issue-1995-12-15•Federal Register proposed rules — 1995-12-15
Federal Register proposed rules — 1995-12-15
issue-1995-12-15Federal Register proposed rules — 1995-12-15Proposed 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. 95-30601 Toxic Chemical Release Reporting; Community Right-to-Know; Reopening of Public Comment Period; Correction
[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Proposed Rules]
[Pages 64407-64408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30601]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 372
[OPPTS-400097B; FRL-4991-4]
Toxic Chemical Release Reporting; Community Right-to-Know;
Reopening of Public Comment Period; Correction
AGENCY: Environmental Protection Agency (EPA).
ACTION: Reopening of public comment period; correction.
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SUMMARY: In the Federal Register of October 27, 1995, EPA published an
administrative stay of the reporting requirements under section 313 of
the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA)
and section 6607 of the Pollution Prevention Act of 1990 (PPA), for
2,2-dibromo-3-nitrilopropionamide (DBNPA) (Chemical Abstracts Service
(CAS) No. 10222-01-2). The administrative stay also requested comment
on EPA's review of a petition to delete DBNPA from the EPCRA section
313 list of toxic chemicals. The period for accepting comments on EPA's
review of the petition ended on November 27, 1995. EPA has received a
request to extend the comment period and is granting that request by
reopening the comment period for 45 days. In addition, this document
corrects an error in the October 27, 1995 notice. The green algal
toxicity value was incorrectly listed.
DATES: All comments must be received on or before January 29, 1996.
ADDRESSES: Written comments should be submitted in triplicate to : OPPT
Docket Clerk (7407), TSCA Nonconfidential Information Center (NCIC),
Office of Pollution Prevention and Toxics, Environmental Protection
Agency, Rm. NE-B607, 401 M St., SW., Washington, DC 20460.
Comments and data may also be submitted electronically by sending
electronic mail (e-mail) to: [email protected]. Electronic comments
must be submitted as an ASCII file avoiding the use of special
characters and any form of encryption. Comments and data will also be
accepted on disks in WordPerfect in 5.1 file format or ASCII file
format. All comments and data in electronic form must be identified by
the docket number OPPTS-400097. No CBI should be submitted through e-
mail. Electronic comments on the information presented in this document
may be filed online at many Federal Depository Libraries.
FOR FURTHER INFORMATION CONTACT: Maria J. Doa, Project Manager, 202-
260-9592, e-mail: [email protected] for specific information on
this action. For general information on EPCRA section 313, contact the
Emergency Planning and Community Right-to-Know Hotline, Environmental
Protection Agency, Mail Code 5101, 401 M St., SW., Washington, DC
20460, Toll free: 1-800-535-0202, in Virginia and Alaska: 703-412-9877
or Toll free TDD: 1-800-553-7672.
SUPPLEMENTARY INFORMATION: In the Federal Register of October 27, 1995
(60 FR 54949), EPA published an administrative stay of the reporting
requirements under section 313 of EPCRA and section 6607 of the
Pollution Prevention Act of 1990 (PPA) for DBNPA. EPA issued the
administrative stay because EPA had incorrectly categorized the effects
observed in certain data relating to DBNPA prior to promulgation of the
final rule adding DBNPA to the EPCRA section 313 list of toxic
chemicals.
The document also requested comment on EPA's review of a petition
to delete DBNPA from the EPCRA section 313 list of toxic chemicals. EPA
preliminarily determined that DBNPA can reasonably be anticipated to
cause subchronic gastrointestinal effects, and can reasonably be
anticipated to cause toxicity to freshwater green algae, chronic
effects on freshwater invertebrates and chronic effects on oysters at
relatively low concentrations. The period for accepting comments on
EPA's review of the petition ended November 27, 1995. EPA has received
a request to extend the comment period and is granting that request by
reopening the comment period for 45 days. In addition, this notice
corrects an error in the October 27, 1995 document. The green algal
toxicity value was incorrectly listed.
I. Reopening of Public Comment Period
In the Federal Register of October 27, 1995, EPA requested public
comment on the information presented in the document regarding the
continued listing of DBNPA on the EPCRA section 313 list of toxic
chemicals. In that notice, EPA stated that all comments must be
received on or before November 27, 1995. In response to a request from
Dow Chemical Company to extend the comment period, EPA is reopening the
comment period for an additional 45 days. All comments must be received
on or before January 26, 1996.
II. Green Algal Toxicity Value Correction
In the October 27, 1995 Federal Register, on page 54951, first
column, second full paragraph, 24th line, the green algal 96-hour
EC50 (median effective concentration) for DBNPA was incorrectly
listed as ``0.010 mg/L ''; the value should have read 0.08 mg/L.
III. Public Docket
A record has been established for the administrative stay under
docket number ``OPPTS-400097'' (including comments and data submitted
electronically as described below). A public version of this record,
including printed, paper versions of electronic comments, which does
not include any information claimed as confidential business
information (CBI), is available for inspection from noon to 4 p.m.,
Monday through Friday, excluding legal holidays. The public record is
located in the TSCA Nonconfidential Information Center, Rm. NE-B607,
401 M St., SW., Washington, DC 20460.
Electronic comments can be sent directly to EPA at:
[email protected]
Electronic comments must be submitted as an ASCII file avoiding the
use of special characters and any form of encryption.
The official record for the administrative stay, as well as the
public version, as described above will be kept in paper form.
Accordingly, EPA will transfer all comments received electronically
into printed, paper form as they are received and will place the paper
copies in the official record which will also include all comments
submitted directly in writing. The official record is the paper record
maintained at the address in ``ADDRESSES'' at the beginning of this
document.
List of Subjects in 40 CFR Part 372
Environmental protection, Chemicals, Community right-to-know,
Reporting
[[Page 64408]]
and recordkeeping requirements, and Toxic chemicals.
Dated: December 8, 1995.
William H. Sanders III,
Director, Office of Pollution Prevention and Toxics.
[FR Doc. 95-30601 Filed 12-14-95; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 95-30554 Clean Air Act (CAA) Proposed Interim Approval of Operating Permits Program and Delegation of 112(l) Authority; State of Missouri
[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Proposed Rules]
[Pages 64403-64407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30554]
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[[Page 64404]]
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 70
[AD-FRL-5346-6]
Clean Air Act (CAA) Proposed Interim Approval of Operating
Permits Program and Delegation of 112(l) Authority; State of Missouri
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed interim approval.
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SUMMARY: The EPA proposes interim approval of the operating permits
program submitted by the state of Missouri for the purpose of complying
with Federal requirements for states which develop, and submit to EPA,
programs for issuing operating permits to all major stationary sources
and to certain other sources. This notice explains EPAs rationale for
the proposed action, and identifies revisions to the program which must
be made before EPA can take final action to fully approve it.
DATES: Comments on this proposed action must be received in writing by
January 16, 1996.
ADDRESSES: Comments should be addressed to Joshua A. Tapp, U.S.
Environmental Protection Agency, Region VII, Air Branch, 726 Minnesota
Avenue, Kansas City, Kansas 66101.
Copies of the Missouri submittal and other supporting information
used in developing the proposed interim approval are available for
inspection during normal business hours at the U.S. Environmental
Protection Agency, Region VII, Air Branch, 726 Minnesota Avenue, Kansas
City, Kansas 66101.
FOR FURTHER INFORMATION CONTACT: Joshua Tapp at (913) 551-7606.
SUPPLEMENTARY INFORMATION:
I. Background and Purpose
A. Introduction
As required under Title V of the Clean Air Act (the Act) as amended
(1990), EPA has promulgated rules which define the minimum elements of
an approvable state operating permits program, and the corresponding
standards and procedures by which 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 one year after receiving the submittal. The 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 two years. If EPA has not fully approved a program by
two years after the November 15, 1993, date, or by the end of an
interim period, it must establish and implement a Federal program.
B. Federal Oversight and Sanctions
If EPA were to finalize this proposed interim approval, it would
extend for 18 months following the effective date of final interim
approval and could not be renewed. During the interim approval period,
the state of Missouri would be protected from sanctions for failure to
have an approved program, and EPA would not be obligated to promulgate,
administer, and enforce a Federal permits program for Missouri. Permits
issued under a program with interim approval have full standing with
respect to part 70, and the one-year time period for submittal of
permit applications by subject sources begins upon the effective date
of interim approval, as does the three-year time period for processing
the initial permit applications.
Following the final interim approval, if Missouri has failed to
submit a complete corrective program for full approval by the date six
months before expiration of the interim approval, an 18-month clock for
mandatory sanctions would commence. If Missouri then failed to submit a
corrective program that EPA found complete before the expiration of
that 18-month period, EPA would apply sanctions as required by section
502(d)(2) of the Act, which would remain in effect until EPA determined
that the state of Missouri had corrected the deficiency by submitting a
complete corrective program.
If, following final interim approval, EPA were to disapprove
Missouri's complete corrective program, EPA would be required under
section 502(d)(2) to apply sanctions on the date 18 months after the
effective date of the disapproval, unless prior to that date Missouri
had submitted a revised program and EPA had determined that it
corrected the deficiencies that prompted the disapproval.
If EPA has not granted full approval to Missouri's program by the
expiration of an interim approval, EPA must promulgate, administer, and
enforce a Federal permits program for Missouri upon interim approval
expiration.
II. Proposed Action and Implications
A. Analysis of Submission by State Authority
The analysis contained in this notice focuses on specific elements
of the Missouri Department of Natural Resources (MDNR) Title V
operating permits program that must be corrected to meet the minimum
requirements of part 70. The full program submittal; the Technical
Support Document (TSD), which contains a detailed analysis of the
submittal; and other relevant materials are available for inspection as
part of the public docket. The docket may be viewed during regular
business hours at the address listed above.
1. Support Materials
The Governor of Missouri submitted an administratively and
technically complete Title V Operating Permit Program on January 13,
1995. The EPA deemed the program submittal complete on March 2, 1995.
At EPA's request, the State provided supplemental program information
on August 14, 1995; September 19, 1995; and October 16, 1995.
The program submittal includes a legal opinion from the Attorney
General of Missouri stating that the laws of the State provide adequate
legal authority to carry out all aspects of the program, and a
description of how the state intends to implement the program. The
submittal additionally contains evidence of proper adoption of the
program regulations, permit application forms, a data management
system, and a permit fee demonstration.
2. Program Description
The Governor's letter states that the entire geography of Missouri
will be covered by this program. There are no Indian tribal lands in
Missouri. The letter also states that MDNR will be the official
permitting authority responsible for implementation of the program.
Finally, the state requested approval and delegation of authority to
implement section 112(l) of the Act.
In addition to the state's part 70 permit rules, the state has
established a State Implementation Plan (SIP) based permit system for
creating Federally enforceable limitations, called the intermediate
program. This permit mechanism will allow qualifying sources to avoid
having to obtain a part
[[Page 64405]]
70 operating permit. The EPA published a direct final approval of this
program in the Federal Register on September 25, 1995 (60 FR 49340).
Finally, Missouri will issue a third class of permit to all other air
emission sources that meet or exceed the de minimis levels, yet fall
below the major source threshold. This third class of source will
require a basic permit. The basic operating permit program is not a
Federal program and has not been submitted to EPA for approval.
The state has been collecting emission fees for two years, which
have been used for ``ramp-up'' activities, including the hiring of
additional staff. The state emissions fee is currently set at $25.70
per ton, which may be adjusted by the Missouri Air Conservation
Commission through an administrative revision of rule 10 CSR 10-6.110.
The state provided a resource demonstration, discussed later, to
justify deviating from the presumptive minimum of $25 per ton, Consumer
Price Index (CPI) adjusted. The state is also authorized under its
statute to collect fees for non-Title V program activities.
The program submittal also contains information on the
organizational structure and function of the components of the air
program, including the regional and local offices which are available
to assist in implementation of the program.
3. Regulations and Program Implementation
The Missouri program, including the core operating permit
regulations, 10-CSR 6.065 (Division 10, Chapter 6, MDNR) substantially
meets the minimum requirements for interim approval as they are denoted
in 40 CFR part 70.4(d)(3). These requirements pertain to: (1) Adequate
fees, (2) applicable requirements, (3) fixed terms, (4) public
participation, (5) EPA and affected state review, (6) permit issuance,
(7) enforcement, (8) operational flexibility, (9) streamlined
procedures, (10) permit application, and (11) alternative scenarios.
However, Missouri must make the following program revisions for
full approval: (1) Revise its definitions rule, 10 CSR 10-6.020 to: (a)
revise (2)(I)7 to update a reference to the Standard Industrial
Classification Manual, and (b) revise (3)(B), Table 2--List of Named
Installations, to make it consistent with the list in the definition of
major source in 70.2; (2) revise rule 10 CSR 10-6.065, Operating
Permits by: (a) revising (1)(D)2 to clarify the meaning of ``fugitive
air pollutant'' as it relates to part 70 installations; (b) revise
(3)(D) to clarify part 70 applicability with respect to emissions from
exempt installations and emission units; (c) revise (6)(C)1.C.(II)(b)
to clarify the retention of record requirements in permits, consistent
with 70.6(a)(3); (d) revise (6)(C)1.G.(I) to clarify the general
requirements for permit compliance and noncompliance, consistent with
70.6(a)(6); (e) revise (6)(C)4.A. to correct a citation error and to
clarify that the requirement for EPA and affected state review applies
to general permits, consistent with 70.6(d)(1); (f) revise
(6)(C)7.B.(IV) to make the emergency provision notice consistent with
70.6(g)(3); (g) revise (6)(C)8, operational flexibility provisions, to
clarify the term ``emissions allowable under the permit''; (h) revise
(6)(E)5.B.(I), minor permit modification criteria, to be consistent
with 70.7(e)(2)(I)(A)(3); (i) revise (6)(E)5.B.(I) to add a paragraph
(b) to incorporate the economic incentive provisions consistent with
70.7(e)(2)(I)(B); (j) revise (6)(E)5.C.(I)(b) to correct the threshold
for group processing of minor permit modifications to be consistent
with 70.7(e)(2)(I)(B); and (k) revise (6)(E)5.D.(II)(a), significant
permit modification procedures, to be consistent with 70.4(b)(2) and
70.5(c), and make minor citation corrections to rules (6)(B)3.I.(IV),
(6)(E)5.B.(II)(a), (6)(E)5.C.(V), and (6)(E)6.C. A detailed discussion
of the necessary rule revisions is included in the TSD, and in the
docket for this rulemaking. In addition, the rule changes proposed by
Missouri to meet the requirements noted above are included in the
docket.
Missouri has the authority to issue a variance from state
requirements under section 643.110 of the state statutes. This
provision was not included by the state in its operating permit program
submittal, and EPA regards this provision as wholly external to the
program submitted for approval under part 70, and consequently is
proposing to take no action on this provision of state law. The EPA has
no authority to approve provisions of state law, such as the variance
provision referred to, which are inconsistent with the Act. The EPA
does not recognize the ability of a permitting authority to grant
relief from the duty to obtain or comply with a Federally enforceable
part 70 permit, except where such relief is granted through the
procedures allowed by part 70. A part 70 permit may be issued or
revised (consistent with part 70 permitting procedures) to incorporate
those terms of a variance that are consistent with applicable
requirements. A part 70 permit may also incorporate, via part 70 permit
issuance or modification procedures, the schedule of compliance set
forth in a variance. However, EPA reserves the right to pursue
enforcement of applicable requirements, notwithstanding the existence
of a compliance schedule in a permit to operate. This is consistent
with 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.''
4. Fee Demonstration
The state provided a detailed fee demonstration because the
emissions fee, $25.70 per ton (not adjusted), is below the presumptive
minimum of $25 plus CPI. The fee demonstration included a detailed
analysis of projected hourly program requirements and costs for each of
the next four years. An emission inventory of Title V sources for two
preceding years (1993 and 1994) and emissions fees collected was also
provided. Missouri describes a cash receipts system that identifies
Title V fee receipts, a time accounting system that tracks Title V
program labor costs, and an accounts payable system that tracks Title V
program expenses.
5. Provisions Implementing the Requirements of Other Titles of the Act
a. Authority and/or commitments for section 112 implementation.
Missouri has demonstrated in its program submittal adequate legal
authority to implement and enforce all section 112 requirements through
the Title V permit. This legal authority is contained in Missouri's
enabling legislation and in regulatory provisions defining ``applicable
requirements,'' and states that the permit must incorporate all
applicable requirements. EPA has determined that this legal authority
is sufficient to allow Missouri to issue permits that ensure compliance
with all section 112 requirements. The EPA is interpreting the above
legal authority to mean that Missouri is able to carry out all section
112 activities. For further rationale on this interpretation, please
refer to the TSD accompanying this rulemaking and the April 13, 1993,
guidance memorandum titled ``Title V Program Approval Criteria for
Section 112 Activities,'' signed by John Seitz.
b. Section 112(g) Case-by-Case Maximum Achievable Control
Technology (MACT) For Modified/Constructed and Reconstructed Major
Toxic Sources.
The EPA issued an interpretive notice on February 14, 1995 (60 FR
8333), which outlines EPA's revised interpretation of 112(g)
applicability.
[[Page 64406]]
The notice postpones the effective date of 112(g) until after EPA has
promulgated a rule addressing that provision. The notice sets forth in
detail the rationale for the revised interpretation.
The section 112(g) interpretive notice explains that EPA is still
considering whether the effective date of section 112(g) should be
delayed beyond the date of promulgation of the Federal rule so as to
allow states time to adopt rules implementing the Federal rule, and
that EPA will provide for any such additional delay in the final
section 112(g) rulemaking. Unless and until EPA provides for such an
additional postponement of section 112(g), Missouri must have a
Federally enforceable mechanism for implementing section 112(g) during
the period between promulgation of the Federal section 112(g) rule and
adoption of implementing Federal regulations.
The EPA is aware that Missouri lacks a program designed
specifically to implement section 112(g). However, Missouri does have a
program for review of new and modified hazardous air pollutant sources
that can serve as an adequate implementation vehicle during the
transition period, because it would allow Missouri to select control
measures that would meet MACT, as defined in section 112, and
incorporate these measures into a Federally enforceable preconstruction
permit.
The EPA is proposing to approve Missouri's preconstruction
permitting program under the authority of Title V and part 70, solely
for the purpose of implementing section 112(g) to the extent necessary
during the transition period between 112(g) promulgation and adoption
of a state rule implementing EPA's section 112(g) regulations. Although
section 112(l) generally provides authority for approval of state air
programs to implement section 112(g), Title V and section 112(g)
provide for this limited approval because of the direct linkage between
the implementation of section 112(g) and Title V. The scope of this
approval is narrowly limited to section 112(g) and does not confer or
imply approval for purposes of any other provision under the Act (e.g.,
section 110). This approval will be without effect if EPA decides in
the final section 112(g) rule that sources are not subject to the
requirements of the rule until state regulations are adopted. The
duration of this approval is limited to 18 months following
promulgation by EPA of the 112(g) rule to provide adequate time for the
state to adopt regulations consistent with the Federal requirements.
c. Section 112(l)--State Air Toxics Programs.
Requirements for approval, specified in 40 CFR 70.4(b), encompass
section 112(l)(5) approval requirements for delegation of section 112
standards as promulgated by EPA as they apply to part 70 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.
Missouri has demonstrated that it meets these requirements. Therefore,
EPA is proposing to grant approval under section 112(l)(5) and 40 CFR
part 63.91 to Missouri for its program mechanism for receiving
delegation of all existing and future section 112(d) standards for both
part 70 and non-part 70 sources, and section 112 infrastructure
programs, that are unchanged from Federal rules as promulgated.
Missouri has informed EPA that it intends to accept delegation of
section 112 standards through adoption by reference. In addition, EPA
is also proposing delegation of all existing standards and programs
under 40 CFR parts 61 and 63 for part 70 and non-part 70 sources.
d. Title IV/Acid Rain. The legal requirements for approval under
the Title V operating permits program for a Title IV program were cited
in EPA guidance distributed on May 21, 1993, titled ``Title V-Title IV
Interface Guidance for States.'' Missouri has met the criteria of this
guidance and has adopted by reference acid rain rules at 40 CFR 72.
B. Options for Approval/Disapproval and Implications
1. The EPA is proposing to grant interim approval for two years to
the operating permits program submitted by the state of Missouri. In
order to receive full approval, the state must adopt and submit to the
EPA the rule changes identified above within 18 months of receiving
final interim approval. Specifically, the state must amend rules 10 CSR
10-6.020, Definitions, and 10 CSR 10-6.065, Operating permits, for
consistency with part 70.
2. Program for Straight Delegation of Section 112 Standards.
As discussed above, EPA is proposing to grant approval under
section 112(l)(5) and 40 CFR part 63.91 to Missouri for its program
mechanism for receiving delegation of all existing and future section
112(d) standards for both part 70 and non-part 70 sources, and
infrastructure programs under section 112 that are unchanged from
Federal rules as promulgated. In addition, EPA proposes to delegate
existing standards under 40 CFR parts 61 and 63 for both part 70 and
non-part 70 sources.
III. Administrative Requirements
A. Request for Public Comments
The EPA is requesting comments on all aspects of this proposed
interim approval. Copies of the state's submittal and other information
relied upon for the proposed approval are contained in a docket
maintained at 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 interim
approval. The principal purposes of the docket are:
1. To allow interested parties a means to identify and locate
documents for participating in the rulemaking process, and
2. To serve as the record in case of judicial review. The EPA will
consider any comments received by Janaury 16, 1996.
B. Executive Order 12866
The Office of Management and Budget has exempted this regulatory
action from Executive Order 12866 review.
C. Regulatory Flexibility Act
The 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 sections 202, 203, and 205 of the Unfunded Mandates Reform
Act of 1995 (``Unfunded Mandates Act''), signed into law on March 22,
1995, EPA must undertake various actions in association with proposed
or final rules that include a Federal mandate that may result in
estimated costs of $100 million or more to the private sector, or to
state, local, or tribal governments in the aggregate.
Through submission of this state operating permit program the state
has elected to adopt the program provided for under Title V of the CAA.
These rules may bind the state government to perform certain actions
and also require the private sector to perform certain duties. To the
extent that the rules being proposed for approval by this action will
impose new requirements, sources are already subject to these
regulations under state law. Accordingly, no additional costs to state,
local, or tribal governments, or to the private sector, result from
this action. The EPA has
[[Page 64407]]
also determined that this proposed action does not include a mandate
that may result in estimated costs of $100 million or more to state,
local, or tribal governments in the aggregate or to the private sector.
List of Subjects in 40 CFR Part 70
Environmental protection, Administrative practice and procedure,
Air pollution control, Intergovernmental relations, Operating permits,
and Reporting and recordkeeping requirements.
Authority: 42 U.S.C. sections 7401-7671q.
Dated: December 6, 1995.
Dennis Grams,
Regional Administrator.
[FR Doc. 95-30554 Filed 12-14-95; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 95-30505 Disclosure of Returns and Return Information to Procure Property or Services for Tax Administration Purposes
[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Proposed Rules]
[Pages 64402-64403]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30505]
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DEPARTMENT OF THE TREASURY
26 CFR Part 301
[DL-01-95]
RIN 1545-AT48
Disclosure of Returns and Return Information to Procure Property
or Services for Tax Administration Purposes
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: These proposed regulations relate to the disclosure of returns
and return information in connection with the procurement of property
and services for tax administration purposes. The amendments would
authorize the Department of Justice, including offices of United States
Attorneys, to make such disclosures. Current disclosure authority
within the Department of Justice rests only with the Tax Division. The
amendments also reflect a change to the law made by the Omnibus Budget
Reconciliation Act of 1990 regarding the type of services about which
disclosures may be made.
DATES: Comments and requests for a public hearing must be received by
March 14, 1996.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (DL-01-95), room 5228,
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submissions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (DL-01-95), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC.
FOR FURTHER INFORMATION CONTACT: Donald Squires, 202-622- 4570 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 6103(n) of the Internal Revenue Code (Code) authorizes the
disclosure of returns and return information, pursuant to regulations
prescribed by the Secretary of the Treasury, ``to the extent necessary
in connection with the processing, storage, transmission, and
reproduction of such returns and return information, the programming,
maintenance, repair,
[[Page 64403]]
testing, and procurement of equipment, and the providing of other
services, for purposes of tax administration.''
Existing regulations promulgated under this section prescribe the
persons who may make such disclosures, the situations under which such
disclosures may be made and the notification and safeguarding
procedures to be followed when such disclosures are made. Among the
persons who may make such disclosures are officers and employees of the
Tax Division of the Department of Justice. The amendments would
authorize such disclosures by the Department of Justice (not solely the
Tax Division) to third parties who provide services for tax
administration purposes under the conditions and restrictions of the
regulations. The amendments would provide that, for the purpose of this
section, the ``Department of Justice'' includes offices of United
States Attorneys.
The amendments would also conform the regulation to the language of
section 6103(n), which was amended by the Omnibus Budget Reconciliation
Act of 1990 to clarify that the disclosures authorized by this section
included those in connection with ``the providing of other services''
(i.e., services other than those related to the mechanical processing
of returns and return information).
Explanation of Provisions
As currently written, 26 CFR 301.6103(n)-1 authorizes the Tax
Division of the Department of Justice, among other entities and
individuals, to make disclosures of returns and return information
pursuant to section 6103(n) of the Internal Revenue Code. This
authority allows the Tax Division to disclose tax information incident
to its contracts to private parties for, among other purposes,
automated litigation support services.
The Department of Justice has indicated its intention to establish
an expanded automated tracking system for all monetary judgments in
favor of the United States, which will be operated by a private company
under contract with the Department. Although the majority of tax cases
are handled by the Tax Division, there are several United States
Attorneys' offices that also have litigation responsibility in the
civil tax area. In addition, the Tax Division refers some judgments in
tax cases to the United States Attorneys for collection. Existing
regulations arguably would not permit these offices, which are
technically not part of the Tax Division, to disclose tax information
incident to their inclusion of tax judgments in the automated tracking
system.
The proposed amendment would authorize the Department of Justice,
including offices of United States Attorneys, to make disclosures to
procure property and services for tax administration purposes. Any such
disclosures will be made under the same conditions and restrictions
already set forth in the existing regulations. By definition, any
office within the Department of Justice without tax administration
duties will not have occasion or authority pursuant to these
regulations to make such disclosures.
The proposed amendment would also authorize disclosures in
connection with ``the providing of other services,'' i.e., services not
related to the strict mechanical processing or manipulation of tax
returns or return information. This would conform the regulations to
the language of the statute, as amended by the Omnibus Budget
Reconciliation Act of 1990 (Pub. L. 101-508, 104 Stat. 1388-353).
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It has also been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and, therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments that are submitted
timely (preferably a signed original and eight copies) to the IRS. All
comments will be available for public inspection and copying. A public
hearing may be scheduled if requested in writing by any person that
timely submits written comments. If a public hearing is scheduled,
notice of the date, time, and place for the hearing will be published
in the Federal Register.
Drafting Information
The principal author of these proposed regulations is Donald
Squires, Office of the Assistant Chief Counsel (Disclosure Litigation),
IRS. However, other personnel from the IRS, Department of Justice and
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is proposed to be amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Para. 2. Section 301.6103(n)-1 is amended as follows:
1. The first sentence of paragraph (a) introductory text is amended
by removing the language ``Tax Division,''.
2. Paragraph (a)(2) is amended by removing the language ``or to''.
3. Paragraph (a)(2) is further amended by adding the language ``or
the providing of other services,'' immediately following the text
``other property,''.
4. The concluding text following paragraph (a)(2) is amended by
removing the language ``Tax Division,''.
5. The second sentence of paragraph (d) introductory text is
amended by removing the language ``Tax Division,''.
6. Paragraph (d)(2) is amended by removing the language ``Tax
Division,''.
7. Paragraph (e)(1) is amended by removing the language ``, and''
at the end of the paragraph and adding a semicolon in its place.
8. Paragraph (e)(2) is amended by removing the period at the end of
the paragraph and adding ``; and'' in its place.
9. Paragraph (e)(3) is added.
10. The authority citation immediately following Sec. 301.6103(n)
is removed.
The addition reads as follows:
Sec. 301.6103(n)-1 Disclosure of returns and return information in
connection with procurement of property and services for tax
administration purposes.
* * * * *
(e) * * *
(3) The term Department of Justice includes offices of the United
States Attorneys.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 95-30505 Filed 12-14-95; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30453 Federal-State Joint Board; Extension of Indexed Cap on Total Level of Universal Service Fund
[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Proposed Rules]
[Page 65010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30453]
[[Page 65009]]
_______________________________________________________________________
Part IV
Federal Communications Commission
_______________________________________________________________________
47 CFR Part 36
Federal-State Joint Board Extension of Indexed Cap on Total Level of
Universal Service Fund; Proposed Rule
Establishment of a Joint Board; Final Rule
Federal Register / Vol. 60, No. 241 / Friday, December 15, 1995 /
Proposed Rules
[[Page 65010]]
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 36
[CC Docket No. 80-286, FCC 95J-1]
Federal-State Joint Board; Extension of Indexed Cap on Total
Level of Universal Service Fund
AGENCY: Federal Communications Commission.
ACTION: Recommended decision of Federal-State Joint Board.
-----------------------------------------------------------------------
SUMMARY: The Federal-State Joint Board recommends the extension of the
duration of the interim indexed cap on the total level of the Universal
Service Fund (USF) for an additional six months. The cap was intended
as an interim measure moderating the growth of the USF during the
pendency of a broader rulemaking revising the Part 36 jurisdictional
separations rules governing the USF. The Federal-State Joint Board
recommends the extension of the interim cap, which expires January 1,
1996, for an additional six months while that rulemaking is completed.
FOR FURTHER INFORMATION CONTACT: Clara Kuehn, 202-418-0844, Deborah A.
Dupont, 202-418-0873, Accounting and Audits Division, Common Carrier
Bureau.
SUPPLEMENTARY INFORMATION: This is a summary of the Federal-State Joint
Board's Recommended Decision CC Docket No. 80-286, FCC 95J-1, adopted
December 7, 1995, and released December 8, 1995.
The full text of Recommended Decisions of the Joint Board are
available for inspection and copying during normal business hours in
the FCC Dockets Branch (room 230), 1919 M Street, NW, Washington DC.
The full text of this Recommended Decision may also be purchased from
the Commission's copy contractors, International Transcription Service,
(202) 857-3800, 2100 M Street, NW, Suite 140, Washington DC 20037.
Summary of Recommended Decision
In 1993, the Commission imposed a two-year indexed cap (cap) on the
total level of the Universal Service Fund (USF) for the purpose of
moderating growth in the USF during the pendency of a planned
rulemaking that would address permanent changes in the Commission's
rules governing the USF. 58 FR 69239, Dec. 30, 1993. On October 3,
1995, the Commission issued a Notice of Proposed Rulemaking, proposing
a six-month extension of the cap in order to continue to moderate
growth in the USF while the Commission completed its USF rulemaking. 60
FR 52359, Oct. 6, 1995. The Commission explained that the duration of
the cap had been limited to two years in the belief that the USF
rulemaking would be completed within that period and that an additional
six months would be sufficient to complete the USF rulemaking in view
of the progress made to date. Id. at 52361. The Commission referred the
issues raised in its Notice of Proposed Rulemaking to the Federal-State
Joint Board for a Recommended Decision and invited interested parties
to propose extensions of the cap for longer or shorter periods than six
months. Id. at 52360-61.
Following review of comments and reply comments filed by interested
parties, the Joint Board recommends that the cap be extended for an
additional six months in order to continue to moderate growth in the
USF while the USF rulemaking is completed. The Joint Board reiterates
its conclusion, stated during earlier deliberations in the same
proceeding, that the cap would minimize dislocation should the
Commission's ongoing USF rulemaking result in revisions to the USF
rules. In response to contentions of the parties that the proposed
extension is unnecessary, because recent NECA submissions showed total
USF payments in 1996 below the level of the USF as limited by an
extension of the cap, the Joint Board explains that no one would be
harmed if total claims for USF assistance remain below an extended cap,
but that an extended cap would protect against unanticipated and
unwanted growth in the fund during the pendency of the USF rulemaking
should total claims substantially exceed NECA's current calculations.
The Joint Board reiterates its concerns, stated earlier in the
proceeding, regarding the pattern of growth and the overall rate of
growth in the USF, explaining that moderating the level of the USF
during the pendency of the USF rulemaking would serve the public
interest.
The Joint Board concludes that six months should be sufficient to
complete the USF rulemaking and recommends an extension of the cap for
six additional months. The Joint Board rejects arguments to broaden the
scope of the USF rulemaking as beyond the scope of the Notice of
Proposed Rulemaking.
Ordering Clause
28. For all of the reasons discussed in this Recommended Decision,
this Federal-State Joint Board recommends, pursuant to Section 410(c)
of the Communications Act of 1934, as amended, 47 U.S.C. 410(c), that
the Federal Communications Commission extend, until July 1, 1996, the
current interim rules prescribing an indexed cap on the total level of
the Universal Service Fund, 47 CFR 36.601, 36.622.
List of Subjects in 47 CFR Part 36
Communications common carriers, Reporting and recordkeeping
requirements, Telephone, Uniform System of Accounts.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-30453 Filed 12-14-95; 8:45 am]
BILLING CODE 6712-01-P
Complete official Federal Register PDF
FR Doc. 95-30415 Notice of Significant Reduction in the Rate of Future Benefit Accrual
[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Proposed Rules]
[Pages 64401-64402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30415]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[EE-34-95]
RIN 1545-AT78
Notice of Significant Reduction in the Rate of Future Benefit
Accrual
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking by cross-reference to temporary
regulations.
-----------------------------------------------------------------------
SUMMARY: In the Rules and Regulations section of this issue of the
Federal Register, the IRS is issuing temporary regulations relating to
the requirements of section 204(h) of the Employee Retirement Income
Security Act of 1974, as amended (ERISA). Section 204(h) of ERISA
applies to defined benefit plans and to individual account plans that
are subject to the funding standards of section 302 of ERISA. It
requires the plan administrator to give notice of certain plan
amendments to participants in the plan and certain other parties. The
text of those temporary regulations also serves as the text of these
proposed regulations.
DATES: Written comments must be received by March 14, 1996.
ADDRESSES: Send submissions to CC:DOM:CORP:R (EE-34-95), room 5228,
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submissions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (EE-34-95), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington DC.
FOR FURTHER INFORMATION CONTACT: Betty J. Clary, (202) 622-6070 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
[[Page 64402]]
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507).
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of Treasury, Office of Information and Regulatory Affairs, Washington,
DC 20503, with copies to the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, T:FP, Washington, DC 20224. Comments on the
collection of information should be received by February 13, 1996.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The collection of information is in Sec. 1.411(d)-6T which
implements the statutory requirement of section 204(h) of ERISA that a
plan administrator provide notice to participants and certain other
parties if certain pension plans are amended to provide for a
significant reduction in the rate of future benefit accrual. This
collection of information is required to assure that the rights of
participants in plans subject to section 204(h) of ERISA are protected.
The likely respondents are small businesses. Responses to this
collection of information are required under section 204(h) of ERISA in
order for certain amendments to qualified plans to become effective.
These regulations do not involve any issues of confidentiality.
Estimated total annual reporting burden: 15,000 hours.
The estimated annual burden per respondent varies from 1 hour to 40
hours, depending on individual circumstances, with an estimated average
of 5 hours.
Estimated number of respondents: 3,000.
Estimated annual frequency of responses: Once.
Background
Temporary regulations in the Rules and Regulations portion of this
issue of the Federal Register amend the Income Tax Regulations (26 CFR
part 1) (relating to section 411(d)). The text of those temporary
regulations also serves as the text of these proposed regulations. The
preamble to the temporary regulations explains the temporary
regulations.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and, therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, the notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) that are submitted timely to the IRS. All
comments will be available for public inspection and copying. A public
hearing may be scheduled if requested in writing by a person that
timely submits written comments. If a public hearing is scheduled,
notice of the date, time, and place for the hearing will be published
in the Federal Register.
Drafting Information: The principal author of these regulations
is Betty J. Clary, Office of the Associate Chief Counsel (Employee
Benefits and Exempt Organizations), IRS. However, other personnel
from the IRS and Treasury Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read,
in part, as follows:
Authority: 26 U.S.C. 7805. * * *
Section 1.411(d)-6 also issued under Reorganization Plan No. 4 of
1978, 29 U.S.C. 1001nt. * * *
Par. 2. Section 1.411(d)-6 is added to read as follows:
Sec. 1.411(d)-6 Section 204(h) notice.
[The text of this proposed section is the same as the text of
Sec. 1.411(d)-6T published elsewhere in this issue of the Federal
Register.]
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 95-30415 Filed 12-12-95; 1:23 pm]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 95-30357 Acquisition Regulation; Confidential Business Information
[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Proposed Rules]
[Pages 64408-64411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30357]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
48 CFR Parts 1535 and 1552
[FRL-5332-3]
Acquisition Regulation; Confidential Business Information
AGENCY: Environmental Protection Agency.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Environmental Protection Agency (EPA) is proposing to
revise its acquisition regulation by revising both the prescription for
use of solicitation provisions and contract clauses regarding
collection, use, access, treatment, and disclosure of confidential
business information (CBI), and adding solicitation provisions and
contract clauses on CBI.
DATES: Written comments should be submitted to the contact listed below
not later than February 13, 1996.
ADDRESSES: Comments and data may also be submitted electronically by
sending electronic mail (e-mail) to: Senzel.L[email protected].
Electronic comments must be submitted as an ASCII file avoiding the use
of special characters and any form of encryption. Comments and data
will also be accepted on disks in WordPerfect in 5.1 format or ASCII
file format. No Confidential Business Information (CBI) should be
submitted through e-mail. Electronic comments on this proposed rule may
be filed online at many Federal Depository Libraries.
FOR FURTHER INFORMATION CONTACT: Louise Senzel, Environmental
Protection Agency, Office of Acquisition Management (3802F), 401 M
Street, SW, Washington, D.C. 20460. Telephone: (202) 260-6204.
SUPPLEMENTARY INFORMATION:
A. Executive Order 12866
The proposed rule is not a significant regulatory action for the
purposes of Executive Order 12866; therefore, no review is required by
the Office of Information and Regulatory Affairs.
B. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because this proposed
rule does not contain information collection requirements that require
the approval of OMB under the Paperwork Reduction Act of 1980 (44
U.S.C. 3501 et seq.)
C. Regulatory Flexibility Act
The EPA certifies that this proposed rule does not exert a
significant economic impact on a substantial number of small entities.
The requirements to contractors under the proposed rule impose no
reporting, record-keeping, or any compliance costs.
D. Unfunded Mandates
This proposed rule will not impose unfunded mandates on state or
local entities, or others.
The provisions of this regulation are issued under 5 U.S.C. 301; 40
U.S.C. 486(c).
List of Subjects in 48 CFR Parts 1535 and 1552
Government procurement.
Therefore, Chapter 15 of title 48, Code of Federal Regulations is
proposed to be amended as set forth below:
1. The authority citation for parts 1535 and 1552 continue to read
as follows:
Authority: Sec. 205(c), 63 stat. 390, as amended, 40 U.S.C.
486(c).
2. Section 1535.007 is revised to read as follows:
1535.007 Solicitations.
(a) Contracting Officers shall insert the following provisions in
all solicitations when the Contracting Officer has determined that EPA
may furnish the contractor with confidential business information which
EPA has obtained from third parties under the Federal Insecticide,
Fungicide and Rodenticide Act (7 U.S.C. 136 et seq.).
(1) 1552.235-72 Control and Security of Federal Insecticide,
Fungicide, and Rodenticide Act Confidential Business Information; and
(2) 1552.235-73 Access to Federal Insecticide, Fungicide, and
Rodenticide Act Confidential Business Information.
(b) Contracting Officers shall insert the following provisions in
all solicitations when the Contracting Officer has determined that EPA
may furnish the contractor with confidential business information which
EPA has obtained from third parties under the Toxic Substances Control
Act (15 U.S.C. 2601 et seq.)
(1) 1552.235-74 Control and Security of Toxic Substances Control
Act Confidential Business Information; and
(2) 1552.235-75 Access to Toxic Substances Control Act Confidential
Business Information.
3. Subsection 1535.007-70 is amended by revising paragraphs (b) and
(c) and adding paragraph (d) through (f) to read as follows:
1535.007-70 Contract clauses.
(a) * * *
(b) The Contracting Officer shall insert the clause at 1552.235-71,
Treatment of Confidential Business Information, in solicitations and
contracts when the Contracting Officer has determined that in the
performance of the contract, EPA may furnish confidential business
information to the contractor obtained from third parties under the
Clean Air Act (42 U.S.C. 7401 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. 1251 et seq.), the Safe Drinking Water Act (42
U.S.C. 300f et seq.), the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 301 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. 301 et seq.), the Federal Insecticide, Fungicide and Rodenticide
Act (7 U.S.C. 136 et seq.), the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. 9601 et seq.), and provision
1552.235-70, Release of Contractor Confidential Business Information.
EPA regulations on confidentiality of business information in 40 CFR
part 2, subpart B, require that the contractor agree to the clause
entitled ``Treatment of Confidential Business Information'' before any
confidential business information may be furnished to the contractor.
(c) The Contracting Officer shall insert the clause at 1552.235-76,
Treatment of Confidential Business Information, in solicitations and
contracts when the Contracting Officer has determined that in the
performance of the contract, EPA may furnish the contractor with
confidential business information obtained from third parties under the
Toxic Substances Control Act (15 U.S.C. 2601 et seq.). EPA regulations
on confidentiality of business information in 40 CFR part 2, subpart B,
require that the contractor agree to the clause entitled ``Treatment of
Confidential Business Information'' before any confidential business
information may be furnished to the contractor.
(d) The Contracting Officer shall insert the clause at 1552.235-77
Data Security for Federal Insecticide, Fungicide, Rodenticide Act
Confidential Business Information, when the contract involves access to
confidential business information related to the Federal Insecticide,
Fungicide, Rodenticide Act and the Treatment of Confidential Business
Information clause (1552.235-71) and the Screening Business Information
for Claims of Confidentiality clause (1552.235-70) are included.
[[Page 64409]]
(e) The Contracting Officer shall insert the clause at 1552.235-78
Data Security for Toxic Substances Control Act Confidential Business
Information, when the contract involves access to confidential business
information related to the Toxic Substances Control Act and the
Treatment of Confidential Business Information clause (1552.235-76) and
Screening Business Information for Claims of Confidentiality clause
(1552.235-70) are included.
(f) Contracting Officers shall insert the clause 1552.235-79
Release of Contractor Confidential Business Information in all
solicitations and contracts in order to authorize the Agency to release
confidential business information under certain circumstances.
4. Subpart 1552.2, is amended by revising section 1552.235-72, and
adding sections 1552.235-73 through 1552.235-79 to read as follows:
1552.235-72 Control and Security of Federal Insecticide, Fungicide,
Rodenticide Act Confidential Business Information (XXX 1995).
As prescribed in 1535.007(a), insert the following provision:
Control and Security of Federal Insecticide, Fungicide, Rodenticide Act
Confidential Business Information (XXX 1995)
The offeror certifies that--
--The Contractor and its employees have read and are familiar with
the requirements for the control and security of Federal
Insecticide, Fungicide, Rodenticide Act confidential business
information contained in the manual entitled ``Federal Insecticide,
Fungicide, Rodenticide Act Information Security Manual''. (See also
1552.235-77 elsewhere in this solicitation.)
(End of Provision)
1552.235-73 Access to Federal Insecticide, Fungicide, Rodenticide Act
Confidential Business Information (XXX 1995).
As prescribed in 1535.007(a), insert the following provision:
Access to Federal Insecticide, Fungicide, Rodenticide Act Confidential
Business Information (XXX 1995)
In order to perform duties under the contract, the Contractor
will need to be authorized for access to Federal Insecticide,
Fungicide, Rodenticide Act (FIFRA) confidential business information
(CBI). The Contractor and all of its employees handling CBI while
working under the contract will be required to follow the procedures
contained in the security manual entitled ``FIFRA Information
Security Manual''. These procedures include applying for FIFRA CBI
access authorization for each individual working under the contract
who will have access to FIFRA CBI, execution of confidentiality
agreements, and designation by the Contractor of an individual to
serve as a Document Control Officer. The Contractor will be required
to abide by those clauses contained in EPAAR 1552.235-70, 1552.235-
71, and 1552.235-77 that are appropriate to the activities set forth
in the contract.
Until EPA has approved the Contractor's security plan, the
Contractor may not be authorized for FIFRA CBI access away from EPA
facilities.
(End of Provision)
1552.235-74 Control and Security of Toxic Substances Control Act
Confidential Business Information (XXX 1995).
As prescribed in 1535.007(b), insert the following provision:
Control and Security of Toxic Substances Control Act Confidential
Business Information (XXX 1995)
The offeror certifies that--
--The Contractor and its employees have read and are familiar with
the requirements for the control and security of Toxic Substances
Control Act confidential business information contained in the
manual entitled ``Toxic Substances Control Act Confidential Business
Information Security Manual''. (See also 1552.235-78 elsewhere in
this solicitation.)
(End of Provision)
1552.235-75 Access to Toxic Substances Control Act Confidential
Business Information (XXX 1995).
As prescribed in 1535.007(b), insert the following provision:
Access to Toxic Substances Control Act Confidential Business
Information (XXX 1995)
In order to perform duties under the contract, the Contractor
will need to be authorized for access to Toxic Substances Control
Act (TSCA) confidential business information (CBI). The Contractor
and all of its employees handling CBI while working under the
contract will be required to follow the procedures contained in the
security manual entitled ``TSCA Confidential Business Information
Security Manual''. These procedures include applying for TSCA CBI
access authorization for each individual working under the contract
who will have access to TSCA CBI, execution of confidentiality
agreements, and designation by the Contractor of an individual to
serve as a Document Control Officer. The Contractor will be required
to abide by those clauses contained in EPAAR 1552.235-70, 1552.235-
71, and 1552.235-78 that are appropriate to the activities set forth
in the contract.
Until EPA has inspected and approved the Contractor's
facilities, the Contractor may not be authorized for TSCA CBI access
away from EPA facilities.
(End of Provision)
1552.235-76 Treatment of Confidential Business Information (XXX 1995).
As prescribed in 1535.007-70(c), insert the following clause:
Treatment of Confidential Business Information (XXX 1995)
(a) The Project Officer (PO) or his/her designee, after a
written determination by the appropriate program office, may
disclose confidential business information (CBI) to the Contractor
necessary to carry out the work required under this contract. The
Contractor agrees to use the CBI only under the following
conditions:
(1) The Contractor and Contractor's employees shall (i) use the
CBI only for the purposes of carrying out the work required by the
contract; (ii) not disclose the information to anyone other than
properly cleared EPA employees without the prior written approval of
the Assistant General Counsel for Information Law or his/her
designee; and (iii) return the CBI to the PO or his/her designee,
whenever the information is no longer required by the Contractor for
performance of the work required by the contract, or upon completion
of the contract.
(2) The Contractor shall obtain a written agreement to honor the
above limitations from each of the Contractor's employees who will
have access to the information before the employee is allowed
access.
(3) The Contractor agrees that these contract conditions
concerning the use and disclosure of CBI are included for the
benefit of, and shall be enforceable by, both EPA and any affected
businesses having a proprietary interest in the information.
(4) The Contractor shall not use any CBI supplied by EPA or
obtained during performance hereunder to compete with any business
to which the CBI relates.
(b) The Contractor agrees to obtain the written consent of the
CO, after a written determination by the appropriate program office,
prior to entering into any subcontract that will involve the
disclosure of CBI by the Contractor to the subcontractor. The
Contractor agrees to include this clause, including this paragraph
(b), in all subcontracts awarded pursuant to this contract that
require the furnishing of CBI to the subcontractor.
(End of Clause)
1552.235-77 Data Security for Federal Insecticide, Fungicide,
Rodenticide Act Confidential Business Information (XXX 1995).
As prescribed in 1535.007-70(d), insert the following clause:
Data Security for Federal Insecticide, Fungicide, Rodenticide Act
Confidential Business Information (XXX 1995)
The Contractor shall handle Federal Insecticide, Fungicide,
Rodenticide Act (FIFRA) confidential business information (CBI) in
accordance with the contract clause entitled ``Treatment of
Confidential Business Information'' and ``Screening Business
Information for Claims of Confidentiality,'' the provisions set
forth below, and the Contractor's approved detailed security plan.
(a) The Project Officer (PO) or his/her designee, after a
written determination by the appropriate program office, may
disclose FIFRA CBI to the contractor necessary to carry out the work
required under this contract. The Contractor shall protect all FIFRA
CBI to which it has access (including
[[Page 64410]]
CBI used in its computer operations) in accordance with the following
requirements:
(1) The Contractor and Contractor's employees shall follow the
security procedures set forth in the FIFRA Information Security
Manual. The manual may be obtained from the Project Officer (PO) or
the Chief, Information Services Branch (ISB), Program Management and
Support Division, Office of Pesticide Programs (OPP) (H7502C), U.S.
Environmental Protection Agency, 401 M Street, SW, Washington, DC
20460.
(2) The Contractor and Contractor's employees shall follow the
security procedures set forth in the Contractor's security plan(s)
approved by EPA.
(3) Prior to receipt of FIFRA CBI by the Contractor, the
Contractor shall submit a certification statement to the Chief of
the ISB, with a copy to the Contracting Officer (CO), certifying
that all employees who will be cleared for access to FIFRA CBI have
been briefed on the handling, control and security requirements set
forth in the FIFRA Information Security Manual.
(4) The Contractor Document Control Officer (DCO) shall obtain a
signed copy of the FIFRA ``Contractor Employee Confidentiality
Agreement'' from each of the Contractor's employees who will have
access to the information before the employee is allowed access.
(b) The Contractor agrees that these requirements concerning
protection of FIFRA CBI are included for the benefit of, and shall
be enforceable by, both EPA and any affected business having a
proprietary interest in the information.
(c) The Contractor understands that CBI obtained by EPA under
FIFRA may not be disclosed except as authorized by the Act, and that
any unauthorized disclosure by the Contractor or the Contractor's
employees may subject the Contractor and the Contractor's employees
to the criminal penalties specified in FIFRA (7 U.S.C. 136h(f)). For
purposes of this contract, the only disclosures that EPA authorizes
the Contractor to make are those set forth in the clause entitled
``Treatment of Confidential Business Information.''
(d) The Contractor agrees to include the provisions of this
clause, including this paragraph (d), in all subcontracts awarded
pursuant to this contract that require the furnishing of CBI to the
subcontractor.
(e) At the request of EPA or at the end of the contract, the
Contractor shall return to the EPA PO or his/her designee all
documents, logs, and magnetic media which contain FIFRA CBI. In
addition, each Contractor employee who has received FIFRA CBI
clearance will sign a ``Confidentiality Agreement for Contractor
Employees Upon Relinquishing FIFRA CBI Access Authority''. The
Contractor DCO will also forward those agreements to the EPA PO or
his/her designee, with a copy to the CO, at the end of the contract.
(f) If, subsequent to the date of this contract, the Government
changes the security requirements, the CO shall equitably adjust
affected provisions of this contract, in accordance with the
``Changes'' clause when:
(1) The Contractor submits a timely written request for an
equitable adjustment; and
(2) The facts warrant an equitable adjustment.
(End of Clause)
1552.235-78 Data Security for Toxic Substances Control Act
Confidential Business Information (XXX 1995).
As prescribed in 1535.007-70(e), insert the following clause:
Data Security for Toxic Substances Control Act Confidential Business
Information (XXX 1995)
The Contractor shall handle Toxic Substances Control Act (TSCA)
confidential business information (CBI) in accordance with the
contract clause entitled ``Treatment of Confidential Business
Information'' and ``Screening Business Information for Claims of
Confidentiality.''
(a) The Project Officer (PO) or his/her designee, after a
written determination by the appropriate program office, may
disclose TSCA CBI to the contractor necessary to carry out the work
required under this contract. The Contractor shall protect all TSCA
CBI to which it has access (including CBI used in its computer
operations) in accordance with the following requirements:
(1) The Contractor and Contractor's employees shall follow the
security procedures set forth in the TSCA CBI Security Manual. The
manual may be obtained from the Director, Information Management
Division (IMD), Office of Pollution Prevention and Toxics (OPPT),
U.S. Environmental Protection Agency (EPA), 401 M Street, SW,
Washington, DC 20460. Prior to receipt of TSCA CBI by the
Contractor, the Contractor shall submit a certification statement to
the Director of the EPA OPPT/Office of Program Management and
Evaluation, with a copy to the Contracting Officer (CO), certifying
that all employees who will be cleared for access to TSCA CBI have
been briefed on the handling, control, and security requirements set
forth in the TSCA CBI Security Manual.
(2) The Contractor shall permit access to and inspection of the
Contractor's facilities in use under this contract by
representatives of EPA's Assistant Administrator for Administration
and Resources Management, and the TSCA Security Staff in the OPPT,
or by the EPA Project Officer.
(3) The Contractor Document Control Officer (DCO) shall obtain a
signed copy of EPA Form 7740-6, ``TSCA CBI Access Request,
Agreement, and Approval'' from each of the Contractor's employees
who will have access to the information before the employee is
allowed access. In addition, the Contractor shall obtain from each
employee who will be cleared for TSCA CBI access all information
required by EPA or the U.S. Office of Personnel Management for EPA
to conduct a Minimum Background Investigation.
(b) The Contractor agrees that these requirements concerning
protection of TSCA CBI are included for the benefit of, and shall be
enforceable by, both EPA and any affected business having a
proprietary interest in the information.
(c) The Contractor understands that CBI obtained by EPA under
TSCA may not be disclosed except as authorized by the Act, and that
any unauthorized disclosure by the Contractor or the Contractor's
employees may subject the Contractor and the Contractor's employees
to the criminal penalties specified in TSCA (15 U.S.C. 2613(d)). For
purposes of this contract, the only disclosures that EPA authorizes
the Contractor to make are those set forth in the clause entitled
``Treatment of Confidential Business Information.''
(d) The Contractor agrees to include the provisions of this
clause, including this paragraph (d), in all subcontracts awarded
pursuant to this contract that require the furnishing of CBI to the
subcontractor.
(e) At the request of EPA or at the end of the contract, the
Contractor shall return to the EPA PO or his/her designee, all
documents, logs, and magnetic media which contain TSCA CBI. In
addition, each Contractor employee who has received TSCA CBI
clearance will sign EPA Form 7740-18, ``Confidentiality Agreement
for Contractor Employees Upon Relinquishing TSCA CBI Access
Authority''. The Contractor DCO will also forward those agreements
to the EPA OPPT/IMD, with a copy to the CO, at the end of the
contract.
(f) If, subsequent to the date of this contract, the Government
changes the security requirements, the CO shall equitably adjust
affected provisions of this contract, in accordance with the
``Changes'' clause when:
(1) The Contractor submits a timely written request for an
equitable adjustment; and
(2) The facts warrant an equitable adjustment.
(End of Clause)
1552.235-79 Release of contractor confidential business information
(XXX 1995).
As prescribed in 1535.007-70(f), insert the following clause:
Release of Contractor Confidential Business Information (XXX 1995)
(a) The Environmental Protection Agency (EPA) may find it
necessary to release information submitted by the Contractor either
in response to this solicitation or pursuant to the provisions of
this contract, to individuals not employed by EPA. Business
information that is ordinarily entitled to confidential treatment
under existing Agency regulations (40 CFR part 2) may be included in
the information released to these individuals. Accordingly, by
submission of this proposal or signature on this contract or other
contracts, the Contractor hereby consents to a limited release of
its confidential business information (CBI).
(b) Possible circumstances where the Agency may release the
Contractor's CBI include, but are not limited to the following:
(1) To other Agency contractors tasked with assisting the Agency
in the recovery of Federal funds expended pursuant to the
Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. 9607, as amended, (CERCLA or Superfund);
(2) To the U.S. Department of Justice (DOJ) and contractors
employed by DOJ for use in advising the Agency and representing the
Agency in procedures for the recovery of Superfund expenditures;
[[Page 64411]]
(3) To parties liable, or potentially liable, for costs under
CERCLA Sec. 107 (42 U.S.C. 9607), et al, and their insurers
(Potentially Responsible Parties) for purposes of facilitating
settlement or litigation of claims against such parties;
(4) To other Agency contractors who, for purposes of performing
the work required under the respective contracts, require access to
information the Agency obtained under the Clean Air Act (42 U.S.C.
7401 et seq.); the Federal Water Pollution Control Act (33
U.S.C.1251 et seq.); the Safe Drinking Water Act (42 U.S.C. 300f et
seq.); the Federal Insecticide, Fungicide and Rodenticide Act (7
U.S.C. 136 et seq.); the Resource Conservation and Recovery Act (42
U.S.C. 6901 et seq.); the Toxic Substances Control Act (15 U.S.C.
2601 et seq.); or the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. 9601 et seq.);
(5) To other Agency contractors tasked with assisting the Agency
in handling and processing information and documents in the
administration of Agency contracts, such as providing both preaward
and post award audit support and specialized technical support to
the Agency's technical evaluation panels;
(6) To employees of grantees working at EPA under the Senior
Environmental Enrollee (SEE) Program;
(7) To Speaker of the House, President of the Senate, or
Chairman of a Committee or Subcommittee;
(8) To entities such as the General Accounting Office, boards of
contract appeals, and the Courts in the resolution of solicitation
or contract protests and disputes;
(9) To Agency contractor employees engaged in information
systems analysis, development, operation, and maintenance, including
performing data processing and management functions for the Agency;
and
(10) Pursuant to a court order or Court-supervised agreement.
(c) The Agency recognizes an obligation to protect the
contractor from competitive harm that may result from the release of
such information to a competitor. (See also the clauses in this
document entitled ``Screening Business Information for Claims of
Confidentiality'' and ``Treatment of Confidential Business
Information.'') Except where otherwise provided by law, the Agency
will permit the release of CBI under subparagraphs (1), (3), (5), or
(9) only pursuant to a confidentiality agreement.
(d) With respect to contractors, 1552.235-71 will be used as the
confidentiality agreement. With respect to Potentially Responsible
Parties, such confidentiality agreements may permit further
disclosure to other entities where necessary to further settlement
or litigation of claims under CERCLA. Such entities include, but are
not limited to accounting firms and technical experts able to
analyze the information, provided that they also agree to be bound
by an appropriate confidentiality agreement.
(e) This clause does not authorize the Agency to release the
contractor's CBI to the public pursuant to a request filed under the
Freedom of Information Act.
(f) The Contractor agrees to include this clause, including this
paragraph (f), in all subcontracts at all levels awarded pursuant to
this contract that require the furnishing of confidential business
information by the subcontractor.
(End of Clause)
Dated: October 30, 1995.
Betty L. Bailey,
Director, Office of Acquisition Management.
[FR Doc. 95-30357 Filed 12-14-95; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 95-30344 The State Vocational Rehabilitation Services Program
[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Proposed Rules]
[Pages 64476-64524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30344]
[[Page 64475]]
_______________________________________________________________________
Part II
Department of Education
_______________________________________________________________________
34 CFR Part 361
The State Vocational Rehabilitation Services Program; Proposed Rule
Federal Register / Vol. 60, No. 241 / Friday, December 15, 1995 /
Proposed Rules
[[Page 64476]]
DEPARTMENT OF EDUCATION
34 CFR Part 361
RIN 1820-AB12
The State Vocational Rehabilitation Services Program
AGENCY: Department of Education.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Secretary proposes to amend the regulations governing The
State Vocational Rehabilitation Services Program. These amendments are
needed to implement changes to the Rehabilitation Act of 1973 (Act)
made by the Rehabilitation Act Amendments of 1992, enacted on October
29, 1992, as amended by the 1993 technical amendments (hereinafter
collectively referred to as the 1992 Amendments).
DATES: Comments must be received on or before February 23, 1996.
ADDRESSES: All comments concerning these proposed regulations should be
addressed to Fredric K. Schroeder, U.S. Department of Education, 600
Independence Avenue SW., Room 3028, Mary E. Switzer Building,
Washington, D.C. 20202-2531. Comments transmitted by facsimile should
be sent to (202) 205-9772. Comments can be transmitted in an electronic
format either through the electronic bulletin board system (BBS) of the
Rehabilitation Services Administration (RSA) or through internet. The
internet address is ``[email protected]''. The access number for the RSA
BBS is (202) 205-5574 for low speed (2400 BPS or lower) modems and
(202) 205-6174 for high speed (9600 BPS and higher) modems. Comments
can also be transmitted to the RSA BBS through Fedworld via internet
using the telnet command. Telnet to: ``Fedworld.gov''. All comments
transmitted in an electronic format should be sent to the following RSA
BBS mailbox: ``RSADPPES''. To facilitate the analysis of comments,
electronic transmission of comments is preferred. Also, comments should
be specific and identified by proposed regulatory citation. Comments
received by RSA after the due date for comments will not be considered.
A copy of any comments that concern information collection
requirements should also be sent to the Office of Management and Budget
at the address listed in the Paperwork Reduction Act section of this
preamble.
FOR FURTHER INFORMATION CONTACT: Beverlee Stafford, U.S. Department of
Education, 600 Independence Avenue SW., Room 3014, Mary E. Switzer
Building, Washington, D.C. 20202-2531. Telephone (202) 205-8831.
Individuals who use a telecommunications device for the deaf (TDD) may
call (202) 205-5538.
SUPPLEMENTARY INFORMATION: The State Vocational Rehabilitation Services
Program (program) is authorized by Title I of the Act (29 U.S.C. 701-
744). This program provides support to each State to assist it in
operating a comprehensive, coordinated, effective, efficient, and
accountable State program to assess, plan, develop, and provide
vocational rehabilitation (VR) services to individuals with
disabilities so that those individuals may prepare for and engage in
gainful employment, consistent with their strengths, resources,
priorities, concerns, abilities, capabilities, and informed choice. The
program supports the National Education Goal that, by the year 2000,
every adult American, including individuals with disabilities, will
possess the knowledge and skills necessary to compete in a global
economy and exercise the rights and responsibilities of citizenship.
Regulations for this program were last published in their entirety
on May 12, 1988 (53 FR 16978) to implement the 1986 amendments to the
Act and are codified in 34 CFR Part 361. In addition, a notice of
proposed rulemaking (NPRM) for this program was published on July 3,
1991 (56 FR 30620) (1991 NPRM), but it was never finalized.
In the 1991 NPRM, the Secretary proposed amendments to the
regulations for this program that were designed to reduce regulatory
burden on States and to place greater administrative discretion at the
State level. More specifically, the 1991 NPRM proposed to remove or
reduce certain State plan, paperwork, and reporting requirements not
mandated by statute, to clarify the regulations through more precise
definitions, and generally to simplify and condense the regulations. At
the request of the Congress, the proposed regulations in the 1991 NPRM
were not finalized because the Rehabilitation Act Amendments of 1992
were being developed at that time.
The 1992 Amendments made extensive changes to Title I of the Act
that have far-reaching implications for the program. One of the major
themes of the 1992 Amendments is the empowerment of individuals with
disabilities in terms of influence on the State plan and State
vocational rehabilitation policy through membership on the State
Rehabilitation Advisory Council or an independent commission and
increased participation in the development, implementation, and
evaluation of their individualized written rehabilitation programs
through informed choice. The statute also requires that designated
State units (DSUs) provide for the use of appropriate modes of
communication and accessible formats to ensure equal access for
individuals with disabilities who need this assistance.
A related theme is the integration of individuals with disabilities
into the full spectrum of American life. The 1992 Amendments requires
both that vocational rehabilitation services be provided in the most
integrated settings possible and that employment outcomes be in the
most integrated settings possible.
Another key theme of the 1992 Amendments is to improve access to
the vocational rehabilitation system. The amendments streamline the
process for making eligibility determinations by requiring the use of
existing information to the extent possible, by adding a presumption of
benefit from services, and by providing a 60-day time limit for making
eligibility determinations.
The 1992 Amendments also focuses on expanding and improving the
quality of services by requiring States to develop a strategic plan, by
requiring States to develop a comprehensive system of personnel
development to ensure that DSU personnel are adequately trained and
meet the State's highest standards, and by requiring the development of
standards and indicators to evaluate the performance of State programs.
The evaluation standards and performance indicators are being developed
separately and are not addressed in this NPRM.
Finally, the 1992 Amendments focuses on expanding and improving
services to certain groups of individuals with disabilities. The
amendments include new order of selection and eligibility provisions
that are designed to increase and improve services for individuals with
severe disabilities, particularly individuals with the most severe
disabilities. The amendments also contain new outreach requirements
that are designed to increase services to individuals with disabilities
who are members of groups that are currently unserved and underserved,
including members of minority groups. In addition, the amendments
contain provisions that are designed to increase coordination between
education agencies and DSUs to better serve individuals with
disabilities who are transitioning students.
This NPRM proposes changes to implement the 1992 Amendments to
Title I Parts A, B, and C of the Act (with the exception of the
strengthened order
[[Page 64477]]
of selection requirements in sections 12(d) and 101(a)(5)(A) of the
Act, the evaluation standards and performance indicator requirements in
section 106 of the Act, and the client assistance program requirements
in section 112 of the Act, which are being implemented in separate
rulemaking documents) and proposes to incorporate some of the changes
that were previously proposed in the 1991 NPRM to reduce the
administrative burden on States. This NPRM also proposes other changes
that the Secretary believes are important to update, consolidate,
clarify, and in other ways improve the regulations for this program.
Executive Order 12866 encourages Federal agencies to facilitate
meaningful participation in the regulatory development process.
Accordingly, prior to drafting this NPRM, RSA, on March 31, 1994, made
draft proposed regulations (draft regulations) available in accessible
formats, including an electronic format, to a broad spectrum of parties
for informal review and comment. Over 600 letters of comments on the
draft regulations were analyzed. RSA also gathered public input on the
draft regulations through public meetings held in Washington, D.C. on
April 19, May 12, and May 17, 1994; Chicago on April 26, 1994; and
Oakland, California on May 4 and May 5, 1994; and through public
teleconferences on April 20, May 13, May 18, and June 8, 1994. In
addition, three separate focus groups were convened in June 1994 to
allow for further discussion of three discrete issues: eligibility
under the program, informed choice in the selection of services and
service providers, and the standards related to the achievement and
maintenance of an employment outcome.
The following is a section-by-section summary of the regulations
proposed in this NPRM, including an explanation of the major
provisions, how they differ from the existing and the draft
regulations, and the reasons the Secretary is proposing them. In
addition, in order to clarify proposed organizational changes, the
summary identifies the sections of the current regulations, as well as
the sections of the statute, on which every section of the proposed
regulations is based.
Changes to the draft regulations that appear in this NPRM were made
in response to public comments received by RSA and input provided
during the public meetings, teleconferences, and focus groups.
Significant changes to the draft regulations are discussed in the
section-by-section summary. However, minor technical and structural
changes that do not significantly alter the provisions of the draft
regulations are not discussed.
In response to public commenters who viewed some of the paperwork
requirements in the draft regulations as unduly burdensome, the
Secretary has proposed in the NPRM eliminating or consolidating
documentation requirements wherever feasible. Those requirements that
would remain in the proposed regulations are considered essential to
the proper administration of the program. Paperwork requirements in the
following sections of the draft regulations have been removed or
reduced: Secs. 361.13(c), 361.19, 361.20(b), 361.21 (a) and (b),
361.22(a)(1), 361.29 (a)(2) and (a)(4), 361.33(b), 361.46, 361.47,
361.52, and 361.53(a)(3).
In addition, the draft regulations have been reviewed and revised
in accordance with the Department's principles for regulating, which
were developed as part of the Administration's regulatory reinvention
initiative under the National Performance Review II. The principles are
designed to ensure that the Department regulates in the most flexible,
most equitable, and least burdensome way possible. As a result of that
review, additional non-statutory requirements in the draft regulations
have been eliminated or modified to reduce paperwork or process
requirements on States and to increase State flexibility in meeting
statutory requirements. These proposed changes are identified in the
section-by-section summary.
The proposed regulations, like the draft regulations, provide
guidance through examples in the following three areas: permissible
expenses under the definition of ``maintenance''; permissible expenses
under the definition of ``transportation''; and meeting the final
eligibility criterion (an individual with a disability must require VR
services) under Sec. 361.42. Some public commenters on the draft
regulations opposed the use of examples on the grounds that they would
interfere with individual counselor judgment, whereas other commenters
supported their use as an effective means of ensuring that counselors
had ready access to information typically found in guidance materials.
By including the examples in the regulations, the Secretary intends to
make the regulations more comprehensive and useful. The Secretary
emphasizes, both here and throughout the section-by-section summary,
that the examples are provided solely for the purposes of illustration,
do not address all situations that a rehabilitation counselor may face,
and are not intended to preclude individual counselor judgment on a
case-by-case basis. The examples are merely guidance material to which
rehabilitation professionals can quickly refer.
References in the section-by-section summary to the ``proposed
regulations,'' as opposed to the ``draft regulations,'' refer to
regulatory provisions included in this NPRM.
Section-by-Section Summary
Section 361.1--Purpose
This proposed new section of the regulations would incorporate the
language in section 100(a)(2) of the statute, which emphasizes the goal
of gainful employment for individuals with disabilities and the
responsibility of States to operate comprehensive, coordinated,
effective, efficient, and accountable programs that are designed to
assess, plan, develop, and provide vocational rehabilitation services.
The Secretary interprets the statutory term ``gainful employment'' to
have the same meaning as the term ``employment outcome,'' as it is
defined in the proposed regulations.
Section 361.2--Eligibility for a Grant
This new section is proposed for clarification. A similar section
was proposed in the 1991 NPRM.
Section 361.3--Authorized Activities
This new section is proposed to clarify how the funds under this
program can be used. A similar section was proposed in the 1991 NPRM.
It also incorporates the new statutory provision in section 111(a)(1)
of the Act that funds may be used to develop and implement the
strategic plan.
Section 361.4--Applicable Regulations
This proposed section would revise Sec. 361.1(b)(1) of the existing
regulations to clarify that the reference to 34 CFR Part 74
(Administration of Grants to Institutions of Higher Education,
Hospitals, and Nonprofit Organizations) applies only to the award of
subgrants by vocational rehabilitation agencies to entities that are
not State or local governments or Indian tribal organizations and to
remove the reference to 34 CFR Part 78 (The Education Appeal Board)
because it has been deleted from the Education Department General
Administrative Regulations (EDGAR). In addition, the proposed section
would add references to 34 CFR Parts 80, 81, 82, 85, and 86 because
those parts have been added to EDGAR since the regulations for this
program were last revised, and they are applicable to this program.
[[Page 64478]]
Section 361.5--Applicable Definitions
This proposed section is taken from Sec. 361.1(c) of the existing
regulations. It has been revised to incorporate changes in the
definitions in section 7 of the Act that were made by the 1992
Amendments. The definitions are organized alphabetically and are
numbered for purposes of quick identification.
The following definitions from the current regulations are not
included in the proposed regulations since the terms have been removed
or replaced in the Act: ``employability,'' ``evaluation of vocational
rehabilitation potential,'' ``initial expenditure,'' ``rehabilitation
facility,'' and ``time-limited services.'' In addition, the term
``workshop'' is not used or defined in the proposed regulations.
Statutory definitions of the following terms have been added to the
proposed regulations without substantive change: ``assistive technology
device,'' ``assistive technology service,'' ``extended services,''
``impartial hearing officer,'' ``ongoing support services,'' ``personal
assistance services,'' ``rehabilitation technology,'' ``supported
employment,'' ``supported employment services,'' and ``transition
services. In addition, definitions of ``American Indian'' and ``State''
have been revised to reflect statutory changes made by the 1992
Amendments.
Definitions of the terms ``community rehabilitation program'' and
``employment outcome,'' which are defined in the Act, have been revised
to clarify or elaborate on the statutory definitions. The proposed
definition of ``community rehabilitation program'' incorporates the
definition in section 7(25) of the Act, but would add a definition of
the word ``program'' to clarify that community rehabilitation programs
do not include individual practitioners, such as physicians or physical
therapists, who provide VR services but are not affiliated with an
agency, organization, or institution that provides VR services as one
of its major functions. This clarification is based on the Secretary's
view that Congress did not intend for the assessment of the capacity
and effectiveness of community rehabilitation programs and related
requirements to include every individual person who provides VR
services. However, the Secretary interprets the term community
rehabilitation program and the associated requirements to apply to a
vocational rehabilitation services unit of a hospital. In addition, in
response to public comment on the draft regulations, the Secretary
proposes to broaden the meaning of the term ``program'' from an entity
that provides or facilitates the provision of VR services as its
primary function to an entity that provides or facilitates the
provision of VR services as one of its major functions. This change
would enable, for example, a local affiliate of the United Cerebral
Policy Foundation that provides VR services, in addition to
disseminating information and providing educational services, to be
considered a ``community rehabilitation program'' under the definition.
The proposed definition of ``employment outcome'' elaborates on the
definition in section 7(5) of the Act by incorporating into the
definition the concept in the Act that an employment outcome must be
consistent with an individual's strengths, resources, priorities,
concerns, abilities, capabilities, interests, and informed choice. The
proposed definition would replace the definition of ``employability''
in Sec. 361.1 of the existing regulations. In response to the draft
regulations, several commenters expressed concern about the scope of
permissible employment outcomes under the definition. Although the
proposed definition, unlike the current regulatory definition of
``employability,'' does not identify a full range of permissible
employment outcomes under the vocational rehabilitation services
program, the Secretary does not intend the proposed definition to
exclude any employment outcome that has been permitted in the past.
Thus, for example, homemaker, extended employment, and self-employment
remain acceptable employment outcomes. The proposed definition does,
however, recognize competitive employment as the optimal employment
outcome under the program, and language emphasizing this has been added
to the definition.
The Secretary proposes new definitions or revisions to the
definitions in the existing regulations for the following terms that
are not defined in the Act: ``administrative costs,'' ``applicant,''
``appropriate modes of communication,'' ``comparable services and
benefits,'' ``competitive employment,'' ``construction of a facility
for a public or nonprofit community rehabilitation program,''
``establishment, development, or improvement of a public or nonprofit
community rehabilitation program,'' ``establishment of a facility for a
public or nonprofit community rehabilitation program,'' ``extended
employment,'' ``family member,'' ``individual's representative,''
``integrated setting,'' ``maintenance,'' ``post-employment services,''
``transitioning student,'' and ``transportation.''
The proposed definition of ``administrative costs'' is based on
existing RSA subregulatory guidance and definitions of the term that
are used in other RSA programs. The definition, which is substantially
the same as the definition of ``administrative costs'' in the draft
regulations, lists, as examples, certain types of expenses that would
constitute administrative costs. Several commenters on the draft
regulations suggested adding other items to the definition. In
response, the Secretary has amended the definition of ``administrative
costs'' to clarify that the types of expenses listed in the definition
are intended only as examples and that other expenditures would be
considered administrative costs as long as those expenditures relate to
program planning, development, monitoring, and evaluation.
The Secretary proposes to define ``applicant'' for clarification by
referencing the requirements for submitting an application in
Sec. 361.41(b)(2) of the proposed regulations.
In response to public comment on the draft regulations, the
Secretary proposes to change the term ``special modes of
communication'' to ``appropriate modes of communication'' to ensure
consistency with the Americans with Disabilities Act (ADA). In
addition, the Secretary proposes to eliminate references in the
definition to individuals who are blind, deaf, or hearing-impaired to
clarify that the proposed definition is not limited by type of
disability and that it includes all appropriate modes of communication
necessary to enable any individual with a disability to comprehend
information being communicated.
Finally, the Secretary has expanded the list of examples of
communication services and materials in the proposed definition.
However, the Secretary does not consider the list to be all-inclusive
and emphasizes that other appropriate modes of communication not
specified in the proposed definition are also available.
The proposed definition of ``comparable services and benefits'' is
based on a definition of that term that was proposed in the 1991 NPRM.
It is intended to support the statutory purpose of conserving
rehabilitation funds, while ensuring the provision of appropriate and
timely services in lieu of those provided by the DSU. The proposed
definition revises the definition proposed in the 1991 NPRM to remove
private agencies (i.e., community, philanthropic, and other
[[Page 64479]]
private entities that are not VR service providers but do provide
financial or other assistance to individuals with disabilities to help
meet VR needs, such as scholarship assistance from a local Lions Club)
as one of the sources of comparable services and benefits because the
Secretary interprets the reference in the statute to ``other programs''
to mean other public programs. In addition, the Secretary believes it
would be too burdensome to require State agencies to determine the
availability of comparable services and benefits from private agencies
prior to providing services and benefits under this program. The
Secretary would, however, continue to encourage State agencies to use
services and benefits that are available from private agencies to the
extent they are known. In response to public comment on the draft
regulations, the Secretary has further amended the term by clarifying
that comparable services and benefits must be available ``within a
reasonable period of time'' and must be commensurate with the services
that the individual would otherwise receive from the VR agency.
In response to public comment on the draft regulations, the
Secretary has consolidated the definitions of ``competitive
employment'' and ``competitive work'' from the draft regulations into a
single proposed definition of ``competitive employment.'' The
consolidated definition recognizes that integration (i.e., an
employment outcome in an integrated job setting) is an element of
competitive employment, rather than a separate concept. It would
establish a general requirement that individuals must receive
compensation that is at or above the minimum wage, but not less than
the prevailing community wage for non-disabled individuals performing
the same or similar work.
The consolidated definition would apply to supported employment as
well as to other kinds of competitive employment outcomes. Under the
proposed definition, however, an employment outcome in a supported
employment setting in which an individual receives wages below the
minimum wage in accordance with section 14(c) of the Fair Labor
Standards Act (FLSA) (i.e., wages based on individual productivity)
would no longer be considered competitive employment. Although this
proposed change would represent a significant departure from
longstanding RSA regulatory policy, the Secretary agrees with those
public commenters who suggested that competitive employment outcomes
should be limited to those in which individuals are compensated at or
above the minimum wage. In addition, this proposed change is consistent
with section 101(a)(16) of the Act, which requires DSUs annually to
review and reevaluate the status of each individual in an employment
setting under section 14(c) of the FLSA in order to determine the
individual's readiness for competitive employment. This statutory
requirement indicates that supported employment settings in which
individuals are compensated below minimum wage in accordance with the
FLSA do not constitute competitive employment. The Secretary also notes
that the proposed change would have the effect of requiring individuals
in supported employment to earn at least the minimum wage in order to
receive services under Title VI, Part C of the Act. Finally, so that
the impact of this proposed change can be appropriately evaluated, the
Secretary requests public comment on the extent to which individuals
currently in supported employment earn less than the minimum wage.
The proposed definition of the term ``construction of a facility
for a public or nonprofit community rehabilitation program'' is based
on the definition of the term ``construction of a rehabilitation
facility'' in Sec. 361.1(c) of the existing regulations and the
definition of the term ``construction'' in section 7(1) of the Act. The
proposed regulations also incorporate the 1992 Amendments, which
replaced the concept of rehabilitation facilities with ``community
rehabilitation programs.'' The word ``facility'' is used in the
proposed regulations only to refer to a ``building'' or ``structure.''
In addition, the Secretary proposes to fold into this definition all
authorized construction expenditures under this program, which are
currently contained in Sec. 361.74(a) of the existing regulations.
The Secretary proposes to define the term ``eligible individual''
for clarification throughout the regulations by referencing the basic
eligibility criteria in proposed Sec. 361.42(a).
The proposed definition of the term ``establishment, development,
or improvement of a public or nonprofit community rehabilitation
program'' elaborates on the statutory definition of the term
``establishment of a community rehabilitation program'' by
incorporating all of the types of expenditures for which a State unit
can receive Federal financial participation. These provisions are taken
from Sec. 361.73(a) of the existing regulations and include the
limitations on staffing costs initially proposed in the 1991 NPRM.
The Secretary proposes to define separately the term
``establishment of a facility for a public or nonprofit community
rehabilitation program'' for purposes of clarification. The proposed
definition covers only those authorized activities contained in the
definition of ``establishment, development, or improvement of a public
or nonprofit community rehabilitation program'' that involve
facilities. In response to public comment about these three terms, the
Secretary wishes to emphasize that funds under this program cannot be
used to support community rehabilitation programs that are profitmaking
organizations.
In response to public comment on the draft regulations, the
Secretary has amended the proposed definition of the term ``extended
employment'' to clarify that it means work in a non-integrated or
sheltered setting for a public or private nonprofit agency or
organization that provides compensation in accordance with the Fair
Labor Standards Act as well as any on-the-job support services the
individual might require. In response to several commenters who
expressed concern with language in the draft definition that stated
that some individuals in extended employment ``are not ready for
competitive employment,'' the Secretary has modified the proposed
definition to clarify that the purpose of extended employment is to
enable individuals to continue to train or otherwise prepare for
competitive employment, unless the individual makes an informed choice
to remain in extended employment.
In response to public comment, the definition of the term ``family
member'' has been revised to mean any individual (1) who is a relative
or guardian, or who lives in the same household as an applicant or
eligible individual regardless of their interpersonal relationship; (2)
who has a substantial interest in the well-being of that individual;
and (3) who needs vocational rehabilitation services to enable the
applicant or eligible individual to achieve an employment outcome.
In response to public comment on the draft regulations, the
Secretary proposes to amend the definition of the term ``impartial
hearing officer'' to clarify that a member of the DSU's rehabilitation
advisory council may not serve as an impartial hearing officer for that
same DSU. Under the proposed definition, however, a member of the State
Rehabilitation Advisory Council could serve as an impartial hearing
officer in cases involving another DSU within the same State. For
example, a member of the State Rehabilitation
[[Page 64480]]
Advisory Council for a State unit serving individuals who are blind
would not be precluded, solely on the basis of that membership, from
serving as an impartial hearing officer in cases involving the State
unit that serves individuals other than individuals with visual
disabilities.
The Secretary proposes to include the term ``individual with a most
severe disability'' in the definitions to clarify that States are
required to define the term as a subset of and consistent with the
definition of the statutory term ``individual with a severe
disability.''
The Secretary proposes to define the term ``individual's
representative,'' consistent with the list of potential representatives
in the Act, so that the defined term, rather than the long list of
potential representatives, can be referenced throughout the
regulations. In response to public comment on the draft regulations,
the Secretary proposes to amend the definition to clarify that it means
any representative chosen by an applicant or eligible individual,
including a parent, guardian, other family member, or advocate, unless
a representative has been appointed by a court to represent the
interests of the individual, in which case the court-appointed
representative is the individual's representative.
The proposed definition of the term ``integrated setting'' is
designed to implement the intent of the statute that individuals
receive VR services and achieve employment outcomes in the most
integrated settings possible, consistent with the individual's informed
choice. In the draft regulations the term was defined broadly to mean a
setting in which the majority of individuals with whom individuals with
disabilities interact meaningfully, excluding service providers, are
non-disabled individuals. In response to public comment on the draft
regulations, the Secretary proposes to amend the term by requiring that
applicants or eligible individuals need only be given the opportunity
to interact with non-disabled individuals, excluding service providers,
on a regular basis for a setting to be considered integrated. This
proposed change would permit employment at a center for independent
living, for example, to be considered integrated as long as the
employee has the opportunity to regularly interact with non-disabled
persons, even though the Act requires that a majority of a center's
employees be disabled. The proposed definition also applies to
supported employment placements. A separate definition of
``integration'' for supported employment placements is, therefore, no
longer needed and is not included in the proposed regulations.
``Maintenance'' would be defined to clarify that it includes living
expenses (e.g., food, shelter, and clothing) only to the extent that
they are in excess of an individual's normal expenses and that it is
available only for eligible individuals and individuals receiving
extended evaluation services. The proposed definition reflects
statutory language in section 103(a)(5) of the Act that limits the
provision of maintenance to ``additional costs while participating in
rehabilitation.'' The Secretary considers an individual to be
participating in rehabilitation if the individual is receiving services
under an individualized written rehabilitation program (IWRP) or under
a written plan for providing extended evaluation services. The
provision of maintenance must be tied to other needed services.
Maintenance, however, cannot be used to pay the expenses of all
applicants receiving assessment services, as several commenters urged.
As discussed later in the definitions section of the preamble, the
Secretary believes, however, that the short-term costs of food and
shelter of applicants who are required to travel to receive assessment
services, and who are not receiving extended evaluation services, could
be covered as a transportation expense. In addition, the Secretary
proposes a note following the proposed definition of maintenance that
provides examples of permissible maintenance expenses. The last example
was added in response to public comment and indicates that maintenance
can be used to cover the costs of food, shelter, and clothing of
homeless or recently deinstitutionalized individuals until other
financial assistance can be secured for those costs. The Secretary
emphasizes that the examples are provided solely for the purposes of
illustration and do not preclude designated State units from providing
maintenance in other appropriate situations.
In response to public comment on the draft regulations, the
Secretary proposes to amend the definition of the term ``ongoing
support services'' by removing the requirement that the assessment of
an individual's employment stability include one monthly contact with
the individual's employer whenever the IWRP of an individual in
supported employment provides for off-site monitoring. The Secretary
emphasizes, however, that contacts with employers are authorized as
follow-up services under paragraph (iii)(F) of the proposed definition
and could be provided as often as necessary to reinforce a supported
employment placement.
In response to public comment on the draft regulations, the
Secretary proposes to amend the definition of the term ``physical and
mental restoration service'' by deleting from the proposed definition
certain services that are not specifically identified in the statute.
For example, ``convalescent or nursing home care'' has been deleted
since it is not specified in section 103(a)(4) of the Act and is viewed
as a type of long-term care rather than a restoration service.
In response to public comment on the draft regulations, the
Secretary proposes to amend the definition of the term ``physical or
mental impairment'' to mean an injury, disease, or other condition that
materially limits, or if not treated will result in materially
limiting, mental or physical functioning.
The Secretary proposes to define ``post-employment services'' based
on existing subregulatory guidance. In response to public comment on
the draft regulations, the Secretary has amended the proposed
definition to clarify that post-employment services are any vocational
rehabilitation services for individuals that are provided subsequent to
the achievement of an employment outcome and that are necessary to
enable the individual to maintain, regain, or advance in employment
consistent with the individual's strengths, resources, priorities,
concerns, abilities, capabilities, and interests. In addition, the
Secretary proposes to amend the note following the proposed definition
in order to further explain the circumstances under which post-
employment services may be provided.
In response to public comment on the draft regulations, the
Secretary has amended the definition of the term ``substantial
impediment to employment,'' as used in the criteria for determining
eligibility under Sec. 361.42(a)(1), to mean a physical or mental
impairment that hinders (rather than ``prevents'') an individual from
preparing for, entering into, engaging in, or retaining employment
consistent with the individual's abilities and capabilities. The
Secretary proposes to delete the provision in the draft regulations
that the impairment hinder the individual from employment that is
consistent with the individual's interests. The purpose of this change
is to clarify that an individual with an impairment who is not
interested in his or her current employment does not, based on that
lack of interest alone, have a substantial impediment to employment.
In response to public comment on the draft regulations and
consistent with section 103(a)(14) of the Act, the
[[Page 64481]]
Secretary proposes to amend the definition of the term ``transition
services'' to clarify that transition services must promote or
facilitate the accomplishment of long-term rehabilitation goals and
intermediate rehabilitation objectives identified in the transitioning
student's IWRP.
In response to public commenters who sought further clarification
of the term ``transitioning student'' in the draft regulations, the
Secretary proposes to define the term to mean a student who is eligible
to receive vocational rehabilitation services and is receiving
``transition services'' as defined in the regulations.
The Secretary proposes to define the term ``transportation'' on the
basis of existing subregulatory guidance. In addition, the Secretary
has included a note following the proposed definition that provides
examples of permissible transportation expenses. One of these examples
covers the short-term, travel-related expenses (i.e., food and shelter)
of applicants receiving assessment services. These expenses, as
discussed previously, cannot be provided under the maintenance
authority. The Secretary also emphasizes that these examples are
provided solely for the purposes of illustration and do not preclude
DSUs from providing transportation costs in other appropriate
situations.
Finally, the following nomenclature changes from the Act have been
incorporated into the definitions and throughout the regulations:
references to all forms of the word ``handicap'' have been changed to
the corresponding form of the word ``disability;'' certain references
to the word ``disability'' have been replaced by the word
``impairment'' (e.g., physical or mental impairment); and the word
``client'' has been removed and replaced with other appropriate terms,
including ``applicant,'' ``eligible individual,'' ``individual,'' or
``individual with a disability.''
The Secretary also notes that proposed changes to supported
employment definitions included in this NPRM would also affect those
definitions in 34 CFR Parts 363, 376, and 380.
Section 361.10--Submission, Approval, and Disapproval of the State Plan
Proposed Sec. 361.10 contains certain requirements from Secs. 361.2
and 361.3 of the existing regulations relating to the purpose,
duration, development, submission, and approval of the State plan. Many
of the other requirements in Secs. 361.2 and 361.3 of the existing
regulations have been relocated to other sections of the proposed
regulations because they deal with the substance and administration of
the State plan. Proposed Sec. 361.10 also incorporates the new
statutory provision that authorizes the Secretary to approve the
submission of a State plan for a period other than three years if it
corresponds to the period required for another plan required under
Federal law. Proposed paragraph (j) of this section provides the
procedures for disapproval of the State plan. The procedural
protections would be the same as those that are currently provided when
the Secretary withholds funds.
Paragraphs (e) and (f) of Sec. 361.2 of the existing regulations,
which contain provisions regarding the designation of and transition to
a new State agency or State unit, would be removed from the proposed
regulations. The 1991 NPRM proposed removal of these requirements
because of the paperwork burden, and they have been omitted in this
NPRM for the same reason.
Section 361.11--Withholding of Funds
Proposed Sec. 361.11 revises Sec. 361.4 of the existing regulations
to make withholding hearings under this program subject to the
jurisdiction of and the procedural requirements governing the
Department's Office of Administrative Law Judges in EDGAR, 34 CFR Part
81, rather than program specific hearing procedures in current
Secs. 361.170 through 361.186, which would be repealed. This is
consistent with the changes proposed in the 1991 NPRM.
Section 361.12--Methods of Administration
This proposed section is taken from Sec. 361.10 of the existing
regulations. The proposed regulations add a clause to clarify that
proper and efficient administration of the State plan includes
procedures to ensure accurate data collection and financial
accountability.
Section 361.13--State Agency for Administration
This proposed section consolidates information contained in
Secs. 361.5, 361.6, and 361.8 of the existing regulations regarding the
designation of the State agency, the organizational level and status of
the State unit, and the full-time director requirement.
In an effort to reduce the regulatory burden and increase State
flexibility in accordance with the Department's principles for
regulating, the Secretary proposes to delete the requirement in
Sec. 361.13(a)(1)(i) of the draft regulations and Sec. 361.5(b)(1) of
the current regulations that a designated State agency that has as its
major function vocational rehabilitation or vocational and other
rehabilitation of individuals with disabilities also ``have the
authority, subject to the supervision of the Governor, if appropriate,
to define the scope of the program within the provisions of State and
Federal law and to direct its administration without external
administrative controls.'' Elimination of this non-statutory
requirement, which applies currently to only one of the three sole
State agency options identified in the regulations, is intended to
increase State flexibility in locating and administering its vocational
rehabilitation program.
Several commenters on the draft regulations requested clarification
of the requirement in Sec. 361.13(b)(1)(iii) that at least 90 percent
of the State unit staff work full-time on the rehabilitation work of
the organizational unit, which must be primarily concerned with
vocational rehabilitation or vocational rehabilitation and other
rehabilitation. This requirement means that if the organizational unit
provides other rehabilitation services, in addition to vocational
rehabilitation, the 90 percent staffing requirement applies to all unit
staff providing rehabilitation services, not to just the vocational
rehabilitation staff. ``Other rehabilitation'' includes, but is not
limited to, other programs that provide medical, psychological,
educational, or social services to individuals with disabilities. For
example, a State unit with 90 percent of its staff working on
independent living services, programs for the developmentally disabled,
disabled children's services, services for individuals who are deaf or
hearing-impaired, services for individuals who are blind or visually
impaired, Social Security disability determinations, or some other type
of program related to individuals with disabilities, in addition to
vocational rehabilitation, would satisfy the 90 percent requirement.
The Secretary also notes that Federal funds under this program may be
used only to pay the salaries of the State unit staff that are working
full-time or part-time on vocational rehabilitation.
In accordance with the Department's principles for regulating, the
Secretary also proposes to delete the requirement in Sec. 361.13(c) of
the draft regulations and Sec. 361.6(a) of the current regulations that
the State plan describe the organizational structure of the State
agency and its organizational units. The Secretary instead would rely
on an assurance, required by statute, that a State agency that is
required to have a vocational rehabilitation unit locate that
[[Page 64482]]
unit at an organizational level comparable to other organizational
units within the State agency. This proposed change is intended to
reduce paperwork burdens on State agencies in developing their State
plans.
The Secretary is not proposing any substantive changes in paragraph
(d) of this section to the requirements in current Sec. 361.5(e) with
regard to the responsibility of the designated State unit for
administration of the vocational rehabilitation program, but is
soliciting public comment on the need for changes.
The current regulations specify certain program functions or
activities (determinations of eligibility, development of IWRPs, and
decisions regarding the provision of services) that must be the
responsibility of the DSU and that cannot be delegated to any other
agency or individual. This non-delegation provision has been
interpreted by RSA to mean that the DSU must carry out these functions
or activities using its own staff. The draft proposed regulations,
consistent with RSA subregulatory policy, specified additional program
functions that must be carried out by the DSU: determinations that
service recipients have achieved appropriate employment outcomes, the
formulation and implementation of program policy, and the allocation
and expenditure of program funds. The draft proposed regulations also
would have strengthened the role of the State unit by requiring that
the unit have a substantial role in all decisions affecting the
administration of the VR program whenever management functions within
the State agency are centralized.
Public comment on these draft proposed changes was neither
extensive nor consistent. Some State VR directors supported a
strengthening of the role and authority of the DSU but thought the
draft proposed regulations were not strong enough, while other
commenters thought the regulations were too prescriptive and believed
that the only program function that must be carried out directly by DSU
staff is eligibility determinations.
In light of the mixed public comment received thus far and the
Administration's regulatory reinvention initiative, which is intended
to increase State flexibility in administering Federally funded
programs whenever permitted by statute, the Department is soliciting
additional public comment on the following questions: Should the
regulations expand or otherwise clarify essential program functions for
which the DSU must be responsible in order to meet the statutory
requirement in section 101(a)(2)(A) that it be responsible for the VR
program? Must these essential program functions be carried out by DSU
staff or should the regulations provide States as much flexibility as
possible to determine how to carry out these functions as long as the
DSU retains administrative oversight in these areas? Any changes made
to provide increased flexibility to States would not require DSUs to
change their current administrative practices but would provide States
additional flexibility to restructure, consolidate, or contract out
program operations as long as the DSU retains ultimate responsibility.
Section 361.14--Substitute State Agency
This proposed section revises certain requirements regarding the
selection of a substitute State agency (Sec. 361.7 of the existing
regulations) in order to simplify the process and reduce the paperwork
burden. The existing regulations permit applications from a potentially
unlimited number of substitute State agency applicants, from which the
Secretary selects the substitute State agency based on detailed
criteria in the existing regulations. The proposed regulations place
the authority and responsibility for the selection of a substitute
State agency on the State so that the Secretary would need only to
review and approve a State plan from one substitute State agency prior
to providing funds.
Section 361.15--Local Administration
This proposed section simplifies Sec. 361.9 of the current
regulations by removing the requirements related to a written agreement
between a sole local agency and the State unit in order to reduce the
paperwork burden on States. It proposes to replace the written
agreement requirements with assurances from the State unit in the State
plan relating to the administration and supervision of a sole local
agency.
Section 361.16--Establishment of an Independent Commission or a State
Rehabilitation Advisory Council
This proposed new section implements the new requirements related
to the State Rehabilitation Advisory Council (Council) in section
101(a)(36) of the Act. The proposed section clarifies that a State does
not need to establish a Council or meet the requirements related to a
Council if the State agency is a consumer-controlled independent
commission. The proposed section also clarifies that if the State has a
separate State agency for individuals who are blind, four options
regarding the possible combinations of the two State agencies exist.
Although only three options are identified in the Act, the section-by-
section analysis of the Act in the Conference Report clarifies that the
fourth option, a mirror image of the third combination identified in
the Act, is also acceptable. This option is contained in proposed
paragraph (b)(4) of this section.
Section 361.17--Requirements for a State Rehabilitation Advisory
Council
This proposed new section incorporates the new statutory
requirements in section 105 of the Act with the clarification that the
director of the DSU is a nonvoting member of the State Rehabilitation
Advisory Council. Since the purpose of the Council is to advise the
State unit, and the statute is clear that the director is an ex-officio
member of the Council, the Secretary does not believe that Congress
intended that the director of the State unit provide advice to herself
or himself by voting on Council decisions. Similarly, the Secretary has
clarified the regulations to state that any employee of the designated
State agency may serve only as a nonvoting member of the Council.
Several commenters on the draft regulation sought clarification
with respect to the appointment of Council representatives from the
Client Assistance Program (CAP) and the Statewide Independent Living
Council (SILC). In response, the Secretary proposes to amend the
regulations to clarify that the role of the CAP and SILC is to
recommend to the Governor, or other appropriate appointment authority
designated by State law, Council representatives for their respective
organizations. Based on these recommendations, the Governor or other
State-designated authority determines who will be the Council
appointees, since the statute clearly vests appointment authority in
those entities. The Secretary also notes that those individuals
recommended for Council membership by the CAP or SILC need not be CAP
or SILC members.
In addition, in response to public comment on the draft
regulations, the Secretary emphasizes that, although the Council must
be composed of at least 13 members (unless the State qualifies for an
exception under paragraph (b)(4) of this section), a State is not
precluded from having more than 13 individuals serve on its Council.
The Secretary also encourages States to consider appointing Council
members from minority backgrounds consistent with the 1992 Amendments
to the Act, which emphasizes outreach
[[Page 64483]]
to individuals from minority backgrounds and the need for
rehabilitation programs to better reflect the culturally diverse
population of the United States.
Finally, in response to public comment on the draft regulations,
the Secretary proposes to amend the annual reporting requirements of
the Council by requiring the Council to submit to the Governor, or
other appropriate State entity, and to the Secretary an annual report
of the status of the State's vocational rehabilitation programs within
90, rather than 60, days from the end of the fiscal year and by
requiring that the report be available through appropriate modes of
communication.
Section 361.18--Comprehensive System of Personnel Development
This proposed new section incorporates the new statutory
requirements in sections 101(a)(7) and 101(a)(35) of the Act. The
requirements in section 101(a)(7) of the Act are virtually identical to
requirements for a comprehensive system of personnel development under
the Individuals with Disabilities Education Act (IDEA). For this
reason, this section of the proposed regulations closely tracks the
regulations implementing the IDEA requirements (34 CFR 300.380 through
300.383), with modifications to better reflect the context of the State
Vocational Rehabilitation Services Program.
Some commenters on the draft regulations questioned the basis for
requiring the involvement of the State Rehabilitation Advisory Council
in the development of personnel standards. The Act requires that the
Council generally advise the State unit in connection with the carrying
out of its programmatic responsibilities. In addition, the State agency
is required to consult, and seek advice from, the Council on issues
affecting the development of the State plan. Because an effective
system of personnel development is an essential part of the State plan
and a critical element to the success of the State Vocational
Rehabilitation Services Program, the Secretary considers it necessary
for the Council to participate in the development of State personnel
standards.
Paragraph (a) of this section requires that the State plan include,
on an annual basis, a description of a system for collecting and
analyzing personnel data. Several commenters on the draft regulations
expressed concern about the amount of data that must be provided to the
Secretary under this provision. In response, the Secretary emphasizes
that, although annual data collection and analysis requirements are
statutorily imposed, the proposed regulations require only that the
State plan include a description of the system used to collect the data
on personnel needs and personnel development and do not require the
State to submit the actual data to the Secretary.
In response to public comment on the draft regulations, the
Secretary proposes to broaden the definition of the term ``highest
requirements in the State applicable to that profession or
discipline,'' as used in the development and maintenance of personnel
standards by the State, to mean the highest entry-level academic degree
or equivalent experience needed to meet any national- or State-
recognized certification, licensing, registration, or other comparable
requirements that apply to a profession or discipline. The purpose of
this change is to recognize that some States base their personnel
standards, in part, on relevant work experience by substituting
equivalent work experience for certain academic credentials. State
standards of this type would meet this definition. This change,
however, would not allow work experience to substitute for academic
requirements if the existing State standard is based only on academic
credentials.
The Secretary also believes that permitting States to base highest
personnel standards in the State on equivalent experience, as well as
on academic degrees, stresses the significance of relevant work
experience and will diversify further the pool from which qualified
personnel can be selected.
Several commenters on the draft regulations suggested areas of
training in addition to rehabilitation technology that should be
required in the regulations as part of the State's program of staff
development. The Secretary believes that the specific training areas
for staff development adopted by a State unit must be based on the
particular needs of that State unit. The Secretary recognizes, however,
that staff development may include, but is not limited to, training
with respect to the requirements of the Americans with Disabilities
Act, IDEA, and Social Security incentive programs, training to
facilitate informed choice under this program, and training to improve
the provision of services to culturally diverse populations. A
provision to this effect has been added to the proposed regulations.
In response to public comment on the draft regulations, the
Secretary proposes to change the reference in paragraph (e) of this
section from ``special communication needs personnel'' to ``personnel
to address individual communication needs'' and has clarified this
provision by requiring the State unit to describe in the State plan how
it includes among its personnel, or obtains the services of,
individuals able to communicate in the native languages of applicants
and eligible individuals who have limited English speaking ability.
That personnel may include State agency staff, family members of an
applicant or eligible individual, community volunteers, and other
individuals able to communicate in the appropriate native language. The
State unit also must describe how it ensures that appropriate modes of
communication are used for all applicants and eligible individuals.
In response to public comment on the draft regulations, the
Secretary wishes to stress the importance of requiring in the State
plan a description of the State's personnel performance evaluation
system that facilitates, and does not impede, the purposes and policies
of the vocational rehabilitation services program outlined in the Act.
More precisely, the proposed regulations require that the evaluation
system further the statutory policy of serving individuals with the
most severe disabilities. In support of this requirement, the Senate
Committee on Labor and Human Resources states in its report that it
``is concerned that in some States, procedures used for evaluating
performance of counselors may have the unintended consequence of
providing a disincentive to serve individuals with the most severe
disabilities and those clients requiring complex services.'' The
performance evaluation system required under the Act and included in
the proposed regulations is designed to address these disincentives.
The Secretary proposes to modify paragraph (g) of this section to
track section 101(a)(7)(A)(ii) of the Act, which requires the State
agency to describe the activities it will undertake to coordinate its
comprehensive system of personnel development with personnel
development under IDEA. This proposed change is intended to increase
the flexibility of State agencies to implement the most effective
procedures for coordinating the development of personnel under both
statutes. An example of how a State may address this coordination
requirement would be to establish a joint continuing education program
for both DSU personnel and personnel under IDEA that deals with the
provision of VR services, including transition services, to
transitioning students.
[[Page 64484]]
Section 361.19--Affirmative Action for Individuals With Disabilities
This proposed section, which is based on section 101(a)(6)(A) of
the Act and Sec. 361.15 of the existing regulations, requires the State
agency to take affirmative action to employ and advance in employment
qualified individuals with disabilities. In accordance with the
Department's principles for regulating, the Secretary proposes to
delete the non-statutory requirement in the draft regulations and the
current regulations that the State unit develop an affirmative action
plan that provides for specific goals, action steps, timetables,
evaluation criteria for measuring progress, and complaint and
enforcement procedures. By not requiring a formal affirmative action
plan or specifying the minimum requirements a State must incorporate
into that plan, the proposed provision would give State agencies
greater flexibility to take those steps it considers most appropriate
for increasing the number of qualified individuals with disabilities
that it employs or advances in employment. The proposed changes also
would reduce State paperwork burdens.
Section 361.20--State Plan Development
This proposed section revises Sec. 361.18 of the existing
regulations to implement new requirements in section 101(a)(23) of the
Act.
Consistent with section 101(a)(23) of the Act, paragraph (a)(1) of
this section of the regulations would require the State unit to conduct
public meetings throughout the State to provide all segments of the
public, including interested groups, organizations, and individuals, an
opportunity to comment on the State plan prior to its development and
to comment on any revisions to the State plan. In accordance with the
Department's principles for regulating, the Secretary believes that
States should have the latitude to develop their own procedures for
ensuring that interested parties are afforded a meaningful opportunity
to comment on the State plan before it is developed and when it is
revised. Additionally, in order to satisfy the statutory requirement
that the State unit, prior to conducting public meetings throughout the
State, provide appropriate and sufficient notice of the public
meetings, the proposed regulations would require the State unit to
follow notice requirements established under State law or, in the
absence of those requirements, to consult with the State Rehabilitation
Advisory Council to develop notice procedures. The proposed regulations
would not impose any specific minimum Federal requirements for what
constitutes ``appropriate and sufficient notice.''
In response to those commenters who sought regulatory clarification
of the public participation and notice requirements of this section,
the Secretary provides the following examples as suggested ways a DSU
might meet these requirements. A State unit could satisfy the public
participation requirement, for example, by soliciting input from the
public before developing a preliminary draft State plan and making the
preliminary draft plan available to the public 30 days prior to the
public meetings. An example of ``appropriate and sufficient notice'' of
public meetings would be notice that is provided at least 30 days prior
to a public meeting through various media available to the general
public, such as newspapers and public service announcements, and
through specific contacts with appropriate constituency groups and
organizations identified by the State unit, in consultation with the
State Rehabilitation Advisory Council. An example of how a State unit
could meet the statutory requirement that it ``conduct public meetings
throughout the State,'' would be to hold public meetings in at least
two different geographic locations that are among the State's most
densely populated areas and at sites that are accessible to individuals
with disabilities.
Some commenters on the draft regulations suggested that larger
States be required to hold a greater number of public meetings than
smaller States, while other commenters suggested that States make use
of emerging technologies that enable individuals to participate in
public meetings without having to be in attendance. The Secretary
encourages each State to hold as many public meetings as are necessary
to ensure meaningful participation of all interested persons and
organizations in that State. The Secretary also urges States to
consider using alternative or emerging technologies that allow for
wider public participation. The proposed regulations are intended to
provide each State with the flexibility to choose the manner in which
it conducts public meetings (e.g., in person, satellite broadcasts,
teleconferences, or a combination thereof) as long as the meetings are
truly interactive and are designed to maximize the opportunity for
meaningful participation.
The proposed section also would implement the new statutory
provision in section 105(c)(2) of the Act that requires the State
Rehabilitation Advisory Council to advise the State unit on the
preparation of the State plan by requiring the State unit to consult
with the Council in the development of the State plan. Finally, the
proposed section implements the new statutory requirement in section
101 (a)(32) of the Act that the State plan describe the manner in which
it will modify State policy and procedures in response to consumer
satisfaction surveys.
Section 361.21--Consultations Regarding the Administration of the State
Plan
This proposed section is also taken from Sec. 361.18 of the
existing regulations. It incorporates section 101(a)(18) of the Act,
including the new statutory requirement regarding consultation with the
director of the CAP. It would also require consultation with the State
Rehabilitation Advisory Council, consistent with the Council functions
in new section 105(c) of the Act. It proposes to remove provisions in
the existing regulations that list examples of matters of general
policy development and implementation. Finally, this proposed section,
as well as the previous section, would implement new section 101(a)(32)
of the Act, which requires the State plan to describe the manner in
which the State will modify State policy and procedures in response to
consumer satisfaction surveys.
Section 361.22--Cooperation With Agencies Responsible for Transitioning
Students
This proposed new section combines Sec. 361.19(b) of the existing
regulations, which requires the State plan to provide for the
coordination of services for individuals who are eligible both for
vocational rehabilitation services and for services under IDEA, with
the new statutory provisions in sections 101(a)(11) and (a)(24) of the
Act. The new statutory provisions require formal interagency agreements
to facilitate the transfer of responsibilities for transitioning
students who are receiving special education services from the agency
responsible for providing a free appropriate public education to the
State unit responsible for providing vocational rehabilitation
services. In addition, proposed paragraph (b) of this section
implements the new requirement in section 101(a)(30) of the Act
regarding the availability of vocational rehabilitation services to
students who are individuals with
[[Page 64485]]
disabilities and who are not in special education programs.
Some commenters on the draft regulations viewed the required
content of formal interagency agreements between State units and State
educational agencies as unduly burdensome. In response, the Secretary
proposes to amend the regulations to require that formal interagency
agreements need only identify provisions for determining State lead
agencies and qualified personnel responsible for transition services,
in addition to identifying those policies and practices that can be
coordinated between the agencies, including eligibility standards,
referral policies, outreach procedures, and evaluation procedures. The
formal interagency agreement may, as appropriate, identify available
resources, the financial responsibilities of each agency, dispute
resolution procedures, and other cooperative policies.
Other commenters expressed concern that the draft regulations
required State agencies to shoulder more of the responsibility for
transitioning students than is contemplated under the Act. In response,
the Secretary proposes to add a note in the regulations to clarify the
roles of the rehabilitation and educational agencies in facilitating
the transition of students who are eligible for VR services. As stated
by the Senate Committee on Labor and Human Resources, the role of the
State agency is primarily one of planning for the student's years after
leaving school.
Section 361.23--Cooperation With Other Public Agencies
This proposed section is taken from paragraphs (a), (c), and (d) of
Sec. 361.19 of the existing regulations and has been revised to
incorporate the new requirements in section 101(a)(11) of the Act
regarding the content of formal interagency cooperative agreements. The
proposed section is also reorganized to clarify that the long list of
programs under existing Sec. 361.19(a) refers to Federal, State, and
local public programs and agencies providing services related to the
rehabilitation of individuals with disabilities.
Section 361.24--Coordination With the Statewide Independent Living
Council
This proposed new section incorporates the new requirement in
section 101(a)(33) of the Act that the State unit coordinate and
establish working relationships with the Statewide Independent Living
Council and independent living centers within the State.
Section 361.25--Statewideness
This proposed new section contains the requirement in Sec. 361.2(a)
of the existing regulations that the State plan be in effect in all
political subdivisions of the State.
Section 361.26--Waiver of Statewideness
This proposed section revises Sec. 361.12 of the existing
regulations to clarify that a waiver of statewideness is necessary if
the State unit wants to provide through local financing increased
services or an expanded scope of services that is different from the
services available statewide. The procedural requirements relating to a
request for a waiver would remain substantially the same.
Section 361.27--Shared Funding and Administration of Joint Programs
This proposed section revises Sec. 361.11 of the existing
regulations to clarify that these programs involve shared funding and
administrative responsibility, that a request for the Secretary's
approval must be included in the State plan, and that a request for
waiver of statewideness also must be included in the State plan, if
necessary. The proposed regulations would also remove the specific
requirements relating to a written agreement that are in the existing
regulations. The 1991 NPRM proposed to remove the written agreement
requirements as part of the effort to reduce paperwork burden, and the
requirements are omitted in this NPRM for the same reason.
Section 361.28--Third-Party Cooperative Arrangements Involving Funds
From Other Agencies
This proposed section revises Sec. 361.13 of the existing
regulations to reduce the requirements related to third-party
cooperative arrangements, including the requirements for a written
agreement, an annual program budget, and an annual review of program
operations. The proposed regulations would also clarify that
applicants, as well as eligible individuals, can receive services under
these cooperative arrangements. This section would be placed
organizationally in the regulations next to the proposed section on
shared funding and administration to emphasize the differences between
joint programs and third-party cooperative arrangements.
Some commenters on the draft regulations suggested that third-party
cooperative arrangements be jointly administered by the State unit and
the cooperating agency, i.e., administered in the same way as joint
programs under proposed Sec. 361.27. In response, the Secretary notes
that section 101(a)(2) of the Act requires the designated State unit to
be responsible for the vocational rehabilitation program. Third-party
cooperative arrangements provide a framework for cooperating agencies
to provide vocational rehabilitation services and contribute to the
State's non-Federal financial share under the program. Thus, third-
party arrangements are considered part of the vocational rehabilitation
program for which the State unit must retain administrative
responsibility. In contrast, State units that are parties to joint
programs share funding and administrative responsibility with other
agencies.
In response to public comment on the draft regulations, the
Secretary has clarified that services provided by the cooperating
agency under a cooperative arrangement must either be new services that
have a vocational rehabilitation focus or existing services that have
been modified, adapted, expanded, or reconfigured to have a VR focus.
These requirements are consistent with longstanding RSA subregulatory
guidance.
Section 361.29--Statewide Studies and Evaluations
This proposed section revises and expands Sec. 361.17 of the
existing regulations to identify and clarify the timelines for all of
the study and evaluation requirements, some of which are currently
contained in other sections. It also expands the requirement in
Sec. 361.2(a)(2)(i) of existing regulations that the State plan
describe changes in policy resulting from the statewide studies and the
annual evaluation to also require a description of activities
undertaken and changes in the State plan, the strategic plan,
FR Doc. 95-30344 The State Vocational Rehabilitation Services Program
and plan
amendments that result from the studies and evaluations. Proposed
paragraph (d) of this section incorporates the new requirement in
section 105(c)(2) of the Act regarding the role of the State
Rehabilitation Advisory Council in the preparation of the statewide
studies and evaluation.
Section 361.30--Services to Special Groups of Individuals With
Disabilities
This proposed section combines Secs. 361.37 and 361.38 of the
existing regulations regarding special services for civil employees of
the United States and for American Indians, along with paragraph (c) of
Sec. 361.36 of the existing regulations, which provides for special
consideration for public safety officers. In addition, the Secretary
proposes to clarify in this section that special consideration means
that a public safety
[[Page 64486]]
officer would receive priority for services over other individuals in
the same priority category of an order of selection. The proposed
section would also incorporate the statutory definitions of ``criminal
act'' and ``public safety officer'' from section 7 of the Act.
Section 361.31--Utilization of Community Resources
This proposed section is substantially the same as Sec. 361.56 of
the existing regulations. It has been relocated to group it with other
utilization sections in the part of the regulations that contains
general administration requirements, rather than in the part of the
regulations that addresses provision of services requirements.
Section 361.32--Utilization of Profitmaking Organizations for On-The-
Job Training in Connection With Selected Projects
This proposed section revises Sec. 361.57 of the existing
regulations to increase State unit flexibility by authorizing, rather
than requiring, a State unit to use profitmaking organizations if it
determines that those organizations are better qualified to provide
needed services than nonprofit agencies, organizations, or facilities
in the State.
Section 361.33--Utilization of Community Rehabilitation Programs
This proposed section revises Secs. 361.21 and 361.22 of the
existing regulations and replaces the term ``rehabilitation
facilities'' with the term ``community rehabilitation programs,''
consistent with the 1992 Amendments. It also incorporates changes in
the State plan requirements in sections 101(a)(5) and 101(a)(15) of the
Act and new requirements in sections 101(a)(27) and 101(a)(28) of the
Act.
In accordance with the Department's principles for regulating, the
Secretary proposes to eliminate current non-statutory requirements for
a rehabilitation facilities plan and for an inventory of community
rehabilitation programs and requirements in the draft regulations for a
justification in the State plan for using funds for the support of
community rehabilitation programs, including the construction of
facilities, and for a prioritized list in the State plan of proposed
activities. The removal of these provisions would substantially reduce
paperwork burdens on designated State units.
Section 361.34--Supported Employment Plan
This proposed new section incorporates sections 101(a)(25) and
635(a) of the Act, which require a State to assure that it has an
acceptable plan for providing supported employment services and to
submit that plan as a State plan supplement.
Section 361.35--Strategic Plan
This proposed new section would require that the strategic plan to
expand and improve vocational rehabilitation services be provided as a
supplement to the State plan. Section 101(a)(34)(A) of the Act requires
the State plan to include an assurance that the State has a strategic
plan to expand vocational rehabilitation services in accordance with
Part C of Title I. In addition, section 120 of the Act requires States
to submit their strategic plans to the Secretary prior to receiving
funding under Part B of the Act, which includes the allotment for this
program. The Secretary believes that requiring the strategic plan as a
supplement to the State plan is the simplest and least burdensome
approach.
Section 361.36--Reserved
This section is reserved for the order of selection regulations,
which are being implemented in a separate rulemaking document.
Section 361.37--Establishment and Maintenance of Information and
Referral Resources
The provision proposed in the draft regulations was substantially
the same as Sec. 361.20 of the existing regulations. However,
commenters on both the draft regulations and the July 16, 1993 NPRM on
order of selection have requested that State units operating under an
order of selection be permitted to provide non-purchased services
(e.g., information and referral) to eligible individuals who do not
qualify for services under the State unit's priority categories. An
order of selection is required under section 101(a)(5)(A) of the Act if
a State unit determines that it is unable to provide services to all
eligible individuals who apply for services. In response to public
comment, the Secretary proposes to address this concern by amending the
regulations to authorize any State unit that has implemented an order
of selection to establish an expanded information and referral program
that includes the provision of job referral services to eligible
individuals who are not being served under a State unit's order of
selection, provided that certain State plan requirements are met. These
requirements include a description in the State plan of the level of
commitment of staff and other resources for this purpose and an
assurance that in carrying out this program, the State unit will not
use case services funds that are needed to provide VR services to
eligible individuals who are able to be served under the State unit's
order of selection.
Section 361.38--Protection, Use, and Release of Personal Information
This proposed section is substantially the same as Sec. 361.49 of
the existing regulations with the clarification in proposed paragraph
(e)(3) that a State unit is required to release personal information if
required by Federal regulations or Federal law.
In addition, some commenters on the draft regulations expressed
concern that the State unit could release harmful personal information
to a representative not chosen by the applicant or eligible individual.
In response, the Secretary has clarified that the State unit may
release information that it determines to be harmful to the individual
only to a third party chosen by the individual, which may include,
among others, an advocate, a family member, or a qualified medical or
mental health professional.
In response to public comment on the draft regulations, the
Secretary also proposes to amend the regulations by clarifying that
State units shall release personal information in response to an
``order issued by a judicial officer.'' The Secretary believes that the
use of the term ``judicial order'' in both the current and draft
regulations is confusing and that the clarification is necessary to
ensure that a judge, magistrate, or other authorized judicial officer
appropriately weighs the factors necessitating release of personal
information against the individual's rights to privacy and protection
from unauthorized use before ordering a State unit to release the
information.
In addition, the proposed section has been relocated to group it
with other sections of the regulations that contain the administrative
requirements since it does not relate to the provision and scope of
services.
While the confidentiality of personal information from applicants
and eligible individuals under this program is considered essential to
protect individual privacy, the Secretary specifically requests public
comment on whether the provisions of this section are unduly burdensome
or inconsistent with State laws governing the protection, use, or
release of personal information.
Section 361.39--State-Imposed Requirements
This proposed section is taken from Sec. 361.25 of the existing
regulations. The
[[Page 64487]]
draft regulations would have required State units to identify State-
imposed requirements at the public meetings to develop and revise the
State plan. In response to public comment, the Secretary proposes to
clarify this section of the regulations by requiring State units to
identify upon request those regulations and policies relating to the
administration or operation of the vocational rehabilitation program
that are State-imposed. In making these changes the Secretary
recognizes that the scope of State-imposed requirements is broader than
those included in the State plan and that the Act requires the
application of any State rule or policy relating to the administration
or operation of the vocational rehabilitation program to be identified
as a State-imposed requirement. The proposed section would require
State units to identify those requirements upon request, including, but
not limited to, requests made at public meetings.
Section 361.40--Reports
This proposed section is substantially the same as Sec. 361.23 of
the current regulations, except that it would add cross-references to
sections 13, 14, and 101(a)(10) of the Act to distinguish the reporting
requirements under this section from the reporting requirements related
to statewide studies and evaluations under proposed Sec. 361.29.
Section 361.41--Processing Referrals and Applications
This section expands Sec. 361.30 of the current regulations to
incorporate the new statutory requirement in section 102(a)(5)(A) of
the Act that an eligibility determination be made within 60 days of the
date on which an application is submitted, with limited exceptions. The
Secretary proposes to require the State unit to establish timelines for
making good faith efforts to contact individuals who have been referred
for services to minimize delay at the pre-application stage.
Under the draft regulations, an individual was considered to have
``submitted an application'' if the individual, or the individual's
representative, as appropriate, had submitted a completed agency
application or a signed written request for services. In an effort to
ensure that agencies are provided with all information necessary to
make eligibility determinations, some commenters on the draft
regulations stated that completion of an agency application should be
the sole method for requesting services. In contrast, other commenters
supported the use of alternative methods for requesting services as a
means of avoiding unnecessary delays if a particular application form
was not used. In response, the Secretary proposes to clarify the
regulations by interpreting the term ``submitted an application'' to
include any request for services as long as the individual has provided
information necessary for the DSU to initiate an assessment to
determine eligibility and priority for services. Once an individual or
the individual's representative, as appropriate, requests services, it
is expected that State units will make good faith efforts to obtain
this information as quickly as possible. For example, if a potential
applicant has requested services in writing, the State unit may need to
telephone the individual in order to obtain the necessary information
in a timely manner. In addition, the proposed regulations require State
units to make application forms readily available throughout the State.
Section 361.42--Assessment for Determining Eligibility and Priority for
Services
This section combines Secs. 361.31 and 361.32 of the existing
regulations, which are the sections on eligibility and preliminary
diagnostic study. The 1992 Amendments combined in the statute all of
the evaluation steps that are currently required by those sections and
by Secs. 361.33 and 361.40 of the existing regulations into one
assessment for determining eligibility and vocational rehabilitation
needs, which is defined in section 7(22) of the Act. The Secretary
proposes to divide that assessment into two steps in the regulations--
an assessment for determining eligibility and priority for services,
addressed in this section, and an assessment for determining vocational
rehabilitation needs through the development of the IWRP, addressed by
proposed Sec. 361.45.
In response to public comment on the draft regulations, the
Secretary proposes to amend this section by requiring that the
assessment for determining eligibility and priority for services be
conducted in the most integrated setting possible, consistent with the
individual's needs and informed choice.
Proposed paragraph (a) of this section incorporates the changes in
the eligibility criteria that were made by the 1992 Amendments,
including the presumption that an individual with an impairment that
constitutes a substantial impediment to employment can benefit from
vocational rehabilitation services, the presumption that Social
Security beneficiaries meet the first two eligibility criteria, and the
new requirement that an individual with a disability require vocational
rehabilitation services in order to achieve an employment outcome
consistent with the individual's strengths, resources, priorities,
concerns, abilities, capabilities, and informed choice.
Some commenters questioned the absence of a regulatory provision
identifying who is qualified to determine the existence of a physical
or mental impairment. Section 361.32 of the existing regulations
requires that the preliminary diagnostic study, for purposes of
determining an individual's eligibility for services, must include
medical information and, in the case of individuals with mental and
emotional disorders, an examination by a physician or by a licensed or
certified psychologist. Proposed paragraph (a)(1)(i) of this section is
based on amendments to section 103(a) of the Act, which substituted the
standard that ``qualified personnel in accordance with State licensure
laws'' make these determinations in lieu of particular medical
professionals. The proposed regulatory provision broadens this concept
to also encompass individuals who are certified under State law and
individuals licensed or certified under State regulations. The
Secretary believes that this broader interpretation is necessary to
ensure that existing data and determinations made by other agencies,
particularly education agencies, are used by DSUs in determining
whether an individual is an individual with a disability under section
7(8)(A) of the Act or an individual with a severe disability under
section 7(15)(A) of the Act. Under the proposed regulations, the
determination of who is qualified to determine the existence of an
impairment will vary from State to State depending on State licensure
and certification requirements. Although the proposed regulations do
not require a medical diagnosis for a DSU to determine that an
impairment exists, the Secretary anticipates that in most instances
those determinations will be supported by medical documentation.
Paragraph (a)(2) of Sec. 361.42 in the draft regulations required a
DSU to presume that an applicant can benefit in terms of an employment
outcome unless it determines, based on clear and convincing evidence,
that the applicant is incapable of benefitting from VR services as a
result of the severity of his or her disability. In response to public
comment, the Secretary proposes to delete the phrase ``as a result of
the severity of his or her disability'' from the NPRM in order to
clarify that individuals may be found incapable of
[[Page 64488]]
benefitting from VR services for reasons other than severity of
disability. This change is consistent with section 102(a)(4)(A) of the
Act. Nevertheless, the Secretary expects that the overwhelming majority
of determinations under this requirement will be based on the severity
of the individual's disability and specifically requests public
commenters to identify reasons other than severity of disability that
would support a determination that an individual is incapable of
benefitting from VR services. If a determination that an individual
cannot benefit from VR services is based on the severity of the
individual's disability, section 102(a)(4)(B) of the Act and proposed
paragraph (d)(1) of this section would also require the DSU to conduct
an extended evaluation before reaching this conclusion. Finally, the
Secretary proposes to further amend paragraph (a)(2) of this section to
clarify that the presumption of benefit applies only to those
applicants who meet the first two eligibility criteria.
In response to public comment on paragraph (b)(1) of this section
of the draft regulations, the Secretary proposes to amend the
regulations to prohibit States from imposing any duration of residence
requirement for the receipt of services on any applicant who is
present, rather than resides, in the State. The amended provision
closely tracks the statutory language of section 101(a)(14) of the Act.
Paragraph (c) of this section incorporates the new statutory
provisions that require the State unit to use existing data, to the
extent possible, to determine eligibility and vocational rehabilitation
needs.
Some public commenters on the draft regulations inquired as to the
scope of vocational rehabilitation services that DSUs must provide
during an extended evaluation. In response, the Secretary proposes to
amend the regulations to require the State unit to develop a written
plan during the extended evaluation period for determining eligibility
and for determining the nature and scope of services required to
achieve an employment outcome. The provision of services under the plan
must be limited to those services needed to make these two
determinations. It should be noted that this change represents a
departure from the current regulations, which required DSUs to develop
an IWRP for individuals in extended evaluation. The Act, however,
requires only that IWRPs be developed for eligible individuals. The
written plan requirements of this section are, therefore, intended to
lessen the burden on State units of developing IWRPS for individuals in
an extended evaluation, while ensuring that the specific services to be
provided during an extended evaluation are clearly identified.
The proposed regulations also contain a note on clear and
convincing evidence that is based on legislative history from the
Senate Committee Report. In response to public comment, the Secretary
proposes to amend the note to clarify that determinations under the
``clear and convincing evidence'' standard must be made on a case-by-
case basis.
Finally, the Secretary views the new eligibility criterion that an
individual must require vocational rehabilitation services in order to
achieve or retain an employment outcome as a limiting factor that is
intended to screen out individuals who can prepare for, enter into,
engage in, or retain gainful employment consistent with their
strengths, resources, priorities, concerns, abilities, and capabilities
without assistance from the vocational rehabilitation program. The
proposed regulations contain a second note that provides several
examples for guidance to State agencies regarding situations in which
an individual may or may not require vocational rehabilitation
services. The Secretary emphasizes that the examples are provided
solely for the purposes of illustration, do not address all situations
under which an individual may be eligible or ineligible for services,
and are not intended to substitute for individual counselor judgment on
a case-by-case basis.
Section 361.43--Procedures for Ineligibility Determination
The Secretary proposes this new section to consolidate overlapping
provisions relating to procedures for ineligibility determinations that
are currently contained in several different sections of the
regulations. Specifically, it would consolidate paragraph (e) of
current Sec. 361.34, which contains termination provisions for an
extended evaluation to determine rehabilitation potential, paragraph
(c) of current Sec. 361.35, which contains the requirements for a
certification of ineligibility, and paragraph (d) of current
Sec. 361.40, which contains the requirements regarding review of
ineligibility determinations.
The Secretary proposes to require DSUs to review all ineligibility
determinations once within 12 months unless exceptions apply. In
response to public comment on the draft regulations, the Secretary also
proposes to amend paragraph (d) of this section to clarify that each
year after the initial review, DSUs must, upon request, review any
ineligibility determination that is based on the inability of the
individual to achieve an employment outcome.
Section 361.44--Closure Without Eligibility Determination
The Secretary proposes to create this new section from the
provisions contained in paragraph (e) of Sec. 361.35 of the current
regulations, which is the section that contains the certification
requirements. Although the certification requirements have been removed
from the proposed regulations because they overlap with the
documentation requirements in the case record (referred to as record of
services in proposed Sec. 361.47), the substantive requirements related
to closure without an eligibility determination are substantially the
same as they are in existing Sec. 361.35(e).
In response to public comment on the draft regulations, the
Secretary has clarified the regulations to authorize the State unit to
close an applicant's case if the applicant declines to participate in,
or is unavailable to complete, an assessment for determining
eligibility and priority for services. In either situation, the State
unit is required to make a reasonable number of attempts to contact the
individual or, if appropriate, the individual's representative prior to
closing the applicant's case.
Sec. 361.45--Development of the Individualized Written Rehabilitation
Program
In response to public comment, this section, entitled ``Assessment
for determining vocational rehabilitation needs'' in the draft
regulations, has been renamed for purposes of clarification. The
Secretary believes this proposed retitling better reflects the full
scope of requirements under the IWRP development process, of which the
assessment represents an essential part. The Secretary also proposes to
clarify the purpose clause under paragraph (a) of this section for the
same reason.
This proposed section would combine the provisions in Secs. 361.33
and 361.40 of the current regulations regarding thorough diagnostic
study and IWRP procedures. It incorporates new statutory requirements
created by the 1992 Amendments, including requirements regarding
informed choice, integrated settings, and the use of existing data.
Some public commenters suggested that the term ``counseling and
guidance'' be defined in the proposed regulations. The Secretary
declines to define the term, but proposes to revise paragraph (b)(1) of
this section to
[[Page 64489]]
emphasize the development of a counseling and guidance relationship
between the vocational rehabilitation counselor and the individual
during assessment. That relationship is intended as a means of
fostering collaboration between the counselor and the individual in
identifying, preparing for, and achieving meaningful vocational
outcomes for the individual. The Secretary envisions that the
counselor, based on his or her expertise, will provide the individual
with comprehensive information relevant to the individual needs of the
individual and that the counselor and individual will jointly discuss
the values, needs, desires, and realities facing both individuals. It
also should be noted that, in response to public comment, the Secretary
has deleted the requirement in the draft regulations that counseling
and guidance be provided throughout the development and implementation
of the IWRP. As discussed in the following paragraph, IWRPs are
developed on an individual basis, and while some individuals may
request or require counseling and guidance services throughout the
development and implementation of their IWRPs, others may not. By
making this change, the Secretary emphasizes that the provision of
counseling and guidance during the development and implementation of
the IWRP is dependent on the particular circumstances affecting each
individual.
Several commenters on the draft regulations were concerned that
this section required State units to impose strict timelines for
developing IWRPs without considering the particular needs of the
individual. In response, the Secretary proposes to amend the
regulations to require State units to establish and implement standards
for the prompt development of IWRPs, including timelines that take
individual needs into consideration. The Secretary agrees that the
development of the IWRP is a highly individualized process and must be
conducted in a manner consistent with the individual's strengths,
priorities, concerns, abilities, capabilities, and career interests.
Nevertheless, the Secretary believes that these timelines, which are
not absolute and operate as guidelines, are consistent with the
legislative intent that individuals with disabilities receive services
as quickly as possible and, therefore, are necessary to guard against
delays in the development of the IWRP once an individual is determined
eligible for VR services.
Section 361.46--Content of the IWRP
This proposed section contains the IWRP content requirements, which
are in Sec. 361.41 of the existing regulations.
Several commenters on the draft regulations viewed certain
requirements under this section and Sec. 361.47 (Record of services) as
duplicative of one another and, therefore, unduly burdensome. In
response, the Secretary proposes to reduce the paperwork requirements
in each section of the regulations by eliminating certain requirements
that are non-statutory or redundant. The Secretary emphasizes, however,
that the elimination of certain documentation requirements in these
sections is intended solely as a means of reducing paperwork burdens on
the State unit and does not diminish the responsibility of the State
unit to fully develop the IWRP and to be able to document or otherwise
support its determinations affecting each individual should those
determinations be questioned within the context of a compliance review
or audit. Each IWRP content or record of services requirement
eliminated from the draft regulations is, the Secretary believes,
sufficiently addressed elsewhere in the regulations.
For example, the Secretary proposes to delete the requirement that
the IWRP include statements supporting the basis on which individuals
are determined eligible or ineligible for services. The Secretary
agrees that those statements are burdensome given comparable case
record requirements in proposed Sec. 361.47 (a) and (b) that the State
unit maintain documentation supporting determinations of eligibility
and ineligibility.
In paragraph (c) of this section, the Secretary proposes to clarify
the regulations by consolidating the IWRP content requirements that
relate to post-employment services.
Some public commenters on the draft regulations suggested that the
State unit attach the Individualized Education Plan (IEP) to the IWRP,
rather than summarize the IEP, when coordinating with education
agencies to serve transitioning students. In response, the Secretary
emphasizes that the Secretary does not consider coordination between
the IWRP and IEP to represent a documentation requirement. Rather, the
requirement in the draft regulations that the IWRP include a summary of
the transitioning student's IEP was intended to ensure that the State
unit review the vocational goals, rehabilitation objectives, and nature
and scope of services identified in the transitioning student's IEP
during the course of developing the IWRP. Requiring that review is
consistent with the legislative intent that State units coordinate with
education agencies to serve transitioning students in the most
effective and efficient manner possible. In an effort to clarify the
regulations, however, the Secretary proposes to amend this section to
require the State unit to ensure that the transitioning student's IWRP
is consistent with the student's IEP in terms of goals, objectives, and
services. Although the IWRP need not include a summary or an attached
copy of the IEP, it is expected that, for transitioning students, State
units will closely review the IEP in the course of IWRP development. In
addition, the Secretary proposes to amend Sec. 361.47(f) to require the
State unit to maintain documentation from the needs assessment to
support the goals, objectives, and services identified in the IWRP and
in the IEP of transitioning students.
Finally, in response to public comment, the Secretary proposes to
add paragraph (e) to this section to require State units to ensure that
a determination that an individual is ineligible for services after an
IWRP has been developed is made in accordance with the procedures in
proposed Sec. 361.43 and is included as an amendment to the IWRP.
Section 361.47--Record of Services
This proposed section revises Sec. 361.39 of the existing
regulations. References to the ``case record'' would be replaced with
the term ``record of services'' to discourage characterizing
individuals with disabilities as ``cases.'' The proposed section would
incorporate the choice and integration requirements in the 1992
Amendments.
As previously discussed, the Secretary has significantly revised
this section to reduce paperwork requirements in response to commenters
on the draft regulations who viewed many of the record of services
requirements as unduly burdensome or duplicative of other requirements
in the regulations.
In response to public comment, the Secretary proposes to simplify
paragraphs (a) and (b) of this section to require State units to
maintain documentation to support determinations of eligibility or non-
eligibility made in accordance with proposed Sec. 361.42 or
Sec. 361.43. The Secretary also proposes to require State units to
include, as part of an individual's record, documentation supporting
the determination that an individual has a severe or most severe
disability. This requirement is
[[Page 64490]]
particularly important to support an individual's receipt of services
from a State unit operating under an order of selection or to support
the individual's placement in a supported employment setting. In
addition, this requirement is consistent with the intent of the Act to
expand and improve services to individuals with the most severe
disabilities.
In paragraph (d) of this section, the Secretary proposes to
simplify the requirements relating to extended evaluations by requiring
State units to maintain documentation to support the need for an
extended evaluation and to support the periodic assessments conducted
during the extended evaluation. Documentation maintained under this
paragraph would also include the written plan developed during the
extended evaluation in accordance with Sec. 361.42(d)(3).
In an effort to better coordinate rehabilitation services for
transitioning students, the Secretary also proposes to amend paragraph
(f) of this section to specify that the State unit must document the
development of the individual's long-term vocational goal, intermediate
rehabilitation objectives, and nature and scope of services, as
identified in the transitioning student's IWRP and IEP.
Finally, the Secretary proposes to delete a number of requirements
from the draft regulations on the basis that the requirements are
unduly burdensome or unnecessarily duplicative of other provisions in
the regulations. For example, because the IWRP is included as part of
the individual's record of services that must be maintained under this
section, requirements that are duplicative of IWRP content requirements
in proposed Sec. 361.46 have been deleted from the record of services.
For each record of services requirement that the Secretary considers
duplicative of other requirements in the regulations, specific
references to those other requirements are provided.
Accordingly, the Secretary proposes to delete the following
documentation requirements from this section of the draft regulations:
(1) Documentation of the manner in which the individual was provided
information necessary to make informed choices as to vocational goals,
rehabilitation services, and service providers (addressed by
Sec. 361.46(a)(6) and Sec. 361.52). (2) Documentation of the manner in
which the individual was provided information regarding the level of
integration of service provision and job placement options (addressed
by Sec. 361.46(a)(7)(iii) and Sec. 361.52). (3) Documentation
supporting the determination that the clinical status of the individual
is stable or slowly progressive if physical and mental restoration
services are provided (addressed by Sec. 361.46(a)(3)). (4)
Documentation to support any decision to provide services to family
members (addressed by Sec. 361.46(a)(3)). (5) Documentation relating to
the individual's participation in the cost of any vocational
rehabilitation services, the eligibility of the individual for any
comparable services and benefits, and the availability and use of those
comparable service and benefits (addressed by Sec. 361.46(a)(7)). (6)
Documentation that the individual has been advised of the
confidentiality of all information pertaining to the individual and
that any information about the individual has been released with the
individual's informed written consent (addressed by Sec. 361.46(a)(7)
and Sec. 361.38). (7) Documentation of any plans to provide post-
employment services after the employment outcome has been achieved
(addressed by Sec. 361.46(c)). (8) Documentation of any review of the
determination that an individual is no longer capable of achieving an
employment outcome after services under an IWRP have already been
provided (addressed by Sec. 361.43(d)).
The Secretary is particularly interested in public comment on
whether the proposed provisions cover all key decision points in the
rehabilitation process for which documentation is needed.
Section 361.48--Scope of Vocational Rehabilitation Services for
Individuals With Disabilities
This proposed section revises Sec. 361.42 of the existing
regulations.
The phrase ``counseling and guidance'' in the current regulations
has been changed in proposed Sec. 361.48(a)(3) to ``vocational
counseling and guidance'' in order to clarify that counseling and
guidance services that are provided as discrete vocational
rehabilitation services are vocational in nature and specifically
designed to assist the individual in reaching an employment outcome.
Vocational counseling and guidance is, therefore, distinguishable from
the more generalized counseling and guidance that an individual may
need at any point during the rehabilitation process in connection with
the provision of services.
A number of paragraphs from the current regulatory section have
been revised to remove definitional text, and definitions for those
services have been added to proposed Sec. 361.5. For example, proposed
Sec. 361.48(a)(5), providing for physical and mental restoration
services, has been revised to remove all definitional material, which
is now in proposed Sec. 361.5(b)(35). Proposed paragraph (a)(7) of this
section, providing for maintenance, has been modified to remove the
current regulatory provisions that describe maintenance in terms of
subsistence or basic living expenses, and a proposed definition of
maintenance has been included in proposed Sec. 361.5(b)(31) to clarify
that maintenance costs are those expenses that are in excess of normal
living expenses and that are necessitated by participation in a
vocational rehabilitation program. Similarly, proposed paragraph (a)(8)
of this section provides for transportation in connection with the
rendering of any vocational rehabilitation service, and a definition of
transportation has been added to proposed Sec. 361.5(b)(49), which
clarifies that transportation must be necessary to enable an applicant
or eligible individual to participate in a program of vocational
rehabilitation services. This change was proposed in the 1991 NPRM.
Proposed paragraph (a)(9) of this section clarifies that the
services available to family members are vocational rehabilitation
services necessary to enable the applicant or eligible individual to
achieve an employment outcome.
Some commenters on the draft regulations requested that the
provision of ``note-taking services'' not be limited to individuals who
are deaf or blind. In response, the Secretary agrees that note-taking
services should be available to any eligible individual in need of
those services to achieve an employment outcome. Therefore, the
Secretary proposes to delete ``note-taking'' from proposed paragraphs
(a)(10) and (a)(11) of this section and emphasizes that these services
are available under proposed paragraph (a)(20) of this section as
``other services'' whenever necessary for an eligible individual to
achieve an employment outcome.
Proposed paragraph (a)(13) of this section, which provides for job
search, placement assistance, and job retention services, clarifies the
scope of services currently available under existing paragraph (a)(12)
of Sec. 361.42, which provides for placement in suitable employment.
Proposed paragraphs (a)(14) and (a)(15) of this section incorporate new
requirements in the statute for supported employment and personal
assistance services. Proposed paragraph (a)(16) of this section revises
the paragraph in the existing regulations on post-employment services
by
[[Page 64491]]
referring to the proposed definition of post-employment services in
Sec. 361.5(b)(37). That definition incorporates the language in the
1992 Amendments regarding advancement in employment and individual
choice. Finally, proposed paragraph (a)(18) of this section revises the
paragraph in the existing regulations on rehabilitation engineering
services, consistent with the 1992 Amendments, to provide for
rehabilitation technology services.
Section 361.49--Scope of Vocational Rehabilitation Services for Groups
of Individuals With Disabilities
This proposed section would consolidate provisions from several
sections of the existing regulations, including the definition of
vocational rehabilitation services for the benefit of groups of
individuals in Sec. 361.1(c) of the existing regulations and
Secs. 361.50, 361.51, 361.52, and 361.53 of the existing regulations.
In addition, it would incorporate new requirements imposed by the 1992
Amendments, such as replacing the concept of the ``establishment of a
rehabilitation facility'' with the concept of the ``establishment,
development, or improvement of a public or other nonprofit community
rehabilitation program,'' restricting the construction of a
rehabilitation facility to special circumstances, and adding the newly
authorized service of technical assistance and support services for
businesses that are not subject to the Americans with Disabilities Act
and are seeking to employ individuals with disabilities.
In response to public comment on the draft regulations, the
Secretary proposes to amend paragraph (a)(5) of this section to clarify
that the establishment of small business enterprises operated by
individuals with the most severe disabilities under the State unit's
supervision includes vending facilities established under the Randolph-
Sheppard program. In addition, the Secretary proposes to amend this
paragraph to clarify that management services and supervision in
support of a small business enterprise may be provided by the State
unit beyond the initial establishment period of six months. The
Secretary also proposes to clarify the draft regulations to state that
initial stock and supplies and operational costs for small business
enterprises may be provided only during the initial six-month
establishment period. These changes are consistent with section
103(b)(1) of the Act, as well as with the Randolph-Sheppard Act and its
implementing regulations in 34 CFR Part 395.
Section 361.50--Written Policies Governing the Provision of Services
This section contains material from paragraph (b) of Sec. 361.42 of
the existing regulations, which requires written State policies on the
scope of vocational rehabilitation services for individuals, and
Sec. 361.44 of the existing regulations, which is the section on
authorization of services. The Secretary proposes to require that a
State unit have policies regarding the provision of services for groups
of individuals with disabilities, as well as the availability of
services for individuals with disabilities.
In the draft regulations, this proposed section incorporated new
provisions, based on existing policy and subregulatory guidance, to
clarify that no absolute caps or limits, in terms of location, cost, or
duration, could be placed on the availability of services that would
effectively deny an individual a necessary service. Although these
provisions are maintained in the proposed regulations, some public
commenters were concerned that insufficient emphasis was placed on the
requirement that policies governing the provision of services must be
designed to meet the rehabilitation needs of each individual served by
the State unit. In response, the Secretary proposes to amend the
regulations to specify that the policies required to be developed under
this section must ensure that the provision of services is based on the
individual's rehabilitation needs as identified in the IWRP. As in the
draft regulations, the proposed section would also prohibit State units
from arbitrarily limiting the nature or scope of vocational
rehabilitation services needed by any eligible individual to achieve an
employment outcome.
Some commenters on the draft regulations opposed the ability of
State units to establish preferences for in-State services on the basis
that those preferences are inconsistent with principles of individual
choice. In response, the Secretary proposes to amend the regulations to
permit individuals to choose out-of-State services over in-State
services. However, if an individual selects an out-of-State service at
a higher cost than an in-State service, if either service would meet
the individual's rehabilitation needs, the designated State unit would
be required to pay only an amount equal to the cost of the in-State
service.
The draft regulations would have required State units to provide
written authorization of services either before or at the same time as
the purchase of services, except in emergency situations when oral
authorization, followed by prompt written confirmation, was permitted.
In response to those commenters on the draft regulations who believed
that the State unit should have greater flexibility in developing
policies governing the authorization of services to individuals, the
Secretary proposes to simplify the regulations to require State units
to establish policies related to the timely authorization of services,
including conditions under which verbal authorization can be given.
Section 361.51--Written Standards for Facilities and Providers of
Services
This proposed section would incorporate Sec. 361.45 of the existing
regulations, would expand the requirement for standards to ensure
accessibility of facilities, and would require new standards regarding
qualified personnel and fraud, waste, and abuse, consistent with the
1992 Amendments.
In response to public comment on the draft regulations, the
Secretary interprets the accessibility of facilities requirement
broadly so as not to prevent any individual with a disability,
including the multi-chemically disabled, from receiving services at a
facility. In response to public comment, the Secretary also proposes to
amend the qualified personnel requirements in paragraph (b)(1) of this
section to reflect the personnel standards included in the State
agency's comprehensive system of personnel development under section
361.18(c).
Section 361.52--Opportunity To Make Informed Choices Regarding the
Selection of Services and Providers
This proposed new section would implement section 12(e)(1) of the
Act, which was added by the 1992 Amendments and requires the Secretary
to promulgate regulations establishing criteria pertaining to the
selection of vocational rehabilitation services and providers by an
individual with a disability.
In response to public comment on the draft regulations, the
Secretary proposes to amend this section of the regulations to clarify
that the concept of informed choice applies to all aspects of the
vocational rehabilitation process, including the selection of
vocational goals, intermediate objectives, VR services, and service
providers. This provision is closely related to the requirement in
proposed Sec. 361.46(a)(6) that the IWRP include a statement from the
individual describing the manner in which the individual exercised
informed choice in selecting among
[[Page 64492]]
alternative goals, objectives, services, providers, and methods used to
procure or provide services. The proposed regulations also would
require that the State unit consult with its State Rehabilitation
Advisory Council, if it has one, when developing its policies for
facilitating informed choice.
Several commenters opposed the requirement in the draft regulations
that State units develop indicators regarding the quality of service
providers on the basis that such a requirement is overly burdensome and
likely to lead to disputes, and potentially litigation, between State
units and providers of VR services. In response, the Secretary proposes
to amend the regulations to require State units to provide individuals,
or assist individuals in acquiring, information necessary to make an
informed choice about the specific services, including the providers of
those services, that are needed to achieve the individual's vocational
goal. Thus, it is expected that State units will provide, or facilitate
access to, information concerning cost and accessibility of services,
level of consumer satisfaction with services, qualifications of service
providers, and other information necessary to enable the individual to
make an informed choice among alternative services and providers.
It should also be noted that in response to public comment and in
the interest of reducing the burden on State units, the proposed
regulations would not require DSUs to provide a list of available
services and the potential providers of those services to each
individual. Lists of this type, as well as resource materials such as
consumer satisfaction surveys, are, however, included in the
regulations as examples of possible sources of information that may be
used by DSUs to satisfy the information requirements of this section.
Section 361.53--Availability of Comparable Services and Benefits
This proposed section revises Sec. 361.47(b) of the existing
regulations.
As provided for in the draft regulations, the availability of
comparable services and benefits is based on whether services and
benefits exist under another program for the individual and whether the
individual is eligible for those services or benefits. However, the use
of comparable services and benefits under the draft regulations was
dependent upon whether the comparable services and benefits were
``currently available'' to the individual. In response to public
commenters who expressed confusion as to the meaning of this phrase,
the Secretary proposes to delete the word ``currently'' from this
section and to amend the regulations to require DSUs to use comparable
services and benefits if available to the eligible individual within a
reasonable period of time that is appropriate for the achievement of
the intermediate rehabilitation objectives identified in the
individual's IWRP. What constitutes a reasonable period of time would
vary according to the services identified in each individual's IWRP. By
making this change, the Secretary emphasizes that the use of comparable
services and benefits should not unreasonably delay the individual in
meeting his or her rehabilitation objectives.
In the event comparable services and benefits exist but are not
available to the individual within a reasonable period of time, the
proposed regulations would require the State unit to provide VR
services during the interim period until they become available. In an
effort to respond to public comment and reduce the burden on DSUs, the
Secretary proposes to delete the requirement in the draft regulations
that State units obtain reimbursement for any overlap in benefits once
the comparable services and benefits become available.
In response to public comment on the draft regulations, the
Secretary also proposes to revise the regulations to clarify that a
determination as to the availability of comparable services and
benefits is not required in connection with the provision of those
services listed under paragraph (b) of this section. Although DSUs are
free to provide these services without pursuing the availability of
comparable services and benefits, the Secretary encourages State units
to use known comparable services and benefits whenever possible in
order to maximize the use of funds provided under this program.
In response to public comment on the draft regulations, the
Secretary also proposes to amend paragraph (b) of this section by
including taped texts and computer accessible formats (sometimes
referred to as E-text) among those services for which comparable
services and benefits do not need to be sought. This addition is
consistent with the Act's legislative history, specifically Conference
Report No. 102-973.
Section 361.54--Participation of Individuals in Cost of Services Based
on Financial Need
This proposed section is taken from Sec. 361.47(a) of the existing
regulations. It would clarify the requirements that a State unit must
meet if it chooses to consider the financial need of individuals to
determine the extent of their participation in the cost of vocational
rehabilitation services. The Secretary proposes to clarify the draft
regulations to require State units to ensure that its policies
governing financial need be applied uniformly to all individuals in
similar circumstances. The Secretary interprets this provision, which
is modeled after existing regulations, to require a State unit to apply
its financial needs test to each individual in need of a service
covered by the test without regard to the type of the individual's
disability. The proposed regulations would also clarify that this
uniform application requirement does not prohibit setting different
levels of need for different geographic regions in the State, but
requires uniform application of the standard to all individuals within
each geographic region or to all individuals within the State if the
State unit does not establish geographical differentials. Finally, the
proposed regulations would clarify that the level of an individual's
financial participation in the cost of VR services must be reasonable,
based on the individual's financial need and ability to pay, and must
not be so high as to effectively deny the individual a necessary
service.
Section 361.55--Review of Extended Employment in Community
Rehabilitation Programs or Other Employment Under Section 14(c) of the
Fair Labor Standards Act
This proposed section is taken, in part, from Sec. 361.58 of the
existing regulations. In addition to the review of extended employment
outcomes, the 1992 Amendments require the review of employment outcomes
in which the individual is compensated in accordance with section 14(c)
of the Fair Labor Standards Act to determine the individual's needs and
interests related to competitive employment. This section would also
incorporate the emphasis in the 1992 Amendments on employment and
training in integrated settings and would elaborate on the meaning of
the ``maximum effort'' required of State units in the existing
regulations to clarify that State units are required to provide
services to promote movement from extended employment to integrated
employment.
Section 361.56--Individuals Determined To Have Achieved an Employment
Outcome
This proposed section, which has been renamed to conform to the
changes discussed in the following paragraphs, is taken from
Sec. 361.43 of the existing regulations. It has been revised to make
the requirements in the current
[[Page 64493]]
regulations more outcome-oriented, rather than process-oriented, and to
incorporate the new statutory emphases on choice and integrated
settings.
In an effort to better reflect whether an individual has
successfully achieved an employment outcome, the draft regulations
would have extended the period for which an employment outcome must be
maintained from 60 to 180 days. Several commenters, however, opposed
the 180-day standard as unduly burdensome and inconsistent with
individual choice. Some commenters believed that the standard for
closing an individual's case should be based on the particular
circumstances of the individual's employment situation, while others
indicated that the determination as to whether the individual is
successfully employed should be made jointly by the individual, the
rehabilitation counselor or coordinator, and, in some cases, the
employer. In response to these comments and to the views expressed by
members of the focus group that discussed this issue, the Secretary
proposes to delete the draft requirement that an employment outcome
must be maintained for 180 days. In its place, the Secretary proposes a
standard under which the individual must maintain the employment
outcome for the duration of any probationary period that the employer
has established for its employees, or, if the employer does not have an
established probationary period, for a period of at least 90 days. In
addition, the individual and the rehabilitation counselor or
coordinator must agree that the employment outcome is satisfactory and
that the individual is performing well on the job. Like the draft
regulations, this section would also require the State unit to assure
that the employment outcome is in the most integrated setting possible
and is consistent with the individual's abilities, capabilities,
interests, and informed choice. Finally, in response to public comment,
the Secretary proposes to amend this section to require that the
provision of services under the individual's IWRP contribute to, rather
than result in, the achievement of the employment outcome.
The proposed standard, like that in the draft regulations, is
intended to strengthen the current minimum 60-day standard for
maintaining a job placement in an effort to better reflect whether an
individual has, in fact, successfully achieved an employment outcome.
The Secretary agrees with those commenters who suggested that
achievement of an employment outcome should be based, in part, on the
stability of the individual's employment. In addition, the proposed
changes from the current regulations are also intended to condition the
achievement of an employment outcome on the satisfaction of the
individual, the counselor, and the employer. The Secretary believes
that the best measure of an employer's satisfaction with an
individual's job performance is whether the individual has met the
employer's probationary period. For those individuals whose employers
have not established a customary probationary period, the Secretary
views the 90-day minimum as an adequate safeguard to ensure that the
individual is performing well and is likely to maintain the employment
outcome. Consistent with the Act's emphasis on informed choice, the
proposed regulations would also base the decision that an individual
has achieved an employment outcome on the individual's, as well as the
counselor's or coordinator's, satisfaction with the employment outcome.
The Secretary emphasizes that a satisfactory employment outcome, at a
minimum, must meet the provisions of this section, and the Secretary is
particularly interested in public comment concerning whether further
standards for defining ``satisfactory'' should be developed at the
Federal level.
The Secretary is continuing to consider issues concerning outcome
measures for the vocational rehabilitation program, including the
proposed time standard in these regulations for maintaining a job
placement in order to achieve an employment outcome (the duration of
the employer's probationary period or, in the absence of an employer
policy in this area, at least 90 days). The Secretary believes that the
high level of Federal funding for this program--over 78 percent--
warrants close attention to accountability measures to ensure that
employment outcomes are maintained over time. The Secretary is
particularly interested in receiving comments on whether the proposed
job retention standard is strong enough to achieve this result.
The Secretary is also interested in receiving comments about the
relationship between closure requirements for the vocational
rehabilitation program and other programs, including those under the
Job Training Partnership Act (13 weeks), the Social Security
beneficiary rehabilitation program (9 months of substantial gainful
activity), and other State manpower development and job training
programs. Finally, the Secretary is interested in comments on the
impact of the proposed new employment outcome standard and whether, in
comparison to the current standard, it would likely increase or
decrease the number of individuals with disabilities achieving long-
term employment outcomes.
Section 361.57--Review of Rehabilitation Counselor and Coordinator
Determinations
This proposed section is taken from Sec. 361.48 of the existing
regulations.
In accordance with the Department's principles for regulating, the
Secretary proposes to delete all non-statutory timelines from this
section of the draft regulations. In place of specific time limits, the
proposed regulations would require each DSU, in consultation with its
State Rehabilitation Advisory Council, if it has one, to develop
reasonable timelines for key stages of the appeal process to ensure
that appeals are handled promptly. Specifically, DSU's would be
required to develop timelines to ensure that hearings are held within a
reasonable time after an individual's request for review, that the
initial decision of the impartial hearing officer is rendered within a
reasonable time after the hearing is completed, and that the final
decision of the DSU director is rendered within a reasonable time after
notifying the individual of the director's intent to review the initial
decision. These changes are intended to provide DSU's with increased
flexibility to develop appropriate timelines, while protecting
individuals against unreasonable delays in the review process. Like the
current regulations, this proposed provision also would permit a DSU to
establish an informal process to resolve a request for review without
conducting a formal hearing, but would require the DSU to conduct a
hearing within the relevant State-developed timeline if informal
resolution is unsuccessful. The Secretary particularly requests public
comment on whether a specific overall time limit for completing the
entire formal review process (e.g., 125 days) should be required under
the regulations.
This section would incorporate the requirement in the 1992
Amendments that prohibits the State unit from instituting a suspension,
reduction, or termination of services pending a final State hearing
determination unless the agency has evidence that the services were
obtained through fraud, misrepresentation, collusion, or criminal
conduct on the part of the individual, or the individual so requests.
The Secretary interprets this provision to mean that services may be
suspended, reduced, or terminated
[[Page 64494]]
pending a final determination if there is ``substantial evidence'' of
that conduct.
This proposed section also incorporates the requirement in the 1992
Amendments that the director not overturn or modify the decision of an
impartial hearing officer unless the director concludes, based on clear
and convincing evidence, that the decision of the impartial hearing
officer is clearly erroneous because it is ``contrary to Federal or
State law, including policy.'' The Secretary interprets this statutory
language to include a decision that is contrary to the approved State
plan, the Act, or Federal or State vocational rehabilitation
regulations or policy.
It should be noted that the Secretary has changed the term
``calendar day'' from the draft regulations to ``day'' in the proposed
regulations in response to public commenters who inquired as to the
difference in meaning between the two terms. Procedural time limits in
this section and throughout the regulations are, therefore, measured in
terms of ``days,'' which the Secretary intends to mean ``calendar
days'' rather than ``working days.''
Finally, in response to public comment on the draft regulations,
the Secretary proposes to add to paragraph (f) of this section a
requirement that the DSU inform applicants and eligible individuals of
the manner in which it selects impartial hearing officers.
Section 361.60--Matching Requirements
This proposed new section would clarify the matching requirements
by consolidating all of the Federal and non-Federal share provisions.
Proposed paragraph (a) of this section contains the general Federal
share provision, which is in Sec. 361.86(a) of the existing regulations
and was revised by the 1992 Amendments to be 78.7 percent. Proposed
paragraph (a) of this section also contains the 50 percent Federal
share provision for construction projects, which is in Sec. 361.74(b)
of the existing regulations, and the 90 percent Federal share provision
for innovation and expansion grant activities, which is addressed in
Sec. 361.153 of the existing regulations.
In accordance with the Department's principles for regulating, the
Secretary proposes to simplify the requirements relating to the non-
Federal share in the draft regulations by removing from the regulations
a list of permissible sources of expenditures to meet the non-Federal
share and instead cross-referencing the applicability of the matching
or cost sharing requirements in 34 CFR 80.24 of EDGAR with certain
exceptions. The proposed regulations would specify that third party in-
kind contributions, which are a permissible source of matching funds
under EDGAR, may not be used as part of the non-Federal share under the
VR program. In addition, the proposed regulations would continue, but
clarify, existing regulatory requirements that prohibit earmarked
donations that benefit the donor from being used to meet the non-
Federal share. The Secretary wishes to emphasize that the changes
proposed with regard to meeting the non-Federal share would not
prohibit the use of any funding sources that are currently allowable.
Section 361.61--Limitation on Use of Funds for Construction
Expenditures
This proposed new section sets out in a separate section the
requirement in paragraph (d) of Sec. 361.85 of the existing regulations
that no more than 10 percent of a State's allotment may be used for
construction.
Section 361.62--Maintenance of Effort Requirements
This proposed section is taken from Sec. 361.86 of the existing
regulations. It incorporates provisions in the 1992 Amendments, which
changed the standard on which the maintenance of effort level is based
from the average of the three prior fiscal years to the second prior
fiscal year. It also folds into the same section a separate maintenance
of effort requirement relating to the construction of facilities that
is contained in both Sec. 361.52(e) and Sec. 361.85(d) of the existing
regulations. This proposed section clarifies the procedures the
Secretary follows for determining whether maintenance of effort
requirements have been met and for reducing the amount payable in the
case of a maintenance of effort deficit if there is a separate State
agency for vocational rehabilitation services for individuals who are
blind.
Section 361.63--Program Income
This proposed new section consolidates in one place all of the
provisions related to program income. Proposed paragraph (a) of this
section incorporates the definition of program income from EDGAR (34
CFR 80.25(b)). Proposed paragraph (b) of this section incorporates
existing subregulatory guidance regarding the sources of program
income. Proposed paragraph (c)(1) of this section incorporates the
general EDGAR requirement that program income must be used in the
program in which it is earned, but makes an exception for Social
Security reimbursements as provided in section 108 of the Act. Proposed
paragraph (c)(1) of this section would clarify that program income is
considered earned when it is received.
In response to public comment on the draft regulations, the
Secretary proposes to delete from proposed paragraph (c)(3)(ii) of this
section the requirement that the State notify the Secretary prior to
using the deduction method for accounting for program income. By
removing this condition, the Secretary emphasizes that the State is
free either to use program income to expand its vocational
rehabilitation program or to deduct it from its total allowable costs,
without seeking prior Federal approval.
Proposed paragraph (c)(4) of this section would clarify that
program income may not be used to meet the non-Federal share
requirement.
Section 361.64--Obligation of Federal Funds and Program Income
This proposed new section incorporates the amendment to section 19
of the Act, which clarifies that both Federal funds, including
reallotted funds, and program income from all sources may be carried
over for obligation from the year in which the funds are received until
the end of the following year.
In response to public comments on the draft regulations, the
Secretary proposes to amend paragraph (b) of this section to clarify
that the State unit may carry over any portion of unobligated Federal
funds that it has matched by obligating non-Federal funds during the
fiscal year for which the Federal funds were appropriated. This
clarification is consistent with section 19 of the Act, which allows
for carryover of Federal funds ``to the extent'' that recipients comply
with Federal share requirements.
Section 361.65--Allotment and Payment of Federal Funds for Vocational
Rehabilitation Services
This proposed section is taken from Secs. 361.85 and 361.87 of the
existing regulations.
Section 361.70--Purpose of the Strategic Plan
This proposed section implements new section 120 of the Act, which
makes grants under Part B of the Act, as well as innovation and
expansion grants under Part C of the Act, contingent on the preparation
and submission of a statewide strategic plan.
Section 361.71--Procedures for Developing the Strategic Plan
This proposed new section implements new section 122 of the Act,
which requires the State to hold public forums and meet with members of
the
[[Page 64495]]
State Rehabilitation Advisory Council and the Statewide Independent
Living Council prior to developing the strategic plan. The Secretary
interprets the public forum requirement in the statute to require the
same procedures for public input on the strategic plan that are
required for the development of the State plan under Sec. 361.20 of the
proposed regulations.
Section 361.72--Content of the Strategic Plan
This proposed new section incorporates the new requirements in
section 121 of the Act with no substantive changes.
Section 361.73--Use of Funds
This proposed new section incorporates the requirements in new
sections 101(a)(34)(B) and 123 of the Act. The Secretary interprets
101(a)(34)(B) to require that at least 1.5 percent of the funds
received under Part B of the Act be used for the activities identified
in section 123. The Secretary has clarified that all funds received
under Part C of the Act must be used for activities identified in a
State's strategic plan, which may include, but are not limited to, the
activities identified in section 123 of the Act.
Section 361.74--Allotment of Federal Funds
This proposed new section incorporates by reference the
requirements of new section 124 of the Act without substantive change.
Executive Order 12866
1. Assessment of Costs and Benefits
These proposed regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order the Secretary has
assessed the potential costs and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those determined by the
Secretary to be necessary for administering this program effectively
and efficiently. Burdens specifically associated with information
collection requirements, if any, are identified and explained elsewhere
in this preamble under the heading Paperwork Reduction Act of 1995.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these proposed regulations, the Secretary has
determined that the benefits of the proposed regulations justify the
costs. A further discussion of the potential costs and benefits of
these proposed regulations is contained in the summary at the end of
this section of the preamble.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
To assist the Department in complying with the specific
requirements of Executive Order 12866, the Secretary invites comment on
whether there may be further opportunities to reduce any potential
costs or increase potential benefits resulting from these proposed
regulations without impeding the effective and efficient administration
of the program.
Summary of potential benefits relative to potential costs of the
regulatory provisions discussed previously in this preamble:
The Secretary believes that the NPRM would substantially improve
The State VR Services Program and would yield substantial benefits in
terms of program management, efficiency, and effectiveness. The
Secretary also believes that the proposed regulations represent the
least burdensome way to implement the 1992 Amendments to Title I of the
Act and fulfill important policy objectives that the Secretary
considers essential to the success of the program. As stated previously
in this preamble, the NPRM has been revised consistent with the
Department's principles for regulating, which were developed during the
Administration's regulatory reinvention initiative, to further reduce
paperwork or process requirements and to enhance the flexibility of
DSUs to meet non-statutory requirements. Increased flexibility of DSUs
and other benefits resulting from the proposed regulations are
discussed in the following paragraphs of this section and throughout
the section-by-section summary of the preamble.
Improved Organization of Regulations
The NPRM would substantially reorganize and clarify the current
program regulations in order to make the regulations easier to
understand and more useful. In response to requests from members of the
vocational rehabilitation community, the proposed regulations also
would include definitions of a number of previously undefined terms,
including ``comparable services and benefits,'' ``maintenance,'' and
``post-employment services.''
Notes and Examples
The Secretary has provided additional clarifying information in the
proposed regulations through the use of notes and examples. Many
commenters to the draft regulations stated that they find this
information more accessible and more useful when it is included in the
regulations rather than issued separately by RSA as subregulatory
guidance. As stated previously throughout this preamble, the Secretary
emphasizes that the limited notes and examples in the proposed
regulations are purely illustrative and are not intended to restrict
State flexibility.
Reduction of Grantee Burden
Non-statutory paperwork requirements have been eliminated or
consolidated throughout the NPRM in an effort to reduce the regulatory
burden on States. For example, previously duplicative requirements
under Sec. 361.46 (Content of the IWRP) and Sec. 361.47 (Record of
services) have been consolidated to reduce the paperwork burden on
States and to ensure efficient administration of the program. A list of
other sections in which paperwork burden on grantees has been removed
or reduced in response to public comment on the draft regulations
precedes the section-by-section summary in this preamble. Also,
additional burden-reducing steps taken by the Secretary in accordance
with the Department's principles for regulating are explained
throughout the section-by-section summary in the preamble. For example,
the proposed deletion of the requirement that the State plan describe
the organizational structure of the State agency and its organizational
units is discussed under Sec. 361.13 (State agency for administration)
in the section-by-section summary. Those paperwork requirements that
would remain in the proposed regulations are considered essential to
the proper administration of the program.
Enhanced Protections for Individuals With Disabilities
FR Doc. 95-30344 The State Vocational Rehabilitation Services Program
The proposed regulations include provisions intended to ensure that
individuals with disabilities are not improperly denied necessary VR
services. In particular, Sec. 361.50 (Written policies governing the
provision of services) would require DSUs to ensure that the provision
of VR services for an eligible individual is based on the individual's
particular rehabilitation needs and would prevent DSUs from arbitrarily
limiting the nature or scope of vocational rehabilitation services
needed by any eligible individual to achieve an employment outcome. In
addition, Sec. 361.54 (Participation of individuals in cost of services
based on financial need) would require DSUs to
[[Page 64496]]
apply a State financial needs test to each individual in need of a
service covered by the test without regard to type of disability. This
section would also require DSUs to ensure that the level of an
individual's financial participation in the cost of VR services is
reasonable, based on the individual's ability to pay, and not so high
as to effectively deny the individual a necessary service.
Increased Flexibility of Grantees to Satisfy Statutory Requirements
A number of provisions in the proposed regulations have been
revised in an effort to enhance the flexibility of States in meeting
specific statutory requirements. For example, proposed Sec. 361.20
(State plan development) would allow States to determine what
constitutes appropriate and sufficient notice under the Act for
purposes of providing notice of public meetings on State plan
development. Although the proposed regulations would not impose any
specific minimum Federal requirements for what constitutes
``appropriate and sufficient notice,'' the section-by-section summary
of this proposed section identifies suggested ways a DSU might meet
these requirements. Similarly, Sec. 361.52 (Opportunity to make
informed choices regarding the selection of services and providers) of
the proposed regulations identifies possible methods a DSU may follow
or sources of information a DSU may maintain to ensure that each
eligible individual is afforded an opportunity, as required under the
Act, to make an informed choice in selecting vocational rehabilitation
services and providers. Finally, proposed Sec. 361.57 (Review of
rehabilitation counselor and coordinator determinations) would allow
States to establish their own timelines for key stages of the
statutorily-mandated fair hearing process.
Additional Benefits
The proposed regulations reflect the policy in the 1992 Amendments
of ensuring that individuals are provided necessary information through
appropriate modes of communication to enable them to participate in a
rehabilitation program or to influence DSU rehabilitation policy
development. For example, proposed Sec. 361.20(d) requires a DSU, in
developing its State plan, to provide, through appropriate modes of
communication, the notices of the public meetings, any materials
furnished prior to or during the public meetings, and the approved
State plan.
2. Clarity of the Regulations
Executive Order 12866 requires each agency to write regulations
that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following: (1) Are the requirements in the proposed regulations
clearly stated? (2) Do the regulations contain technical terms or other
wording that interferes with their clarity? (3) Does the format of the
regulations (grouping and order of sections, use of headings,
paragraphing, etc.) aid or reduce their clarity? Would the regulations
be easier to understand if they were divided into more (but shorter)
sections? (A ``section'' is preceded by the symbol ``Sec. '' and a
numbered heading; for example, Sec. 361.5 Applicable definitions.) (4)
Is the description of the regulations in the ``Supplementary
Information'' section of this preamble helpful in understanding the
regulations? How could this description be more helpful in making the
regulations easier to understand? (5) What else could the Department do
to make the regulations easier to understand?
A copy of any comments that concern how the Department could make
these proposed regulations easier to understand should be sent to
Stanley M. Cohen, Regulations Quality Officer, U.S. Department of
Education, 600 Independence Avenue, S.W. (Room 5100, FB-10B),
Washington, D.C. 20202-2241.
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities.
Because these proposed regulations would affect only States and
State agencies, the regulations would not have an impact on small
entities. States and State agencies are not defined as ``small
entities'' in the Regulatory Flexibility Act.
Paperwork Reduction Act of 1995
Sections 361.10, 361.13, 361.14, 361.15, 361.16, 361.17, 361.18,
361.19, 361.20, 361.21, 361.22, 361.26, 361.27, 361.29, 361.33, 361.34,
361.35, 361.37, 361.40, 361.46, 361.48, 361.49, 361.50, 361.51, 361.52,
361.54, 361.57, 361.71, and 361.72 contain information collection
requirements. As required by the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)), the Department of Education has submitted a copy of
these sections to the Office of Management and Budget (OMB) for its
review.
Collection of Information: The State Vocational Rehabilitation Services
Program
States are eligible to apply for grants under these regulations.
The information to be collected includes State plan assurances and
descriptions to meet statutory requirements. The Department needs and
uses the information to review State plans to determine whether they
can be approved. Approval of a State plan is necessary to receive a
grant under this program.
All information is to be collected and reported once every three
years, with the exception of the following information, which is
required annually: advice provided by the State Rehabilitation Advisory
Council under Sec. 361.16; collection and analysis of data on qualified
personnel needs and personnel development under Sec. 361.18; analysis
of characteristics of individuals determined to be ineligible for
services and reasons for their ineligibility, evaluation of the
effectiveness of the State's vocational rehabilitation program, any
changes adopted in State policy or in the State plan as a result of
statewide studies and the annual program evaluation, and the methods
used to expand and improve vocational rehabilitation services to
individuals with the most severe disabilities under Sec. 361.29;
revisions to the supported employment plan under Sec. 361.34; a
description of the manner in which rehabilitation technology services
will be provided throughout the rehabilitation process, the personnel
training that will be provided to facilitate the provision of
rehabilitation technology services, and the manner in which personal
assistance services will be provided to individuals with disabilities
under Sec. 361.48. Annual reporting and recordkeeping burden for this
collection of information is estimated to average 221.2 hours per
response for 82 respondents, including the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Thus, the total annual reporting and
recordkeeping burden for this collection is estimated to be 18,138.4
hours.
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, OMB, Room 10235, New Executive
Office Building, Washington, D.C. 20503; Attention: Laura Oliven.
[[Page 64497]]
The Department considers comments by the public on these proposed
collections of information in--
Evaluating whether the proposed collections of information
are necessary for the proper performance of the functions of the
Department, including whether the information will have practical
utility;
Evaluating the accuracy of the Department's estimate of
the burden of the proposed collections of information, including the
validity of the methodology and assumptions used;
Enhancing the quality, usefulness, and clarity of the
information to be collected; and
Minimizing the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology; e.g., permitting
electronic submission of responses.
OMB is required to make a decision concerning the collections of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. This does not affect
the deadline for the public to comment to the Department on the
proposed regulations.
Intergovernmental Review
This program is subject to the requirements of Executive Order
12372 and the regulations in 34 CFR part 79. The objective of the
Executive order is to foster an intergovernmental partnership and a
strengthened federalism by relying on processes developed by State and
local governments for coordination and review of proposed Federal
financial assistance.
In accordance with the order, this document is intended to provide
early notification of the Department's specific plans and actions for
this program.
Invitation to Comment: Interested persons are invited to submit
comments and recommendations regarding these proposed regulations.
All comments submitted in response to these proposed regulations
will be available for public inspection, during and after the comment
period, in Room 3214, 330 C Street SW., Washington, D.C., between the
hours of 8:30 a.m. and 4:00 p.m., Monday through Friday of each week
except Federal holidays.
Assessment of Educational Impact
The Secretary particularly requests comments on whether the
proposed regulations in this document would require transmission of
information that is being gathered by or is available from any other
agency or authority of the United States.
List of Subjects in 34 CFR Part 361
Reporting and recordkeeping requirements, State-administered grant
program--education, Vocational rehabilitation.
Dated: August 28, 1995.
Richard W. Riley,
Secretary of Education.
(Catalog of Federal Domestic Assistance Number 84.126--The State
Vocational Rehabilitation Services Program)
The Secretary proposes to amend Title 34 of the Code of Federal
Regulations by revising Part 361 to read as follows:
PART 361--THE STATE VOCATIONAL REHABILITATION SERVICES PROGRAM
Subpart A--General
Sec.
361.1 Purpose.
361.2 Eligibility for a grant.
361.3 Authorized activities.
361.4 Applicable regulations.
361.5 Applicable definitions.
Subpart B--State Plan for Vocational Rehabilitation Services
361.10 Submission, approval, and disapproval of the State plan.
361.11 Withholding of funds.
State Plan Content: Administration
361.12 Methods of administration.
361.13 State agency for administration.
361.14 Substitute State agency.
361.15 Local administration.
361.16 Establishment of an independent commission or a State
Rehabilitation Advisory Council.
361.17 Requirements for a State Rehabilitation Advisory Council.
361.18 Comprehensive system of personnel development.
361.19 Affirmative action for individuals with disabilities.
361.20 State plan development.
361.21 Consultations regarding the administration of the State
plan.
361.22 Cooperation with agencies responsible for transitioning
students.
361.23 Cooperation with other public agencies.
361.24 Coordination with the Statewide Independent Living Council.
361.25 Statewideness.
361.26 Waiver of statewideness.
361.27 Shared funding and administration of joint programs.
361.28 Third-party cooperative arrangements involving funds from
other public agencies.
361.29 Statewide studies and evaluations.
361.30 Services to special groups of individuals with disabilities.
361.31 Utilization of community resources.
361.32 Utilization of profitmaking organizations for on-the-job
training in connection with selected projects.
361.33 Utilization of community rehabilitation programs.
361.34 Supported employment plan.
361.35 Strategic plan.
361.36 [Reserved].
361.37 Establishment and maintenance of information and referral
resources.
361.38 Protection, use, and release of personal information.
361.39 State-imposed requirements.
361.40 Reports.
State Plan Content: Provision and Scope of Services
361.41 Processing referrals and applications.
361.42 Assessment for determining eligibility and priority for
services.
361.43 Procedures for ineligibility determination.
361.44 Closure without eligibility determination.
361.45 Development of the individualized written rehabilitation
program.
361.46 Content of the individualized written rehabilitation
program.
361.47 Record of services.
361.48 Scope of vocational rehabilitation services for individuals
with disabilities.
361.49 Scope of vocational rehabilitation services for groups of
individuals with disabilities.
361.50 Written policies governing the provision of services.
361.51 Written standards for facilities and providers of services.
361.52 Opportunity to make informed choices regarding the selection
of services and providers.
361.53 Availability of comparable services and benefits.
361.54 Participation of individuals in cost of services based on
financial need.
361.55 Review of extended employment in community rehabilitation
programs or other employment under section 14(c) of the Fair Labor
Standards Act.
361.56 Individuals determined to have achieved an employment
outcome.
361.57 Review of rehabilitation counselor or coordinator
determinations.
Subpart C--Financing of State Vocational Rehabilitation Programs
361.60 Matching requirements.
361.61 Limitation on use of funds for construction expenditures.
361.62 Maintenance of effort requirements.
361.63 Program income.
361.64 Obligation of Federal funds and program income.
361.65 Allotment and payment of Federal funds for vocational
rehabilitation services.
[[Page 64498]]
Subpart D--Strategic Plan for Innovation and Expansion of Vocational
Rehabilitation Services
361.70 Purpose of the strategic plan.
361.71 Procedures for developing the strategic plan.
361.72 Content of the strategic plan.
361.73 Use of funds.
361.74 Allotment of Federal funds.
Authority: 29 U.S.C. 711(c), unless otherwise noted.
Subpart A--General
Sec. 361.1 Purpose.
Under the State Vocational Rehabilitation Services Program
(program), the Secretary provides grants to assist States in operating
a comprehensive, coordinated, effective, efficient, and accountable
program that is designed to assess, plan, develop, and provide
vocational rehabilitation services for individuals with disabilities,
consistent with their strengths, resources, priorities, concerns,
abilities, capabilities, and informed choice, so that they may prepare
for and engage in gainful employment.
(Authority: Sections 12(c) and 100(a)(2) of the Act; 29 U.S.C.
711(c) and 720(a)(2))
Sec. 361.2 Eligibility for a grant.
Any State that submits to the Secretary a State plan that meets the
requirements of section 101(a) of the Act and this part is eligible for
a grant under this program.
(Authority: Section 101(a) of the Act; 29 U.S.C. 721(a))
Sec. 361.3 Authorized activities.
The Secretary makes payments to a State to assist in--
(a) The costs of providing vocational rehabilitation services under
the State plan;
(b) Administrative costs under the State plan; and
(c) The costs of developing and implementing the strategic plan.
(Authority: Section 111(a)(1) of the Act; 29 U.S.C. 731(a)(1))
Sec. 361.4 Applicable regulations.
The following regulations apply to this program:
(a) The Education Department General Administrative Regulations
(EDGAR) as follows:
(1) 34 CFR Part 74 (Administration of Grants to Institutions of
Higher Education, Hospitals, and Nonprofit Organizations), with respect
to subgrants to entities that are not State or local governments or
Indian tribal organizations.
(2) 34 CFR Part 76 (State-Administered Programs).
(3) 34 CFR Part 77 (Definitions that Apply to Department
Regulations).
(4) 34 CFR Part 79 (Intergovernmental Review of Department of
Education Programs and Activities).
(5) 34 CFR Part 80 (Uniform Administrative Requirements for Grants
and Cooperative Agreements to State and Local Governments), except for
Sec. 80.24(a)(2).
(6) 34 CFR Part 81 (General Education Provisions Act-Enforcement).
(7) 34 CFR Part 82 (New Restrictions on Lobbying).
(8) 34 CFR Part 85 (Governmentwide Debarment and Suspension
(Nonprocurement) and Governmentwide Requirements for Drug-Free
Workplace (Grants)).
(9) 34 CFR Part 86 (Drug-Free Schools and Campuses).
(b) The regulations in this part 361.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
Sec. 361.5 Applicable definitions.
(a) Definitions in EDGAR. The following terms used in this part are
defined in 34 CFR 77.1:
Department
EDGAR
Fiscal year
Nonprofit
Private
Public
Secretary
(b) Other definitions. The following definitions also apply to this
part:
(1) Act means the Rehabilitation Act of 1973 (29 U.S.C. 701 et
seq.), as amended.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(2) Administrative costs under the State plan means expenses
related to program planning, development, monitoring, and evaluation,
including, but not limited to, quality assurance; budgeting,
accounting, financial management, statistical systems, and related data
processing; providing information about the program to the public;
technical assistance to other State agencies, private nonprofit
organizations, and businesses and industries; the State Rehabilitation
Advisory Council and other advisory committees; professional
organization membership dues for State unit employees; the removal of
architectural barriers in State agency offices and facilities;
operating and maintaining State unit facilities, equipment, and
grounds; supplies; administration of the comprehensive system of
personnel development, including personnel administration,
administration of affirmative action plans, and training and staff
development; administrative salaries, including clerical and other
support staff salaries, in support of these functions; travel costs
related to carrying out the program, other than travel costs related to
the provision of services; and legal expenses required in the
administration of the program.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(3) American Indian means an individual who is a member of an
Indian tribe.
(Authority: Section 7(20) of the Act; 29 U.S.C. 706(20))
(4) Applicant means an individual who submits an application for
vocational rehabilitation services in accordance with
Sec. 361.41(b)(2).
(Authority: Section 12(c) of the Act; 29 U.S.C.711 (c))
(5) Appropriate modes of communication means specialized media
systems and devices for individuals with disabilities that enable an
individual to comprehend and respond to information that is being
communicated. Appropriate modes of communication include, but are not
limited to, the use of interpreters, open and closed captioned videos,
specialized telecommunications services and audio recordings, Brailled
and large print materials, materials in electronic formats, and
augmentative communication devices.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(6) Assistive technology device means any item, piece of equipment,
or product system, whether acquired commercially off the shelf,
modified, or customized, that is used to increase, maintain, or improve
the functional capabilities of an individual with a disability.
(Authority: Section 7(23) of the Act; 29 U.S.C. 706(23))
(7) Assistive technology service means any service that directly
assists an individual with a disability in the selection, acquisition,
or use of an assistive technology device, including--
(i) The evaluation of the needs of an individual with a disability,
including a functional evaluation of the individual in his or her
customary environment;
(ii) Purchasing, leasing, or otherwise providing for the
acquisition by an individual with a disability of an assistive
technology device;
(iii) Selecting, designing, fitting, customizing, adapting,
applying, maintaining, repairing, or replacing assistive technology
devices;
[[Page 64499]]
(iv) Coordinating and using other therapies, interventions, or
services with assistive technology devices, such as those associated
with existing education and rehabilitation plans and programs;
(v) Training or technical assistance for an individual with a
disability or, if appropriate, the family members, guardians,
advocates, or authorized representatives of the individual; and
(vi) Training or technical assistance for professionals (including
individuals providing education and rehabilitation services),
employers, or others who provide services to, employ, or are otherwise
substantially involved in the major life functions of individuals with
disabilities, to the extent that training or technical assistance is
necessary to the achievement of an employment outcome by an individual
with a disability.
(Authority: Sections 7(24) and 12(c) of the Act; 29 U.S.C. 706(24)
and 711(c))
(8) Community rehabilitation program.
(i) Community rehabilitation program means a program that provides
directly or facilitates the provision of one or more of the following
vocational rehabilitation services to individuals with disabilities to
enable those individuals to maximize their opportunities for
employment, including career advancement:
(A) Medical, psychiatric, psychological, social, and vocational
services that are provided under one management.
(B) Testing, fitting, or training in the use of prosthetic and
orthotic devices.
(C) Recreational therapy.
(D) Physical and occupational therapy.
(E) Speech, language, and hearing therapy.
(F) Psychiatric, psychological, and social services, including
positive behavior management.
(G) Assessment for determining eligibility and vocational
rehabilitation needs.
(H) Rehabilitation technology.
(I) Job development, placement, and retention services.
(J) Evaluation or control of specific disabilities.
(K) Orientation and mobility services for individuals who are
blind.
(L) Extended employment.
(M) Psychosocial rehabilitation services.
(N) Supported employment services and extended services.
(O) Services to family members if necessary to enable the applicant
or eligible individual to achieve an employment outcome.
(P) Personal assistance services.
(Q) Services similar to the services described in paragraphs (A)
through (P) of this definition.
(ii) For the purposes of this definition, the word program means an
agency, organization, or institution, or unit of an agency,
organization, or institution, that provides directly or facilitates the
provision of vocational rehabilitation services as one of its major
functions.
(Authority: Sections 7(25) and 12(c) of the Act; 29 U.S.C. 706(25)
and 711(c))
(9) Comparable services and benefits means services and benefits
that are--
(i) Provided or paid for, in whole or in part, by other Federal,
State, or local public agencies, by health insurance, or by employee
benefits;
(ii) Available to the individual within a reasonable period of time
in accordance with Sec. 361.53; and
(iii) Commensurate to the services that the individual would
otherwise receive from the vocational rehabilitation agency.
(Authority: Sections 12(c) and 101(a)(8) of the Act; 29 U.S.C.
711(c) and 721(a)(8))
(10) Competitive employment means work--
(i) In the competitive labor market that is performed on a full-
time or part-time basis in an integrated setting; and
(ii) For which an individual is compensated at or above the minimum
wage, but not less than the prevailing wage for the same or similar
work in the local community performed by individuals who are not
disabled.
(Authority: Sections 7(5), 7(18), and 12(c) of the Act; 29 U.S.C.
706(5), 706(18), and 711(c))
(11) Construction of a facility for a public or nonprofit community
rehabilitation program means--
(i) The acquisition of land in connection with the construction of
a new building for a community rehabilitation program;
(ii) The acquisition of existing buildings;
(iii) The remodeling, alteration, or renovation of existing
buildings;
(iv) The construction of new buildings and expansion of existing
buildings;
(v) Architect's fees, site surveys, and soil investigation, if
necessary, in connection with the construction project;
(vi) The acquisition of initial fixed or movable equipment of any
new, newly acquired, newly expanded, newly remodeled, newly altered, or
newly renovated buildings that are to be used for community
rehabilitation program purposes; and
(vii) Other direct expenditures appropriate to the construction
project, except costs of off-site improvements.
(Authority: Sections 7(1) and 12(c) of the Act; 29 U.S.C. 706(1) and
711(c))
(12) Designated State agency or State agency means the sole State
agency, designated in accordance with Sec. 361.13(a), to administer, or
supervise local administration of, the State plan for vocational
rehabilitation services. The term includes the State agency for
individuals who are blind, if designated as the sole State agency with
respect to that part of the plan relating to the vocational
rehabilitation of individuals who are blind.
(Authority: Sections 7(3)(A) and 101(a)(1)(A) of the Act; 29 U.S.C.
706(3)(A) and 721(a)(1)(A))
(13) Designated State unit or State unit means either--
(i) The State agency vocational rehabilitation bureau, division, or
other organizational unit that is primarily concerned with vocational
rehabilitation or vocational and other rehabilitation of individuals
with disabilities and that is responsible for the administration of the
vocational rehabilitation program of the State agency, as required
under Sec. 361.13(b); or
(ii) The independent State commission, board, or other agency that
has vocational rehabilitation, or vocational and other rehabilitation,
as its primary function.
(Authority: Sections 7(3)(B) and 101(a)(2)(A) of the Act; 29 U.S.C.
706(3)(B) and 721(a)(2)(A))
(14) Eligible individual means an applicant for vocational
rehabilitation services who meets the eligibility requirements of
Sec. 361.42(a).
(Authority: Sections 7(8)(a) and 102(a)(1) of the Act; 29 U.S.C.
706(8) and 722(a)(1))
(15) Employment outcome means, with respect to an individual,
entering or retaining full-time or, if appropriate, part-time
competitive employment in the integrated labor market to the greatest
extent practicable; supported employment; or any other type of
employment that is consistent with an individual's strengths,
resources, priorities, concerns, abilities, capabilities, interests,
and informed choice.
(Authority: Sections 7(5) and 12(c) of the Act; 29 U.S.C. 706(5) and
711(c))
(16) Establishment, development, or improvement of a public or
nonprofit community rehabilitation program means--
(i) The establishment of a facility for a public or nonprofit
community
[[Page 64500]]
rehabilitation program as defined in paragraph (b)(17) of this section;
(ii) Staffing, if necessary to establish, develop, or improve a
community rehabilitation program for a maximum period of four years,
with Federal financial participation available at the applicable
matching rate for the following levels of staffing costs:
(A) 100 percent of staffing costs for the first year.
(B) 75 percent of staffing costs for the second year.
(C) 60 percent of staffing costs for the third year.
(D) 45 percent of staffing costs for the fourth year; and
(iii) Other expenditures related to the establishment, development,
or improvement of a community rehabilitation program that are necessary
to make the program functional or increase its effectiveness, but are
not ongoing operating expenses of the program.
(Authority: Sections 7(6) and 12(c) of the Act; 29 U.S.C. 706(6) and
711(c))
(17) Establishment of a facility for a public or nonprofit
community rehabilitation program means--
(i) The acquisition of an existing building, and if necessary the
land in connection with the acquisition, if the building has been
completed in all respects for at least one year prior to the date of
acquisition and the Federal share of the cost of the acquisition is not
more than $300,000;
(ii) The remodeling or alteration of an existing building, provided
the estimated cost of remodeling or alteration does not exceed the
appraised value of the existing building;
(iii) The expansion of an existing building, provided that--
(A) The existing building is complete in all respects;
(B) The total size in square footage of the expanded building,
notwithstanding the number of expansions, is not greater than twice the
size of the existing building;
(C) The expansion is joined structurally to the existing building
and does not constitute a separate building; and
(D) The costs of the expansion do not exceed the appraised value of
the existing building;
(iv) Architect's fees, site survey, and soil investigation, if
necessary in connection with the acquisition, remodeling, alteration,
or expansion of an existing building; and
(v) The acquisition of fixed or movable equipment, including the
costs of installation of the equipment, if necessary to establish,
develop, or improve a community rehabilitation program.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(18) Extended employment means work in a non-integrated or
sheltered setting for a public or private nonprofit agency or
organization that provides compensation in accordance with the Fair
Labor Standards Act and any needed support services to an individual
with a disability to enable the individual to continue to train or
otherwise prepare for competitive employment, unless the individual
through informed choice chooses to remain in extended employment.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(19) Extended services, as used in the definition of ``Supported
employment,'' means ongoing support services and other appropriate
services that are needed to support and maintain an individual with a
most severe disability in supported employment and that are provided by
a State agency, a private nonprofit organization, employer, or any
other appropriate resource, from funds other than funds received under
this part, 34 CFR part 363, 34 CFR part 376, or 34 CFR part 380, after
an individual with a most severe disability has made the transition
from support provided by the designated State unit.
(Authority: Section 7(27) of the Act; 29 U.S.C. 706(27))
(20) Extreme medical risk means a probability of substantially
increasing functional impairment or death if medical services,
including mental health services, are not provided expeditiously.
(Authority: Sections 12(c) and 101(a)(8) of the Act; 29 U.S.C.
711(c) and 721(a)(8))
(21) Family member, for purposes of receiving vocational
rehabilitation services in accordance with Sec. 361.48(a)(9), means an
individual--
(i) Who either--
(A) Is a relative or guardian of an applicant or eligible
individual; or
(B) Lives in the same household as an applicant or eligible
individual;
(ii) Who has a substantial interest in the well-being of that
individual; and
(iii) Whose receipt of vocational rehabilitation services is
necessary to enable the applicant or eligible individual to achieve an
employment outcome.
(Authority: Sections 12(c) and 103(a)(3) of the Act; 29 U.S.C.
711(c) and 723(a)(3))
(22) Impartial hearing officer.
(i) Impartial hearing officer means an individual who--
(A) Is not an employee of a public agency (other than an
administrative law judge, hearing examiner, or employee of an
institution of higher education);
(B) Is not a member of the State Rehabilitation Advisory Council
for the designated State unit;
(C) Has not been involved in previous decisions regarding the
vocational rehabilitation of the applicant or eligible individual;
(D) Has knowledge of the delivery of vocational rehabilitation
services, the State plan, and the Federal and State regulations
governing the provision of services;
(E) Has received training with respect to the performance of
official duties; and
(F) Has no personal, professional, or financial interest that would
be in conflict with the objectivity of the individual.
(ii) An individual shall not be considered to be an employee of a
public agency for the purposes of this definition solely because the
individual is paid by the agency to serve as a hearing officer.
(Authority: Section 7(28) of the Act; 29 U.S.C. 706(28))
(23) Indian tribe means any Federal or State Indian tribe, band,
rancheria, pueblo, colony, or community, including any Alaskan native
village or regional village corporation (as defined in or established
pursuant to the Alaska Native Claims Settlement Act).
(Authority: Section 7(21) of the Act; 29 U.S.C. 706(21))
(24) Individual who is blind means a person who is blind within the
meaning of the applicable State law.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(25) Individual with a disability, except in Secs. 361.17(a), (b),
(c), and (j), 361.19, 361.20, and 361.51(b)(2), means an individual--
(i) Who has a physical or mental impairment;
(ii) Whose impairment constitutes or results in a substantial
impediment to employment; and
(iii) Who can benefit in terms of an employment outcome from the
provision of vocational rehabilitation services.
(Authority: Section 7(8)(A) of the Act; 29 U.S.C. 706(8)(A))
(26) Individual with a disability, for purposes of Secs. 361.17
(a), (b), (c), and (j), 361.19, 361.20, and 361.51(b)(2), means an
individual--
[[Page 64501]]
(i) Who has a physical or mental impairment that substantially
limits one or more major life activities;
(ii) Who has a record of such an impairment; or
(iii) Who is regarded as having such an impairment.
(Authority: Section 7(8)(B) of the Act; 29 U.S.C. 706(8)(B))
(27) Individual with a most severe disability means an individual
with a severe disability who meets the designated State unit's criteria
for an individual with a most severe disability. This criteria must be
consistent with the requirements in Sec. 361.36(c)(3).
(Authority: Section 101(a)(5) of the Act; 29 U.S.C. 721(a)(5))
(28) Individual with a severe disability means an individual with a
disability--
(i) Who has a severe physical or mental impairment that seriously
limits one or more functional capacities (such as mobility,
communication, self-care, self-direction, interpersonal skills, work
tolerance, or work skills) in terms of an employment outcome;
(ii) Whose vocational rehabilitation can be expected to require
multiple vocational rehabilitation services over an extended period of
time; and
(iii) Who has one or more physical or mental disabilities resulting
from amputation, arthritis, autism, blindness, burn injury, cancer,
cerebral palsy, cystic fibrosis, deafness, head injury, heart disease,
hemiplegia, hemophilia, respiratory or pulmonary dysfunction, mental
retardation, mental illness, multiple sclerosis, muscular dystrophy,
musculo-skeletal disorders, neurological disorders (including stroke
and epilepsy), spinal cord conditions (including paraplegia and
quadriplegia), sickle cell anemia, specific learning disability, end-
stage renal disease, or another disability or combination of
disabilities determined on the basis of an assessment for determining
eligibility and vocational rehabilitation needs to cause comparable
substantial functional limitation.
(Authority: Section 7(15)(A) of the Act; 29 U.S.C. 708(15)(A))
(29) Individual's representative means any representative chosen by
an applicant or eligible individual, including a parent, guardian,
other family member, or advocate, unless a representative has been
appointed by a court to represent the individual, in which case the
court-appointed representative is the individual's representative.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(30) Integrated setting, with respect to the provision of services
or an employment outcome, means a setting typically found in the
community in which applicants or eligible individuals have the
opportunity to interact on a regular basis with non-disabled
individuals other than non-disabled individuals who are providing
services to those applicants or eligible individuals.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(31) Maintenance means monetary support provided to an eligible
individual or an individual receiving extended evaluation services for
those living expenses, such as food, shelter, and clothing, that are in
excess of the normal living expenses of the individual and that are
necessitated by the individual's participation in a program of
vocational rehabilitation services.
(Authority: Sections 12(c) and 103(a)(5) of the Act; 29 U.S.C.
711(c) and 723(a)(5))
Note: The following are examples of expenses that would meet the
definition of maintenance.
Example: The cost of a uniform or other suitable clothing that
is required for an individual's job placement or job seeking
activities.
Example: The cost of short-term shelter that is required in
order for an individual to participate in vocational training at a
site that is not within commuting distance of an individual's home.
Example: The initial one-time costs, such as a security deposit
or charges for the initiation of utilities, that are required in
order for an individual to relocate for a job placement.
Example: The costs of food, clothing, and shelter for homeless
or recently deinstitutionalized individuals until other financial
assistance is secured for those costs.
(32) Nonprofit, with respect to a community rehabilitation program,
means a community rehabilitation program carried out by a corporation
or association, no part of the net earnings of which inures, or may
lawfully inure, to the benefit of any private shareholder or individual
and the income of which is exempt from taxation under section 501(c)(3)
of the Internal Revenue Code of 1954.
(Authority: Section 7(10) of the Act; 29 U.S.C. 706(10))
(33) Ongoing support services, as used in the definition of
``Supported employment''--
(i) Means services that are--
(A) Needed to support and maintain an individual with a most severe
disability in supported employment;
(B) Identified based on a determination by the designated State
unit of the individual's needs as specified in an individualized
written rehabilitation program; and
(C) Furnished by the designated State unit from the time of job
placement until transition to extended services, unless post-employment
services are provided following transition, and thereafter by one or
more extended services providers throughout the individual's term of
employment in a particular job placement or multiple placements if
those placements are being provided under a program of transitional
employment;
(ii) Must include an assessment of employment stability and
provision of specific services or the coordination of services at or
away from the worksite that are needed to maintain stability based on--
(A) At a minimum, twice-monthly monitoring at the worksite of each
individual in supported employment; or
(B) If under special circumstances, especially at the request of
the individual, the individualized written rehabilitation program
provides for off-site monitoring, twice-monthly meetings with the
individual;
(iii) Consist of--
(A) Any particularized assessment supplementary to the
comprehensive assessment of rehabilitation needs described in this
part;
(B) The provision of skilled job trainers who accompany the
individual for intensive job skill training at the work site;
(C) Job development and placement;
(D) Social skills training;
(E) Regular observation or supervision of the individual;
(F) Follow-up services including regular contact with the
employers, the individuals, the parents, family members, guardians,
advocates or authorized representatives of the individuals, and other
suitable professional and informed advisors, in order to reinforce and
stabilize the job placement;
(G) Facilitation of natural supports at the worksite;
(H) Any other service identified in the scope of vocational
rehabilitation services for individuals, described in Sec. 361.48; or
(I) Any service similar to the foregoing services.
(Authority: Sections 7(33) and 12(c) of the Act; 29 U.S.C. 706(33)
and 711(c))
(34) Personal assistance services means a range of services
provided by one or more persons designed to assist an individual with a
disability to perform daily living activities on or off the job that
the individual would typically perform without assistance if
[[Page 64502]]
the individual did not have a disability. The services must be
necessary to the achievement of an employment outcome and may be
provided only while the individual is receiving other vocational
rehabilitation services. The services may include training in managing,
supervising, and directing personal assistance services.
(Authority: Sections 7(11) and 103(a)(15) of the Act; 29 U.S.C.
706(11) and 29 U.S.C. 723)
(35) Physical and mental restoration services means--
(i) Corrective surgery or therapeutic treatment that is likely,
within a reasonable period of time, to correct or modify substantially
a stable or slowly progressive physical or mental impairment that
constitutes a substantial impediment to employment;
(ii) Diagnosis of and treatment for mental or emotional disorders
by qualified personnel in accordance with State licensure laws;
(iii) Dentistry;
(iv) Nursing services;
(v) Necessary hospitalization (either inpatient or outpatient care)
in connection with surgery or treatment and clinic services;
(vi) Drugs and supplies;
(vii) Prosthetic, orthotic, or other assistive devices, including
hearing aids;
(viii) Eyeglasses and visual services, including visual training,
and the examination and services necessary for the prescription and
provision of eyeglasses, contact lenses, microscopic lenses, telescopic
lenses, and other special visual aids prescribed by personnel that are
qualified in accordance with State licensure laws;
(ix) Podiatry;
(x) Physical therapy;
(xi) Occupational therapy;
(xii) Speech or hearing therapy;
(xiii) Mental health services;
(xiv) Treatment of either acute or chronic medical complications
and emergencies that are associated with or arise out of the provision
of physical and mental restoration services, or that are inherent in
the condition under treatment;
(xv) Special services for the treatment of individuals with end-
stage renal disease, including transplantation, dialysis, artificial
kidneys, and supplies; and
(xvi) Other medical or medically related rehabilitation services.
(Authority: Sections 12(c) and 103(a)(4) of the Act; 29 U.S.C.
711(c) and 723(a)(4))
(36) Physical or mental impairment means an injury, disease, or
other condition that materially limits, or if not treated will probably
result in materially limiting, mental or physical functioning.
(Authority: Sections 7(8)(A) and 12(c) of the Act; 29 U.S.C.
706(8)(A) and 711(c))
(37) Post-employment services means one or more of the services
identified in Sec. 361.48 that are provided subsequent to the
achievement of an employment outcome and that are necessary for an
individual to maintain, regain, or advance in employment, consistent
with the individual's strengths, resources, priorities, concerns,
abilities, capabilities, and interests.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
Note: Post-employment services are intended to ensure that the
employment outcome remains consistent with the individual's
strengths, resources, priorities, concerns, abilities, capabilities,
and interests. These services are available to meet rehabilitation
needs that do not require a complex and comprehensive provision of
services and, thus, should be limited in scope and duration. If more
comprehensive services are required, then a new rehabilitation
effort should be considered. Post-employment services are to be
provided under an amended individualized written rehabilitation
program; thus, a re-determination of eligibility is not required.
The provision of post-employment services is subject to the same
requirements in this part as the provision of any other vocational
rehabilitation service. Post-employment services are available to
assist an individual to maintain employment, e.g., the individual's
employment is jeopardized because of conflicts with supervisors or
co-workers and the individual needs mental health services and
counseling to maintain the employment; to regain employment, e.g.,
the individual's job is eliminated through reorganization and new
placement services are needed; and to advance in employment, e.g.,
the employment is no longer consistent with the individual's
strengths, resources, priorities, concerns, abilities, capabilities,
and interests.
(38) Rehabilitation engineering means the systematic application of
engineering sciences to design, develop, adapt, test, evaluate, apply,
and distribute technological solutions to problems confronted by
individuals with disabilities in functional areas, such as mobility,
communications, hearing, vision, and cognition, and in activities
associated with employment, independent living, education, and
integration into the community.
(Authority: Sections 7(13) and 12(c) of the Act; 29 U.S.C. 706(13)
and 711(c))
(39) Rehabilitation technology means the systematic application of
technologies, engineering methodologies, or scientific principles to
meet the needs of, and address the barriers confronted by, individuals
with disabilities in areas that include education, rehabilitation,
employment, transportation, independent living, and recreation. The
term includes rehabilitation engineering, assistive technology devices,
and assistive technology services.
(Authority: Section 7(13) of the Act; 29 U.S.C. 706(13))
(40) Reservation means a Federal or State Indian reservation,
public domain Indian allotment, former Indian reservation in Oklahoma,
and land held by incorporated Native groups, regional corporations, and
village corporations under the provisions of the Alaska Native Claims
Settlement Act.
(Authority: Section 130(c) of the Act; 29 U.S.C. 750(c))
(41) Sole local agency means a unit or combination of units of
general local government or one or more Indian tribes that has the sole
responsibility under an agreement with, and the supervision of, the
State agency to conduct a local or tribal vocational rehabilitation
program, in accordance with the State plan.
(Authority: Section 7(9) of the Act; 29 U.S.C. 706(9))
(42) State means any of the 50 States, the District of Columbia,
the Commonwealth of Puerto Rico, the United States Virgin Islands,
Guam, American Samoa, and the Commonwealth of the Northern Mariana
Islands.
(Authority: Section 7(16) of the Act; 29 U.S.C. 706(16))
(43) State plan means the State plan for vocational rehabilitation
services or the vocational rehabilitation services part of a
consolidated rehabilitation plan under Sec. 361.10(c).
(Authority: Sections 12(c) and 101 of the Act; 29 U.S.C. 711(c) and
721)
(44) Substantial impediment to employment means that a physical or
mental impairment (in light of attendant medical, psychological,
vocational, educational, and other related factors) hinders an
individual from preparing for, entering into, engaging in, or retaining
employment consistent with the individual's abilities and capabilities.
(Authority: Sections 7(8)(A) and 12(c) of the Act; 29 U.S.C.
706(8)(A) and 711(c))
(45) Supported employment means--
(i) Competitive employment in an integrated setting with ongoing
support services for individuals with the most severe disabilities--
(A) For whom competitive employment has not traditionally occurred
or for whom competitive
[[Page 64503]]
employment has been interrupted or intermittent as a result of a severe
disability; and
(B) Who, because of the nature and severity of their disabilities,
need intensive supported employment services from the designated State
unit and extended services after transition in order to perform this
work; or
(ii) Transitional employment for individuals with the most severe
disabilities due to mental illness.
(Authority: Section 7(18) of the Act; 29 U.S.C. 706(18)(A))
(46) Supported employment services means ongoing support services
and other appropriate services needed to support and maintain an
individual with a most severe disability in supported employment that
are provided by the designated State unit--
(i) For a period of time not to exceed 18 months, unless under
special circumstances the eligible individual and the rehabilitation
counselor or coordinator jointly agree to extend the time in order to
achieve the rehabilitation objectives identified in the individualized
written rehabilitation program; and
(ii) Following transition, as post-employment services that are
unavailable from an extended services provider and that are necessary
to maintain or regain the job placement or advance in employment.
(Authority: Sections 7(34) and 12(c) of the Act; 29 U.S.C. 706(34)
and 711(c))
(47) Transition services means a coordinated set of activities for
a student designed within an outcome-oriented process that promotes
movement from school to post-school activities, including postsecondary
education, vocational training, integrated employment (including
supported employment), continuing and adult education, adult services,
independent living, or community participation. The coordinated set of
activities must be based upon the individual student's needs, taking
into account the student's preferences and interests, and must include
instruction, community experiences, the development of employment and
other post-school adult living objectives, and, if appropriate,
acquisition of daily living skills and functional vocational
evaluation. Transition services must promote or facilitate the
accomplishment of long-term rehabilitation goals and intermediate
rehabilitation objectives identified in the student's individualized
written rehabilitation program (IWRP).
(Authority: Section 7(35) and 103(a)(14) of the Act; 29 U.S.C.
706(35) and 723(a)(14))
(48) Transitional employment, as used in the definition of
``Supported employment,'' means a series of temporary job placements in
competitive work in integrated settings with ongoing support services
for individuals with the most severe disabilities due to mental
illness. In transitional employment, the provision of ongoing support
services must include continuing sequential job placements until job
permanency is achieved.
(Authority: Sections 7(18) and 12(c) of the Act; 29 U.S.C. 706(18)
and 711(c))
(49) Transitioning student means a student who is an eligible
individual in accordance with the requirements of Sec. 361.42(a)(1) and
who is receiving transition services as defined in paragraph (b)(47) of
this section.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
(50) Transportation means travel and related expenses that are
necessary to enable an applicant or eligible individual to participate
in any vocational rehabilitation service.
(Authority: Sections 12(c) and 103(a)(10) of the Act; 29 U.S.C.
711(c) and 723(a)(10))
Note: The following are examples of expenses that would meet the
definition of transportation.
Example: Travel and related expenses for a personal care
attendant or aide if the services of that person are necessary to
enable the applicant or eligible individual to travel to participate
in any vocational rehabilitation service.
Example: Short-term travel-related expenses, such as food and
shelter, incurred by an applicant participating in evaluation or
assessment services that necessitates travel.
Example: Relocation expenses incurred by an eligible individual
in connection with a job placement that is a significant distance
from the eligible individual's current residence.
Example: The purchase and repair of vehicles, including vans,
but not the modification of these vehicles, as modification would be
considered a rehabilitation technology service.
(51) Vocational rehabilitation services--
(i) If provided to an individual, means those services listed in
Sec. 361.48; and
(ii) If provided for the benefit of groups of individuals, also
means those services listed in Sec. 361.49.
(Authority: Sections 103(a) and (b) of the Act; 29 U.S.C. 723(a) and
(b))
Subpart B--State Plan for Vocational Rehabilitation Services
Sec. 361.10 Submission, approval, and disapproval of the State plan.
(a) Purpose. In order for a State to receive a grant under this
part, the designated State agency shall submit to the Secretary, and
obtain approval of, a State plan that contains a description of the
State's vocational rehabilitation services program, the plans and
policies to be followed in carrying out the program, and other
information requested by the Secretary, in accordance with the
requirements of this part.
(b) Separate part relating to rehabilitation of individuals who are
blind. If a separate State agency administers or supervises the
administration of a separate part of the State plan relating to the
rehabilitation of individuals who are blind, that part of the State
plan must separately conform to all requirements under this part that
are applicable to a State plan.
(c) Consolidated rehabilitation plan. The State may choose to
submit a consolidated rehabilitation plan that includes the State plan
for vocational rehabilitation services and the State's plan for its
program for persons with developmental disabilities. The State planning
and advisory council for developmental disabilities and the agency
administering the State's program for persons with developmental
disabilities must concur in the submission of a consolidated
rehabilitation plan. A consolidated rehabilitation plan must comply
with, and be administered in accordance with, the Act and the
Developmental Disabilities Assistance and Bill of Rights Act, as
amended.
(d) Public participation. The State shall develop the State plan
with input from the public, through public meetings, in accordance with
the requirements of Sec. 361.20.
(e) Duration. The State plan must cover a three-year period or,
with the prior approval of the Secretary, some other period that
corresponds to the period for which the State submits a plan under
another Federal law, such as Part B of the Individuals with
Disabilities Education Act (IDEA).
(f) Submission of the State plan. The State shall submit the State
plan to the Secretary for approval--
(1) No later than July 1 of the year preceding the first fiscal
year for which the State plan is submitted; or
(2) With the prior approval of the Secretary, no later than the
date on which the State is required to submit a State plan under
another Federal law.
[[Page 64504]]
(g) Revisions to the State plan. The State shall submit to the
Secretary for approval revisions to the State plan in accordance with
the requirements of this part and 34 CFR 76.140.
(h) Interim State plan. The Secretary may require a State to submit
an interim State plan for a period of less than three years following a
reauthorization of the Act and prior to the publication of final
regulations.
(i) Approval. The Secretary approves a State plan and revisions to
the State plan that conform to the requirements of this part and
section 101(a) of the Act.
(j) Disapproval. The Secretary disapproves a State plan that does
not conform to the requirements of this part and section 101(a) of the
Act, in accordance with the following procedures:
(1) Informal resolution. Prior to disapproving a State plan, the
Secretary attempts to resolve disputes informally with State officials.
(2) Notice. If, after reasonable effort has been made to resolve
the dispute, no resolution has been reached, the Secretary provides
notice to the State agency of the intention to disapprove the State
plan and of the opportunity for a hearing.
(3) State plan hearing. If the State agency requests a hearing, the
Secretary designates one or more individuals, either from the
Department or elsewhere, not responsible for or connected with the
administration of this program, to conduct a hearing in accordance with
the provisions of 34 CFR Part 81, Subpart A.
(4) Initial decision. The hearing officer issues an initial
decision in accordance with 34 CFR 81.41.
(5) Petition for review of an initial decision. The State agency
may seek the Secretary's review of the initial decision in accordance
with 34 CFR 81.42.
(6) Review by the Secretary. The Secretary reviews the initial
decision in accordance with 34 CFR 81.43.
(7) Final decision of the Department. The final decision of the
Department is made in accordance with 34 CFR 81.44.
(8) Judicial review. A State may appeal the Secretary's decision to
disapprove the State plan by filing a petition for review with the
United States Court of Appeals for the circuit in which the State is
located, in accordance with section 107(d) of the Act.
(Authority: Sections 6, 101(a) and (b), and 107(d) of the Act; 29
U.S.C. 705, 721(a) and (b), and 727(d))
Sec. 361.11 Withholding of funds.
(a) Basis for withholding. The Secretary may withhold or limit
payments under sections 111, 124, or 632(a) of the Act, as provided by
section 107(c) and (d) of the Act, if the Secretary determines that--
(1) The State plan, including the supported employment supplement
and the strategic plan supplement, has been so changed that it no
longer conforms with the requirements of this part or 34 CFR part 363;
or
(2) In the administration of the State plan, there has been a
failure to comply substantially with any provision of that plan or a
program improvement plan established in accordance with section 106 of
the Act.
(b) Informal resolution. Prior to withholding or limiting payments
in accordance with this section, the Secretary attempts to resolve
disputed issues informally with State officials.
(c) Notice. If, after reasonable effort has been made to resolve
the dispute, no resolution has been reached, the Secretary provides
notice to the State agency of the intention to withhold or limit
payments and of the opportunity for a hearing.
(d) Withholding hearing. If the State agency requests a hearing,
the Secretary designates one or more individuals, either from the
Department or elsewhere, not responsible for or connected with the
administration of this program, to conduct a hearing in accordance with
the provisions of 34 CFR part 81, subpart A.
(e) Initial decision. The hearing officer issues an initial
decision in accordance with 34 CFR 81.41.
(f) Petition for review of an initial decision. The State agency
may seek the Secretary's review of the initial decision in accordance
with 34 CFR 81.42.
(g) Review by the Secretary. The Secretary reviews the initial
decision in accordance with 34 CFR 81.43.
(h) Final decision of the Department. The final decision of the
Department is made in accordance with 34 CFR 81.44.
(i) Judicial review. A State may appeal the Secretary's decision to
withhold or limit payments by filing a petition for review with the
U.S. Court of Appeals for the circuit in which the State is located, in
accordance with section 107(d) of the Act.
(Authority: Sections 101(b), 107(c), and 107(d) of the Act; 29
U.S.C. 721(b), 727(c)(1) and (2), and 727(d))
State Plan Content: Administration
Sec. 361.12 Methods of administration.
The State plan must assure that the State agency, and the
designated State unit if applicable, employs methods of administration
found necessary by the Secretary for the proper and efficient
administration of the plan and for carrying out all functions for which
the State is responsible under the plan and this part. These methods
must include procedures to ensure accurate data collection and
financial accountability.
(Authority: Section 101(a)(6) of the Act; 29 U.S.C. 721(a)(6))
Sec. 361.13 State agency for administration.
(a) Designation of State agency. The State plan must designate a
State agency as the sole State agency to administer the State plan, or
to supervise its administration in a political subdivision of the State
by a sole local agency, in accordance with the following requirements:
(1) General. Except as provided in paragraphs (a)(2) and (3) of
this section, the State plan must provide that the designated State
agency is one of the following types of agencies:
(i) A State agency that is an independent State commission, board,
or other agency that has as its major function vocational
rehabilitation or vocational and other rehabilitation of individuals
with disabilities.
(ii) The State agency administering or supervising the
administration of education or vocational education in the State,
provided that it includes a vocational rehabilitation unit as provided
in paragraph (b) of this section.
(iii) A State agency that includes a vocational rehabilitation
unit, as provided in paragraph (b) of this section, and at least two
other major organizational units, each of which administers one or more
of the State's major programs of public education, public health,
public welfare, or labor.
(2) American Samoa. In the case of American Samoa, the State plan
must designate the Governor.
(3) Designated State agency for individuals who are blind. If a
State commission or other agency that provides assistance or services
to individuals who are blind is authorized under State law to provide
vocational rehabilitation services to individuals who are blind, and
this commission or agency is primarily concerned with vocational
rehabilitation or includes a vocational rehabilitation unit as provided
in paragraph (b) of this section, the State plan may designate that
agency as the sole State agency to administer the part of the plan
under which vocational rehabilitation services are provided for
individuals who are blind or to supervise its administration in a
political subdivision of the State by a sole local agency.
(b) Designation of State unit. (1) If the designated State agency
is of the type
[[Page 64505]]
specified in paragraph (a)(1)(ii) or (a)(1)(iii) of this section, or if
the designated State agency specified in paragraph (a)(3) of this
section does not have as its major function vocational rehabilitation
or vocational and other rehabilitation of individuals with
disabilities, the State plan must assure that the agency (or each
agency if two agencies are designated) includes a vocational
rehabilitation bureau, division, or unit that--
(i) Is primarily concerned with vocational rehabilitation or
vocational and other rehabilitation of individuals with disabilities
and is responsible for the administration of the State agency's
vocational rehabilitation program under the State plan, including those
responsibilities specified in paragraph (d) of this section;
(ii) Has a full-time director;
(iii) Has a staff, at least 90 percent of whom are employed full
time on the rehabilitation work of the organizational unit; and
(iv) Is located at an organizational level and has an
organizational status within the State agency comparable to that of
other major organizational units of the agency or, in the case of an
agency described in paragraph (a)(1)(ii) of this section, is so located
and has that status or has a director who is the executive officer of
the State agency.
(2) In the case of a State that has not designated a separate State
agency for individuals who are blind, as provided for in paragraph
(a)(3) of this section, the State may assign responsibility for the
part of the plan under which vocational rehabilitation services are
provided to individuals who are blind to one organizational unit of the
designated State agency and may assign responsibility for the rest of
the plan to another organizational unit of the designated State agency,
with the provisions of paragraph (b)(1) of this section applying
separately to each of these units.
(c) Responsibility for administration. The State plan must assure
that all decisions affecting eligibility for vocational rehabilitation
services, the nature and scope of available services, and the provision
of these services are made by the designated State unit or the sole
local agency under the supervision of the State unit. This
responsibility may not be delegated to any other agency or individual.
(Authority: Sections 101(a)(1) and 101(a)(2) of the Act; 29 U.S.C.
721(a)(1) and 721(a)(2))
Sec. 361.14 Substitute State agency.
(a) General provisions.
(1) If the Secretary has withheld all funding from a State under
Sec. 361.11, the State may designate another agency to substitute for
the designated State agency in carrying out the State's program of
vocational rehabilitation services.
(2) Any public or nonprofit private organization or agency within
the State or any political subdivision of the State is eligible to be a
substitute agency.
(3) The substitute agency shall submit a State plan that meets the
requirements of this part.
(4) The Secretary makes no grant to a substitute agency until the
Secretary approves its plan.
(b) Substitute agency matching share. The Secretary does not make
any payment to a substitute agency unless it has provided assurances
that it will contribute the same matching share as the State would have
been required to contribute if the State agency were carrying out the
vocational rehabilitation program.
(Authority: Section 107(c)(3) of the Act; 29 U.S.C. 727(c)(3))
Sec. 361.15 Local administration.
(a) If the State plan provides for local administration, it must--
(1) Identify each local agency;
(2) Assure that each local agency is under the supervision of the
designated State unit and is the sole local agency responsible for the
administration of the program within the political subdivision that it
serves; and
(3) Describe the methods each local agency will use to administer
the vocational rehabilitation program, in accordance with the State
plan.
(b) A separate local agency serving individuals who are blind may
administer that part of the plan relating to vocational rehabilitation
of individuals who are blind, under the supervision of the designated
State unit for individuals who are blind.
(Authority: Section 101(a)(1)(A) of the Act; 29 U.S.C. 721(a)(1)(A))
Sec. 361.16 Establishment of an independent commission or a State
Rehabilitation Advisory Council.
(a) General requirement. Except as provided in paragraph (b) of
this section, the State plan must contain one of the following two
assurances:
(1) An assurance that the State agency is an independent State
commission that--
(i) Is primarily concerned with vocational rehabilitation or
vocational and other rehabilitation services, in accordance with
Sec. 361.13(a)(1)(i);
(ii) Is consumer-controlled by persons who--
(A) Are individuals with physical or mental impairments that
substantially limit major life activities; and
(B) Represent individuals with a broad range of disabilities;
(iii) Includes individuals representing family members, advocates,
and authorized representatives of individuals with mental impairments;
and
(iv) Conducts a review and analysis of the effectiveness of and
consumer satisfaction with vocational rehabilitation services and
providers in the State, in accordance with the provisions in
Sec. 361.17(h)(3).
(2) An assurance that--
(i) The State has established a State Rehabilitation Advisory
Council (Council) that meets the requirements of Sec. 361.17;
(ii) The designated State unit seeks and seriously considers, on a
regular and ongoing basis, advice from the Council regarding the
development, implementation, and amendment of the State plan, the
strategic plan, and other policies and procedures of general
applicability pertaining to the provision of vocational rehabilitation
services in the State;
(iii) The designated State unit transmits to the Council--
(A) All plans, reports, and other information required under the
Act to be submitted to the Secretary;
(B) Copies of all written policies, practices, and procedures of
general applicability provided to or used by rehabilitation personnel;
and
(C) Copies of due process hearing decisions in a manner that
preserves the confidentiality of the participants in the hearings; and
(iv) The State plan summarizes annually the advice provided by the
Council, including recommendations from the annual report of the
Council, the survey of consumer satisfaction, and other reports
prepared by the Council, and the State agency's response to the advice
and recommendations, including the manner in which the State will
modify its policies and procedures based on the survey of consumer
satisfaction and explanations of reasons for rejecting any advice or
recommendations of the Council.
(b) Exception for separate State agency for individuals who are
blind. In the case of a State that designates a separate State agency,
under Sec. 361.13(a)(3), to administer the part of the State plan under
which vocational rehabilitation services are provided to individuals
who are blind, the State plan must contain one of the following four
assurances:
(1) An assurance that an independent commission in accordance with
paragraph (a)(1) of this section is responsible under State law for
[[Page 64506]]
operating or overseeing the operation of the vocational rehabilitation
program of both the State agency that administers the part of the State
plan under which vocational rehabilitation services are provided to
individuals who are blind and the State agency that administers the
remainder of the State plan.
(2) An assurance that--
(i) An independent commission that is consumer-controlled by, and
represents the interests of, individuals who are blind and conducts a
review and analysis of the effectiveness of and consumer satisfaction
with vocational rehabilitation services and providers, in accordance
with the provisions of Sec. 361.17(h)(3), is responsible under State
law for operating, or overseeing the operation of, the vocational
rehabilitation program in the State for individuals who are blind; and
(ii) An independent commission that is consumer-controlled in
accordance with paragraph (a)(1)(i) of this section and conducts a
review and analysis of the effectiveness of and consumer satisfaction
with vocational rehabilitation services and providers, in accordance
with Sec. 361.17(h)(3), is responsible under State law for operating,
or overseeing the operation of, the vocational rehabilitation program
in the State for all individuals with disabilities, except individuals
who are blind.
(3) An assurance that--
(i) An independent commission that is consumer-controlled by, and
represents the interests of, individuals who are blind and that
conducts a review and analysis of the effectiveness of and consumer
satisfaction with vocational rehabilitation services and providers, in
accordance with Sec. 361.17(h)(3), is responsible under State law for
operating, or overseeing the operation of, the vocational
rehabilitation program in the State for individuals who are blind; and
(ii) The State has established a State Rehabilitation Advisory
Council that meets the criteria in Sec. 361.17 and carries out the
duties of a Council with respect to functions for, and services
provided to, individuals with disabilities, except for individuals who
are blind.
(4) An assurance that--
(i) An independent commission that is consumer-controlled in
accordance with paragraph (a)(1)(i) of this section and conducts a
review and analysis of the effectiveness of and consumer satisfaction
with vocational rehabilitation services and providers, in accordance
with the provisions of Sec. 361.17(h)(3), is responsible under State
law for operating or overseeing the operation of the vocational
rehabilitation services for all individuals in the State, except
individuals who are blind; and
(ii) The State has established a State Rehabilitation Advisory
Council that meets the criteria in Sec. 361.17 and carries out the
duties of a Council with respect to functions for, and services
provided to, individuals who are blind.
(Authority: Sections 101(a)(32) and 101(a)(36) of the Act; 29 U.S.C.
721(a)(32) and 721(a)(36))
Sec. 361.17 Requirements for a State Rehabilitation Advisory Council.
If the State plan contains an assurance that the State ha
FR Doc. 95-30344 The State Vocational Rehabilitation Services Program
s
established a Council under Sec. 361.16(a)(2), (b)(3)(ii), or
(b)(4)(ii), the State plan must also contain an assurance that the
Council meets the following requirements:
(a) Appointment. (1) The members of the Council shall be--
(i) Appointed by the Governor; or
(ii) If State law vests appointment authority in an entity other
than, or in conjunction with, the Governor (such as one or more houses
of the State legislature or an independent board that has general
appointment authority), appointed by that entity or entities.
(2) The appointing authority shall select members of the Council
after soliciting recommendations from representatives of organizations
representing a broad range of individuals with disabilities and
organizations interested in individuals with disabilities.
(b) Composition. (1) General. Except as provided in paragraph
(b)(3) of this section, the Council shall be composed of at least 13
members, including--
(i) At least one representative of the Statewide Independent Living
Council, who must be the chairperson of, or other individual
recommended by, the Statewide Independent Living Council;
(ii) At least one representative of a parent training and
information center established pursuant to section 631(e)(1) of IDEA;
(iii) At least one representative of the Client Assistance Program
(CAP), established under 34 CFR part 370, who must be the director of,
or other individual recommended by, the CAP;
(iv) At least one vocational rehabilitation counselor with
knowledge of and experience with vocational rehabilitation programs who
serves as an ex officio, nonvoting member if employed by the designated
State agency;
(v) At least one representative of community rehabilitation program
service providers;
(vi) Four representatives of business, industry, and labor;
(vii) Representatives of disability groups that include a cross
section of--
(A) Individuals with physical, cognitive, sensory, and mental
disabilities; and
(B) Parents, family members, guardians, advocates, or authorized
representatives of individuals with disabilities who have difficulty
representing themselves due to their disabilities;
(viii) Current or former applicants for, or recipients of,
vocational rehabilitation services; and
(ix) The director of the designated State unit as an ex officio,
nonvoting member.
(2) Employees of the designated State agency. Employees of the
designated State agency may serve only as nonvoting members of the
Council.
(3) Composition of a separate Council for a separate State agency
for individuals who are blind. Except as provided in paragraph (b)(4)
of this section, if the State establishes a separate Council for a
separate State agency for individuals who are blind, that Council
must--
(i) Conform with all of the composition requirements for a Council
under paragraph (b)(1) of this section, except the requirements in
paragraph (b)(1)(vii), unless the exception in paragraph (b)(4) of this
section applies; and
(ii) Include--
(A) At least one representative of a disability advocacy group
representing individuals who are blind; and
(B) At least one parent, family member, guardian, advocate, or
authorized representative of an individual who is blind, has multiple
disabilities, and has difficulty representing himself or herself due to
disabilities.
(4) Exception. If State law in effect on October 29, 1992 requires
a separate Council under paragraph (b)(3) of this section to have fewer
than 13 members, the separate Council is deemed to be in compliance
with the composition requirements in paragraphs (b)(1)(vi) and
(b)(1)(viii) of this section if it includes at least one representative
who meets the requirements for each of those paragraphs.
(c) Majority. A majority of the Council members shall be
individuals with disabilities who are not employed by the designated
State unit.
(d) Chairperson. The chairperson shall be--
(1) Selected by the members of the Council from among the voting
members of the Council, subject to the veto power of the Governor; or
[[Page 64507]]
(2) If the Governor does not have veto power pursuant to State law,
selected by the Governor, or by the Council if required by the
Governor, from among the voting members of the Council.
(e) Terms of appointment. (1) Each member of the Council shall be
appointed for a term of no more than three years and may serve for no
more than two consecutive full terms.
(2) A member appointed to fill a vacancy occurring prior to the end
of the term for which the predecessor was appointed shall be appointed
for the remainder of the predecessor's term.
(3) The terms of service of the members initially appointed must be
for varied numbers of years to ensure that terms expire on a staggered
basis.
(f) Vacancies. (1) A vacancy in the membership of the Council must
be filled in the same manner as the original appointment.
(2) No vacancy affects the power of the remaining members to
execute the duties of the Council.
(g) Conflict of interest. No member of the Council shall cast a
vote on any matter that would provide direct financial benefit to the
member or the member's organization or otherwise give the appearance of
a conflict of interest under State law.
(h) Functions. The Council shall--
(1) Review, analyze, and advise the designated State unit regarding
the performance of the State unit's responsibilities under this part,
particularly responsibilities related to--
(i) Eligibility, including order of selection;
(ii) The extent, scope, and effectiveness of services provided; and
(iii) Functions performed by State agencies that affect or
potentially affect the ability of individuals with disabilities to
achieve rehabilitation goals and objectives under this part;
(2) Advise and, at the discretion of the State agency, assist the
State unit in the preparation of applications, the State plan, the
strategic plan, and amendments to the plans, reports, needs
assessments, and evaluations required by this part;
(3) To the extent feasible, conduct a review and analysis of the
effectiveness of, and consumer satisfaction with--
(i) The functions performed by State agencies and other public and
private entities responsible for serving individuals with disabilities;
and
(ii) The vocational rehabilitation services provided by State
agencies and other public and private entities responsible for
providing vocational rehabilitation services to individuals with
disabilities from funds made available under the Act or through other
public or private sources;
(4) Prepare and submit to the Governor, or appropriate State
entity, and to the Secretary no later than 90 days after the end of the
Federal fiscal year an annual report on the status of vocational
rehabilitation programs operated within the State and make the report
available to the public through appropriate modes of communication;
(5) Coordinate with other councils within the State, including the
Statewide Independent Living Council established under 34 CFR part 364,
the advisory panel established under section 613(a)(12) of IDEA, the
State Planning Council described in section 124 of the Developmental
Disabilities Assistance and Bill of Rights Act, and the State mental
health planning council established under section 1916(e) of the Public
Health Service Act;
(6) Advise the designated State agency and provide for coordination
and the establishment of working relationships between the designated
State agency and the Statewide Independent Living Council and centers
for independent living within the State; and
(7) Perform other comparable functions, consistent with the purpose
of this part, that the Council determines to be appropriate.
(i) Resources.
(1) The Council, in conjunction with the designated State unit,
shall prepare a plan for the provision of resources, including staff
and other personnel, that may be necessary for the Council to carry out
its functions under this part.
(2) In implementing the resources plan, the Council must rely on
existing resources to the maximum extent possible.
(3) Any disagreements between the designated State unit and the
Council regarding the amount of resources necessary must be resolved by
the Governor or other appointing entity, consistent with paragraphs
(i)(1) and (2) of this section.
(4) The Council shall, consistent with State law, supervise and
evaluate the staff and personnel that are necessary to carry out its
functions.
(5) Those staff and personnel that are assisting the Council in
carrying out its functions may not be assigned duties by the designated
State unit or any other agency or office of the State that would create
a conflict of interest.
(j) Meetings. The Council shall--
(1) Convene at least four meetings a year to conduct Council
business that are publicly announced, open and accessible to the
public, including individuals with disabilities, unless there is a
valid reason for an executive session; and
(2) Conduct forums or hearings, as appropriate, that are publicly
announced, open and accessible to the public, including individuals
with disabilities.
(k) Compensation. Funds appropriated under Title I of the Act,
except funds to carry out sections 112 and 130 of the Act, may be used
to compensate and reimburse the expenses of Council members in
accordance with section 105(g) of the Act.
(Authority: Section 105 of the Act; 29 U.S.C. 725)
Sec. 361.18 Comprehensive system of personnel development.
The State plan must describe the procedures and activities the
State agency will undertake to establish and maintain a comprehensive
system of personnel development designed to ensure an adequate supply
of qualified rehabilitation personnel, including professionals and
paraprofessionals, for the designated State unit. If the State agency
has a State Rehabilitation Advisory Council, this description must, at
a minimum, provide for the involvement of the Council in the
development of personnel standards in accordance with paragraph (c) of
this section. This description must also conform with the following
requirements:
(a) Data system on personnel and personnel development. The State
plan must describe the development and maintenance of a system by the
State agency for collecting and analyzing on an annual basis data on
qualified personnel needs and personnel development, in accordance with
the following requirements:
(1) Data on qualified personnel needs must include--
(i) The number of personnel who are employed by the State agency in
the provision of vocational rehabilitation services in relation to the
number of individuals served, broken down by personnel category;
(ii) The number of personnel currently needed by the State agency
to provide vocational rehabilitation services, broken down by personnel
category; and
(iii) Projections of the number of personnel, broken down by
personnel category, who will be needed by the State agency to provide
vocational rehabilitation services in the State in five years based on
projections of the number of individuals to be served, including
individuals with severe disabilities, the number of personnel
[[Page 64508]]
expected to retire or leave the field, and other relevant factors.
(2) Data on personnel development must include--
(i) A list of the institutions of higher education in the State
that are preparing vocational rehabilitation professionals, by type of
program;
(ii) The number of students enrolled at each of those institutions,
broken down by type of program; and
(iii) The number of students who graduated during the prior year
from each of those institutions with certification or licensure, or
with the credentials for certification or licensure, broken down by the
personnel category for which they have received, or have the
credentials to receive, certification or licensure.
(b) Plan for recruitment, preparation, and retention of qualified
personnel. The State plan must describe the development, updating, and
implementation of a plan to address the current and projected needs for
personnel who are qualified in accordance with paragraph (c) of this
section. The plan must identify the personnel needs based on the data
collection and analysis system described in paragraph (a) of this
section and must provide for the coordination and facilitation of
efforts between the designated State unit and institutions of higher
education and professional associations to recruit, prepare, and retain
personnel who are qualified in accordance with paragraph (c) of this
section, including personnel from minority backgrounds and personnel
who are individuals with disabilities.
(c) Personnel standards. (1) The State plan must include the State
agency's policies and describe the procedures the State agency will
undertake to establish and maintain standards to ensure that
professional and paraprofessional personnel needed within the State
unit to carry out this part are appropriately and adequately prepared
and trained, including--
(i) Standards that are consistent with any national or State-
approved or recognized certification, licensing, registration, or other
comparable requirements (including State personnel requirements) that
apply to the profession or discipline in which that category of
personnel is providing vocational rehabilitation services; and
(ii) To the extent those standards are not based on the highest
requirements in the State applicable to that profession or discipline,
the steps the State is currently taking and the steps the State plans
to take to retrain or hire personnel to meet standards that are based
on the highest requirements in the State, including measures to notify
State unit personnel, the institutions of higher education identified
under paragraph (a)(2)(i) of this section, and other public agencies of
these steps and the timelines for taking each step.
(2) As used in this section--
(i) ``Highest requirements in the State applicable to that
profession or discipline'' means the highest entry-level academic
degree or equivalent experience needed for any national or State-
approved or recognized certification, licensing, registration, or other
comparable requirements that apply to that profession or discipline.
The current requirements of all State statutes and regulations of other
agencies in the State applicable to that profession or discipline must
be considered and must be kept on file by the designated State unit and
available to the public.
(ii) ``Profession or discipline'' means a specific occupational
category, including any paraprofessional occupational category, that--
(A) Provides rehabilitation services to individuals with
disabilities;
(B) Has been established or designated by the State; and
(C) Has a specified scope of responsibility.
(d) Staff development. (1) The State plan must include the State
agency's policies and describe the procedures and activities the State
agency will undertake to ensure that all personnel employed by the
State unit receive appropriate and adequate training, including a
description of--
(i) A system of staff development for rehabilitation professionals
and paraprofessionals within the State unit, particularly with respect
to rehabilitation technology; and
(ii) Procedures for acquiring and disseminating to rehabilitation
professionals and paraprofessionals within the designated State unit
significant knowledge from research and other sources, including
procedures for providing training regarding the amendments to the
Rehabilitation Act of 1973 made by the Rehabilitation Act Amendments of
1992.
(2) The specific training areas for staff development must be based
on the needs of each State unit and may include, but are not limited
to, training with respect to the requirements of the Americans with
Disabilities Act, IDEA, and Social Security work incentive programs,
training to facilitate informed choice under this program, and training
to improve the provision of services to culturally diverse populations.
(e) Personnel to address individual communication needs. The State
plan must describe how the State unit--
(1) Includes among its personnel, or obtains the services of,
individuals able to communicate in the native languages of applicants
and eligible individuals who have limited English speaking ability; and
(2) Includes among its personnel, or obtains the services of,
individuals able to communicate with applicants and eligible
individuals in appropriate modes of communication.
(f) Performance evaluation system. The State plan must describe how
the system for evaluating the performance of rehabilitation counselors,
coordinators, and other personnel used in the State unit facilitates,
and in no way impedes, the accomplishment of the purpose and policy of
the program as described in sections 100(a)(2) and 100(a)(3) of the
Act, including the policy of serving, among others, individuals with
the most severe disabilities.
(g) Coordination with personnel development under IDEA. The State
plan must describe the procedures and activities the State agency will
undertake to coordinate its comprehensive system of personnel
development under the Act with personnel development under IDEA.
(Authority: Sections 101 (a)(7) and (a)(35) of the Act; 29 U.S.C.
721 (a)(7) and (35))
Note: Under the Act and the regulations in this part, the State
agency is required to collect and analyze data regarding personnel
needs by type or category of personnel. The personnel data must be
collected and analyzed according to personnel category breakdowns
that are based on the major categories of staff in the State unit.
Similarly, the data from institutions of higher education must be
broken down by type of program to correspond as closely as possible
with the personnel categories of the State unit.
Sec. 361.19 Affirmative action for individuals with disabilities.
The State plan must assure that the State agency takes affirmative
action to employ and advance in employment qualified individuals with
disabilities.
(Authority: Section 101(a)(6)(A) of the Act; 29 U.S.C. 721(a)(6)(A))
Sec. 361.20 State plan development.
(a) Public participation requirements. (1) Plan development and
revisions. The State plan must assure that the State unit conducts
public meetings throughout the State to provide all segments of the
public, including interested groups, organizations, and individuals, an
opportunity to comment on the State plan prior to its
[[Page 64509]]
development and to comment on any revisions to the State plan.
(2) Notice requirements. The State plan must assure that the State
unit, prior to conducting public meetings, provides appropriate and
sufficient notice throughout the State of the meetings in accordance
with--
(i) State law governing public meetings; or
(ii) In the absence of State law governing public meetings,
procedures developed by the State unit in consultation with the State
Rehabilitation Advisory Council.
(3) Plan revisions based on consumer satisfaction surveys. The
State plan must describe the manner in which the State plan will be
revised based on the results of consumer satisfaction surveys conducted
by the State Rehabilitation Advisory Council under Sec. 361.17(h)(3) or
by the State agency if it is an independent commission in accordance
with the requirements of Sec. 361.16.
(b) Special consultation requirements. The State plan must assure
that, as appropriate, the State unit actively consults in the
development and revision of the State plan with the CAP director, the
State Rehabilitation Advisory Council, and, as appropriate, those
Indian tribes, tribal organizations, and native Hawaiian organizations
that represent significant numbers of individuals with disabilities
within the State.
(c) Summary of public comments. The State plan must include a
summary of the public comments on the State plan, including comments on
revisions to the State plan and the State unit's response to those
comments.
(d) Appropriate modes of communication. The State unit shall
provide, through appropriate modes of communication, the notices of the
public meetings, any materials furnished prior to or during the public
meetings, and the approved State plan.
(Authority: Sections 101(a)(20), 101(a)(23), 101(a)(32), and
105(c)(2) of the Act; 29 U.S.C. 721(a)(20), (23), and (32) and
725(c)(2))
Sec. 361.21 Consultations regarding the administration of the State
plan.
(a) The State plan must assure that, in connection with matters of
general policy development and implementation arising in the
administration of the State plan, the State unit seeks and takes into
account the views of--
(1) Individuals who receive vocational rehabilitation services or,
as appropriate, the individuals' representatives;
(2) Personnel working in the field of vocational rehabilitation;
(3) Providers of vocational rehabilitation services;
(4) The CAP director; and
(5) The State Rehabilitation Advisory Council, if the State has a
Council.
(b) The State plan must specifically describe the manner in which
the State unit will take into account the views regarding State policy
and administration of the State plan that are expressed in the consumer
satisfaction surveys conducted by the State Rehabilitation Advisory
Council under Sec. 361.17(h)(3) or by the State agency if it is an
independent commission in accordance with the requirements of
Sec. 361.16(a)(1).
(Authority: Sections 101(a)(18), 101(a)(32), and 105(c)(2) of the
Act; 29 U.S.C. 721(a)(18), 721(a)(32), and 725(c)(2))
Sec. 361.22 Cooperation with agencies responsible for transitioning
students.
(a) Transitioning students who are receiving special education
services. (1) General. The State plan must contain plans, policies, and
procedures that are designed to facilitate the transition of students
who are receiving special education services from the provision of a
free appropriate public education under the responsibility of an
educational agency to the provision of vocational rehabilitation
services under the responsibility of the designated State unit. These
plans, policies, and procedures must be designed to facilitate the
development and accomplishment of long-term rehabilitation goals,
intermediate rehabilitation objectives, and goals and objectives
related to enabling a transitioning student to live independently
before leaving a school setting, to the extent the goals and objectives
are included in an individualized education program of the
transitioning student.
(2) Formal interagency agreement. The State plan must assure that
the State unit enters into formal interagency agreements with the State
education agency and, as appropriate, with local education agencies,
that are responsible for the free appropriate public education of
transitioning students who are receiving special education services.
(i) Formal interagency agreements must, at a minimum, identify--
(A) Policies, practices, and procedures that can be coordinated
between the agencies, including definitions, standards for eligibility,
policies and procedures for making referrals, procedures for outreach
to and identification of youth who are receiving special education
services and are in need of transition services, and procedures and
timeframes for evaluation and follow-up of those transitioning
students; and
(B) The roles of each agency, including provisions for determining
State lead agencies and qualified personnel responsible for transition
services.
(ii) Formal interagency agreements may, as appropriate, identify--
(A) Available resources, including sources of funds for the
development and expansion of services;
(B) The financial responsibility of each agency in providing
services to transitioning students who are receiving special education
services, consistent with State law;
(C) Procedures for resolving disputes between the agencies that are
parties to the agreement; and
(D) All other components necessary to ensure meaningful cooperation
among agencies, including procedures to facilitate the development of
local teams to coordinate the provision of services to individuals,
sharing data, and coordinating joint training of staff in the provision
of transition services.
Note: The following excerpt from page 33 of Senate Report No.
102-357 further clarifies the provision of transition services by
the State vocational rehabilitation agency:
The committee intends that students with disabilities who are
eligible for, and who need, vocational rehabilitation services will
receive those services as soon as possible, consistent with Federal
and State law. These provisions are not intended in any way to shift
the responsibility of service delivery from education to
rehabilitation during the transition years. School officials will
continue to be responsible for providing a free and appropriate
public education as defined by the IEP. The role of the
rehabilitation system is primarily one of planning for the student's
years after leaving school. (S. Rep. No. 357, 102d Cong., 2d. Sess.
33 (1992))
(b) Transitioning students who are not receiving special education
services. The State plan must contain plans, policies, and procedures,
including cooperation with appropriate agencies, designed to ensure
that transitioning students who are not receiving special education
services have access to and can receive vocational rehabilitation
services, if appropriate, and to ensure outreach to and identification
of those individuals.
(Authority: Sections 101(a)(11)(C), 101(a)(24) and 101(a)(30) of the
Act; 29 U.S.C. 721 (a)(11), (a)(24), and (a)(30))
Sec. 361.23 Cooperation with other public agencies.
(a) Coordination of services with vocational education and Javits-
Wagner-O'Day programs. The State plan must assure that specific
arrangements or
[[Page 64510]]
agreements are made for the coordination of services for any individual
who is eligible for vocational rehabilitation services and is also
eligible for services under the Carl D. Perkins Vocational and Applied
Technology Education Act or the Javits-Wagner-O'Day Act.
(b) Cooperation with other Federal, State, and local public
agencies providing services related to the rehabilitation of
individuals with disabilities. (1) The State plan must assure that the
State unit cooperates with other Federal, State, and local public
agencies providing services related to the rehabilitation of
individuals with disabilities, including, as appropriate, establishing
interagency working groups or entering into other interagency
cooperative agreements with, and using the services and facilities of--
(i) Federal agencies providing services related to the
rehabilitation of individuals with disabilities, including the Social
Security Administration, the Office of Workers' Compensation Programs
of the Department of Labor, and the Department of Veterans Affairs; and
(ii) State and local public agencies providing services related to
the rehabilitation of individuals with disabilities, including State
and local public agencies administering the State's social services and
financial assistance programs and other State programs for individuals
with disabilities, such as the State's developmental disabilities
program, veterans programs, health and mental health programs,
education programs (including adult education, higher education, and
vocational education programs), workers' compensation programs, job
training and placement programs, and public employment offices.
(2) Interagency cooperation under paragraph (b)(1) of this section,
to the extent practicable, must provide for training for staff of the
agencies as to the availability, benefits of, and eligibility standards
for vocational rehabilitation services.
(3) Interagency cooperation under paragraph (b)(1) of this section
also must identify policies, practices, and procedures that can be
coordinated among the agencies (particularly definitions, standards for
eligibility, the joint sharing and use of evaluations and assessments,
and procedures for making referrals); identify available resources and
define the financial responsibility of each agency for paying for
necessary services (consistent with State law) and procedures for
resolving disputes between agencies; and include all additional
components necessary to ensure meaningful cooperation and coordination.
(c) Reciprocal referral services with a separate agency for
individuals who are blind. If there is a separate State unit for
individuals who are blind, the State plan must assure that the two
State units establish reciprocal referral services, use each other's
services and facilities to the extent feasible, jointly plan activities
to improve services in the State for individuals with multiple
impairments, including visual impairments, and otherwise cooperate to
provide more effective services, including, if appropriate, entering
into a written cooperative agreement.
(Authority: Sections 101(a)(11) and 101(a)(22) of the Act; 29 U.S.C.
721(a)(11) and 721(a)(22))
Sec. 361.24 Coordination with the Statewide Independent Living
Council.
The State plan must assure that the State unit will coordinate and
establish working relationships with the Statewide Independent Living
Council established under 34 CFR part 364 and with independent living
centers within the State.
(Authority: Section 101(a)(33) of the Act; 29 U.S.C. 721(a)(33))
Sec. 361.25 Statewideness.
The State plan must assure that services provided under the State
plan will be available in all political subdivisions of the State,
unless a waiver of statewideness is requested and approved in
accordance with Sec. 361.26.
(Authority: Section 101(a)(4) of the Act; 29 U.S.C. 721(a)(4))
Sec. 361.26 Waiver of statewideness.
(a) Availability. The State unit may provide services in one or
more political subdivisions of the State that increase services or
expand the scope of services that are available statewide under the
State plan if--
(1) The non-Federal share of the cost of these services is met from
funds provided by a local public agency, including funds contributed to
a local public agency by a private agency, organization, or individual;
(2) The services are likely to promote the vocational
rehabilitation of substantially larger numbers of individuals with
disabilities or of individuals with disabilities with particular types
of impairments; and
(3) The State includes in its State plan, and the Secretary
approves, a request for a waiver of the statewideness requirement, in
accordance with the requirements of paragraph (b) of this section.
(b) Request for waiver. The request for a waiver of statewideness
must--
(1) Identify the types of services to be provided;
(2) Contain a written assurance from the local public agency that
it will make available to the State unit the non-Federal share of
funds;
(3) Contain a written assurance that State unit approval will be
obtained for each proposed service before it is put into effect; and
(4) Contain a written assurance that all other State plan
requirements, including a State's order of selection requirements, will
apply to all services approved under the waiver.
(Authority: Section 101(a)(4) of the Act; 29 U.S.C. 721(a)(4))
Sec. 361.27 Shared funding and administration of joint programs.
(a) In order to carry out a joint program involving shared funding
and administrative responsibility with another State agency or a local
public agency to provide services to individuals with disabilities, the
designated State unit must request approval from the Secretary in the
State plan.
(b) If a proposed joint program does not comply with the
statewideness requirement in Sec. 361.25, the State unit shall obtain a
waiver of statewideness, in accordance with Sec. 361.26.
(Authority: Section 101(a)(1)(A) of the Act; 29 U.S.C. 721(a)(1)(A))
Sec. 361.28 Third-party cooperative arrangements involving funds from
other public agencies.
(a) If the designated State unit enters into a third-party
cooperative arrangement for providing or administering vocational
rehabilitation services with another State agency or a local public
agency that is furnishing part or all of the non-Federal share, the
State plan must assure that--
(1) The services provided by the cooperating agency are not the
customary or typical services provided by that agency but are new
services that have a vocational rehabilitation focus or existing
services that have been modified, adapted, expanded, or reconfigured to
have a vocational rehabilitation focus;
(2) The services provided by the cooperating agency are only
available to applicants for, or recipients of, services from the
designated State unit;
(3) Program expenditures and staff providing services under the
cooperative arrangement are under the administrative supervision of the
designated State unit; and
[[Page 64511]]
(4) All State plan requirements, including a State's order of
selection, will apply to all services provided under the cooperative
program.
(b) If a third party cooperative agreement does not comply with the
statewideness requirement in Sec. 361.25, the State unit shall obtain a
waiver of statewideness, in accordance with Sec. 361.26.
(Authority: Section 101(a)(1)(A) of the Act; 29 U.S.C. 721(a)(1)(A))
Sec. 361.29 Statewide studies and evaluations.
(a) Statewide studies. The State plan must assure that the State
unit conducts continuing statewide studies to determine the current
needs of individuals with disabilities within the State and the best
methods to meet those needs. The continuing statewide studies, at a
minimum, must include--
(1) A triennial comprehensive assessment, as part of the
development of the State plan, of the rehabilitation needs of
individuals with severe disabilities who reside in the State;
(2) A review of the effectiveness of outreach procedures used to
identify and serve individuals with disabilities who are minorities and
individuals with disabilities who are unserved and underserved by the
vocational rehabilitation system;
(3) An annual analysis of the characteristics of individuals
determined to be ineligible for services and the reasons for the
ineligibility determinations; and
(4) A review of a broad variety of methods to provide, expand, and
improve vocational rehabilitation services to individuals with the most
severe disabilities, including individuals receiving supported
employment services under 34 CFR Part 363.
(b) Annual evaluation. The State plan must assure that the State
unit conducts an annual evaluation of the effectiveness of the State's
vocational rehabilitation program in providing vocational
rehabilitation and supported employment services, especially to
individuals with the most severe disabilities. The annual evaluation
must analyze the extent to which--
(1) The State has achieved the goals and priorities established in
the State plan and annual amendments to the plan;
(2) The State has achieved the objectives of the strategic plan and
revisions to the plan developed under Subpart D of this part;
(3) The State is in compliance with the evaluation standards and
performance indicators established by the Secretary, pursuant to
section 106 of the Act; and
(4) The State unit has adopted and is implementing procedures and
activities to improve staff effectiveness and has made reasonable
progress toward meeting the personnel standards established in
accordance with Sec. 361.18(c).
(c) Reporting requirements. (1) The State plan must describe
annually those changes that have been adopted in policy, in the State
plan and its amendments, and in the strategic plan and its amendments
as a result of the statewide studies and the annual program evaluation.
(2) The State plan must contain an annual description of the
methods used to expand and improve vocational rehabilitation services
to individuals with the most severe disabilities, including the State
unit's criteria for determining which individuals are individuals with
the most severe disabilities.
(3) The State unit shall submit summaries or copies of the
statewide studies and the annual evaluations as attachments to the
State plan.
(d) Role of the State Rehabilitation Advisory Council. The State
plan must assure that the State unit seeks the advice of the State
Rehabilitation Advisory Council, if the State has a Council, regarding
the continuing statewide studies and the annual evaluation and, at the
discretion of the State agency, seeks assistance from the Council in
the preparation and analysis of the studies and evaluation.
(Authority: Sections 101(a)(5) (A) and (B), 101(a)(9)(D), 101(a)(15)
(B) and (D), 101(a)(19), and 105(c)(2) of the Act; 29 U.S.C. 721(a)
(5), (9), (15), and (19) and 725(c)(2))
Sec. 361.30 Services to special groups of individuals with
disabilities.
(a) Civil employees of the United States. The State plan must
assure that vocational rehabilitation services are available to civil
employees of the U.S. Government who are disabled in the line of duty,
under the same terms and conditions applied to other individuals with
disabilities.
(b) Public safety officers. (1) The State plan must assure that
special consideration will be given to those individuals with
disabilities whose disability arose from an impairment sustained in the
line of duty while performing as a public safety officer and the
immediate cause of that impairment was a criminal act, apparent
criminal act, or a hazardous condition resulting directly from the
officer's performance of duties in direct connection with the
enforcement, execution, and administration of law or fire prevention,
firefighting, or related public safety activities.
(2) For the purposes of paragraph (b) of this section, ``special
consideration'' for States under an order of selection means that those
public safety officers who meet the requirements of paragraph (b)(1) of
this section must receive priority for services over other eligible
individuals in the same priority category of the order of selection.
(3) For the purposes of paragraph (b) of this section, ``criminal
act'' means any crime, including an act, omission, or possession under
the laws of the United States, a State, or a unit of general local
government that poses a substantial threat of personal injury,
notwithstanding that by reason of age, insanity, intoxication, or
otherwise, the person engaging in the act, omission, or possession was
legally incapable of committing a crime.
(4) For the purposes of paragraph (b) of this section, ``public
safety officer'' means a person serving the United States or a State or
unit of local government, with or without compensation, in any activity
pertaining to--
(i) The enforcement of the criminal laws, including highway patrol,
or the maintenance of civil peace by the National Guard or the Armed
Forces;
(ii) A correctional program, facility, or institution if the
activity is potentially dangerous because of contact with criminal
suspects, defendants, prisoners, probationers, or parolees;
(iii) A court having criminal or juvenile delinquent jurisdiction
if the activity is potentially dangerous because of contact with
criminal suspects, defendants, prisoners, probationers, or parolees; or
(iv) Firefighting, fire prevention, or emergency rescue missions.
(c) American Indians. (1) The State plan must assure that
vocational rehabilitation services are provided to American Indians
with disabilities residing in the State to the same extent that these
services are provided to other significant groups of individuals with
disabilities residing in the State.
(2) The State plan also must assure that the designated State unit
continues to provide vocational rehabilitation services, including, as
appropriate, services traditionally used by Indian tribes, to American
Indians with disabilities who reside on reservations and are eligible
for services by a special tribal program under 34 CFR part 371.
(Authority: Sections 7, 101(a)(13), 101(a)(20), and 130(b)(3) of the
Act; 29 U.S.C. 706, 721(a)(13), 721(a)(20), and 750(b)(3))
[[Page 64512]]
Sec. 361.31 Utilization of community resources.
The State plan must assure that, in providing vocational
rehabilitation services, public or other vocational or technical
training programs or other appropriate community resources are used to
the maximum extent feasible.
(Authority: Section 101(a)(12)(A) of the Act; 29 U.S.C.
721(a)(12)(A))
Sec. 361.32 Utilization of profitmaking organizations for on-the-job
training in connection with selected projects.
The State plan must assure that the State unit has the authority to
enter into contracts with profitmaking organizations for the purpose of
providing on-the-job training and related programs for individuals with
disabilities under the Projects With Industry program, 34 CFR part 379,
if it has been determined that they are better qualified to provide
needed services than nonprofit agencies, organizations, or programs in
the State.
(Authority: Section 101(a)(21) of the Act; 29 U.S.C. 721(a)(21))
Sec. 361.33 Utilization of community rehabilitation programs.
(a) The State plan must assure that the designated State unit uses
community rehabilitation programs to the maximum extent feasible to
provide vocational rehabilitation services in the most integrated
settings possible, consistent with the informed choices of the
individuals.
(b) The State plan must contain a description of--
(1) The capacity and effectiveness of community rehabilitation
programs, including programs under the Javits-Wagner-O'Day Act, based
on the utilization patterns of those programs; and
(2) The methods used to ensure the appropriate use of community
rehabilitation programs, including methods for entering into agreements
with the operators of those programs and for entering into cooperative
agreements with private nonprofit vocational rehabilitation service
providers.
(Authority: Sections 101(a)(5)(A), 101(a)(12)(B), 101(a)(15)(B),
101(a)(27), and 101(a)(28) of the Act; 29 U.S.C. 721(a) (5), (12),
(15), (27), and (28))
Sec. 361.34 Supported employment plan.
(a) The State plan must assure that the State has an acceptable
plan under 34 CFR part 363 that provides for the use of funds under
that part to supplement funds under this part for the cost of services
leading to supported employment.
(b) The supported employment plan, including annual revisions, must
be submitted as a supplement to the State plan.
(Authority: Sections 101(a)(25) and 635(a) of the Act; 29 U.S.C.
721(a)(25))
Sec. 361.35 Strategic plan.
(a) The State plan must assure that the State--
(1) Has developed and implemented a strategic plan for expanding
and improving vocational rehabilitation services for individuals with
disabilities on a statewide basis in accordance with subpart D of this
part; and
(2) Will use at least 1.5 percent of its allotment under this
program for expansion and improvement activities in accordance with
Sec. 361.73(b).
(b) The strategic plan must be submitted as a supplement to the
State plan.
(Authority: Sections 101(a)(34) and 120 of the Act; 29 U.S.C.
721(a)(34) and 740)
Sec. 361.36 [Reserved]
Sec. 361.37 Establishment and maintenance of information and referral
resources.
(a) General provisions. The State plan must assure that--
(1) The designated State unit will establish and maintain
information and referral programs adequate to ensure that individuals
with disabilities within the State are given accurate information about
State vocational rehabilitation services, independent living services,
vocational rehabilitation services available from other agencies,
organizations, and community rehabilitation programs, and, to the
extent possible, other Federal and State services and programs that
assist individuals with disabilities, including client assistance and
other protection and advocacy programs;
(2) The State unit will refer individuals with disabilities to
other appropriate Federal and State programs that might be of benefit
to them; and
(3) The State unit will use existing information and referral
systems in the State to the greatest extent possible.
(b) Appropriate modes of communication. The State plan further must
assure that information and referral programs use appropriate modes of
communication.
(c) Special Circumstances. If the State unit is operating under an
order of selection for services, the State unit may elect to establish
an expanded information and referral program that includes referral for
job placements for those eligible individuals who are not in the
priority category or categories to receive vocational rehabilitation
services under the State's order of selection. If a State unit elects
to establish this kind of program, the State plan must include--
(1) A description of how the expanded information and referral
program will be established and how it will function, including the
level of commitment of State unit staff and resources;
(2) An assurance that, in carrying out this program, the State unit
will not use case services funds that are needed to provide vocational
rehabilitation services under individualized written rehabilitation
programs for eligible individuals in the priority category or
categories receiving services under the State unit's order of
selection; and
(3) A description of the method to be used by the State unit to
track the results of the expanded information and referral program,
including the State unit's procedures for identifying those eligible
individuals who achieve an employment outcome through participation in
the expanded information and referral program.
(Authority: Section 101(a)(22) of the Act; 29 U.S.C. 721(a)(22))
Sec. 361.38 Protection, use, and release of personal information.
(a) General provisions.
(1) The State plan must assure that the State agency and the State
unit will adopt and implement policies and procedures to safeguard the
confidentiality of all personal information, including photographs and
lists of names. These policies and procedures must assure that--
(i) Specific safeguards protect current and stored personal
information;
(ii) All applicants and eligible individuals and, as appropriate,
those individuals' representatives, service providers, cooperating
agencies, and interested persons are informed through appropriate modes
of communication of the confidentiality of personal information and the
conditions for accessing and releasing this information;
(iii) All applicants or their representatives are informed about
the State unit need to collect personal information and the policies
governing its use, including--
(A) Identification of the authority under which information is
collected;
(B) Explanation of the principal purposes for which the State unit
intends to use or release the information;
(C) Explanation of whether providing requested information to the
State unit is mandatory or voluntary and the
[[Page 64513]]
effects of not providing requested information;
(D) Identification of those situations in which the State unit
requires or does not require informed written consent of the individual
before information may be released; and
(E) Identification of other agencies to which information is
routinely released;
(iv) An explanation of State policies and procedures affecting
personal information will be provided to each individual in that
individual's native language or through the appropriate mode of
communication; and
(v) These policies and procedures provide no fewer protections for
individuals than State laws and regulations.
(2) The State unit may establish reasonable fees to cover
extraordinary costs of duplicating records or making extensive searches
and shall establish policies and procedures governing access to
records.
(b) State program use. All personal information in the possession
of the State agency or the designated State unit must be used only for
the purposes directly connected with the administration of the
vocational rehabilitation program. Information containing identifiable
personal information may not be shared with advisory or other bodies
that do not have official responsibility for administration of the
program. In the administration of the program, the State unit may
obtain personal information from service providers and cooperating
agencies under assurances that the information may not be further
divulged, except as provided under paragraphs (c), (d), and (e) of this
section.
(c) Release to applicants and eligible individuals. (1) Except as
provided in paragraphs (c)(2) and (c)(3) of this section, if requested
in writing by an applicant or eligible individual, the State unit shall
release all requested information in that individual's record of
services to the individual or the individual's representative in a
timely manner.
(2) Medical, psychological, or other information that the State
unit determines may be harmful to the individual may not be released
directly to the individual, but must be provided through a third party
chosen by the individual, which may include, among others, an advocate,
a family member, or a qualified medical or mental health professional.
(3) If personal information has been obtained from another agency
or organization, it may be released only by, or under the conditions
established by, the other agency or organization.
(d) Release for audit, evaluation, and research. Personal
information may be released to an organization, agency, or individual
engaged in audit, evaluation, or research only for purposes directly
connected with the administration of the vocational rehabilitation
program, or for purposes that would significantly improve the quality
of life for applicants and eligible individuals and only if the
organization, agency, or individual assures that--
(1) The information will be used only for the purposes for which it
is being provided;
(2) The information will be released only to persons officially
connected with the audit, evaluation, or research;
(3) The information will not be released to the involved
individual;
(4) The information will be managed in a manner to safeguard
confidentiality; and
(5) The final product will not reveal any personal identifying
information without the informed written consent of the involved
individual or the individual's representative.
(e) Release to other programs or authorities. (1) Upon receiving
the informed written consent of the individual or, if appropriate, the
individual's representative, the State unit may release personal
information to another agency or organization for its program purposes
only to the extent that the information may be released to the involved
individual or the individual's representative and only to the extent
that the other agency or organization demonstrates that the information
requested is necessary for its program.
(2) Medical or psychological information that the State unit
determines may be harmful to the individual may be released if the
other agency or organization assures the State unit that the
information will be used only for the purpose for which it is being
provided and will not be further released to the individual.
(3) The State unit shall release personal information if required
by Federal law or regulations.
(4) The State unit shall release personal information in response
to investigations in connection with law enforcement, fraud, or abuse,
unless expressly prohibited by Federal or State laws or regulations,
and in response to an order issued by a judicial officer.
(5) The State unit also may release personal information in order
to protect the individual or others if the individual poses a threat to
his or her safety or to the safety of others.
(Authority: Sections 12(c) and 101(a)(6)(A) of the Act; 29 U.S.C.
711(c) and 721(a)(6)(A))
Sec. 361.39 State-imposed requirements.
The State plan must assure that the designated State unit
identifies upon request those regulations and policies relating to the
administration or operation of its vocational rehabilitation program
that are State-imposed, including any regulations or policy based on
State interpretation of any Federal law, regulations, or guideline.
(Authority: Section 17 of the Act; 29 U.S.C. 716)
Sec. 361.40 Reports.
The State plan must assure that the State unit--
(a) Will submit reports in the form and detail and at the time
required by the Secretary, including reports required under sections
13, 14, and 101(a)(10) of the Act; and
(b) Will comply with any requirements necessary to ensure the
correctness and verification of those reports.
(Authority: Section 101(a)(10) of the Act; 29 U.S.C. 721(a)(10))
State Plan Content: Provision and Scope of Services
Sec. 361.41 Processing referrals and applications.
(a) Referrals. The State plan must assure that the designated State
unit has established and implemented standards for the prompt and
equitable handling of referrals of individuals for vocational
rehabilitation services. The standards must include timelines for
making good faith efforts to inform these individuals of application
requirements and to gather information necessary to initiate an
assessment for determining eligibility and priority for services.
(b) Applications. (1) The State plan must assure that once an
individual has submitted an application for vocational rehabilitation
services, an eligibility determination will be made within 60 days,
unless--
(i) Exceptional and unforeseen circumstances beyond the control of
the agency preclude a determination within 60 days and the individual
is so notified and agrees that an extension of time is warranted; or
(ii) An extended evaluation is necessary, in accordance with
Sec. 361.42(d).
(2) An individual is considered to have submitted an application
when the individual or the individual's representative, as appropriate,
has completed and signed an agency application form or has otherwise
requested services and has provided
[[Page 64514]]
information necessary to initiate an assessment to determine
eligibility and priority for services.
(3) The designated State unit shall ensure that its application
forms are widely available throughout the State.
(Authority: Sections 101(a)(6)(A) and 102(a)(5)(A) of the Act; 29
U.S.C. 721(a)(6)(A) and 722(a)(5)(A))
Sec. 361.42 Assessment for determining eligibility and priority for
services.
The State plan must assure that, in order to determine whether an
individual is eligible for vocational rehabilitation services and the
individual's priority under an order of selection for services (if the
State is operating under an order of selection), the designated State
unit will conduct an assessment for determining eligibility and
priority for services. The assessment must be conducted in the most
integrated setting possible, consistent with the individual's needs and
informed choice, and in accordance with the following provisions:
(a) Eligibility requirements. (1) Basic requirements. The State
plan must assure that the State unit's determination of an applicant's
eligibility for vocational rehabilitation services is based only on the
following requirements:
(i) A determination that the applicant has a physical or mental
impairment, as determined by qualified personnel licensed or certified
in accordance with State law or regulation.
(ii) A determination that the applicant's physical or mental
impairment constitutes or results in a substantial impediment to
employment for the applicant.
(iii) A determination, in accordance with paragraph (a)(2) of this
section, that the applicant can benefit in terms of an employment
outcome from the provision of vocational rehabilitation services.
(iv) A determination that the applicant requires vocational
rehabilitation services to prepare for, enter into, engage in, or
retain gainful employment consistent with the applicant's strengths,
resources, priorities, concerns, abilities, capabilities, and informed
choice.
(2) Presumption of benefit. The State plan must assure that the
designated State unit will presume that an applicant who meets the
eligibility requirements in paragraphs (a)(1) (i) and (ii) of this
section can benefit in terms of an employment outcome unless it
determines, based on clear and convincing evidence, that the applicant
is incapable of benefitting in terms of an employment outcome from
vocational rehabilitation services.
(3) Limited presumption for Social Security beneficiaries. The
State plan must assure that, if an applicant has appropriate evidence,
such as an award letter, that establishes the applicant's eligibility
for Social Security benefits under Title II or Title XVI of the Social
Security Act, the designated State unit will presume that the
applicant--
(i) Meets the eligibility requirements in paragraphs (a)(1) (i) and
(ii) of this section; and
(ii) Has a severe physical or mental impairment that seriously
limits one or more functional capacities in terms of an employment
outcome.
(b) Prohibited factors. The State plan must assure that--
(1) No duration of residence requirement is imposed that excludes
from services any applicant who is present in the State;
(2) No applicant or group of applicants is excluded or found
ineligible solely on the basis of the type of disability;
(3) The eligibility requirements are applied without regard to the
age, gender, race, color, creed, or national origin of the applicant;
and
(4) The eligibility requirements are applied without regard to the
particular service needs or anticipated cost of services required by an
applicant or the income level of an applicant or applicant's family.
(c) Review and assessment of data for eligibility determination.
Except as provided in paragraph (d) of this section, the designated
State unit shall base its determination of each of the basic
eligibility requirements in paragraph (a) of this section on--
(1) A review and assessment of existing data, including counselor
observations, education records, information provided by the individual
or the individual's family, information used by the Social Security
Administration, and determinations made by officials of other agencies;
and
(2) To the extent existing data do not describe the current
functioning of the individual or are unavailable, insufficient, or
inappropriate to make an eligibility determination, an assessment of
additional data resulting from the provision of vocational
rehabilitation services, including assistive technology devices and
services and worksite assessments, that are necessary to determine
whether an individual is eligible.
(d) Extended evaluation for individuals with severe disabilities.
(1) Prior to any determination that an individual with a severe
disability is incapable of benefitting from vocational rehabilitation
services in terms of an employment outcome because of the severity of
that individual's disability, the State unit shall conduct an extended
evaluation to determine whether or not there is clear and convincing
evidence to support such a determination.
(2) During the extended evaluation period, which may not exceed 18
months, vocational rehabilitation services must be provided in the most
integrated setting possible, consistent with the informed choice of the
individual.
(3) During the extended evaluation period, the State unit shall
develop a written plan for determining eligibility and for determining
the nature and scope of services required to achieve an employment
outcome. The State unit may provide during this period only those
services that are necessary to make these two determinations.
(4) The State unit shall assess the individual's progress as
frequently as necessary, but at least once every 90 days, during the
extended evaluation period.
(5) The State unit shall terminate extended evaluation services at
any point during the 18-month extended evaluation period if the State
unit determines that--
(i) There is sufficient evidence to conclude that the individual
can benefit from the provision of vocational rehabilitation services in
terms of an employment outcome; or
(ii) There is clear and convincing evidence that the individual is
incapable of benefitting from vocational rehabilitation services in
terms of an employment outcome.
(e) Data for determination of priority for services under an order
of selection. If the State unit is operating under an order of
selection for services, as provided in Sec. 361.36, the State unit
shall base its priority assignments on--
(1) A review of the data that was developed under paragraphs (c)
and (d) of this section to make the eligibility determination; and
(2) An assessment of additional data, to the extent necessary.
(Authority: Sections 7(22)(A)(ii), 7(22)(C)(iii), 101(a)(9)(A),
101(a)(14), 101(a)(31), 102(a)(1), 102(a)(2), 102(a)(3), and
102(a)(4) of the Act; 29 U.S.C. 706(22)(A)(ii), 706(22)(C)(iii),
721(a)(9)(a), 721(a)(14), 721(a)(31), 722(a)(1), 722(a)(2),
722(a)(3), and 722(a)(4))
Note: ``Clear and convincing evidence'' means that the
designated State unit must have a high degree of certainty before it
can conclude that an individual is incapable of benefitting from
services in terms of an employment outcome. The ``clear and
convincing'' standard constitutes the highest standard used in our
civil system of law and
[[Page 64515]]
is to be individually applied on a case-by-case basis. The term
``clear'' means unequivocal. Given these requirements, a review of
existing information generally would not provide clear and
convincing evidence. For example, the use of an intelligence test
result alone would not constitute clear and convincing evidence.
Clear and convincing evidence might include a description of
assessments, including situational assessments and supported
employment assessments, from service providers who have concluded
that they would be unable to meet the individual's needs due to the
severity of the individual's disability. The demonstration of
``clear and convincing evidence'' must include, if appropriate, a
functional assessment of skill development activities, with any
necessary supports (including assistive technology), in real life
settings.
Note: Under the statute and paragraph (a)(1)(iv) of Sec. 361.42,
an individual with a disability is not eligible for vocational
rehabilitation services if the individual does not require the
services to prepare for, enter, engage in, or retain gainful
employment. The following examples illustrate how an individual with
a disability may or may not meet this final eligibility criterion.
The examples are purely illustrative, do not address all possible
circumstances, and are not intended to substitute for individual
counselor judgment. State units shall determine eligibility for
vocational rehabilitation services on a case-by-case basis, taking
into account those individual circumstances relating to an
individual's strengths, resources, priorities, concerns, abilities,
and capabilities.
Example: An individual with a disability who is not currently
employed and is unable to obtain employment consistent with the
individual's abilities and capabilities would likely meet this
eligibility criterion.
Example: An individual with a disability who is already employed
in a setting consistent with the individual's abilities and
capabilities, but who desires to change jobs for reasons unrelated
to the individual's disability, would likely not meet this
eligibility criterion.
Example: An individual with a disability who is already
employed, but not in a setting consistent with the individual's
abilities and capabilities, and who desires to obtain new employment
that is consistent with his or her abilities and capabilities, would
meet this eligibility criterion.
Example: An individual with a disability who is currently
employed, but is in jeopardy of losing that employment due to
disability-related factors (e.g., the individual's disability is
progressive and results in additional functional limitations), would
meet this eligibility criterion.
Example: An individual with a disability who was previously
employed in a setting consistent with the individual's abilities and
capabilities, who lost that employment for reasons unrelated to the
disability, and whose job skills are transferable would likely not
meet this eligibility criterion.
Example: An individual with a disability whose disability is of
a temporary nature (e.g., an allowed Social Security beneficiary who
has been assigned a diaried date (date of a follow-up review to
determine whether the individual has recovered medically) because
his or her disability is expected to improve within 12 months) might
not meet this eligibility criterion.
Sec. 361.43 Procedures for ineligibility determination.
The State plan must assure that if the State unit determines that
an applicant is ineligible for vocational rehabilitation services or
determines that an individual receiving services under an
individualized written rehabilitation program is no longer eligible for
services, the State unit shall--
(a) Make the determination only after providing an opportunity for
full consultation with the individual or, as appropriate, with the
individual's representative;
(b) Inform the individual in writing, or by appropriate modes of
communication, of the ineligibility determination, including the
reasons for that determination, the requirements under this section,
and the means by which the individual may express and seek remedy for
any dissatisfaction, including the procedures for review of a
determination by the rehabilitation counselor or coordinator in
accordance with Sec. 361.57;
(c) Provide the individual with a description of services available
from a client assistance program established under 34 CFR part 370 and
information on how to contact that program; and
(d) Review the ineligibility determination--
(1) Within 12 months, unless the individual has refused the review,
is no longer present in the State, or the individual's whereabouts are
unknown; or
(2) In the case of an ineligibility determination based on a
determination that the individual is incapable of achieving an
employment outcome, within 12 months in accordance with paragraph
(d)(1) of this section and annually thereafter if requested by the
individual or, if appropriate, by the individual's representative.
(Authority: Sections 101(a)(9)(D), 102(a)(6), and 102(c) of the Act;
29 U.S.C. 721(a)(9), 722(a)(6), and 722(c))
Sec. 361.44 Closure without eligibility determination.
The State plan must assure that the State unit may not close an
applicant's case prior to making an eligibility determination unless
the applicant declines to participate in, or is unavailable to complete
an assessment for determining eligibility and priority for services,
and the State unit has made a reasonable number of attempts to contact
the applicant or, if appropriate, the applicant's representative to
encourage the applicant's participation.
(Authority: Sections 12(c) and 101(a)(6)(A) of the Act; 29 U.S.C.
711(c) and 721(a)(6))
Sec. 361.45 Development of the individualized written rehabilitation
program.
(a) Purpose. The State plan must assure that the State unit
conducts an assessment for determining vocational rehabilitation needs
for each eligible individual or, if the State is operating under an
order of selection, for each eligible individual to whom the State is
able to provide services. The purpose of this assessment is to
determine the long-term vocational goal, intermediate rehabilitation
objectives, and the nature and scope of vocational rehabilitation
services to be included in the IWRP, which must be designed to achieve
an employment outcome that is consistent with the individual's unique
strengths, priorities, concerns, abilities, capabilities, and career
interests.
(b) Procedural requirements. The State plan must assure that--
(1) The IWRP is developed jointly, agreed to, and signed by the
vocational rehabilitation counselor or coordinator and the individual
or, as appropriate, the individual's representative within the
framework of a counseling and guidance relationship;
(2) The State unit has established and implemented standards for
the prompt development of IWRPs for the individuals identified under
paragraph (a) of this section, including timelines that take into
consideration the needs of the individual;
(3) The State unit advises each individual or, as appropriate, the
individual's representative of all State unit procedures and
requirements affecting the development and review of an IWRP, including
the availability of appropriate modes of communication;
(4) In developing an IWRP for a transitioning student, the State
unit considers the student's individualized education program;
(5) The State unit reviews the IWRP with the individual or, as
appropriate, the individual's representative as often as necessary, but
at least once each year to assess the individual's progress in meeting
the objectives identified in the IWRP;
(6) The State unit incorporates into the IWRP any revisions that
are necessary to reflect changes in the individual's vocational goal,
intermediate objectives, or vocational rehabilitation needs, after
obtaining the agreement and signature of the individual or, as
appropriate, the
[[Page 64516]]
agreement and signature of the individual's representative; and
(7) The State unit promptly provides each individual or, as
appropriate, the individual's representative, a copy of the IWRP and
its amendments in the native language, or appropriate mode of
communication, of the individual or, as appropriate, of the
individual's representative.
(c) Data for preparing the IWRP.
(1) Preparation without comprehensive assessment. To the extent
possible, the vocational goal, intermediate objectives, and the nature
and scope of rehabilitation services to be included in the individual's
IWRP must be determined based on the data used for the assessment of
eligibility and priority for services under Sec. 361.42.
(2) Preparation based on comprehensive assessment.
(i) If additional data are necessary to prepare the IWRP, the
designated State unit shall conduct a comprehensive assessment of the
unique strengths, resources, priorities, interests, and needs,
including the need for supported employment services of an eligible
individual, in the most integrated setting possible, consistent with
the informed choice of the individual.
(ii) The comprehensive assessment must be limited to information
that is necessary to identify the rehabilitation needs of the
individual and develop the IWRP and may, to the extent needed,
include--
(A) An analysis of pertinent medical, psychiatric, psychological,
neuropsychological, and other pertinent vocational, educational,
cultural, social, recreational, and environmental factors, and related
functional limitations, that affect the employment and rehabilitation
needs of the individual;
(B) An analysis of the individual's personality, career interests,
interpersonal skills, intelligence and related functional capacities,
educational achievements, work experience, vocational aptitudes,
personal and social adjustments, and employment opportunities;
(C) An appraisal of the individual's patterns of work behavior and
services needed to acquire occupational skills and to develop work
attitudes, work habits, work tolerance, and social and behavior
patterns suitable for successful job performance; and
(D) An assessment, through provision of rehabilitation technology
services, of the individual's capacities to perform in a work
environment, including in an integrated setting, to the maximum extent
feasible and consistent with the individual's informed choice.
(iii) In preparing a comprehensive assessment, the State unit shall
use, to the maximum extent possible and appropriate and in accordance
with confidentiality requirements, existing information, including
information that is provided by the individual, the family of the
individual, and education agencies.
(Authority: Sections 7(22)(B), 102(b)(1)(A), and 102(b)(2); 29
U.S.C. 706(5), 721(a)(9), 722, and 723(a)(1))
Sec. 361.46 Content of the individualized written rehabilitation
program.
(a) General requirements. The State plan must assure that each IWRP
includes, as appropriate, statements concerning--
(1) The specific long-term vocational goal, which must be based on
the assessment for determining vocational rehabilitation needs,
including the individual's career interests, and must be, to the extent
appropriate and consistent with the informed choice of the individual,
in an integrated setting;
(2) The specific and measurable intermediate rehabilitation
objectives related to the attainment of the long-term vocational goal,
based on the assessment for determining vocational rehabilitation needs
and consistent with the informed choice of the individual;
(3) The specific rehabilitation services under Sec. 361.48 to be
provided to achieve th
FR Doc. 95-30344 The State Vocational Rehabilitation Services Program
e established intermediate rehabilitation
objectives, including, if appropriate, rehabilitation technology
services and on-the-job and related personal assistance services;
(4) The projected dates for the initiation of each vocational
rehabilitation service, the anticipated duration of each service, and
the projected date for the achievement of the individual's vocational
goal;
(5) A procedure and schedule for periodic review and evaluation of
progress toward achieving intermediate rehabilitation objectives based
upon objective criteria and a record of these reviews and evaluations;
(6) How, in the words of the individual or, as appropriate, in the
words of the individual's representative, the individual was--
(i) Informed about and involved in choosing among alternative
goals, objectives, services, providers, and methods used to procure or
provide services; and
(ii) Provided information regarding the availability and
qualifications of alternative providers of services;
(7) The terms and conditions for the provision of vocational
rehabilitation services, including--
(i) The responsibilities of the individual in implementing the
IWRP;
(ii) The extent of the individual's participation in the cost of
services;
(iii) The extent to which goods and services will be provided in
the most integrated settings possible, consistent with the informed
choices of the individual;
(iv) The extent to which comparable services and benefits are
available to the individual under any other program; and
(v) The entity or entities that will provide the services and the
process used to provide or procure the services;
(8) The rights of the individual under this part and the means by
which the individual may express and seek remedy for any
dissatisfaction, including the opportunity for a review of
rehabilitation counselor or coordinator determinations under
Sec. 361.57;
(9) The availability of a client assistance program established
under 34 CFR part 370; and
(10) The basis on which the individual has been determined to have
achieved an employment outcome.
(b) Supported employment placements. The State plan must assure
that the IWRP for individuals with the most severe disabilities for
whom a vocational goal in a supported employment setting has been
determined to be appropriate will also contain--
(1) A description of the supported employment services to be
provided by the State unit; and
(2) A description of the extended services needed and
identification of the source of extended services or, in the event that
identification of the source is not possible at the time the IWRP is
developed, a statement explaining the basis for concluding that there
is a reasonable expectation that services will become available.
(c) Post-employment services. The State plan must assure that the
IWRP for each individual contains statements concerning--
(1) The expected need for post-employment services, based on an
assessment during the development of the IWRP;
(2) A reassessment of the need for post-employment services prior
to the determination that the individual has achieved an employment
outcome;
(3) A description of the terms and conditions for the provision of
any post-employment services, including the anticipated duration of
those services, subsequent to the achievement of an employment outcome
by the individual; and
[[Page 64517]]
(4) If appropriate, a statement of how post-employment services
will be provided or arranged through cooperative agreements with other
service providers.
(d) Coordination of services for transitioning students. The State
plan must assure that the IWRP for a transitioning student is
coordinated with the individualized education program (IEP) for that
individual in terms of the goals, objectives, and services identified
in the IEP.
(e) Ineligibility. The State plan must assure that the decision
that an individual is not capable of achieving an employment outcome
and is no longer eligible to receive services under an IWRP is made in
accordance with the requirements in Sec. 361.43. The decision, and the
reasons on which the decision was based, must be included as an
amendment to the IWRP.
(Authority: Sections 101(a)(9), 102(b)(1), 102(c), and 635(b)(6) of
the Act; 29 U.S.C. 721(a)(9), 722, and 795n)
Sec. 361.47 Record of services.
The State plan must assure that the designated State unit maintains
for each applicant or eligible individual a record of services that
includes, to the extent pertinent, the following documentation:
(a) If an applicant has been determined to be an eligible
individual, documentation supporting that determination in accordance
with the requirements in Sec. 361.42.
(b) If an applicant has been determined to be ineligible,
documentation supporting that determination in accordance with the
requirements of Sec. 361.43.
(c) Documentation supporting the determination that an individual
has a severe disability or a most severe disability.
(d) If an individual with a severe disability requires an extended
evaluation in order to determine whether the individual is an eligible
individual, documentation supporting the need for an extended
evaluation, documentation supporting the periodic assessments conducted
during the extended evaluation, and the written plan developed during
the extended evaluation, in accordance with the requirements in
Sec. 361.42(d).
(e) The IWRP, and any amendments to the IWRP, containing the
information required under Sec. 361.46.
(f) In accordance with Sec. 361.45(a), documentation supporting the
development of the long-term vocational goal, intermediate
rehabilitation objectives, and nature and scope of services included in
the individual's IWRP and, for individuals who are transitioning
students, in the individual's IEP.
(g) In the event that an individual's IWRP provides for services or
a job placement in a non-integrated setting, a justification for that
non-integrated setting.
(h) Documentation of the reason for terminating services to an
individual and, if an individual has achieved an employment outcome,
the basis on which the requirements of Sec. 361.56 were determined to
be met.
(i) Documentation concerning any action and decision resulting from
a request by an individual for review of a rehabilitation counselor or
coordinator determination under Sec. 361.57.
(Authority: Sections 101(a)(6) and 101(a)(9) of the Act; 29 U.S.C.
721(a)(6) and 721(a)(9))
Sec. 361.48 Scope of vocational rehabilitation services for
individuals with disabilities.
(a) The State plan must assure that, as appropriate to the
vocational rehabilitation needs of each individual and consistent with
each individual's informed choice, the following vocational
rehabilitation services are available:
(1) Assessment for determining eligibility and priority for
services in accordance with Sec. 361.42.
(2) Assessment for determining vocational rehabilitation needs in
accordance with Sec. 361.45.
(3) Vocational counseling and guidance.
(4) Referral and other services necessary to help applicants and
eligible individuals secure needed services from other agencies and to
advise those individuals about client assistance programs established
under 34 CFR part 370.
(5) Physical and mental restoration services in accordance with the
definition of that term in Sec. 361.5(b)(35).
(6) Vocational and other training services, including personal and
vocational adjustment training, books, tools, and other training
materials, except that no training or training services in an
institution of higher education (universities, colleges, community or
junior colleges, vocational schools, technical institutes, or hospital
schools of nursing) may be paid for with funds under this part unless
maximum efforts have been made by the State unit to secure grant
assistance in whole or in part from other sources to pay for that
training.
(7) Maintenance, in accordance with the definition of that term in
Sec. 361.5(b)(31).
(8) Transportation in connection with the rendering of any
vocational rehabilitation service and in accordance with the definition
of that term in Sec. 361.5(b)(50).
(9) Vocational rehabilitation services to family members of an
applicant or eligible individual if necessary to enable the applicant
or eligible individual to achieve an employment outcome.
(10) Interpreter services for individuals who are deaf and tactile
interpreting services for individuals who are deaf-blind.
(11) Reader services, rehabilitation teaching services, and
orientation and mobility services for individuals who are blind.
(12) Recruitment and training services to provide new employment
opportunities in the fields of rehabilitation, health, welfare, public
safety, law enforcement, and other appropriate public service
employment.
(13) Job search and placement assistance and job retention
services.
(14) Supported employment services in accordance with the
definition of that term in Sec. 361.5(b)(46).
(15) Personal assistance services in accordance with the definition
of that term in Sec. 361.5(b)(34).
(16) Post-employment services in accordance with the definition of
that term in Sec. 361.5(b)(37).
(17) Occupational licenses, tools, equipment, initial stocks, and
supplies.
(18) Rehabilitation technology in accordance with the definition of
that term in Sec. 361.5(b)(39), including vehicular modification,
telecommunications, sensory, and other technological aids and devices.
(19) Transition services in accordance with the definition of that
term in Sec. 361.5(b)(47).
(20) Other goods and services determined necessary for the
individual with a disability to achieve an employment outcome.
(b) The State plan also must describe annually--
(1) The manner in which a broad range of rehabilitation technology
services will be provided at each stage of the rehabilitation process
and on a statewide basis;
(2) The training that will be provided to vocational rehabilitation
counselors, client assistance personnel, and other related services
personnel on the provision of rehabilitation technology services; and
(3) The manner in which on-the-job and other related personal
assistance services will be provided to assist individuals while they
are receiving vocational rehabilitation services, including a
description of strategies for developing statewide capacity to provide
those services to an increasing number of individuals to improve their
employment potential.
[[Page 64518]]
(Authority: Sections 101(a)(5)(C), 101(a)(26), and 103(a) of the
Act; 29 U.S.C. 721(a)(5)(C), 721(a)(26), and 723(a))
Sec. 361.49 Scope of vocational rehabilitation services for groups of
individuals with disabilities.
(a) The State plan may also provide for the following vocational
rehabilitation services for the benefit of groups of individuals with
disabilities:
(1) The establishment, development, or improvement of a public or
other nonprofit community rehabilitation program that is used to
provide services that promote integration and competitive employment,
including under special circumstances, the construction of a facility
for a public or nonprofit community rehabilitation program. Examples of
``special circumstances'' include the destruction by natural disaster
of the only available center serving an area or a State determination
that construction is necessary in a rural area because no other public
agencies or private nonprofit organizations are currently able to
provide services to individuals.
(2) Telecommunications systems that have the potential for
substantially improving vocational rehabilitation service delivery
methods and developing appropriate programming to meet the particular
needs of individuals with disabilities, including telephone,
television, satellite, tactile-vibratory devices, and similar systems,
as appropriate.
(3) Special services to provide recorded material for individuals
who are blind, captioned television, films or video cassettes for
individuals who are deaf, tactile materials for individuals who are
deaf-blind, and other special services that provide information through
tactile, vibratory, auditory, and visual media.
(4) Technical assistance and support services, such as job site
modification and other reasonable accommodations, to businesses that
are not subject to Title I of the Americans with Disabilities Act of
1990 and that are seeking to employ individuals with disabilities.
(5) In the case of small business enterprises operated by
individuals with the most severe disabilities under the supervision of
the State unit, including enterprises established under the Randolph-
Sheppard program, management services and supervision, initial stocks
and supplies, and initial operating expenses, in accordance with the
following requirements:
(i) ``Management services and supervision'' includes inspection,
quality control, consultation, accounting, regulating, in-service
training, and related services provided on a systematic basis to
support and improve small business enterprises operated by individuals
with the most severe disabilities. ``Management services and
supervision'' may be provided throughout the operation of the small
business enterprise.
(ii) ``Initial stocks and supplies'' includes those items necessary
to the establishment of a new business enterprise during the initial
establishment period, which shall not exceed six months.
(iii) Costs of establishing a small business enterprise may include
operational costs during the initial establishment period, which shall
not exceed six months.
(iv) If the State plan provides for these services, it must contain
an assurance that only individuals with the most severe disabilities
will be selected to participate in this supervised program.
(v) If the State plan provides for these services and the State
unit chooses to set aside funds from the proceeds of the operation of
the small business enterprises, the State plan also must assure that
the State unit maintains a description of the methods used in setting
aside funds and the purposes for which funds are set aside. Funds may
be used only for small business enterprises purposes, and benefits that
are provided to operators from set-aside funds must be provided on an
equitable basis.
(6) Other services that promise to contribute substantially to the
rehabilitation of a group of individuals but that are not related
directly to the IWRP of any one individual. Examples of those other
services might include the purchase or lease of a bus to provide
transportation to a group of applicants or eligible individuals or the
purchase of equipment or instructional materials that would benefit a
group of applicants or eligible individuals.
(b) If the State plan provides for vocational rehabilitation
services for groups of individuals, the State plan must assure that the
designated State unit maintains information to ensure the proper and
efficient administration of those services in the form and detail and
at the time required by the Secretary, including the types of services
provided, the costs of those services, and, to the extent feasible,
estimates of the numbers of individuals benefitting from those
services.
(Authority: Section 103(b) of the Act; 29 U.S.C. 711(c), 723(b),
721(a)(6))
Sec. 361.50 Written policies governing the provision of services.
The State plan must assure that the State unit develops and
maintains written policies covering the nature and scope of each of the
vocational rehabilitation services specified in Sec. 361.48 and
Sec. 361.49 and the criteria under which each service is provided. The
policies must ensure that the provision of services is based on the
rehabilitation needs of each individual as identified in that
individual's IWRP. The written policies may not establish any arbitrary
limits on the nature and scope of vocational rehabilitation services to
be provided to the individual to achieve an employment outcome. The
policies must be developed in accordance with the following provisions:
(a) Out-of-State services. (1) The State unit may establish a
preference for in-State services, provided that the preference does not
effectively deny an individual a necessary service. If the individual
chooses an out-of-State service at a higher cost than an in-State
service, if either service would meet the individual's rehabilitation
needs, the designated State unit is not responsible for those costs in
excess of the cost of the in-State service.
(2) The State unit may not establish an absolute prohibition on the
provision of out-of-State services.
(b) Payment for services. (1) The State unit shall establish and
maintain written policies to govern the rates of payment for all
purchased vocational rehabilitation services.
(2) The State unit may establish a reasonable fee schedule designed
to ensure the lowest reasonable cost to the program for each service,
provided that the schedule is--
(i) Not so low as to effectively deny an individual a necessary
service; and
(ii) Not absolute and permits exceptions so that individual needs
can be addressed.
(3) The State unit may not place absolute dollar limits on specific
service categories or on the total services provided to an individual.
(c) Duration of services. (1) The State unit may establish
reasonable time periods for the provision of services provided that the
time periods are--
(i) Not so short as to effectively deny an individual a necessary
service; and
(ii) Not absolute and permit exceptions so that individual needs
can be addressed.
(2) The State unit may not establish absolute time limits on the
provision of specific services or on the provision of services to an
individual. The duration of each service needed by an individual must
be determined on an individual basis and reflected in that individual's
IWRP.
[[Page 64519]]
(d) Authorization of services. The State unit shall establish
policies related to the timely authorization of services, including
conditions under which verbal authorization can be given.
(Authority: Sections 12(c), 12(e)(2)(A), and 101(a)(6) of the Act
and 29 U.S.C. 711(c), 711(e)(2)(A), and 721(a)(6))
Sec. 361.51 Written standards for facilities and providers of
services.
The State plan must assure that the designated State unit
establishes, maintains, makes available to the public, and implements
written minimum standards for the various types of facilities and
providers of services used by the State unit in providing vocational
rehabilitation services, in accordance with the following requirements:
(a) Accessibility of facilities. Any facility in which vocational
rehabilitation services are provided must be accessible to individuals
receiving services and must comply with the requirements of the
Architectural Barriers Act of 1968, the Uniform Accessibility Standards
and their implementing regulations in 41 CFR part 101, subpart 101-
19.6, the American National Standards Institute, No. A117.1-1986, the
Americans with Disabilities Act of 1990, and section 504 of the Act.
(b) Personnel standards. (1) Qualified personnel. Providers of
vocational rehabilitation services shall use qualified personnel, in
accordance with any applicable national or State-approved or recognized
certification, licensing, registration or other comparable requirements
(including State personnel requirements) that apply to the profession
or discipline in which that category of personnel is providing
vocational rehabilitation services.
(2) Affirmative action. Providers of vocational rehabilitation
services shall take affirmative action to employ and advance in
employment qualified individuals with disabilities.
(3) Special communication needs personnel. Providers of vocational
rehabilitation services shall--
(i) Include among their personnel, or obtain the services of,
individuals able to communicate in the native languages of applicants
and eligible individuals who have limited English speaking ability; and
(ii) Ensure that appropriate modes of communication for all
applicants and eligible individuals are used.
(c) Fraud, waste, and abuse. Providers of vocational rehabilitation
services shall have adequate and appropriate policies and procedures to
prevent fraud, waste, and abuse.
(Authority: Sections 12(e)(2) (B), (D), and (E) and 101(a)(6)(B) of
the Act; 29 U.S.C. 711(e) and 721(a)(6)(B))
Sec. 361.52 Opportunity to make informed choices regarding the
selection of services and providers.
The State plan must describe the manner in which the State unit
will provide each applicant, including individuals who are receiving
services during an extended evaluation, and each eligible individual
the opportunity to make informed choices throughout the vocational
rehabilitation process in accordance with the following requirements:
(a) Each State unit, in consultation with its State Rehabilitation
Advisory Council, if it has one, shall develop and implement policies
and procedures that enable each individual to make an informed choice
with regard to the selection of a long-term vocational goal,
intermediate rehabilitation objectives, vocational rehabilitation
services, including assessment services, and service providers.
(b) In developing an individual's IWRP, the State unit shall
provide the individual, or assist the individual in acquiring,
information necessary to make an informed choice about the specific
services, including the providers of those services, that are needed to
achieve the individual's vocational goal. This information must
include, at a minimum, information relating to the cost, accessibility,
and duration of potential services, the level of consumer satisfaction
with those services, the qualifications of potential service providers,
the types of services offered by those providers, and the degree to
which services are provided in integrated settings.
(c) In providing, or assisting the individual in acquiring, the
information required under paragraph (b) of this section, the State
unit may use, but is not limited to, the following methods or sources
of information:
(1) State or regional lists of services and service providers.
(2) Periodic consumer satisfaction surveys and reports.
(3) Referrals to other consumers, local consumer groups, or
disability advisory councils qualified to discuss the services or
service providers.
(4) Relevant accreditation, certification, or other information
relating to the qualifications of service providers.
(Authority: Sections 12(e)(1) and 12(e)(2)(C) of the Act; 29 U.S.C.
711(e))
Sec. 361.53 Availability of comparable services and benefits.
(a) The State plan must assure that--
(1) Prior to providing any vocational rehabilitation services to an
eligible individual, or to members of the individual's family, except
those services listed in paragraph (b) of this section, the State unit
shall determine whether comparable services and benefits exist under
any other program and whether those services and benefits are available
to the individual;
(2) If comparable services or benefits exist under any other
program and are available to the eligible individual within a
reasonable period of time so that the intermediate rehabilitation
objectives of the individual's IWRP can be met, the State unit shall
use those comparable services or benefits to meet, in whole or in part,
the cost of vocational rehabilitation services; and
(3) If comparable services or benefits exist under any other
program, but are not available to the individual within a reasonable
period of time, the State unit shall provide vocational rehabilitation
services until those comparable services and benefits become available.
(b) A prior determination of the availability of comparable
services and benefits is not required in connection with the provision
of any of the following services:
(1) Assessment for determining eligibility and priority for
services.
(2) Assessment for determining vocational rehabilitation needs.
(3) Vocational counseling, guidance, and referral services.
(4) Vocational and other training services, such as personal and
vocational adjustment training, books (including alternative format
books accessible by computer and taped books), tools, and other
training materials in accordance with Sec. 361.48(a)(6).
(5) Placement services.
(6) Rehabilitation technology.
(7) Post-employment services consisting of the services listed
under paragraphs (b) (1) through (6) of this section.
(c) The requirements of paragraph (a) of this section also do not
apply if--
(1) The determination of the availability of comparable services
and benefits under any other program would delay the provision of
vocational rehabilitation services to any individual who is determined
to be at extreme medical risk, based on medical evidence provided by an
appropriate qualified medical professional; or
(2) An immediate job placement would be lost due to a delay in the
[[Page 64520]]
provision of comparable services and benefits.
(Authority: Section 101(a)(8) of the Act; 29 U.S.C. 721(a)(8))
Sec. 361.54 Participation of individuals in cost of services based on
financial need.
(a) No Federal requirement. There is no Federal requirement that
the financial need of individuals be considered in the provision of
vocational rehabilitation services.
(b) State unit requirements. (1) The State unit may choose to
consider the financial need of eligible individuals or individuals who
are receiving services during an extended evaluation for purposes of
determining the extent of their participation in the costs of
vocational rehabilitation services, other than those services
identified in paragraph (b)(3) of this section.
(2) If the State unit chooses to consider financial need--
(i) It shall maintain written policies covering the determination
of financial need;
(ii) The State plan must specify the types of vocational
rehabilitation services for which the unit has established a financial
needs test;
(iii) The policies must be applied uniformly to all individuals in
similar circumstances;
(iv) The policies may require different levels of need for
different geographic regions in the State, but must be applied
uniformly to all individuals within each geographic region; and
(v) The policies must ensure that the level of an individual's
participation in the cost of vocational rehabilitation services is--
(A) Reasonable;
(B) Based on the individual's financial need; and
(C) Not so high as to effectively deny the individual a necessary
service.
(3) The State plan must assure that no financial needs test is
applied and no financial participation is required as a condition for
furnishing the following vocational rehabilitation services:
(i) Assessment for determining eligibility and priority for
services, except those non-assessment services that are provided during
an extended evaluation for an individual with a severe disability under
Sec. 361.42(d).
(ii) Assessment for determining vocational rehabilitation needs.
(iii) Vocational counseling, guidance, and referral services.
(iv) Placement services.
(Authority: Section 12(c) of the Act; 29 U.S.C. 711(c))
Sec. 361.55 Review of extended employment in community rehabilitation
programs or other employment under section 14(c) of the Fair Labor
Standards Act.
The State plan must assure that the State unit--
(a) Reviews and re-evaluates at least annually the status of each
individual determined by the State unit to have achieved an employment
outcome in an extended employment setting in a community rehabilitation
program or other employment setting in which the individual is
compensated in accordance with section 14(c) of the Fair Labor
Standards Act. This review or re-evaluation must include input from the
individual or, in an appropriate case, the individual's representative
to determine the interests, priorities, and needs of the individual for
employment in, or training for, competitive employment in an integrated
setting in the labor market;
(b) Makes maximum effort, including the identification of
vocational rehabilitation services, reasonable accommodations, and
other support services, to enable the eligible individual to benefit
from training in, or to be placed in employment in, an integrated
setting; and
(c) Provides services designed to promote movement from extended
employment to integrated employment, including supported employment,
independent living, and community participation.
(Authority: Section 101(a)(16) of the Act; 29 U.S.C. 721(a)(16))
Sec. 361.56 Individuals determined to have achieved an employment
outcome.
The State plan must assure that an individual is determined to have
achieved an employment outcome only if the following requirements are
met:
(a) The provision of services under the individual's IWRP has
contributed to the achievement of the employment outcome.
(b) The employment outcome is consistent with the individual's
abilities, capabilities, interests, and informed choice.
(c) The employment outcome is in the most integrated setting
possible, consistent with the individual's informed choice.
(d) The individual has maintained the employment outcome for the
duration of the probationary period established by the employer for its
employees or, if the employer does not have an established probationary
period, for a period of at least 90 days.
(e) The individual and the rehabilitation counselor or coordinator
consider the employment outcome to be satisfactory and agree that the
individual is performing well on the job.
(Authority: Sections 12(c), 101(a)(6), and 106(a)(2) of the Act; 29
U.S.C. 711(c), 721(a)(6), and 726(a)(2))
Sec. 361.57 Review of rehabilitation counselor or coordinator
determinations.
The State plan must contain procedures established by the director
of the designated State unit to ensure that any applicant or eligible
individual who is dissatisfied with any determinations made by a
rehabilitation counselor or coordinator concerning the furnishing or
denial of services may request timely review of those determinations.
The procedures established by the director of the State unit must be in
accordance with the following provisions:
(a) Informal resolution. The State unit may establish an informal
process to resolve a request for review without conducting a formal
hearing. However, a State's informal process must be conducted and
concluded within the time period established under paragraph (c)(1) of
this section for holding a formal hearing. If informal resolution is
not successful, a formal hearing must be conducted by the end of this
same period, unless the parties jointly agree to a delay.
(b) Formal hearing procedures. Except as provided in paragraph (e)
of this section, the State unit shall establish formal review
procedures that provide that--
(1) A hearing by an impartial hearing officer, selected in
accordance with paragraph (d) of this section, must be held within the
time period established under paragraph (c)(1) of this section, unless
informal resolution was achieved prior to the expiration of the time
period or the parties jointly agreed to a delay;
(2) The State unit may not institute a suspension, reduction, or
termination of services being provided under an IWRP pending a final
determination of the formal hearing under this paragraph or informal
resolution under paragraph (a) of this section, unless the individual
or, in an appropriate case, the individual's representative so requests
or the agency has evidence that the services have been obtained through
misrepresentation, fraud, collusion, or criminal conduct on the part of
the individual;
(3) The individual or, if appropriate, the individual's
representative shall be afforded an opportunity to present additional
evidence, information, and witnesses to the impartial hearing officer,
to be represented by counsel or other appropriate advocate, and to
examine all witnesses and other
[[Page 64521]]
relevant sources of information and evidence;
(4) The impartial hearing officer shall make a decision based on
the provisions of the approved State plan, the Act, and Federal and
State vocational rehabilitation regulations and policies and shall
provide to the individual or, if appropriate, the individual's
representative and to the director of the designated State unit a full
written report of the findings and grounds for the decision within the
time period established under paragraph (c)(2) of this section;
(5) If the director of the designated State unit decides to review
the decision of the impartial hearing officer, the director shall
notify in writing the individual or, if appropriate, the individual's
representative of that intent within 20 days of the mailing of the
impartial hearing officer's decision;
(6) If the director of the designated State unit fails to provide
the notice required by paragraph (b)(5) of this section, the impartial
hearing officer's decision becomes a final decision;
(7) The decision of the director of the designated State unit to
review any impartial hearing officer's decision must be based on
standards of review contained in written State unit policy;
(8) If the director of the designated State unit decides to review
the decision of the impartial hearing officer, the director shall
provide the individual or, if appropriate, the individual's
representative an opportunity to submit additional evidence and
information relevant to the final decision;
(9) The director may not overturn or modify a decision, or part of
a decision, of an impartial hearing officer that supports the position
of the individual unless the director concludes, based on clear and
convincing evidence, that the decision of the impartial hearing officer
is clearly erroneous because it is contrary to the approved State plan,
the Act, or Federal or State vocational rehabilitation regulations or
policy;
(10) The director of the designated State unit shall make a final
decision and provide a full report in writing of the decision, and of
the findings and grounds for the decision, to the individual or, if
appropriate, the individual's representative within the time period
established under paragraph (c)(3) of this section;
(11) The director of the designated State unit may not delegate
responsibility to make any final decision to any other officer or
employee of the designated State unit; and
(12) Except for the time limitations established in paragraphs
(b)(5) and (c)(1) of this section, each State's review procedures may
provide for reasonable time extensions for good cause shown at the
request of a party or at the request of both parties.
(c) Timelines. Each State unit, in consultation with its State
Rehabilitation Advisory Council, if it has one, shall develop and
implement reasonable timelines for the prompt handling of appeals,
including, at a minimum, timelines for--
(1) Holding a formal hearing after an individual's request for
review;
(2) Rendering the decision of the impartial hearing officer after
completion of the formal hearing; and
(3) Rendering the final decision of the director of the designated
State unit after providing notice of intent to review the decision of
the impartial hearing officer in accordance with paragraph (b)(5) of
this section.
(d) Selection of impartial hearing officers. Except as provided in
paragraph (e) of this section, the impartial hearing officer for a
particular case must be selected--
(1) From among the pool of persons qualified to be an impartial
hearing officer, as defined in Sec. 361.5(b)(22), who are identified by
the State unit, if the State unit is an independent commission, or
jointly by the designated State unit and the State Rehabilitation
Advisory Council, if the State has a Council; and
(2)(i) On a random basis; or
(ii) By agreement between the director of the designated State unit
and the individual or, if appropriate, the individual's representative.
(e) State fair hearing board. The provisions of paragraphs (b),
(c), and (d) of this section are not applicable if the State has a fair
hearing board that was established before January 1, 1985, that is
authorized under State law to review rehabilitation counselor or
coordinator determinations and to carry out the responsibilities of the
director of the designated State unit under this section.
(f) Informing affected individuals. The State unit shall inform,
through appropriate modes of communication, all applicants and eligible
individuals of--
(1) Their right to review under this section, including the names
and addresses of individuals with whom appeals may be filed; and
(2) The manner in which an impartial hearing officer will be
selected consistent with the requirements of paragraph (d) of this
section.
(g) Data collection. The director of the designated State unit
shall collect and submit, at a minimum, the following data to the
Secretary for inclusion each year in the annual report to Congress
under section 13 of the Act:
(1) The number of appeals to impartial hearing officers and the
State director, including the type of complaints and the issues
involved.
(2) The number of decisions by the State director reversing in
whole or in part a decision of the impartial hearing officer.
(3) The number of decisions affirming the position of the
dissatisfied individual assisted through the client assistance program,
when that assistance is known to the State unit.
(Authority: Sections 102(b) and 102(d) of the Act; 29 U.S.C. 722(b)
and 722(d))
Subpart C--Financing of State Vocational Rehabilitation Programs
Sec. 361.60 Matching requirements.
(a) Federal share. (1) General. Except as provided in paragraphs
(a)(2) and (a)(3) of this section, the Federal share for expenditures
made by the State unit under the State plan, including expenditures for
the provision of vocational rehabilitation services, administration of
the State plan, and the development and implementation of the strategic
plan, is 78.7 percent.
(2) Construction projects. The Federal share for expenditures made
for the construction of a facility for community rehabilitation program
purposes may not be more than 50 percent of the total cost of the
project.
(3) Innovation and expansion grant activities. The Federal share
for the cost of innovation and expansion grant activities funded by
appropriations under Part C of Title I of the Act is 90 percent.
(b) Non-Federal share. (1) General. Except as provided in
paragraphs (b)(2) and (b)(3) of this section, expenditures made under
the State plan to meet the non-Federal share under this section must be
consistent with the provisions of 34 CFR 80.24.
(2) Third party in-kind contributions. Third party in-kind
contributions specified in 34 CFR 80.24(a)(2) may not be used to meet
the non-Federal share under this section.
(3) Contributions by private entities. Expenditures made from
contributions by private organizations, agencies, or individuals that
are deposited in the account of the State agency or sole local agency
in accordance with State law and that are earmarked, under a condition
imposed by the contributor, may be used as part of the non-Federal
share under this section if the following requirements are met:
(i) The funds are earmarked for meeting in whole or in part the
State's
[[Page 64522]]
share for establishing a community rehabilitation program or
constructing a particular facility for community rehabilitation program
purposes.
(ii) If the funds are earmarked for any other purpose under the
State plan, the expenditures do not benefit in any way the donor, an
individual to whom the donor is related by blood or marriage or with
whom the donor has a close personal relationship, or an individual,
entity, or organization with whom the donor shares a financial
interest. The Secretary does not consider a donor's receipt from the
State unit of a grant, subgrant, or contract with funds allotted under
this part to be a benefit for the purposes of this paragraph if the
grant, subgrant, or contract is awarded under the State's regular
competitive procedures.
(Authority: Sections 7(7), 101(a)(3), and 104 of the Act; 29 U.S.C.
706(7), 721(a)(3) and 724)
Note: The Secretary notes that contributions may be earmarked in
accordance with paragraph (b)(3)(ii) of this section for providing
particular services (e.g., rehabilitation technology services);
serving individuals with certain types of disabilities (e.g.,
individuals who are blind), consistent with the State's order of
selection, if applicable; providing services to special groups that
State or Federal law permits to be targeted for services (e.g.,
transitioning students), consistent with the State's order of
selection, if applicable; or carrying out particular types of
administrative activities permissible under State law. Contributions
also may be restricted to particular geographic areas to increase
services or expand the scope of services that are available
statewide under the State plan. However, if a contribution is
earmarked for a restricted geographic area, expenditures from that
contribution may be used to meet the non-Federal share requirement
only if the State unit requests and the Secretary approves a waiver
of statewideness, in accordance with Sec. 361.26.
Sec. 361.61 Limitation on use of funds for construction expenditures.
No more than 10 percent of a State's allotment for any fiscal year
under section 110 of the Act may be spent on the construction of
facilities for community rehabilitation program purposes.
(Authority: Section 101(a)(17)(A) of the Act; 29 U.S.C.
721(a)(17)(A))
Sec. 361.62 Maintenance of effort requirements.
(a) General requirements. (1) The Secretary reduces the amount
otherwise payable to a State for a fiscal year by the amount by which
the total expenditures from non-Federal sources under the State plan
for the previous fiscal year were less than the total of those
expenditures for the fiscal year two years prior to the previous fiscal
year. For example, for fiscal year 1996, a State's maintenance of
effort level is based on the amount of its expenditures from non-
Federal sources for fiscal year 1994. Thus, if the State's non-Federal
expenditures in 1996 are less than they were in 1994, the State has a
maintenance of effort deficit, and the Secretary reduces the State's
allotment in 1997 by the amount of that deficit.
(2) If, at the time the Secretary makes a determination that a
State has failed to meet its maintenance of effort requirements, it is
too late for the Secretary to make a reduction in accordance with
paragraph (a)(1) of this section, then the Secretary recovers the
amount of the maintenance of effort deficit through audit disallowance.
(b) Specific requirements for construction of facilities. If the
State plan provides for the construction of a facility for community
rehabilitation program purposes, the amount of the State's share of
expenditures for vocational rehabilitation services under the plan,
other than for the construction of a facility for community
rehabilitation program purposes or the establishment of a facility for
community rehabilitation purposes, must be at least equal to the
expenditures for those services for the second prior fiscal year. If a
State fails to meet the requirements of this paragraph, the Secretary
recovers the amount of the maintenance of effort deficit through audit
disallowance.
(c) Separate State agency for vocational rehabilitation services
for individuals who are blind. If there is a separate part of the State
plan administered by a separate State agency to provide vocational
rehabilitation services for individuals who are blind--
(1) Satisfaction of the maintenance of effort requirements under
paragraphs (a) and (b) of this section are determined based on the
total amount of a State's non-Federal expenditures under both parts of
the State plan; and
(2) If a State fails to meet any maintenance of effort requirement,
the Secretary reduces the amount otherwise payable to the State for
that fiscal year under each part of the plan in direct relation to the
amount by which expenditures from non-Federal sources under each part
of the plan in the previous fiscal year were less than they were for
that part of the plan for the fiscal year two years prior to the
previous fiscal year.
(d) Waiver or modification. (1) The Secretary may waive or modify
the maintenance of effort requirement in paragraph (a)(1) of this
section if the Secretary determines that a waiver or modification is
necessary to permit the State to respond to exceptional or
uncontrollable circumstances, such as a major natural disaster or a
serious economic downturn, that--
(i) Cause significant unanticipated expenditures or reductions in
revenue; and
(ii) Result in--
(A) A general reduction of programs within the State; or
(B) The State making substantial expenditures in the vocational
rehabilitation program for long-term purposes due to the one-time costs
associated with the construction of a facility for community
rehabilitation program purposes, the establishment of a facility for
community rehabilitation program purposes, or the acquisition of
equipment.
(2) The Secretary may waive or modify the maintenance of effort
requirement in paragraph (b) of this section or the 10 percent
allotment limitation in Sec. 361.61 if the Secretary determines that a
waiver or modification is necessary to permit the State to respond to
exceptional or uncontrollable circumstances, such as a major natural
disaster, that result in significant destruction of existing facilities
and require the State to make substantial expenditures for the
construction of a facility for community rehabilitation program
purposes or the establishment of a facility for community
rehabilitation program purposes in order to provide vocational
rehabilitation services.
(3) A written request for waiver or modification, including
supporting justification, must be submitted to the Secretary as soon as
the State determines that an exceptional or uncontrollable circumstance
will prevent it from making its required expenditures from non-Federal
sources.
(Authority: Sections 101(a)(17) and 111(a)(2) of the Act; 29 U.S.C.
721(a)(17) and 731(a)(2))
Sec. 361.63 Program income.
(a) Definition. Program income means gross income received by the
State that is directly generated by an activity supported under this
part.
(b) Sources. Sources of program income include, but are not limited
to, payments from the Social Security Administration for rehabilitating
Social Security beneficiaries, payments received from workers'
compensation funds, fees for services to defray part or all of the
costs of services provided to particular individuals, and income
generated by a State-operated community rehabilitation program.
[[Page 64523]]
(c) Use of program income. (1) Except as provided in paragraph
(c)(2) of this section, program income, whenever earned, must be used
for the provision of vocational rehabilitation services, the
administration of the State plan, and developing and implementing the
strategic plan. Program income is considered earned when it is
received.
(2) Payments provided to a State from the Social Security
Administration for rehabilitating Social Security beneficiaries may
also be used to carry out programs under Part B of Title I of the Act
(client assistance), Part C of Title I of the Act (innovation and
expansion), Part C of Title VI of the Act (supported employment) and
Title VII of the Act (independent living).
(3) The State is authorized to treat program income as--
(i) An addition to the grant funds to be used for additional
allowable program expenditures, in accordance with 34 CFR 80.25(g)(2);
or
(ii) A deduction from total allowable costs, in accordance with 34
CFR 80.25(g)(1).
(4) Program income may not be used to meet the non-Federal share
requirement under Sec. 361.60.
(Authority: Section 108 of the Act; 29 U.S.C. 728; 34 CFR 80.25)
Sec. 361.64 Obligation of Federal funds and program income.
(a) Except as provided in paragraph (b) of this section, any
Federal funds, including reallotted funds, that are appropriated for a
fiscal year to carry out a program under this part that are not
obligated by the State unit by the beginning of the succeeding fiscal
year and any program income received during a fiscal year that is not
obligated by the State unit by the beginning of the succeeding fiscal
year must remain available for obligation by the State unit during that
succeeding fiscal year.
(b) Federal funds appropriated for a fiscal year remain available
for obligation in the succeeding fiscal year only to the extent that
the State unit met the matching requirement for those Federal funds by
obligating, in accordance with 34 CFR 76.707, the non-Federal share in
the fiscal year for which the funds were appropriated.
(Authority: Section 19 of the Act; 29 U.S.C. 718)
Sec. 361.65 Allotment and payment of Federal funds for vocational
rehabilitation services.
(a) Allotment. (1) The allotment of Federal funds for vocational
rehabilitation services for each State is computed in accordance with
the requirements of section 110 of the Act, and payments are made to
the State on a quarterly basis, unless some other period is established
by the Secretary.
(2) If the State plan designates one State agency to administer, or
supervise the administration of, the part of the plan under which
vocational rehabilitation services are provided for individuals who are
blind and another State agency to administer the rest of the plan, the
division of the State's allotment is a matter for State determination.
(b) Reallotment. (1) The Secretary determines not later than 45
days before the end of a fiscal year which States, if any, will not use
their full allotment.
(2) As soon as possible, but not later than the end of the fiscal
year, the Secretary reallots these funds to other States that can use
those additional funds during the current or subsequent fiscal year,
provided the State can meet the matching requirement by obligating the
non-Federal share of any reallotted funds in the fiscal year for which
the funds were appropriated.
(3) Funds reallotted to another State are considered to be an
increase in the recipient State's allotment for the fiscal year for
which the funds were appropriated.
(Authority: Sections 110 and 111 of the Act; 29 U.S.C. 730 and 731)
Subpart D--Strategic Plan for Innovation and Expansion of
Vocational Rehabilitation Services
Sec. 361.70 Purpose of the strategic plan.
The State shall prepare a statewide strategic plan, in accordance
with Sec. 361.71, to develop and use innovative approaches for
achieving long-term success in expanding and improving vocational
rehabilitation services, including supported employment services,
provided under the State plan, including the supported employment
supplement to the State plan required under 34 CFR part 363.
(Authority: Section 120 of the Act; 29 U.S.C. 740)
Sec. 361.71 Procedures for developing the strategic plan.
(a) Public input. (1) The State unit shall meet with and receive
recommendations from members of the State Rehabilitation Advisory
Council, if the State has a Council, and the Statewide Independent
Living Council prior to developing the strategic plan.
(2) The State unit shall solicit public input on the strategic plan
prior to or at the public meetings on the State plan, in accordance
with the requirements of Sec. 361.20.
(3) The State unit shall consider the recommendations received
under paragraphs (a)(1) and (a)(2) of this section and, if the State
rejects any recommendations, shall include a written explanation of the
reasons for those rejections in the strategic plan.
(4) The State unit shall develop a procedure to ensure ongoing
comment from the Council or Councils, if applicable, as the plan is
being implemented.
(b) Duration. The strategic plan must cover a three-year period.
(c) Revisions. The State unit shall revise the strategic plan on an
annual basis to reflect the unit's actual experience over the previous
year and input from the State Rehabilitation Advisory Council, if the
State has a Council, individuals with disabilities, and other
interested parties.
(d) Dissemination. The State unit shall disseminate widely the
strategic plan to individuals with disabilities, disability
organizations, rehabilitation professionals, and other interested
persons and shall make the strategic plan available in accessible
formats and appropriate modes of communication.
(Authority: Section 122 of the Act; 29 U.S.C. 742)
Sec. 361.72 Content of the strategic plan.
The strategic plan must include--
(a) A statement of the mission, philosophy, values, and principles
of the vocational rehabilitation program in the State;
(b) Specific goals and objectives for expanding and improving the
system for providing vocational rehabilitation services;
(c) Specific multi-faceted and systemic approaches for
accomplishing the objectives, including interagency coordination and
cooperation, that build upon state-of-the-art practices and research
findings and that implement the State plan and the supplement to the
State plan submitted under 34 CFR part 363;
(d) A description of the specific programs, projects, and
activities funded under this subpart, including how the programs,
projects, and activities accomplish the objectives of the subpart, and
the resource allocation and budget for the programs, projects, and
activities; and
(e) Specific criteria for determining whether the objectives have
been achieved, including an assurance that the State will conduct an
annual evaluation to determine the extent to which the objectives have
been achieved and, if specific objectives have not been achieved, the
reasons that the objectives have not been achieved and a description of
alternative approaches that will be taken.
[[Page 64524]]
(Authority: Section 121 of the Act; 29 U.S.C. 741)
Sec. 361.73 Use of funds.
(a) A State unit shall use all grant funds received under Title I,
Part C of the Act to carry out programs and activities that are
identified under the State's strategic plan, including but not limited
to those programs and activities that are identified in paragraph (b)
of this section.
(b) A State unit shall use at least 1.5 percent of the funds
received under section 111 of the Act to carry out one or more of the
following types of programs and activities that are identified in the
State's strategic plan:
(1) Programs to initiate or expand employment opportunities for
individuals with severe disabilities in integrated settings that allow
for the use of on-the-job training to promote the objectives of Title I
of the Americans with Disabilities Act of 1990.
(2) Programs or activities to improve or expand the provision of
employment services in integrated settings to individuals with sensory,
cognitive, physical, and mental impairments who traditionally have not
been served by the State vocational rehabilitation agency.
(3) Programs or activities to maximize the ability of individuals
with disabilities to use rehabilitation technology in employment
settings.
(4) Programs or activities that assist employers in accommodating,
evaluating, training, or placing individuals with disabilities in the
workplace of the employer consistent with the provisions of the Act and
Title I of the Americans with Disabilities Act of 1990. These programs
or activities may include short-term technical assistance or other
effective strategies.
(5) Programs or activities that expand and improve the extent and
type of an individual's involvement in the review and selection of his
or her training and employment goals.
(6) Programs or activities that expand and improve opportunities
for career advancement for individuals with severe disabilities.
(7) Programs, projects, or activities designed to initiate, expand,
or improve working relationships between vocational rehabilitation
services provided under Title I of the Act and independent living
services provided under Title VII of the Act.
(8) Programs, projects, or activities designed to improve
functioning of the system for delivering vocational rehabilitation
services and to improve coordination and working relationships with
other State agencies and local public agencies, business, industry,
labor, community rehabilitation programs, and centers for independent
living, including projects designed to--
(i) Increase the ease of access to, timeliness of, and quality of
vocational rehabilitation services through the development and
implementation of policies, procedures, systems, and interagency
mechanisms for providing vocational rehabilitation services;
(ii) Improve the working relationships between State vocational
rehabilitation agencies and other State agencies, centers for
independent living, community rehabilitation programs, educational
agencies involved in higher education, adult basic education, and
continuing education, and businesses, industry, and labor
organizations, in order to create and facilitate cooperation in--
(A) Planning and implementing services; and
(B) Developing an integrated system of community-based vocational
rehabilitation services that includes appropriate transitions between
service systems; and
(iii) Improve the ability of professionals, advocates, business,
industry, labor, and individuals with disabilities to work in
cooperative partnerships to improve the quality of vocational
rehabilitation services and job and career opportunities for
individuals with disabilities.
(9) Projects or activities that ensure that the annual evaluation
of the effectiveness of the program in meeting the goals and objectives
in the State plan, including the system for evaluating the performance
of rehabilitation counselors, coordinators, and other personnel used in
the State, facilitates and does not impede the accomplishment of the
purpose of this part, including serving individuals with the most
severe disabilities.
(10) Projects or activities to support the initiation, expansion,
and improvement of a comprehensive system of personnel development.
(11) Programs, projects, or activities to support the provision of
training and technical assistance to individuals with disabilities,
business, industry, labor, community rehabilitation programs, and
others regarding the implementation of the Rehabilitation Act
Amendments of 1992, of Title V of the Act, and of the Americans with
Disabilities Act of 1990.
(12) Projects or activities to support the funding of the State
Rehabilitation Advisory Council and the Statewide Independent Living
Council.
(Authority: Sections 101(a)(34)(B) and 123 of the Act; 29 U.S.C.
721(a)(34)(B) and 743)
Sec. 361.74 Allotment of Federal funds.
(a) The allotment and any reallotment of Federal funds under Title
I, Part C of the Act are computed in accordance with the requirements
of section 124 of the Act.
(b) If at any time the Secretary determines that any amount will
not be expended by a State in carrying out the purpose of this subpart,
the Secretary makes that amount available to one or more other States
that the Secretary determines will be able to use additional amounts
during the fiscal year. Any amount made available to any State under
this paragraph of this section is regarded as an increase in the
State's allotment for that fiscal year.
(Authority: Section 124 of the Act; 29 U.S.C. 744)
[FR Doc. 95-30344 Filed 12-14-95; 8:45 am]
BILLING CODE 4000-01-P
Complete official Federal Register PDF
FR Doc. 95-30327 Business Loan Programs
[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Proposed Rules]
[Pages 64356-64401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30327]
========================================================================
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. 241 / Friday, December 15, 1995 /
Proposed Rules
[[Page 64356]]
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 108, 116, 120, 122, 131
Business Loan Programs
AGENCY: Small Business Administration (SBA).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: In response to President Clinton's government-wide regulatory
review directive, SBA has completed a page-by-page and line-by-line
review of all of its existing regulations. SBA determined that it could
eliminate some regulations and consolidate, clarify, and simplify the
remainder. This proposed rule consolidates five current CFR parts into
one Part to be known as Part 120. The surviving Part 120 covers
virtually all policies and regulations, other than size standards,
applicable to SBA's business (non-disaster) loan programs. Almost all
provisions have been reworded, renumbered, and relocated. There are a
few new or revised policies. Several sections have been deleted.
However, most of the revisions merely streamline and clarify the
regulations and do not represent substantive change.
DATES: Comments must be submitted on or before January 16, 1996.
ADDRESSES: Address written comments to David R. Kohler, Associate
General Counsel for General Law, (120) Small Business Administration,
409 3rd Street S.W., Washington, D.C. 20416.
FOR FURTHER INFORMATION CONTACT: Ronald Matzner, Associate Deputy
General Counsel; Office of General Counsel, at (202) 205-6882.
SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton directed
all federal agencies to conduct a page-by-page, line-by-line review of
their existing regulations to determine which could be eliminated or
streamlined. The President's directive complemented SBA's ongoing
reinvention effort, which had already targeted portions of the business
loan programs for streamlining and simplification. From its review of
its business loan programs, SBA is proposing to eliminate many pages of
business loan regulations and consolidate and simplify the remainder.
The proposed rule combines Parts 108, 116, 120, 122 and 131 of 13
CFR into one new Part to be known as Part 120. The new Part 120 will
regulate all of SBA's non-disaster financial assistance to small
businesses under its general business loan program (``7(a) loans''),
its microloan demonstration program (``Microloans''), and its
development company program (``504 loans'').
Many repetitive and overlapping sections from the current
regulations will be eliminated. The remaining provisions will be easy
to find and easy to understand. Formerly, provisions applicable to a
business loan program were often located in different Parts. Sometimes
unintended differences developed between the loan programs in the
interpretation or implementation of similar program policies because of
minor inconsistencies in the language of the provisions in the several
Parts. These inconsistencies have been eliminated.
In the proposed rule, the basic requirements that apply to all of
the business loan programs are located in subpart A. These include
elements currently found in portions of Parts 108, 116, and 120.
Policies specific to a particular program are in the separate subpart
applying to that program. Rules specific to 7(a) loans will be in
subpart B and include elements currently in portions of Parts 116, 120,
and 122. Regulations applying to SBA's special purpose loans currently
in Part 122 and a portion of Part 116 will be in subpart C. Subparts D,
E, and F will contain rules regarding lenders, program administration,
and the secondary market currently found primarily in Part 120. The
loan moratorium provisions presently in Part 131 will also be in
subpart E. Subpart G will contain rules specific to Microloans
currently in Part 122. Finally, regulations applying only to 504 loans
currently located in Part 108 will be in subpart H. The following chart
summarizes the proposed rule:
------------------------------------------------------------------------
Subpart Subject matter covered Section numbers
------------------------------------------------------------------------
Introduction............ Overview of Part 120; 120.1 to 120.99.
definitions.
A....................... Policies applicable to 120.100 to 120.199.
all business loans.
B....................... Loanmaking policy 120.200 to 120.299.
specific to
Guarantees and Direct
7(a) Loans.
C....................... Special Purpose Loans. 120.300 to 120.399.
D....................... Lenders............... 120.400 to 120.499.
E....................... Loan Administration... 120.500 to 120.599.
F....................... Secondary Market...... 120.600 to 120.699.
G....................... Microloan 120.700 to 120.799.
Demonstration Program.
H....................... Development Company 120.800 to 120.899.
Loan Program (504).
------------------------------------------------------------------------
The most noticeable change in the proposed regulation is in the
format. The rule is written in a ``user-friendly'', ``plain-language''
style. Provisions have been grouped in logical sequences. Descriptive
headings make it easier to find sections. Hyphenated section numbers
are no longer used. Questions and answers are sometimes used. Wherever
possible, ordinary language is used instead of ``government-speak''.
SBA's intent was to write regulations that provide easy-to-
comprehend notice of the general content of a policy, rather than
detailed information explaining or expounding upon that policy. Much
explanatory material currently in the regulations and used primarily by
SBA personnel to implement SBA's programs has been eliminated from the
proposed rule, but is available to the public and may be found in SBA
policy guidances, Standard Operating Procedures (``SOPs''), and other
SBA materials.
Most of the revisions do not represent policy changes. In many
cases, the wording of the regulation has been changed to conform to
actual conduct. Although SBA is not aware of any instances, SBA
requests comments regarding any inadvertent substantive changes which
may have been caused by rewording and format changes.
[[Page 64357]]
There are a few substantial policy changes in the proposed rule,
however. For example, the ``alter ego'' rule has been completely
revised making more Passive Companies eligible for financial
assistance, and new provisions are being proposed allowing Certified
Development Companies (``CDCs'') to expand into other areas not being
adequately serviced by the existing CDCs in those areas. These and
other substantive policies are explained in detail below in the section
by section analysis.
Comments to this proposed rule are invited, including suggestions
for further clarification and streamlining. Send them to the person and
address noted above, within the time specified.
Each subpart is addressed separately below. Conversion tables are
provided detailing all deletions, consolidations, relocations, and
policy changes. Immediately below is a chart showing the location of
surviving material by Parts.
------------------------------------------------------------------------
Former part New section
# Subject matter New 120 subpart number(s)
------------------------------------------------------------------------
108........ Development Company H................... 120.800-899
Loans.
116........ Subpart A--Veterans. N/A................. 120.104
116........ Subpart B--Flood N/A................. 120.170
Insurance.
116........ Subpart C--Lead- N/A................. 120.173
based Paint.
116........ Subpart D-- N/A................. 120.172
Floodplain
Management and
Woodlands
Protection.
116........ Subpart E--Coastal N/A................. 120.175
Barrier Resources
Act.
120........ Subpart--General; Dispersed in Intro., 120.1
Subpart A--Loan- Subpart A, Subpart
Making Policy. B..
120........ Subpart B--Loan Subpart E........... 120.500-599
Administration.
120........ Subpart C--Loan Subpart D........... ...............
Participants.
120........ Subpart D........... Subpart D........... ...............
120........ Subpart E........... Subpart D........... ...............
120........ Subpart F........... Subpart F........... ...............
120........ Subpart G........... Subpart F........... ...............
122........ Subpart A--General Dispersed in ...............
Provisions. Introduction,
Subpart A, Subpart
B.
122........ Subpart B--Special Subpart C........... ...............
Purpose Loans.
131........ Loan Moratorium..... Subpart E........... 120.532-536
------------------------------------------------------------------------
Definitions applicable to all business loans are located in
Sec. 120.10, combining separate definitions previously in Parts 108 and
120. Nearly all have been reworded. Some definitions have been added,
and some have been eliminated because they were redundant or were
incorporated into the text. Of particular note is the definition of
``Associate,'' which was broadened. Conversely, the definition of
``close relative'' was limited to the closest family relationship. The
net effect of the changes is to pinpoint more effectively the
individuals subject to the ethical requirements and conflict of
interest prohibitions of the regulations. Terms which are defined in
the proposed rule are capitalized in this preamble for consistency. In
addition, references to SBA Regional offices and officers have been
eliminated and usually, but not always, replaced with a reference to
District Director because of SBA's recent restructuring.
A detailed listing of changes specific to each subpart follows.
120 Subpart A and B--General Loan Policy and Guaranteed and Direct 7(a)
Loans
The following is a conversion table for Subparts A and B:
----------------------------------------------------------------------------------------------------------------
Action(s) (Note: all Extent of policy change,
Former section number New part 120 number sections were renumbered if any; comments on
for loan provisions and moved, or deleted) action(s)
----------------------------------------------------------------------------------------------------------------
116.1-116.3....................... 120.104.............. Revised; Subpart was Minor policy change;
split; provisions moved explanatory material and
to program Parts. definitions will be in
SOP or other policy
material.
116.10-116.12..................... 120.170.............. Revised; provisions No policy change;
condensed. explanatory material
will be in SOP or other
policy material.
116.20-116.23..................... 120.173.............. Revised; provisions No policy change;
condensed. explanatory material
will be in SOP or other
policy material.
116.30-116.35..................... 120.172.............. Revised; provisions No policy change;
condensed. explanatory material
will be in SOP or other
policy material.
116.40-116.41..................... 120.175.............. Revised; provisions No policy change.
condensed.
116 Appendix A.................... N/A.................. Deleted................... No policy change.
Material no longer
needed.
116 Appendix B.................... N/A.................. Deleted................... No policy change.
Material no longer
needed.
120.1-1........................... 120.1................ Revised; some deletion; No policy change. Some
material moved. explanatory material no
longer valid.
120.1-2........................... 120.4................ Revised................... No policy change.
120.1-3........................... 120.180.............. Revised................... No policy change.
120.1-4........................... N/A.................. Deleted. Unnecessary...... No policy change.
120.2............................. 120.10............... Rewritten................. No policy change. New
definitions are added;
an owner is now
considered an
``Associate.''
120.2-1........................... 120.1................ Rewritten................. No policy change.
120.2-2........................... 120.10............... Revised................... See Policy Note above.
120.2-3........................... N/A.................. Deleted................... No policy change.
Definition will no
longer be used.
[[Page 64358]]
120.2-4........................... 120.10............... Revised................... Minor policy change. This
definition has been
dropped, but sub-
definitions were
modified and included
elsewhere.
120.2-5........................... 120.10............... Revised................... Minor policy change.
Definition of Lending
Institution was dropped.
120.2-6........................... 120.10............... Revised................... Minor policy change. Both
definitions were
dropped.
120.2-7........................... N/A.................. Deleted................... Minor policy change.
Definition was dropped,
as no longer used.
120.2-8........................... 120.470.............. Rewritten................. No policy change.
120.3-1........................... 120.2................ Rewritten................. No policy change.
120.3-2........................... 120.2(a)............. Rewritten................. No policy change.
120.3-3........................... 120.2................ Rewritten................. No policy change.
120.3-4........................... 120.101.............. Consolidated with 120.103- No policy change.
1.
120.100........................... N/A.................. Deleted................... No policy change. Section
not needed.
120.101-1(a)...................... 120.100(d)........... Rewritten................. No policy change.
120.101-1(b)...................... 120.103.............. Rewritten................. No policy change.
120.101-1(c)...................... 120.110(j)........... Revised................... No policy change. Section
now combined with
another.
120.101-2......................... 120.110.............. Revised................... No policy change.
120.101-2(a)...................... 120.110(k)........... Revised................... Clarifies policy
regarding promotion of
religion. See Note 1,
below.
120.101-2(b)...................... 120.110(g)........... Revised................... No policy change.
explanatory material
will be in SOP or other
policy material.
120.101-2(c)...................... 120.110(h)........... Revised................... No policy change.
Needless wording was
deleted.
120.101-2(d)...................... 120.110(b)(c), Revised; new rule included Major policy changes. See
120.111. Note 2, below.
120.101-2(d) (1) through (7)...... 120.111.............. Revised; New Rule......... Major policy changes. See
Note 2, below.
120.101-2(d)...................... 120.110(g)........... Revised................... No policy change.
120.101-2(f)...................... 120.110(f)........... Rewritten................. No policy change.
120.101-2(g)...................... 120.110(m)........... Revised................... No policy change.
120.102........................... 120.120.............. Revised................... No policy change.
120.102-1......................... 120.130(f), 120.201.. Revised................... No policy change.
120.102-2......................... 120.207, 120.130(d).. Revised................... No policy change.
120.102-3......................... 120.130(a)........... Revised................... No policy change.
120.102-4......................... 120.104, 120.130(b).. Revised................... No policy change.
120.102-4(a)...................... 120.104.............. Revised................... No policy change.
120.102-4(b)...................... 120.104.............. Revised................... No policy change.
120.102-5......................... 120.130(c)........... Revised................... No policy change.
120.102-6......................... 120.202.............. Revised................... No policy change. Wording
changed to reflect
agency policy.
120.102-7......................... 120.110(i)........... Revised................... Minor policy change. See
Note 3 below.
120.102-8......................... 120.130, 120.130(e).. Revised................... No policy change.
120.102-9......................... None................. Deleted................... Minor policy change.
Provision was not used.
120.102-10, 120.102-10 (a)-(f).... 120.140, 120.110(o).. Revised; new Rule......... Major policy change. See
Note 4 below.
120.102-11........................ 120.130.............. Revised................... Minor new policy. 180-day
parameter added.
120.102-12 (a)-(d)................ 120.110(q)........... Revised................... Minor policy change. See
Note 5 below.
120.103-1(a), 120.103-1(b)........ 120.101, 120.102..... Rewritten................. Major policy change. See
Note 6 below.
120.103-2......................... 120.150.............. Revised................... No policy change.
120.103-2(a)...................... 120.150.............. Revised................... No policy change.
120.103-2(b)...................... 120.150(f)........... Rewritten................. No policy change.
120.103-2(c)...................... 120.160(a), 120.201.. Revised................... Minor policy change or
clarification. See Note
7 below.
120.103-2(d)...................... 120.160(b)........... Revised................... No policy change.
120.103-2(e)...................... 120.160(c), 120.170.. Revised................... No policy change. Though
not now specifically
mentioned in the
regulation, life
insurance may still be
required as part of
prudent lending.
120.103-2(f)...................... 120.170, 120.172-73, Revised................... No policy change.
120.175-76.
120.103-2(g)...................... 120.160(d)........... Revised................... Minor policy change--
depository plan no
longer required.
120.103-2(h)...................... 120.200.............. Revised................... No policy change.
120.103-3 (a)-(e)................. 120.193.............. Revised................... No policy change.
120.104-1 (a)-(e)................. 120.220.............. Rewritten................. No policy change.
120.104-1(f)...................... N/A.................. Deleted................... Eliminated from statute.
120.104-2(a)(1)................... N/A.................. Deleted................... No policy change; policy
will now be contained in
SOP or other policy
guidance.
[[Page 64359]]
120.104-2(a)(2)................... N/A.................. Deleted................... Major policy change;
deleted from the Act.
120.104-2(a)(3)................... N/A.................. Deleted................... Provision eliminated by
statute (and had never
been implemented by
SBA).
120.104-2(b)...................... 120.221(e)(f)........ Rewritten................. No policy change.
120.104-2(c)...................... 120.221(b)........... Rewritten................. No policy change.
120.104-2(d)...................... 120.222.............. Revised................... No policy change.
120.104-2(e)(1)................... 120.222.............. Revised................... No policy change.
120.104-2(e)(2)................... 120.221(a)........... Revised................... No policy change.
120.104-2(e)(3)................... 120.223(a), Revised................... No policy change.
120.222(e),
120.221(d).
120.104-2(e)(4)................... 120.222(c)........... Rewritten................. No policy change.
120.104-2(f)...................... 120.195.............. Rewritten................. No policy change--
Clarified that does
apply to 504 loans. See
Note 8.
120.105........................... 120.176.............. Rewritten; consolidated... No policy change. Note
that recent regulatory
additions appear in
120.171 and 174. More
guidance can be found in
SOP.
120 Appendix A.................... N/A.................. Deleted................... No policy change. Terms
of the agreement are in
effect. Agreement will
appear in SOP or other
policy material.
122.1............................. 120.1................ Combined.................. No policy change.
122.2............................. N/A.................. Deleted................... No policy change.
122.3-1........................... 120.180.............. Consolidated.............. No policy change.
122.3-2........................... N/A.................. Deleted................... No policy change.
122.4............................. 120.176.............. Consolidated.............. No policy change.
122.5-1........................... 120.101.............. Revised; combined......... No policy change.
122.5-2........................... 120.191.............. Revised................... No policy change.
122.5-3........................... 120.101, 120.190(d).. Consolidated; rewritten... No policy change.
122.5-4........................... 120.192.............. Rewritten................. No policy change.
122.5-5........................... 120.192 (definition.) Revised................... No policy change.
122.6-1(a)(b)..................... 120.212.............. Revised................... No policy change.
122.6-2........................... 120.530.............. Moved; revised............ No policy change.
122.6-3, Part 131................. 120.532-535.......... Moved; combined; revised.. No policy change.
122.7............................. 120.151.............. Rewritten................. No policy change.
122.7-1........................... 120.211(a)(b)........ Revised................... No policy change.
122.7-2........................... 120.211(c)........... Rewritten................. Reference to District
Director's authority to
make exceptions will be
in SOP.
122.7-3........................... 120.151.............. Rewritten................. No policy change.
122.7-3(a)........................ 120.210(a)........... Revised................... Minor policy change;
increase approval will
be by AA/FA.
122.7-3(b)........................ 120.210(b)........... Revised................... No policy change.
122.7-3(c)........................ 120.210(c)........... Revised................... No policy change.
122.8-1........................... 120.213(b)........... Revised................... No policy change.
122.8-2........................... 120.213(b)........... Revised................... No policy change.
122.8-3........................... 120.213(a)........... Revised................... No policy change.
122.8-4........................... 120.214.............. Rewritten................. No policy change.
122.8-4(a)........................ 120.214(a)........... Rewritten................. No policy change.
122.8-4(b)........................ 120.214(a)........... Rewritten................. No policy change.
122.8-4(c)........................ 120.214(b)........... Revised................... Clarifies that movement
in amount of loan must
equal movement in base
rate.
122.8-4(d)....................... 120.214(c)........... Moved..................... No policy change.
122.8-4(e)........................ 120.214(d)........... Moved..................... No policy change.
122.8-4(f)........................ 120.214(e)........... Moved..................... No policy change.
122.8-4(g)........................ 120.214(f)........... Rewritten................. No policy change.
122.8-4(h)........................ 120.214(g)........... Revised................... No policy change.
----------------------------------------------------------------------------------------------------------------
The following chart lists additions to Part 120:
------------------------------------------------------------------------
Section number Subject matter covered
------------------------------------------------------------------------
120.110(r)................................ Prohibition for businesses
engaged in political and
lobbying activities.
120.110(o)................................ Prohibition for businesses
engaged in pornographic or
sexually-oriented (non-
medical) activities. See
Note 1 below.
120.171................................... Compliance with Child
Support Obligations as a
condition of an SBA loan.
120.174................................... Earthquake hazards notice.
120.190................................... Where a business applies for
a loan.
120.193................................... Use of computer generated
forms.
------------------------------------------------------------------------
Note 1. SBA often receives eligibility questions from Borrowers
and Lenders. In the proposed rule, SBA has attempted to delineate
clearly and succinctly the businesses that are ineligible for SBA
financial assistance. In particular, SBA field offices, loan
applicants, Lenders, development corporations and other SBA
intermediaries have requested guidance concerning the eligibility of
businesses which may be engaged in religious activities. After
consulting with the Department of Justice, SBA proposes to provide
such guidance through these new regulations.
The present regulation states that churches and religious
organizations are ineligible for SBA financial assistance. It does
not specify
[[Page 64360]]
whether the prohibition extends to businesses principally engaged in
promoting religion through their activities. Nonetheless, such
businesses in the past have been found to be ineligible.
SBA's primary focus is to provide financial assistance to for-
profit small businesses that can contribute to job growth and
economic development in the United States. Within the limits set by
the Establishment Clause of the Constitution, SBA does not
disqualify otherwise eligible small businesses from receiving
financial assistance merely because they offer religious books,
articles, or other products for sale or because they support or
encourage moral and ethical values based upon religious beliefs. At
the same time, SBA does not make financial assistance available to
religious entities or their affiliates for use in directly promoting
or teaching religion.
The Establishment Clause of the First Amendment, which states
``Congress shall make no law respecting an establishment of
religion,'' serves as a limitation on governmental activities with
regard to religion. The Establishment Clause primarily proscribes
``sponsorship, financial support, and active involvement of the
sovereign in religious activity.'' Walz v. Tax Commission, 397 U.S.
664, 668 (1970). ``Neither a state nor the Federal Government * * *
can pass laws which aid one religion, aid all religions, or prefer
one religion over another * * * No tax in any amount, large or
small, can be levied to support any religious activities or
institutions, whatever they may be called, or whatever form they may
adopt to teach or practice religion.'' Everson v. Bd. of Educ., 330
U.S. 1, 15-16 (1947); see also Grand Rapids School Dist. v. Ball,
473 U.S. 373, 381 (1985) (quoting this language); McCollum v. Bd. of
Educ., 333 U.S. 203, 210 (1948) (same).
Under the proposed rule, SBA would not provide financial
assistance to businesses principally engaged in teaching,
instructing, counseling, or indoctrinating religion or religious
beliefs. While incidental or indirect support of religious
objectives might be permissible, SBA would not provide financial
assistance to a newspaper, broadcasting business, day care center,
or private school principally engaged in such activities.
Some of the more difficult eligibility inquiries received by SBA
field offices have involved businesses which engage in activities in
a secular setting which may be considered to be religious in nature.
The U.S. Supreme Court has held that aid used to fund specifically
religious activities in an otherwise substantially secular setting,
has the primary effect of advancing religion, and therefore violates
the Establishment Clause. Hunt v. McNair, 413 U.S. 734 (1973); Bowen
v. Kendrick, 487 U.S. 589, 613 (1988). The facts of each situation
must be carefully examined. With the above Supreme Court standard in
mind, SBA proposes to include among ineligible businesses those
principally engaged in teaching, instructing, counseling or
indoctrinating religion or religious beliefs, whether the setting is
religious or secular, because, in SBA's view, financial assistance
to such small businesses would violate the Establishment Clause.
SBA field office personnel and others also have sought guidance
on the eligibility of small businesses which sell sexually oriented
products or services, or engage in sexually oriented activities. The
present regulation is silent regarding obscene, pornographic, or
sexually oriented activities. A business engaging in any such
activity that is illegal is ineligible under Sec. 120.110(h) of this
regulation. However, SBA receives inquiries regarding businesses
engaged in activities which, while not illegal, may be considered by
the average person to be obscene or pornographic.
``Obscene'' material is not protected by the First Amendment. It
has been defined by the United States Supreme Court in the context
of a criminal case, Miller v. California, 413 U.S. 15, 24 (1973), as
follows: ``* * * whether a work which depicts or describes sexual
conduct is obscene is [determined by] whether the average person,
applying contemporary community standards, would find that the work,
taken as a whole, appeals to the prurient interest, whether the work
depicts or describes, in a patently offensive way, sexual conduct
specifically defined by the applicable state law, and whether the
work, taken as a whole, lacks serious literary, artistic, political,
or scientific value.''
Under Supreme Court precedent, ``[w]hen the government
appropriates funds to establish a program, it is entitled to define
the limits of that program.'' Rust v. Sullivan, 114 L.Ed.2d 233, 256
(1991). In implementing its programs, SBA must also follow the
Congressional mandate set forth in Section 4(d) of the Small
Business Act (15 U.S.C. 633(d)) (``the Act'') to consider the public
interest in granting or denying an application for SBA financial
assistance.
Having considered the legal precedent and the Congressional
mandate, SBA has determined that it may exclude small businesses
engaging in lawful activities of an obscene, pornographic, or
prurient sexual nature. Under the proposed rule, SBA would not
provide financial assistance to small businesses which present live
performances of a prurient sexual nature or which derive significant
gross revenue from the sale, on a regular basis, of products or
services, or the presentation of depictions or displays, of a
pornographic, obscene, or prurient sexual nature. Thus, an
establishment featuring nude dancing, or a book, magazine or video
store containing merchandise of a prurient sexual nature would not
be eligible for SBA financial assistance if the obscene,
pornographic, or prurient activity contributed to the generation of
a significant portion of the gross revenue of the business.
SBA considers this proposed rule to be consistent with its
obligation to direct its limited resources and financial assistance
to small businesses in ways which will best accomplish SBA's
mission, serve its constituency, and serve the public interest.
Applicants' First Amendment freedoms are in no way abridged. They
may still express their views, exercise their freedoms, operate
their businesses, and obtain any other aid available to them.
SBA is considering the use of a percentage of gross revenue
instead of ``significant'' in the final formulation of this rule and
requests commenters to focus particularly on the relative merits of
the two approaches and what percentage would be appropriate.
Note 2. The proposed regulation establishes a new ``Eligible
Passive Company'' rule replacing the current ``alter ego'' rule. The
new rule will be found at Sec. 120.111. An ``Eligible Passive
Company'' is defined as an entity which does not engage in regular
and continuous business activity, which leases real or personal
property to an Operating Company for use in the Operating Company's
operations. SBA generally makes business loans only to small
businesses engaged in regular business activities, and prohibits
such assistance to entities engaged in passive investment or real
estate development, or which do not engage in regular and continuous
activity as an operating business. SBA calls such entities ``passive
businesses.'' At the same time, SBA recognizes that valid business
reasons may exist for an Operating Company not to own the real
estate and fixed assets used to conduct its business. This proposed
rule would allow certain passive businesses to be eligible for SBA
assistance if that assistance is used only to acquire and/or improve
real or personal property leased to a small business and is used in
that small business' operations. The proposed rule would eliminate
certain requirements and restrictions which presently limit the use
of real estate holding entities in SBA's business-loan and
development company programs.
For purposes of these regulations, an Operating Company is
defined in section 120.100 as a small business actively currently
involved in conducting business operations or about to be located on
real property owned by an Eligible Passive Company, or using or
about to use in its business operations, personal property owned by
an Eligible Passive Company.
Many years ago, SBA agreed to assist eligible Operating
Companies seeking SBA financial assistance through their affiliated
``mirror image'' passive businesses by creating an exception for
such ``alter egos''. Subsequent modifications to the mirror image
requirement permitted variations in ownership percentages between
the operating business and the alter ego for immediate family
members. Such variances led to conflicting interpretations of the
policy, which have frustrated its original intent and confused both
the public and SBA personnel. Such variances limited the
effectiveness of the intended assistance. In addition, the variances
caused inconsistencies between the 7(a) loan program and the
development company loan program.
On February 22, 1994, SBA published (59 FR 8425) a proposed rule
(``1994 proposal'') to eliminate the conflicting interpretations and
inconsistencies and to revise the family member common ownership
threshold to extend the alter ego exception to additional passive
businesses. SBA received more than twenty detailed comments
suggesting changes in the proposal. It also has received many other
suggestions and recommendations from small business owners,
development companies, lending institutions and SBA employees at
regulatory partnership meetings and other outreach activities
conducted by SBA. After considering these comments and suggestions,
SBA has revised its thinking sufficiently to
[[Page 64361]]
warrant publication of this new proposed rule, included here as an
integral part of SBA's overall regulatory streamlining.
In its 1994 proposal, SBA suggested reducing the common
ownership threshold for any passive business and Operating Company
to 20 percent. Most of the comments suggested that, as an exception
to a ``mirror image'' requirement, a 20 percent threshold was
insufficient to support a nexus between a passive business and an
Operating Company. Some suggested that the nexus be increased to 50
percent, others to 80 percent. However, others suggested that SBA
eliminate the ``mirror image'' rule altogether. After carefully
considering all of the options, the goals and the objectives of
SBA's loan programs, SBA proposes to eliminate the present alter ego
rule, and allow such a loan whenever it essentially represents
financial assistance to an Operating Company.
Many small businesses utilize separate entities to hold the real
estate or leasehold improvements used in the operation of their
businesses. SBA now believes that an Eligible Passive Company,
without regard to its ownership interests, should be an eligible
entity for SBA financial assistance if it only uses such assistance
to acquire and/or improve real or personal property which it leases
to an Operating Company for the conduct of its operations.
SBA's new proposed ``Eligible Passive Company'' rule recognizes
that an Eligible Passive Company may be an individual, sole
proprietorship, corporation, limited liability company, an
irrevocable trust or any form of partnership. Under the current
rule, trust ownership of any part of an Eligible Passive Company is
prohibited in the SBA business loan program. The development company
program permits the use of trusts as eligible owners. In this
proposed rule (as in its 1994 proposal), SBA proposes to eliminate
the inconsistency between the 7(a) loan program and the development
company loan program. SBA believes that there is no reason to
prohibit a small business concern using the SBA's business loan
programs from taking advantage of the tax and planning benefits
which may be inherent in the use of an irrevocable trust. Trust
eligibility shall be determined by the eligibility status of the
trustor (grantor/settlor), with all donors to the trust being
presumed conclusively to have trustor status for eligibility
purposes.
SBA welcomes comments on whether use of a revocable trust should
also be permitted. While this would give Borrowers greater planning
flexibility, the trustor's reserved authority to amend the trust
might lead to fronts or other abuses. Under this proposed rule, an
Operating Company must be an eligible small business under SBA's
standards, and the proposed use of proceeds by the Eligible Passive
Company would have to be an eligible use if the Operating Company
were obtaining the financing directly. This ensures that the
Eligible Passive Company will utilize SBA's financial assistance in
the same manner as an eligible small business. As suggested by
several comments on the 1994 proposal, both the Eligible Passive
Company and the Operating Company must meet SBA's size standards (13
CFR Part 121).
In response to other comments on the 1994 proposal, the new rule
clarifies that the lease between the Eligible Passive Company and
the Operating Company must be subordinated to SBA's security
interest, mortgage or trust deed lien and the Eligible Passive
Company (as landlord) must pledge as collateral an assignment of
rents derived from the lease. The requirement for an assignment of
the lease has been eliminated, but an assignment may be required by
SBA when necessary to perfect a lien under applicable law.
Several comments urged SBA not to require the Operating Company
to be a co-Borrower on a loan to an Eligible Passive Company,
suggesting that legitimate tax and business reasons exist in many
cases for the Operating Company to be a guarantor instead of a co-
Borrower. Believing this to be a credit and business decision best
left to the discretion of SBA loan officers, the Borrower, and (in
the development company program) the development company, SBA has
provided that the Operating Company may be either a guarantor or a
co-Borrower in most cases. An exception is created for loans in the
7(a) loan programs in which working capital funding is included, in
which case the Operating Company must be a co-Borrower.
When an Operating Company applies for SBA loan assistance, each
20 percent or more ownership interest holder in the Operating
Company must guarantee the loan. Since the Operating Company will be
a co-Borrower or guarantor when an Eligible Passive Company is the
Borrower, the proposed rule would extend the same requirement to
ownership interests of both the Operating Company and the Eligible
Passive Company.
Several comments noted that it is common for an Operating
Company to need working capital when the Eligible Passive Company
applies for a loan primarily to finance the acquisition of real or
personal property. In the past, SBA has required the Eligible
Passive Company to use the loan proceeds solely to acquire and
improve property for lease to an Operating Company. Thus, two
separate SBA loans would be needed--one to the Eligible Passive
Company for the real property and the other to the Operating Company
for working capital. The commenters suggested that SBA permit
proceeds of a single loan to the Eligible Passive Company to be used
for working capital in the Operating Company. This proposed rule
adopts these suggestions for the 7(a) loan program, provided that
the Operating Company is a co-Borrower. The loan proceeds for
working capital would be allocated to the Operating Company, while
those for acquisition and improvement of property for lease to the
Operating Company would be allocated to the Eligible Passive
Business. Under this approach, small businesses would no longer
incur duplicate costs and would benefit by reduced paperwork and a
streamlined loan process.
Several comments noted that a trust, established to take
advantage of tax and planning benefits inherent in the trust form,
may have a need to engage in other activities. They argued that SBA
should not prohibit a trust which qualifies as an Eligible Passive
Company from engaging in activities other than the leasing of
property to the Operating Company. SBA agrees. Accordingly, under
this proposed rule, a trust qualifying as an Eligible Passive
Company may engage in other activities authorized under its trust
documents. The Trustee will need to certify to SBA (and provide
pertinent language from the trust document) that the Trustee has
authority to act, and that the trust has the authority to borrow
funds, pledge trust assets and lease the property to the Operating
Company. The Trustee also will need to provide SBA with a list of
all trustors and donors.
Note 3. To be eligible for SBA financial assistance, the
products and services of a business must be available to the general
public. Because the current rule refers only to recreational and
amusement enterprises, it is misleading and confusing, and is not
uniformly enforced by SBA field offices. The proposed rule clarifies
that private clubs and businesses that limit the number of members
for reasons other than capacity are ineligible for SBA financial
assistance.
Note 4. The current regulations have separate conflict-of-
interest sections for Lenders and development companies. SBA has re-
written and consolidated the sections. The prohibitions are clear
and consistent for all business loan program participants. The
proposed rule expands the categories of individuals subject to the
requirements and may encompass additional acts not specifically
enumerated.
Note 5. The prohibition against assisting a business which
previously has caused SBA to sustain a loss is currently stated
explicitly only in the 7(a) regulations, although it is applied in
all of SBA's business loan programs. Its inclusion in subpart A
clarifies that the policy applies to all business loans.
Considerable explanatory material currently in the 7(a) regulation
has been removed and will be placed in an SOP or other policy
guidance.
Note 6. SBA may provide financial assistance only if the
applicant shows that the desired credit is needed and not otherwise
available on reasonable terms. In Sec. 120.101, SBA clarifies its
present policy. The current provision, Sec. 120.103-1 uses the
language ``not otherwise available on reasonable terms'' without
indicating any factors which should be considered in determining
what is reasonable. Section 3(h) of the Act defines ``credit
elsewhere'' as the availability of credit from non-Federal sources
on reasonable terms and conditions taking into consideration the
prevailing rates and terms in the community in or near where the
concern transacts business, for similar purposes and periods of
time. SBA believes the language in section 3(h) clarifies the credit
elsewhere test and proposes to include the language in Sec. 120.101.
In addition, the current regulation provides that the certification
made by a Lender in its application for an SBA guarantee is
generally accepted as sufficient documentation that the desired
credit is unavailable to the applicant. In the proposed
Sec. 120.101, SBA clarifies and reaffirms its existing policy that
the Lender or CDC must have examined the availability of credit to
the applicant, have based its
[[Page 64362]]
certification upon that examination, and have documentation in its file
to support the certification.
In the 7(a) program, SBA often required applicant principals and
owners to use personal assets before granting financial assistance,
unless undue hardship would result. In the 504 program, SBA did not
enforce this policy and rarely required applicants to use their own
personal resources.
In this proposed rule, SBA clarifies that there is no difference
between the business loan programs regarding evidence of need. SBA
will consider the personal wealth and resources of the principals
and owners in determining an applicant's need for SBA financial
assistance in all business loan programs, and SBA may require the
principals and owners of the applicant to use their personal
resources before SBA will grant financial assistance.
Note 7. Current regulations require owners of 20 percent or more
of a business to guarantee an SBA loan. Under SBA's current SOP, SBA
may require owners of between 5 and 20 percent of a business to
guarantee a loan. Since the public is not always aware of its SOP,
SBA is including the latter policy in this proposed rule. Rather
than set an arbitrary lower limit of 5 percent (or any other
number), SBA proposes that the rule state that SBA may require
holders of interests of less than 20 percent of an applicant to
guarantee an SBA loan, when appropriate under prudent underwriting
criteria.
Note 8. The use of SBA Form 159 (Compensation Agreement) in the
504 program has been a subject of controversy for some time. The Act
requires 7(a) applicants to certify the names of and fees paid to
all professionals or other representatives engaged by the applicant
in connection with the SBA financial assistance. Current section
120.104-2(f) implements the statutory requirement. Title V of the
Small Business Investment Act, 15 U.S.C. 695 (``Title V'') does not
have a corresponding provision. Despite this, SBA, citing section
7(a)(13) of the Act, has generally extended the requirement to the
development company program. Current section 108.503-6(e) requires
the loan application submitted to SBA by a Certified Development
Company (CDC) to disclose the amount of all fees paid, the names of
the fee recipients, and a description of the services rendered. Most
SBA field offices require in 504 loan authorizations that Form 159
be submitted. Many Lenders in the 7(a) program and CDCs in the 504
Program contend that Form 159 has become a burden upon the
Borrowers, the Lenders and the CDCs. The 504 industry, in
particular, has asked SBA to eliminate the form.
President Clinton has directed Federal agencies to reduce the
paperwork burden upon the public whenever possible. However, this
requirement is contained in the Act. Therefore, SBA may not
eliminate the regulation with respect to the 7(a) program without a
statutory change. Congress has recently held hearings regarding the
disclosure of fees because of concern about the increased number of
investigations of fraud by applicant representatives. As a result,
SBA believes it is prudent to continue to require full disclosure of
all fees. Since SBA sees no reason to differentiate among the
various business loan programs regarding this issue, SBA is
proposing in this Rule to maintain the requirement for all business
loans until such time that Congress revisits the issue.
120 Subpart C--Special Purpose Loans
The proposed new Subpart C reorganizes and consolidates the current
subpart B of Part 122, ``Special Purpose Loans'' with a portion of Part
116.
In Secs. 122.51 through 122.51-6, currently known as ``Handicapped
Assistance Loans,'' the word ``Disabled'' replaces the word
``Handicapped'' wherever it appears. Section 122.60 ``Rural Loans'' is
deleted since this special program expired on September 30, 1995. The
section currently beginning at Sec. 122.61, ``Microloan Demonstration
Project,'' has been reorganized as subpart G of Part 120 to separate it
from 7(a) Special Loan Programs. There are no major substantive changes
in the remaining eleven Special Loan Programs. A new revolving credit
program--CapLines--replaces the GreenLine program and is outlined in
Sec. 120.395.
In the proposed rule, this subpart outlines the significant
policies of each program in a streamlined format while deleting
superfluous and repetitious material.
120 Subpart D--Lenders
Proposed subpart D reorganizes and consolidates current Part 120
subparts C (``Loan Participants''), D (``Preferred Lenders Program''),
and E (``Certified Lenders Program''). Sections have been grouped
together to aid the reader in locating information. There are only a
few substantive changes in subpart D.
Proposed new Sec. 120.430 states specifically that SBA may review a
Lender's records relating to SBA guaranteed loans during normal
business hours. In addition, Sec. 120.420, which is the former
Sec. 120.301-7, contains a new provision (120.420(c)) restricting the
use of SBA loans by Non-Depository Lenders.
(a) Certified Lenders Program (``CLP''). The proposed rule deletes
the definitions found now at Sec. 120.501. Some of the terms are not
used in the subpart. Others apply to the entire Part and will appear in
Sec. 120.10.
The proposed rule streamlines the procedure for obtaining CLP
status. Thus, current Sec. 120.502-1 will be deleted and replaced with
new Sec. 120.441 authorizing SBA District Directors (whose decision is
final) to approve and renew CLP Lenders. Section 120.441(c) clarifies
that CLP status applies only in the SBA office which approved that
status.
The proposed rule will eliminate current Sec. 120.502-2, which
specifies factors which SBA will consider in deciding whether a Lender
should become a CLP lender. Its replacement, Sec. 120.441(a), retains
several of the current seven considerations. SBA may consider other
factors as well.
Proposed Sec. 120.442, ``Suspension or revocation of CLP status''
is new, and follows the mechanism and procedure established for PLP
lenders.
(b) Preferred Lenders Program (``PLP''). The proposed PLP
regulations delete superfluous information and have been reorganized
into a more logical sequence. They also will reflect SBA reorganization
and program changes, including the establishment of the centralized PLP
processing office located in Sacramento, California.
The proposed rule deletes the definitions found now at
Sec. 120.401. Some of the terms are not used in the subpart. Others
apply to the entire Part and will appear in Sec. 120.10.
Current Sec. 120.402-1 describes how a Lender initially may become
a PLP Lender. Proposed Sec. 120.451(a) describes new procedures
following SBA's structural reorganization. The branch or district
office will forward its nomination of a Lender or the Lender's request
for PLP status to the loan processing center rather than to a regional
office. The district office's recommendation and the loan processing
center's recommendation are forwarded to the AA/FA who makes the final
determination. This section also provides for expansion and
recertification of PLP status by the AA/FA after a review of the PLP
Lender by SBA.
The section clarifies that if a PLP Lender is not already a CLP
Lender in a territory into which it seeks to expand its PLP status, it
will automatically obtain CLP status in the territory when it is
granted an extension of its PLP status into that territory without
approval from the District Office.
Proposed Sec. 120.451(b)(current Sec. 120.402-2) describes the
factors SBA will consider in evaluating PLP nominations. SBA has
eliminated the requirement that the Lender be a Certified Lender before
being considered as a PLP Lender.
Proposed Sec. 120.451(c) is a new provision providing that the AA/
FA will designate the ``area'' in which a PLP Lender can make PLP
loans. SBA believes that centralizing this function in the AA/FA will
result in a uniform policy and practice.
[[Page 64363]]
The proposed rule consolidates the current Sec. 120.403-1
(statutory ceiling), Sec. 120.403-5 (interest rates), and Sec. 120.403-
6(b)(fees) into Secs. 120.151, 120.213, 120.214, 120.221 and 120.222
respectively. The proposed rule deletes the current Sec. 120.403-3
(credit allocation) because it is no longer used.
The proposed rule deletes the current Sec. 120.403-6(a), which
limits the fees a PLP lender can charge if it sells the guaranteed
portion of a loan within six months of disbursement, because SBA feels
there is no need to retain a cap on this fee. It consolidates the
current Sec. 120.403-7(c) into Sec. 120.430.
The current Sec. 120.403-7 has been rewritten as the new
Sec. 120.452(a) specifying the requirements of PLP loan processing. The
section specifying the percentage of a PLP loan that SBA will guarantee
has been moved from the current Sec. 120.403-2 to Sec. 120.452(a)(3).
In proposed Sec. 120.452(b), SBA describes the new procedures for
approving a PLP loan by submitting documents to the loan processing
center, which issues an SBA loan number.
The proposed rule consolidates the current Secs. 120.404-1 through
120.405-1 concerning servicing and liquidation into proposed
Sec. 120.453, and deletes current Secs. 120.405-2 through 120.405-4
because they are redundant or adequately described in SBA's SOP.
In proposed Sec. 120.451(f), SBA has added a new provision to allow
a PLP Lender to submit a request to expand its territory to the SBA
loan processing center.
(c) Small Business Lending Companies (``SBLC''). The proposed rule
revises the SBLC regulations for clarity and to eliminate details of
the program better suited to an SOP. The sections have been renumbered,
reorganized in a more logical structure, and presented in a question
and answer format.
Finally, a provision on SBA's authority to suspend or revoke an
SBLC's license is proposed at Sec. 120.475.
120 Subpart E--Loan Administration
New subpart E proposes general loan administration rules.
Basically, these proposed rules reflect existing SBA policies. Any SBA
field office can provide more detailed guidance concerning any aspect
of these proposed rules.
Proposed Secs. 120.510 and 120.511 describe the servicing
responsibilities of the parties making loans. SBA services direct loans
that it makes without the participation of a Lender, while Lenders
service loans they make with the SBA guarantee. After SBA honors its
guarantee, the Lender generally continues to service the loan. Proposed
Sec. 120.512 describes this arrangement.
Proposed Sec. 120.513 lists the servicing actions that require the
concurrence of the Lender and the SBA because of their importance to
the effective and efficient operation of SBA's loan program. The list
includes the provisions contained in the participation agreement which
a Lender executes with SBA to allow it to make 7(a) guaranteed loans,
such as the alteration of terms and conditions of any loan instrument,
the release of collateral with a value over 20 percent of the original
amount of the loan, the acceleration of the maturity of a note, and the
initiation of litigation.
SBA has the authority to purchase the guaranteed portion of a loan
at any time, and proposed Sec. 120.520 provides that a Lender may ask
SBA to purchase the guaranteed portion when the Borrower has been
continuously in default on its installment payments to the Lender for
more than 60 days. If a Borrower cures a default (see Sec. 120.523)
before SBA purchases, the Lender's right to request purchase lapses. If
SBA honors its guarantee, it does not waive any right it may have
against the Lender because of the Lender's negligence, misconduct, or
violation of the regulations, the guarantee agreement between the
lender and SBA, or any of the loan instruments. SBA may sue to recover
the amounts paid and may assert as a basis for recovery any of the
grounds set forth in Sec. 120.524.
A Borrower's obligation to pay principal and interest continues
after SBA honors its guarantee. Proposed Sec. 120.521 prescribes that
the interest rate for which the Borrower is liable after the purchase
continues to be the rate stated in the note if it is a fixed rate note.
If a loan carries a fluctuating interest rate, the Borrower is obliged
for the rate in effect at the time of the earliest uncured default
(where there has been a default), or the rate in effect at the time
when SBA purchases (where there has been no default). This means that
no further fluctuations of interest can occur after SBA honors its
guarantee.
Proposed Sec. 120.522 provides that the interest rate for which SBA
is liable when it purchases the guaranteed portion is the rate in the
note if it is a fixed rate loan, or the rate in effect on the date of
the earliest uncured default (if a default has occurred) or when SBA
purchases (if there has been no default). The section provides that SBA
pays a Lender no more than 120 days interest from the date of a
Borrower's uncured default, plus any deferment period or time it takes
for SBA to process a request to purchase. This cut-off period
encourages a Lender to make timely demand on SBA to purchase. Because
extenuating circumstances may occur, the proposed section authorizes
SBA to extend the 120 day time period for good cause.
Proposed Sec. 120.523 defines ``earliest uncured default'' as the
date on which a Borrower fails to pay a regular installment payment
which remains unpaid for 60 days. If a Borrower makes a payment before
a Lender requests SBA to honor its guarantee, the earliest uncured
default date advances to the next unpaid installment date. This means
that if a Borrower cures early defaults, the earliest uncured default
date continues to move forward.
SBA does not have to honor its guarantee, under proposed
Sec. 120.524, if a Lender, amoungst other things, fails to make, close,
service, or liquidate an SBA guaranteed loan in a prudent fashion. The
regulation contemplates that a Lender will comply with all the
provisions of the regulations, the loan guarantee agreement it executed
with SBA, the loan authorization (which is the document SBA issues to
state that it is providing its guarantee for a specific loan request),
and other loan documents. A Lender's failure to disclose material
facts, a Lender's making material misrepresentations to SBA, or the
Lender's failure to use SBA provided forms or exact computerized
facsimile copies also justifies denial of liability under the
guarantee. Other Lender actions which would support SBA's denial of
liability on its guarantee include Lender's failure to pay the
guarantee fee, Lender's late demand on SBA to purchase, or if the
Borrower has paid the loan in full.
In order to assure the successful establishment and operation of a
Borrower, proposed Sec. 120.530 authorizes SBA to defer a Borrower's
initial payments for a stated period of time. Under proposed
Sec. 120.531, SBA could extend the maturity of a loan for up to ten
years beyond its stated maturity if the extension would aid in the
orderly liquidation of the loan. Proposed Sec. 120.532 defines
``Moratorium'' to be the period of time during which SBA assumes a
Borrower's obligation to make installment payments on a guaranteed
loan.
Under proposed Sec. 120.533, SBA could grant a Moratorium if the
business would become or remain insolvent without it; if the business
would become or remain viable with a Moratorium; if a deferment is not
available; if all the parties agree that SBA could stop making payments
at any time; if the Borrower executes a demand
[[Page 64364]]
note to repay SBA's Moratorium payments; and if SBA obtains security
which it deems necessary. These conditions supporting a Moratorium
ensure that the parties know that their obligations continue and that
SBA expects to be reimbursed for its advances under this procedure.
Proposed Sec. 120.534 allows SBA to continue a Moratorium for six
months. SBA may extend a Moratorium for up to five years if a
FR Doc. 95-30327 Business Loan Programs
Borrower
could demonstrate its eventual ability to repay the original note (and
the demand note required for the Moratorium). Proposed Sec. 120.535
lists the repayment terms for a Moratorium. Under this section, the
interest rate on the demand note is the same as for the guaranteed
loan; SBA will apply repayments first to accrued interest and then to
principal; and SBA may demand payment in full under the demand note or
accept a repayment schedule.
Proposed Sec. 120.540 establishes SBA's policy concerning the
liquidation of collateral. Ordinarily, SBA does not liquidate
collateral if there is any reasonable prospect that the Borrower or
guarantor (other than SBA) may repay the loan within a reasonable
period of time. Without the Borrower's consent, SBA has the authority
to sell a direct loan, convert a direct loan to a guaranteed or
immediate participation loan, or convert an immediate participation
loan to a guaranteed loan or a loan owned solely by the Lender.
Importantly, this authority enables SBA to take appropriate steps to
resolve issues and problems concerning a loan. The proposed section
also provides that SBA will generally use competitive bids or a
negotiated sale to dispose of collateral. Under the proposed section,
SBA and the Lender would share all loan payments and recoveries, all
reasonable expenses, and any security or guarantee which the Lender or
SBA may receive in connection with a loan. The proposed section
provides that guarantors of financial assistance have no rights of
contribution against SBA on a direct or guaranteed loan. The proposed
section makes clear that SBA is not a co-guarantor with any other
guarantor, and that SBA's guarantee is unique, distinctive, and of a
totally different character than the guarantees offered by other
parties.
Under applicable federal law, homestead protection for a farmer-
Borrower covers a residence and a reasonable amount of adjoining real
property (``the collateral'') that are still occupied by the farmer-
Borrower after being acquired by SBA as a result of foreclosure, a
voluntary conveyance, or conveyance to the government by a trustee in
bankruptcy. The homestead protection provisions in the proposed rules
cover SBA direct and guaranteed loans, as well as SBA disaster loans.
Proposed Sec. 120.550 specifies that a farmer-Borrower who defaults on
an SBA loan would be allowed to lease the collateral from SBA. Under
proposed Sec. 120.551, SBA must notify the farmer-Borrower of the
homestead protection rights within 30 days after SBA acquires the
property. Under the proposed rule, the farmer-Borrower has to apply to
the local SBA office for homestead protection within 90 days after SBA
acquires the property, provide evidence that the farm produces farm
income reasonable for the area and economic conditions, show that at
least 60 percent of the farmer's gross annual income came from farm or
ranch operations in at least 2 out of the last 6 years, that the
farmer-Borrower has resided on the property during the preceding 6
years, and that the farmer is personally liable for the debt. This last
point means that the SBA loan could have been made to any individual or
entity, so long as the farmer-Borrower was personally liable for the
debt.
Under proposed Sec. 120.552, the farmer, under a lease with SBA,
has to occupy the residence and pay a reasonable rent to SBA. The lease
can be for a period of up to 5 years, and can be renewed for up to
another 5 years. During the lease, or at its end, the lessee-farmer has
the right of first refusal to reacquire the homestead property under
terms and conditions no less favorable than those offered to any other
purchaser. If the sale of the homestead property is an installment
sale, the purchase agreement has to require a down payment of no less
than 20 percent of the purchase price. The option price to the lessee-
farmer must be the appraised fair market value determined by an
independent appraisal. SBA cannot demand a payment for the homestead
property that exceeds the appraised value.
Under proposed Sec. 120.553, a farmer-Borrower can appeal denial of
a homestead protection application to the AA/FA. Until a final decision
is made, the farmer would be allowed to remain on the property. If a
conflict exists between state law and the SBA homestead provisions,
state law prevails.
120 Subpart F--Secondary Market
SBA has consolidated subparts F, G, and H of Part 120 into one new
Subpart F, governing SBA's secondary market for SBA guaranteed portions
of loans. Subpart F covers central registration requirements, the
pooling and sale of SBA guaranteed portions, and the sale of individual
SBA guaranteed portions that do not comprise part of a Pool. Provisions
currently found in separate subparts have been consolidated for ease of
understanding. SBA has renumbered and reordered the resulting
provisions, but there are no substantive or policy changes.
The following is a conversion chart explaining where the current
sections of subparts F, G, and H of 120 will be placed:
------------------------------------------------------------------------
New section Old section
------------------------------------------------------------------------
120.600......................... 120.601, 120.700, 120.800.
120.601......................... 120.602, 120.702, 120. 800, 120.802.
120.610......................... 120.706 and 120.803.
120.611......................... 120.707.
120.612......................... 120.710 and 120.807.
120.613......................... 120.301-2.
120.620......................... 120.711 and 120.701.
120.621......................... 120.801.
120.630......................... 120.703.
120.631......................... 120.704.
120.640......................... 120.709 and 120.806.
120.641......................... 120.713 and 120.809.
120.642......................... 120.708.
120.643......................... 120.805.
120.644......................... 120.804.
120.645......................... 120.605,120.605-1.
120.650......................... 120.603, 120.604, 120.604-1, and
120.604-2.
120.651......................... 120.605-3.
120.652......................... 120.712 and 120.808.
120.660......................... 120.605-2, 120.705, and 120.810.
------------------------------------------------------------------------
Proposed Sec. 120.600 describes the secondary market. Section
120.601 contains definitions used in subpart F. Proposed Sec. 120.610
provides that each Certificate representing either the entire
individual guaranteed portion of an individual 7(a) guaranteed loan or
an undivided interest in a Pool consisting of the SBA guaranteed
portions of a number of 7(a) guaranteed loans (``Certificate'') must be
in registered form only. This means that there are no bearer
Certificates. The section also specifies payment terms for
Certificates.
Proposed Sec. 120.611 describes the Pools which back Pool
Certificates, including Pool characteristics and Pool Certificate
interest rates. In Sec. 120.612, SBA specifies conditions which must be
met for an SBA guaranteed portion of a loan to be eligible to back a
Certificate. Among other things, a loan must be current.
Proposed Sec. 120.613 describes a secondary participation guarantee
agreement (SPGA). Before an SPGA may be executed, the Lender must
disburse the full amount of the loan, pay SBA's guarantee fee, and give
SBA copies of the SPGA and note.
[[Page 64365]]
Proposed Sec. 120.620 describes the extent of SBA's guarantee of a
Pool Certificate. SBA guarantees the timely payment, whether or not
collected, of principal and interest, and any prepayment of principal
on the loans. SBA's guarantee to a Registered Holder in a Pool of SBA
guaranteed portions of loans is backed by the full faith and credit of
the United States.
Proposed Sec. 120.621 describes the extent of SBA's guarantee of an
individual guaranteed portion. SBA guarantees to purchase from the
Registered Holder the guaranteed portion equal to the unpaid principal
and interest, less deductions for the servicing fees of the Lender and
the fiscal and transfer agent (``FTA''). SBA does not guarantee timely
payment on individual guaranteed portions. SBA's guarantee to a
Registered Holder is unconditional and is backed by the full faith and
credit of the United States. SBA's guarantee is triggered when the
Borrower defaults on installments of principal or interest, the Lender
fails to send to the FTA any payments it received from the Borrower, or
the FTA fails to send to the Registered Holder any payments it received
from the Lender.
Proposed Sec. 120.630 specifies the qualifications that an entity
must possess to be a Pool Assembler. Among other things, the entity
must be subject to regulation by an appropriate agency, have the
financial capability to assemble acceptable guaranteed portions, and be
in good standing with SBA. In proposed Sec. 120.631, SBA specifies
reasons for suspending a Pool Assembler from the secondary market.
Proposed Sec. 120.640 describes the administration of the Pools and
individual guaranteed portions. The FTA maintains a registry of
Certificate owners. Each Pool is self-liquidating, which means that
there is no substitution of guaranteed portions of loans that are paid
off by the borrower or SBA. If SBA pays a claim under a guarantee with
respect to a Certificate, it is subrogated to the rights satisfied by
the payment. This means that SBA can take any and all steps to be
reimbursed for payments it makes. Absent an express statutory change,
no federal, state or local law can preclude or limit SBA's exercise of
its ownership rights in the portions of loans constituting the Pool
against which Certificates are issued.
Proposed Sec. 120.641 requires the Pool Assembler, Registered
Holder of a Certificate representing an individual guaranteed portion,
or any subsequent seller to disclose to the purchaser information on
the Certificate's terms, conditions, and yield. Section 120.642
specifies the documents that a Pool Assembler must deliver to the FTA
before the FTA can issue a Certificate, such as a Pool application form
and documents which evidence the guaranteed portions which comprise the
Pool. Section 120.643 specifies the documents that a seller must
provide the FTA before the FTA can issue the initial Certificate for an
individual SBA guaranteed portion, including documentation of ownership
and a copy of the note that represents the guaranteed loan.
Proposed Sec. 120.644 describes certain conditions applying to the
sale of individual guaranteed portions. Each Certificate which
represents the guaranteed portion of a single loan must be for the
entire amount of the guaranteed portion. A Lender (or its Associate)
cannot purchase the guaranteed portion of a loan which it has made.
In Sec. 120.645, SBA describes how to transfer a Certificate and
what information a seller must supply to the FTA. Transfers must comply
with Article 8 of the Uniform Commercial Code of New York State.
Under Sec. 120.650 the FTA registers, issues, transfers title to,
and redeems Certificates. Proposed Sec. 120.651 tells a Registered
Holder what information it must give to the FTA to replace a
Certificate because of loss, theft, destruction, mutilation or
defacement. Section 120.652 authorizes the FTA to collect fees approved
by SBA.
Proposed Sec. 120.660 specifies the reasons for SBA to suspend or
revoke the privilege of a lender, broker, dealer, or Registered Holder
to participate in the secondary market.
Subpart G--Microloan Demonstration Program
This proposed subpart revises, amends, and reorganizes the rules
covering the microloan demonstration program (``microloans'') currently
located in Part 122. Substantive changes include: (1) Sec. 120.708(c)
provides a clearer understanding of how SBA determines the interest
rate charged to an intermediary; (2) Sec. 120.708(e) makes it clear
that SBA loans to intermediaries are non-recourse unless an
intermediary causes a loss to SBA by fraud or negligence; and (3)
Sec. 120.710 requires an intermediary to maintain accurate and current
books and records, and to report periodically to SBA the status of its
microloan portfolio.
The following conversion chart shows where to find the current Part
122 microloan sections:
----------------------------------------------------------------------------------------------------------------
Existing section Action New section
----------------------------------------------------------------------------------------------------------------
Sec. 122.61 (a) and (b)................. Revised.......................... Sec. 120.700 (a)-(c)
Sec. 122.61-2 (a)-(c)................... Retained......................... Sec. 120.701 (a)-(c)
Sec. 122.61-2(d)........................ Revised.......................... Sec. 120.701(d)
Sec. 122.61-2 (e)-(g)................... Retained......................... Sec. 120.701 (e)-(g)
New.............................. Sec. 120.701(h)
Sec. 122.61-3(a)........................ Revised.......................... Sec. 120.700(d)
Sec. 122.61-3(b)........................ Revised.......................... Sec. 120.703
Sec. 122.61-3(c)........................ Revised.......................... Sec. 120.703(c)
Sec. 122.61-4 (a) and (b)............... Revised.......................... Sec. 120.705
Sec. 122.61-4(c)........................ Deleted.......................... ..................................
Sec. 122.61-5........................... Revised.......................... Sec. 120.704
Sec. 122.61-6 (a)-(c)................... Revised.......................... Sec. 120.707
Sec. 122.61-6(d)........................ Revised.......................... Sec. 120.707
Sec. 122.61-6(e)........................ Revised.......................... Sec. 120.707
Sec. 122.61-6(f)........................ Deleted.......................... ..................................
Sec. 122.61-7........................... Revised.......................... Sec. 120.708
Sec. 122.61-8 (a)-(c)................... Revised.......................... Sec. 120.710
Sec. 122.61-8(d)........................ Deleted.......................... Sec. 120.710
Sec. 122.61-9 (a) and (b)............... Revised.......................... Sec. 120.710
Sec. 122.61-10.......................... Retained......................... Sec. 120.712
Sec. 122.61-11(a)....................... Revised.......................... Sec. 120.712
Sec. 122.61-11(b)....................... Revised.......................... Sec. 120.702
[[Page 64366]]
Sec. 122.61-11(c)....................... Retained......................... Sec. 120.712
Sec. 122.61-12.......................... Revised.......................... Sec. 120.711
----------------------------------------------------------------------------------------------------------------
Subpart H--Development Company (504) Loan Program
This proposed rule makes current Part 108 a subpart of Part 120.
The following conversion chart details the restructuring, subsection-
by-subsection. Those sections of Part 108 applicable to all business
loans have been consolidated with the corresponding 7(a) provisions and
placed in subpart A (``Policies Applying to All Business Loans'').
Sections of Part 108 that apply only to the Development Company Loan
Program (``504 loans'') will be in this subpart H. Finally, some
sections of Part 108 have been deleted as delineated in the chart.
Part I--Section-by-Section Analysis of Part 108
----------------------------------------------------------------------------------------------------------------
Former Sec. 108 subpart Proposed action on subpart Comments on action
----------------------------------------------------------------------------------------------------------------
Sec. 108.1(a)........................ Condensed and moved to Sec. 120.800......... No policy change.
Sec. 108.1(b)........................ Condensed and moved to Sec. 120.800......... No policy change.
Sec. 108.1(c)........................ Rewritten and moved to Sec. 120.860-Sec. No policy change.
120.862.
Sec. 108.1(d)........................ Incorporated into Sec. 120.862.............. No policy change.
Sec. 108.1(e)........................ Eliminated as redundant; incorporated into No policy change;
Sec. 120.176. eliminated because
policy covered by other
parts.
Sec. 108.2........................... Definitions applying to all business loans See comments below on
are in Sec. 120.10. Those applying solely specific definitions.
to 504 loans are in Sec. 120.801. Some
terms applying only to a certain subsection
are defined in the subsection.
Sec. 108.3(a)........................ Rewritten and placed into Sec. 120.881(a). No policy change.
Definition of Substantial Increase in
Unemployment is found in Sec. 120.801.
Sec. 108.3(b)........................ Eliminated................................... Deleted because 501 and
502 programs have been
eliminated.
Sec. 108.3(c)........................ Eliminated................................... Deleted because 501 and
502 programs have been
eliminated.
Sec. 108.3(d)........................ Eliminated................................... Deleted because 501 and
502 programs have been
eliminated.
Sec. 108.4(a)........................ Eliminated................................... No change of policy; rule
eliminated because
inherent in standard
business practice.
Sec. 108.4(b)........................ Eliminated, but covered in Sec. 120.826..... No change in policy; will
be covered in SBA's
Standard Operating
Procedure (SOP) or other
policy guidance.
Sec. 108.4(c)........................ Eliminated, but covered in Sec. 120.826..... No change in policy; will
be covered in SBA's SOP
or other policy
guidance.
Sec. 108.4(d)........................ Rewritten, clarified, and broadened. Most Minor policy change: SBA
provisions consolidated with corresponding may waive prohibition on
sections of current Part 120 into proposed member of CDC Board of
Sec. 120.140. See Note 4, subparts A and B. Directors being on
Those applying only to 504 loans are in Sec. another CDC's Board.
120.855.
Sec. 108.4(e)........................ Consolidated with Sec. 108.4(d) and placed No policy change.
in Sec. 120.40. Specific examples of
conflicts of interest will be found in SOP.
Prohibition against debt refinancing is in
Sec. 120.884.
Sec. 108.4(f)........................ Eliminated................................... Consolidated into Sec.
120.176.
Sec. 108.5(a)........................ Covered in Sec. 120.826; specific No policy changes.
explanations and details in SOP.
Sec. 108.5(b)........................ Covered in Sec. 120.826; specific Miniaturized
explanations and details in SOP. reproductions of CDC
records no longer
referenced. Other
technologies now
available. Specific
details will be in SOP.
Sec. 108.5(c)........................ Condensed into Sec. 120.830(c).............. No policy change.
Sec. 108.5(d)........................ Condensed into Sec. 120.830(d) and (e)...... Policy change -means of
delivery will be
detailed in SOP.
Sec. 108.5(e)........................ Eliminated................................... Report considered
unnecessary under
Presidential directive
to reduce paperwork.
Sec. 108.5(f)........................ Eliminated................................... No policy change. Not
required as regulation.
Sec. 108.6........................... Eliminated................................... Reserved sections were
removed.
Sec. 108.7(a)........................ Consolidated in Sec. 120.140................ No policy change.
Sec. 108.7(b)........................ Eliminated. Provision covered in note and No policy change.
other closing documents.
Sec. 108.8(a)........................ Credit elsewhere test consolidated and placed Major change of policy
in Sec. 120.101; evidence of need and use emphasis. See Note 6,
of personal resources by principals placed subparts A and B.
in Sec. 120.102.
Sec. 108.8(b)........................ Consolidated into Sec. 120.150 and Sec. No policy change.
120.160.
Sec. 108.8(c)........................ Sound business purpose is addressed in Sec. No policy change.
120.120 and Sec. 120.150. Size requirements
is addressed in Sec. 120.100(c) and Sec.
120.880(b).
[[Page 64367]]
Sec. 108.8(d)........................ Replaced by Sec. 120.111.................... Major policy change. See
Note 2, subparts A and
B.
Sec. 108.8(e)........................ Condensed and placed in Sec. 120.870........ No policy change.
Sec. 108.8(f)........................ Included in Sec. 120.881. Financial and Clarifies policy.
investment businesses addressed in Sec. Ineligibility of project
120.110. because relocation will
cause unemployment may
be rebutted if the
relocation is crucial to
the continued existence,
economic wellbeing or
competitiveness of the
applicant, and the
benefit to new community
outweighs injury to old.
Sec. 108.8(g)........................ This subject is consolidated into Sec. No policy change.
120.110 and Sec. 120.130.
Sec. 108.9........................... Rewritten and placed in Sec. 120.923(c)..... No policy change.
Sec. 108.10.......................... Eliminated. Not necessary to include in No policy change.
regulation.
Sec. 108.501......................... Eliminated................................... Deleted because program
eliminated, but SBA
still regulates existing
loans under this
program. See Sec.
120.180.
Sec. 108.501-1....................... Eliminated................................... Deleted because program
eliminated, but SBA
still regulates existing
loans under this
program. See Sec.
120.180.
Sec. 108.502......................... Eliminated................................... Deleted because program
eliminated, but SBA
still regulates existing
loans under this
program. See Sec.
120.180.
Sec. 108.502-1....................... Eliminated................................... Deleted because program
eliminated, but SBA
still regulates existing
loans under this
program. See Sec.
120.180.
Sec. 108.503(a)...................... Eliminated................................... No policy change; covered
in Sec. 120.1.
Sec. 108.503(b)...................... Rewritten and incorporated into Sec. 120.2, No policy change.
Sec. 120.860, Sec. 120.861, and Sec.
120.862.
Sec. 108.503(c)...................... Rewritten and placed in Sec. 120.829........ Minor policy change.
$45,000 is substituted
for 25% increase, which
was $43,750. Specific
instructions and details
in SOP and program
guidance.
Sec. 108.503(d)...................... Condensed and placed in Sec. 120.829(b) and No policy change;
(c). specific instructions
and details in SOP and
policy guidance.
Sec. 108.503-1(a).................... Description of the program incorporated into No policy change
Sec. 120.2(c) and Sec. 120.801. Eligible
projects are in Sec. 120.120, and
applications for certification are in Sec.
120.810.
Sec. 108.503-1(b).................... Rewritten and placed in Sec. 120.820 through No policy change;
Sec. 120.826, and Sec. 120.855(a). incidental benefit to
CDC Associate clarified
to allow relationship in
the regular course of
business.
Sec. 108.503-1(c).................... Rewritten and placed in Sec. 120.821. See Important policy changes--
definition of Area of Operations in Sec. see comments below.
120.802. Extending a CDC's Area of
Operations is in Sec. 120.835 and Sec.
120.836. Expiration of existing, temporary
Expansions is in Sec. 120.837. Case-by-case
extensions are in Sec. 120.838.
Sec. 108.503-1(d).................... Consolidated into Sec. 120.822. Member or Policy change. See Note
Board representation in another CDC is in under current Sec.
Sec. 120.855(b). 108.4(d) above. Specific
details and instructions
will be in SOP
Sec. 108.503-1(e).................... Rewritten and placed in Sec. 120.826 and No policy change;
Sec. 120.827. SBIC limitation addressed in Specifics addressed in
Sec. 120.820. SOP.
Sec. 108.503-1(f).................... Incorporated in Sec. 120.827................ No policy change
Sec. 108.503-1(g).................... Rewritten and placed in Sec. 120.855(b)..... Policy change. See Note
under current Sec.
108.4(d) above.
Sec. 108.503-2(a).................... Rewritten and placed in Sec. 120.810........ Small substantive change.
Regional offices removed
from process because of
SBA reorganization. More
information in SOP.
Sec. 108.503-2(b).................... Rewritten and placed in Sec. 120.811........ Minor procedural changes.
10 day period to submit
notice to SBA
eliminated; officer and
director addresses no
longer required in
notice.
Sec. 108.503-2(c).................... Rewritten and placed in Sec. 120.981........ No policy changes.
Sec. 108.503-2(d).................... Rewritten and placed in Sec. 120.812........ No policy change.
Sec. 108.503-2(e).................... Rewritten and placed in Sec. 120.980........ No policy change.
[[Page 64368]]
Sec. 108.503-3(a).................... Rewritten and placed in Sec. 120.827........ No policy change.
Sec. 108.503-3(b).................... Covered by Sec. 120.827(a).................. No policy change. Will be
expounded upon in SOP.
Sec. 108.503-3(c).................... Rewritten and placed in Sec. 120.828........ Policy change. The number
of loan approvals
required to satisfy the
minimum level of
activity will now be
specified in annual
program announcement.
See major policy change
note (a) below.
Sec. 108.503-3(d).................... Covered by Sec. 120.826..................... No policy change.
Specifics in SOP.
Sec. 108.503-3(e).................... Eliminated................................... Deleted reserved section.
Sec. 108.503-3(f).................... Rewritten and placed in Sec. 120.830(a) and No policy change. SBA
(b). streamlining paperwork
requirements under
Presidential directive.
Specifics in SOP.
Sec. 108.503-3(g).................... Rewritten and placed in Sec. 120.140(c)..... No policy change.
Sec. 108.503-3(h).................... Rewritten and placed in Sec. 120.983........ No policy change.
Sec. 108.503-4(a).................... Rewritten and placed in Sec. 120.120, Sec. No policy changes.
120.110, Sec. 120.150 and Sec. 120.193.
See Sec. 120.871 and Sec. 120.872 for
portions of new construction or existing
building that may be leased.
Sec. 108.503-4(b).................... Rewritten and placed in Sec. 120.130 and Policy change. Airplanes
Sec. 120.881. in Alaska and Hawaii no
longer eligible.
Reference to assets
limited in potential use
or marketability
deleted. This is part of
the credit decision. The
rule clarifies the
eligibility status of
heavy construction
equipment. See comment
(d) below.
Sec. 108.503-4(c).................... Rewritten and placed in Sec. 120.882(a)(2) Policy change. Any
and Sec. 120.884(a) and (c). Statutory expenditure made toward
ceiling discussed in Sec. 120.931; SBIC a project in
participation in Sec. 120.103 and Sec. anticipation of SBA
120.913; and administrative ceiling in Sec. assistance within 6
120.932.. months of receipt by SBA
of an application is
eligible. No notice is
required. See comment
(b) below.
Sec. 108.503-5(a).................... Rewritten and placed in Sec. 120.120 and No policy change.
Sec. 120.882.
Sec. 108.503-5(b).................... Rewritten and placed in Sec. 120.883........ No policy change.
Sec. 108.503-5(c).................... Rewritten and placed in Sec. 120.130 and No policy change.
Sec. 120.884.
Sec. 108.503-5(d).................... Discussed in Sec. 120.882(a)(2). Land See comment under current
contributions in Sec. 120.911. Sec. 108.503-4(c) above
and policy comment
discussion (b) below.
Specific instructions
and explanations will be
in SOP.
Sec. 108.503-6(a).................... Rewritten and placed in Sec. 120.883(c), No policy change. Omits
Sec. 120.961(a), and Sec. 120.971(a)(1). reference to $2,500 in
discussion of legal
fees. See note (c).
Specifics in SOP.
Sec. 108.503-6(b).................... Rewritten and placed in Sec. 120.936........ No policy change.
Sec. 108.503-6(c).................... Rewritten and placed in Sec. 120.961(b)..... No policy change.
Sec. 108.503-6(d).................... Rewritten and placed in Sec. 120.971(a)(3).. No policy change.
Sec. 108.503-6(e).................... Eliminated................................... Policy change. See Note
8, subparts A and B.
Sec. 108.503-7(a).................... Rewritten. Certification of project No policy change.
completion placed in Sec. 120.891. Specifics in SOP.
Certifications of no adverse change are in
Sec. 120.892..
Sec. 108.503-7(b).................... Rewritten and placed in Sec. 120.890........ No policy change.
Sec. 108.503-7(c).................... Rewritten and placed in Sec. 120.962........ No policy change.
Sec. 108.503-8(a).................... Rewritten and placed in Sec. 120.900........ No policy change, but (3)
is now called ``Borrower
contribution'' instead
of ``the 503 Company
injection''.
Sec. 108.503-8(b).................... Rewritten and placed in Sec. 120.920 through No policy change, but
Sec. 120.925. Newly published (1/20/95) Sec. 120.923(b)
``other real estate owned'' provision placed clarifies that some
in Sec. 120.923(a). payments made by
lienholder are allowed
to maintain and protect
the lien position.
Sec. 108.503-9....................... Loan conditions are detailed in Sec. 120.930 No policy change.
through Sec. 120.941. Description of
program is in Sec. 120.3 and Sec. 120.801.
Sec. 108.503-10...................... Rewritten and placed in Sec. 120.910 through No policy change. Some
Sec. 120.913. specifics left for SOP.
Sec. 108.503-11...................... Eliminated. Consolidated with current Sec. No policy change.
108.504(e) into Sec. 120.954.
Sec. 108.503-12...................... Rewritten and placed in Sec. 120.960........ No policy change.
Specifics in SOP.
Sec. 108.503-13(a) and (b)........... Rewritten and placed in Sec. 120.970. No policy change.
Quarterly reports discussed in Sec. Specifics moved to SOP.
120.830(f).
Sec. 108.503-13(c)................... Placed in 120.970. Incorporates Sec. 120.513 No policy changes.
Specifics in SOP.
Sec. 108.503-13(d)................... Rewritten and placed in Sec. 120.971(a)(1).. No policy change.
Sec. 108.503-13(e)................... Rewritten and placed in Sec. 120.982........ No policy change.
Sec. 108.503-13(f)................... Rewritten and placed in Sec. 120.983........ No policy change.
[[Page 64369]]
Sec. 108.503-13(g)................... Rewritten and placed in Sec. 120.938........ No policy change.
Sec. 108.503-13(h)................... Consolidated into Sec. 120.530.............. No policy change.
Specific information and
explanatory material
will be in SOP.
Sec. 108.503-14...................... Rewritten and placed in Sec. 120.970........ No policy change.
Specific information and
explanatory material
will be in SOP.
Sec. 108.503-15(a) and (b)........... Rewritten and placed in Sec. 120.972........ No policy change--
specifics in SOP.
Sec. 108.503-15(c) and (d)........... Eliminated................................... Deleted all reserve
sections.
Sec. 108.503-15(e)................... Rewritten and placed in Sec. 120.984........ No policy change.
Sec. 108.504 (a), (b) and (c)........ Consolidated into Sec. 120.801.............. No policy change.
Sec. 108.504(d)...................... Placed in Sec. 120.934...................... No policy change.
Sec. 108.504(e)...................... Rewritten and placed in Sec. 120.954........ No policy change.
Sec. 108.504(f)...................... Rewritten and placed in Sec. 120.941........ No policy change.
Sec. 108.504(g)...................... Eliminated. More suitable for inclusion in No policy change.
SOP.
Sec. 108.504(h)...................... Rewritten and placed in Sec. 120.941........ .........................
Sec. 108.504(i)...................... Consolidated into Sec. 120.962.............. No policy change.
Sec. 108.504(j)...................... Rewritten and placed in Sec. 120.939........ No policy change.
Sec. 108.504(k)...................... Placed into Sec. 120.941.................... No policy change.
Sec. 108.504(l)...................... Eliminated................................... No policy change.
Debentures are sold
through Pools.
Sec. 108.504-1....................... Condensed and placed in Sec. 120.194........ Computer generated forms
now may be used for all
business loans, not just
504 loans.
Sec. 108.505(a)...................... Consolidated into Sec. 120.1................ No policy change.
Sec. 108.505(b)...................... Consolidated into Sec. 120.2 and Sec. No policy change.
129.801.
Sec. 108.505(c)...................... SBA guarantee discussed in Sec. 120.801; No policy change.
timely payment on Certificate is in Sec.
120.942; effect of other laws is in Sec.
120.991.
Sec. 108.505(d)...................... Condensed and placed in 120.941.............. No policy change.
Sec. 108.505(e)...................... Condensed and placed in Sec. 120.942........ No policy change.
Sec. 108.505(f)...................... Placed in Sec. 120.950, Sec. 120.951 No policy change, but
(selling agent), Sec. 120.952 (fiscal reference to ``Transfer
agent), Sec. 120.953 (trustee), and Sec. Agent'' has been
120.954 (central servicing agent). Bond/ deleted. ``Trustee'' has
Insurance requirement moved to Sec. been used since 1986.
120.956(a).
Sec. 108.505(g)...................... Eliminated. Regulations not necessary........ No policy change, but
``Pooler'' is now
referred to as
``Underwriter'' and
specific conditions and
duties will be in SOP.
Sec. 108.505(h)...................... Consolidated and placed in Sec. 120.955..... No policy change.
Sec. 108.505(i)...................... Consolidated and placed in Sec. 120.971(c).. No policy change.
Sec. 108.505(j)...................... Included in Sec. 120.942(b)................. No policy change.
Sec. 108.505(k)...................... Condensed into Sec. 120.940................. No policy change.
Sec. 108.505(l)...................... Condensed into Sec. 120.956................. No policy change.
Sec. 108.506......................... Condensed and consolidated into Sec. No policy change.
120.140(i).
Sec. 108.507......................... Rewritten and placed in Sec. 120.850........ No policy change.
Sec. 108.507-1....................... Merged into Sec. 120.850.................... No policy change.
Sec. 108.507-2....................... Consolidated into Sec. 120.851.............. Minor policy change. ADCs
may be for-profit, as
well as non-profit
status. SBA's purpose is
to encourage more
organizations to aid
small businesses.
Sec. 108.507-3....................... Condensed into Sec. 120.851................. No policy change.
Specifics will be in
SOP.
Sec. 108.507-4....................... Consolidated into Sec. 120.850(a)........... No policy change.
Sec. 108.507-5....................... Reviews and audits consolidated into Sec. No policy change.
120.972. Suspension and revocation discussed
in Sec. 120.852.
Sec. 108.508-1....................... This new program, published 4/26/95, was No policy change.
condensed and placed at Sec. 120.840.
Sec. 108.509......................... This new program, published 4/26/95, was No policy change.
condensed and placed at Sec. 120.845.
New................................... 120.831...................................... Minor policy change. CDCs
would disclose to SBA &
Borrower any
compensation or
remuneration received
from a Lender or other
party involved in a 504
loan to monitor any
inducements.
----------------------------------------------------------------------------------------------------------------
Part II--Major Policy Changes
(a) Area of Operations. During the policy review accompanying the
regulatory rewriting, SBA focused much of its attention on the question
of what constitutes adequate service in an Area of Operation.
Throughout the history of the 504 program there has been a great
divergence among CDCs in the number of loan approvals each year. While
some CDCs have exhibited continued growth measured by their loan
approvals and
[[Page 64370]]
ability to package, process and service loans, other CDCs have lagged
behind. There are many complicated reasons for this, but the net result
has been a patchwork of 504 service (measured by loan approvals) across
the country, with many small businesses in some areas receiving 504
assistance while in other areas few, if any, small businesses have
received such assistance.
SBA attempted to address this issue by permitting CDCs to expand
temporarily into adjacent areas, and then, in l993, by designating a
minimum number of loan approvals per year which a CDC must average over
the previous two fiscal year periods to retain certification as a CDC.
The current number of required loan approvals is two. SBA also
established the status of an Associate Development Company (``ADC'').
Those CDCs unable or unwilling to meet the minimum number of loan
approvals may become ADCs, thereby continuing to participate in the
program goals of economic and community development without having to
make loans. A number of CDCs have been decertified as a result of this
policy and have opted for ADC status.
However, a focus on removal from CDC status does not address the
real question of adequacy of service within an Area of Operations. What
constitutes adequate service within a community? The statutory
objectives of the 504 program are to provide a portion of long term
fixed-asset financing for small business projects that provide jobs and
result in economic development. Clearly, these goals cannot be met in
an Area of Operations unless loans are being packaged, processed,
approved, closed and serviced by one or more CDCs. Unfortunately, SBA
is aware of too many locations across the country in which present CDCs
are unable or unwilling to meet the small business demand for 504
loans. Transferring an existing CDC to ADC status does not address this
inadequacy. SBA has concluded that the answer lies not in
decertification, but in competition and customer service.
Therefore, in Sec. 120.835, SBA is proposing that existing CDCs be
permitted to expand into Areas of Operations that are not being
adequately serviced. The expanding CDC would have to show that the
proposed Area of Operations is not being adequately served by the
existing CDCs and that the expanding CDC is well-qualified to serve it.
SBA is not proposing any geographic or size limitation on CDCs applying
to service a location, but such factors will be considered in
evaluating the application. A CDC must apply in writing to the SBA
district office serving the geographic area in which the CDC proposes
to expand.
In this context, SBA has concluded that there is no minimum loan
approval number appropriate to every CDC in every location across the
country. A small CDC with a rural Area of Operations and slow economic
activity may be providing adequate service at a low level of approvals
while a larger CDC in a metropolitan region with much economic activity
may be providing inadequate service, despite having a greater number of
loan approvals.
SBA has also concluded that adequate service includes adequate
servicing of loans, as well as the number of loan approvals. Thus, any
CDC seeking to expand will have to show that it has a history of
adequate experience and expertise in both loan packaging and servicing,
and that the existing CDCs in the proposed area of expansion have not
been adequately packaging or servicing loans. Even if the number of
loan approvals does not accurately represent the competence of a CDC,
it does accurately reflect the adequacy of the market penetration of
504 financing in the proposed area of expansion.
In general, SBA will consider an Area of Operations inadequately
served if the existing CDCs in the Area of Operations have not
averaged, over the last two fiscal years, sufficient loan approvals for
the population, as published by SBA in an annual program announcement.
SBA will establish the initial formula in a program announcement upon
publication of the final rule, but would like the benefit of comments
on this subject before committing any specific numbers to print. SBA is
considering a two or three tier formula based on the current national
averages for CDC loan approvals per number of population. Suggestions
have been received that the formula should be based not on population,
but on the number of small businesses in the Area of Operations or some
other factor. SBA is interested in comments and would like
recommendations on how, if at all, to incorporate a servicing component
into its approach.
SBA is proposing (Sec. 120.837) that all existing, temporary
expansions of Areas of Operations will expire automatically 6 months
after the effective date of these regulations, unless a CDC applies for
permanent expansion into that Area before the expiration date. SBA
believes that CDCs will best serve the small business community by
making a permanent commitment to an Area of Operations. Upon showing
good cause, a CDC will still be able to apply to SBA to make an
individual loan for a Project outside its Area of Operations in an area
not being adequately served by other CDCs (Sec. 120.838). Note also
that the Borrower may write to the AA/FA (but not the District
Director) to request the servicing of a CDC not currently serving the
area. SBA has added this provision to give Borrowers more flexibility
if they have a concern about the services of a particular CDC.
(b) Expenditures in Anticipation of Project. In the current
regulations, costs incurred by a Borrower in anticipation of receiving
a 504 loan are not eligible to be included in Project costs unless the
applicant has filed a written notice with the CDC and SBA within 60
days of incurring the expense and SBA gives written approval. As a
result, CDCs and SBA receive notices from many potential borrowers
considering 504 financing who desire to maximize potential financing.
Many of these businesses never actually apply or their applications are
denied. In those cases, the written notices are a useless paperwork
burden on SBA, the CDC and the applicant.
Therefore, SBA is proposing (Sec. 120.882(a)(2)) to eliminate the
requirement for written notice. Any expense incurred toward a Project
within six months of receipt by SBA of a complete loan application will
be an eligible Project cost.
(c) Legal Fees. The Borrower's closing costs, including legal fees,
are eligible for inclusion in the 504 loan. Typically, legal services
are provided by the CDC's counsel, who is usually experienced in
closing 504 loans and thus, is able to do so cost effectively.
Sometimes, a Borrower will also retain an attorney. Under the current
regulations, the CDC may charge the Borrower up to $2,500 for the legal
services performed by the CDC counsel, unless SBA approves a higher fee
in a complex case. If the fee is more than $2,500, the CDC must pay the
difference. The CDC collects the fee at closing and forwards it to the
closing attorney.
The $2,500 figure in the regulation has engendered much debate
within the industry. Many CDCs feel the figure establishes a minimum
base for attorney services and is, therefore, anti-competitive. On the
other hand, during the past five months, SBA has conducted several
expedited closing training sessions for CDC counsel. Many attorneys
feel that the figure establishes a ceiling for attorney services and
is, therefore, anti-competitive. There appears to be a wide range of
prices charged by CDC counsel for closing services. Most CDCs try to
minimize
[[Page 64371]]
counsel fees to reduce costs to the Borrower.
SBA has determined that there is no reason for SBA to refer to any
legal fee amount. Whether it is viewed as a ceiling or a base, the
$2,500 reference has apparently caused misunderstanding and may have
had an effect on legal fees charged. SBA believes legal fees should be
determined by the competitive market. Therefore, proposed
Secs. 120.883(d) and 120.961(a), omit any reference to amount.
(d) Eligible Use of Proceeds. In the current regulations, airplanes
are not eligible for 504 loans, except that Alaskan and Hawaiian
Projects may include airplanes not exceeding 20 percent of the Project
cost, if they are indispensable to the Project. SBA proposes to
eliminate this exception (Sec. 120.884(d)(2)), previously justified
because of the great distances people must travel in those states. But
distances are great in many mainland states, as well, and airplanes
simply are not directly attributable and necessary for a Project.
Also, in the current regulations there is no direct reference to
the eligibility of construction equipment as a distinct sub-category of
equipment and machinery. CDCs and SBA often receive questions from
potential Borrowers as to whether construction equipment is eligible
for 504 financing. The proposed rule in Sec. 120.884(d)(3) clarifies
that construction equipment is ineligible for 504 financing unless it
is heavy duty equipment integral to the operation of a business and
meeting the IRS definition of capital equipment. Note also that
Sec. 120.884(d)(1) clarifies SBA policy that short term equipment is a
permitted use of loan proceeds if the equipment is essential to the
Project and reflects a minor percentage of the loan. This is not a
change in policy.
(e) Definitions. SBA has created several new definitions to help
make the regulation easier to understand. Comments and suggestions will
be appreciated.
Several definitions clarify terms long associated with the 504
program which were included in the regulations, but were not defined.
These include ``Area of Operations,'' ``Certificate,'' ``Debenture,''
``Job Opportunity,'' and ``Substantial Increase in Unemployment.''
Finally, some key words have been replaced with more useful and apt
words. A ``Small Business Concern'' is now a ``Small Business.'' The
term ``Underwriter'' has replaced ``Pooler.'' The term ``Project'' has
replaced ``Plant.'' ``Project Property'' is a new definition previously
undefined in the regulation.
(f) Minor Policy Changes. In proposed Sec. 120.828, the minimum
level of CDC lending activity is no longer set at a specific number;
SBA will retain the ability to change this number through its program
announcements based on program performance and the economy. In proposed
Sec. 120.939(b), CDCs will be liable for SBA losses incurred by
``wrongful CDC conduct'' as well as in cases of fraud and negligence.
Compliance With Executive Orders 12612, 12778, and 12866, the
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork
Reduction Act (44 U.S.C. Ch. 35)
SBA certifies that this proposed rule involves internal
administrative procedures and would not be considered a significant
rule within the meaning of Executive Order 12866 and would 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. It is not likely to have an annual economic effect of $100 million
or more, result in a major increase in costs or prices, or have a
significant adverse effect on competition or the United States economy.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
certifies that this proposed rule, if adopted in final form, would
contain no new reporting or record keeping requirements.
For purposes of Executive Order 12612, SBA certifies that this rule
would not have any federalism implications warranting the preparation
of a Federalism Assessment.
For purposes of Executive Order 12778, SBA certifies that this rule
is drafted, to the extent practicable, in accordance with the standards
set forth in Section 2 of that Order.
List of Subjects
13 CFR Part 108
Equal employment opportunity, Loan programs-business, Reporting and
recordkeeping requirements, Small businesses.
13 CFR Part 116
Coastal Zone, Flood insurance, Flood plains, Lead poisoning, Small
businesses, Veterans.
13 CFR Part 120
Loan programs-business, Reporting and recordkeeping requirements,
Small businesses.
13 CFR Part 122
Community development, Employee benefit plans, Energy conservation,
Environmental protection, Exports, Individuals with disabilities, Loan
programs-business, Loan programs-energy, Loan programs-veterans,
Microloans, Reporting and recordkeeping requirements, Small businesses,
Solar energy, Trusts and trustees, Veterans.
13 CFR Part 131
Loan programs-business, Small businesses.
Accordingly, pursuant to the authority set forth in sections 5
(b)(1) and (b)(6) of the Small Business Act, 15 U.S.C. 634(b)(6) and
636 (a) and (h), SBA hereby proposes to amend Chapter I of Title 13,
Code of Federal Regulations (CFR), as follows:
FR Doc. 95-30327 Business Loan Programs
1. Part 120 would be revised to read as follows:
PART 120--BUSINESS LOANS
General Descriptions of SBA's Business Loan Programs
Sec.
120.1 Which loan programs does this part cover?
120.2 Descriptions of the business loan programs.
120.3 Pilot programs.
Definitions
120.10 Definitions.
Subpart A--Policies Applying to All Business Loans
Eligibility Requirements
120.100 What are the basic requirements for all Borrowers?
120.101 Credit not available elsewhere.
120.102 Funds not available from alternative sources, including
personal resources of principals.
120.103 Are farm enterprises eligible?
120.104 Are businesses financed by SBICs eligible?
120.105 Special consideration for veterans.
Ineligible Businesses and Eligible Passive Companies
120.110 What businesses are ineligible for SBA business loans?
120.111 What conditions must an Eligible Passive Company satisfy?
Uses of Proceeds
120.120 What are eligible uses of proceeds?
120.130 Restrictions on uses of proceeds.
Ethical Requirements
120.140 What ethical requirements apply to participants?
Credit Criteria for SBA Loans
120.150 What are SBA's lending criteria?
120.151 What is the statutory limit for total loans to a Borrower?
120.160 Loan conditions.
[[Page 64372]]
120.161 Lending limits.
Requirements Imposed Under Other Laws and Orders
120.170 Flood insurance.
120.171 Compliance with child support obligations.
120.172 Flood-plain and wetlands management.
120.173 Lead-based paint.
120.174 Earthquake hazards.
120.175 Coastal barrier islands.
120.176 Compliance with other laws.
Enforceability Despite Rule Changes
120.180 Are rules enforceable if they are changed later?
Loan Applications
120.190 Where does an applicant apply for a loan?
120.191 The contents of a business loan application.
120.192 Approval or denial.
120.193 Reconsideration after denial.
Computerized SBA Forms
120.194 Use of computer forms.
120.195 Duty of Lender, CDC, Intermediary Lender, and Borrower to
report fees.
Subpart B--Policies Specific to 7(a) Loans
Bonding Requirements
120.200 What bonding requirements exist during construction?
Limitations on Use of Proceeds
120.201 Refinancing unsecured or undersecured loans.
120.202 Restrictions on loans for changes in ownership.
120.203 Revolving credit.
Maturities; Interest Rates; Loan and Guarantee Amounts
122.210 What percentage of a loan may SBA guarantee?
120.211 What limits are there on the amounts of direct loans?
120.212 What limits are there on loan maturities?
120.213 What fixed interest rates may a Lender charge?
120.214 What conditions apply for variable interest rates?
Fees for Guaranteed Loans
120.220 Guarantee fees that Lender pays SBA.
120.221 Fees which the Lender may collect from a loan applicant.
120.222 Fees which the Lender or Associate may not collect from the
Borrower or share with third parties.
Subpart C--Special Purpose Loans
120.300 Statutory Authority.
Disabled Assistance Loan Program (DAL)
120.310 What assistance is available for the disabled?
120.311 Definitions.
120.312 DAL-1 use of proceeds and other program conditions.
120.313 DAL-2 use of proceeds and other program conditions.
120.314 Resolving doubts about creditworthiness.
120.315 Interest rate and loan limit.
Businesses Owned by Low Income Individuals
120.320 Policy.
Energy Conservation
120.330 Who is eligible for an energy conservation loan?
120.331 What devices or techniques are eligible for a loan?
120.332 What are the eligible uses of proceeds?
120.333 Are there any special credit criteria?
Export Working Capital Program (EWCP)
120.340 What is the Export Working Capital Program?
120.341 Who is eligible?
120.342 What are eligible uses of proceeds?
120.343 Collateral.
120.344 Cash flow projections.
International Trade Loans
120.345 Policy.
120.346 Eligibility.
120.347 Use of proceeds.
120.348 Amount and percentage of guarantee.
Qualified Employee Trusts (ESOP)
120.350 Policy.
120.351 Definitions.
120.352 Use of proceeds.
120.353 Eligibility.
120.354 Creditworthiness.
Veterans Loan Program
120.360 Which veterans are eligible?
120.361 Other conditions of eligibility.
Pollution Control Program
120.370 Policy.
Loans to Participants in the 8(a) Program
120.375 Policy.
120.376 Special requirements.
120.377 Use of proceeds.
Defense Economic Transition Assistance
120.380 Program.
120.381 Eligibility.
120.382 Repayment ability.
120.383 Restrictions on loan processing.
Caplines Program
120.390 Revolving credit.
Small General Contractors
120.391 What is the Small General Contractor Program?
120.392 Who may apply?
120.393 Are there special application requirements?
120.394 What are the eligible uses of proceeds?
120.395 What is SBA's collateral position?
120.396 What is the term of the loan?
120.397 Are there any special restrictions?
Subpart D--Lenders
120.400 Participation agreements.
Participation Criteria
120.410 Requirements for all participating Lenders.
120.411 Preferences.
120.412 Other services Lenders may provide Borrowers.
120.413 Advertisement of relationship with SBA.
Pledging Notes or Transferring Unguaranteed Portion
120.420 Financings by Nondepository Lenders.
Miscellaneous Provisions
120.430 SBA access to Lender files.
120.431 Suspension or revocation of eligibility to participate.
Certified Lenders Program (CLP)
120.440 What is the Certified Lenders Program?
120.441 How does a Lender become a CLP Lender?
120.442 Suspension or revocation of CLP status.
Preferred Lenders Program (PLP)
120.450 What is the Preferred Lenders Program?
120.451 How does a Lender become a PLP Lender?
120.452 What are the requirements of PLP loan processing?
120.453 What are the requirements of PLP loan servicing and
liquidation?
120.454 PLP performance review.
120.455 Suspension or revocation of PLP status.
Small Business Lending Companies (SBLC)
120.470 What is an SBLC?
120.471 Records.
120.472 Reports to SBA.
120.473 Change of ownership or control.
120.474 Prohibited financing.
120.475 Suspension or revocation.
Subpart E--Loan Administration
120.500 General.
Servicing
120.510 Servicing direct and immediate participation loans.
120.511 Servicing guaranteed loans.
120.512 Who services the loan after SBA honors its guarantee?
120.513 What servicing actions require the prior written consent of
the SBA?
SBA'S Purchase of a Guaranteed Portion
120.520 When does SBA honor its guarantee?
120.521 What interest rate applies after SBA purchases its
guaranteed portion?
120.522 How much accrued interest does SBA pay to the Lender or
Registered Holder when SBA purchases the guaranteed portion?
120.523 What is the ``earliest uncured default''?
120.524 When is SBA released from liability on its guarantee?
[[Page 64373]]
Deferment, Extension of Maturity and Loan Moratorium
120.530 Deferment of payment.
120.531 Extension of maturity.
120.532 What is a loan Moratorium?
120.533 When will SBA grant a Moratorium?
120.534 How long can a Moratorium continue?
120.535 What are the repayment terms of a Moratorium?
Liquidation of Collateral
120.540 What are SBA's policies concerning liquidation of
collateral?
Homestead Protection for Farmers
120.550 What is homestead protection for farmers?
120.551 Who is eligible for homestead protection?
120.552 Lease.
120.553 Appeal.
Subpart F--Secondary Market
120.600 What is the SBA Secondary Market?
120.601 Definitions.
Certificates
120.610 Description of Certificates.
120.611 Description of Pools backing Pool Certificates.
120.612 What loans are eligible to back Certificates?
120.613 What is a Secondary Participation Guarantee Agreement?
The SBA Guarantee of a Certificate
120.620 The SBA guarantee of a Pool Certificate.
120.621 The SBA guarantee of a Certificate representing a
individual guaranteed portion.
Pool Assemblers
120.630 Qualifications to be a Pool Assembler.
120.631 Suspension or termination of eligibility of Pool Assembler.
Sale of Certificates
120.640 Administration of the Pool and individual guaranteed
portions.
120.641 Disclosure to purchasers.
120.642 Requirements before the FTA issues Pool Certificates.
120.643 Requirements before the FTA issues the Certificate for an
individual guaranteed portion.
120.644 Sale of individual SBA guaranteed portion.
120.645 Transfers of Certificates.
Fiscal and Transfer Agent (FTA)
120.650 Registration duties of FTA in Secondary Market.
120.651 Claim to FTA by Registered Holder to replace Certificate.
120.652 FTA fees.
Suspension or Revocation of Participant in Secondary Market
120.660 Suspension or revocation.
Subpart G--Microloan Demonstration Program
120.700 What is the Microloan Program?
120.701 Definitions.
120.702 Are there limits on Intermediaries or loans?
120.703 How do I apply to become an Intermediary?
120.704 What is my financial contribution?
120.705 Microloan Revolving Fund.
120.706 Loan Loss Reserve Fund.
120.707 What are the terms and conditions of my Intermediary SBA
loan?
120.708 What conditions apply to my loans to Microloan Borrowers?
120.709 What records and reports does SBA require?
120.710 How does an Intermediary get a grant to assist Microloan
Borrowers?
120.711 Does SBA provide technical assistance to Intermediaries?
120.712 How does a non-Intermediary get a grant?
120.713 Does SBA guarantee any loans an Intermediary obtains from
another source?
Subpart H--Development Company Loan Program (504)
120.800 What is the purpose of the 504 program?
120.801 How is a 504 Project financed?
120.802 Definitions.
Certification Procedures to Become a CDC
120.810 Applications for certification as a CDC.
120.811 Public notice of CDC certification application.
120.812 Probationary period for newly certified CDCs.
Requirements for CDC Certification and Operation
120.820 CDC non-profit status.
120.821 CDC Area of Operations.
120.822 CDC membership.
120.823 CDC board of directors.
120.824 Professional management and staff.
120.825 Financial ability to operate.
120.826 Basic requirements for operating a CDC.
120.827 Services a CDC provides to small businesses.
120.828 The minimum level of CDC lending activity.
120.829 The Job Opportunity average a CDC must maintain.
120.830 Reports a CDC must submit.
120.831 Disclosure of referral fees or other payments by or to a
CDC
Extending a CDC's Area of Operations
120.835 Application to extend an Area of Operations.
120.836 Public notice of application for extension.
120.837 Expiration of existing, temporary expansions.
120.838 Case-by-case extensions.
Accredited Lenders Program
120.840 Accredited Lenders Program.
Premier Certified Lenders Program
120.845 Premier Certified Lenders Program.
Associate Development Companies (ADCs)
120.850 ADC functions.
120.851 ADC eligibility and operating requirements.
120.852 Suspension and revocation of ADCs.
Ethical Requirements
120.855 CDC and ADC ethical requirements.
Project Economic Development Goals
120.860 Required objectives.
120.861 Job creation or retention.
120.862 Other economic development objectives.
Leasing Policies Specific to 504 Loans
120.870 Leasing Project Property.
120.871 Leasing part of a new construction Project to another
business.
120.872 Leasing part of an existing building to another business.
Loan-Making Policies Specific to 504 Loans
120.880 Basic eligibility requirements.
120.881 Ineligible Projects for 504 loans.
120.882 Eligible Project costs for 504 loans.
120.883 Eligible administrative costs for 504 loans.
120.884 Ineligible costs for 504 loans.
Interim Financing
120.890 Source of interim financing.
120.891 Certifications of disbursement and completion.
120.892 Certifications of no adverse change.
Permanent Financing
120.900 What are the sources of permanent financing?
The Borrower's Contribution
120.910 How much must the Borrower contribute?
120.911 Land contributions.
120.912 Borrowed contributions.
120.913 May an SBIC provide the contribution?
Third Party Loans
120.920 The first lien position.
120.921 Terms of Third Party loans.
120.922 Pre-existing debt on the Project Property.
120.923 What are the policies on subordination?
120.924 Prepayment of subordinate financing.
120.925 Preferences.
504 Loans and Debentures
120.930 Amount.
120.931 504 lending limits.
120.932 Interest rate.
120.933 Maturity.
120.934 Collateral.
120.935 Deposit.
120.936 Subordination to CDC.
120.937 Assumption.
120.938 Default.
120.939 Borrower prohibition.
120.940 Prepayment of the 504 loan or Debenture.
120.941 Certificates.
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Debenture Sales and Service Agents
120.950 SBA and CDC must appoint agents.
120.951 Selling agent.
120.952 Fiscal agent.
120.953 Trustee.
120.954 Central Servicing Agent.
120.955 Agent bonds and records.
120.956 Suspension or revocation of brokers and dealers.
Closings
120.960 Responsibility for closing.
120.961 CDC closing fees.
120.962 Construction escrow accounts.
Servicing and Post-Closing Fees
120.970 Servicing of 504 loans and Debentures.
120.971 Post-closing fees paid by Borrower.
120.972 Oversight and evaluation of CDCs and ADCs.
CDC Transfer, Suspension and Revocation
120.980 Transfer of CDC to ADC status.
120.981 Voluntary transfer and surrender of CDC certification.
120.982 Correcting CDC servicing deficiencies.
120.983 Transfer of CDC servicing to SBA or another CDC.
120.984 Suspension or revocation of CDC certification.
Enforceability of 501, 502 and 503 Loans and Other Laws
120.990 501, 502 and 503 loans.
120.991 Effect of other laws.
Authority: 15 U.S.C 634(b)(6) and 636 (a) and (h).
General Descriptions of SBA's Business Loan Programs
Sec. 120.1 Which loan programs does this part cover?
This Part regulates SBA's financial assistance to small businesses
under its general business loan programs (``7(a) loans'') authorized by
section 7(a), 15 U.S.C. 636(a) of the Small Business Act (``the Act''),
its microloan demonstration loan program (``Microloans'') authorized by
section 7(m), 15 U.S.C. 636(m) of the Act, and its development company
program (``504 loans'') authorized by Title V of the Small Business
Investment Act, 15 U.S.C. 695 to 697f (``Title V''). These three
programs constitute the business loan programs of the SBA.
Sec. 120.2 Descriptions of the business loan programs.
(a) 7(a) loans. (1) 7(a) loans provide financing for general
business purposes and may be:
(i) A direct loan by SBA;
(ii) An immediate participation loan by a Lender and SBA; or
(iii) A guaranteed loan (deferred participation) by which SBA
guarantees a portion of a loan made by a Lender.
(2) A guaranteed loan is initiated by a Lender agreeing to make an
SBA guaranteed loan to a small business and applying to SBA for SBA's
guarantee under a blanket guarantee agreement (participation agreement)
between SBA and the Lender. If SBA agrees to guarantee (authorizes) a
portion of the loan, the Lender funds and services the loan. If the
small business defaults on the loan, SBA's guarantee requires SBA to
purchase its portion of the outstanding balance, upon demand by the
Lender and subject to specific conditions. Regulations specific to 7(a)
loans are found in subpart B of this part.
(b) Microloans. SBA makes loans and loan guarantees to non-profit
Intermediaries that make short-term loans up to $25,000 to eligible
small businesses for general business purposes, except payment of
debts. SBA also gives grants to Intermediaries for use in providing
management assistance and counseling to small businesses. Regulations
specific to these loans are found in subpart G of this part.
(c) 504 loans. Projects involving 504 loans require long-term
fixed-asset financing for small businesses. A Certified Development
Company (CDC) provides the final portion of this financing with a 504
loan made from the proceeds of a Debenture issued by the CDC,
guaranteed 100 percent by SBA (with the full faith and credit of the
United States), and sold to investors. The regulations specific to
these loans are found in subpart H of this part.
Sec. 120.3 Pilot programs.
The Administrator of SBA may from time to time suspend, modify, or
waive rules for a limited period of time to test new programs or ideas.
The Administrator shall publish a document in the Federal Register
explaining the reasons for these actions.
Definitions
Sec. 120.10 Definitions.
The following terms have the same meaning wherever they are used in
this part. Defined terms are capitalized wherever they appear.
Associate. (1) An Associate of a Lender or CDC is:
(i) An officer, director, member, or key employee, or an agent
involved in the loan-making process;
(ii) A Close Relative of any individual in paragraph (1)(i) of this
definition; and
(iii) Any entity in which one or more individuals referred to in
paragraphs (1) (i) and (ii) of this definition own or control at least
10 percent.
(2) An Associate of a small business is:
(i) An officer, director, member, owner, principal, key employee,
or agent authorized to act on behalf of the small business;
(ii) A Close Relative of any individual in paragraph (2)(i) of this
definition;
(iii) Any entity in which one or more individuals referred to in
paragraphs (2) (i) and (ii) of this definition owns or controls at
least 10 percent; and
(iv) Any individual or entity in control of or controlled by the
small business (except a Small Business Investment Company (``SBIC'')
licensed by SBA).
(3) For purposes of this definition, the time during which an
Associate relationship exists commences six months before the following
dates and continues as long as the certification, participation
agreement, or loan is outstanding:
(i) For a CDC, the date of certification by SBA;
(ii) For a Lender, the date of application for a loan guarantee on
behalf of an applicant; or
(iii) For a small business, the date of the loan application to
SBA, the CDC, the Intermediary, or the Lender.
Authorization is SBA's written agreement providing the terms and
conditions under which SBA will make or guarantee business loans. It is
not a contract to make a loan.
Borrower is the obligor of an SBA business loan.
Certified Development Company (``CDC'') is an entity authorized by
SBA to deliver 504 financing to small businesses.
Close Relative is a spouse; a parent; or a child or sibling, or the
spouse of any such person.
Eligible Passive Company is a small entity which does not engage in
regular and continuous business activity, which leases real or personal
property to an Operating Company for use in the Operating Company's
business, and which complies with the conditions set forth in
Sec. 120.111.
Intermediary is the entity in the Microloan program that receives
SBA financial assistance and makes loans to small businesses in amounts
up to $25,000.
Lender is an institution that has executed a participation
agreement with SBA under the guaranteed loan program.
Loan Instruments are the Authorization, note, instruments of
hypothecation, and all other agreements and documents related to a
loan.
Operating Company is an eligible small business actively involved
in conducting business operations now or about to be located on real
property owned by a Passive Company, or using or about to use in its
business
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operations personal property owned by a Passive Company.
Preference is any arrangement giving a Lender or a CDC a preferred
position compared to SBA relating to the making of a business loan with
respect to such things as repayment, collateral, guarantees, control,
maintainance of a compensating balance, purchase of a Certificate of
deposit or acceptance of a separate or companion loan, without SBA's
consent.
Rural Area is a political subdivision or unincorporated area in a
non-metropolitan county (as defined by the Department of Agriculture),
or, if in a metropolitan county, any such subdivision or area with a
resident population under 20,000 which is designated by SBA as rural.
Service Provider is an entity that contracts with a Lender or CDC
to perform management, marketing, legal or other services.
Subpart A--Policies Applying to All Business Loans
Eligibility Requirements
Sec. 120.100 What are the basic requirements for all Borrowers?
To be an eligible Borrower for an SBA loan, a small business must:
(a) Be an operating business (except for loans to Passive
Companies);
(b) Be organized for profit;
(c) Be located in the United States;
(d) Be small under the size requirements of Part 121 of this
chapter (including affiliates). See subpart H of this part for the size
standards of Part 121 of this chapter which apply only to 504 loans;
and
(e) Must demonstrate a need for the desired credit.
Sec. 120.101 Credit not available elsewhere.
SBA provides business loan assistance only to applicants for whom
the desired credit is not otherwise available on reasonable terms from
non-Federal sources. SBA requires the Lender or CDC to certify or
otherwise show that the desired credit is unavailable to the applicant
on reasonable terms and conditions from non-Federal sources without SBA
assistance, taking into consideration the prevailing rates and terms in
the community in or near where the applicant conducts business, for
similar purposes and periods of time. Submission of an application to
SBA by a Lender or CDC constitutes certification by the Lender or CDC
that it has examined the availability of credit to the applicant, has
based its certification upon that examination, and has documentation in
its file to support the certification.
Sec. 120.102 Funds not available from alternative sources, including
personal resources of principals.
An applicant for a business loan must show that the desired funds
are not available from the personal resources of the applicant's
principals or other sources such as the sale of the applicant's assets
or securities. SBA may require the use of personal resources before a
loan will be granted, unless SBA determines that undue hardship would
result or if the loan is to an employee trust.
Sec. 120.103 Are farm enterprises eligible?
Federal financial assistance to agricultural enterprises is
generally made by the United States Department of Agriculture (USDA),
but may be made by SBA under the Memorandum of Understanding signed by
SBA and USDA. Farm-related businesses are eligible businesses under
SBA's business loan programs.
Sec. 120.104 Are businesses financed by SBICs eligible?
SBA may make or guarantee loans to a business financed by an SBIC
if SBA's collateral position will be superior to that of the SBIC. SBA
may also make or guarantee a loan to an otherwise eligible small
business which temporarily is owned or controlled by an SBIC under the
regulations in part 107 of this chapter. SBA neither guarantees SBIC
loans nor makes loans jointly with SBICs.
Sec. 120.105 Special consideration for veterans.
SBA will give special consideration to a small business owned by a
veteran or, if the veteran chooses not to apply, to a business owned or
controlled by one of the veteran's dependents. If the veteran is
deceased or permanently disabled, SBA will give special consideration
to one survivor or dependent. SBA will process the application of a
business owned or controlled by a veteran or dependent promptly,
resolve close questions in the applicant's favor, and pay particular
attention to maximum loan maturity. For SBA loans, a veteran is a
person honorably discharged from active military service.
Ineligible Businesses and Eligible Passive Companies
Sec. 120.110 What businesses are ineligible for SBA business loans?
The following types of businesses are ineligible:
(a) Non-profit businesses (for-profit subsidiaries are eligible);
(b) Financial businesses primarily engaged in the business of
lending, such as banks, finance companies, and factors (pawn shops,
although engaged in lending, may qualify in some circumstances);
(c) Passive businesses owned by developers and landlords that do
not actively use or occupy the assets acquired or improved with the
loan proceeds (except Eligible Passive Companies under Sec. 120.111);
(d) Life insurance companies;
(e) Businesses located in a foreign country (businesses in the U.S.
owned by aliens may qualify);
(f) Pyramid sale distribution plans;
(g) Businesses deriving more than one-third of gross annual income
from legal gambling activities);
(h) Businesses engaged in any illegal activity;
(i) Private clubs and businesses which limit the number of
memberships for reasons other than capacity;
(j) Government-owned entities (except for businesses owned or
controlled by a Native American tribe);
(k) Businesses principally engaged in teaching, instructing,
counseling or indoctrinating religion or religious beliefs, whether in
a religious or secular setting;
(l) Consumer and marketing cooperatives (producer cooperatives are
eligible);
(m) Loan packagers earning 30 percent or more of their gross annual
revenue from packaging SBA loans;
(n) Businesses with an Associate considered to have control under
Part 121 who is incarcerated, on probation, on parole, or subject to
pending felony charges;
(o) Businesses in which the Lender or CDC, or any of its Associates
owns an equity interest (unless waived by SBA for good cause in the
case of minor ownership interests);
(p) Businesses which:
(1) Present live performances of a prurient sexual nature; or
(2) Derive significant gross revenue through the sale of products
or services, or the presentation of depictions or displays, of a
prurient sexual nature;
(q) Unless waived by SBA for good cause, businesses that have
previously defaulted on a Federal loan or Federally assisted financing,
resulting in the Federal government or any of its agencies or
Departments sustaining a loss in any of its programs, and businesses
owned or controlled by an applicant or any of its Associates which
previously owned, operated, or controlled a business which defaulted
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on a Federal loan and caused the Federal government or any of its
agencies or Departments to sustain a loss in any of its programs. For
purposes of this section, a compromise agreement shall also be
considered a loss; and
(r) Businesses primarily engaged in political or lobbying
activities.
Sec. 120.111 What conditions must an Eligible Passive Company satisfy?
An Eligible Passive Company must use loan proceeds to acquire or
lease, and/or improve or renovate real or personal property (including
eligible refinancing) that it leases to an Operating Company for the
conduct of the Operating Company's business. Any ownership structure or
legal form may qualify as a Eligible Passive Company, except revocable
trusts and other grantor trusts.
(a) Conditions that apply to all legal forms:
(1) The Operating Company is an eligible small business, and the
proposed use of the proceeds would have been an eligible use if the
Operating Company were obtaining the financing directly;
(2) Both the Eligible Passive Company and the Operating Company
must be small under the appropriate size standards in part 121 of this
chapter;
(3) The lease between the Eligible Passive Company and the
Operating Company must be in writing and must be subordinated to SBA's
mortgage, trust deed lien, or security interest on the property. Also,
the Eligible Passive Company (as landlord) must furnish as collateral
for the loan an assignment of all rents paid under the lease;
(4) The lease, including options to renew exercisable solely by the
Operating Company, must have a remaining term at least equal to the
term of the loan;
(5) The Operating Company must be a guarantor or a co-borrower
(with the Eligible Passive Company) of the loan; and
(6) Each holder of an ownership interest constituting at least 20
percent of the Eligible Passive Company or the Operating Company must
guarantee the loan (the trustee shall execute the guarantee on behalf
of any trust).
(b) Additional conditions that apply to irrevocable trusts. A trust
qualifying as a Eligible Passive Company may engage in other activities
as authorized by its trust agreement. For purposes of this section, the
trustee shall certify to SBA that:
(1) The trustee has authority to act;
(2) The trust is irrevocable, and is not regarded as a grantor
trust for tax purposes;
(3) The trust has the authority to borrow funds, pledge trust
assets, and lease the property to the Operating Company;
(4) The trustee has provided accurate, pertinent language from the
trust agreement confirming the above; and
(5) The trustee has provided and will continue to provide SBA with
a true and complete list of all trustors and donors.
Uses of Proceeds
Sec. 120.120 What are eligible uses of proceeds?
A small business must use an SBA loan for sound business purposes.
The uses of proceeds are prescribed in each loan's Authorization.
(a) A Borrower may use loan proceeds from any SBA loan to:
(1) Acquire land (by purchase or lease);
(2) Improve a site (grading, streets, parking lots, landscaping);
(3) Purchase an existing building;
(4) Convert, expand or renovate an existing building;
(5) Construct a new building; and/or
(6) Acquire (by purchase or lease) and install machinery and
equipment (in the 504 program, with a useful life of at least 10 years
and at a fixed location, unless essential to the Project).
(b) A Borrower may also use 7(a) and microloan proceeds for:
(1) Inventory;
(2) Supplies;
(3) Raw materials;
(4) Working capital; and
(5) Refinancing certain outstanding debts.
Sec. 120.130 Restrictions on uses of proceeds.
SBA will not authorize nor may a Borrower use loan proceeds for the
following purposes (including the replacement of funds used for any
such purpose):
(a) Payments, distributions or loans to Associates of the applicant
(except for ordinary compensation for services rendered);
(b) Refinancing a debt owed to a Small Business Investment Company
(``SBIC'');
(c) Speculation in any kind of real or personal property;
(d) Floor plan financing or other revolving line credit, except
under Sec. 120.390;
(e) Investments in real or personal property acquired and held
primarily for sale, lease, or investment and not used within 3 years in
an otherwise eligible business (except for a loan to an Eligible
Passive Company or to a small contractor under Sec. 120.310);
(f) A purpose which does not benefit the small business; or
(g) Any use restricted by Secs. 120.201-120.203 and 120.884
(specific to 7(a) loans and 504 loans respectively).
Ethical Requirements
Sec. 120.140 What ethical requirements apply to participants?
Lenders, Intermediaries, CDCs, Associate Development Companies
(``ADCs'') and their Associates (in this section ``Participants'') must
act ethically and exhibit good character. Ethical indiscretion of an
Associate shall be attributed to the Participant. A Participant must
promptly notify SBA if it obtains information concerning the unethical
behavior of an Associate. The following are examples of such unethical
behavior. A Participant may not:
(a) Self-deal;
(b) Have a real or apparent conflict of interest with a small
business with which it is dealing (including any of its Associates) or
SBA;
(c) Own an equity interest in a business that has received or is
applying to receive SBA financing (during the term of the loan or
within 6 months prior to the loan application);
(d) Be incarcerated, on parole, or on probation;
(e) Knowingly misrepresent or make a false statement to SBA;
(f) Engage in conduct reflecting a lack of business integrity or
honesty;
(g) Be a convicted felon, or have an adverse final civil judgment
(in a case involving fraud, breach of trust, or other conduct) that
would cause the public to question the Participant's business
integrity, taking into consideration such factors as the magnitude,
repetition, harm caused, and remoteness in time of the activity or
activities in question;
(h) Accept funding from any source that restricts, prioritizes, or
conditions the types of small businesses that the CDC, ADC, or
Intermediary may assist under an SBA program or that imposes any
conditions or requirements upon recipients of SBA assistance
inconsistent with SBA's loan programs or regulations;
(i) Fail to disclose to SBA all relationships between the small
business and its Associates, the Participant, and/or the lenders
financing the Project;
(j) Fail to disclose to SBA whether the loan will:
(1) Reduce the exposure of a Lender in a position to sustain a
loss;
(2) Directly or indirectly finance the purchase of real estate,
personal property or services (including insurance) from the
Participant;
(3) Repay or refinance a debt due a Participant;
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(4) Require the small business, or an Associate, to invest in the
Participant (except for institutions which require an investment from
all members as a condition of membership, such as a Production Credit
Association); or
(5) Involve a Lender, CDC or Associate that has issued a commitment
to make or consider the loan prior to receipt of the loan application,
including a forward commitment to a builder or developer; or
(k) Engage in any activity which taints its objective judgment in
evaluating the loan.
Credit Criteria for SBA Loans
Sec. 120.150 What are SBA's lending criteria?
The Borrower (and the Operating Company) must be creditworthy.
Loans must be so sound as to assure repayment. SBA will consider:
(a) Character, reputation, and credit history of the Borrower (and
the Operating Company, if applicable), its Associates, and guarantors;
(b) Experience and depth of management;
(c) Strength of the business;
(d) Past earnings, projected cash flow, and future prospects;
(e) Ability to repay the loan with earnings from the business;
(f) Sufficient invested equity to operate on a sound financial
basis;
(g) Potential for long-term success; and
(h) Nature and value of collateral. (Inadequate colateral will not
be the sole reason for denial of a loan request.)
Sec. 120.151 What is the statutory limit for total loans to a
Borrower?
The aggregate amount of the SBA portions of all loans to a single
Borrower, including the Borrower's affiliates as defined in part 121 of
this chapter, shall not exceed $750,000, except as otherwise authorized
by statute for a specific loan program.
Sec. 120.160 Loan conditions.
The following requirements are normally required by SBA for all
business loans:
(a) Personal guarantees. Associates and holders of at least a 20
percent ownership interest generally must guarantee the loan. SBA, in
its discretion, may require holders of interests of less than 20
percent to guarantee the loan.
(b) Appraisals. SBA may require professional appraisals of the
applicant's and principals' assets, a survey, or a feasibility study.
(c) Hazard Insurance. SBA requires hazard insurance on all
collateral.
(d) Taxes. If any portion of the loan proceeds will be used for
working capital, the applicant may not use any of the proceeds to pay
past-due Federal and state payroll taxes.
Sec. 120.161 Lending limits.
The outstanding balance of all SBA financial assistance to a
Borrower and its affiliates under the business loan programs covered by
this Part must not exceed $750,000 (except as otherwise authorized for
a specific loan program).
Requirements Imposed Under Other Laws and Orders
Sec. 120.170 Flood insurance.
Under the Flood Disaster Protection Act of 1973 (Sec. 205(b) of
Public Law 93-234; 87 Stat. 983 (42 U.S.C. 4000 et seq.)), a loan
recipient must obtain flood insurance if any building (including mobile
homes), machinery, or equipment acquired, installed, improved,
constructed, or renovated with the proceeds of SBA financial assistance
is located in a special flood hazard area. The requirement applies also
to any inventory (business loan program), fixtures or furnishings
contained or to be contained in the building. Mobile homes on a
foundation are buildings. SBA, Lenders, CDCs, and Intermediaries must
notify Borrowers that flood insurance must be maintained.
Sec. 120.171 Compliance with child support obligations.
Any holder of 50% or more of the ownership interest in the
recipient of an SBA loan must certify that he or she is not more than
60 days delinquent on any obligation to pay child support arising
under:
(a) An administrative order;
(b) A court order;
(c) A repayment agreement between the recipient and the custodial
parent; or
(d) A repayment agreement between the recipient and a State agency
providing child support enforcement services.
Sec. 120.172 Flood-plain and wetlands management.
(a) All loans must conform to requirements of Executive Orders
11988, ``Flood Plain Management'' (3 CFR, 1977 Comp., p. 117) and
11990, ``Protection of Wetlands'' (3 CFR, 1977 Comp., p. 121). Lenders,
Intermediaries, CDCs, and SBA must comply with requirements applicable
to them. Applicants must show:
(1) Whether the location for which financial assistance is proposed
is in a floodplain or wetland;
(2) If it is in a floodplain, that the assistance is in compliance
with local land use plans; and
(3) That any necessary construction or use permits will be issued.
(b) Generally, there is an 8-step decision making process with
respect to:
(1) Construction or acquisition of anything, other than a building;
(2) Repair and restoration equal to more than 50% of the market
value of a building; or
(3) Replacement of destroyed structures.
(c) SBA may determine for the following types of actions, on a
case-by-case basis, that the full 8-step process is not warranted and
that only the first step (determining if a proposed action is in the
base floodplain) need be completed:
(1) Actions located outside the base floodplain;
(2) Repairs, other than to buildings, that are less than 50% of the
market value;
(3) Replacement of building contents, materials, and equipment;
(4) Hazard mitigation measures;
(5) Working capital loans; and
(6) SBA loan assistance of $1,500,000 or less.
Sec. 120.173 Lead-based paint.
If loan proceeds are for the construction or rehabilitation of a
residential structure, lead-based paint may not be used on any interior
surface, or on any exterior surface that is readily accessible to
children under the age of 7.
Sec. 120.174 Earthquake hazards.
When loan proceeds are used to construct a new building or an
addition to an existing building, the construction must conform with
the ``National Earthquake Hazards Reduction Program (NEHRP) Recommended
Provisions for the Development of Seismic Regulations for New
Buildings,'' obtainable from the Interagency Committee on Seismic
Safety in Construction.
Sec. 120.175 Coastal barrier islands.
SBA and Intermediaries may not make or guarantee any loan within
the Coastal Barrier Resource System.
Sec. 120.176 Compliance with other laws.
All SBA loans are subject to all applicable laws, including
(without limitation) the civil rights laws (see Parts 112, 113, 117 and
136 of this chapter), prohibiting discrimination on the grounds of
race, color, national origin, religion, sex, marital status, disability
or age. SBA requests agreements or evidence to support or document
compliance with these laws, including reports required by applicable
statutes or the regulations in this chapter.
[[Page 64378]]
Enforceability Despite Rule Changes
Sec. 120.180 Are rules enforceable if they are changed later?
Regulations and contractual provisions in effect at the time of a
transaction govern an SBA loan financing transaction, notwithstanding
subsequent rule or contract changes. SBA may conduct an enforcement
action regarding any violation of provisions of regulations or
contracts applicable at the time, but no longer in effect or in use.
Loan Applications
120.190 Where does an applicant apply for a loan?
An applicant for a loan should apply to:
(a) A Lender for a guaranteed or immediate participation loan;
(b) A CDC for a 504 loan;
(c) An Intermediary for a Microloan; or
(d) SBA for a direct loan.
Sec. 120.191 The contents of a business loan application.
SBA requires that an application for a business loan contain, among
other things, a description of the history and nature of the business,
the amount and purpose of the loan, the collateral offered for the
loan, current financial statements, historical financial statements (or
tax returns if appropriate) for the past three years, and a business
plan, when applicable. Personal histories and financial statements will
be required from principals of the applicant (and the Operating
Company, if applicable).
Sec. 120.192 Approval or denial.
Applicants receive notice of approval or denial by the Lender, CDC,
Intermediary, or SBA, as appropriate. Notice of denial will include the
reasons. If a loan is approved, an Authorization will be issued.
Sec. 120.193 Reconsideration after denial.
An applicant or recipient of a business loan may request
reconsideration of a denied loan or loan modification request within 6
months of denial. Applicants denied due to a size determination can
appeal that determination under part 121 of this chapter. All others,
including those requesting modification of an existing loan condition,
can only appeal to the office that denied the initial loan application
or request. To prevail, the applicant must demonstrate that it has
overcome all legitimate reasons for denial. Six months after denial, a
new application is required. If the reconsideration is denied, an
applicant may request a final reconsideration by the AA/FA, whose
decision is final.
Computerized SBA Forms
Sec. 120.194 Use of computer forms.
Any applicant or other party involved in SBA Business Loan Programs
may use computer generated SBA application forms, closing forms, and
other forms designated by SBA if the forms are exact reproductions of
SBA forms.
Sec. 120.195 Duty of Lender, CDC, Intermediary Lender, and Borrower to
report fees.
(a) A Lender, CDC, or Intermediary Lender must report to SBA all
fees of which it has knowledge or which it charges the applicant,
including insurance fees. It must refund to the applicant any fees that
SBA considers excessive. Failure to do so may result in an action by
SBA to suspend or revoke the Lender's participation status.
(b) An applicant for a business loan must certify to SBA the name
of each individual or entity (attorney, loan packager, broker,
accountant, Service Provider, Lender) that helped the applicant obtain
the loan, describing the services performed, and disclosing the amount
of each fee.
Subpart B--Policies Specific to 7(a) Loans
Bonding Requirements
Sec. 120.200 What bonding requirements exist during construction?
On 7(a) loans where the SBA guarantee covers a period of
construction, the Borrower must supply a 100 percent payment and
performance bond and builder's risk insurance, unless waived by SBA.
Limitations on Use of Proceeds
Sec. 120.201 Refinancing unsecured or undersecured loans.
A Borrower may not use 7(a) loan proceeds to pay off an
inadequately secured creditor, including a Lender, causing a shift to
SBA of all or part of a potential loss from an existing debt.
Sec. 120.202 Restrictions on loans for changes in ownership.
A Borrower may not use loan proceeds to purchase a portion of a
business or a portion of another owner's interest. One or more current
owners may use loan proceeds to purchase the entire interest of another
current owner, or a Borrower can purchase ownership of an entire
business.
Sec. 120.203 Revolving credit.
SBA may not use its regular 7(a) program for a revolving line of
credit, such as ``floor plan'' financing. (See Sec. 120.390 for special
Caplines program.)
Maturities; Interest Rates; Loan and Guarantee Amounts
Sec. 120.210 What percentage of a loan may SBA guarantee?
SBA's guarantee percentage must not exceed the applicable
percentage established in section 7(a) of the Act. The maximum
allowable guarantee percentage on a loan will be determined by the loan
amount. As of October 31, 1995, the percentages are: Loans of $100,000
or less may receive a maximum guarantee of 80 percent. All other loans
may receive a maximum guarantee of 75 percent, not to exceed $750,000.
Sec. 120.211 What limits are there on the amounts of direct loans?
(a) The statutory limit for direct loans made under the authority
of section 7(a)(1)-(19) of the Small Business Act is $350,000. SBA has
established an administrative limit of $150,000 for direct loans. The
Associate Administrator for Financial Assistance (AA/FA) may authorize
acceptance of an application up to the statutory limit.
(b) The statutory limit for direct loans made under the authority
of section 7(a)(20) is $750,000. SBA has established an administrative
limit of $150,000. The Associate Administrator for Minority Enterprise
Development may authorize the acceptance of an application that exceeds
the administrative limit.
(c) The statutory limit on SBA's portion of an immediate
participation loan is the lesser of 90 percent of the loan or $350,000.
The administrative limit is the lesser of 75 percent of the loan or
$150,000. The AA/FA may authorize exceptions to the administrative
limit up to $350,000.
Sec. 120.212 What limits are there on loan maturities?
The term of a loan shall be:
(a) The shortest appropriate term, depending upon the Borrower's
ability to repay;
(b) Ten years or less, unless it finances or refinances real estate
or equipment with a useful life exceeding ten years; and
(c) A maximum of 25 years, including extensions. (A portion of a
loan used to acquire or improve real property may have a term of 25
years plus an additional period needed to complete the construction or
improvements.)
[[Page 64379]]
Sec. 120.213 What fixed interest rates may a Lender charge?
(a) Fixed Rates for Guaranteed Loans. A loan may have a reasonable
fixed interest rate. SBA periodically publishes the maximum allowable
rate in the Federal Register.
(b) Direct loans. A statutory formula based on the cost of money to
the Federal government determines the interest rate on direct loans.
SBA publishes the rate periodically in the Federal Register.
Sec. 120.214 What conditions apply for variable interest rates?
A Lender may use a variable rate of interest, upon SBA's approval.
SBA's maximum allowable rates apply only to the initial rate on the
date SBA received the loan application. SBA shall approve the use of a
variable interest rate under the following conditions:
(a) Frequency. The first change may occur on the first calendar day
of the month following initial disbursement, using the base rate (see
paragraph (c) of this section) in effect on the first business day of
the month. After that, changes may occur no more often than monthly.
(b) Range of fluctuation. The amount of fluctuation shall be equal
to the movement in the base rate. The difference between the initial
rate and the ceiling rate may be no greater than the difference between
the initial rate and the floor rate.
(c) Base rate. The base rate shall be the prime rate in effect on
the first business day of the month, printed in a national financial
newspaper published each business day, or the SBA Optional Peg Rate
which SBA publishes quarterly in the Federal Register.
(d) Maturities under 7 years. For loans with maturities under seven
years, the maximum interest rate shall not exceed two and one-quarter
(2\1/4\) percentage points over the base rate.
(e) Maturities of 7 years or more. For loans with maturities of
seven or more years, the maximum interest rate shall not exceed two and
three-quarters (2\3/4\) percentage points over the base rate.
(f) Higher interest rates for smaller loans. For a variable rate
loan over $25,000 but not exceeding $50,000, the interest rate may be
one percent more than the maximum interest rate described above. For a
variable rate loan of $25,000 or less, the maximum interest rate
described above may be increased by two percentage points.
(g) Amortization. Initial amortization of principal and interest
may be recomputed as interest rates fluctuate, as directed by SBA. With
prior approval of SBA, the Lender may use certain other amortization
methods.
Fees for Guaranteed Loans
Sec. 120.220 Guarantee fees that Lender pays SBA.
(a) The Lender pays a guarantee fee to SBA for each loan as
follows:
----------------------------------------------------------------------------------------------------------------
Fee measured as
Guaranteed portion of loan percentage of When payable Lender may get fee When SBA refunds
guaranteed portion from borrower fee from borrower
----------------------------------------------------------------------------------------------------------------
Under 12 months.................. .25%.............. With guarantee When SBA approves If application
application. loan. withdrawn or
denied \1\
More than 12 months and total 2.0% of guaranteed Within 90 days of After First If loan cancelled
guaranteed portion is $80,000 or portion. SBA approval. disbursement. and never
less. disbursed
More than 12 months and amount of 3%................ Within 90 days of After first If loan cancelled
guaranteed portion of loan that SBA approval. disbursement. and never
is $250,000 or less. disbursed
More than 12 months and amount of 3.0% of 1st Within 90 days of After first If loan cancelled
guaranteed portion of loan $250,000 plus SBA approval. disbursement. and never
between $250,000 and $500,000. 3.5% of balance. disbursed
More than 12 months and amount of 3.0% of 1st Within 90 days of After first If loan cancelled
guaranteed portion of loan $250,000 plus SBA approval. disbursement. and never
exceeding $500,000. 3.5% of next disbursed.
$250,000 plus
3.875% of the
amount exceeding
$500,000.
----------------------------------------------------------------------------------------------------------------
\1\ Also, if SBA substantially changes the Lender's loan terms and approves the loan, but the modified terms are
unacceptable to the Borrower or Lender. (The Lender must request refund in writing within 30 calendar days of
the approval).
(b) The Lender shall also pay SBA an annual fee equal to 0.5
percent of the outstanding balance of the guaranteed portion of each
loan.
(c) If the guarantee fee is not paid, SBA may terminate the
guarantee. The Borrower may use loan proceeds to reimburse the Lender
for the guarantee fee. Acceptance of the guarantee fee by SBA shall not
waive any right of SBA arising from the Lender's misconduct or
violation of any provision of this part, the guarantee agreement, the
Authorization, or other loan documents.
Sec. 120.221 Fees which the Lender may collect from a loan applicant.
(a) Service and packaging fees. The Lender may charge an applicant
reasonable fees (customary for similar Lenders in the geographic area
where the loan is being made) for packaging and other services. The
Lender must advise the applicant in writing that the applicant is not
required to obtain or pay for unwanted services. The applicant is
responsible for deciding whether fees are reasonable. SBA may review
these fees at any time. Lender must refund any such fee considered
unreasonable by SBA.
(b) Commitment fee for Export Working Capital loan. After SBA
approves a loan under the Export Working Capital Program, the Lender
may charge the borrower a commitment fee of \1/4\ of 1 percent (or $200
minimum) of the loan.
(c) Extraordinary servicing. Subject to prior written SBA approval,
if all or part of a loan will have extraordinary servicing needs, the
Lender may charge the applicant a service fee not to exceed 2 percent
per year on the outstanding balance of the part requiring special
servicing.
(d) Out-of-pocket expenses. The Lender may collect from the
applicant
[[Page 64380]]
necessary out-of-pocket expenses such as filing or recording fees.
(e) Late payment fee. The Lender may charge the Borrower a late
payment fee not to exceed 5 percent of the regular loan payment.
(f) No prepayment fee. The Lender may not charge a fee for full or
partial prepayment of a loan.
Sec. 120.222 Fees which the Lender or Associate may not collect from
the Borrower or share with third parties.
The Lender or its Associate may not:
(a) Require the applicant or Borrower to pay the Lender, an
Associate, or any party designated by either, any fees or charges for
goods or services, including insurance, as a condition for obtaining an
SBA guaranteed loan (unless permitted by this part);
(b) Charge an applicant any commitment, bonus, broker, commission,
or similar fee;
(c) Charge points or add-on interest;
(d) Share any premium received from the sale of an SBA guaranteed
loan in the secondary market with either a packager or other loan-
referral source; or
(e) Charge the Borrower for legal services, unless they are hourly
charges for requested services actually rendered.
Subpart C--Special Purpose Loans
Sec. 120.300 Statutory authority.
In addition to the general 7(a) business loan program, Congress has
authorized several special purpose programs in various subsections of
the Act. Generally, the regular 7(a) loan policies, eligibility
requirements and credit criteria apply. The sections of this subpart
prescribe the special conditions applying to each special purpose
program. As with other business loans, special purpose loans are
available only to the extent funded by annual appropriations.
Disabled Assistance Loan Program (DAL)
Sec. 120.310 What assistance is available for the disabled?
Section 7(a)(10) of the Act authorizes SBA to guarantee or make
direct loans to the disabled. SBA distinguishes two kinds of
assistance:
(a) DAL-1. DAL-1 Financial Assistance is available to non-profit
public or private organizations for the disabled that employ the
disabled; or
(b) DAL-2. DAL-2 Financial Assistance is available to:
(1) Small businesses wholly owned by the disabled; and
(2) Disabled individuals to establish, acquire, or operate a small
business.
Sec. 120.311 Definitions.
(a) Organization for the disabled means one which:
(1) Is organized under federal or state law to operate in the
interest of the disabled;
(2) Is non-profit;
(3) Employs disabled individuals for seventy-five percent of the
time needed to produce commodities or services for sale; and
(4) Complies with occupational and safety standards prescribed by
the Department of Labor.
(b) Disabled individual means a person who has a permanent
physical, mental or emotional impairment, defect, ailment, disease or
disability which limits the type of employment for which the person
would otherwise be qualified.
Sec. 120.312 DAL-1 use of proceeds and other program conditions.
(a) DAL-1 applicants must submit appropriate documents to establish
program eligibility.
(b) Generally, applicants may use loan proceeds for any 7(a) loan
purposes. Loan proceeds may not be used:
(1) To purchase or construct facilities if construction grants and
mortgage assistance are available from another Federal source; or
(2) For supportive services (expenses incurred by a DAL-1
organization to subsidize wages of low producers health and
rehabilitation services, management, training, education, and housing
of disabled workers).
(c) SBA does not consider a DAL-1 organization to have a conflict
of interest if one or more of its Associates is an Associate of the
Lender.
Sec. 120.313 DAL-2 use of proceeds and other program conditions.
(a) The DAL-2 loan proceeds may be used for normal 7(a) loan
purposes.
(b) An applicant may use DAL-2 loan proceeds to acquire an eligible
small business without complying with the change of ownership
conditions in Sec. 120.206.
(c) A DAL-2 applicant must submit evidence from a physician,
psychiatrist, or other qualified professional as to the permanent
nature of the disability and the limitation it places on the applicant.
Sec. 120.314 Resolving doubts about creditworthiness.
For the purpose of the DAL Program, SBA shall resolve doubts
concerning the creditworthiness of an applicant in favor of the
applicant. However, the applicant must present satisfactory evidence of
repayment ability. Personal guarantees of Associates are not required.
Sec. 120.315 Interest rate and loan limit.
The interest rate on direct DAL loans is three percent. There is an
administrative limit of $150,000 on a direct DAL loan.
Businesses Owned by Low Income Individuals
Sec. 120.320 Policy.
Section 7(a)(11) of the Act authorizes SBA to make or guarantee
loans to establish, preserve or strengthen small business concerns:
(a) Located in an area having high unemployment according to the
Department of Labor;
(b) Located in an area in which a high percentage of individuals
have a low income inadequate to satisfy basic family needs; and
(c) More than 50 percent owned by low income individuals.
Energy Conservation
Sec. 120.330 Who is eligible for an energy conservation loan?
SBA may make or guarantee loans to assist a small business to
design, engineer, manufacture, distribute, market, install, or service
energy devices or techniques designed to conserve the Nation's energy
resources.
Sec. 120.331 What devices or techniques are eligible for a loan?
Eligible energy conservation devices or techniques include:
(a) Solar thermal equipment;
(b) Photovoltaic cells and related equipment;
(c) A product or service which increases the energy efficiency of
existing equipment, methods of operation or systems which use fossil
fuels, and which is on the Energy Conservation Measures list of the
Secretary of Energy;
(d) Equipment producing energy from wood, biological waste, grain
or other biomass energy sources;
(e) Equipment for cogeneration of energy, district heating or
production of energy from industrial waste;
(f) Hydroelectric power equipment;
(g) Wind energy conversion equipment; and
(h) Engineering, architectural, consulting, or other professional
services necessary or appropriate for any of the devices or techniques
in paragraphs (a) through (g) of this section.
Sec. 120.332 What are the eligible uses of proceeds?
(a) Acquire property. The Borrower may use the loan proceeds to
acquire land necessary for imminent plant construction, buildings,
machinery,
[[Page 64381]]
equipment, furniture, fixtures, facilities, supplies, and material
needed to accomplish any of the eligible program purposes in
Sec. 120.330.
(b) Research and development. Up to 30% of loan proceeds may be
used for research and development:
(1) Of an existing product or service; or
(2) A new product or service.
(c) Working capital. The Borrower may use proceeds for working
capital for entering or expanding in the energy conservation market.
Sec. 120.333 Are there any special credit criteria?
In addition to regular credit evaluation criteria, SBA shall weigh
the greater risk associated with energy projects. SBA shall consider
such factors as quality of the product or service, technical
qualifications of the applicant's management, sales projections, and
financial status.
Export Working Capital Program (EWCP)
Sec. 120.340 What is the Export Working Capital Program?
Under the EWCP, SBA guarantees a revolving line of credit for
export purposes (section 7(a)(14) of the Act). Loan maturities may be
for up to three years with annual renewals. Proceeds can be used only
to finance export transactions. Loans can be for single or multiple
export sales.
Sec. 120.341 Who is eligible?
In addition to the criteria applicable to all 7(a) loans, an
applicant must be in business for one full year at the time of
application, but not necessarily in the exporting business. SBA may
waive this requirement if the applicant has sufficient export trade
experience or other managerial experience.
Sec. 120.342 What are eligible uses of proceeds?
Loan proceeds may be used:
(a) To acquire inventory;
(b) To pay the manufacturing costs of goods for export;
(c) To purchase goods or services for export;
(d) To support standby letters of credit;
(e) To develop or penetrate foreign markets;
(f) For pre-shipment working capital; and
(g) For post-shipment exposure coverage.
Sec. 120.343 Collateral.
A Borrower must give SBA a first security interest sufficient to
cover 100 percent of the EWCP loan amount (such as insured accounts
receivable or letters of credit). Collateral must be located in the
United States, its territories or possessions.
Sec. 120.344 Cash flow projections.
An applicant must submit cash flow projections to support the need
for the loan and the ability to repay. After the loan is made, the loan
recipient must submit monthly progress reports.
International Trade Loans
Sec. 120.345 Policy.
Section 7(a)(16) of the Act authorizes SBA to guarantee loans to
small businesses that are:
(a) Engaged or preparing to engage in international trade; or
(b) Adversely affected by import competition.
Sec. 120.346 Eligibility.
(a) An applicant must establish that:
(1) The loan proceeds will significantly expand an existing export
market or develop new export markets; or
(2) The applicant business is adversely affected by import
competition; and
(3) Upgrading facilities or equipment will improve the applicant's
competitive position.
(b) The applicant must have a business plan reasonably supporting
its projected export sales.
Sec. 120.347 Use of proceeds.
The Borrower may use loan proceeds to acquire, construct, renovate,
modernize, improve, or expand facilities and equipment to be used in
the United States to produce goods or services involved in
international trade.
Sec. 120.348 Amount and percentage of guarantee.
SBA can guarantee up to $1,250,000 for a combination of fixed-asset
financing and working capital, supplies and EWCP assistance. The non-
fixed-asset portion cannot exceed $750,000.
Qualified Employee Trusts (ESOP)
Sec. 120.350 Policy.
Section 7(a)(15) of the Act authorizes SBA to guarantee a loan to a
qualified employee trust (``ESOP'') to:
(a) Help finance the growth of its employer's small business; or
(b) Purchase ownership or voting control of the employer.
Sec. 120.351 Definitions.
All terms specific to ESOPs have the same definition for purposes
of this section as in the Internal Revenue Service (IRS) Code (title 26
of the United States Code) or regulations (26 CFR chapter I).
Sec. 120.352 Use of proceeds.
Loan proceeds may be used for two purposes.
(a) Qualified employer securities. A qualified employee trust may
relend loan proceeds to the employer by purchasing qualified employer
securities. The small business concern may use these funds for any
general 7(a) purpose.
(b) Control of employer. A qualified employee trust may use loan
proceeds to purchase a controlling interest (51 percent) in the
employer. Ownership and control must vest in the trust by the time the
loan is repaid.
Sec. 120.353 Eligibility.
SBA may assist a qualified employee trust (or equivalent trust)
that meets the requirements and conditions for an ESOP prescribed in
all applicable IRS, Treasury and DOL regulations. In addition, the
following conditions apply:
(a) The small business must provide the funds needed by the trust
to repay the loan; and
(b) The small business must provide adequate collateral.
Sec. 120.354 Creditworthiness.
In determining repayment ability, SBA shall not consider the
personal assets of the employee-owners of the trust. SBA shall consider
the earnings history and projected future earnings of the employer
small business. SBA may consider the business and management experience
of the employee-owners. SBA must have evidence that financial
assistance is not otherwise available by utilizing:
(a) The personal resources and credit of the principals of the
small business;
(b) The resources and credit of the small business; or
(c) The sale of the assets of the small business.
Veterans Loan Program
Sec. 120.360 Which veterans are eligible?
SBA may make a direct loan to a small business 51 percent owned by
one or more of the following eligible veterans:
(a) Vietnam-era veterans who served for a period of more than 180
days between August 5, 1964, and May 7, 1975, and were discharged other
than dishonorably;
(b) Disabled veterans of any era with a minimum compensable
disability of 30 percent; or
(c) A veteran of any era who was discharged for disability.
[[Page 64382]]
Sec. 120.361 Other conditions of eligibility.
(a) Management and daily operations of the business must be
directed by one or more of the veteran owners whose veteran status was
used to qualify for the loan.
(b) This direct loan program is available only if private sector
financing and guaranteed loans are not available.
(c) A veteran may qualify only once for this direct loan program.
Pollution Control Program
Sec. 120.370 Policy.
Section 7(a)(12) of the Act authorizes SBA to guarantee loans up to
$1,000,000 to an eligible small business to plan, design or install a
pollution control facility. An applicant must meet the eligibility
requirements for 7(a) loans.
Loans to Participants in the 8(a) Program
Sec. 120.375 Policy.
Section 7(a)(20) of the Act authorizes SBA to provide direct
(unilaterally or together with Lenders) or guaranteed loans to firms
participating in the 8(a) Program.
Sec. 120.376 Special requirements.
The following special conditions apply (otherwise, the general 7(a)
eligibility criteria apply):
(a) The Associate Administrator of Minority Enterprise Development
(``MED'') may waive the direct loan administrative ceiling of $150,000,
and raise it to $750,000.
(b) The SBA portion on a guaranteed loan must not exceed $750,000.
(c) The interest rate on a guaranteed loan shall be the same as on
regular 7(a) guarantee loans. The interest rate on a direct loan shall
be one percent less than on a regular direct loan.
(d) For a direct loan or SBA's portion of an immediate
participation loan, SBA shall subordinate its security interest on all
collateral to other debt of the applicant.
Sec. 120.377 Use of proceeds.
The loan proceeds shall not be used for debt refinancing. A
manufacturing concern may use loan proceeds for working capital.
Defense Economic Transition Assistance
Sec. 120.380 Program.
Section 7(a)(21) of the Act authorizes SBA to guarantee loans to
help eligible small businesses transition from defense to civilian
markets, or eligible individuals adversely impacted by base closures or
defense cutbacks to acquire or open and operate a small business.
Sec. 120.381 Eligibility.
(a) Eligible small businesses. A small business is eligible if it
has been detrimentally impacted by the closure (or substantial
reduction) of a Department of Defense installation, or the termination
(or substantial reduction) of a Department of Defense Program on which
the small business was a prime contractor, subcontractor, or supplier
at any tier.
(b) Eligible individual. An eligible individual, for purposes of
this program, includes the following persons involuntarily separated
from their position or voluntarily terminated under a program offering
inducements to encourage early retirement:
(1) A member of the Armed Forces of the United States (honorably
discharged);
(2) A civilian employee of the Department of Defense; or
(3) An employee of a prime contractor, sub-contractor, or supplier
at any tier of a Department of Defense program.
Sec. 120.382 Repayment ability.
SBA shall resolve reasonable doubts concerning the small business'
proposed business plan for transition to non-defense-related markets in
favor of the loan applicant in determining the sound value of the
proposed loan.
Sec. 120.383 Restrictions on loan processing.
Since greater risk may be associated with a loan to an applicant
under this program, a Certified Lender or Preferred Lender shall not
make a defense economic assistance loan.
CapLines Program
Sec. 120.390 Revolving credit.
CapLines finances small businesses' short-term, revolving working-
capital needs. Generally, SBA regulations governing the 7(a) program
also govern this program. Under CapLines, SBA generally can guarantee
up to $750,000.
Small General Contractors
Sec. 120.391 What is the Small General Contractor Program?
SBA may make or guarantee loans to finance small general
contractors to construct or rehabilitate residential or commercial
property for resale (section 7(a)(9) of the Act). This program provides
an exception under specified conditions to the general rule against
financing investment property. ``Construct'' and ``rehabilitate'' mean
only work done on-site to the structure, utility connections and
landscaping.
Sec. 120.392 Who may apply?
A construction contractor or home-builder with a past history of
profitable construction or rehabilitation projects of comparable type
and size may apply. An applicant may subcontract a portion of the work.
Subcontracts in excess of $25,000 may require 100 percent payment and
performance bonds.
Sec. 120.393 Are there special application requirements?
(a) An applicant must submit letters from:
(1) A mortgage lender indicating that permanent mortgage money is
available to qualified purchasers to buy such properties;
(2) A real estate broker indicating that a market exists for the
proposed building and that it will be compatible with its neighborhood;
and
(3) An architect, appraiser or engineer agreeing to make
inspections and certifications to support interim disbursements.
(b) The Borrower may substitute a letter from a Lender for one or
more of the letters.
Sec. 120.394 What are the eligible uses of proceeds?
A Borrower must use the loan proceeds solely to acquire, construct
or substantially rehabilitate an individual residential or commercial
building for sale. ``Substantial'' means rehabilitation expenses of
more than one-third of the purchase price or fair market value at the
time of the application. A Borrower may use up to 20 percent of the
proceeds to acquire land, and up to 5 percent for community
improvements such as curbs and sidewalks.
Sec. 120.395 What is SBA's collateral position?
SBA will require a lien on the building which must be in no less
than a second position.
Sec. 120.396 What is the term of the loan?
The loan must not exceed thirty-six months plus the estimated time
to complete construction or rehabilitation.
Sec. 120.397 Are there any special restrictions?
The borrower must not use loan proceeds to purchase vacant land for
possible future construction or to operate or hold rental property for
future rehabilitation. SBA may allow rental of the property only if the
rental will improve the ability to sell the property. The sale must be
a legitimate change of ownership.
[[Page 64383]]
Subpart D--Lenders
Sec. 120.400 Participation agreements.
SBA may enter into participation agreements with Lenders to make
deferred participation (guaranteed) loans. Participation agreements do
not obligate SBA to participate in any specific proposed loan that a
Lender may submit. The existence of a participation agreement does not
limit SBA's rights to deny a specific loan or establish general
policies.
Participation Criteria
Sec. 120.410 Requirements for all participating Lenders.
A Lender must:
(a) Have a continuing ability to evaluate, process, close,
disburse, and service small business loans;
(b) Be open to the public for the making of such loans (not be a
financing subsidiary, engaged primarily in financing the operations of
an affiliate);
(
FR Doc. 95-30327 Business Loan Programs
c) Have continuing good character and reputation, and otherwise
meet and maintain the ethical requirements of Sec. 120.140; and
(d) Be supervised and examined by a State or Federal regulatory
authority, satisfactory to SBA.
Sec. 120.411 Preferences.
No agreement to participate under the Act shall establish any
Preferences in favor of the Lender.
Sec. 120.412 Other services Lenders may provide Borrowers.
Subject to the conflict of interest provision in subpart A of this
part, Lenders, their Associates or the designees of either may provide
services to and contract for goods with a Borrower only after full
disbursement of the loan to the small business or to an account not
controlled by the Lender, its Associate, or the designee. A Lender, an
Associate, or a designee providing such services must do so under a
written contract with the small business, based on time and hourly
charges, and must maintain time and billing records for examination by
SBA. Charges made cannot exceed those charged by established
professional consultants providing similar services.
Sec. 120.413 Advertisement of relationship with SBA.
A Lender may refer in its advertising to its participation with
SBA. The advertising may not:
(a) State or imply that the Lender, or any of its Borrowers, has or
will receive preferential treatment from SBA;
(b) Be false or misleading; or
(c) Make use of SBA's seal.
Pledging Notes or Transferring Unguaranteed Portion
Sec. 120.420 Financings by Nondepository Lenders.
(a) A Small Business Lending Company regulated by SBA or a Business
and Industrial Development Company (``Nondepository Lender'') may
pledge the notes evidencing SBA guaranteed loans or sell the
unguaranteed portions of such loans if SBA, in its sole discretion,
gives its prior written consent. The Lender must be secure financially
and have a history of compliance with SBA's regulations and any other
applicable state or Federal statutory and regulatory requirements.
(b) The Nondepository Lender, SBA, and any third party involved in
the transaction, as determined by SBA in its sole discretion, must
enter into a written agreement satisfactory to SBA acknowledging SBA's
interest as guarantor of the subject loans and accepting that all
relevant third parties agree to recognize and uphold those interests
under the Act, this part, and the contractual provisions of SBA's
blanket Guarantee Agreement. In any such agreement, the parties must
agree to the following conditions:
(1) The Nondepository Lender, SBA, or a third party custodian
agreeable to SBA, will hold all pertinent Loan Instruments, and the
Nondepository Lender will continue to service the loans after the
pledge or transfer is made;
(2) The Nondepository Lender must continue to retain an economic
risk in and bear the ultimate risk of loss on the unguaranteed
portions. The Nondepository Lender must demonstrate to SBA's
satisfaction and in SBA's sole discretion the retention of economic
risk by:
(i) In the case of the sale of unguaranteed portions:
(A) Establishing a sufficient reserve fund at time of sale;
(B) Retaining a sufficient level of insurance; and/or
(C) Agreeing to reacquire the unguaranteed portion of a guaranteed
loan or the note evidencing a guaranteed loan if the loan goes into
default; or
(ii) In the case of the pledge of notes, retaining all of the
economic interest in the unguaranteed portion of any loans which the
notes evidence.
(c) The Nondepository Lender may not use SBA guaranteed loans or
the collateral supporting such loans as collateral for the borrowing of
any related enterprise or for any other purpose inconsistent with this
part.
Miscellaneous Provisions
Sec. 120.430 SBA access to Lender files.
A Lender must allow SBA's authorized representatives, during normal
business hours, access to its files to review, inspect and copy all
records and documents relating to SBA guaranteed loans.
Sec. 120.431 Suspension and revocation of eligibility to participate.
SBA may suspend or revoke the eligibility of a Lender to
participate in the 7(a) program because of a violation of SBA
regulations, a breach of any agreement with SBA, a change of
circumstance resulting in the Lender's inability to meet operational
requirements, or a failure to engage in prudent lending practices.
Proceedings for such purposes will be conducted in accordance with the
provisions of part 134 of this chapter. A suspension or revocation will
not invalidate a guarantee previously provided by SBA.
Certified Lenders Program (CLP)
Sec. 120.440 What is the Certified Lenders Program?
Under the Certified Lenders Program (CLP), designated Lenders
process, close, and service, and may liquidate, SBA guaranteed loans.
SBA gives priority to applications and servicing actions submitted by
Lenders under this program. All other rules in this part 120 relating
to the operations of Lenders apply to CLP Lenders.
Sec. 120.441 How does a Lender become a CLP Lender?
(a) An SBA field office may nominate a Lender or a Lender may
request a field office to consider it for CLP status. SBA district
directors may approve and renew a Lender's CLP status. The district
director will consider whether the Lender:
(1) Has the ability to process, close, service and liquidate loans;
and
(2) Has a satisfactory performance history with SBA, including the
submission of complete and accurate loan guarantee application
packages;
(3) Has an acceptable SBA purchase rate; and
(4) Has shown the ability to work well with the local SBA office.
(b) If the district director does not approve a request for CLP
status, the Lender may appeal to the AA/FA, whose decision will be
final. If SBA grants CLP status, it applies only in the field office
that approved the CLP designation. A CLP Lender must execute a
Supplemental Guarantee Agreement that will specify a term not to exceed
two years.
[[Page 64384]]
Sec. 120.442 Suspension or revocation of CLP status.
The AA/FA may suspend or revoke CLP status upon written notice
providing the reasons at least 10 business days prior to the effective
date of the suspension or revocation. Reasons for suspension or
revocation may include a loan performance record unacceptable to SBA,
failure to make the required number of loans under the expedited
procedures,or violations of applicable statutes, regulations or
published SBA policies and procedures. A CLP Lender may appeal the
suspension or revocation made under this section under procedures found
in part 134 of this chapter. The action of the AA/FA shall remain in
effect pending resolution of the appeal.
Preferred Lenders Program (PLP)
Sec. 120.450 What is the Preferred Lenders Program?
Under the Preferred Lenders Program (PLP), designated Lenders
process, close, service, and liquidate SBA guaranteed loans with
reduced requirements for documentation to and prior approval by SBA.
Sec. 120.451 How does a Lender become a PLP Lender?
(a) An SBA field office serving the area where a CLP Lender's
office is located can nominate a CLP Lender or a CLP Lender can request
a field office to consider it for PLP status. The SBA field office will
forward its recommendation to an SBA centralized loan processing center
which will submit its recommendation and supporting documentation to
the AA/FA for final decision.
(b) In making its decision, SBA will consider whether the CLP
Lender:
(1) Has the required ability to process, close, service and
liquidate loans; and
(2) Has the ability to develop and analyze complete loan packages;
and
(3) Has a satisfactory performance history with SBA.
(c) If the Lender is approved, the AA/FA will designate the area in
which it can make PLP loans.
(d) Before it can operate as a PLP Lender, the approved CLP Lender
must execute a Supplemental Loan Guarantee Agreement, which will
specify a term not to exceed two years.
(e) When a PLP's Supplemental Loan Guarantee Agreement expires, SBA
may recertify it as a PLP Lender for an additional term not to exceed
two years. Prior to recertification, SBA will review a PLP Lender's
loans, policies and procedures. The recertification decision of the AA/
FA is final.
(f) A PLP Lender may request an expansion of the territory in which
it can process PLP loans by submitting its request to a loan processing
center. The center shall obtain the recommendation of each SBA office
in the area into which the PLP Lender would like to expand its PLP
operations. The center shall forward the recommendations to the AA/FA
for final decision. If a PLP Lender is not already a CLP Lender in a
territory into which it seeks to expand its PLP status, it will
automatically obtain CLP status in the territory without approval from
the District Office when it is granted its extension of PLP status into
that territory .
Sec. 120.452 What are the requirements of PLP loan processing?
(a) Subparts A and B of this part govern the making of PLP loans,
except for the following:
(1) Certain types of businesses, loans, and loan programs are not
eligible for PLP, as detailed in published SBA policy and procedures.
(2) A Lender may not use the PLP procedure to reduce its existing
credit exposure for any Borrower.
(3) SBA will guarantee no more than the specified statutory
percentage of any PLP loan. (b) A PLP Lender notifies SBA of its
approval of a PLP loan by submitting to SBA's loan processing center
appropriate documentation signed by two of the PLP's authorized
representatives. SBA will attach the SBA guarantee and notify the PLP
Lender of the SBA Loan Number (if it does not identify a problem with
eligibility, and funds are available).
(c) The PLP Lender is responsible for the correctness of all PLP
loan decisions regarding eligibility (including size),
creditworthiness, loan closing, and compliance with all requirements of
law or SBA regulations.
Sec. 120.453 What are the requirements of PLP loan servicing and
liquidation?
The PLP Lender must service and liquidate its SBA guaranteed loan
portfolio (including its non-PLP loans) using generally accepted
commercial banking standards employed by prudent lenders. The PLP
Lender must liquidate any defaulted SBA guaranteed loan in its
portfolio unless SBA advises in writing that SBA will liquidate the
loan. The PLP Lender must submit a liquidation plan to SBA prior to
commencing liquidation action, if possible. The PLP Lender may take any
necessary servicing action, or liquidation action consistent with a
plan, for any SBA guaranteed loan in its portfolio, except it may not:
(a) Take any action that confers a Preference on the Lender;
(b) Accept a compromise settlement without prior written SBA
consent; and
(c) Sell or pledge more than 90 percent of a PLP loan.
Sec. 120.454 PLP performance review.
SBA may review the performance of a PLP Lender. SBA may charge the
PLP Lender a fee for this review.
Sec. 120.455 Suspension or revocation of PLP status.
The AA/FA may suspend or revoke PLP status upon written notice
providing the reasons at least 10 business days prior to the effective
date of the suspension or revocation. Reasons for suspension or
revocation may include loan performance unacceptable to SBA, failure to
make the required number of loans under the expedited procedures, or
violations of applicable statutes, regulations or published SBA
policies and procedures. A PLP Lender may appeal the suspension or
revocation made under this section under procedures found in Part 134
of this chapter. The action of the AA/FA shall remain in effect pending
resolution of the appeal.
Small Business Lending Companies (SBLC)
Sec. 120.470 What is an SBLC?
A Small Business Lending Company (SBLC) is a nondepository lending
institution engaged solely in the making of loans under section 7(a)
(except section 7(a)(13)) of the Act in participation with SBA. SBA
supervises, examines, and regulates SBLCs. An SBLC is subject to all
applicable SBA regulations, including those governing Lenders. This
program has been closed to new licenses since January, l982. In
addition to complying with Sec. 120.400-120.413, an SBLC must meet the
following requirements:
(a) Business structure. It must be a corporation (profit or non-
profit).
(b) Written agreement. It must sign a written agreement with SBA
with terms satisfactory to SBA.
(c) Capital structure. It must have unencumbered paid-in capital
and paid-in surplus of at least $1,000,000, or ten percent of the
aggregate of its share of all outstanding loans, whichever shall be
more.
(d) Capital impairment. It must avoid capital impairment at all
times. Impairment exists if the retained earnings deficit of an SBLC
exceeds 50 percent of combined paid-in capital and paid-in-surplus,
excluding treasury stock. An SBLC must give SBA prompt written notice
of any capital impairment
[[Page 64385]]
within 30 calendar days of the month-end financial report that first
reflects the impairment. Until the impairment is cured, an SBLC may not
present any loans to SBA for guarantee.
(e) Issuance of securities. Without prior written SBA approval, it
must not issue any securities (including stock options and debt
securities) except stock dividends and common stock issued for cash or
direct obligations of, or obligations fully guaranteed as to principal
and interest by, the United States.
(f) Voluntary capital reduction. Without prior written SBA
approval, it must not voluntarily reduce its capital, or purchase and
hold more than 2 percent of any class or combination of classes of its
stock.
(g) Reserves for losses. It must maintain a reserve in the amount
of anticipated losses on loans and receivables.
(h) Internal control. It must adopt a plan designed to safeguard
its funds and other assets, to assure the reliability of its personnel,
and to maintain the accuracy of its financial data.
(i) Dual control. It must maintain dual control over disbursement
of funds and withdrawal of securities. An SBLC may disburse funds only
by checks or wire transfers authorized by signatures of two or more
officers covered by the SBLC's fidelity bond, except that checks in an
amount of $1,000 or less may be signed by one bonded officer. There
must be two or more bonded officers, or one bonded officer and a bonded
employee to open safe deposit boxes or withdraw securities from
safekeeping. The SBLC shall furnish to each depository bank, custodian,
or entity providing safe deposit boxes a certified copy of the
resolution implementing these control procedures.
(j) Fidelity insurance. It must maintain a Brokers Blanket Bond,
Standard Form 14, or Finance Companies Blanket Bond, Standard Form 15,
or such other form of coverage as SBA may approve, in a minimum amount
of $25,000 executed by a surety holding a Certificate of authority from
the Secretary of the Treasury pursuant to 6 U.S.C. 6-13.
(k) Common control. It must not control, be controlled by, or under
common control with, another SBLC. Without prior written SBA approval,
an Associate of one SBLC shall not be an Associate of another SBLC or
of any entity which directly or indirectly controls or is under common
control with another SBLC.
(l) Management services. An SBLC must employ full time professional
management.
(m) Borrowed funds. Without SBA's prior written approval, it must
not be capitalized with borrowed funds. Shareholders owning 10 percent
or more of any class of its stock shall not use borrowed funds to
purchase the stock unless the net worth of the shareholders is at least
twice the amount borrowed or unless the shareholders receive SBA's
prior written approval for a lower ratio.
Sec. 120.471 Records.
Each SBLC must comply with the following requirements concerning
records:
(a) Maintenance of Records. It must maintain accurate and current
financial records, including books of account, minutes of stockholder,
directors, or executive committee meetings, and all documents and
supporting materials relating to the SBLC's transactions at its
principal business office. Securities held by a custodian pursuant to a
written agreement shall be exempt from this requirement.
(b) Preservation of records.
(1) It must preserve in a manner permitting immediate retrieval the
following documentation for the financial statements required by
Sec. 120.472 (and of the accompanying independent public accountant's
opinion), for the following specified periods:
(i) Preserve permanently:
(A) All general and subsidiary ledgers (or other records)
reflecting asset, liability, capital stock and surplus, income, and
expense accounts;
(B) All general and special journals (or other records forming the
basis for entries in such ledgers); and
(C) The corporate charter, bylaws, application for determination of
eligibility to participate with SBA, and all minutes books, capital
stock Certificates or stubs, stock ledgers, and stock transfer
registers;
(ii) Preserve for at least 6 years following final disposition of
the related loan:
(A) All applications for financing;
(B) Lending, participation, and escrow agreements;
(C) Financing instruments; and
(D) All other documents and supporting material relating to such
loans, including correspondence.
(2) Records and other documents referred to in this section may be
preserved electronically or by reproduction if the SBLC makes and
stores duplicate originals separately from the original for the time
required.
Sec. 120.472 Reports to SBA.
An SBLC must submit the following to the AA/FA:
(a) An audited financial statement prepared by an independent
public accountant within three months after the close of each fiscal
year, and interim financial reports when requested by SBA;
(b) A report of any legal or administrative proceeding, by or
against the SBLC, or against an officer, director, or employee of the
SBLC for an alleged breach of official duty, within 10 days after
initiating or learning of the proceeding, as well as notification of
the terms of any settlement or final judgment (in addition to any
reporting under applicable SBA Forms);
(c) Copies of any report furnished to its stockholders (including
any prospectus, letter, or other publication concerning the financial
operations of the SBLC);
(d) A summary of any changes in the SBLC's organization or
financing, such as:
(1) Any change in its name, address or telephone number;
(2) Any change in its charter, bylaws, or its officers or directors
(to be accompanied by a statement of personal history on an approved
SBA form);
(3) Any changes in capitalization not otherwise required by
Sec. 120.470 to be reported to SBA;
(4) Any changes affecting the eligibility of the SBLC to continue
to participate as an SBLC; and
(5) Notice of a pledge of stock within 30 calendar days of the
transaction if 10 percent or more of the stock is pledged by any person
(or group of persons acting in concert) as collateral for indebtedness,
and such pledge does not involve a transfer for which prior written
approval of SBA is required under Sec. 120.473; and
(e) Such other reports as SBA may require from time to time by
written directive.
Sec. 120.473 Change of ownership or control.
(a) Any change of ownership or control without prior written
approval of SBA is prohibited. An SBLC must request approval of any
such change from the AA/FA. Pending the approval, the SBLC may not
register the proposed new owners on its transfer books nor permit them
to participate in any manner in the conduct of the SBLC's affairs.
Change of ownership or control shall include:
(1) Any transfer of 10 percent or more of any class of the SBLC's
stock, and any agreement providing for such transfer;
(2) Any transfer that could result in the beneficial ownership by
any person or group of persons acting in concert of 10 percent or more
of any class of its
[[Page 64386]]
stock, and any agreement providing for such transfer;
(3) Any merger, consolidation, or reorganization; or
(4) Any other transaction or agreement that transfers control of
the SBLC.
(b) If transfer of ownership or control is subject to the approval
of any State or Federal chartering, licensing, or other regulatory
authority, copies of any documents filed with such authority shall, at
the same time, be transmitted to the SBA District Office serving the
area in which the SBLC's principal office is located.
Sec. 120.474 Prohibited financing.
An SBLC may not make a loan to a small business that has received
financing (or a commitment for financing) from an SBIC that is an
Associate of the SBLC.
Sec. 120.475 Suspension or revocation.
SBA may revoke or suspend an SBLC for a violation of law, these
regulations, or any agreement with SBA. An appeal can be made following
the procedures set forth in part 134 of this chapter.
Subpart E--Loan Administration
Sec. 120.500 General.
This subpart outlines the general loan administration policies
applicable to SBA financial assistance.
Servicing
Sec. 120.510 Servicing direct and immediate participation loans.
SBA services the direct loans that it makes. Generally, the Lender
services immediate participation loans that it makes and in which SBA
participates.
Sec. 120.511 Servicing guaranteed loans.
The Lender services guaranteed loans, holds the Loan Instruments
and receives the Borrower's payments of principal and interest.
Sec. 120.512 Who services the loan after SBA honors its guarantee?
Generally, after SBA honors its guarantee, the Lender must continue
to hold the Loan Instruments and service the loan, and the Lender must
execute a Certificate of interest showing SBA's percentage of the loan.
If SBA elects to service the loan, the Lender must assign the Loan
Instruments to SBA.
Sec. 120.513 What servicing actions require the prior written consent
of the SBA?
SBA must give its prior written consent before the Lender takes any
of the following actions:
(a) Alter substantially the terms or conditions of any Loan
Instrument (for example, any increase in the principal amount or change
in the interest rate, or conferring a Preference on the Lender);
(b) Release collateral having a cumulative value in excess of 20
percent of the original loan amount;
(c) Accelerate the maturity of the note;
(d) Sue upon any Loan Instrument;
(e) Compromise or waive any claim against any Borrower, guarantor,
obligor or standby creditor arising out of any Loan Instrument; or
(f) Increase the amount of any prior lien held by the Lender on the
collateral securing the loan.
SBA'S Purchase of a Guaranteed Portion
Sec. 120.520 When does SBA honor its guarantee?
(a) SBA, in its sole discretion, may purchase a guaranteed portion
of a loan at any time. A Lender may demand in writing that SBA honor
its guarantee if the Borrower is in default on any installment for more
than 60 calendar days (or less if SBA agrees) and the default has not
been cured. If a Borrower cures a default before a Lender requests
purchase by SBA, the Lender's right to request purchase on that default
lapses.
(b) When SBA purchases the guaranteed portion, it does not waive
any of its rights to recover money paid on the guaranty, based upon the
Lender's negligence, misconduct, or violation of this part, including
the those actions listed in Sec. 120.524(a), the guarantee agreement or
the Loan Instruments.
Sec. 120.521 What interest rate applies after SBA purchases its
guaranteed portion?
When SBA honors its guarantee for a fixed interest rate loan, the
rate of interest remains as stated in the note. On loans with a
fluctuating interest rate, the interest rate that the Borrower owes
will be at the rate in effect at the time of the earliest uncured
default (where a default has occurred), or the rate in effect at the
time of purchase (where no default has occurred).
Sec. 120.522 How much accrued interest does SBA pay to the Lender or
Registered Holder when SBA purchases the guaranteed portion?
(a) Rate of interest. If SBA purchases the guaranteed portion from
a Lender or from a Registered Holder (if sold in the Secondary market),
it will pay accrued interest at:
(1) The rate in the note if it is a fixed rate loan; or
(2) The rate in effect on the date of the earliest uncured default
(if a default has occurred) or of SBA's purchase (if there has been no
default).
(b) Payment to Lender. SBA calculates the accrued interest due a
Lender from the date of the Borrower's earliest uncured default, but
interest may not accrue for more than 120 days (plus any deferment
period which SBA had approved). In addition, if a Lender requests SBA
to purchase within 120 days of the earliest uncured default, SBA will
pay accrued interest to the Lender for any SBA time spent in making
payment in excess of 120 days, plus interest from the last paid-to date
to the earliest uncured default date.
(c) Payment to Registered Holder. SBA will pay a Registered Holder
all accrued interest up to the date of payment.
(d) Extension of the 120 day period. Before the 120 days expire,
the SBA field office may extend the period if the Lender and SBA agree
that the Borrower can cure the default within a reasonable and definite
period of time or that the benefits from doing so otherwise will exceed
the costs of SBA paying additional interest. If the 120 days have
passed, only SBA's AA/FA or his designee can extend the period.
Sec. 120.523 What is the ``earliest uncured default''?
Default occurs when a Borrower violates any provision in the Loan
Instruments. The default date is the date the violation occurred. The
``earliest uncured default'' is the earliest violation not yet cured.
If the violation is the failure by a Borrower to pay a regular
installment of principal and interest when due, payments made by the
Borrower before a Lender makes its request to SBA to purchase are
applied to the earliest uncured default. If the installment is paid in
full, the earliest uncured default date will advance to the next unpaid
installment date. If a Borrower makes any payment after a Lender makes
its request to SBA to purchase, the earliest uncured default date does
not change because the Lender has already exercised its right to
request purchase.
Sec. 120.524 When is SBA released from liability on its guarantee?
(a) SBA is released from liability on a loan guarantee (in whole or
in part, within SBA's exclusive discretion), if any of the events below
occur:
(1) The Lender has failed to comply with any of the provisions of
these regulations, the Loan Guarantee Agreement, or the Authorization;
(2) The Lender has failed to make, close, service, or liquidate a
loan in a prudent manner;
(3) The Lender's improper action or inaction has placed SBA at
risk;
[[Page 64387]]
(4) The Lender has failed to disclose a material fact to SBA
regarding a guaranteed loan in a timely manner;
(5) The Lender has misrepresented a material fact to SBA regarding
a guaranteed loan;
(6) SBA has received a written request from the Lender to terminate
the guarantee;
(7) The Lender has not paid the guarantee fee within the period
required under SBA rules and regulations;
(8) The Lender has failed to request that SBA purchase a guarantee
within 120 days after maturity of the loan;
(9) The Lender has failed to use required SBA forms or exact
electronic copies; or
(10) The Borrower has paid the loan in full.
(b) If SBA determines, after purchasing its guaranteed portion of a
loan, that any of the events set forth in paragraph (a) of this section
occurred in connection with that loan, SBA is entitled to recover any
money paid on the guaranty plus interest from the Lender responsible
for those events.
(c) If the Lender's loan documentation indicates that one or more
of the events in paragraph (a) of this section may have occurred, SBA
may undertake such investigation as it deems necessary to determine
whether to honor or deny the guarantee, and may withhold a decision on
whether to honor the guarantee until the completion of such
investigation.
(d) Any information provided to SBA prior to Lender's request for
SBA to honor its guarantee shall not prejudice SBA's right to deny
liability for a guarantee if one or more of the events listed in
paragraph (a) of this section occur.
(e) Unless SBA provides written notice to the contrary, the Lender
remains responsible for all loan servicing and liquidation actions
until SBA honors its guarantee in full.
Deferment, Extension of Maturity and Loan Moratorium
Sec. 120.530 Deferment of payment.
SBA may agree to defer payments for a stated period of time, and
use such other methods as it considers necessary and appropriate to
help in the successful establishment and operation of the Borrower.
This policy applies to all business loan programs, including 504 loans.
Sec. 120.531 Extension of maturity.
SBA may agree to extend the maturity of a loan for up to 10 years
beyond its original maturity if the extension will aid in the orderly
repayment of the loan.
Sec. 120.532 What is a loan Moratorium?
SBA may assume a Borrower's obligation to repay principal and
interest on a loan by agreeing to make the payments to the
Participating Lender on behalf of the Borrower. This relief is called a
``Moratorium.''
Sec. 120.533 When will SBA grant a Moratorium?
SBA normally will grant a Moratorium if:
(a) Without it, the small business will become or remain insolvent;
(b) With it, the small business will become or remain viable;
(c) Alternative remedies, such as a deferment, are not available;
(d) The Lender has already granted deferments equal to at least six
(6) monthly installments, and the Lender and SBA agree that the
deferments have been beneficial;
(e) The Borrower, Lender, obligors, and guarantors execute a
``Moratorium Agreement'' giving SBA absolute discretion to discontinue
making the payments at any time;
(f) The Borrower (and co-Borrowers) execute a demand note to repay
SBA's Moratorium advances;
(g) All guarantors or other obligors of the guaranteed loan execute
guarantee agreements and any other instruments required by SBA to
protect its interests under the demand note;
(h) The Borrower and other obligors provide such security as SBA
considers necessary or appropriate; and
(i) The collateral securing the demand note includes at least the
collateral securing the guaranteed loan, and the collateral position
for the demand note is subject only to the lien position on the
guaranteed loan.
Sec. 120.534 How long can a Moratorium continue?
Generally, SBA will continue a Moratorium for six months, although
SBA may authorize an initial Moratorium for up to one year. SBA may
continue a Moratorium for additional periods (to a maximum total of
five (5) years) only if the Borrower can demonstrate the eventual
ability to repay from earnings the original note and the demand note.
Sec. 120.535 What are the repayment terms of a Moratorium?
(a) The interest rate for the demand note is the same as for the
guaranteed loan. SBA advances to a Participating Lender during the
Moratorium period accrue interest from the date of each disbursement.
(b) SBA has the right to demand payment at any time. If not
previously demanded, payment in full will be due immediately after the
Borrower has fully paid the guaranteed loan.
(c) SBA may demand payment in full under the demand note or SBA may
accept a repayment schedule. If the loan has been paid, the frequency
and amount of the repayments must be at least equal to the amount and
frequency that were due under the loan.
(d) SBA will apply repayments first to accrued interest and then to
principal.
(e) A loan may be extended beyond the statutory limit for a period
of time corresponding to the time of the Moratorium.
Liquidation of Collateral
Sec. 120.540 What are SBA's policies concerning liquidation of
collateral?
(a) Liquidation policy. SBA or the Lender may liquidate collateral
securing a loan if there is no reasonable prospect that the Borrower or
a guarantor (other than SBA) can repay the loan within a reasonable
period.
(b) Sale and conversion of loans. Without the consent of the
Borrower, SBA may:
(1) Sell a direct loan;
(2) Convert a guaranteed or immediate participation loan to a
direct loan; or
(3) Convert an immediate participation loan to a guaranteed loan or
a loan owned solely by the Lender.
(c) Dispose of collateral and assets acquired through foreclosure
or conveyance. SBA or the Lender may sell real and personal property
(including contracts and claims) pledged to secure a loan that is in
default in accordance with the provisions of the related security
instrument (see Sec. 120.550 for Homestead Protection for Farmers).
(1) Competitive bids or negotiated sale. Generally, SBA or the
Lender will offer loan collateral and acquired assets for public sale
through competitive bids at an auction or a sealed bid sale, although a
negotiated sale may be utilized under appropriate circumstances.
(2) Lease of acquired property. Normally, neither SBA nor a Lender
will rent or lease acquired property or grant options to purchase. SBA
will consider proposals for a lease if it appears a property cannot be
sold advantageously and it is in the government's interest, but SBA may
terminate the lease upon receipt of a favorable purchase offer.
(d) Recoveries and security interests shared. SBA and the
Participating Lender will share pro rata (in accordance with their
respective interests in a loan) all loan payments or recoveries, all
reasonable expenses
[[Page 64388]]
(including advances for the care, preservation, and maintenance of
collateral securing the loan), and any security interest or guarantee
(excluding SBA's guarantee) which the Lender or SBA may hold or receive
in connection with a loan.
(e) Guarantors. Guarantors of financial assistance have no rights
of contribution against SBA on an SBA guaranteed or direct loan. SBA is
not deemed to be a co-guarantor with any other guarantors.
Homestead Protection for Farmers
Sec. 120.550 What is homestead protection for farmers?
SBA may lease to a farmer-Borrower the farm residence occupied by
the Borrower and a reasonable amount of adjoining property (no more
than 10 acres and seven farm buildings), if they were acquired by SBA
as a result of a defaulted farm loan made or guaranteed by SBA (see the
Consolidated Farm and Rural Development Act, 7 U.S.C. 1921, for
qualifying loan purposes).
Sec. 120.551 Who is eligible for homestead protection?
SBA must notify the Borrower in possession of the availability of
these homestead protection rights within 30 days after SBA acquires the
property. A farmer-Borrower must:
(a) Apply for the homestead occupancy to the SBA field office which
serviced the loan within 90 days after SBA acquires the property;
(b) Provide evidence that the farm produces farm income reasonable
for the area and economic conditions;
(c) Show that at least 60 percent of Borrower's gross annual income
came from farm or ranch operations in at least any two out of the last
six calendar years;
(d) Have resided on the property during the previous six years; and
(e) Be personally liable for the debt.
Sec. 120.552 Lease.
If approved, the applicant must personally occupy the residence
during the term of the lease and pay a reasonable rent to SBA. The
lease shall be for a period not to exceed 5 years, renewable for up to
another 5 years. During or at the end of the lease period, the lessee
has a right of first refusal to reacquire the homestead property under
terms and conditions no less favorable than those offered to any other
purchaser.
Sec. 120.553 Appeal.
If the application is denied, the Borrower may appeal the decision
to the Regional Administrator in the region in which the field office
which denied the application is located. Until the conclusion of any
appeal, the Borrower may retain possession of the homestead property.
If there is a conflict between state law and this section, state law
prevails.
Subpart F--Secondary Market
Sec. 120.600 What is the SBA Secondary Market?
The SBA secondary market (``Secondary Market'') consists of the
sale of Certificates, representing either the entire guaranteed portion
of an individual 7(a) guaranteed loan or an undivided interest in a
Pool consisting of the SBA guaranteed portions of a number of 7(a)
guaranteed loans. By the terms of the Certificate, SBA guarantees a
Registered Holder timely payment of principal and interest to which the
Registered Holder is entitled from the loan or loans underlying the
Certificate. Transactions involving interests in Pools or the sale of
individual guaranteed portions are governed by the contracts entered
into by the parties, SBA's Secondary Market Program Guide, and this
subpart. See sections 5 (f), (g) and (h) of the Small Business Act (15
U.S.C. 634 (f), (g) and (h)).
Sec. 120.601 Definitions.
The definitions in this section apply throughout this subpart.
(a) Certificate is the document the FTA issues representing a
beneficial fractional interest in a Pool (Pool Certificate), or an
undivided interest in the entire guaranteed portion of an individual
7(a) guaranteed loan that is sold separately.
(b) Current means that no repayment from a Borrower to a Lender is
over 29 days late measured from the due date of the payment on the
records of the FTA's central registry (Pools) or the entity servicing
the loan (individual guaranteed portion).
(c) FTA is the SBA's fiscal and transfer agent.
(d) Note Rate is the interest rate on the Borrower's note.
(e) Net Rate means the interest rate on an individual guaranteed
portion in a Pool.
(f) Payment date is the date that the FTA deposits checks in the
U.S. mail. SBA may change the date or method of payment by publishing a
document in the Federal Register.
(g) Pool is an aggregation of SBA guaranteed portions of loans made
by Lenders.
(h) Pool Assembler is a financial institution that:
(1) Organizes and packages a Pool by acquiring the SBA guaranteed
portions of loans from Lenders;
(2) Resells fractional interests in the Pool to Registered Holders;
and
(3) Directs the FTA to issue Certificates.
(i) Pool Rate means the interest rate on a Certificate.
(j) Registered Holder is the Certificate owner listed in FTA's
records.
Certificates
Sec. 120.610 Description of Certificates.
(a) General form and content. Each Certificate must be registered
with the FTA (no bearer Certificates). SBA must approve the terms of
the Certificate.
(b) Face amount of Pool Certificate. The face amount of a Pool
Certificate cannot be less than a specified minimum amount and must be
in increments which SBA may specify (except for one Certificate in each
Pool). SBA may change these requirements by issuing a document in the
Federal Register after analyzing market conditions and program
experience.
(c) Payment Terms for Pool Certificates. Principal installments and
interest payments are based on the unpaid principal balance of the
portion of the Pool represented by a Pool Certificate. All prepayments
on loans in the Pool must be passed through to the Registered Holders
on the payment date.
(d) Payment Terms for Certificates which represent individual
guaranteed portions. Principal installments and interest payments are
based on the unpaid principal balance of the entire SBA guaranteed
portion of the loan. The Certificate must provide for a pro rata pass
through to the Registered Holder of payments which the FTA receives
from a Lender or any entity servicing the loan.
Sec. 120.611 Description of Pools backing Pool Certificates.
(a) Pool characteristics. (1) When the FTA issues a Pool
Certificate, each Pool must have:
(i) A minimum number of guaranteed portions of loans;
(ii) A minimum aggregate principal balance of the guaranteed
portions;
(iii) A maximum percentage of the Pool which an individual
guaranteed portion may constitute;
(iv) A maximum allowable difference between the highest and lowest
note interest rates;
(v) A maximum allowable difference between the remaining terms to
maturity of the loans in the Pool; and
(vi) A minimum weighted average maturity at Pool formation.
(2) SBA may adjust the Pool characteristics periodically based upon
[[Page 64389]]
program experience and market conditions.
(b) Interest rate on Pool Certificate. The interest rate on a pool
Certificate must be equal to the lowest net rate on any individual
guaranteed portion in the pool.
(c) Redemption of Certificate. The FTA and SBA may redeem a pool
Certificate because of prepayment or default of all loans constituting
the pool.
Sec. 120.612 What loans are eligible to back Certificates?
(a) Pool Certificates are backed by the SBA guaranteed portions of
loans comprising the Pool. An individual Certificate is backed by the
entire SBA guaranteed portion of a single loan. Each such loan must:
(1) Be current as of the date the Pool is formed or the individual
loan is initially sold in the Secondary Market;
(2) Be guaranteed under the Act; and
(3) Meet such other standards as SBA may determine to be necessary
for the successful operation of the pooling program.
(b) With respect to any Pool, the loans must meet the SBA standards
in effect at the time the Pool is formed.
Sec. 120.613 What is a Secondary Participation Guarantee Agreement?
When a Lender wants to sell the guaranteed portion of a loan, it
enters into a Secondary Participation Guarantee Agreement (``SPGA'')
with SBA and the purchaser of the guaranteed portion. The terms of sale
between the Lender and the purchaser cannot require the Lender or SBA
to repurchase except in accordance with the terms of the SPGA. Before
execution of the agreement, the Lender must:
(a) Documents. Submit to SBA a copy of the SPGA, the note, and such
other documents as SBA may require;
(b) Full Disbursement. Disburse to the Borrower the full amount of
the loan; and
(c) Guarantee Fees Paid. Pay SBA all guarantee fees in full.
The SBA Guarantee of a Certificate
Sec. 120.620 The SBA guarantee of a Pool Certificate.
(a) Extent of Guarantee. SBA guarantees to a Registered Holder the
timely payment of principal and interest installments and any
prepayment or other recovery of principal on the underlying loans to
which the Registered Holder is entitled. If the Borrower of a loan in a
Pool backing the Certificates does not make a required installment
payment, SBA through the FTA must make advances to maintain the
schedule of interest and principal payments to the Registered Holders
until SBA purchases the guaranteed portion.
(b) SBA guarantee backed by full faith and credit. SBA's guarantee
of the Pool Certificate is backed by the full faith and credit of the
United States.
Sec. 120.621 The SBA guarantee of a Certificate representing an
individual guaranteed portion.
(a) Extent of SBA guarantee. With respect to individual SBA
guaranteed portions sold in the Secondary Market, SBA guarantees to
purchase from the Registered Holder the guaranteed portion for an
amount equal to the unpaid principal and accrued interest due on the
guaranteed portion of the note as of the date of SBA's purchase, less
deductions for applicable fees. As opposed to the SBA guarantee with
respect to pooled loans, SBA does not guarantee timely payment on
individual guaranteed portions.
(b) What triggers the SBA guarantee. SBA's guarantee to the
Registered Holder may be called upon when:
(1) The Borrower remains in uncured default for 60 days on payments
of principal or interest due on the note;
(2) The Lender fails to send to the FTA payments it received from
the Borrower; or
(3) The FTA fails to send to the Registered Holder any payments it
has received from the Lender.
(c) Full faith and credit. SBA's guarantee to the Registered Holder
is unconditional and is backed by the full faith and credit of the
United States.
Pool Assemblers
Sec. 120.630 Qualifications to be a Pool Assembler.
(a) Application to become Pool Assembler. The application to become
a Pool Assembler is available from the AA/FA. In order to qualify as a
Pool Assembler, an entity must send the application to the AA/FA, with
an application fee, and certify that it:
(1) Is regulated by the appropriate agency as defined in section
3(a)(34)(G) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(34)(G));
(2) Meets all financial and other applicable requirements of its
regulatory authority and the Government Securities Act of l986, as
amended (Pub. L. 99-571, 100 Stat. 3208);
(3) Has the financial capability to assemble acceptable and
eligible guaranteed loan portions in sufficient quantity to support the
issuance of Pool Certificates; and
(4) Is in good standing with SBA (as the AA/FA determines), the
Office of the Comptroller of the Currency (``OCC'') if it is a national
bank, the Federal Deposit Insurance Corporation if it is not a national
bank, or the National Association of Securities Dealers.
(b) Approval by SBA. After SBA approves the application to become a
Pool Assembler, the entity may submit Pool applications to the FTA.
(c) Conduct of business by Pool Assembler. An entity continues to
qualify as a Pool Assembler so long as it:
(1) Meets the eligibility standards in paragraph (a) of this
section;
(2) Conducts its business in accordance with SBA regulations and
accepted securities or banking industry practices, ethics, and
standards; and
(3) Maintains its books and records in accordance with generally
accepted accounting principles or in accordance with the guidelines of
the regulatory body governing its activities.
Sec. 120.631 Suspension or termination of eligibility of Pool
Assembler.
(a) Suspension or termination. The AA/FA may suspend a Pool
Assembler from operating in the Secondary Market for up to 18 months or
terminate its eligibility, if the Pool Assembler (and/or its
Associates):
(1) Does not comply with any of the requirements in Sec. 120.630(a)
and (c);
(2) Has been indicted or otherwise formally charged with, or
convicted of, a misdemeanor or felony;
(3) Has received an adverse final civil judgment that it has
committed a breach of trust or a violation of a law or regulation
protecting the integrity of business transactions or relationships;
(4) Has not formed a Pool for at least 3 years; or
(5) Is under investigation by its regulating authority for
activities which may affect its ability to participate in the Secondary
Market.
(b) Suspension procedures. The AA/FA shall notify a Pool Assembler
by certified mail, return receipt requested, of the decision to suspend
and the reasons therefore at least 10 business days prior to the
effective date of the suspension. The Pool Assembler may appeal the
suspension made under this section pursuant to the procedures set forth
in part 134 of this chapter. The action of the AA/FA shall remain in
effect pending resolution of the appeal.
(c) Notice of termination. In order to terminate a Pool Assembler's
eligibility, the AA/FA must issue an order to show cause why the SBA
should not terminate the Pool Assembler's participation in the
Secondary Market. The Pool Assembler may appeal the termination made
under this section
[[Page 64390]]
pursuant to procedures set forth in part 134 of this chapter. The
action of the AA/FA shall remain in effect pending resolution of the
appeal.
Sale of Certificates
Sec. 120.640 Administration of the Pool and individual guaranteed
portions.
(a) FTA responsibility. The FTA has the responsibility to
administer each Pool or individual guaranteed portion. It shall
maintain a registry of Registered Holders and other information as SBA
requires.
(b) Self-liquidating. Each Pool or individual guaranteed portion in
the Secondary Market is self-liquidating because of Borrower payments
or prepayments, redemption by SBA, and/or payments by SBA or the Lender
after default by the Borrower. There is no substitution of the
guaranteed portions of existing loans for defaulted loans.
(c) SBA's right to subrogation. If SBA pays a claim under a
guarantee with respect to a Certificate issued under this subpart, it
must be subrogated fully to the rights satisfied by such payment.
(d) SBA ownership rights not limited. No Federal, State or local
law can preclude or limit the exercise by SBA of its ownership rights
in the portions of loans constituting the Pool against which the
Certificates are issued.
Sec. 120.641 Disclosure to purchasers.
(a) Information to purchaser. Prior to any sale, the Pool
Assembler, Registered Holder of a Certificate representing an
individual guaranteed portion, or any subsequent seller must disclose
to the purchaser, either orally or in writing, information on the
terms, conditions, and yield as described in the SBA Secondary Market
Program Guide.
(b) Information on transfer document. The seller must provide the
same information described in paragraph (a) of this section in writing
on the transfer document when the seller submits it to the FTA. After
the sale of an individual Certificate, the FTA will provide the
disclosure information in writing to the purchaser.
(c) Information in prospectus. If the Registered Holder is a trust,
investment Pool, mutual fund or other security, it must disclose the
information in (a) above to investors through a prospectus and other
promotional material if a Certificate or Pool Certificate is placed
into or used as the backing for the investment vehicle.
Sec. 120.642 Requirements before the FTA issues Pool Certificates.
Before the FTA issues any Pool Certificate, the Pool Assembler must
deliver to it the following documents:
(a) A properly completed Pool application form;
(b) Either:
(1) Certificates evidencing the guaranteed portions comprising the
Pool; or
(2) An executed SPGA and related documentation for the loans whose
guaranteed portions are to be part of the Pool; and
(c) Any other documentation which SBA may require.
Sec. 120.643 Requirements before the FTA issues the Certificate for an
individual guaranteed portion.
(a) FTA issuance of initial Certificate. Before the FTA can issue
the initial Certificate for a particular guaranteed portion, the
original seller must provide the following documents to the FTA:
(1) An executed SPGA;
(2) A copy of the note representing the guaranteed loan; and
(3) Any other documentation which SBA may require.
(b) Review of documentation. SBA may review or require the FTA to
review any documentation before the FTA issues a Certificate.
Sec. 120.644 Sale of individual SBA guaranteed portion.
(a) Amount of Certificate. Each Certificate which represents the
guaranteed portion of a single loan must be for the entire amount of
the guaranteed portion.
(b) General rule on transferability of Certificate. Each such
Certificate is transferable only on the books and records of the FTA or
SBA.
(c) Lender cannot purchase guaranteed portion of loan it made. The
Lender (or its Associate) that made the loan cannot purchase the
guaranteed portion in the Secondary Market. If a Lender does purchase
the guaranteed portion of one of its own loans, it shall not have the
unconditional guarantee of SBA.
(d) Prepayment or default. The prepayment of the underlying loan or
a default on such loan will trigger the redemption of the Certificate
by FTA/SBA in accordance with the procedures prescribed in the SPGA.
Sec. 120.645 Transfers of Certificates.
(a) General rule. Certificates are transferable. Transfers in the
Secondary Market must comply with Article 8 of the Uniform Commercial
Code of the State of New York. The seller must use the detached form of
assignment (SBA Form 1088), unless the seller and purchaser choose to
use another form which the SBA approves. The FTA may refuse to issue a
Certificate until it is satisfied that the documents of transfer are
complete.
(b) Transfer on FTA records. In order for the transfer of a
Certificate to be effective the FTA or SBA must reflect it on their
records.
(c) Contents of letter of transmittal accompanying the transfer of
Certificates. (1) A letter of transmittal must accompany each
Certificate which a Registered Holder submits to the FTA for transfer.
The Registered Holder must supply the following information:
(i) Pool number, if applicable;
(ii) Certificate number;
(iii) Name of purchaser of Certificate;
(iv) Address and tax identification number of the purchaser;
(v) Name and telephone number of the person handling or
facilitating the transfer;
(vi) Instructions for the delivery of the new Certificate.
(2) With this information, the seller of the Certificate must send
the fee which the FTA charges for this service. The FTA will supply fee
information to the seller.
Fiscal and Transfer Agent (FTA)
Sec. 120.650 Registration duties of FTA in Secondary Market.
The FTA registers all Certificates. This means it issues, transfers
title to, and redeems them. All financial transactions relating to a
guaranteed portion of a loan flow through the FTA. The FTA must keep
the central registry current, using the following information required
for each registration:
(a) The Lender that made and sold the loan;
(b) The interest rate paid by the Borrower to the Lender (including
whether the rate is fixed or variable);
(c) The Lender's servicing fee;
(d) The purchaser;
(e) The price paid by the purchaser;
(f) The interest rate paid on the Certificate or Pool Certificate;
(g) The fees which the FTA charges to register and issue
Certificates; and
(h) Any other information which SBA requires.
Sec. 120.651 Claim to FTA by Registered Holder to replace Certificate.
(a) To replace a Certificate because of loss, theft, destruction,
mutilation, or defacement, the Registered Holder must:
(1) Give the FTA information about the Certificate and the facts
relating to the claim;
(2) File an indemnity bond acceptable to SBA and the FTA with a
surety to protect the interests of SBA and the FTA;
(3) Pay the FTA its fee to replace a Certificate; and
[[Page 64391]]
(4) Use an affidavit of loss (form available from the FTA) to
report:
(i) The name and address of the Registered Holder (and the name and
capacity of any representative actually filing the claim);
(ii) The Certificate by Pool number, if applicable;
(iii) The Certificate number;
(iv) The original principal amount;
(v) The name in which the Certificate was registered;
(vi) Any assignment, endorsement or other writing on the
Certificate; and
(vii) A statement of the circumstances of the theft or loss.
(b) When the FTA receives notice of the theft or loss, it will stop
any transfer of the Certificate. The Registered Holder must send to the
FTA all available portions of a mutilated or defaced Certificate. When
the Registered Holder completes these steps, the FTA will replace the
Certificate.
Sec. 120.652 FTA fees.
The FTA may charge reasonable servicing fees, transfer fees, and
other fees as the SBA and FTA may negotiate under contract.
Suspension or Revocation of Participant in Secondary Market
Sec. 120.660 Suspension or revocation.
(a) Suspension or revocation of Lender, broker, dealer, or
Registered Holder for violation of Secondary Market rules and
regulations. The AA/FA may suspend or revoke the privilege of a Lender,
broker, dealer, or Registered Holder to sell, purchase, broker, or deal
in loans or Certificates for:
(1) Committing a serious violation, in SBA's discretion, of:
(i) The rules and regulations of the Secondary Market; or
(ii) Any provisions in the contracts entered into by the parties,
including SBA Forms 1085, 1086, 1088 and 1454; or
(2) Knowingly submitting false or fraudulent information to the SBA
or FTA.
(b) Additional rules for suspension or revocation of broker or
dealer. In addition to acting under paragraph (a) of this section, the
AA/FA may suspend or revoke any broker or dealer from selling or
otherwise dealing in Certificates in the Secondary Market if:
(1) Its supervisory agency has revoked or suspended the broker or
dealer from engaging in the securities business, or is investigating
the firm or broker for a practice which SBA considers, in its sole
discretion, to be relevant to the broker's or dealer's fitness to
participate in the Secondary Market;
(2) The broker or dealer has been indicted or otherwise formally
charged with a misdemeanor or felony which bears on its fitness to
participate in the Secondary Market; or
(3) A final civil judgment is entered holding that the broker or
dealer has committed a breach of trust or a violation of any law or
regulation protecting the integrity of business transactions or
relationships.
(c) Notice to suspend or revoke. The AA/FA shall notify the
affected party in writing, providing the reasons therefore, at least 10
business days prior to the effective date of the suspension or
revocation. The affected party may appeal the suspension or revocation
made under this section pursuant to the procedures set forth in part
134 of this chapter. The action of the AA/FA shall remain in effect
pending resolution of the appeal. Revocation shall last a minimum of 5
years.
Subpart G--Microloan Demonstration Program
Sec. 120.700 What is the Microloan Program?
(a) The Microloan Demonstration Program assists women, low income
individuals, minority entrepreneurs, and other small businesses
(``Microloan Borrowers'') who need smaller amounts of financial
assistance, but still have limited access to credit. The program has
been authorized through September 30, 1997.
(b) Under this program, SBA makes direct and guaranteed loans to
Intermediaries (as defined below) who use the proceeds to make loans to
Microloan Borrowers. SBA also may make grants to these Intermediaries
to be used for marketing, management, and technical assistance to the
Microloan Borrowers.
(c) SBA also may make grants to qualified non-profit entities, who
are not Intermediaries, to provide marketing, management and technical
assistance to Microloan Borrowers seeking to start or enlarge small
businesses.
(d) An Intermediary cannot operate in more than one state unless
the AA/FA determines that it would be in the best interests of the
small business community to operate across state lines.
Sec. 120.701 Definitions.
(a) Deposit account is a demand, time, savings, passbook, or
similar account maintained with an insured depository institution (not
including an account evidenced by a Certificate of Deposit).
(b) Economically Distressed Area is a county or equivalent division
of local government of a state in which, according to the most recent
available data from the United States Bureau of the Census, 40 percent
or more of the residents have an annual income that is at or below the
poverty level.
(c) Grant is a Federal award of money, or property in lieu of money
(including cooperative agreements) to an eligible grantee that must
account for its use. The term does not include the provision of
technical assistance, revenue sharing, loans, loan guarantees, interest
subsidies, insurance, direct appropriations, or any fellowship or other
lump sum award.
(d) Insured depository institution has the same meaning as in
section 3(c) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(c).
(e) Intermediary is an entity participating in the Microloan
Demonstration Program which has made and serviced microloans to small
businesses for at least one year, and which provides marketing,
management, and technical assistance to its Microloan Borrowers. It may
be:
(1) A private, nonprofit community development corporation or other
entity;
(2) A consortium of private, nonprofit community development
corporations or other entities;
(3) A quasi-governmental economic development entity, other than a
State, county, municipal government or any agency thereof; or
(4) An agency of or a non-profit entity established by a Native
American Tribal Government.
(f) Microloan is a short-term, fixed interest rate loan of not more
than $25,000 made by an Intermediary to an eligible small business.
(g) Non-Federal sources are funds acquired from sources other than
the Federal Government and may include indirect costs or in-kind
contributions paid for under non-Federal programs.
(h) Specialized Intermediary means an Intermediary which maintains
a portfolio of microloans averaging $7,500 or less.
Sec. 120.702 Are there limits on Intermediaries or loans?
(a) SBA will not allow a quasi-governmental Intermediary to
participate in the program unless:
(1) No otherwise eligible organization applies; or
(2) SBA determines that participation by a quasi-governmental
Intermediary is in the public interest.
(b) In selecting Intermediaries, SBA will give priority to
Specialized Intermediaries.
(c) SBA will not loan more than $2.5 million collectively per year
to the
[[Page 64392]]
Intermediaries operating in any one State.
Sec. 120.703 How do I apply to become an Intermediary?
(a) Application Process. SBA periodically will solicit applications
from prospective Intermediaries in a Program Announcement or Request
For Proposal informing you:
(1) Where to obtain an application package;
(2) The deadline for submitting your application;
(3) Where to deliver your completed application.
(b) Documentation in support of your application. Your application
must include a detailed narrative statement describing:
(1) The types of businesses which you have assisted in the past and
those you intend to assist with Microloans;
(2) The average size of the loans which you have made in the past
and the average size of your intended Microloans;
(3) The extent to which you will make loans to small businesses in
rural areas;
(4) The geographic area in which you intend to operate, including a
description of the economic and demographic conditions existing in your
intended area of operations;
(5) The availability and cost of obtaining credit for small
businesses in your area;
(6) Your experience and qualifications in providing marketing,
management, and technical assistance to small businesses;
(7) Any plan you may have to use other technical assistance (such
as counselors from the Service Corps of Retired Executives) to help
your microloan borrowers.
(c) Evaluation. In evaluating applications to become
Intermediaries, SBA shall select applicants that ensure the appropriate
availability of Microloans for small businesses in all industry and
business sectors located in both rural and urban areas.
Sec. 120.704 What is my financial contribution?
You must contribute from non-Federal sources an amount equal to 15%
of any loan that you receive from SBA. The contribution may not be
borrowed.
Sec. 120.705 Microloan Revolving Fund.
You must establish a Microloan Revolving Fund (``MRF'') in an
interest-bearing Deposit Account into which you must deposit your
contributions from non-Federal sources, the proceeds from SBA loans,
and payments from your Microloan Borrowers. You may only withdraw from
this account the money needed to establish the Loan Loss Reserve Fund
(Sec. 120.706), proceeds for each Microloan you make, and any payments
which you owe to SBA.
Sec. 120.706 Loan Loss Reserve Fund.
(a) General. You must establish a Loan Loss Reserve Fund (``LLRF'')
in an interest-bearing Deposit Account. The purpose of the LLRF is to
account for any shortage in the MRF caused by delinquencies or losses
on your microloans. You must maintain the LLRF until you have repaid
all obligations which you owe to SBA.
(b) Level of Loan Loss Reserve Fund in first year. In your first
year as an Intermediary, the balance on deposit in the LLRF must equal
not less than 15% of the total outstanding balance of all notes
receivable owed by your Microloan Borrowers.
(c) Level of Loan Loss Reserve Fund in subsequent years. In
subsequent years as an Intermediary, you must maintain a balance on
deposit in the LLRF at a level which reflects your loss experience as
determined by SBA. The maximum amount is 15% of the total outstanding
balance owed by your Microloan Borrowers.
Sec. 120.707 What are the terms and conditions of my Intermediary SBA
loan?
(a) Loan Amount. You, together with your affiliates, cannot borrow
more than $750,000 in the first year of your participation in this
program. In subsequent years, your obligations owed to SBA cannot
exceed an aggregate of $2,500,000.
(b) Repayment terms. During the first year of your loan, you do not
have to make any payments, but interest accrues from the date that SBA
disburses the loan proceeds to you. After that, SBA will determine your
periodic payments. The loan must be repaid within 10 years.
(c) Interest rate. If you are a Specialized Intermediary, your
interest rate is equal to the rate applicable to 5-year obligations of
the United States Treasury, adjusted to the nearest one-eighth percent,
less 2 percent; otherwise, your interest rate is equal to the rate
applicable to 5-year obligations of the United States Treasury,
adjusted to the nearest one-eighth percent, less 1.25 percent.
(1) In determining the applicable interest rate, SBA will measure
the average size of the microloans for each of your sites or offices.
For purposes of this section, the terms ``office'' or ``site'' shall
mean a fixed, existing, geographic location established at a specific
address.
(2) At the end of your first year of participation in this program,
SBA determines whether your actual lending practices qualify you as a
Specialized Intermediary. SBA then applies the applicable interest rate
retroactively (making adjustments to interest accrued on your loan).
(3) On the anniversary date of the first year interest rate
calculation (second and all later years), SBA will determine whether
your cumulative actual lending practices qualify you as a Specialized
Intermediary. SBA will apply the applicable rate for that year.
(d) Collateral. As security for repayment of your SBA loan, you
must pledge to SBA a first lien position in your MRF, LLRF, and all
notes receivable from your Microloans.
(e) Default. If for any reason you are unable to pay SBA when due,
SBA may accelerate maturity of your loan and demand payment in full. In
this event, or if you violate this part or the terms of your loan
agreement, you must surrender possession of all collateral described in
paragraph (d) of this section to SBA. You are not obligated to pay SBA
any loss or deficiency which may remain after liquidation of the
collateral unless the loss was caused by your fraud, negligence,
violation of any of the ethical requirements of Sec. 120.140, or
violation of any other provision of this part.
(f) Fees. SBA does not charge you any fees for a loan under this
program. You may, however, pay minimal closing costs to third parties,
such as filing and recording fees.
Sec. 120.708 What conditions apply to my loans to Microloan Borrowers?
(a) General. You may make Microloans to any small business eligible
to receive financial assistance under this Part. You may allow your
Borrower to use loan proceeds only for working capital and acquisition
of materials, supplies, furniture, fixtures, and equipment. You must
exercise prudent lending practices because SBA will not review your
Microloans for creditworthiness.
(b) Amount and maturity. Generally, you should not loan more than
$10,000 to any Borrower. You may loan more than $10,000 only if you are
satisfied that your Borrower is unable to obtain financing on
comparable terms elsewhere and has good prospects for success. You must
not loan more than $25,000 to any Borrower, including affiliates. Each
of your Microloans must be repaid within 6 years.
(c) Interest rate. (1) The maximum interest rate that you can
charge your Microloan Borrowers is:
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(i) On loans of more than $7,500, the interest rate charged on your
SBA loan, plus 7.75 percentage points;
(ii) On loans of $7,500 or less, the interest rate charged on your
SBA loan, plus 8.5 percentage points.
(2) Until the determination of your interest rate by SBA at the end
of the first year, you should quote Microloan Borrowers two possible
interest rates. You may collect interest at the higher rate. After your
interest rate is established at the end of your first year, the actual
interest rate for your borrowers' loans will be set and their interest
payments during the first year adjusted.
Sec. 120.709 What records and reports does SBA require?
You must operate in accordance with applicable statutes,
regulations, policy notices, SBA's Standard Operating Procedures
(SOPs), and the information in your application. You must supply to SBA
current and accurate information about all operational requirements,
and maintain records as required by SBA.
Sec. 120.710 How does an Intermediary get a grant to assist Microloan
Borrowers?
(a) General. If you receive a loan from SBA, you are eligible to
receive a grant from SBA equal to 25 percent of the outstanding balance
of all loans made to you by SBA. You must contribute, solely from non-
Federal sources, an amount equal to 25 percent of the grant, unless you
make at least 50 percent of your loans to small businesses located in
or owned by residents of an Economically Distressed Area. If you make
at least 25 percent of your loans to small businesses located in or
owned by residents of an Economically Distressed Area, you will be
eligible to receive an additional grant from SBA equal to 5 percent of
the outstanding balance of all loans which you have received from SBA
(with no obligation to contribute additional matching funds). You may
not borrow your contribution. You may only use grant funds to provide
your Microloan Borrowers with marketing, management, and technical
assistance, except that you may use up to 15 percent of the grant funds
to provide information and technical assistance to prospective
Microloan Borrowers. You may not contract to have any other person or
entity provide these services.
(b) Specialized Intermediary. If you are a Specialized
Intermediary, you are eligible for an additional grant equal to 5
percent of the total outstanding balance of all loans which you have
received from SBA. You are not required to contribute additional
matching funds. You must use the grant proceeds only for marketing,
management and technical assistance.
(c) Determining eligibility. SBA will determine your eligibility
for a grant under this section separately for each loan-making office
or site. SBA will measure the average size of your Microloans for each
site to see if you qualify for the extra 5 percent.
Sec. 120.711 Does SBA provide technical assistance to Intermediaries?
SBA may procure technical assistance for an Intermediary to improve
its knowledge, skill, and understanding of microlending by awarding a
grant to a more experienced Intermediary. SBA may also obtain such
assistance for prospective Intermediaries in areas of the country that
are either underserved or not served by an existing Intermediary.
Sec. 120.712 How does a non-Intermediary get a grant?
(a) Grant procedure for non-Intermediaries. Any nonprofit entity
that is not an Intermediary may apply to SBA for a grant. To qualify,
it must submit information regarding its ability to provide marketing,
management, and technical assistance to Microloan Borrowers. If
approved, the grant agreement will establish the terms and conditions
of the grant.
(b) Number and amounts of grants. In each year of the Microloan
program, SBA may make no more than 25 grants to non-Intermediaries for
terms of up to 5 years. A grant may not exceed $125,000.
(c) Contribution by nonprofit entity. The nonprofit entity must
contribute an amount equal to 20 percent of the grant. The contribution
from the nonprofit entity shall come solely from non-Federal sources,
and may include direct costs or in-kind contributions paid for under
non-Federal programs.
Sec. 120.713 Does SBA guarantee any loans an Intermediary obtains from
another source?
(a) SBA may guarantee not less than 90 percent of no more than 10
loans by for-profit or non-profit entities (or an alliance of such
entities) to intermediaries in urban areas and no more than 10 loans by
such entities to intermediaries in Rural Areas.
(b) Any loan under this section shall have a term of 10 years. If
you receive such a loan, you will not need to repay any principal or
interest during the first year, although the interest will accrue.
During the second through fifth years, you will pay interest only.
During the sixth through tenth years you will pay interest and fully
amortize the principal.
(c) The interest rate on any loan under this section shall be
calculated as described in Sec. 120.707.
Subpart H--Development Company Loan Program (504)
Sec. 120.800 What is the purpose of the 504 program?
As authorized by Congress, SBA has established this program to
foster economic development, create or preserve job opportunities, an
FR Doc. 95-30327 Business Loan Programs
d
stimulate growth, expansion, and modernization of small businesses.
Sec. 120.801 How is a 504 Project financed?
A small business may apply for 504 financing through the CDC
servicing the area in which the business is located. SBA issues an
Authorization if it agrees to guarantee part of the funding for a
Project. Usually, a Project requires interim (construction) financing
from an interim lender (often the same lender that later provides a
portion of the permanent financing). Generally, permanent financing of
the Project consists of a private sector loan in the amount of 50
percent of the Project costs which is collateralized by a first lien on
the Project Property, a loan made with the proceeds of a CDC Debenture
in the amount of 40 percent of the Project costs, collateralized by a
second lien on the Project Property, and a contribution by the small
business in the amount of 10 percent of the Project costs. The
Debenture is guaranteed 100 percent by SBA (with the full faith and
credit of the United States), and sold to Underwriters who form
Debenture Pools. Investors purchase interests in Debenture Pools and
receive Certificates representing ownership of all or part of a
Debenture Pool. SBA and CDCs use various agents to facilitate the sale
and service of the Certificates and the orderly flow of funds among the
parties.
Sec. 120.802 Definitions.
The following terms have the same meaning wherever they are used in
this subpart. Defined terms are capitalized wherever they appear.
Area of Operations is a geographic area in which a CDC conducts its
activities.
Associate Development Company (ADC) is an entity approved by SBA to
assist CDCs to deliver 504 financing.
Central Servicing Agent (CSA) is an entity that receives and
disburses funds among the various parties involved in 504 financing
under a master servicing agent agreement with SBA.
Certificate is a document issued by SBA or its agent representing
ownership of all or part of a Debenture Pool.
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Debenture is an obligation issued by a CDC and guaranteed 100
percent by SBA, the proceeds of which are used to fund a 504 loan.
Debenture Pool is an aggregation of Debentures formed by an
Underwriter.
Job Opportunity is a full time (or equivalent) permanent job
created within two years of receipt of 504 funds, or retained in the
community because of a 504 loan.
Net Debenture Proceeds are the portion of Debenture proceeds that
finance eligible Project costs (excluding administrative costs).
Project is the purchase or lease, and/or improvement or renovation
of long-term fixed assets by a small business, with 504 financing, for
use in its business operations.
Project Property is one or more long-term fixed assets, such as
land, buildings, machinery, and equipment, acquired or improved by a
small business, with 504 financing, for use in its business operations.
Substantial Increase in Unemployment is:
(1) A reduction of one-third or more in the workforce of a
relocating small business; or
(2) An increase in unemployment in a redevelopment area (as
designated by the Department of Commerce), a Labor Surplus Area
(designated by the Department of Labor), or in an area which has an
unemployment rate at least 20 percent higher than the national average.
Third Party Loan is a loan from a commercial or private lender,
investor, or Federal (non-SBA), State or local government source
obtained by the Borrower as part of the Project financing.
Underwriter is an entity approved by SBA to form Debenture Pools
and arrange for the sale of Certificates.
Certificaiton Procedures To Become a CDC
Sec. 120.810 Applications for certification as a CDC.
(a) Applicants for certification as a CDC must apply to the SBA
District Office serving a proposed Area of Operations. An applicant
must demonstrate that it satisfies the certification and operating
criteria in Secs. 120.820-120.829, as well as:
(1) The need for 504 services (if there is already a CDC in the
Area of Operations, the applicant must justify the need for another and
present a plan to avoid duplication or overlap);
(2) A budget, approved by its Board of Directors; and
(3) A plan to meet CDC operating requirements (without specializing
in a particular industry).
(b) The AA/FA, with the recommendation of each District Office in
the applicant's proposed Area of Operations, shall make the
certification decision.
Sec. 120.811 Public notice of CDC certification application.
(a) As part of the application process, the applicant must publish
a notice in a general circulation newspaper in the proposed Area of
Operations, including the name and location of the proposed CDC, its
purpose and Area of Operations, and the names of its officers and
directors. The applicant shall send a copy of the notice to SBA. The
notice shall provide the public at least 30 days to submit written
comments to the District Office. The SBA shall consider the comments in
making its decision on the application.
(b) CDCs serving the proposed Area of Operations shall be directly
notified and given at least 30 days to comment.
Sec. 120.812 Probationary period for newly certified CDCs.
(a) Newly certified CDCs will be on probation for a period of two
years, at the end of which the CDC must petition for:
(1) Permanent CDC status;
(2) A single, one-year extension of probation; or
(3) ADC status.
(b) SBA shall consider failure to file a petition before the end of
the probationary period as a withdrawal from the 504 program. If the
CDC elects ADC status or withdrawal, it must transfer all funded and/or
approved loans to another CDC, SBA, or another servicer approved by
SBA.
Requirements for CDC Certification and Operation
Sec. 120.820 CDC non-profit status.
A CDC must be a non-profit corporation (or limited liability
company) in good standing. (For-profit CDCs certified by SBA prior to
January 1, 1987 may retain their certifications.) An SBIC may not
become a CDC.
Sec. 120.821 CDC Area of Operations.
A CDC must have a designated Area of Operations, specified by the
CDC and approved by SBA. There can be only one statewide CDC in each
state, which must foster economic development throughout the state and
provide 504 assistance to areas not adequately served by other CDCs.
Sec. 120.822 CDC membership.
A CDC must have at least 25 members (or stockholders for for-profit
CDCs approved prior to January 1, 1987). No person or entity may own or
control more than 10 percent of the CDC's voting membership (or stock).
Members must be representative of and provide evidence of active
support in the Area of Operations. Members must be from each of the
following groups:
(a) Government organizations responsible for economic development
in the Area of Operations and acceptable to SBA;
(b) Financial institutions that provide commercial long-term fixed
asset financing in the Area of Operations;
(c) Community organizations dedicated to economic development in
the Area of Operations such as chambers of commerce, foundations, trade
associations, colleges, or universities; and
(d) Businesses in the Area of Operations.
Sec. 120.823 CDC board of directors.
The CDC must have a Board of Directors chosen from the membership
by the members, and representing at least three of the four membership
groups. No single group shall control. The Board members must be
responsible officials of the organizations they represent, and at least
one must possess commercial lending experience. The Board must meet at
least quarterly and shall be responsible for CDC staff decisions and
actions. A quorum shall require at least 5 Directors. If there is a
vote on loan approval or servicing actions, at least one Board member
with commercial loan experience approved by SBA must be present and
vote. As an alternative, the Board may obtain the recommendation of
another person approved by SBA and possessing commercial lending
experience.
Sec. 120.824 Professional management and staff.
A CDC must have full-time professional management, including an
Executive Director (or the equivalent) managing daily operations. It
must also have a full-time professional staff qualified by training and
experience to market the 504 Program, package and process loan
applications, close loans, service the loan portfolio, and sustain a
sufficient level of service and activity in the Area of Operations.
(a) Contracting out to third parties. CDCs may obtain, under
contract, marketing, packaging, processing, and servicing services from
qualified Service Providers located in the Area of Operations, subject
to SBA's prior
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written approval. CDCs may contract for outside legal and accounting
services without SBA approval. Compensation under all such contracts
must be reasonable and customary for similar services in the Area of
Operations. SBA may audit the contracts.
(b) Contracting out to other CDCs. CDCs may contract with other
CDCs for specific services, subject to SBA's prior written approval.
Sec. 120.825 Financial ability to operate.
A CDC must be able to sustain its operations continuously, with
reliable sources of funds (such as income from services rendered and
contributions from government or other sponsors).
Sec. 120.826 Basic requirements for operating a CDC.
A CDC must operate in accordance with applicable statutes,
regulations, policy notices, SBA's Standard Operating Procedures
(SOPs), and the information in its application. It must supply to SBA
current and accurate information about all certification and
operational requirements, and maintain the records and submit the
reports required by SBA.
Sec. 120.827 Services a CDC provides to small businesses.
(a) A CDC must operate in and adequately service its Area of
Operations. It must market the 504 program, package and process 504
loan applications, and close and service 504 loans. A CDC's loan
portfolio must be diversified by business sector.
(b) A CDC may help small businesses obtain financial and technical
assistance from other sources, including preparing, closing, and
servicing loans under contract with Lenders in SBA's 7(a) program.
(c) A CDC also may loan amounts to the Borrower equal to the value
of all or part of the Borrower's contribution to a Project in the form
of cash or land, including site improvements, previously acquired by
the CDC.
Sec. 120.828 The minimum level of CDC lending activity.
Each full fiscal year, a CDC must provide at least the minimum
number of 504 Loans set by SBA in an annual program announcement.
Sec. 120.829 The Job Opportunity average a CDC must maintain.
(a) A CDC's portfolio must reflect an average of one Job
Opportunity per $35,000 of 504 loan funding. The AA/FA may permit a CDC
to average up to one per $45,000 for good cause in:
(1) Alaska;
(2) Hawaii;
(3) Redevelopment areas as defined in 42 U.S.C. 3161;
(4) State designated urban jobs and enterprise zones;
(5) Empowerment Zones and Enterprise Communities; and
(6) Labor Surplus Areas listed in the Department of Labor's
publication ``Area Trends''.
(b) A CDC must indicate in its annual report the Job Opportunities
actually or estimated to be provided by each Project.
(c) If a CDC does not maintain the required average, it may retain
its certification if it justifies to SBA's satisfaction its failure to
do so in its annual report and shows how it intends to attain the
required average.
Sec. 120.830 Reports a CDC must submit.
A CDC must submit the following reports to SBA:
(a) An annual report within 90 days after the end of the CDC's
fiscal year, and such interim reports as SBA may require;
(b) Resumes for all new Associates and staff;
(c) Reports of involvement in any legal proceeding;
(d) Changes in organizational status;
(e) Changes in any condition that affects its eligibility to
continue to participate in the 504 program; and
(f) Quarterly service reports on each loan in its portfolio which
is 60 days or more past due (and interim reports upon request by SBA).
Sec. 120.831 Disclosure of referral fees or other payments by or to a
CDC.
The CDC must disclose to SBA and the Borrower any referral fees,
remuneration, or payment made by the CDC to or received by the CDC from
the Lender or any other party to the 504 transaction.
Extending a CDC's Area of Operations
Sec. 120.835 Application to extend an Area of Operations.
SBA may expand a CDC's Area of Operations for good cause shown
including a showing that the proposed Area of Operations is not being
served adequately by the existing CDCs and that the expanding CDC is
well-qualified to serve it. SBA shall not consider an Area of
Operations adequately served if the existing CDCs in the Area of
Operation have not averaged, over the last two fiscal years, sufficient
loan approvals for the population in the CDC's Area of Operations, as
set by SBA in an annual program announcement. The CDC must apply in
writing to the SBA District Office serving the geographic area in which
the CDC proposes to expand. The District Office shall submit its
recommendation to the AA/FA for final decision.
Sec. 120.836 Public notice of application for extension.
SBA must notify all CDCs servicing the proposed area of expansion,
allowing at least 30 days for comment. The CDC also must publish a
notice in a general circulation newspaper in the proposed area of
expansion, giving the public at least 30 days to comment.
Sec. 120.837 Expiration of existing, temporary expansions.
All existing, temporary expansions of Areas of Operation shall
expire 6 months after the effective date of the final regulations,
unless a CDC applies for permanent expansion before the expiration
date.
Sec. 120.838 Case by case extensions.
(a) A CDC may apply to make an individual loan for a Project
outside its Area of Operations in an area not adequately served by
other CDCs to the District Office serving the area in which the Project
will be located. The District Director may approve the request for good
cause shown.
(b) A Borrower may request the services of a CDC not presently
servicing its area by writing to the AA/FA.
Accredited Lenders Program (ALP)
Sec. 120.840 Accredited Lenders Program.
The SBA may designate a CDC as an Accredited Lender. SBA will
provide an Accredited Lender with expedited loan processing or
servicing action (within three days of receiving a completed
application).
(a) Applications. CDCs may apply to the SBA field office with which
it is most active. The SBA office will send its recommendation and the
application to the AA/FA.
(b) Eligibility. SBA will consider the CDC's ability to work with
the local SBA office and the quality of past performance.
(c) Term of designation. CDCs will be designated as ALPs for a two
year period, and are eligible to renew the designation for additional
two year periods.
(d) Suspension and revocation. The AA/FA may suspend or revoke ALP
designation upon written notice stating the reasons therefore at least
10 business days prior to the effective date of the suspension or
revocation. Reasons for suspension or revocation may include loan
performance unacceptable to SBA or violations of applicable statutes,
[[Page 64396]]
regulations or published SBA policies and procedures. An ALP may appeal
the suspension or revocation made under this section pursuant to the
procedures set forth in part 134 of this chapter. The action of the AA/
FA shall remain in effect pending resolution of the appeal.
Premier Certified Lenders Program
Sec. 120.845 Premier Certified Lenders Program.
The SBA has established a pilot program to designate a number of
CDCs as Premier Certified Lenders (``PCLPs''), which will be able to
process, approve, close and service 504 loans.
(a) Characteristics. Loans processed through the PCL Program will
be subject to the same provisions as other 504 loans, including final
approval by SBA.
(b) Applications. A CDC may obtain information concerning this
program from SBA's Office of Pilot Operations in Washington, D.C. A CDC
may apply to the SBA field office with which it is most active. The SBA
office will send the application with a recommendation to the AA/FA.
(c) Eligibility. SBA will consider the CDC's ability to work with
the local SBA office and the quality of past performance.
(d) Loss reserve. A PCLP must establish a loss reserve, secured by
its segregated assets in favor of SBA, in the amount of the PCLP's
historic loss rate or 10 percent of its exposure under the PCLP
program, whichever is greater. The PCLP must contribute to the loss
reserve every time a Debenture is issued, in intervals set by SBA.
(e) Review. The SBA shall review a PCLP's financings at least
annually.
(f) Suspension and revocation. The AA/FA may suspend or revoke PCLP
designation upon written notice stating the reasons therefore at least
10 business days prior to the effective date of the suspension or
revocation. Reasons for suspension or revocation may include loan
performance unacceptable to SBA, failure to meet loss reserve or
eligibility criteria, or violations of applicable statutes, regulations
or published SBA policies and procedures. A PCLP may appeal the
suspension or revocation made under this section pursuant to the
procedures set forth in part 134 of this title. The action of the AA/FA
shall remain in effect pending resolution of the appeal.
(g) Program period. On October 1, 1997, the PCLP pilot program
ends.
Associate Development Companies (ADCs)
Sec. 120.850 ADC functions.
(a) An ADC must support local economic development efforts. An ADC
may package, close, and service loans for a CDC under a written
contract approved by SBA. Such contracts must meet Service Provider
criteria, and specify the rights and responsibilities of the parties
(including payment terms). The CDC remains solely responsible to SBA
for the processing, closing, and servicing of the loan. It may not
charge the Borrower a higher fee because it is using the ADC's
services.
(b) An ADC must operate in accordance with statutes, regulations,
policy notices, SBA's Standard Operating Procedures (SOPs), and the
information in its application. It must supply to SBA current and
accurate information about all certification and operational
requirements, and maintain the records required by SBA.
Sec. 120.851 ADC eligibility and operating requirements.
(a) An ADC must demonstrate to SBA and maintain the following:
(1) Adequate management ability;
(2) A Board of Directors meeting at least quarterly and chosen from
the membership by the members;
(3) A professional staff, including at least one qualified full-
time professional with small business lending experience available
during regular business hours; and
(4) A budget or financial statements showing the financial
capability and funding to sustain continuing operations.
(b) An ADC may contract out for staff services only if SBA gives
prior approval. The contract, subject to SBA audit, may not be self-
serving, and compensation must be reasonable and customary.
Sec. 120.852 Suspension and revocation of ADCs.
SBA may require corrective action, or the AA/FA may suspend or
revoke ADC status upon written notice stating the reasons therefore at
least 10 business days prior to the effective date of the suspension or
revocation. Reasons for suspension or revocation may include violations
of applicable statutes, regulations or published SBA policies and
procedures. An ADC may appeal the suspension or revocation made under
this section pursuant to the procedures set forth in part 134 of this
chapter. The action of the AA/FA shall remain in effect pending
resolution of the appeal.
Ethical Requirements
Sec. 120.855 CDC and ADC ethical requirements.
CDCs and ADCs and their Associates must act ethically and exhibit
good character. They must meet all of the ethical requirements of
Sec. 120.140. In addition, they are subject to the following:
(a) Any benefit flowing to an Associate or the Associate's employer
from the Associate's activities as an Associate shall be merely
incidental (this requirement does not prevent an Associate or an
Associate's employer from engaging in a business relationship with the
CDC and/or the Borrower in the regular course of business, including
providing interim financing or Third-Party loans); and
(b) Unless waived by SBA, an Associate may not be an officer,
director, or manager of more than one CDC or ADC (except that the
membership or Board of Directors of a broader-based CDC may include a
member or director of a local CDC within its Area of Operations).
Project Economic Development Goals
Sec. 120.860 Required objectives.
A Project must achieve at least one of the economic development
objectives set forth in Sec. 120.861 or Sec. 120.862.
Sec. 120.861 Job creation or retention.
A Project must create or retain one Job Opportunity for every
$35,000 guaranteed by SBA.
Sec. 120.862 Other economic development objectives.
A Project that achieves any of the following community development
or public policy goals is eligible if the CDC's overall portfolio of
504 loans, including the subject loan, meets or exceeds the CDC's
required Job Opportunity average. Applications for assistance must
indicate how the Project will meet the specified economic development
objective.
(a) Community Development goals:
(1) Improving, diversifying or stabilizing the economy of the
locality;
(2) Stimulating other business development;
(3) Bringing new income into the community; or
(4) Assisting manufacturing firms (Standard Industrial
Classification Manual (SIC) Codes 20-49).
(b) Public Policy goals:
(1) Revitalizing a business district of a community with a written
redevelopment plan;
(2) Expanding exports;
(3) Expanding Minority Enterprise development (See Sec. 124.103(b)
of this chapter.);
(4) Aiding rural development;
(5) Increasing productivity and competitiveness (retooling,
robotics, modernization, competition with imports);
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(6) Modernizing or upgrading facilities to meet health, safety, and
environmental requirements;
(7) Assisting businesses affected by Federal budget reductions,
such as base closings; or
(8) Assisting businesses in Labor Surplus Areas as defined by the
Department of Labor.
Leasing Policies Specific to 504 Loans
Sec. 120.870 Leasing Project Property.
(a) A Borrower may use the proceeds of a 504 loan to acquire,
construct, or modify buildings and improvements, and/or to purchase and
install machinery and equipment located on land leased to the Borrower
by the CDC or an unrelated lessor if:
(1) The remaining term of the lease, including options to renew,
exercisable solely by the lessee, equals or exceeds the term of the
Debenture, or, in the case of machinery or equipment, equals or exceeds
the useful life of the property or the term of the Debenture, whichever
is lesser;
(2) The Borrower assigns its interest in the lease to the CDC with
right of reassignment to SBA; and
(3) The 504 loan is secured by a recorded lien against the
leasehold estate and other collateral as necessary.
(b) If a CDC leases property to a small business, the rent paid by
the small business during the term of the Debenture must be enough to
pay principal and interest on all debt incurred by the CDC to finance
the Project, and all related expenses. The rent also may include a
reasonable return on the CDC's investment.
Sec. 120.871 Leasing part of a new construction Project to another
business.
If a Project is the construction of a new building, a Borrower may
lease up to 33% of the square footage of the rentable property (total
square footage of all buildings or facilities used for business
operations) for a short term to any third party if reasonable growth
projections show that the Borrower will need additional space within
three years and will use all of the additional space within ten years.
If the Borrower is an Eligible Passive Company leasing 100 percent of
the Project space to an Operating Company, the Operating Company may
sublease up to 33 percent to a third party under the same conditions.
Sec. 120.872 Leasing part of an existing building to another business.
If a Project involves the acquisition, renovation, or
reconstruction of an existing building, the Borrower (or Operating
Company) must occupy at least 51 percent of the Rentable Property. The
balance of the Rentable Property may be leased out to any third party,
if the 504 loan proceeds were not used to remodel or convert the space
to be leased out. The costs of interior finishing of the space to be
leased out are not eligible Project costs, and third-party loan
proceeds used to renovate the leased space shall not count towards the
504 first mortgage requirement or the Borrower's contribution.
Loan-Making Policies Specific to 504 Loans
Sec. 120.880 Basic eligibility requirements.
In addition to the eligibility requirements specified in subpart A,
to be an eligible Borrower for a 504 loan, a small business must:
(a) Use the Project Property (except for loans to Passive
Companies); and
(b) Together with its affiliates, meet one of the following size
standards:
(1) It does not have a net worth in excess of $6 million, and does
not have an average net income after Federal income taxes (excluding
any carry-over losses) for the preceding two years in excess of $2
million; or
(2) It meets the size standards in Part 121 of this chapter for the
industry in which it is primarily engaged.
Sec. 120.881 Ineligible Projects for 504 loans.
In addition to the ineligible businesses and uses of proceeds
specified in subpart A of this part, the following Projects are
ineligible for 504 financing:
(a) Relocation of any of the operations of a small business which
will cause a Substantial Increase in Unemployment, unless the CDC can
justify the loan because:
(1) The relocation is for key economic reasons and crucial to the
continued existence, economic wellbeing, and/or competitiveness of the
applicant; and
(2) The economic development benefits to the applicant and the
receiving community outweigh the negative impact on the community from
which the applicant is moving;
(b) Projects in foreign countries (loans financing real or personal
property located outside the United States or its possessions); and
(c) Speculative Projects (such as oil wildcatting).
Sec. 120.882 Eligible Project costs for 504 loans.
Eligible Project costs which may be paid with the proceeds of 504
loans are:
(a) Costs directly attributable to the Project including
expenditures incurred by the Borrower (with its own funds or from a
loan):
(1) To acquire land used in the Project prior to applying to SBA
for the 504 loan; or
(2) For any other expense toward a Project within six months of
receipt by SBA of a complete loan application;
(b) In construction Projects, a contingency reserve for cost
overruns not to exceed 10 percent of construction cost;
(c) Professional fees directly attributable and essential to the
Project, such as title insurance, architecture, engineering,
accounting, legal fees and environmental studies; and
(d) Repayment of interim financing including points, fees and
interest.
Sec. 120.883 Eligible administrative costs for 504 loans.
The following costs and fees are not part of Project costs but may
be paid with the proceeds of the 504 loan and the Debenture:
(a) SBA guarantee fee;
(b) Funding fee (to cover cost of public issuance of securities);
(c) CDC processing fee;
(d) Closing costs, including legal fees; and
(e) Underwriters fee.
Sec. 120.884 Ineligible costs for 504 loans.
Costs not directly attributable and necessary for the Project may
not be paid with proceeds of the 504 loan. These include, but are not
limited to, the following:
(a) Debt refinancing (other than interim financing);
(b) Third-Party Loan fees (commitment, broker, finders,
origination, processing fees of permanent financing);
(c) Ancillary business expenses, such as:
(1) Working capital;
(2) Counseling or management services fees;
(3) Incorporation/organization costs;
(4) Franchise fees; and
(5) Advertising;
(d) Non fixed-asset project components, such as:
(1) Short-term equipment, furniture, and furnishings (unless
essential to and a minor portion of the Project);
(2) Automobiles, trucks, and airplanes; and
(3) Construction equipment (except for heavy duty construction
equipment integral to a business' operations and meeting the IRS
definition of capital equipment).
Interim Financing
Sec. 120.890 Source of interim financing.
A Project may use interim financing for all Project costs except
the
[[Page 64398]]
Borrower's contribution. Any source (including a CDC) may supply
interim financing provided:
(a) The financing is not derived from any SBA program, directly or
indirectly;
(b) The terms and conditions of the financing are acceptable to
SBA;
(c) The source is not the Borrower or an Associate of the Borrower;
and
(d) The source has the experience and qualifications to monitor
properly all construction and progress payments. (If the source lacks
such experience or qualifications, SBA may require the interim loan to
be managed by a third party such as a bank or professional construction
manager.)
Sec. 120.891 Certifications of disbursement and completion.
Before the Debenture is issued, the interim lender must certify
that the interim financing has been disbursed in a manner consistent
with the terms of the Authorization. Also, the CDC must certify that
the Project was completed in accordance with the final plans and
specifications (except as provided in Sec. 120.962).
Sec. 120.892 Certifications of no adverse change.
Following completion of the Project, the following certifications
must be made before the 504 loan closing:
(a) The interim lender must certify to the CDC that it has no
knowledge of any adverse change in the condition of the small business
since the application;
(b) The Borrower (or Operating Company) must certify to the CDC
that there has been no adverse change in its financial condition or its
ability to repay the 504 loan since the date of application, and must
furnish interim financial statements, current within 90 days of
closing; and
(c) The CDC must issue an opinion to the best of its knowledge that
there has been no adverse change in the Borrower's (or Operating
Company's) ability to repay the 504 loan since SBA's approval of the
loan application.
Permanent Financing
Sec. 120.900 What are the sources of permanent financing?
Permanent financing for each Project must come from three sources:
the Borrower's contribution, Third-Party Loans, and the 504 loan.
Typically, the Borrower contributes 10 percent of the permanent
financing, Third-Party Loans 50 percent and the 504 loan 40 percent.
The Borrower's Contribution
Sec. 120.910 How much must the Borrower contribute?
The Borrower must contribute to the Project cash (or property
acceptable to SBA obtained with the cash) or land (that is part of the
Project Property) valued at 10 percent or more of the Project cost
(exclusive of administrative cost). The source of the contribution may
be a CDC or any other source except an SBA business loan program (see
Sec. 120.913 for SBIC exception).
Sec. 120.911 Land contributions.
The Borrower's contribution may be land, including site
improvements, previously acquired by the Borrower or the CDC. The
amount of the contribution shall be the value of the contributor's
equity in the land, excluding the value of any structures, under SBA's
policy guidelines.
Sec. 120.912 Borrowed contributions.
The Borrower may borrow its cash contribution from the CDC or a
third party. If any of the contribution is borrowed, the interest rate
must be reasonable. If the loan is secured by any of the Project
assets, the loan must be subordinate to the liens securing the 504
Loan, and the loan may not be repaid at a faster rate than the 504 Loan
unless SBA gives prior written approval. A third party lender may not
receive voting rights, stock options, or any other actual or potential
voting interest in the small business.
Sec. 120.913 May an SBIC provide the contribution?
Subject to part 107 of this chapter, SBIC's may provide financing
for all or part of the Borrower's contribution to the project. SBA
shall consider SBIC funds to be derived from federal sources if the
SBIC has leverage (as defined in part 107 of this chapter). If the SBIC
does not have leverage, the investment will be considered to be from
private funds. SBIC financing must be subordinated to the 504 loan and
may not be repaid at a faster rate than the Debenture.
Third Party Loans
Sec. 120.920 The first lien position.
The Borrower must obtain one or more Third Party Loans totaling at
least as much as the 504 loan. Third Party Loans usually have the first
lien position. They cannot be guaranteed by SBA.
Sec. 120.921 Terms of Third Party loans.
(a) Maturity. A Third Party Loan must have a term of at least 7
years when the 504 loan is for a term of 10 years and 10 years when the
504 loan is for 20 years. If there is more than one Third Party Loan,
an overall loan maturity must be calculated, taking into account the
maturities and amounts of each loan. If there is a balloon payment, it
must be justified in the loan report and clearly identified in the Loan
Authorization.
(b) Interest rates. Interest rates must be reasonable. SBA must
establish and publish in the Federal Register a maximum interest rate
for any Third Party Loan from commercial financial institutions. The
rate shall remain in effect until changed.
(c) Other terms. The Third Party Loan must not have any early call
feature or contain any demand provisions unless the loan is in default.
By participating, a Third Party Loan lender waives, as to the CDC/SBA
financing, any provision in its deed of trust, or mortgage, or other
documents prohibiting further encumbrances or subordinate debt. In the
event of default, the Third Party Lender must give the CDC and SBA
written notice of default within 30 days of the event of default and at
least 60 days prior to foreclosure.
Sec. 120.922 Pre-existing debt on the Project Property.
In addition to its share of Project cost, a Third Party Loan may
include consolidation of existing debt on the Project Property. The
consolidation must not improve the lien position of the Lender on the
pre-existing debt, unless the debt is a previous Third Party Loan.
Sec. 120.923 What are the policies on subordination?
(a) Financing provided by the seller of Project Property must be
subordinate to the 504 loan. SBA may waive the subordination
requirement if the property is classified as ``other real estate
owned'' by a national bank or other Federally regulated lender and SBA
considers the property to be of sufficient value to support the 504
loan.
(b) By participating, Third Party Loan lienholders subordinate to
the CDC/SBA lien future advances in excess of the Third Party Loans
except expenditures for collection, maintenance, and protection of the
Third Party Loan lienholder's lien position.
(c) A Borrower is eligible for a 504 loan even if part of the
Project financing is tax-exempt. SBA's lien position must not be
subordinate to loans made from the proceeds of the tax-exempt
obligation.
[[Page 64399]]
Sec. 120.924 Prepayment of subordinate financing.
The Borrower must not prepay any Project financing subordinate to
the 504 loan without SBA's prior written consent.
Sec. 120.925 Preferences.
No Third Party Lender shall establish a Preference.
504 Loans and Debentures
Sec. 120.930 Amount.
(a) Generally, a 504 loan may not exceed 40 percent of total
Project cost plus 100 percent of eligible administrative costs. For
good cause shown, SBA may authorize an increase in the percentage of
Project costs covered up to 50 percent. No more than 50 percent of
eligible Project costs can be from Federal sources, whether received
directly or indirectly through an intermediary.
(b) Generally, the minimum 504 loan must be $50,000, although, upon
good cause shown, SBA may permit a 504 loan as small as $25,000. The
amount of the Debenture must equal the amount of the 504 Loan. If the
cost of the completed Project is less than 98 percent of the authorized
Debenture amount, the amount of the Debenture to be issued shall be
reduced by the difference. If the cost of the completed project is at
least 98 percent of the authorized Debenture amount, the full
authorized amount of the Debenture shall be disbursed.
Sec. 120.931 504 lending limits.
The outstanding balance of all SBA financial assistance to a
Borrower and its affiliates under the 504 program covered by this Part
must not exceed $750,000 ($1,000,000 if one or more of the public
policy goals enumerated in Sec. 120.861(b) applies to the Project).
Sec. 120.932 Interest rate.
The interest rate of the 504 Loan and the Debenture which funds it
is set by the Underwriter and approved by the Secretary of the
Treasury. Each 504 loan must have a fixed interest rate.
Sec. 120.933 Maturity.
The term of a 504 Loan and the Debenture which funds it shall be
either 10 or 20 years.
Sec. 120.934 Collateral.
The CDC/SBA takes at least a second lien position on the Project
collateral. In rare circumstances, collateral other than the Project
collateral may be accepted by SBA. Sometimes secondary collateral is
required. All collateral must be insured against such hazards and risks
as SBA may require, with provisions for notice to SBA and the CDC in
the event of impending lapse of coverage.
Sec. 120.935 Deposit.
At the time of application for a 504 loan, the CDC may require a
deposit from the Borrower of $2,500 or 1 percent of the Net Debenture
Proceeds, whichever is less. The deposit may be applied to the loan
processing fee if the application is accepted, but must be refunded if
the application is denied. If the small business withdraws its
application, the CDC may deduct from the deposit reasonable costs
incurred in packaging and processing the application.
Sec. 120.936 Subordination to CDC.
SBA, in its sole discretion, may permit subordination of the
Debenture to any other obligation of the CDC, except debt incurred by
the CDC to obtain funds to loan to the Borrower for the Borrower's
required contribution to the Project financing.
Sec. 120.937 Assumption.
A 504 loan may be assumed with SBA's prior written approval.
Sec. 120.938 Default.
(a) Upon occurrence of an event of default specified in the 504
note which requires automatic acceleration, the note becomes due and
payable. Upon occurrence of an event of default which does not require
automatic acceleration, SBA may forbear acceleration of the note and
attempt to resolve the default. If the default is not cured
subsequently, the note shall be accelerated. In either case, upon
acceleration of the note, the Debenture which funded it is also due
immediately, and SBA must honor its guarantee of the Debenture. SBA
shall not reimburse the investor for any premium paid.
(b) If a CDC defaults on a Debenture, SBA generally shall limit its
recovery to the payments made by the small business to the CDC on the
loan made from the Debenture proceeds, and the collateral securing the
defaulted loan. However, SBA will look to the CDC for the entire amount
of the Debenture in the case of fraud or negligence by the CDC.
Sec. 120.939 Borrower prohibition.
Neither a 504 loan recipient nor its Small Business Associate may
purchase the Debenture that funded its 504 loan.
Sec. 120.940 Prepayment of the 504 loan or Debenture.
The Borrower may prepay its 504 loan, if it pays the entire
principal balance, unpaid interest, any unpaid fees, and any prepayment
premium established in the note. If the Borrower prepays, the CDC must
prepay the corresponding Debenture with interest and premium. If one of
the Debentures in a Debenture Pool is prepaid, Certificate holders must
be paid pro rata, and SBA's guarantee on the entire Debenture Pool must
be proportionately reduced. If the entire Debenture Pool is paid off,
SBA may call all Certificates backed by the Pool for redemption.
Sec. 120.941 Certificates.
(a) The face value of a Certificates must be at least $25,000.
Certificates are issued in registered form and transferred only by
entry on the central registry maintained by the Trustee. No transfer
may take place within 10 business days of a payment date. SBA
guarantees the timely payment of principal and interest on the
Certificates.
(b) Before the sale of a Certificate, the seller, or the broker or
dealer acting as the seller's agent, must disclose to the purchaser the
terms, conditions, yield, and premium and other characteristics not
guaranteed by SBA.
Debenture Sales and Service Agents
Sec. 120.950 SBA and CDC must appoint agents.
SBA and the CDC must appoint the following agents to facilitate the
sale and service of the Certificates and disbursement of the proceeds.
Sec. 120.951 Selling agent.
The CDC, with SBA approval, shall appoint a Selling Agent to select
underwriters, negotiate the terms and conditions of Debenture offerings
with the underwriters, and direct and coordinate Debenture sales.
Sec. 120.952 Fiscal agent.
SBA shall appoint a Fiscal Agent to assess the financial markets,
minimize the cost of sales, arrange for the production of the Offering
Circular, Debenture Certificates, and other required documents, and
monitor the performance of the transfer agent and the underwriters.
Sec. 120.953 Trustee.
SBA must appoint a Trustee (known as a Transfer Agent for the
December l986 Debenture sale) to:
(a) Issue Certificates;
(b) Transfer the Certificates upon resale in the secondary market;
(c) Maintain physical possession of the Debentures for SBA and the
Certificate holders;
(d) Establish and maintain a central registry of:
[[Page 64400]]
(1) Debenture Pools, including the CDC obligors and the interest
rate payable on the Debentures in each Pool;
(2) Certificates issued or transferred, including the Debenture
Pool backing the Certificate, name and address of the purchaser, price
paid, the interest rate on the Certificate, and fees or charges
assessed by the transferror; and
(3) Brokers and dealers in Certificates, and the commissions, fees
or discounts granted to the brokers and dealers;
(e) Receive semi-annual Debenture payments and prepayments;
(f) Make regularly scheduled and prepayment payments to Registered
Holders of Debentures or Certificates; and
(g) Assure before any resale of a Debenture or Certificate is
recorded in the registry that the seller has provided the purchaser a
written disclosure statement approved by SBA.
Sec. 120.954 Central Servicing Agent.
(a) SBA has entered into a Master Servicing Agreement designating a
Central Servicing Agent (CSA) to support the orderly flow of funds
among Borrowers, investors, CDCs, and SBA. The CDC and Borrower must
enter into an individual Servicing Agent Agreement with the CSA for
each 504 loan, constituting acceptance by the CDC and the Borrower of
the terms of the Master Servicing Agreement.
(b) The CSA has established a master reserve account. All funds
related to the 504 loans and Debentures flow through the master reserve
account under the provisions of the Master Servicing Agreement. The
master reserve account shall be funded by a reserve deposit, a funding
fee to be published from time to time in the Federal Register, and by
principal and interest payments of 504 loans. At SBA's direction, the
CSA uses the funds in the master reserve account to defray program
expenses. In the event a Borrower defaults and the 504 note is
accelerated, SBA shall add funds under its guarantee to ensure the full
and timely payment of the Debenture which funded the 504 loan. The CSA
shall pay to the CDC servicing each loan the interest accruing in the
master reserve account on loan payments made by each Borrower between
the date of receipt of each monthly payment and the date of
disbursement to investors. The CSA may disburse such interest
periodically to CDCs on a pro rata basis. SBA may use interest accruals
in the account earned prior to October 1991 on such payments (not
previously distributed to the CDCs) for 504 program administration.
Sec. 120.955 Agent bonds and records.
(a) Each agent (in Secs. 120.951-120.955) must provide a fidelity
bond or insurance in such amount as necessary to fully protect the
interest of the government.
(b) SBA must have access at the agent's place of business to all
books, records and other documents relating to Debenture activities.
Sec. 120.956 Suspension or revocation of brokers and dealers.
The AA/FA may suspend or revoke the privilege of any broker or
dealer to participate in the sale or marketing of Debentures and
Certificates for actions or conduct bearing negatively on the broker's
fitness to participate in the securities market. SBA must give the
broker or dealer written notice, stating the reasons therefore, at
least 10 business days prior to the effective date of the suspension or
revocation of ADC status. A broker or dealer may appeal the suspension
or revocation made under this section pursuant to the procedures set
forth in part 134 of this chapter. The action of the AA/FA shall remain
in effect pending resolution of the appeal. SBA may suspend or revoke
of the opportunity for a hearing under part 134 of this chapter.
Closings
Sec. 120.960 Responsibility for closing.
The CDC is responsible for the 504 Loan closing. The Debenture
closing is the joint responsibility of the CDC and SBA.
Sec. 120.961 CDC closing fees.
(a) The CDC may charge the Borrower an amount sufficient to
reimburse it for reasonable legal fees related to closing the 504 loan.
The legal fees and other professional fees and closing costs are
administrative costs eligible for reimbursement from the debenture
proceeds.
(b) The CDC may charge a finder's fee of up to 1.5 percent of the
504 loan if the CDC secured the lender for the Borrower under a written
contract. Either the Borrower or the lender may pay the fee. It may not
be reimbursed from the Debenture proceeds.
Sec. 120.962 Construction escrow accounts.
The CSA, title company, or bank may hold Debenture proceeds in
escrow to complete Project components such as landscaping and parking
lots, and acquire machinery and equipment if the component or
acquisition is a minor portion of the total Project and has been
contracted for completion or delivery at a specified price and specific
future date. The escrow agent must disburse funds upon approval by the
CDC and the SBA, supported by invoices and payable jointly to the small
business and the designated contractor.
Servicing and Post-Closing Fees
Sec. 120.970 Servicing of 504 loans and Debentures.
The CDC must service the 504 loan in accordance with the Loan
Authorization, these regulations, SBA policies and procedures, and
prudent lending standards until paid in full, including review of the
small business's financial statements, tax filings, insurance, and
security filings. CDCs must comply with the provisions of Sec. 120.513.
In addition, the CDC must comply with the servicing requirements set
forth in SBA's SOP. The CDC must report promptly to SBA any adverse
trend, condition or information. Upon request by a CDC, SBA may agree
to defer a Borrower's monthly payment. SBA may negotiate agreements
with CDCs to liquidate loans.
Sec. 120.971 Post-closing fees paid by Borrower.
(a) CDC fees. CDCs may charge the following fees to the Borrower:
(1) Service fee. A service charge of not less than 0.5 percent nor
more than 2 percent per annum on the outstanding balance of the 504
loan measured at 5 year anniversary intervals. A service charge in
excess of 1.5 percent in a Rural Area and 1 percent everywhere else
requires SBA's prior written approval, based on evidence of substantial
need. The CDC's monthly service fee shall be paid only from loan
payments received. The fees may be accrued without interest and
collected from the CSA when the payments are made;
(2) Late fees. Payments received after the 15th of each month may
be subject to a late payment fee of 5 percent of the late payment or
$100, whichever is greater, collected by the CSA on behalf of the CDC;
and
(3) Assumption fee. Upon SBA's written approval, a CDC may charge
an assumption fee equal to no more than 1 percent of the outstanding
principal balance of the loan being assumed.
(b) CSA fees. The CSA may charge an initiation fee on each loan and
a monthly service fee under the terms of the Master Servicing
Agreement.
(c) Other agent fees. Agent fees and charges necessary to market
and service Debentures and Certificates may be assessed to the Borrower
or the investor. The fees must be approved by SBA and published
periodically in the Federal Register.
[[Page 64401]]
(d) SBA fees. The Borrower shall pay SBA an annual fee of 0.125
percent of the outstanding balance of each 504 loan approved after
October 1, 1995.
Sec. 120.972 Oversight and evaluation of CDCs and ADCs.
SBA may conduct an operational review of a CDC or ADC. The SBA
Office of Inspector General may conduct, supervise or coordinate
compliance audits pursuant to the Inspector General Act. The CDC or ADC
must cooperate and make its staff, records, and facilities available.
CDC Transfer, Suspension and Revocation
Sec. 120.980 Transfer of CDC to ADC status.
SBA shall transfer to ADC status any CDC that fails to meet the
activity level required by SBA, on average over two consecutive fiscal
years. SBA shall notify the CDC in writing of the action and of the
opportunity for a hearing pursuant to part 134 of this chapter at least
10 business days prior to the transfer. During the pendency of a
hearing, SBA's action will remain in effect.
Sec. 120.981 Voluntary transfer and surrender of CDC certification.
A CDC may not transfer its certification or withdraw from the 504
program without SBA's consent. The CDC must provide a plan to SBA to
transfer its portfolio. The portfolio may only be transferred with
SBA's written consent. If a CDC desires to withdraw from the 504
program, it must forfeit its portfolio to SBA. SBA may conduct an audit
of the transferring or withdrawing CDC.
Sec. 120.982 Correcting CDC servicing deficiencies.
SBA may require corrective action, including the transfer of
existing or pending financings to another CDC in good standing. SBA
must notify the CDC in writing of any servicing, reporting or
collection deficiencies and the corrective actions to be taken. SBA may
instruct the CSA to withhold service and late fees and may assess the
CDC up to $250 per day for expenses incurred by SBA to correct the
deficiencies. If non-compliance continues for 90 days, SBA may take the
fees as compensation for its efforts to obtain compliance.
Sec. 120.983 Transfer of CDC servicing to SBA or another CDC.
If a CDC fails to correct servicing deficiencies, or is unable or
unwilling to service its portfolio, SBA may assume the servicing or
require the transfer of all or part of the CDC's portfolio to another
CDC within or adjoining the deficient CDC's Area of Operations. If
there is no suitable CDC, SBA may approve a transfer to another entity.
Future service fees from transferred loans will be paid to the
transferee. In addition, the CDC's processing authority will be
temporarily suspended.
Sec. 120.984 Suspension or revocation of CDC certification.
(a) Suspend or revoke. SBA may suspend or revoke the CDC's
certification if a CDC:
(1) Violates a statute, an SBA regulation, or the terms of a
Debenture, authorization, or agreement with SBA;
(2) Makes a material false statement, knowingly misrepresents, or
fails to state a material fact;
(3) Fails to maintain good character;
(4) Fails to operate according to prudent lending standards;
(5) Fails to correct servicing, collection, reporting, or other
deficiencies; or
(6) Is unable or unwilling to operate in accordance with the
requirements of this part.
(b) Transfer portfolio. Upon suspension or revocation, the CDC must
transfer its remaining portfolio and any 504 applications or financings
in process to another CDC designated or approved by SBA. If a pending
504 financing is completed after a transfer, any deposit must also be
transferred. Any fees must be apportioned by SBA between the two CDCs
in proportion to services performed.
(c) Provide written notice. SBA must give written notice to the CDC
at least 10 business days prior to the effective date of a suspension
or revocation, informing the CDC of the opportunity for a hearing
pursuant to part 134 of this chapter.
Enforceability of 501, 502 and 503 Loans and Other Laws
Sec. 120.990 501, 502, and 503 loans.
SBA has discontinued loan programs for 501, 502, and 503 loans.
Outstanding loans remain under these programs, and Borrowers, CDCs, and
SBA must comply with the terms and conditions of the corresponding
notes and Debentures, and the regulations in effect when the
obligations were undertaken or last in effect, if applicable.
Sec. 120.991 Effect of other laws.
No State or local law may preclude or limit SBA's exercise of its
rights with respect to notes, guarantees, Debentures and Debenture
Pools, or of its enforcement rights to foreclose on collateral.
PARTS 108, 116, 122, AND 131--[REMOVED]
2. Parts 108, 116, 122, and 131 are removed.
Dated: November 13, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-30327 Filed 12-14-95; 8:45 am]
BILLING CODE 8025-01-P
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