Sec. 1424(a)(2). Although the section 4(a)(2) criteria apply only
to ``insured depository institutions,'' the Finance Board has
determined to extend that requirement to insurance company applicants.
-
Sections 933.10 through 933.13 of the proposed rule apply the
section 4(a)(2) criteria to insured depository institution applicants.
Section 933.16 of the proposed rule applies these criteria to insurance
company and all other applicants. Under the Finance Board's current
membership regulation, the financial condition criterion, section
4(a)(2)(B), and the character of management and home financing policy
requirement, section 4(a)(2)(C), id. Sec. 1424(a)(2)(B), (C), apply to
every applicant. See 12 CFR 933.4(a)(4), (5). In addition, prior to the
enactment of FIRREA in 1989, the financial condition, character of
management and home financing policy criteria were applicable to
insurance companies. See 47 Stat. 726 (July 22, 1932). The proposed
rule would maintain the current law requirements, and would extend the
section 4(a)(2)(A) 10 percent requirement to all applicants. The
reasons for this approach are explained more fully below in the
discussion of the 10 percent requirement.
[[Page 54961]]
3. Duly Organized Requirement -
Section 4(a)(1)(A) of the Bank Act provides that an institution is
eligible for Bank membership if it is duly organized under the laws of
any State or of the United States. Under Sec. 933.7 of the proposed
rule, an applicant is deemed to be duly organized as required by
section 4(a)(1)(A) of the Bank Act and Sec. 933.6(a)(1) of this part,
if the applicant establishes that it is chartered by a state or federal
agency as a building and loan association, savings association,
cooperative bank, homestead association, insurance company, savings
bank or insured depository institution. If an applicant does not
satisfy this requirement, the applicant is ineligible for membership.
This standard is consistent with the current Guidelines.
4. Subject to Inspection and Regulation Requirement
Section 4(a)(1)(B) of the Bank Act provides that an institution is
eligible for Bank membership if it is subject to inspection and
regulation under the banking laws, or under similar laws, of any State
or of the United States. Under Sec. 933.8 of the proposed rule, an
applicant is deemed to meet the inspection and regulation requirement
if the applicant can establish that it is subject to inspection and
regulation by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, the National Credit Union Administration, the Office of
the Comptroller of the Currency, the Office of Thrift Supervision, a
state insurance commissioner, or other state regulatory agency
authorized to regulate depository institutions or insurance companies.
If an applicant does not satisfy this requirement, the applicant is
ineligible for membership. This standard is consistent with the current
Guidelines.
5. Makes Long-Term Home Mortgage Loans Requirement
Section 4(a)(1)(C) of the Bank Act provides that an institution is
eligible for Bank membership if it makes such ``home mortgage loans''
as, in the judgment of the Finance Board, are long-term home mortgage
loans. Under Sec. 933.9(a) of the proposed rule, an applicant is deemed
to meet this requirement if it originates or purchases ``long-term''
``home mortgage loans,'' as those terms are defined in the regulation.
If an applicant does not satisfy this requirement, the applicant is
ineligible for membership, unless the Finance Board, in its sole
discretion, determines on the basis of additional information supplied
by the applicant or otherwise, that the applicant does satisfy the
requirement. This standard is consistent with the current Guidelines.
The proposed rule makes one change to the current definition of
``home mortgage loan'' at 12 CFR 933.1(j). A ``home mortgage loan'' is
defined in the Bank Act as a loan made by a member upon the security of
a ``home mortgage.'' 12 U.S.C. 1422(5). The Bank Act defines a ``home
mortgage'' as a mortgage on real estate upon which is located one or
more homes or other dwelling units, ``all of which may be defined by
the Board,'' including ``first mortgages'' and such classes of ``first
liens'' as are commonly given to secure advances on real estate. Id.
Sec. 1422(6). Based on the Bank Act definition, a ``home mortgage
loan'' essentially is a loan secured by a first mortgage on real
property with one or more structures designed primarily for residential
use.
The definition of ``home mortgage loan,'' in Sec. 933.1(m) of the
proposed rule, includes:
a. A domestic loan, whether or not fully amortizing, or an interest
in such a loan, which is secured by a mortgage, deed of trust or other
security agreement that creates a first lien on one of the following
interest in property:
(1) One-to-four family property or multifamily property, in fee
simple;
(2) A leasehold on one-to-four family property or multifamily
property under a lease of not less than 99 years which is renewable or
under a lease having a period of not less than 50 years to run from the
date the mortgage was executed; or
(3) Combination business or farm property where at least 50 percent
of the total appraised value of the combined property is attributable
to the residential portion of the property; or
b. A mortgage pass-through security that represents an undivided
ownership interest in:
(1) Long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of this section; or
(2) A security that represents an undivided ownership interest in
long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of this definition.
The Finance Board has deleted the provision allowing it to include
additional items within this definition. Instead, Sec. 933.9(b) of the
proposed rule allows the Finance Board the discretion to determine on
appeal in appropriate cases that an applicant satisfies the long-term
home mortgage loans requirement in section 4(a)(1)(C) of the Bank Act,
even though the applicant does not make long-term home mortgage loans
as the terms ``long-term'' and ``home mortgage loan'' are defined in
Sec. 933.1(m) and (q) of the proposed rule.
Section 933.1(i) of the proposed rule adds a definition for
``domestic loan.'' A domestic loan is defined as a loan on property
located in a state or the United States.
Section 933.1(q) of the proposed rule revises the definition of
``long-term'' at current 12 CFR 933.1(l) to delete the provision
allowing the Board to change this definition without engaging in
rulemaking.
Section 4(a)(1)(C) of the Bank Act provides that an institution is
eligible for Bank membership if it ``makes'' such home mortgage loans
as, in the judgment of the Finance Board, are long-term loans. 12
U.S.C. 1424(a)(1)(C). Thus, it is necessary to determine what
constitutes ``making'' a home mortgage loan. Both the Finance Board and
the FHLBB have interpreted ``makes'' to include originating and
purchasing qualifying loans and purchasing mortgage pass-through
securities backed by qualifying loans. Section 933.9 of the proposed
rule does not change the substance of the current Finance Board
regulation, 12 CFR 933.4(a)(3), which includes all such transactions
within the scope of the ``makes'' requirement.
6. Ten Percent Residential Mortgage Loans Requirement
Section 4(a)(2)(A) of the Bank Act provides that an insured
depository institution is eligible for Bank membership if it has at
least 10 percent of its total assets in residential mortgage loans.
Under Sec. 933.10(a) an applicant is deemed to comply with the 10
percent requirement in section 4(a)(2)(A) of the Bank Act if the
applicant has at least 10 percent of its total assets in ``residential
mortgage loans'' as defined in Sec. 933.1(aa) of the proposed rule.
Since mortgage debt securities count toward satisfaction of the 10
percent requirement, the proposed rule, like the current regulation,
excludes the assets used to secure mortgage debt securities in
determining whether the applicant has 10 percent of its assets in
residential mortgage loans. Under Sec. 933.10(b), if an applicant does
not satisfy the requirement of this section, the applicant is
ineligible for membership, unless the Finance Board, in its sole
discretion, determines on the basis of additional information supplied
by the applicant or otherwise that the applicant satisfies the
requirements of section 4(a)(2)(A) of the Bank Act. Once approved, an
institution is not required to maintain a 10 percent residential
mortgage loan ratio to retain Bank membership.
[[Page 54962]]
The Finance Board is considering whether to extend the 10 percent
test or another specific asset test to insurance company applicants
similar to the 10 percent test that applies to insured depository
institution applicants. This would represent a change from the current
Finance Board regulation, which requires applicants that are not
insured depository institutions to have ``mortgage-related assets that
reflect a commitment to housing finance, as determined by the [Finance]
Board.'' 12 CFR 933.4(c). Noninsured depository institution applicants
are not currently required to meet the 10 percent requirement, nor does
there exist in the current regulation any objective standard to meet
this requirement. 12 CFR 933.4 (b) and (c). The Finance Board realizes
that, even though an insurance company may be one of the largest
mortgage loan investors in its state, it might not be able to meet the
10 percent test because the dollar amount of residential mortgage loan
assets it holds, when compared to the total assets of the company,
could constitute less than 10 percent of the company's total assets.
However, the Finance Board also sees value in applying consistent
membership eligibility standards to all applicants to ensure that all
Bank members demonstrate a quantifiable minimum commitment to
residential housing finance before they are admitted to membership.
The Finance Board also is considering continuing the status quo by
applying the 10 percent requirement only to depository institution
applicants. The proposed rule continues this approach and does not
specifically require that insurance companies have 10 percent of their
assets in residential mortgage loans. The Finance Board requests
comment on whether the 10 percent requirement should apply to insurance
company applicants and whether a different test that would achieve the
same objectives as the 10 percent test should be applied to insurance
company applicants, and if so, what that test should be.
a. Definition of ``residential mortgage loans.''
To implement the Bank Act's 10 percent requirement, Sec. 933.10 of
the proposed rule provides that an applicant is eligible for membership
if it has at least 10 percent of its total assets in ``residential
mortgage loans.'' The term ``residential mortgage loans'' is not
defined in the Bank Act. The definition of ``residential mortgage
loans'' in Sec. 933.1(aa) of the proposed rule includes the current
definition, see 12 CFR 933.1(r), and additional loans the Finance Board
has decided to add to the definition or is considering adding to the
definition.
The definition of ``residential mortgage loans'' in Sec. 933.1(aa)
of the proposed rule, includes any one of the following types of
domestic loans, whether or not fully amortizing:
(1) Home mortgage loans;
(2) Funded residential construction loans;
(3) Loans secured by manufactured housing whether or not defined by
state law as secured by an interest in real property;
(4) Loans secured by junior liens on one-to-four family property or
multifamily property; -
(5) Qualified private activity exempt facility bonds where 95
percent or more of the net proceeds are used for the construction of
qualified residential rental projects as defined in 26 U.S.C.
142(a)(7).
(6) Mortgage pass-through securities representing an undivided
ownership interest in:
(i) Loans that meet the requirements of this definition at the time
of issuance of the security;
(ii) Securities representing an undivided ownership interest in
loans, provided that, at the time of issuance of the security, all of
the loans meet the requirements of this definition; or
(iii) Mortgage debt securities as defined herein;
(7) Mortgage debt securities secured by:
(i) Loans, provided that, at the time of issuance of the security,
all of the loans meet the requirements of this definition;
(ii) Securities that meet the requirements of this definition; or
(iii) Securities secured by assets, provided that, at the time of
issuance of the security, all of the assets meet the requirements of
this definition; or
(8) Home mortgage loans secured by leasehold interests, as defined
in Sec. 933.1(m)(1)(ii) of the proposed rule, except that the period of
the lease term may be for any duration.
The Finance Board proposes to add qualified private activity exempt
facility bonds where 95 percent or more of the net proceeds are used
for the construction of qualified residential rental property as
defined in 26 U.S.C. 142(a)(7). The Internal Revenue Code (IRC)
excludes the income from these bonds from a taxpayer's gross income,
when used to construct qualified residential rental property. See 26
U.S.C. 103, 141(e)(1)(A), 142(a)(7). To be ``qualified'' under the IRC,
a multifamily residential rental project must meet one of two tests to
ensure that it serves moderate- or low-income tenants:
(1) 20-50 test. Twenty percent or more of the units occupied by
individuals whose income is 50 percent or less of the area median
income; or
(2) 40-60 test. Forty percent or more of the units are occupied by
individuals whose income is 60 percent or less of the area median
income. 26 U.S.C. 142(d). The Finance Board has determined that such
bonds are consistent with other instruments that are treated as
``residential mortgage loans.'' Further, treating such bonds as
``residential mortgage loans'' is consistent with the purpose of the 10
percent requirement, to ensure that new members hold at least 10
percent of their assets in instruments that facilitate home mortgage
lending.
The Finance Board also is considering including within the
definition of ``residential mortgage loans'' shares of open-end
management companies, also known as ``mutual funds,'' where the assets
in the open-end management company's portfolio are comprised solely of
instruments that are ``residential mortgage loans.''
The Finance Board has deleted the provision allowing it to include
additional items within the definition of residential mortgage loans.
Instead, Sec. 933.10(b) of the proposed rule allows the Finance Board
the discretion to determine on appeal in appropriate cases that the
applicant has 10 percent of its assets in ``residential mortgage
loans'' as required by section 4(a)(2)(A) of the Bank Act, even though
the applicant does not have 10 percent of its assets in ``residential
mortgage loans'' as that term is defined in Sec. 933.1(aa) of the
proposed rule.
The Finance Board specifically requests comment on how it should
define ``residential mortgage loans'' in the final rule.
b. Definition of ``total assets.''
Section 4(a)(2)(a) of the Bank Act and Sec. 933.10 of the proposed
rule provide that an applicant is eligible for membership if it has at
least 10 percent of its ``total assets'' in residential mortgage loans.
Section 933.1(cc) of the proposed rule adds a definition of ``total
assets'' that includes all assets of a financial institution's
consolidated subsidiaries located in a state or the United States, and
all assets otherwise required to be reported on a regulatory financial
report. Applicants will use this definition of total assets to
determine whether they comply with the 10 percent requirement.
7. Financial Condition Requirement
Section 4(a)(2)(B) of the Bank Act requires that, in order to be
eligible for Bank membership, an insured depository institution's
financial condition must be such that advances
[[Page 54963]]
may be safely made to it. 12 U.S.C. 1424(a)(2)(B). Section 933.11 of
the proposed rule implements this requirement and applies it to all
applicants for membership, including applicants (such as insurance
companies) that are not insured depository institutions. However, as
discussed below, Sec. 933.16 of the proposed rule establishes financial
condition standards for insurance companies that recognize the
specialized nature of the insurance business. Section 933.11 of the
proposed rule is modeled on the current Guidelines.
a. Review requirement.
Section 933.11(a) of the proposed rule, like the current
Guidelines, sets forth the documents pertaining to financial condition
that must be reviewed for each applicant. These documents include:
(1) The regulatory financial reports for at least the last six
calendar quarters and three year-ends;
(2) The most recent annual audited financial statement, or if
unavailable, any other such independent external annual financial
report as the applicant's primary regulator may require, or if
unavailable, such financial statements as the applicant may otherwise
have available;
(3) The most recent available regulatory examination report, a
summary of the applicant's strengths and weaknesses as cited in the
examination report, and a summary of actions taken by the applicant to
respond to examination weaknesses;
(4) A description of any outstanding enforcement actions, responses
by the applicant and reports as required by the enforcement action; and
(5) Any other relevant information that comes to the Bank's
attention or reasonably should come to the Bank's attention in
reviewing the applicant's financial condition.
The final review requirement, that a Bank consider other relevant
information that comes to its attention or reasonably should come to
its attention in reviewing the applicant's financial condition, is
intended to incorporate a due diligence concept into the membership
approval process. For example, if the Bank were to receive information
through the media or other sources that is inconsistent with the
information supplied by the applicant, the Bank should evaluate the
reliability of the alternative source. The Finance Board does not
intend to hold the Banks accountable for finding information that might
have been discovered only through extraordinary means, but the Finance
Board does expect the Banks to make reasonable efforts to find
information relevant to an applicant's financial condition.
b. Standards of adequate ``financial condition.''
The Bank Act does not define the term ``financial condition'' for
purposes of membership, except that financial condition must be ``such
that advances may be safely made.'' 12 U.S.C. 1424(a)(2)(B). The
Finance Board believes that specific, uniform and quantifiable
standards for evaluating financial condition are necessary to ensure
that Bank funding may be extended in a safe and sound manner. For
applicants other than insurance companies, Sec. 933.11(b) enumerates
those factors to be reviewed. Because of the special nature of
insurance companies, the Finance Board is proposing a separate section,
Sec. 933.16 discussed below, to establish the minimum standards for
evaluating the financial condition of insurance company applicants.
Section 933.11(b) of the proposed rule establishes a standard for
adequate financial condition similar to the interpretation of the term
``financial condition'' in the current Guidelines and Finance Board
practice. An applicant that complies with the standard is presumed to
be in adequate financial condition for purposes of section 4 of the
Bank Act. This presumption is rebuttable if the Bank obtains
information to the contrary. Under Sec. 933.11(b), an applicant is
presumed to be in adequate financial condition if:
(1) The applicant received a composite regulatory examination
rating by its primary regulator within two years from the date of the
application. The Finance Board requires that the applicant be examined
within two years of the date of the application to ensure the accuracy
of critical information used for eligibility determinations. Federal
and state examiners typically examine regulated entities at least every
two years.
(2) The applicant meets all of its minimum statutory and regulatory
capital requirements as reported in its most recent quarter-end
regulatory financial report filed with its primary regulator. This
provision, modeled on the current Guidelines, supports the other
banking regulators' efforts to ensure the safety and soundness of the
industry by recognizing the importance of capital adequacy and
compliance with statutory and regulatory minimum capital standards.
(3) The applicant's most recent composite regulatory examination
rating was ``1;'' or was ``2'' or ``3'' and the applicant also
satisfies certain performance trend criteria. -
The term ``regulatory examination rating'' is defined in
Sec. 933.1(y) of the proposed rule, as a rating of capital, assets,
management, earnings and liquidity following the guidelines of the
Uniform Financial Institutions Rating System contained in a written
report of examination conducted by the applicant's appropriate
regulator, including a CAMEL rating, a MACRO rating or other similar
ratings. The composite regulatory examination rating for an insured
depository institution is determined according to the Uniform Financial
Institutions Rating System (CAMEL, MACRO or equivalent scale). This
rating system is based on an evaluation of the five critical dimensions
of an institution's operations that reflect, in a comprehensive
fashion, an institution's financial condition, compliance with banking
statutes and regulations, and overall operating soundness. A composite
regulatory examination rating of ``1'' is the highest possible rating
on a 5 point scale. A ``5'' rating is assigned to institutions that
require immediate corrective action and constant supervisory attention.
The probability of failure for ``5'' rated institutions is high.
The importance of the composite regulatory examination rating in
the membership approval process may be illustrated in the breakdown of
the ratings assigned to applicants approved by the Finance Board since
FIRREA--all but one institution approved for membership have been rated
``1,'' ``2'' or ``3''; the single ``4'' rated institution approved for
membership has since been upgraded. No ``5'' rated institutions have
been approved for membership.
Using the Uniform Financial Institutions Rating System to evaluate
membership applicants reduces the documentation requirements for
applicants, limits the potential for the Banks to be perceived by
applicants as another layer in the financial regulatory structure, adds
considerable efficiency to the application process and provides an
independent assessment by those responsible for the soundness of the
entity. The Uniform Financial Institutions Rating System is not used to
evaluate insurance company applicants.
Under the proposed rule, an applicant with a recent composite
regulatory examination rating of ``1'' meets the minimum performance
standard in Sec. 933.11(b)(3). A composite regulatory examination
rating of ``2'' or ``3'' may be an acceptable performance standard
under Sec. 933.11(b)(3) if the applicant also meets additional
performance trend
[[Page 54964]]
thresholds. These thresholds are designed to identify trends in the
institution's key performance areas by reviewing six calendar quarters
of financial data. The performance trend measures include: (1) positive
earnings in 4 of the 6 most recent calendar quarters, (2) nonperforming
assets not exceeding 10 percent of the applicant's total assets in the
most recent calendar quarter, and (3) a ratio of loan loss reserves to
nonperforming assets of 60 percent or greater during 4 of the 6 most
recent calendar quarters. These performance trends are in the current
Guidelines. The Finance Board also is considering setting the
performance trend for nonperforming assets at eight percent of the
applicant's total assets in the most recent calendar quarter and
specifically requests comment on this alternative.
The term ``nonperforming assets'' is defined in Sec. 933.1(u) of
the proposed rule as the sum of loans and leases reported on a
regulatory financial report that have been past due for 90 days or
longer; loans and leases on a nonaccrual basis; restructured loans and
leases (not already reported as nonperforming); and foreclosed real
estate, except that nonperforming assets shall be as defined by the
National Credit Union Administration (NCUA) for credit union
applicants. The Finance Board is considering substituting a specific
list of assets that the NCUA would regard as nonperforming assets for a
credit union. The term ``loan loss reserves'' is defined in
Sec. 933.1(p) of the proposed rule as a specified balance sheet account
held to fund potential losses on loans or leases. The Finance Board
requests comment on all aspects of the standard for adequate financial
condition.
The Finance Board has designed the proposed rule to ensure that no
single measure of financial condition is determinative. An applicant
with a regulatory examination rating of ``1'' may not have an adequate
financial condition if the Bank uncovers compelling evidence to the
contrary, as described below in the discussion of Sec. 933.17 of the
proposed rule. Similarly, an applicant with a low regulatory
examination rating could be admitted to membership if the applicant
demonstrates other compelling evidence of an adequate financial
condition. The Finance Board encourages all financial institutions
interested in home mortgage lending to apply for Bank membership.
The performance trend thresholds in Sec. 933.11(b)(3) measure
financial performance based on quarterly financial data. However,
Sec. 933.11(b)(3)(iv) provides that applicants that are not required to
report financial data on a quarterly basis to their primary regulator
may report the information required in Sec. 933.11(b)(3)(i)-(iii) on a
semiannual basis.
c. Eligible collateral not considered.
The Bank Act requires that an institution have a ``financial
condition such that advances may be safely made.'' 12 U.S.C.
1424(a)(2)(B). The Finance Board considered interpreting the Bank Act
to presume that any applicant with ``eligible collateral'' would meet
the financial condition requirement of section 4(a)(2)(B) of the Bank
Act. However, since the Finance Board seeks to avoid having the Banks
become lenders of last resort to failing or weak institutions, the
Finance Board has determined that a minimum level of financial analysis
should be required for all applicants as a prerequisite to membership.
Section 933.11(c) of the proposed rule states that the availability of
sufficient eligible collateral to secure advances to the applicant is
presumed and will not be considered in determining whether an applicant
meets the financial condition criteria required by section 933.6(a)(5).
The Finance Board seeks public comment on whether the financial
condition standards incorporated in the proposed rule or other
performance trends or measures of financial condition should be
incorporated in the final regulation.
8. Character of Management Requirement
Section 4(a)(2)(C) of the Bank Act requires that the ``character''
of an applicant's management be ``consistent with sound and economical
home financing.'' 12 U.S.C. 1424(a)(2)(C).
a. Review requirement. Section 933.12 of the proposed rule sets out
the review requirement and the standards to be used to determine
whether an applicant may be presumed to have the character of
management required by the Bank Act and Sec. 933.6(a)(6) of this part.
Section 933.12(a) requires the Bank to review the following to evaluate
an applicant's character of management:
(1) The names of directors and senior officers;
(2) The most recent regulatory financial report;
(3) The most recent audited financial statement, or if unavailable,
other such independent external financial report that the applicant's
primary regulator may require, or if unavailable, such financial
statements that the applicant may otherwise have available;
(4) Enforcement actions;
(5) Certain pending criminal, civil or administrative matters;
(6) Information concerning potential monetary liabilities, material
pending law suits or unsatisfied judgments; and
(7) Any other document that comes to the Bank's attention or
reasonably should come to the Bank's attention in reviewing the
applicant's character of management.
The term ``enforcement action'' is defined in Sec. 933.1(k) of the
proposed rule as any written notice, directive, order or agreement
initiated by an applicant or its appropriate regulator to address any
operational, financial, managerial or other deficiencies of the
applicant identified by the appropriate regulator. ``Appropriate
regulator'' is defined in Sec. 933.1(e) of the proposed rule and
includes the applicant's primary regulator and any officer, agency,
supervisor or other entity that has regulatory authority over, or is
empowered to institute enforcement action against, an applicant.
As explained above in the discussion of the financial condition
review requirement, the Finance Board realizes that Sec. 933.12(a)(7)
makes the Bank responsible for determining what additional documents it
should review to evaluate an applicant's character of management. The
Banks will have to make this determination on a case-by-case basis. The
Finance Board expects the Banks to exercise due diligence, but does not
expect the Banks to take extraordinary measures or incur great expense
to comply with this review requirement. For example, in the past,
several Banks have performed computer database searches to verify that
an applicant was making full disclosure of potential character of
management issues. The Finance Board cites this practice as one
relatively quick and inexpensive means by which a Bank may verify
character of management.
b. Standards of adequate ``Character of Management.''
Section 933.12(b) of the proposed rule establishes the character of
management standards. An applicant that meets these standards is deemed
to have the character of management required by the Bank Act and
Sec. 933.6(a)(6) of this part. This presumption is rebuttable. The
elements of the character of management standard are that:
(1) Neither the applicant nor any of its directors or senior
officers is subject to or operating under any enforcement action
instituted by an appropriate regulator;
(2) Neither the applicant nor any of its directors or senior
officers has been the subject of criminal, civil or administrative
proceedings reflecting upon creditworthiness, business
[[Page 54965]]
judgment or moral turpitude since the most recent examination;
(3) There are no known or potential civil, criminal, or
administrative monetary liabilities, material pending law suits or
unsatisfied judgments against the applicant, its directors or senior
officers since the most recent examination; and
(4) The applicant provides the written certification required in
Sec. 933.12(c), described below.
An applicant that does not meet the character of management
standards can still be considered for membership as provided in
Sec. 933.17 of the proposed rule, if the applicant presents a
sufficient explanation of its failure to meet the character of
management standards. The character of management standards in the
proposed rule are based on the current Guidelines.
c. Written certification.
Section 933.12(c) of the proposed rule requires a written
certification either by a majority of the board of directors of the
applicant, or by an individual with authority to act on behalf of the
board of directors of the applicant, concerning the character of
management standards described above. An applicant must provide either
an unqualified certification that there are no enforcement actions,
objectionable proceedings, or objectionable liabilities, or, if that is
not possible, the applicant must provide a qualified certification that
includes a detailed explanation regarding any exceptions noted. An
applicant that provides a qualified certification is presumed not to
have the character of management required by the Bank Act and
Sec. 933.6(a)(6) of this part, but this presumption may be rebutted.
The Finance Board is continuing the current policy of applying the
character of management requirements in Sec. 933.12 to all applicants,
rather than just insured depository institution applicants.
The Finance Board has found the written certification to be the
best way to surface any character of management issues, and to get an
explanation of those issues because the burden of disclosure is placed
on the applicant. The Finance Board requests public comment on the
character of management review requirement and standards incorporated
in the proposed rule, including alternative character of management
measures that should be considered for the final regulation.
9. Home Financing Policy Requirement
Section 4(a)(2)(C) of the Bank Act also requires that an
applicant's home financing policy be ``consistent with sound and
economical home financing.'' 12 U.S.C. 1424(a)(2)(C).
Section 933.13(a) of the proposed rule establishes the standards a
Bank must use to evaluate an applicant's home financing policy. If an
applicant meets the standards, the applicant is deemed to comply with
the home financing policy requirement of section 4(a)(2)(C) of the Bank
Act and Sec. 933.6(a)(7) of this part. This presumption is rebuttable.
Section 933.13(a) of the proposed rule is based on the home financing
policy standards in the Guidelines.
Under Sec. 933.13(a), an applicant that has been evaluated for
Community Reinvestment Act (CRA) performance within four years from the
date of application and has received a CRA rating of ``satisfactory''
or better on its most recent compliance examination, is presumed to
meet the home financing policy requirement.
Section 933.13(b) requires an applicant that is not subject to the
CRA, or an applicant that received a ``needs to improve'' rating on its
most recent CRA performance evaluation but received a ``satisfactory''
or better rating on its prior CRA performance evaluation, to file as
part of its application a written justification that demonstrates how
and why the applicant's credit policies and lending practices (if
applicable) are consistent with the Bank System's housing finance
mission.
The Finance Board acknowledges that CRA is not a perfect method for
evaluating whether an institution's home financing policy is
``consistent with sound and economical home financing.'' CRA
evaluations are based on whether a financial institution meets the
credit needs of its assessment area, rather than on its mortgage
lending activity. See 60 FR 22180 (May 4, 1995) to be codified at 12
CFR 25.22. Further, CRA does not consider whether a financial
institution's home financing policy is ``sound and economical.'' Id.
The Finance Board seeks comment on the use of CRA as a proxy for the
home financing policy criterion and suggestions for alternative
measures that the Finance Board might consider.
Since neither the Congress nor the Finance Board have yet
specifically defined the Bank System's housing finance mission, the
Finance Board also acknowledges limitations in requesting a written
justification demonstrating how and why an applicant's policies are
consistent with the Bank System's housing finance mission. The Finance
Board requests comment on how institutions might best provide the
requisite justification.
The Finance Board is continuing its current policy of applying the
home financing policy requirements in Sec. 933.17 to all applicants.
Currently, to determine whether an insurance company applicant's home-
financing policy is adequate, the Guidelines require that the applicant
provide evidence that the applicant engages in, or intends to engage
in, various housing related activities. Under the proposed rule, an
insurance company will be subject to the same requirements as all other
applicants.
An applicant that does not comply with the home financing policy
standard may still be considered for membership if the applicant can
rebut the presumption that it does not have an adequate home financing
policy, as provided in Sec. 933.17 of the proposed rule.
The Finance Board requests comment on the home financing policy
standards in the proposed rule and on alternative measures of the
adequacy of an applicant's home financing policy that should be
considered for the final regulation.
10. De Novo Insured Depository Institution Applicants
Section 933.14 of the proposed rule codifies certain exceptions to
the membership eligibility standards for de novo or newly chartered
insured depository institution applicants that are currently in the
Guidelines. An insured depository institution applicant that provides
to a Bank written confirmation from its primary regulator that it has
been chartered for less than three years or is otherwise considered a
de novo insured depository institution by the applicant's primary
regulator will receive special consideration for membership
eligibility.
Under Sec. 933.14(a)(1), a de novo applicant that has not filed
regulatory financial reports for the last six quarters and three year-
ends shall provide any such regulatory financial reports as the
applicant has filed. Under Sec. 933.14(a)(2), a de novo applicant shall
provide its most recent annual audited financial statement, or if
unavailable, other such independent external annual financial report as
the applicant's primary regulator may require, or if unavailable, a de
novo applicant shall, at a minimum, provide financial reports for at
least six calendar quarters of operation.
Section 933.14(a)(3) of the proposed rule provides that if a de
novo applicant has not yet received a composite regulatory examination
rating from its primary regulator, the applicant shall provide a
preliminary or informal
[[Page 54966]]
written regulatory examination rating from the applicant's primary
regulator, if a preliminary or informal rating is acceptable to the
Bank. Under Sec. 933.14(a)(4) of the proposed rule, a de novo applicant
need not meet the performance trend criteria in Sec. 933.11(b)(3)(i)-
(iii) of the proposed rule, if the de novo applicant has completed
regulatory financial reports for at least six full quarters of
operation and has complied with its regulatory business plan, either as
confirmed in writing by the de novo applicant's primary regulator or
based on a written analysis provided by the applicant that demonstrates
its substantial compliance with its regulatory business plan as
determined by the Bank.
Section 4(a)(2) of the Bank Act makes a special exception to the 10
percent requirement for de novo insured depository institution
applicants. The Bank Act specifically provides that a de novo applicant
may be admitted to membership if it complies with the 10 percent
requirement within 1 year after commencement of its operations. See 12
U.S.C. Sec. 1424(a)(2). The proposed rule continues the practice in
current Guidelines requiring that applicants, other than mandatory
members, must provide financial reports for at least six calendar
quarters of operation in order for the Bank to evaluate the applicant's
financial condition. Therefore, most de novo applicants already will
have been in operation for more than one year at the time of
application. However, the provision in section 4(a)(2) of the Bank Act
currently applies and, under the proposed rule, will continue to apply
during the first year of operation of a de novo applicant that is
required by law to be a member and is automatically admitted to
membership without satisfying the 10 percent requirement pursuant to
Sec. 933.4(a) of the proposed rule.
Under Sec. 933.14(b) of the proposed rule, the Bank may presume
that a de novo applicant that has not yet received a CRA performance
evaluation has a home financing policy as required by section
4(a)(2)(C) of the Bank Act and Sec. 933.6(a)(7), if the Bank's digest
establishes that the de novo applicant has a preliminary or informal
written CRA performance evaluation of ``satisfactory'' or better.
Alternatively, the Bank may presume compliance with the home financing
policy requirement if the Bank's digest establishes that the de novo
applicant has submitted a written justification acceptable to the Bank
of how the applicant intends to support the Bank System's housing
finance mission. The Guidelines are consistent with the approach taken
in the proposed rule.
11. Recent and Pending Merger Applicants
The Finance Board, based on its general supervisory authority over
the Banks, 12 U.S.C. 1422a, 1422b(a)(1), and its authority to interpret
the statutory membership eligibility requirements, id. Sec. 1424,
proposes special standards for applicants involved in a recent or
pending merger to ensure that the information evaluated to determine
eligibility is appropriate for the entity that results from the merger.
Standards for recent and pending merger applicants are not provided in
the Bank Act.
Section 933.15 of the proposed rule largely codifies the special
eligibility requirements that recent and pending merger applicants must
satisfy under the current Guidelines, in addition to or in place of the
previously described eligibility requirements. To be considered a
``pending merger applicant'' or a ``recent merger applicant,'' an
applicant must meet two tests, a timing test and a materiality test
defined in Sec. 933.15(a) of the proposed rule. For ``pending merger
applicants,'' the timing test is whether the applicant is a party to a
merger or acquisition agreement that is expected to be consummated
within two calendar quarters of submission of the membership
application. The materiality test is whether the applicant accounts for
75 percent or less of the combined assets of the resulting entity at
the time of application.
For ``recent merger applicants,'' the timing test is whether the
applicant has merged with or acquired another institution within the
six calendar quarters prior to submission of the membership
application. The materiality test is whether the applicant accounts for
75 percent or less of the combined assets of the resulting entity at
the time of application.
Section 933.15(b) of the proposed rule establishes an additional
review requirement that a Bank shall include in its digest for each
recent or pending merger applicant. The general information required
includes: (1) The name of each entity involved and its charter type;
(2) a general statement of the financial condition of each entity; (3)
a brief statement of the business reasons for the merger or
acquisition; and (4) the names and positions of management of the
resulting entity.
Section 933.15(c) of the proposed rule establishes the special
membership eligibility standards for recent and pending merger
applicants. A recent or pending merger applicant shall be deemed to be
in compliance with section 4(a) of the Bank Act and Sec. 933.6(a) of
the proposed rule, subject to rebuttal, only if the recent or pending
merger applicant satisfies the requirements of part 933 as modified and
supplemented by Sec. 933.15(c). Section 933.15(c)(1) establishes the
financial condition standard for a recent merger applicant. For recent
merger applicants that do not yet have a composite regulatory
examination rating subsequent to the merger or acquisition, each party
(other than existing Bank members) to the merger or acquisition must
satisfy the recent examination requirement, the capital requirements
and the minimum performance standards in Sec. 933.11(b). Section
933.15(c)(1)(A) of the proposed rule provides that, to the extent a
recent merger applicant does not yet have regulatory financial reports
for the six most recent calendar quarters needed to calculate
performance trends, the applicant must prepare pro forma combined
financial statements for those calendar quarters in which actual
combined regulatory financial reports are unavailable.
Section 935.15(c)(2) establishes the financial condition standard
for a pending merger applicant. Since a pending merger has by
definition not been consummated, the applicant cannot provide a
composite regulatory examination rating for the combined entity as
required by Sec. 933.11(b)(1). In lieu of that, each party to the
merger or acquisition, except an incumbent Bank member, is required by
Sec. 933.15(c)(2)(A) of the proposed rule to satisfy all of the
requirements of Sec. 933.11(b).
Section 933.15(c)(2)(B) of the proposed rule requires that in
addition to each party to a pending merger individually satisfying all
of the financial condition standards in Sec. 933.11(b), the pending
merger applicant must satisfy the capital requirements and the
performance trend requirements in Sec. 933.11(b)(2) and (3) as a
combined entity based on pro forma combined financial statements to be
prepared by the applicant for the six most recent calendar quarters.
Section 933.15(c)(3) provides that the determination of the
character of management of a recent or pending merger applicant for
purposes of Sec. 933.12 of the proposed rule shall be based on an
evaluation of the directors and senior officers of the resulting
entity. Section 933.15(c)(4) provides that for a pending merger
applicant or for a recent merger applicant that does not yet have a CRA
performance evaluation on a combined basis for the
[[Page 54967]]
merged entity, the determination of whether the merger applicant's home
financing policy satisfies the requirements of Sec. 933.13 shall be
based on a review of the most recent CRA performance evaluation
available for each party to the merger or acquisition.
12. Insurance Company Applicants
To become a Bank member, the Bank Act requires that an insurance
company applicant meet the membership eligibility requirements set
forth in section 4(a)(1) of the Bank Act. See 12 U.S.C. 1424(a)(1)(A)-
(C); Sec. 933.6(a)(1), (2) and (3) of the proposed rule, discussed in
part II(B) above. For the reasons discussed in part II(B)(6) above, the
Finance Board proposes to apply the section 4(a)(2) criteria to all
applicants for Bank membership, including insurance company applicants,
even though the Bank Act specifically applies the section 4(a)(2)
criteria only to insured depository institution applicants. See 12
U.S.C. 1424(a)(2).
a. Inspection and regulation.
Insurance companies are subject to state, not federal, regulation
and, therefore, the standards applicable to insurance companies are not
uniform. Every United States insurance company is subject to
examination and regulation by the state insurance department in its
domiciliary state, as well as to some level of regulation by the state
insurance department in each state where the insurance company
applicant is licensed to do business. State insurance laws are similar
to federal banking laws in that they require the appropriate regulator
to monitor whether the insurance company has complied with minimum
capital and reserve, financial condition, asset valuation and various
consumer related requirements.
The standards used to examine and regulate insurance companies vary
from state to state. Some states adhere to the uniform standards
established by the National Association of Insurance Commissioners
(NAIC), while other states either do not conduct examinations of
insurance companies pursuant to the NAIC standards or do not conduct
on-site examinations. Thus, there is no single objective measurement
applicable to all insurance companies. The Finance Board specifically
requests comment on whether the degree of inspection and regulation
imposed by a particular state should be a factor in determining whether
an insurance company applicant satisfies the ``inspection and
regulation'' requirement. For example, the Finance Board seeks comment
on whether it should require that an insurance company applicant be
regulated and examined by an NAIC accredited state insurance
commissioner in order to satisfy the ``inspection and regulation''
requirement.
b. Financial condition.
The differences between the regulatory scheme for insurance
companies and the regulatory scheme for insured depository institutions
has led the Finance Board to propose a separate set of financial
condition standards for insurance company applicants. Section 933.16 of
the proposed rule establishes financial condition standards for
insurance company applicants that differ from the financial condition
standards applicable to other applicants under Sec. 933.11.
Section 933.16(a) of the proposed rule defines certain terms that
are used only in this section.
Section 933.16(b) of the proposed rule establishes performance
standards for insurance company applicants.
(1) Examination rating and independent rating.
Section 933.16(b)(1) requires the Bank to review the most recent
examination report of an insurance company applicant by its primary
regulator. Most insurance company examination reports do not include a
rating; however, several private firms rate insurance company
performance. Therefore, the Finance Board also requires that an
insurance company applicant have a rating from one of the five
principal private companies that rate insurance companies, A.M. Best
Company, Duff & Phelps, Inc., Moody's Investor Service, Inc., Standard
& Poor's Corp., or Weiss Research, Inc. Relying in part on the
independent rater's evaluation of an insurance company applicant
reduces documentation requirements and makes the application process
more efficient.
Section 933.16(b)(2) of the proposed rule requires that an
insurance company applicant's most recent examination indicate no major
adverse findings pertaining to the applicant's financial condition.
(2) Capital requirement.
Section 933.16(b)(3) of the proposed rule requires that an
insurance company applicant meets all of its minimum statutory and
regulatory capital requirements and the NAIC capital standards as
reported in its most recent quarter-end or year-end regulatory
financial report filed with its primary regulator.
(3) Minimum performance standard.
Section 933.16(b)(4) of the proposed rule establishes the minimum
performance standard for an insurance company applicant. Under
Sec. 933.16(b)(4)(i), the applicant's most recent composite insurance
company rating must have been ``strong,'' defined in the proposed rule
as: ``A-'' or above from A.M. Best Company; ``AA-'' or above from Duff
& Phelps, Inc.; ``Aa'' or above from Moody's Investor Service, Inc.;
``AA'' or above from Standard & Poor's Corp.; or ``A'' from Weiss
Research, Inc.
Alternatively, under Sec. 933.16(b)(4)(ii), an insurance company
applicant can establish an acceptable financial condition if it has an
``adequate'' rating and earnings. An ``adequate'' rating is defined in
the proposed rule as: ``C+'' to ``B++'' from A.M. Best Company; ``BB-''
to ``A+'' from Duff & Phelps, Inc.; ``Ba'' to ``A'' from Moody's
Investor Service, Inc.; ``BB'' to ``A'' from Standard & Poor's Corp.;
or ``B'' or ``C'' from Weiss Research, Inc. To establish that it has
adequate earnings, an insurance company applicant must have positive
annualized earnings in two of the three most recent calendar years.
(4) Minimum performance ratios.
(i) Overall ratios.
All insurance company applicants also must meet certain minimum
performance ratios established by Sec. 933.16(b)(5) of the proposed
rule during the most recent year-end or quarter-end period. Section
933.16(b)(5)(i) defines certain terms that are used only in this
paragraph. Section 933.16(b)(5)(ii) establishes the overall minimum
performance ratios for insurance company applicants.
Section 933.16(b)(5)(ii)(A) establishes a premium to surplus ratio
standard that is designed to measure the adequacy of an insurance
company's reserves for absorbing above-average losses. To calculate
this ratio, divide net premiums written by total capital and surplus.
To meet the standard, an applicant's net premiums may not exceed three
times the level of capital and surplus. Section 933.16(a)(7) defines
the term ``net premiums written'' as the total consideration paid for
an insurance contract during a specified period of time, net of
reinsurance assumed and ceded.
Section 933.16(a)(8) defines the term ``reinsurance'' as
transactions in which an assuming enterprise, known as a reinsurer,
assumes, for a premium, all or part of a risk undertaken originally by
another insurer.
Section 933.16(a)(9) defines the term ``reinsurance assumed'' as
all premiums generated by policies issued
FR Doc. 95-25823 Membership Approval
to assume a liability, in
whole or in part, of another insurer that is already covering the risk
with a policy.
Section 933.16(a)(10) defines the term ``reinsurance ceded'' as all
premiums generated by policies or coverage purchased from another
insurer that
[[Page 54968]]
transfer liability, in whole or in part, from direct or reinsurance
policies.
Section 933.16(a)(14) defines the term ``surplus'' as the total of
common and preferred capital stock, aggregate write-ins for other than
special surplus funds, gross paid-in and contributed surplus, surplus
notes and unassigned funds, less treasury stock.
Section 933.16(b)(5)(ii)(B) establishes a change in net premiums
written ratio standard that is designed to measure the stability of an
insurance company's operation. Major increases or decreases in net
premiums written may indicate a lack of stability in company operations
or an abrupt entry into new product lines or sales territory. To
calculate this ratio, divide the change in net premiums written between
the two most recent consecutive calendar years by the total net
premiums written in the first year. To meet the standard, an
applicant's ratio must be between -10 percent and +50 percent.
Section 933.16(b)(5)(ii)(C) establishes a surplus relief ratio
standard that is designed to measure the insurance company's level of
dependence on net income generated by reinsurance activities to fund
capital and surplus. Dependence on income from reinsurance ceded
premiums may indicate that company management believes current capital
and surplus to be inadequate. To calculate the surplus relief ratio,
divide the net of commissions and expenses generated by reinsurance
ceded and assumed by total capital and surplus. To meet the standard,
an applicant's surplus relief ratio must be less than 30 percent.
Section 933.16(b)(5)(ii)(D) establishes an adequacy of investment
income ratio standard that is designed to measure whether the insurance
company's investment income is adequate to cover contractual interest
obligations on policies and funds held on deposit. To calculate this
ratio, divide net investment income by the sum of total tabular
interest required on life insurance, accident and health reserves, and
total interest credited on funds held on deposit. Section 933.16(a)(15)
defines the term ``tabular interest'' as interest, required by the
primary regulator, to be set aside to cover all contractual
obligations.
Section 933.16(a)(11) defines the term ``reserves'' as funds set
aside for possible losses on insurance policies, annuities, claims
unpaid, funds held for policyholders, and deposit funds.
To meet the adequacy of investment income ratio standard, an
applicant's net investment income must provide no less than 1.25 times
the coverage on total funds held in reserves to pay interest on
contractual obligations and funds held on deposit.
Section 933.16(b)(5)(ii)(E) establishes a change in capital and
surplus ratio standard that is designed to provide an overall
measurement of improvement or deterioration in an insurance company's
financial condition. To calculate this ratio, divide the net change in
capital and surplus between the two most recent consecutive calendar
years, by total capital and surplus in the first year. To meet this
standard, an applicant's ratio must be between -10 percent and +50
percent.
(ii) Solvency ratios.
Section 933.16(b)(5)(iii) establishes the solvency ratios for
insurance company applicants. --
Section 933.16(b)(5)(iii)(A) establishes a highly liquid ratio
standard that is designed to measure the relationship between highly
liquid assets and those liabilities that can be withdrawn or must be
paid by the company in less than 30 days.
Section 933.16(a)(4) defines the term ``highly liquid assets'' as
cash or cash equivalent assets readily convertible to cash, including
marketable Class 1 (highest investment grade) publicly traded bonds,
marketable preferred and common stock, short-term investments, and
investment income due. To calculate this ratio, divide highly liquid
assets by annuity and deposit fund reserves less reserves with no
withdrawal privileges, separate accounts and reinsurance.
To meet the standard, an applicant's highly liquid ratio must be no
less than: (1) 75 percent on traditional life insurance products; (2)
85 percent on interest sensitive life insurance products; (3) 85
percent on individual annuity insurance products; (4) 100 percent on
group annuity insurance products; (5) 79 percent on property and
liability insurance products; (6) 75 percent on accident and health
insurance products; and (7) 50 percent on disability income insurance
products.
Section 933.16(b)(5)(i)(A) defines ``traditional life insurance
products'' as insurance business that consists of individual term life
insurance contracts, individual permanent fixed value life insurance
contracts, or policies that consist of fixed premiums, fixed dollar
amounts of contract, or fixed reserves (cash value) established by each
state.
Section 933.16(b)(5)(i)(B) defines ``interest sensitive life
insurance products'' as insurance business that consists of individual
life insurance policies characterized by flexible premiums, dollar
amounts of contract that can vary, and reserves which represent a pool
of assets such as mutual funds that are held for the benefit of, and
support the investment return to, policy holders.
Section 933.16(b)(5)(i)(D) defines ``individual and group annuity
insurance products'' as insurance business that consists of contracts
that accumulate and disburse retirement benefits to individual
policyholders or to companies for their employees, hold pension deposit
funds, or distribute and hold funds under guaranteed interest
contracts.
Section 933.16(b)(5)(i)(F) defines ``property insurance products''
as insurance business that consists of policies where the majority of
premiums go to cover losses to real property, automobiles or similar
tangible assets.
Section 933.16(b)(5)(i)(G) defines ``liability insurance products''
as insurance business that consists of policies that cover losses
arising from actions taken by individuals or companies, including
losses from litigation or mutual agreements as to the amount of a
claim, such as product liability, medical malpractice and worker's
compensation.
Section 933.16(b)(5)(i)(C) defines ``accident and health insurance
products'' as insurance business that consists of coverage for care
such as basic hospital expense, basic surgical expense, dental care,
specific hospital reimbursement, long-term nursing home or home care
expenses for the aged or disabled, major medical expense, and Medicare
supplemental insurance.
Section 933.16(b)(5)(i)(E) defines ``disability income insurance
products'' as insurance business that consists of contracts that pay
income periodically to insureds who are unable to work as a result of
sickness or injury.
Section 933.16(b)(5)(iii)(B) establishes a current ratio standard
that is designed to measure the relationship between liquid assets and
liabilities that are available to meet a company's obligations if the
obligations are paid in an orderly fashion in the normal course of
business. Section 933.16(a)(6) defines the term ``liquid assets'' as
installment premiums booked but deferred and not yet due, cash, accrued
investment income, marketable Class 1 (highest investment grade
quality) publicly traded bonds and marketable Class 2 (high investment
grade quality) publicly traded bonds, marketable preferred and common
stock, cash, short-term investments, and investment income due, less
investments in affiliated companies and excess of real estate over five
percent of liabilities.
To calculate the current ratio, divide liquid assets by annuity,
ordinary life,
[[Page 54969]]
and deposit fund reserves, less reserves with no withdrawal privileges,
separate accounts, reinsurance, and policy loans. -
Section 933.16(a)(12) defines the term ``separate accounts'' as
assets and liabilities maintained by an insurance company predominately
to fund fixed-benefit or variable annuity contracts and pension plans.
The contract holder assumes the investment risk while the insurance
company receives a fee for managing or maintaining the investments.
To meet the standard, an applicant's current ratio must be no less
than: (1) 60 percent on traditional life insurance products; (2) 75
percent on interest sensitive life insurance products; (3) 75 percent
on individual and group annuity insurance products; (4) 87 percent on
property and liability insurance products; (5) 75 percent on accident
and health insurance products; and (6) 50 percent on disability income
insurance products.
Section 933.16(b)(5)(iii)(C) establishes an adjusted liabilities to
adjusted surplus ratio standard that is designed to measure whether an
insurance company's surplus account is adequate in relation to its
level of current contractual obligations outstanding.
Section 933.16(a)(1) defines the term ``adjusted liabilities'' as
total statutory liabilities less separate account liabilities, asset
valuation reserves, and interest maintenance reserves. Section
933.16(a)(13) defines the term ``statutory liabilities'' as the total
of funds set aside to pay future claims and operating expenses,
including separate account liabilities and funds held for the benefit
of others, as established under the accounting rules and techniques
permitted by the NAIC. Examples of statutory liabilities are policy
reserves, premiums collected in advance, commissions and expenses
payable, and provisions for policyholder dividends.
Section 933.16(a)(3) defines the term ``asset valuation reserves''
as reserves on the liability side of the balance sheet that are
established by the primary regulator to guard against fluctuations in
the value of securities and to absorb all unrealized capital gains and
losses and certain realized gains and losses on investment activity.
Section 933.16(a)(5) defines the term ``interest maintenance
reserves'' as reserves on the liability side of the balance sheet that
are established to hold the amount of realized capital gains and losses
on fixed income securities that result from overall interest rate
changes.
Section 933.16(a)(2) defines the term ``adjusted surplus'' as
surplus plus asset valuation reserves and interest maintenance
reserves.
To calculate the adjusted liabilities to adjusted surplus ratio,
divide adjusted liabilities by adjusted surplus. To meet the standard,
an applicant's adjusted liabilities to adjusted surplus ratio must not
exceed: (1) 10 to 1 on traditional life insurance products; (2) 10 to 1
on interest sensitive life insurance products; (3) 10 to 1 on
individual and group annuity insurance products; (4) 3 to 1 on property
and liability insurance products; (5) 3 to 1 on accident and health
insurance products; and (6) 5 to 1 on disability income insurance
products.
13. Rebuttable Presumptions
For each membership eligibility criteria required by the Bank Act
and this part, the Finance Board, based on its general supervisory
authority over the Banks, 12 U.S.C. 1422a, 1422b(a)(1), and its
authority to interpret the Bank Act's membership requirements, id.
Sec. 1424, is proposing to establish flexible standards. In the
proposed rule, an applicant that meets those standards is presumed to
be in compliance with the statutory membership eligibility criteria.
So, too, applicants not meeting the standards are presumed not to be in
compliance with the Bank Act criteria. The proposed rule provides that
these presumptions may be rebutted if the applicant provides compelling
or substantial evidence, depending on the standard at issue, or if the
Bank otherwise obtains compelling evidence to the contrary. Section
933.17 of the proposed rule establishes the method by which a
presumption may be rebutted.
This approach is similar to the current Guidelines, in that it
allows an applicant that fails to meet a standard to establish an
alternative basis for complying with the statutory membership
eligibility criteria.
Under Sec. 933.17(a) of the proposed rule, even if an applicant
meets all of the standards, it may not be admitted to membership if the
Bank obtains compelling evidence to overcome the presumption that the
applicant is in compliance with the Bank Act and the general
eligibility requirements of Sec. 933.6(a).
Section 933.17(b) provides that an applicant that does not meet all
of the standards or that is unable to provide information sufficient
for the Bank to evaluate whether it meets the standards, may
nevertheless have the opportunity to rebut the presumption that it is
therefore not in compliance with the Bank Act and the general
eligibility requirements in Sec. 933.6(a).
The remaining provisions of section 933.17 describe specific
rebuttal procedures. Section 933.17(c) of the proposed rule sets out
the requirements for rebutting the presumption of noncompliance with
the financial condition standards. Under Sec. 933.17(c)(1), for each
variance from the required minimum regulatory examination rating, an
applicant must prepare a written justification that provides compelling
evidence that the applicant is in the financial condition required by
Sec. 933.6(a)(4) of the proposed rule, notwithstanding the variance.
The Finance Board is proposing a compelling evidence standard to rebut
a low regulatory examination rating, a rating of ``4'' or ``5,''
because of the importance of the regulatory examination rating in
determining an applicant's financial condition.
Under section 933.17(c)(2) of the proposed rule, for each variance
from a performance trend criterion required by Sec. 933.11(b)(3), the
applicant must prepare a written justification that provides
substantial evidence that the applicant is in an adequate financial
condition, notwithstanding the variance. The Finance Board is proposing
a substantial evidence standard to rebut the failure to meet a
performance trend standard because, while the performance trend
criteria are important, they are less important than the regulatory
examination ratings in evaluating financial condition.
Section 933.17(d) of the proposed rule sets out the requirements
for rebutting the presumption of noncompliance with the character of
management standards. Under Sec. 933.17(d)(1) of the proposed rule, if
an applicant or any of its directors or senior officers is subject to
or operating under an enforcement action, the applicant must provide
written confirmation from its appropriate regulator that the applicant,
its directors or senior officers are in substantial compliance with all
aspects of the enforcement action. Alternatively, an applicant may
prepare a written analysis stating each action the applicant, director
or senior officer is required to take by the enforcement action, the
actions actually taken by the applicant, director or senior officer,
and whether the applicant regards this as substantial compliance. If
the Bank is not certain that the applicant has substantially complied
with all aspects of the enforcement action, the Bank must consult the
applicant's appropriate regulator.
Under Sec. 933.17(d)(2) of the proposed rule, if an applicant or
any of its directors or senior officers is subject to criminal, civil
or administrative
[[Page 54970]]
proceedings that reflect on creditworthiness, business judgment or
moral turpitude since the last examination, the applicant must provide
written confirmation from the applicant's primary regulator that the
proceedings will not likely result in enforcement action.
Alternatively, the applicant may prepare a written analysis of the
severity of the pending charges and any mitigating actions taken by the
applicant, director or senior officer. If the Bank is uncertain whether
the proceedings will result in enforcement action, the Bank must
consult the applicant's primary regulator.
Under Sec. 933.17(d)(3) of the proposed rule, if there are any
material known or potential civil, criminal or administrative monetary
liabilities, pending lawsuits, or unsatisfied judgments against the
applicant or any of its directors or senior officers as of the most
recent quarter-end, the applicant must provide written confirmation
from its primary regulator that the matter will not likely cause the
applicant to fall below its minimum capital requirements.
Alternatively, the applicant may provide a written analysis of each
matter, the likelihood of the applicant or its directors or senior
officers prevailing and the financial consequences if the applicant or
its directors or senior officers do not prevail. If the Bank is
uncertain whether the matter will cause the applicant to fall below its
minimum capital requirements, the Bank must consult the applicant's
primary regulator.
Section 933.17(e) of the proposed rule sets out the requirements
for rebutting the presumption of noncompliance with the home financing
policy standards. If an applicant received a ``substantial non-
compliance'' rating on its most recent CRA performance evaluation, or
two consecutive ``needs to improve'' CRA ratings, or has not received a
CRA performance evaluation within four years from the date of the
membership application, the applicant must provide written confirmation
from its primary regulator of the applicant's recent satisfactory CRA
performance, including any corrective action that substantially
improved upon the deficiencies cited in any recent CRA performance
evaluation. Alternatively, the applicant may provide a written analysis
demonstrating that the applicant's low CRA rating is unrelated to
housing finance, or providing substantial evidence that the applicant's
home financing credit policies and lending practices (if applicable)
are consistent with the Bank System's housing finance mission. The
Finance Board is proposing a compelling evidence standard to overcome
the presumption of an inadequate home financing policy because of the
likelihood that a ``substantial non-compliance'' rating or two
consecutive ``needs to improve'' ratings indicate a poor home financing
policy.
The Finance Board has made no change to Sec. 933.18, Determination
of appropriate Bank district for membership, other than conforming
citations to the proposed rule. For the sake of brevity, conforming
change to the citations in subparts D through I of part 933 are set out
in a table. Part 933 as revised will be set out in its entirety when
the final rule is published.
III. Regulatory Flexibility Act
The proposed rule implements statutory requirements binding on all
applicants for Bank membership, regardless of their size. The Finance
Board is not at liberty to make adjustments in those requirements to
accommodate small entities. The Finance Board has not imposed any
additional regulatory requirements that will have a disproportionate
impact on small entities. The proposed rule would, to some extent,
reduce the tests and criteria for determining compliance with statutory
eligibility requirements that currently are used by the Finance Board
in approving membership applications. Therefore, it is certified,
pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C.
605(b), that this proposed rule, if promulgated as a final rule, would
not have a significant economic impact on a substantial number of small
entities.
Paperwork Reduction Act
The Finance Board has submitted to the Office of Management and
Budget (OMB) an analysis of membership approval collections of
information contained in Secs. 933.2, 933.3, 933.5, and 933.7 through
933.17 of the proposed rule, described more fully in part II of the
Supplementary Information, as well as an analysis of other information
collection requirements in redesignated Secs. 933.18, 933.22, 933.25,
933.26 and 933.31 of the current membership regulation, which are not
otherwise affected by this proposed rule. These information collections
are necessary to enable the Finance Board and/or the Banks to determine
whether applicants qualify for Bank membership and to satisfy various
statutory requirements that apply to FHLBank members. Responses are
required to obtain or retain a benefit. See 12 U.S.C. 1424, 44 U.S.C.
3512.
The information collections will be used by Finance Board and/or
Bank staff as part of the membership process to determine the
eligibility of applicants for Bank membership under the Bank Act and
Finance Board regulation, the amount of stock that each member is
required to hold pursuant to statutory requirements, information the
Finance Board must collect to comply with statutory requirements in the
event of a member's withdrawal from membership, and information the
Finance Board is required by statute to collect to determine a member's
actual principal place of business. Confidentiality of information
obtained from respondents pursuant to the collections of information
will be maintained by the Finance Board as required by applicable
statute, regulation and agency policy. Books or records relating to
these collections of information must be retained as provided in the
regulation or proposed rule. -
Likely respondents and/or recordkeepers will be the types of
financial institutions eligible to become Bank members under the Bank
Act, 12 U.S.C. 1424(a)(1), including any building and loan association,
savings and loan association, cooperative bank, homestead association,
insurance company, savings bank, or insured depository institution; the
Banks; and the Finance Board. Potential respondents are not required to
respond to the collections of information unless the regulation
collecting the information displays a currently valid control number
assigned by the OMB. See 44 U.S.C. 3512(a).
The estimated annual reporting and recordkeeping hour burden is:
a. Number of respondents--6,412.
b. Total annual responses--6,412.
Percentage of these responses collected electronically 0%.
c. Total annual hours requested--59,152.1.
d. Current OMB inventory--38,889.6.
e. Difference--20,262.5.
The estimated annual reporting and recordkeeping cost burden is:
a. Total annualized capital/startup costs--0.
b. Total annual costs (O&M)--$1,683,923.95.
c. Total annualized cost requested--1,683,923.95.
d. Current OMB inventory--1,754,181.95.
e. Difference--($70,258.00).
Comments concerning the accuracy of the burden estimates and
suggestions for reducing the burden may be submitted to the Finance
Board in writing at the address listed above.
[[Page 54971]]
The collections of information have been submitted to OMB for
review in accordance with section 3507(d) of the Paperwork Reduction
Act of 1995, 44 U.S.C. 3507(d). Comments regarding the proposed
collections of information may be submitted in writing to the Office of
Information and Regulatory Affairs of OMB, Attention: Desk Officer for
Federal Housing Finance Board, Washington, DC 20503, by December 26,
1995.
List of Subjects in 12 CFR Part 933
Credit, Federal home loan banks, Reporting and recordkeeping
requirements.
Accordingly, the Board hereby amends title 12, chapter IX, part
933, of the Code of Federal Regulations as follows:
PART 933--MEMBERS OF THE BANKS
1. The heading for part 933 is revised as set forth above.
1a. The authority citation for part 933 continues to read as
follows:
Authority: 12 U.S.C. 1422a, 1422b, 1424, 1426, 1430, 1442.
2. The table of contents to part 933 is revised to read as follows:
Subpart A--Definitions
Sec.
933.1 Definitions.
Subpart B--Membership Application Process
933.2 Membership application requirements.
933.3 Decision on application.
933.4 Automatic membership.
933.5 Appeals.
Subpart C--Eligibility Requirements
933.6 General eligibility requirements.
933.7 Duly organized requirement.
933.8 Subject to inspection and regulation requirement.
933.9 Makes long-term home mortgage loans requirement.
933.10 Ten percent requirement
933.11 Financial condition requirement.
933.12 Character of management requirement.
933.13 Home financing policy requirement.
933.14 De novo insured depository institution applicants.
933.15 Recent and pending merger applicants.
933.16 Financial condition standards for insurance company
applicants.
933.17 Rebuttable presumptions.
933.18 Determination of appropriate Bank district for membership.
Subpart D--Stock Requirements
933.19 Par value and price of stock.
933.20 Stock purchase.
933.21 Issuance and form of stock.
933.22 Adjustments in stock holdings.
933.23 Purchase of excess stock.
Subpart E--Consolidations Involving Members
933.24 Consolidation of members.
933.25 Consolidations involving nonmembers.
Subpart F--Withdrawal and Removal From Membership
933.26 Procedure for withdrawal.
933.27 Procedure for removal.
933.28 Automatic termination of membership for institutions placed
in receivership.
Subpart G--Orderly Liquidation of Advances and Redemption of Stock
933.29 Orderly liquidation of advances and redemption of stock.
Subpart H--Reacquisition of Membership
933.30 Reacquisition of membership.
Subpart I--Bank Access to Information
933.31 Reports and examinations.
Subpart J--Membership Insignia
933. 32 Official membership insignia.
Subparts C Through I of Part 933 [Redesignated as Subparts D Through
J]
3. Subparts C through I of Part 933 are redesignated as Subparts D
through J, respectively.
Secs. 933.6 Through 933.19 [Redesignated as Secs. 933.19 Through
933.32]
4. Sections 933.6 through 933.19 are redesignated as Secs. 933.19
through 933.32, respectively.
5. Subpart A of part 933 is revised to read as follows:
Subpart A--Definitions
Sec. 933.1 Definitions.
For purposes of this part:
(a) Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.
1421 through 1449).
(b) Aggregate unpaid load principal means the aggregate unpaid
principal of a subscriber's or member's home mortgage loans, home
purchase contracts, and similar obligations.
(c) Annualized adjusted earnings means net earnings, excluding
extraordinary items such as income received from or expense incurred in
sales of securities or fixed assets.
(d) Appropriate Federal banking agency has the same meaning as used
in 12 U.S.C. 1813(q) and, for federally insured credit unions, shall
mean the National Credit Union Administration.
(e) Appropriate regulator means any officer, agency, supervisor or
other entity that has regulatory authority over, or is empowered to
institute enforcement action against, an applicant.
(f) Bank means a Federal Home Loan Bank established under the
authority of the Act.
(g) Board means the Federal Housing Finance Board.
(h) Combination business or farm property means real property for
which the total appraised value is attributable to residential, and
business or farm uses.
(i) Domestic loan means a loan on property located in a state or
the United States.
(j) Dwelling unit means a single room or a unified combination of
rooms designed for residential use.
(k) Enforcement action means any written notice, directive, order
or agreement initiated by an applicant or its appropriate regulator to
address any operational, financial, managerial or other deficiencies of
the applicant identified by the appropriate regulator.
(l) Funded residential construction loan means the portion of a
loan secured by real property made to finance the on-site construction
of dwelling units on one-to-four family property or multifamily
property disbursed to the borrower.
(m) Home mortgage loan means:
(1) A domestic loan, whether or not fully amortizing, or an
interest in such a loan, which is secured by a mortgage, deed of trust,
or other security agreement that creates a first lien on one of the
following interests in property:
(i) One-to-four family property or multifamily property, in fee
simple;
(ii) A leasehold on one-to-four family property or multifamily
property under a lease of not less than 99 years that is renewable, or
under a lease having a period of not less than 50 years to run from the
date the mortgage was executed; or
(iii) Combination business or farm property where at least 50
percent of the total appraised value of the combined property is
attributable to the residential portion of the property; or
(2) A mortgage pass-through security that represents an undivided
ownership interest in:
(i) Long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of paragraph (m)(1) of
this section; or
(ii) A security that represents an undivided ownership interest in
long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of paragraph (m)(1) of
this section.
(n) Institutions which are eligible to make application to become
members means for purposes of 12 U.S.C. 1431(e)(2)(A), any building and
loan association, savings association, cooperative bank, homestead
association, insurance company, savings bank or any insured depository
[[Page 54972]]
institution, regardless of whether the institution applies for or would
be approved for membership.
(o) Insured depository institution means an insured depository
institution as defined in 12 U.S.C. 1422(12).
(p) Loan loss reserves means a specified balance-sheet account held
to fund potential losses on loans or leases.
(q) Long-term means a term to maturity of five years or greater.
(r) Manufactured housing means a manufactured home as defined in
section 603(6) of the Manufactured Home Construction and Safety
Standards Act of 1974, as amended (42 U.S.C. 5402(6)).
(s) Member means an institution that has been approved for
membership in a Bank and has purchased capital stock in the Bank in
accordance with Secs. 933.20 or 933.24 of this part.
(t) Multifamily property means:
(1) Real property that is solely residential and includes five or
more dwelling units; or
(2) Real property that includes five or more dwelling units
combined with commercial units, provided that the property is primarily
residential; and
(3) Property that includes, but is not limited to, nursing homes,
dormitories and homes for the elderly.
(u) Nonperforming assets means the sum of loans and leases reported
on a regulatory financial report that have been past due for 90 days or
longer; loans and leases on a nonaccrual basis; restructured loans and
leases (not already reported as nonperforming); and foreclosed real
estate, except that nonperforming assets shall be as defined by the
National Credit Union Administration for credit union applicants.
(v) Nonresidential real property means real property that is not
used for residential purposes, including business or industrial
property, hotels, motels, churches, hospitals, educational and
charitable institution buildings or facilities, clubs, lodges,
association buildings, golf courses, recreational facilities, farm
property not containing a dwelling unit, or similar types of property,
except as otherwise determined by the Board, in its discretion.
(w) One-to-four family property means:
(1) Real property that is solely residential, including one-to-four
family dwelling units or more than four family dwelling units if each
dwelling unit is separated from the other dwelling units by dividing
walls that extend from ground to roof, such as row houses, townhouses
or similar types of property;
(2) Manufactured housing if applicable state law defines the
purchase or holding of manufactured housing as the purchase or holding
of real property;
(3) Individual condominium dwelling units or interests in
individual cooperative housing dwelling units that are part of a
condominium or cooperative building without regard to the number of
total dwelling units therein; or
(4) Real property which includes one-to-four family dwelling units
combined with commercial units, provided the property is primarily
residential.
(x) Primary regulator means the chartering authority for federally-
chartered applicants, the insuring authority for federally-insured
applicants that are not federally-chartered; or the appropriate state
agency for all other applicants.
(y) Regulatory examination rating means a rating of capital,
assets, management, earnings and liquidity following the guidelines of
the Uniform Financial Institutions Rating System contained in a written
report of examination conducted by the applicant's appropriate
regulator, including a CAMEL rating, a MACRO rating, or other similar
ratings.
(z) Regulatory financial report means a financial report that an
applicant is required to file with its primary regulator on a specific
periodic basis, including the quarterly call report for commercial
banks, thrift financial report for thrifts, quarterly or semi-annual
call report for credit unions, the National Association of Insurance
Commissioners' annual or quarterly report for insurance companies and
other similar reports.
(aa) Residential mortgage loan means any one of the following types
of domestic loans, whether or not fully amortizing:
(1) Home mortgage loans;
(2) Funded residential construction loans;
(3) Loans secured by manufactured housing whether or not defined by
state law as secured by an interest in real property;
(4) Loans secured by junior liens on one-to-four family property or
multifamily property;
(5) Qualified private activity exempt facility bonds where 95
percent or more of the net proceeds are used for the construction of
qualified residential rental projects as defined in 20 U.S.C.
142(a)(7);
(6) Mortgage pass-through securities representing an undivided
ownership interest in:
(i) Loans that meet the requirements of paragraphs (aa)(1) through
(4) of this section at the time of issuance of the security;
(ii) Securities representing an undivided ownership interest in
loans, provided that, at the time of issuance of the security, all of
the loans meet the requirements of paragraphs (r)(1) through (4) of
this section; or
(iii) Mortgage debt securities as defined in paragraph (aa)(7) of
this section;
(7) Mortgage debt securities secured by:
(i) Loans, provided that, at the time of issuance of the security,
all of the loans meet the requirements of paragraphs (aa)(1) through
(4) of this section;
(ii) Securities that meet the requirements of paragraph (aa)(6) of
this section; or
(iii) Securities secured by assets, provided that, at the time of
issuance of the security, all of the assets meet the requirements of
paragraphs (aa)(1) through (5) of this section; or
(8) Home mortgage loans secured by a leasehold interest, as defined
in paragraph (m)(1)(ii) of this section, except that the period of the
lease term may be for any duration.
(bb) State means a State of the United States, the District of
Columbia, Guam, Puerto Rico or the U.S. Virgin Islands.
(cc) Total assets means cash and balances due from depository
institutions, held to maturity securities, available-for-sale
securities, federal funds sold and securities purchased under
agreements to resell (in domestic subsidiaries), loans and lease
financing receivables, assets held in trading accounts (in domestic
offices of the company and its domestic subsidiaries), premiums and
fixed assets, other real estate owned, investments in unconsolidated
subsidiaries and associated companies, customers' liability to the
reporting bank on acceptances outstanding, intangible assets, and other
assets.
6. Subpart B of part 933 is revised to read as follows:
Subpart B--Membership Application Process
Sec. 933.2 Membership application requirements.
(a) Application. An applicant for membership in a Bank shall submit
to that Bank an application that satisfies the requirements of this
part. The application shall include a written certification by a
majority of the applicant's directors or by an individual with
authority to act on behalf of the applicant of the following:
[[Page 54973]]
(1) Applicant review. Applicant has reviewed the requirements of
this part and, as required by this part, has provided to the best of
applicant's knowledge the most recent, accurate and complete
information available; and
(2) Duty to supplement. Applicant will promptly supplement the
application with any relevant information that comes to applicant's
attention prior to the Bank's decision on whether to approve the
application, and if the Bank's decision is appealed pursuant to
Sec. 933.5 of this part, prior to resolution of any appeal by the
Board.
(b) Digest. The Bank shall prepare a written digest for each
applicant stating whether or not the applicant meets each of the
requirements in Secs. 933.6 to 933.18 of this part, the Bank's findings
and the reasons therefor.
(c) File. The Bank shall maintain a membership file for each
applicant for at least three years after the Bank decides whether to
approve membership and the resolution of any appeal to the Board. The
membership file shall contain at a minimum:
(1) Digest. The digest required by paragraph (b) of this section.
(2) Required documents. All documents required by Secs. 933.6 to
933.18 of this part, including those documents required to establish or
rebut a presumption under this part, shall be described in and attached
to the digest. If an applicant's primary regulator requires return of a
regulatory examination report, the date that the report is returned
shall be noted in the digest.
(3) Additional documents. Any document submitted by the applicant,
or otherwise obtained or generated by the Bank, concerning the
applicant.
(4) Decision resolution. Decision resolution described in
Sec. 933.3(b) of this part.
(d) Independent evaluation. The Bank shall use regulatory financial
reports and other sources independent of the applicant to evaluate and
analyze all conclusions offered by the applicant regarding the
applicant's eligibility for membership. No applicant shall be admitted
to membership until the Bank is satisfied that the applicant meets the
requirements of the Act and this part independent of any
representations by the applicant.
Sec. 933.3 Decision on application.
(a) Authority. The Board authorizes the Banks to approve or deny
all applications for membership, subject to Sec. 933.5 of this part.
The Bank may delegate the authority to approve membership applications
only to a committee of the Bank's board of directors, the Bank
president or a senior officer who reports directly to the Bank
president other than an officer with responsibility for business
development.
(b) Decision resolution. For each applicant, the Bank shall prepare
a resolution of its board of directors signed by a majority of the
directors or by an officer with delegated authority to approve
membership applications. The decision resolution shall state:
(1) That the information in the digest is accurate and is based on
a diligent and comprehensive review of all available information; and
(2) The Bank's decision and the reasons therefor. Decisions to
approve an application should specifically state that the applicant is
authorized under the laws of the United States and the laws of the
appropriate state to become a member of, purchase stock in, do business
with and maintain deposits in the Bank to which the applicant has
applied; and, that the applicant meets all of the membership
eligibility criteria of the Act and this part.
(c) Action on applications. The Bank shall act on an application
within 60 calendar days of the date the Bank deems the application to
be complete. Within three business days of a Bank's decision on an
application, the Bank shall provide the applicant and the Board's
Executive Secretary with a copy of the Bank's decision resolution.
Sec. 933.4 Automatic membership.
(a) Automatic membership for mandatory members. Any institution
required by law to become a member of a Bank automatically shall become
a member of the Bank of the district in which its principal place of
business is located upon the purchase of stock in that Bank pursuant to
Sec. 933.20(b)(1) of this part.
(b) Automatic membership for certain charter conversions. An
insured depository institution member that converts from one charter
type to another automatically shall become a member of the Bank of
which the converting institution was a member on the effective date of
such conversion, provided that the converting institution continues to
be an insured depository institution and the assets of the institution
immediately before and immediately after the conversion are identical.
In such case, all relationships existing between the member and the
Bank at the time of such conversion may continue.
(c) Automatic membership for transfers. Any member whose membership
is transferred pursuant to Sec. 933.18(d) of this part automatically
shall become a member of the Bank to which it transfers.
Sec. 933.5 Appeals.
(a) Appeals by applicants--(1) Filing procedure. Within 90 calendar
days of the date of a Bank's decision to deny an application for
membership, the applicant may file a written appeal of the decision
with the Board.
(2) Documents. The applicant's appeal shall be addressed to the
Executive Secretary, Federal Housing Finance Board, 1777 F Street,
N.W., Washington, D.C. 20006, with a copy to the Bank, and shall
include the following documents:
(i) Bank's decision. A copy of the Bank's decision resolution; and
(ii) Basis for appeal. A statement of the basis for the appeal by
the applicant with sufficient facts, information, analysis and
explanation to support the applicant's contentions.
(b) Appeals by Banks. Within 60 days of the date that a Bank grants
an application for membership, another Bank (appellant Bank) may file a
written appeal with the Board of the determination of the appropriate
district for membership pursuant to Sec. 933.18 of this part, by
writing to the Board's Executive Secretary with a copy to the Bank that
granted membership. The appeal shall include a statement of the basis
for appeal by the appellant Bank with sufficient facts, information,
analysis and explanation to support the appellant Bank's contentions.
(c) Record for appeal.--(1) Copy of membership file. Within five
business days of receiving an appeal, the Bank whose action has been
appealed (appellee Bank) shall provide the Board with a complete copy
of the applicant's membership file. Until the Board resolves the
appeal, the appellee Bank shall supplement the materials provided to
the Board as new materials are received.
(2) Additional information. The Board may request additional
information or further supporting arguments from the appellant, the
appellee Bank or any other party that the Board deems appropriate.
(d) Deciding appeals. The Board shall consider the record for
appeal described in paragraph (c) of this section and shall resolve the
appeal based on the requirements of the Act and this part within 90
calendar days of the date the appeal is filed with the Board. In
deciding the appeal, the Board shall follow the presumptions in this
part, unless the appellant or appellee Bank presents compelling
evidence to rebut a presumption.
[[Page 54974]]
7. Subpart C of part 933 is added to read as follows:
Subpart C--Eligibility Requirements
Sec. 933.6 General eligibility requirements.
(a) Requirements. Any building and loan association, savings and
loan association, cooperative bank, homestead association, insurance
company, savings bank, or insured depository institution, upon
application satisfying all of the requirements of the Act and this
part, shall be eligible to become a member of a Bank if:
(1) It is duly organized under the laws of any State of the United
States;
(2) It is subject to inspection and regulation under the banking
laws, or under similar laws, of any State or the United States;
(3) It makes long-term home mortgage loans;
(4) It has at least ten percent of its total assets in residential
mortgage loans;
(5) Its financial condition is such that advances may be safely
made to it;
(6) The character of its management is consistent with sound and
economical home financing; and
(7) Its home-financing policy is consistent with sound and
economical home financing.
(b) Ineligibility. Except as otherwise provided in this part, if an
applicant does not satisfy the requirements of this part, the applicant
is ineligible for membership.
Sec. 933.7 Duly organized requirement.
An applicant shall be deemed to be duly organized as required by
section 4(a)(1)(A) of the Act and Sec. 933.6(a)(1) of this part,
subject to rebuttal, if it is chartered by a state or federal agency as
a building and loan association, savings association, cooperative bank,
homestead association, insurance company, savings bank or insured
depository institution.
Sec. 933.8 Subject to inspection and regulation requirement.
An applicant shall be deemed to meet the inspection and regulation
requirement of section 4(a)(1)(B) of the Act and Sec. 933.6(a)(2) of
this part, subject to rebuttal, if it is inspected and regulated by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, the
National Credit Union Administration, the Office of the Comptroller of
the Currency, the Office of Thrift Supervision, a state insurance
commissioner or other state regulatory agency authorized to regulate
depository institutions or insurance companies.
Sec. 933.9 Makes long-term home mortgage loans requirement.
(a) Requirement. An applicant shall be deemed to meet the makes
long-term mortgage loans requirement of section 4(a)(1)(C) of the Act
and Sec. 933.6(a)(3) of this part, subject to rebuttal, if the
applicant originates or purchases long-term home mortgage loans.
(b) Ineligible. If an applicant does not satisfy the requirement in
paragraph (a) of this section, the applicant is ineligible for
membership, unless the Board, in its sole discretion, determines on
appeal, on the basis of additional information supplied by the
applicant or otherwise, that the applicant satisfies the requirements
of section 4(a)(1)(C) of the Act.
Sec. 933.10 Ten percent requirement.
(a) Insured depository institution applicants. Except as provided
in Sec. 933.14(b) of this part, an insured depository institution
applicant shall be deemed to be in compliance with the ten percent
requirement of section 4(a)(2)(A) of the Act and Sec. 933.6(a)(4) of
this part, subject to rebuttal, if, as of the date of the application,
the applicant had at least ten percent of its total assets, as reported
to its primary regulator, in residential mortgage loans, except that
any assets used to secure mortgage debt securities as described in
Sec. 933.1(aa)(7) of this part shall not be used to meet this
requirement.
(b) Noninsured depository institution applicants. A noninsured
depository institution applicant shall be deemed to be in compliance
with the 10 percent requirement of section 4(a)(2)(A) of the Act and
Sec. 933.6(a)(4) of this part, subject to rebuttal, if the applicant
has mortgage-related assets that reflect a commitment to housing
finance, as determined by the Board.
(c) Ineligible. If an applicant does not satisfy the requirements
of this section, the applicant is ineligible for membership, unless the
Board, in its sole discretion, determines on appeal, on the basis of
additional information supplied by the applicant or otherwise, that the
applicant otherwise satisfies the requirements of section 4(a)(2)(A) of
the Act.
Sec. 933.11 Financial condition requirement.
(a) Review requirement. Except as provided in Sec. 933.14 of this
part, in determining whether an applicant has complied with the
financial condition requirement of section 4(a)(2)(B) of the Act and
Sec. 933.6(a)(5) of this part, the Bank shall obtain as a part of the
membership application, and consider each of the following documents:
(1) Financial report. The regulatory financial reports for the last
six calendar quarters and three year-ends;
(2) Financial statement. The most recent annual audited financial
statement, or if unavailable, any other such independent external
annual financial report as the applicant's primary regulator may
require, or if unavailable, such financial statements as the applicant
may otherwise have available;
(3) Examination report. The most recent available regulatory
examination report, a summary of the applicant's strengths and
weaknesses as cited in the examination report, and a summary of actions
taken by the applicant to respond to examination weaknesses;
(4) Enforcement actions. A description of any outstanding
enforcement actions, responses by the applicant and reports as required
by the enforcement action; and
(5) Additional information. Any other relevant information that
comes to the Bank's attention or reasonably should come to the Bank's
attention in reviewing the applicant's financial condition.
(b) Standards. Except as provided in Secs. 933.14(a) and 933.16 of
this part, an applicant shall be deemed to be in compliance with the
financial condition requirement of section 4(a)(2)(B) of the Act and
Sec. 933.6(a)(5) of this part, subject to rebuttal, if:
(1) Recent examination. The applicant has received a composite
regulatory examination rating by its primary regulator within two years
from the date of application;
(2) Meets capital requirement. The applicant meets all of its
minimum statutory and regulatory capital requirements as reported in
its most recent quarter-end regulatory financial report filed with its
primary regulator; and
(3) Minimum performance standard. (i) The applicant's most recent
composite regulatory examination rating was ``1;'' or, was ``2'' or
``3'' and, based on the applicant's most recent regulatory financial
report, the applicant satisfied all of the following performance trend
criteria:
(A) Earnings. Applicant had positive annualized adjusted earnings
in four of the six most recent calendar quarters;
(B) Nonperforming assets. Applicant's nonperforming assets did not
exceed ten percent of its total assets in the most recent calendar
quarter; and
(C) Loan loss reserves. Applicant had a ratio of loan loss reserves
to nonperforming assets of 60 percent or greater during 4 of the 6 most
recent calendar quarters.
[[Page 54975]]
(ii) For applicants that are not required to report financial data
to their primary regulator on a quarterly basis, the information
required in paragraphs (b)(3)(i) of this section may be reported on a
semiannual basis.
(c) Eligible collateral not considered. The availability of
sufficient eligible collateral to secure advances to the applicant is
presumed and shall not be considered in determining whether an
applicant is in the financial condition required by Sec. 933.6(a)(5) of
this part.
Sec. 933.12 Character of management requirement.
(a) Review requirement. For each applicant, the Bank shall review:
(1) The names of directors and senior officers;
(2) The most recent regulatory financial report;
(3) The most recent audited financial statement, or if unavailable,
other such independent external financial report that the applicant's
primary regulator may require, or if unavailable, such financial
statements that the applicant may otherwise have available;
(4) Enforcement actions as described in paragraph (b)(1) of this
section;
(5) Certain pending criminal, civil or administrative matters as
described in paragraph (b)(2) of this section;
(6) Information concerning potential monetary liabilities, material
pending law suits or unsatisfied judgments as described in paragraph
(b)(3) of this section; and
(7) Any other document that comes to the Bank's attention or
reasonably should come to the Bank's attention in reviewing the
applicant's character of management.
(b) Standards. An applicant shall be deemed to be in compliance
with the character of management required by section 4(a)(2)(C) of the
Act and Sec. 933.6(a)(6) of this part, subject to rebuttal, if:
(1) No enforcement actions. Neither the applicant nor any of its
directors or senior officers is subject to, or operating under, any
enforcement action instituted by an appropriate regulator;
(2) No objectionable proceedings. Neither the applicant nor any of
its directors or senior officers has been the subject of any criminal,
civil or administrative proceedings reflecting upon creditworthiness,
business judgment, or moral turpitude since the most recent
examination; and
(3) No objectionable liabilities. There are no known or potential
civil, criminal or administrative monetary liabilities, material
pending law suits, or unsatisfied judgments against the applicant, its
directors or senior officers since the most recent examination; and
(4) Applicant certification. The applicant makes the unqualified
certification described in paragraph (c)(1) of this section.
(c) Applicant certification. Either a majority of the members of
the board of directors of the applicant, or an individual with
authority to act on behalf of the board of directors of the applicant
shall provide to the Bank:
(1) Unqualified certification. An unqualified written certification
that the statements submitted in response to the requirements of
paragraphs (b) (1) through (3) of this section are true and correct
without exception; or
(2) Qualified certification. A qualified written certification that
the statements submitted in response to the requirements of paragraphs
(b) (1) through (3) of this section are true and correct and detailed
explanations of any exceptions noted.
Sec. 933.13 Home financing policy requirement.
(a) Standards. An applicant shall be deemed to be in compliance
with the home financing policy requirement of section 4(a)(2)(C) of the
Act and Sec. 933.6(a)(7) of this part, subject to rebuttal, if the
applicant has received:
(1) Recent evaluation. A Community Reinvestment Act (CRA)
performance evaluation within four years from the date of application;
and
(2) Minimum rating. A CRA rating of ``Satisfactory'' or better in
the most recent compliance examination.
(b) Written justification required. An applicant that is not
subject to CRA or an applicant that received a ``needs to improve''
rating in its most recent CRA performance evaluation but has received a
``satisfactory'' or better rating on its prior CRA performance
evaluation, shall file as a part of its application, a written
justification that demonstrates how and why the applicant's home
financing credit policies and lending practices (if applicable) are
consistent with the Bank System's housing finance mission.
Sec. 933.14 De novo insured depository institution applicants.
An insured depository institution applicant that provides a Bank
with written confirmation from its primary regulator that it has been
chartered for less than three years or is otherwise considered to be a
de novo insured depository institution (de novo applicant) by the
applicant's primary regulator shall receive special consideration for
eligibility as follows:
(a) Financial condition--(1) Financial report. For purposes of
Sec. 933.11(a)(1) of this part, a de novo applicant that has not filed
regulatory financial reports for the last six calendar quarters and
three year-ends shall provide any regulatory financial reports the
applicant has filed.
(2) Financial statement. For purposes of Sec. 933.11(a)(2) of this
part, a de novo applicant shall provide the most recent annual audited
financial statement, or if unavailable other such independent external
annual financial report as the applicant's primary regulator may
require, or if unavailable, a de novo applicant shall, at a minimum,
provide financial reports for six calendar quarters of operation.
(3) Regulatory examination rating. For purposes of
Sec. 933.11(b)(1) of this part, if a de novo applicant has not yet
received a composite regulatory examination rating from its primary
regulator, the applicant shall provide a preliminary or informal
written regulatory examination rating from the applicant's primary
regulator, if a preliminary or informal rating is acceptable to the
Bank.
(4) Performance trends. A de novo applicant need not meet the
performance trend criteria in Sec. 933.11(b)(3)(i) of this part; if:
(i) Reports for six quarters. Applicant has completed regulatory
financial reports for at least six calendar quarters of operation; and
(ii) Business plan compliance. Applicant has provided written
confirmation from its primary regulator that applicant is in compliance
with the terms of its regulatory business plan; or applicant has
prepared a written analysis demonstrating that it is in substantial
compliance with its regulatory business plan as determined by the Bank.
(b) Home financing policy. For purposes of Sec. 933.13(b) of this
part, a de novo applicant that has not yet received a CRA performance
evaluation shall be deemed to have a home financing policy as required
by Sec. 933.6(a)(7) of this part if it has received a preliminary or
informal written CRA performance evaluation of ``Satisfactory'' or
better; or it has submitted a written justification acceptable to the
Bank of how the applicant intends to support the Bank System's housing
finance mission.
Sec. 933.15 Recent and pending merger applicants.
(a) Definitions--(1) Pending merger applicant means an institution
that meets both of the following tests:
(i) Timing test. The institution is a party to a merger or
acquisition agreement expected to be consummated within two calendar
quarters of submission of the membership application; and
(ii) Materiality test. The institution will account for 75 percent
or less of the
[[Page 54976]]
combined assets of the resulting entity at the time of the merger or
acquisition.
(2) Recent merger applicant means an institution that meets both of
the following tests:
(i) Timing test. The institution merged with or acquired another
institution within the six calendar quarters prior to submission of the
membership application; and
(ii) Materiality test. The institution accounts for 75 percent or
less of the combined assets of the resulting entity at the time of the
merger or acquisition.
(b) Review requirement. For each recent or pending merger
applicant, the digest shall include the following additional
information:
(1) The name of each entity involved and its charter type;
(2) A general statement of the financial condition of each entity;
(3) A brief statement of the business reasons for the merger or
acquisition; and
(4) The names and positions of management of the resulting entity.
(c) Standards. A recent or pending merger applicant shall be deemed
to be in compliance with section 4(a) of the Act and Sec. 933.6(a) of
this part, subject to rebuttal, only if the recent or pending merger
applicant satisfies the requirements of this part as modified and
supplemented by this section.
(1) Recent merger applicant financial condition--(i) Recent
examination and minimum performance standards. A recent merger
applicant that does not have a composite regulatory examination rating
subsequent to the merger or acquisition, shall satisfy the requirements
of Sec. 933.11(b) of this part on a combined basis and for each party
to the merger or acquisition, except an incumbent Bank member.
(ii) Performance trends. To the extent that a recent merger
applicant does not yet have regulatory financial reports for the six
most recent calendar quarters, the applicant shall prepare pro forma
combined financial statements for those calendar quarters in which an
actual combined regulatory financial report is unavailable to determine
whether the applicant meets the performance trend requirements of
Sec. 933.11(b)(3) of this part.
(2) Pending merger applicant financial condition--(i) Recent
examination and minimum performance standards. In lieu of a composite
regulatory examination rating for the combined entity, as required by
Sec. 933.11(b)(1) of this part, each party to the merger or
acquisition, except an incumbent Bank member, must satisfy all of the
requirements of Sec. 933.11(b) of this part.
(ii) Capital requirements and performance trends. In addition to
each party to a pending merger individually satisfying all of the
requirements of Sec. 933.11(b) of this part, the pending merger
applicant shall satisfy the requirements in Sec. 933.11(b) (2) and (3)
of this part as a combined entity based on pro forma combined financial
statements to be prepared by the applicant for the six most recent
calendar quarters.
(iii) Character of management. For purposes of Sec. 933.12 of this
part, the determination of the character of management of a recent or
pending merger applicant shall be based on an evaluation of the
directors and senior officers of the resulting entity.
(iv) Home financing policy. For a pending merger applicant or for a
recent merger applicant that does not yet have a CRA performance
evaluation on a combined basis for the merged entity, the determination
of whether the merger applicant's home financing policy satisfies the
requirements of Sec. 933.13 of this part, shall be based on a review of
the most recent CRA performance evaluation for each party to the merger
or acquisition.
Sec. 933.16 Financial condition standards for insurance company
applicants.
(a) Definitions. For purposes of this section:
(1) Adjusted liabilities means total statutory liabilities less
separate account liabilities, asset valuation reserves, and interest
maintenance reserves.
(2) Adjusted surplus means surplus plus asset valuation reserves
and interest maintenance reserves.
(3) Asset valuation reserves means reserves on the liability side
of the balance sheet that are established by the primary regulatory to
guard against fluctuations in the value of securities and to absorb all
unrealized capital gains and losses and certain realized gains and
losses on investment activity.
(4) Highly liquid assets means cash or cash equivalents readily
convertible to cash, including marketable Class 1 (highest investment
grade) publicly traded bonds, marketable preferred and common stock,
short-term investments, and investment income due.
(5) Interest maintenance reserves means reserves on the liability
side of the balance sheet that are established to hold the amount of
realized capital gains and losses on fixed income securities that
result from overall interest rates changes.
(6) Liquid assets means installment premiums booked but deferred
and not yet due, cash, accrued investment income, marketable Class 1
(highest investment grade quality) publicly traded bonds and marketable
Class 2 (high investment grade quality) publicly traded bonds,
marketable preferred and common stock, cash, short-term investments,
and investment income due, less investments in affiliated companies and
excess of real estate over five percent of liabilities.
(7) Net premiums written means the total consideration paid for an
insurance contract during a specified period of time, net of
reinsurance assumed and ceded.
(8) Reinsurance means transactions in which an assuming enterprise,
known as a reinsurer, assumes, for a premium, all or part of a risk
undertaken originally by another insurer.
(9) Reinsurance assumed means all premiums generated by policies
issued to assume a liability, in whole or part, of another insurer that
is already covering the risk with a policy.
(10) Reinsurance ceded means all premiums generated by policies or
coverage purchased from another insurer that transfer liability, in
whole or part, from direct or reinsurance policies.
(11) Reserves means funds set aside for possible losses on
insurance policies, annuities, claims unpaid, funds held for
policyholders, and deposit funds.
(12) Separate accounts means assets and liabilities maintained by
an insurance company predominately to fund fixed-benefit or variable
annuity contracts and pension plans. The contract holder assumes the
investment risk while the insurance company receives a fee for managing
or maintaining the investments.
(13) Statutory liabilities means the total of funds set aside to
pay future claims and operating expenses, including separate account
liabilities and funds held for the benefit of others, as established
under the accounting rules and techniques permitted by the National
Association of Insurance Commissioners. Examples of statutory
liabilities are policy reserves, premiums collected in advance,
commission and expenses payable, and provisions for policyholder
dividends.
(14) Surplus means the total of common and preferred capital stock,
aggregate write-ins for other than special surplus funds, gross paid-in
and contributed surplus, surplus notes and unassigned funds less
treasury stock.
(15) Tabular interest means interest, required by the primary
regulator, to be set aside to cover all contractual obligations.
(b) Performance standards. An insurance company applicant shall be
[[Page 54977]]
deemed to meet the financial condition requirement of section
4(a)(2)(B) of the Act and Sec. 933.6(a)(5) of this part, subject to
rebuttal, if:
(1) Recent examination and rating. The applicant has received a
regulatory examination by its primary regulator and a composite
independent insurance company rating from A.M. Best Company, Duff &
Phelps, Inc., Moody's Investor Service, Inc., Standard & Poor's Corp.
or Weiss Research Inc. within three years of the date of application;
(2) Satisfactory examination. The applicant's most recent
regulatory examination by its primary regulator indicates no major
adverse findings pertaining to the company's financial condition;
(3) Meets capital requirements. The applicant meets all of its
minimum statutory and regulatory capital requirements and the capital
standards established by the National Association of Insurance
Commissioners as reported in the applicant's most recent regulatory
financial report filed with its primary regulator;
(4) Minimum performance standard--(i) Strong rating. The
applicant's most recent composite independent insurance company rating
was:
(A) A.M. Best Company: ``A-'' or above;
(B) Duff & Phelps, Inc.: ``AA-'' or above;
(C) Moody's Investor Service, Inc.: ``Aa'' or above;
(D) Standard & Poor's Corp.: ``AA'' or above; or
(E) Weiss Research, Inc.: ``A''; or
(ii) Adequate rating and earnings--(A) Adequate rating. The
applicant's most recent composite independent insurance company rating
was:
(1) A.M. Best Company: ``C+'' to ``B++'';
(2) Duff & Phelps, Inc.: ``BB-'' to ``A+'';
(3) Moody's Investor Service, Inc.: ``Ba'' to ``A'';
(4) Standard & Poor's Corp.: ``BB'' to ``A''; or
(5) Weiss Research, Inc.: ``B'' or ``C''; and
(B) Earnings. The applicant had positive annualized adjusted
earnings in two of the three most recent calendar years; and
(5) Minimum performance ratios. The applicant meets the minimum
performance ratios in paragraph (b)(5)(ii) of this section during the
most recent year-end or quarter-end period.
(i) Definitions. For purposes of this paragraph (b)(5):
(A) Traditional life insurance products means insurance business
that consists of individual term life insurance contracts, individual
permanent fixed value life insurance contracts, or policies that
consist of fixed premiums, fixed dollar amounts of contract, or fixed
reserves (cash value) established by each state.
(B) Interest sensitive life insurance products (universal or whole
life) means insurance business that consists of individual life
insurance policies characterized by flexible premiums, dollar amounts
of contract that can vary, and reserves which represent a pool of
assets such as mutual funds that are held for the benefit of, and
support the investment return to, policy holders.
(C) Accident and health insurance products (indemnity) means
insurance business that consists of coverage for care such as basic
hospital expense, basic surgical expense, dental care, specific
hospital reimbursement, long-term nursing home or home care expenses
for the aged or disabled, major medical expense, and Medicare
supplemental insurance.
(D) Individual and group annuity insurance products means insurance
business that consists of contracts that accumulate and disburse
retirement benefits to individual policyholders or to companies for
their employees, hold pension deposit funds or distribute and hold
funds under guaranteed interest contracts.
(E) Disability income insurance products means insurance business
that consists of contracts that pay income periodically to insureds who
are unable to work as a result of sickness or injury.
(F) Property insurance products means insurance business that
consists of policies where the majority of premiums go to cover losses
to real property, automobiles or similar tangible assets.
(G) Liability insurance products means insurance business that
consists of policies that cover losses arising from actions taken by
individuals or companies, including losses from litigation or mutual
agreements as to the amount of a claim such as product liability,
medical malpractice and worker's compensation.
(ii) Overall minimum performance ratios.--(A) Premium to surplus
ratio. (1) Calculation. Divide net premiums written by total capital
and surplus.
(2) Standard. The applicant's net premiums may not exceed three
times the level of capital and surplus.
(B) Change in net premiums written ratio.--(1) Calculation. Divide
the change in net premiums written between the two most recent
consecutive calendar years by the total net premiums written in the
first year.
(2) Standard. The applicant's ratio must be between -10 percent and
+50 percent.
(C) Surplus relief ratio.--(1) Calculation. Divide the net of
commissions and expenses generated by reinsurance ceded and assumed by
total capital and surplus.
(2) Standard. The applicant's ratio must be less than 30 percent.
(D) Adequacy of investment income ratio.--(1) Calculation. Divide
net investment income by the sum of total tabular interest required on
life insurance, accident and health reserves, and total interest
credited on funds held on deposit.
(2) Standard. The applicant's net investment income must provide no
less than 1.25 times the coverage on total funds held in reserves to
pay interest on contractual obligations and funds held on deposit.
(E) Change in capital and surplus ratio.--(1) Calculation. Divide
the net change in capital and surplus between the two most recent
consecutive calendar years, by total capital and surplus in the first
year.
(2) Standard. The applicant's ratio must be between -10 percent and
+50 percent.
(iii) Solvency ratios.--(A) Highly liquid ratio.--(1) Calculation.
Divide highly liquid assets by annuity and deposit fund reserves less
reserves with no withdrawal privileges, separate accounts and
reinsurance.
(2) Standard. The applicant's ratio must be no less than:
(i) 75 percent on traditional life insurance products;
(ii) 85 percent on interest sensitive life insurance products;
(iii) 85 percent on individual annuity insurance products;
(iv) 100 percent on group annuity insurance products;
(v) 79 percent on property and liability insurance products;
(vi) 75 percent on accident and health insurance products; and
(vii) 50 percent on disability income insurance products.
(B) Current ratio.--(1) Calculation. Divide liquid assets by
annuity, ordinary life, and deposit fund reserves, less reserves with
no withdrawal privileges, separate accounts, reinsurance, and policy
loans.
(2) Standard. The applicant's ratio must be no less than:
(i) 60 percent on traditional life insurance products;
(ii) 75 percent on interest sensitive life insurance products;
(iii) 75 percent on individual and group annuity insurance
products;
(iv) 87 percent on property and liability insurance products;
[[Page 54978]]
(v) 75 percent on accident and health insurance products; and
(vi) 50 percent on disability income insurance products.
(C) Adjusted liabilities to adjusted surplus ratio.--(1)
Calculation. Divide adjusted liabilities by adjusted surplus.
(2) Standard. The applicant's ratio must not exceed:
(i) 10 to 1 on traditional life insurance products;
(ii) 10 to 1 on interest sensitive life insurance products;
(iii) 10 to 1 on individual and group annuity insurance products;
(iv) 3 to 1 on property and liability insurance products;
(v) 3 to 1 on accident and health insurance products; and
(vi) 5 to 1 on disability income insurance products.
Sec. 933.17 Rebuttable presumptions.
(a) Overcoming presumptive compliance. The presumption that an
applicant meeting the standards described in Secs. 933.7 to 933.16 of
this part is in compliance with the Act and Sec. 933.6(a) of this part,
may be overcome if the Bank obtains compelling evidence to the
contrary.
(b) Overcoming presumptive noncompliance. An applicant that does
not meet all of the standards in Secs. 933.7 to 933.16 of this part, or
that is unable to provide the information required to evaluate whether
or not it meets those standards, shall be deemed not to be in
compliance with the Act and Sec. 933.6(a) of this part unless the
applicant rebuts the presumption, as described in this section, and the
Bank determines that the applicant has complied with the Act and
Sec. 933.6(a) of this part.
(c) Noncompliance with financial condition standards.--(1)
Compelling written justification. For each variance from the minimum
regulatory examination rating required by Sec. 933.11(b)(3) of this
part, an applicant shall prepare a written justification that provides
compelling evidence that the applicant is in the financial condition
required by Sec. 933.6(a)(4) of this part, notwithstanding the
variance.
(2) Substantial written justification. For each variance from a
performance criterion required by Sec. 933.11(b)(3), of this part, the
applicant shall prepare a written justification pertaining to that
performance criterion that provides substantial evidence that the
applicant is in the financial condition required by Sec. 933.6(a)(4) of
this part, notwithstanding the variance.
(d) Noncompliance with character of management standards.--(1)
Enforcement actions. If an applicant or any of its directors or senior
officers is subject to or operating under an enforcement action, the
applicant shall provide:
(i) Regulator confirmation. Written confirmation from the
applicant's appropriate regulator that the applicant or its directors
or senior officers are in substantial compliance with all aspects of
the enforcement action; or
(ii) Written analysis. A written analysis stating each action the
applicant or its directors or senior officers is required to take by
the enforcement action, the actions actually taken by the applicant or
its directors or senior officers, and whether the applicant regards
this as substantial compliance. If the Bank is uncertain whether the
applicant has substantially complied with all aspects of the
enforcement action, the Bank shall consult the applicant's appropriate
regulator.
(2) Certain criminal, civil or administrative proceedings. If an
applicant or any of its directors or senior officers is subject to
criminal, civil or administrative proceedings that reflect on
creditworthiness, business judgment or moral turpitude since the last
examination, the applicant shall provide:
(i) Regulator confirmation. Written confirmation from the
applicant's primary regulator that the proceedings will not likely
result in enforcement action; or
(ii) Written analysis. A written analysis of the severity of the
pending charges and any mitigating action taken by the applicant or its
directors or senior officers. If the Bank is uncertain whether the
proceedings will result in enforcement action, the Bank shall consult
the applicant's primary regulator.
(3) Material monetary liabilities. If there are any material known
or potential civil, criminal or administrative monetary liabilities,
pending law suits, or unsatisfied judgments against the applicant or
its directors or senior officers as of the most recent quarter-end, the
applicant shall provide:
(i) Regulator confirmation. Written confirmation from the
applicant's primary regulator that the matter will not likely cause the
applicant to fall below its minimum capital requirements; or
(ii) Written analysis. A written analysis of each matter, the
likelihood of the applicant or its directors or senior officers
prevailing and the financial consequences if the applicant or its
directors or senior officers do not prevail. If the Bank is uncertain
whether the matter will cause the applicant to fall below its minimum
capital requirements, the Bank shall consult the applicant's primary
regulator.
(e) Noncompliance with home financing policy standards. If an
applicant received a ``substantial non-compliance'' rating on its most
recent CRA performance evaluation, two consecutive ``needs to improve''
CRA ratings, or has not received a CRA performance evaluation within
four years from the date of the membership application, the applicant
shall provide:
(1) Regulator confirmation. Written confirmation from the
applicant's primary regulator of the applicant's recent satisfactory
CRA performance, including any corrective action that substantially
improved upon the deficiencies cited in any recent CRA performance
evaluation; or
(2) Written analysis. A written analysis demonstrating that the CRA
rating is unrelated to housing finance, or providing substantial
evidence that the applicant's home financing credit policies and
lending practices (if applicable) are consistent with the Bank System's
housing finance mission.
Sec. 933.18 Determination of appropriate Bank district for membership.
(a) Eligibility. (1) An institution eligible to become a member of
a Bank under the Act and this part may become a member only of the Bank
of the district in which the institution's principal place of business
is located, except as provided in paragraph (a)(2) of this section.
(2) An institution eligible to become a member of a Bank under the
Act and this part may become a member of the Bank of a district
adjoining the district in which the institution's principal place of
business is located, if demanded by convenience and then only with the
approval of the Board.
(b) Principal place of business. Except as otherwise designated in
accordance with this section, the principal place of business of an
institution is the state in which the institution maintains its home
office established as such in conformity with the laws under which the
institution is organized.
(c) Designation of principal place of business. (1) A member or an
applicant for membership may request in writing to the Bank in the
district where the institution maintains its home office that a state
other than the state in which it maintains its home office that a state
other than the state in which it maintains its home office be
designated as its principal place of business. Within 90 days of
receipt of such written request, the board of directors of the Bank in
the district where the
[[Page 54979]]
institution maintains its home office shall designate a state other
than the state where the institution maintains its home office as the
institution's principal place of business, provided all of the
following criteria are satisfied:
(i) At least 80 percent of the institution's accounting books,
records and ledgers are maintained, located or held in such designated
state;
(ii) A majority of meetings of the institution's board of directors
and constituent committees are conducted in such designated state; and
(iii) A majority of the institution's five highest paid officers
have their place of employment located in such designated state.
(2) Written notice of a designation made pursuant to paragraph
(c)(1) of this section shall be sent to the Bank in the district
containing the designated state, the Board and the institution.
(3) The notice of designation made pursuant to paragraph (c)(1) of
this section shall include the state designated as the principal place
of business and the resulting Bank to which membership will be
transferred.
(4) If the board of directors of the Bank in the district where the
institution maintains its home office fails to make the designation
requested by the member or applicant pursuant to paragraph (c)(1) of
this section, then the member or applicant may request in writing that
the board make the designation.
(d) Transfer of membership. (1) No transfer of membership from one
Bank to another Bank shall take effect until the Banks involved reach
agreement on a method of orderly transfer.
(2) In the event that the Banks involved fail to agree on a method
of orderly transfer, the Board shall determine the conditions under
which the transfer shall take place.
(e) Effect of transfer. A transfer of membership pursuant to this
section shall be effective for all purposes including directorial
representation under section 7(c) of the Act, 12 U.S.C. 1427(c), and
Sec. 932.11 of this chapter, but shall not be subject to the provisions
on termination of membership set forth in section 6 of the Act, 12
U.S.C. 1426, or Secs. 933.26, 933.27 and 933.29 of this part, including
the restriction on reacquiring Bank membership set forth in Sec. 933.30
of this part.
8. In the list below, for each section indicated in the left
column, remove the reference indicated in the middle column from where
it appears and add the reference indicated in the right column:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Section Remove - Add
--------------------------------------------------------------------------------------------------------------------------------------------------------
933.20(b)(1).......................... Secs. 933.2(c) or 933.3..................................... Sec. 933.3 -
Sec. 933.2(d)............................................... Sec. 933.4(a)
933.20(b)(2).......................... Sec. 933.2(d)............................................... Sec. 933.4(a)
933.22(b)(1).......................... Sec. 933.7(a)............................................... Sec. 933.20(a)
Sec. 933.18(d).............................................. Sec. 933.31(d)
933.23................................ Sec. 933.7(a)............................................... Sec. 933.20(a)
933.24(a)(2).......................... Sec. 933.7(a)............................................... Sec. 933.20(a)
933.24(b)(2).......................... Sec. 933.16................................................. Sec. 933.29
933.25(c)............................. Sec. 933.2.................................................. Subpart B
933.25(d)(2)(ii) (A) and (B).......... Sec. 933.7(a)............................................... Sec. 933.20(a)
933.25(d)(3).......................... Sec. 933.16................................................. Sec. 933.29
933.26(c)............................. Sec. 933.16................................................. Sec. 933.29
933.27(e)............................. Sec. 933.16................................................. Sec. 933.29
933.28(b)............................. Sec. 933.16................................................. Sec. 933.29
933.29(a)(1).......................... Secs. 933.13, 933.14 or 933.15.............................. Secs. 933.26, 933.27 or 933.28
Secs. 933.11(b) or 933.12(d)(3)............................. Secs. 933.24(b) or 933.25(d)(3)
933.30 introductory text.............. Sec. 933.13................................................. Sec. 933.26
933.30(a)............................. Sec. 933.5.................................................. Sec. 933.18
933.30(b)............................. Sec. 933.2(d)............................................... Sec. 933.4(a)
933.31(d)............................. Sec. 933.9(b)(1)............................................ Sec. 933.22(b)(1)
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Dated: October 5, 1995.
By the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 95-25823 Filed 10-26-95; 8:45 am]
BILLING CODE 6725-01-U
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