Proposed Rules. Final rule

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BILLING CODE 4120-01-P DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency 44 CFR Part 78 [Docket ID FEMA-2007-0003] RIN 1660-AA00 Flood Mitigation Assistance AGENCY: Federal Emergency Management Agency, DHS. ACTION: Final rule. SUMMARY: The Federal Emergency Management Agency

(FEMA)is adopting as final, without substantive change, an interim rule that implements sections 553 and 554 of the National Flood Insurance Reform Act of 1994. Section 553 authorizes a flood mitigation assistance program through which FEMA is authorized to provide grants to States and communities for planning assistance and for mitigation projects that reduce the risk of flood damage to structures covered under contracts for flood insurance. Section 554 establishes the National Flood Mitigation Fund to fund assistance provided under section 553. DATES: Effective Date: November 30, 2007. FOR FURTHER INFORMATION CONTACT: Cecelia Rosenberg, Mitigation Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (phone) 202-646-3321, (facsimile) 202-646-2719, or (e-mail) *cecelia.rosenberg@dhs.gov.* SUPPLEMENTARY INFORMATION: I. Background Sections 553 and 554 of the National Flood Insurance Reform Act of 1994 (NFIRA) (Pub. L. 103-325, enacted September 23, 1994) (also known as Title V of the Riegle Community Development and Regulatory Improvement Act of 1994) amended the National Flood Insurance Act of 1968 (42 U.S.C. 4101 *et seq.* ). Specifically, section 553 authorized the Director (now Administrator) of the Federal Emergency Management Agency

(FEMA)to carry out a flood mitigation assistance program, known as the Flood Mitigation Assistance Program (FMA). Through the FMA Program, FEMA is authorized to provide grants to States and communities for planning assistance and mitigation projects that reduce the risk of flood damage to structures covered under contracts for flood insurance. Section 554 required FEMA to establish the National Flood Mitigation Fund

(NFMF)to provide funds for flood mitigation program assistance described in section 553. On March 20, 1997 (62 FR 13346), FEMA published an interim rule implementing section 553 and 554 of the National Flood Insurance Reform Act. This final rule adopts, without substantive change, the regulations established by the March 20, 1997 interim rule. It addresses the comments received from the public in response to the interim rule, and finalizes the regulations contained in 44 CFR part 78. Records Management The Regulation Identifier Number

(RIN)listed in the March 20, 1997 interim final rule was 3067-AC45. Since FEMA became a component of the Department of Homeland Security (DHS), FEMA's RINs were renumbered and 3067-AC45 became 1660-AA00. II. Discussion of Public Comments FEMA received seven public comments on the interim rule. The seven commenters included five States, one local government, and one association. The comments received, together with FEMA's responses, are set forth below. *The Community Rating System.* One commenter wrote that while it is good that the Community Rating System

(CRS)criterion may be a basis for a floodplain management plan, CRS communities with repetitive loss or floodplain management plans developed prior to the publishing of 44 CFR part 78 in March 1997 may not realize that their plans will require modification to meet the new criteria of 44 CFR 78.5, and States and regions should be counseled to closely review these older plans. The commenter wrote that the CRS plan reviewer for the Insurance Services Organization

(ISO)should be consulted before any FEMA region approves any CRS plans developed prior to 1997 for the purpose of receiving FMA project funds unless the region or State carefully reviews them to see that they meet FMA criteria. The commenter wrote that the States and regions should accept nothing less than plan adoption by resolution of the community's governing board. The commenter also wanted FEMA not to accept as evidence of adoption a letter from the Mayor stating that the community will follow the plan since the CRS criterion requires full adoption by the governing board. The commenter thought that FMA should be consistent with the CRS plan adoption process and require that all local elected officials see the proposed plan and ratify it. *FEMA's Response:* The CRS program is a voluntary program that predates these regulations and creates an incentive for communities that participate in the National Flood Insurance Program

(NFIP)to implement floodplain management practices that exceed NFIP minimum requirements. The CRS program, which was established in 1993, provides credit for communities in the form of lower flood insurance premium rates for property owners. The CRS has been and is currently operated by FEMA through an agreement with ISO. The schedule of creditable activities is described in its reference guide, the *CRS Coordinator's Manual* available through *http://www.fema.gov/business/nfip/intnfip.shtm.* One of the approved CRS activities that communities may receive credit for is to develop a flood mitigation or repetitive flood loss plan. FEMA has addressed CRS plans developed prior to 1997 by coordinating with CRS staff to ensure that all review criteria are consistent with FMA and CRS plans. As a result, FEMA has accepted CRS plans based on guidance provided in FEMA Publication No. 299: The FMA Program Guidance (August 1997), as meeting the requirements of § 78.5 as approvable local Flood Mitigation Plans. Further, ISO continues to review CRS plans submitted by local communities against the requirements of § 78.5 if requested by a local community. Such plans would then be forwarded to the State and FEMA for approval as FMA plans. Further, § 201.6(c)(5) states that the planning process shall include, documentation “that the plan has been formally adopted by the governing body of the jurisdiction requesting approval of the plan ( *e.g.* City Council, County Commissioner, Tribal Council).” FEMA has provided implementation procedures in the Multi-Hazard Mitigation Planning Guidance under DMA2000 (Disaster Mitigation Act of 2000) located at *http://www.fema.gov/plan/mitplanning/index.shtm* , which describes how local executives and governing bodies can facilitate plan approval according to local laws and procedures consistent with § 201.6(c)(5). *Insurable structures.* One commenter wrote that § 78.1(b) discusses assisting State and local governments in funding cost-effective actions on “insurable” structures, while § 78.12 discusses eligible types of projects as being “insured structures.” The commenter asked whether the regulation covers “insurable” structures or “insured” structures. Another commenter wrote that since the State plan must be in place to address insurable structures, this limits the State's eligibility for project money for State agencies who do not have public buildings to protect or whose mission does not involve the protection of private structures. A third commenter asked if States that participate in the self-insurance program are eligible for FMA project monies that affect State owned facilities insured under their program. *FEMA's Response:* The terms “insurable” and “insured” were used in part 78 interchangeably. FEMA realizes it made a technical error in using insurable and insured interchangeably as the two terms have different definitions. FEMA intended to mean “any structure covered by an insurance policy underwritten by the NFIP.” FEMA has revised § 78.1(b) in this final rule by replacing “insurable” with “insured.” The authorized purpose for the FMA program is to reduce the risk of flood damage to structures covered under contracts for flood insurance. Furthermore, activities funded under FMA must be cost-beneficial to the NFMF. Thus, self-insured structures within States participating in the self-insurance program are not eligible to receive FMA project funds. *Use of Planning Grants.* One commenter wrote that under § 78.1(b), planning grants can be used to “assess the flood risk and identify actions to reduce that risk” but the supplementary information section of the interim rule on planning grants states that the “purposes of the planning grants is to develop or update a Flood Mitigation Plan.” The commenter asked if the State or the community could receive a planning grant without actually developing a Flood Mitigation Plan. *FEMA's Response:* FEMA will only fund planning activities that will result in a completed project, which in this case is a FEMA-approved State or local flood mitigation plan. The language in § 78.1(b) states that FMA planning grants are intended to help State and local communities assess the flood risk and identify actions to reduce risk. The local mitigation plan is the process FEMA uses for the community to assess flood risk and identify actions to reduce flood risk. Sections 78.4 and 78.5 define eligible planning grant activities. States may only use FMA planning funds to develop State and local Flood Mitigation Plans, which must be adopted by the governing body of the jurisdiction. *Definition of the term “community.”* One commenter wrote that as written, § 78.2's definition of “community” could be interpreted to mean that any jurisdiction, city, or county that does not have the authority to adopt a building code or require zoning, even if that jurisdiction, city, or county has a good floodplain management program would not be eligible for participation in FMA. The commenter wrote that numerous States do not give ordinance-making authority to county level government. For example, in Texas, counties can participate in the NFIP, and some have very strong floodplain management programs, but without the ability to adopt building codes or regulate land use through zoning, would this exclude them from FMA participation? Additionally, the City of Houston has an active floodplain management program with over 45,000 flood policyholders who pay over $16.5 million annually in premiums; however, the city has no zoning (although they have adopted a building code). Does a literal interpretation of the regulation exclude the City of Houston from FMA eligibility? One commenter wrote that although no one has explicitly included regional agencies ( *e.g.* , regional planning commissions, urban drainage districts, metropolitan sewer or sanitary districts, and similar agencies) within the definition of “communities,” regional agencies often manage sizable floodplain management programs and have their own mitigation programs; thus, FEMA should consider regional agencies as eligible applicants for grant funds. The commenter wrote that regional agencies can also provide a great deal of planning and technical assistance support to eligible communities. *FEMA's Response:* FEMA has historically been flexible in providing FMA planning and project subgrants to local flood control districts that have the capacity to plan for and implement mitigation measures but that may not have the delegated authority from the State to adopt a building code or zoning ordinances. Local flood control districts acting on behalf of one or more local communities would meet the requirements of § 78.3(b)(2) for the purpose of receiving FMA subgrants. Further, FEMA would consider plans developed by local flood control districts to be multi-jurisdictional plans. Section 201.6(c) requires that multi-jurisdictional plans include:

(1)Identifiable action items specific to each jurisdiction requesting FEMA approval or credit for the plan, and

(2)documentation that the plan has been formally adopted by a governing body representing each jurisdiction such as a City Council, County Commissioner, or Tribal Council. *Planning Grant Approval.* One commenter wrote that § 78.3(b)(2) says that the State point of contact can award the planning grants, but that it is unclear whether FEMA approves the planning grants, because § 78.3(a)(2) states that the Director of the FEMA Region will approve the Flood Mitigation Plans. *FEMA's Response:* FEMA approves all eligible FMA planning grant applications submitted by the State. The State in turn awards funds to local communities as subgrants. Once the local community has completed the plan, it is forwarded to the State for review and submission to FEMA for approval in order for the local community to become eligible to receive FMA project subgrants. *Procedures for forwarding planning documents to FEMA.* One commenter wrote that § 78.3(b), which refers to alternative procedures outlined in § 78.14 that allow the community to coordinate planning document directly with FEMA, seems to imply that these alternative procedures have been formulated. The commenter believes that it is vital that the procedures be finalized and published as soon as possible. *FEMA's Response.* The alternative application procedures provided at § 78.3(b) have been seldom utilized by local communities applying for FMA project and planning grants. However, procedures on alternative application procedures were described in more detail in the FEMA 299 (“Flood Mitigation Assistance Guidance,”) the original FMA implementation document. *Eligibility for Technical Assistance.* One commenter wrote that under § 78.4(a), the State is eligible to apply for Technical Assistance grants, and that FEMA Region VII has stated that the State can pass the TA funds through to the local level ( *i.e.* , Council of Governments) to administer the TA. Does this mean that local jurisdictions are not eligible to directly apply for the TA funds? *FEMA's Response:* States have been permitted to pass FMA technical assistance funds through to the local level under §§ 78.4(b) and 78.8(c) as long as that amount does not exceed 10 percent of the local community's project allocation from the State. *Increase Project Grant funds.* One commenter wrote that the base amount of $100,000 awarded to each State for Project Grants is insufficient to perform any meaningful flood mitigation planning projects. The commenter cited the project category of land acquisition of insured structures and underlying real property, where, in many cases, the cost of acquiring a single real property site may exceed $50,000. As a result, the base amount of $100,000 awarded to a State for Project Grants will only allow a State to do very small and inexpensive projects that may not significantly impact a State's long term goal to advance its flood mitigation program within the State. *FEMA's Response:* FEMA agrees with the commenter, and will consider removing the $100,000 base limitation in a future rulemaking. *The 5 year grant allocation of $150,000.* One commenter asked if, under § 78.8(b), the State can apply once every 5 years for a single planning subgrant of $150,000, and then carry over any unobligated planning grant dollars to the next fiscal year until the 5-year period expires. The commenter also asked if the State can submit an application for a $150,000 planning grant and have FEMA make separate subgrant awards in phases over 5 years, as long as the total amount does not exceed $150,000 in 5 years. Another commenter wrote that, per § 78.9, if the maximum performance period for a planning grant is 3 years, why does a State or community have to wait for 5 years to apply for another planning grant. Another commenter wrote that since planning grants can only be issued to States once every 5 years for an amount up to $150,000, the allocations presented to the States will preclude most States from reaching the $150,000 ceiling if they chose to accept the planning grant allocation in the interim final rule. The commenter felt that the emphasis seems to be the issuance of one grant, not the maximum of $150,000. *FEMA's Response:* The State may apply for the full 5-year statutory limit of $150,000 in one grant application if FEMA allocates that amount to the State based on the formula provided in § 78.8(a). Further, the State may apply for multiple applications that total $150,000 over any 5-year period. FEMA believes that the 3-year performance period on planning grants is sufficient for completing and gaining FEMA approval on an FMA plan, and this statutory requirement is not related directly to the 5-year cycle on limits for FMA planning funds. Finally, the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4104c) does not require that each State receive the maximum $150,000 over any 5-year period. *Limits on FMA funds.* One commenter asked if, under § 78.8, TA dollars are included in the $20 million maximum for project grants. Can the $20 million be spread over 5 years? Do the awarded funds also have to actually be spent within the 5 years? Another commenter wrote that although he understood funding for the FMA project grant funding was limited to $3,300,000 to any community over 5 years, setting arbitrary limits on States or communities will only serve to stifle the overall effectiveness of the program, and establishing such a low limit puts an unnecessary restraint on the commenter's potential program. *FEMA's Response:* The National Flood Insurance Act of 1968, as amended (42 U.S.C. 4104c) lists the statutory limits on FMA project funds at $20,000,000. Since the FMA technical assistance allocation is currently 10 percent of the project grant, all technical assistance funds must be counted as part of the 5 year $20,000,000 for States. FEMA does consider waivers of these statutory funding limits during major disasters or emergencies declared by the President as a result of flood conditions consistent with the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4104c). *Eligibility of mapping projects.* One commenter wrote that the limitation regarding planning grants and floodplain map updates in § 78.9 is a concern. The commenter stated that current floodplain maps and the provision of map information in digital format are fundamental in estimating the population and structures at risk. The commenter felt that flood mitigation plans will suffer without the eligibility of funding updated floodplain maps to write them. The commenter asked that FEMA reconsider mapping projects as eligible for FMA planning grants. *FEMA's Response:* FEMA is actively engaged in the development and update of floodplain maps under a separate authority of the NFIP (42 U.S.C. 4101), and receives separate appropriations to digitize maps under the Map Modernization program for use by States and local communities in their floodplain management and mitigation planning activities. FEMA determined that mapping activities under FMA to be a duplication of programs; therefore, mapping activities are not included in part 78. States and local communities receive funds for flood mapping activities under the Cooperating Technical Partners Program (CTP). The CTP is an innovative approach to creating partnerships between FEMA and participating NFIP communities, regional agencies, and State agencies that have the interest and capability to become more active participants in the FEMA Flood Hazard Mapping Program. Also, FEMA provides States and local communities with access to flood hazards data including Flood Insurance Rate Maps (FIRMs), Letters of Map Changes, and other technical documents through its Map Service Center at *http://msc.fema.gov/webapp/wcs/stores/servlet/FemaWelcomeView?storeId=10001&catalogId=10001&langId=-1.* *Delay caused by FEMA final approval.* One commenter wrote that under § 78.10, the project grant approval process, project applications will be forwarded to FEMA for final approval, and FEMA will provide funding on a project-by-project basis through a supplement to the annual Cooperative Agreement (CA). The concern is that project-by-project approval through the regional offices can be very time sensitive and not conducive to accessing the FEMA dollars within the performance period. Does project-by-project approval delay State access to any of the 10 percent TA dollars associated with the project dollars? *FEMA's Response:* FEMA currently awards FMA grants to States using an e-Grant system, rather than through a CA. In 1997, FEMA opted to award most non-disaster grant funds to States under the combined Emergency Management Performance Grant (EMPG). However, FMA and other FEMA non-disaster mitigation grants did not fit under the EMPG structure. This is because the EMPG process was designed for awarding and tracking non-construction grants, and most mitigation grants, including FMA grants, are awarded and tracked as construction grants. Therefore, FEMA developed a Mitigation e-Grant system which grantees must use to apply for FMA and Pre-Disaster Mitigation Grant Program grants, as required by the E-Government Act of 2002 (Pub. L. 107-347) and the Federal Financial Assistance Management Improvement Act of 1999 (Pub. L. 106-107). States receive one FMA grant award each fiscal year that includes project, planning, and technical assistance subgrants. Each time a new subgrant is awarded, the annual State grant is automatically amended in the e-Grant system. States are awarded technical assistance funds based on the total dollar amount of eligible FMA project applications. The e-Grant system has facilitated the receipt of all FMA funds, including technical assistance funds to States, in a timelier basis than at the inception of the program. *Eligible types of projects.* One commenter stated that a strict interpretation of what encompasses an eligible structure under § 78.12(a) could have a harmful effect on a community's Flood Mitigation Plan. The commenter suggested program flexibility to allow communities the ability to complete their plans; the commenter also suggested a requirement that 90 percent of the properties have flood insurance. Three commenters wrote that the phrase “minor physical flood mitigation” in § 78.12(g) needs a better definition. The term “minor” is subject to a great deal of interpretation. Commenters suggested that FEMA establish a dollar cap ($100,000), determine a scope of work limitation on this category of project, or further define the term “minor” to clarify the type of project that is eligible for funding. One commenter wrote that the term “Beach nourishment activities” in § 78.12 needs a better definition. The commenter stated that more specific guidelines will reduce or prevent abuses of FMA intent. Another commenter felt that the acquisition of insured structures and the demolition and removal of insured structures on acquired property per § 78.12 should be considered as one type of project in its entirety. *FEMA's Response:* FEMA agrees that a strict interpretation of what encompasses an eligible structure could be detrimental, and FEMA does not dictate the definition of eligible structure. In fact, FEMA allows local communities to conduct their own risk assessments in the process of developing their local mitigation plans; these risk assessments can include identifying eligible insured and non-insured properties for future hazard mitigation projects. In response to the comment regarding a 90 percent flood insurance requirement, if a local community chooses to apply for an FMA project grant, all properties included in the application must have an NFIP insurance policy in force at the time of application. The local community can encourage an uninsured property owner to become NFIP-insured in order to participate in an FMA mitigation project that is otherwise cost beneficial to NFMF. In response to the comment that “minor physical flood mitigation” be better defined, the phrase is derived from the eligible mitigation activities as stated in the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4104c): Minor physical mitigation efforts that do not duplicate the flood prevention activities of other Federal agencies and that lessen the frequency or severity of flooding and decrease predicted flood damages, which shall not include major flood control projects such as dikes, levees, seawalls, groins, and jetties unless the Director specifically determines in approving a mitigation plan that such activities are the most cost-effective mitigation activities for the National Flood Mitigation Fund. FEMA does not place a funding limit on the amount a local community may apply for an individual minor localized structural flood control project, since the only limit provided by the statute is the 5-year-statutory-funding limit of $3,300,000 on FMA projects funds for local communities. FEMA expects to address the issue of beach nourishment as well as the acquisition of real property and demolition or relocation of buildings for open space in a future rulemaking. *Grant administration.* Three commenters wrote that § 78.13 makes no mention about administrative costs incurred by grantees and subgrantees as grant program participants. The commenters wrote that this section is unclear as to whether or not State and local governments are expected to bear these administrative costs (which can be considerable) on their own or as part of the grant program. One commenter recommended that this section be rewritten to state that the administrative costs incurred by State and local governments can be considered to be part of the non-Federal 25 percent cost share for an eligible grant. Another commenter asked if the States received administrative allowance funds to administer the FMA dollars, as States do with the Hazard Mitigation Grant Program (HMGP). A commenter stated that § 78.13(a) penalizes States that may be willing to contribute a Full Time Employee

(FTE)dedicated to providing technical assistance to other State agencies and communities. The requirement of a cash contribution from States may prohibit many States from participating, especially with the limited amount of funding available; the commenter also opposes the 12.5 percent limit on in-kind contributions. One commenter asked if time extensions are awarded under § 78.13(c). *FEMA's Response:* Currently, States are eligible to apply for FMA technical assistance funds to pay State Program Manager salaries as long as those amounts are directly allocable to the FMA program and do not duplicate costs allowed under a State's indirect cost agreement. Any amount reimbursed for salaries requires a 25 percent non-Federal cost share, half of which must be provided as cash. The FMA cost-share requirement for planning and project activities and management costs remains consistent with current statutory requirements under the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4104c): The Director may not provide mitigation assistance under this section to a State or community in an amount exceeding 3 times the amount that the State or community certifies, as the Director shall require, that the State or community will contribute from non-Federal funds to develop a mitigation plan under subsection

(c)and to carry out mitigation activities under the approved mitigation plan. In no case shall any in-kind contribution by any State or community exceed one-half of the amount of non-Federal funds contributed by the State or community. FMA grant performance periods may be extended consistent with the guidelines provided in § 13.23(b) and implemented in annual program guidance at *http://www.fema.gov/government/grant/fma/index.shtm* and consistent with statutory time limitations on FMA planning grants provided in the National Flood Insurance Act of 1968, as amended (42 U.S.C. 4104c). Generally, the performance period of FMA project grants may be extended twice if work is in progress and if financial and programmatic progress reports are current. FMA planning grants may be extended one time within the maximum statutory 3-year performance if work is in progress and if financial and programmatic progress reports are current. *Fund rollover.* One commenter requested additional information regarding the appropriations rollover for FMA dollars to the next fiscal year. *FEMA's Response:* If Congress appropriates funds, States are awarded FMA grants annually based upon State target allocations. Congress historically has appropriated FMA funds with a 2-year period of availability. FEMA will carryover FMA funds, including technical assistance funds, once during the 2-year period of availability, if the State has eligible projects that require further benefit cost, engineering, or environmental review and that could not be obligated during the first fiscal year. Eligible project, planning, and technical assistance grants must be obligated within the 2-year period of availability. The maximum recommended performance period for FMA project and technical assistance grants is 4 years, and the maximum statutory performance period for FMA planning grants is 3 years. *The Catalog of Federal Domestic Assistance number.* A commenter asked for the Catalog of Federal Domestic Assistance

(CFDA)number. *FEMA's Response* : The current CFDA number for FMA grants awarded under part 78 is 97.029. The FEMA Assistance Officers and their State counterparts are notified of the current CFDA number through annual program guidance at *http://www.fema.gov/government/grant/fma/index.shtm.* *Plan revisions.* A commenter asked if a community has to follow the same procedure for developing and adopting the initial flood mitigation assistance plan in order to submit a revision to the plan. One commenter asked if an administrative revision to the local plan would require public participation. Another commenter asked if the State can approve a revision to the local plan or if FEMA must approve the revision. *FEMA's Response:* Under part 78, revisions to flood mitigation plans are not required after initial approval of the plan. Further, there is no FEMA requirement for public participation in administrative revisions to flood mitigation plans. However, States may establish their own policies and procedures on requiring and approving local plan updates and/or administrative revisions. *Communities that have pre-existing plans.* A commenter asked whether communities that already have developed a flood mitigation plan can obtain a planning grant to update or revise its flood mitigation plan to fit FMA requirements. *FEMA's Response:* States and local communities can apply for FMA planning funds every 5 years for the purpose of plan updates and can reapply for funds during the same 5-year period if the State or local community has not exceeded the State limit of $150,000 or the local limit of $50,000. *Approval time.* One commenter asked for the amount of time that the FEMA has to approve a revision to the plan. *FEMA's Response:* Under the terms of the National Flood Insurance Act of 1968 as amended, (42 U.S.C. 4104c), FEMA has 120 days to approve any revisions or updates to the original FEMA-approved plan if such revisions or updates are funded with FMA program funds. *The scope of mitigation planning.* One commenter wrote that all flood mitigation projects are, in fact, local projects, and that the interim final rule places too much emphasis on community flood mitigation planning as opposed to planning on an entire watershed basis. The commenter wrote that the flood mitigation program should encourage the development of a flood mitigation planning approach that will take into consideration all relevant flood mitigation factors and impacts within a watershed. The commenter wrote that FEMA can take the lead in promoting a much more comprehensive solution to the nation's flood mitigation problems. *FEMA's Response:* Flood mitigation plans developed to meet the FMA planning requirements may be multi-jurisdictional, such as a watershed-based approach. Multi-jurisdictional plans include local planning objectives submitted from each community or jurisdiction that would have its local governing body adopt the plan for the purpose of receiving FMA project funds. *State distribution of grant funds.* One commenter wrote that States should not have full discretion for determining the distribution of available grant funding unless FEMA establishes and enforces clear, specific, and objective criteria for rating and prioritizing the grant applications, and that criteria is available to potential grant applicants prior to development of their mitigation plans. In addition, the commenter wrote that eligible jurisdictions turned down for a grant by their State should be given the opportunity to appeal the decision to FEMA and/or submit the application directly to FEMA for consideration. *FEMA's Response:* FMA is a State-administered program, meaning that States work with local communities to identify, select, and forward to FEMA projects and planning activities that will reduce the risk of flood damage to NFIP-insured structures based on detailed annual program guidance provided at *http://www.fema.gov/government/grant/fma/index.shtm.* Further, FEMA regional offices oversee the adherence of States to the annual program guidance when awarding grants to communities. FEMA does not use an appeals process for local communities whose FMA subgrant applications are declined by their State. However, if a State requests that FEMA review an FMA grant determination, FEMA would re-examine prior planning grant decisions made by the State. Furthermore, local communities are able to resubmit, the next fiscal year, subgrant applications that have been declined. *Cost-effective mitigation measures.* One commenter wrote that the interim rule limited certain structure retrofitting that can be employed as part of cost-effective mitigation measures. For example, examinations of flood insurance claims histories for repetitive loss structures may suggest minimal retrofitting efforts such as elevating the electrical panel may remove repetitive loss and be more cost effective and practical than elevating the entire structure. *FEMA's Response:* FMA project grants may only be used to fund cost-effective mitigation measures for individual properties, such as acquisition or elevation, which provide a 100-year level of flood protection. FEMA has determined that mitigation actions not resulting in a 100-year level of flood protection for individual properties are inconsistent with the requirements of the FEMA floodplain management regulations provided in § 60.3. Therefore, elevation and dry-floodproofing activities, such as minimal retrofits for repetitive loss properties recommended by the commenter, are not considered eligible for FMA project funds if they do not result in a 100-year flood protection for residential and non-residential properties. *Premiums.* One commenter asked whether insurance premiums would be reimbursable under the FMA program, as they are under the Hazard Mitigation Grant Program. The commenter stated that reimbursed insurance premiums were perceived as an incentive for maintaining insurance during the acquisition program after the 1993 floods in order to get property owners to accept FEMA buyouts. *FEMA's Response:* Insurance premiums are not reimbursable under the FMA program. For acquisition projects, HMGP provides States with the opportunity to allow local communities to reimburse flood insurance premium amounts to property owners. However, States and local communities are not allowed to reimburse flood insurance premiums amounts to participants in FMA acquisition projects because the flood insurance policy is a requirement for program participation. *Tracking repetitive loss structures.* One commenter wrote that the Federal Insurance Administration should establish a method to track acquisition of repetitive loss structures so that FEMA can adjust allocation formulas to reflect the actual number of structures at risk. The commenter wanted to ensure that FEMA is both tracking the number of new repetitive loss properties as well as the number of mitigated properties, so that target allocation amounts are computed in a fair manner. *FEMA's Response:* Since the inception of the Community Rating System in 1990, FEMA has been tracking both new and mitigated repetitive loss properties present in NFIP participating communities. New repetitive loss properties are added through the FEMA insurance databases which track claims data on all NFIP insured structures. Repetitive loss properties are mitigated by several means including acquisition, elevation, floodproofing, and structural flood control projects. FEMA tracks these mitigated properties through the Bureau and Statistical Agent

(BSA)developed by the NFIP within its data mainframe to capture and record both the reported mitigation action and the reported funding sources used to achieve that mitigation action. As of June 30, 2007, 13,477 repetitive loss properties have been identified as mitigated in some manner by the use of local, State, and Federal funds. This number includes 1,372 mitigated properties which were partially or completely demolished by fire, wind, flood, or other natural disasters for which FEMA or another local, State, or Federal agency provided funds in order to complete the removal of the original structure. FEMA tracks mitigated and demolished repetitive loss properties in order to ensure an accurate count of the remaining repetitive loss properties in need of mitigation. Previously mitigated structures are not counted when determining the need for future mitigation activities. FEMA uses the most current data available on unmitigated repetitive loss structures in order to determine FMA target allocations each fiscal year for States and territories. III. Regulatory Requirements A. Executive Order 12866, Regulatory Planning and Review FEMA has prepared and reviewed this rule under the provisions of Executive Order 12866, Regulatory Planning and Review. OMB has determined that this rule is not a significant regulatory action. OMB has not reviewed this rule. Under Executive Order 12866, a significant regulatory action is subject to the Office of Management and Budget

(OMB)review and the requirements of the Executive Order. The Executive Order defines “significant regulatory action” as one that is likely to result in a rule that may:

(1)Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;

(2)Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3)Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4)Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. The interim rule published on March 20, 1997 at 62 FR 13346 established the regulations that this document makes final. FEMA calculates the annual economic impact of the interim rule to be approximately $40,000,000. As this final rule makes no significant change to the interim rule, FEMA is adopting the $40,000,000 annual economic impact estimate of the interim rule as the annual economic impact of this final rule. The following paragraphs provide a more detailed explanation of the economic impact of the rulemaking. This rulemaking establishes the FMA grant system. States receive one FMA grant award each fiscal year that includes three types of subgrants: Project, Planning, and Technical Assistance subgrants. FMA Project Grants are available to States, and NFIP-participating communities and Indian tribal governments, to implement measures to reduce flood losses. Up to 10 percent of the Project Grant may be given to States as a Technical Assistance Grant. These funds may be used to help administer the program. FMA Planning Grants are available to States, and NFIP-participating communities and Indian tribal governments, to prepare Flood Mitigation Plans. The development of community flood mitigation plans is required as a condition of receiving FMA project grants under Section 553 of the National Flood Insurance Reform Act of 1994, Title V, (Pub. L. 103-325). Section 553 mandates that FEMA approve plans before awarding any project grants to a community or State applicant. The purpose of the planning requirement is to encourage communities and States to evaluate the flood hazards in their jurisdiction(s) and devise a feasible mitigation strategy to reduce the impacts of the hazard. As communities implement these strategies, fewer flood losses to insured structures will occur, resulting in reduced costs to the National Flood Insurance Fund. There is no renewal requirement with respect to FMA plans, and only communities are required to have approved FMA plans. There is no such requirement for States. There are 660 communities with approved plans. There were approximately 60 approved per year from 1997-2005, with an annual increase to 120 in 2006 after Hurricanes Katrina and Rita. For the purpose of this analysis, FEMA is estimating that there will be 120 local plans that are developed and reviewed for approval each year. FEMA estimates that it takes an average of 2,080 hours per local plan to develop, resulting in 249,600 hours of work. The hours of work is calculated as follows: 120 × 2080. In addition, all States must review the local plans submitted. Assuming 120 local plans are submitted annually and it takes 8 hours to review each plan, the total annual burden for both States, local, and tribal governments would be 250,560 hours. Total annual burden is calculated as follows: ((120 × 8) + 249,600). Using wage rates from the May 2004, U.S. Department of Labor, Bureau of Labor Statistics (BLS), Standard Occupation Classification

(NEPA)implementing regulations governing FEMA activities at 44 CFR 10.8(d)(2)(ii) categorically exclude the preparation, revision, and adoption of regulations from the preparation of an environmental assessment or environmental impact statement, where the rule relates to actions that qualify for categorical exclusions. Actions to be implemented under program regulations revised or adopted by this rulemaking include structural mitigation measures. These activities are categorically excluded under 44 CFR 10.8(d)(2)(xv) and (xvi). Thus, the preparation, revision, and adoption of regulations related to these actions are also categorically excluded. D. Executive Order 12898, Environmental Justice Under Executive Order 12898, “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations” (59 FR 7629, published February 16, 1994), FEMA incorporates environmental justice into its policies and programs. The Executive Order requires each Federal agency to conduct its programs, policies, and activities that substantially affect human health or the environment in a manner that ensures that those programs, policies, and activities do not have the effect of excluding persons from participation in programs, denying persons the benefits of programs, or subjecting persons to discrimination because of race, color, or national origin. FEMA believes that no action under this rule will have a disproportionately high or adverse effect on human health or the environment. This rule is intended to provide grant funding to States and local communities to assist them with efforts to mitigate against flooding. This rulemaking is intended to assist States and local communities in reducing the adverse affects on human health or the environment from flooding. Accordingly, the requirements of Executive Order 12898 do not apply to this rule. E. Congressional Review of Agency Rulemaking FEMA has sent this final rule to the Congress and to the Government Accountability Office under the Congressional Review of Agency Rulemaking Act, (“Congressional Review Act,”) Public Law 104-121. This rule is not a “major rule” within the meaning of the Congressional Review Act. This rule will not result in a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. It will not have “significant adverse effects” on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises. The rule is not an unfunded Federal mandate within the meaning of the Unfunded Mandates Reform Act of 1995, Public Law 104-4, and any enforceable duties that FEMA imposes are a condition of Federal assistance or a duty arising from participation in a voluntary Federal program. F. Unfunded Mandates Title II of the Unfunded Mandates Reform Act of 1995, enacted as Public Law 104-4 on March 22, 1995, requires each Federal agency, to the extent permitted by law, to prepare a written assessment of the effects of any Federal mandate in a proposed or final agency rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. The rule is not an unfunded Federal mandate as any enforceable duties that FEMA imposes are a condition of Federal assistance or a duty arising from participation in a voluntary Federal program. G. Executive Order 13132, Federalism Executive Order 13132, entitled “Federalism,” (64 FR 43255, published August 10, 1999), sets forth principles and criteria that agencies must adhere to in formulating and implementing policies that have federalism implications; that is, regulations that have substantial direct effects on the States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies must closely examine the statutory authority supporting any action that would limit the policymaking discretion of the States, and to the extent practicable, must consult with State and local officials before implementing any such action. This rulemaking creates an entirely voluntary grant program that may be used by States and local governments to receive Federal grants for mitigation projects, plans and technical assistance. States and local governments are not required to seek grant funding and this rulemaking does not limit the States' policymaking discretion. This final rule involves no policies that have federalism implications under Executive Order 13132. H. Paperwork Reduction Act As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ), 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. This final rule does not impose any new reporting or recordkeeping requirements under the Paperwork Reduction Act. The regulations finalized by this rule contain requirements for the submission of information contained in OMB-approved collection titled “Flood Mitigation Assistance—Flood Mitigation Plan,” OMB approval number 1660-0075. I. Executive Order 13175, Consultation and Coordination With Indian Tribal Governments FEMA has reviewed this rule under Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, published November 9, 2000). In reviewing the portion of the rule which streamlines the mitigation planning requirements affecting Indian tribal governments, FEMA finds that, while it does have “tribal implications” as defined in Executive Order 13175, it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. J. Executive Order 12630, Governmental Actions and Interference With Constitutionally Protected Property Rights FEMA has reviewed this rule under Executive Order 12630, “Governmental Actions and Interference with Constitutionally Protected Property Rights” (53 FR 8859, published March 18, 1988) as supplemented by Executive Order 13406, “Protecting the Property Rights of the American People” (71 FR 36973, published June 28, 2006). This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630. K. Executive Order 12988, Civil Justice Reform FEMA has reviewed this rule under Executive Order 12988, “Civil Justice Reform” (61 FR 4729, published February 7, 1996). This rule meets applicable standards to minimize litigation, eliminate ambiguity, and reduce burden. List of Subjects in 44 CFR Part 78 Flood insurance, Grant programs. Accordingly, for the reasons stated in the preamble, the interim rule amending 44 CFR part 78 which was published at 62 FR 13346 on March 20, 1997, is adopted as final, with the following changes: PART 78—FLOOD MITIGATION ASSISTANCE 1. The authority citation for part 78 is revised to read as follows: Authority: 6 U.S.C. 101; 42 U.S.C. 4001 *et seq.* ; 42 U.S.C. 4104c, 4104d; Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127, 44 FR 19367, 3 CFR, 1979 Comp., p. 376; E.O. 12148, 44 FR 43239, 3 CFR, 1979 Comp., p. 412; E.O. 13286, 68 FR 10619, 3 CFR, 2003 Comp., p. 166. § 78.1 [Amended] 2. In § 78.1, paragraph (b), remove the word “insurable” and add, in its place, the word “insured”. Dated: October 24, 2007. Harvey E. Johnson, Jr., Deputy Administrator/Chief Operating Officer, Federal Emergency Management Agency. [FR Doc. E7-21263 Filed 10-30-07; 8:45 am] BILLING CODE 9110-41-P DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency 44 CFR Parts 201, 204, and 206 [Docket ID FEMA-2007-0004] RIN 1660-AA17 Hazard Mitigation Planning and Hazard Mitigation Grant Program AGENCY: Federal Emergency Management Agency, DHS. ACTION: Final rule. SUMMARY: The Federal Emergency Management Agency

(FEMA)is adopting as final, without substantive changes, interim rules that establish requirements for hazard mitigation planning and the Hazard Mitigation Grant Program

(HMGP)pursuant to sections 322 and 323 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. DATES: This final rule is effective November 30, 2007. FOR FURTHER INFORMATION CONTACT: Karen Helbrecht, Risk Analysis Division, Mitigation Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington DC, 20472, (phone) 202-646-3358, (facsimile) 202-646-3104, or (e-mail) *Karen.helbrecht@dhs.gov.* SUPPLEMENTARY INFORMATION: I. Background This rulemaking finalizes, without substantive changes, interim rules implementing sections 322 and 323 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) (42 U.S.C. 5165), enacted by section 104 of the Disaster Mitigation Act of 2000 (DMA 2000), (42 U.S.C. 5121 note). Section 322 requires, as a condition of receipt of federal hazard mitigation grant assistance, hazard mitigation planning and is implemented in the Emergency Management and Assistance regulations at 44 CFR part 201 (Mitigation Planning). Section 323 requires, as a condition of receipt of disaster loans or grants distributed under the Hazard Mitigation Grant Program

(HMGP)that minimum repair and construction codes, specifications, and standards are followed. Section 323 is implemented at 44 CFR part 206 (Federal Disaster Assistance for Disasters Declared On Or After November 23, 1988), Subpart N (Hazard Mitigation Grant Program). Parts 201 and 206 outline mitigation planning and hazard mitigation grant requirements, respectively, for State, Indian tribal, and local entities. To be eligible for FEMA mitigation and public assistance grant funds (except for emergency assistance), State, local, or Indian tribal governments must have a FEMA-approved hazard mitigation plan. All hazard mitigation plans must be submitted to FEMA for final review and approval. FEMA will review and comment on the plan within 45 days, whenever possible. Once approved, local plans are to be revised and resubmitted to FEMA every 5 years, State plans are to be revised and resubmitted to FEMA every 3 years, and Indian tribal governments may either apply directly to FEMA, thereby assuming the responsibilities of a State, or may apply through a State, thereby assuming the responsibilities of a local government. Additionally, for States that complete FEMA requirements for enhanced mitigation planning, the amount of HMGP funds available increases from 15 percent of the Federal share of disaster assistance for that event to 20 percent of the Federal share of disaster assistance for that event. Up to 7 percent of hazard mitigation grants may be used to develop State, tribal, and/or local mitigation planning activities outlined in 44 CFR part 201. There have been four interim rules

(IRs)and one correction published in this rulemaking action. On February 26, 2002, FEMA published an IR at 67 FR 8844 implementing section 322 of the Stafford Act. This first IR addressed State mitigation planning, identified new local mitigation planning grant requirements, authorized HMGP funds for planning activities, and increased the amount of HMGP funds available to States that develop a comprehensive, enhanced mitigation plan. On October 1, 2002, FEMA published a second IR at 67 FR 61512. This IR amended the February 26, 2002, IR to extend the date by which State and local governments must develop mitigation plans as a condition of grant assistance in compliance with 44 CFR part 201 from November 1, 2003 to November 1, 2004. On October 28, 2003, FEMA published a third IR at 68 FR 61368. This IR clarified that the November 1, 2003 effective date for the planning requirement applied only to Pre-Disaster Mitigation

(PDM)grant funds awarded under any Notice of Availability of Funding Opportunity issued after that date. It also updated the mitigation planning requirements identified in 44 CFR part 204 (Fire Management Assistance Grant Program), as well as 44 CFR part 206, subpart H (Public Assistance Eligibility) to bring those sections into conformity with the existing planning requirements in 44 CFR part 201. On November 10, 2003, FEMA published a correcting amendment to the third IR at 68 FR 63738, correcting a paragraph reference. On September 13, 2004, FEMA published a fourth IR at 69 FR 55094. This IR provided a mechanism for Governors or Indian tribal leaders to request a 6 month extension of the plan approval deadline for State-level mitigation plans, up to May 1, 2005. The IR also allowed mitigation planning grants provided through the PDM program to continue to be available to State, Indian tribal, and local governments after November 1, 2004. The IR also made technical amendments and adjusted the general major disaster allocation for HMGP from 15 percent to 7.5 percent to be consistent with statutory mandates. With respect to docket management, the Regulatory Identifier Number

(RIN)listed in the first two IRs was 3067-AD22. Since FEMA became a component of the Department of Homeland Security (DHS), FEMA's RINs were renumbered and 3067-AD22 became 1660-AA17. II. Discussion of Public Comments FEMA received 17 public comments on the February 26, 2002 IR, and 3 comments on the October 1, 2002 IR. FEMA received no comments on the October 28, 2003 or September 13, 2004 IRs. Fourteen State emergency management agencies, three organizations, two local governments, and one independent group submitted comments. The comments received, together with FEMA's response, are set forth below. The “Multi-Hazard Mitigation Planning Guidance under DMA2000” (also known as the Mitigation Planning “Blue Book”) and the FEMA “How-To” series for Mitigation Planning (FEMA 386) are posted on the FEMA Web site ( *http://www.FEMA.gov/library* ). Unless otherwise stated, these are the documents referred to in FEMA's response when references to program policy or guidance are made. Comments on the First Interim Rule *Mitigation Planning Requirement Support; Timeline:* Six commenters indicated support for the hazard mitigation planning process, agreeing that the process is necessary for effective, sustained mitigation programs. Thirteen commenters wrote that there was not enough time for State and local governments to comply with the planning requirements, and that the timeframe should either be extended or the requirements eased in over time. *FEMA's response:* FEMA recognized that not enough time was originally allowed to prepare the plans and issued another interim rule on October 1, 2002 that extended the planning requirement for State Mitigation Plans from November 1, 2003 to November 1, 2004. FEMA also extended the local planning requirement under the HMGP to November 1, 2004. In addition, FEMA published an interim rule on September 13, 2004 which provided a mechanism for Governors or Indian tribal leaders to request a 6 month extension of the effective date for State level mitigation plans (to May 1, 2005). All 50 States, the District of Columbia, and 6 Territories had approved hazard mitigation plans by May 1, 2005. Currently, all 50 States, the District of Columbia, 7 territories, and 33 Indian tribal governments have approved State level mitigation plans. In addition, over 11,000 jurisdictions now have approved local level mitigation plans. FEMA believes the timeframes to implement hazard mitigation plans have been sufficient. *Technological Hazards:* Five commenters wrote that plans should be required to address manmade or technological hazards. *FEMA's response:* Section 322 of the Stafford Act specifically requires mitigation planning for natural hazards, and FEMA decided that it was not appropriate to require planning for manmade or technological hazards. However, FEMA does support plans that address both natural and technological or manmade hazards. A State, Indian tribal, or local mitigation plan can be approved under the Stafford Act without consideration of technological hazards. However, FEMA's planning guidance can be used to assist in developing and evaluating plans that include manmade and technological hazards as part of a comprehensive mitigation strategy. More specifically, FEMA has developed a guidebook titled: “Integrating Manmade Hazards into Mitigation Planning” as part of the Planning “How-To” guidance series. This document is number seven in that series (FEMA 386-7). *Number of hours necessary to prepare a plan:* Two commenters wrote that FEMA underestimated the average number of hours necessary to prepare a local mitigation plan. *FEMA's response:* When FEMA published the February 26, 2002, interim rule, FEMA's original estimate of the number of hours necessary to prepare a local mitigation plan was based on planning done under the Flood Mitigation Assistance

(FMA)program. FEMA published an estimate of 300 hours per plan to develop State or local mitigation plans under part 201. After several years of implementing the planning regulations, this estimate was adjusted to 2,080 hours to develop new State, local, or Indian tribal plans and 320 hours for plan updates to more accurately reflect the amount of time States and local communities actually spent in developing new plans or updating plans to meet the 3- or 5-year update requirements. *Level of information required to develop plans:* Six commenters wrote that the level of detail required to develop local mitigation plans may be unreasonable, that the costs necessary to develop the plans result in an unfunded mandate, and that communities will be reluctant to develop plans because of a fear of liability in the event that problems are identified and mitigation measures are not implemented. *FEMA's response:* The February 26, 2002 interim rule established new requirements for hazard mitigation planning. FEMA worked to ensure that appropriate guidance was developed for those responsible for developing, evaluating, and reviewing the plans. FEMA believes that the level of detail is reasonable and necessary to ensure that the statutory purposes of the mitigation planning provision are met and result in meaningful and effective mitigation planning. FEMA hosted a series of workshops in both 2002 and 2003 at each FEMA Region at which every State was represented. These workshops provided an opportunity to clarify the planning requirements identified in the regulation and to answer questions regarding these requirements. During the workshops, FEMA clarified the level of information required by the regulations in developing risk assessments for local mitigation plans. FEMA also issued policy related to the possible lack of hazard specific risk information, which allows planners to use the “best available information” that is currently available in doing the risk assessment, and document how that information would be improved over time. FEMA recognized that many jurisdictions did not budget for the costs associated with the development of mitigation planning. FEMA made an effort to ensure that the existing mitigation grant programs (HMGP, PDM, and FMA) were available to assist as many jurisdictions as possible. Through these programs, FEMA has approved over 1,400 planning grants between February 2002 and March 2007 with an obligated Federal share of over $157,000,000. As stated above, all 50 States, the District of Columbia, 7 territories, and 33 Indian tribal governments have approved State level mitigation plans. In addition, over 11,000 jurisdictions have approved local level mitigation plans. In fact, over 50 percent of the population of the United States is covered by an approved local level mitigation plan. Since these regulations were originally published in 2002, over 1,400 planning grants have been awarded and over 14,000 jurisdictions are covered by an approved mitigation plan. Due to the volume of plans being developed and approved, it appears that the issue of liability has not been a significant reason for communities to not undertake development of a mitigation plan. *Significant regulatory action:* Two commenters disagreed with FEMA's conclusion that the rule is not an economically significant regulatory action because the nationwide cost projection of less than $100 million annually to implement the rule is not realistic. *FEMA's response:* FEMA disagrees. For the reasons cited in the Executive Order 12866 section below, FEMA asserts that this is not an economically significant regulatory action. The annual impact of this rule on the economy is approximately $46 million. This regulation's effect on the economy is below the $100 million threshold to qualify as an economically significant action. Furthermore, this final rule makes no significant change to the interim rules which have been in place, and the regulated industry has been following, since 2002. *Coordination among FEMA Regions:* Two commenters wrote that coordination within the 10 FEMA Regions is needed to ensure consistency for plan review and other aspects relating to regulation implementation. *FEMA's response:* FEMA has worked to ensure that the regulation has been implemented in a fair and consistent manner. The agency has held several workshops, meetings, and training sessions to bring together FEMA staff and State representatives to identify areas of concern and to develop policy and guidance to resolve these issues. For example, a FEMA course entitled “Mitigation Plan Review” has been delivered at FEMA's Emergency Management Institute

(EMI)in Emmitsburg, Maryland, and in almost all FEMA Regions, as well as in many States. FEMA will continue to work towards a nationally consistent application of the planning requirements. *Flexibility in implementing the requirements:* Four commenters wrote that it is necessary for hazard mitigation plans and the hazard mitigation planning process to be flexible to meet the needs of diverse communities, to address mitigation issues based on actual circumstances, and to meet post-disaster mitigation needs. *FEMA's response:* FEMA understands the commenters' concerns. To emphasize the importance and flexibility of the planning process, FEMA has taken, to the extent possible, a “performance standard” approach rather than a “prescriptive” approach to the planning requirements. In other words, hazard mitigation planning requirements are designed to generally identify what should be done in the process and documented in the plan, rather than specify exactly how it should be done. This approach recognizes and appreciates the inherent differences that exist among State, Indian tribal, and local governments with respect to size, resources, capability, and vulnerability. In addition, FEMA recognizes that flexibility is necessary in the post-disaster environment, and that individually-tailored mitigation plans can be very useful tools in the recovery process. *Benefit-cost and planning:* Eight commenters wrote and asked what level of effort is required to prioritize cost-effective projects in the State level plan and in the local level action plan where “benefits are maximized according to a cost benefit review of the proposed projects and their associated costs.” *FEMA's response:* Local mitigation plans do not require a formal benefit-cost calculation to be included within the plan document. However, one consideration in deciding what type of mitigation action(s) to pursue is an economic assessment of the particular action. This (and other considerations) should be debated and discussed as part of the planning team's and/or larger community's decision-making process. A possible result of these local discussions could be the decision to complete a formal benefit-cost evaluation of the various mitigation approaches that are technically appropriate for the situation. However, this is not required to be included in the plan. It is sufficient if economic considerations are summarized in the plan document as part of the comprehensive range of specific mitigation actions of projects being considered. Once funding is sought for the particular mitigation action, a detailed benefit-cost calculation would be required as described under the various grant program regulations. A similar evaluation should be done as part of the State planning process. The plan is required to document the process by which projects and activities will be prioritized and ranked, and this process must include cost effectiveness. In addition, FEMA intends to release additional guidance to help clarify the requirements. *Definition of Critical facility:* Two commenters requested a definition of the term “critical facility.” *FEMA's response:* The list of assets that are most important to protect, as well as the criticality of any given facility, can vary widely from community-to-community. Thus, there is no universal definition of a critical facility, nor is one associated with FEMA's planning requirements. For planning purposes, a jurisdiction should determine criticality based on the relative importance of its various assets for the delivery of vital services, the protection of special populations, and other important functions. FEMA's Mitigation Planning How-To Guide, “Understanding Your Risks: Identifying Hazards and Estimating Losses” (FEMA 386-2) provides guidance on how to identify critical facilities. Based on a hazard-by-hazard identification of facilities that may be at risk, the Guide's emphasis on determining priorities for inventory data collection will help planners identify assets that are most critical to the jurisdiction. The companion publication “Integrating Manmade Hazards into Mitigation Planning” (FEMA 386-7) details how asset inventory can be tailored to focus on high-risk facilities such as critical infrastructures and key resources. In addition, the inventory information available with FEMA's HAZUS-MH loss estimation software can assist in identifying critical facilities. HAZUS-MH databases include information on essential facilities such as hospitals, police and fire stations, emergency operations centers, shelters, and schools; transportation systems; utility lifelines; high potential loss facilities such as potable water, wastewater, oil, natural gas, electric power, and communication systems; and hazardous material facilities. Other sources provide additional guidance on identifying facilities that may be critical. FEMA's “Public Assistance Guide” (FEMA 322) states that “[c]ritical facilities are those that serve as emergency shelters; contain occupants who are not sufficiently mobile to avoid death or injury, such as hospitals; house emergency operation or data storage that may become lost or inoperative; are generating plants and principal points of utility lines; or that produce, use, or store volatile, flammable, explosive, toxic, or water reactive materials.” The related regulation at § 206.226, Restoration of damaged facilities, refers to facilities that provide critical services, “which include power, water * * * sewer services, wastewater treatment, communications, emergency medical care, fire department services, emergency rescue, and nursing homes.” Further, the National Infrastructure Protection Plan (NIPP), issued in 2006, provides a framework for a national strategy that includes State, local, Tribal and regional identification of risks and the protection of “critical infrastructure” and “key resources.” Critical Infrastructure is defined in the NIPP as “[a]ssets, systems, and networks, whether physical or virtual, so vital to the United States that the incapacity or destruction of such assets, systems, or networks would have a debilitating impact on security, national economic security, public health or safety, or any combination of those matters,” and Key Resources is defined as “publicly or privately controlled resources essential to the minimal operations of the economy and government.” Mitigation planning is identified in the NIPP as an activity that can help achieve protection of these assets. The hazard mitigation plan should provide enough information regarding critical facilities to enable the jurisdiction to identify and prioritize appropriate mitigation actions. However, some information may be deemed highly sensitive and should not be made available to the public. Such information that the jurisdiction considers sensitive should be treated as an addendum to the mitigation plan so that it is still a part of the plan, but access can be controlled. For more information on protecting sensitive information *See,* “Integrating Manmade Hazards into Mitigation Planning” (FEMA 386-7). FEMA notes that in § 201.4(c)(2)(ii), the regulation contains the phrase “State owned critical or operated facilities,” when in fact FEMA intended to use the phrase “State owned or operated critical facilities.” This typographical error is corrected in this final rule. *Coordination of FEMA's planning requirements:* Four commenters requested that FEMA coordinate its planning requirements, especially between FMA and the new regulations at part 201. *FEMA's response:* It was FEMA's intent to create a single local mitigation plan requirement in publishing the planning regulations at part 201. Since part 201 has been in effect, FEMA has realized that there are few areas of difference between the FMA plans and the part 201 plans. FEMA plans to revise part 201 to clarify that part 201 contains FEMA's mitigation plan requirements for all mitigation grant programs. *Plan adoption:* Three commenters asked for clarification on how the State plan is “formally adopted.” One comment specifically requested that the plan be approved by the “Governor's Authorized Representative.” *FEMA's response:* An appropriate body in the State must adopt the plan. Depending on the State's established procedures, this could be the State Legislature or the Governor. States with hazard mitigation teams or councils may choose to use these bodies to adopt the plan. At a minimum, the plan must be endorsed by the director of the State agency responsible for preparing and implementing the plan, as well as the heads of other agencies with primary implementation responsibilities. The plan must include a copy of the resolution of adoption, indicating the State's formal adoption of the plan. It is recommended that the plan be formally adopted after FEMA has reviewed the plan and determined that it meets all the other requirements of part 201. *Consultation with Indian tribal governments:* One commenter wrote that FEMA did not fulfill its requirement to consult with Indian tribal governments prior to issuing this rule. *FEMA's response:* Before FEMA developed the interim rule, the agency met with representatives from State and local governments and the Bureau of Indian Affairs to discuss the new planning requirements of section 322 of the Stafford Act. The same opportunity for comment was offered to all parties. FEMA received valuable input from all attendees, which helped FEMA to develop the interim rule. Also, since FEMA published the interim rule, it has coordinated more directly with Indian tribal governments, and with the organizations that represent them. For example, in conjunction with the National Congress of American Indians, FEMA hosted a Tribal Mitigation Conference in October 2002 at the Ak-Chin Indian Community, Arizona. This conference provided FEMA with an opportunity to better understand its responsibilities relating to Indian tribal governments and to build a working relationship with many of the Indian tribal representatives. A follow-up conference was held at the Salish Kootenai Community, Montana in August 2003. As a direct result of these conferences, FEMA developed an EMI resident course titled “Mitigation for Tribal Officials.” This course provides a direct opportunity for coordination and information sharing between Indian tribal representatives and FEMA, resulting in refinements to FEMA's Indian tribal policy and guidance. *Indian tribal governments and mitigation planning:* Three commenters wrote that the interim rule contributes to a loss of sovereignty of Indian tribal governments. *FEMA's response:* FEMA sees no impact on the sovereignty of Indian tribal governments as a result of these regulations. FEMA recognizes that Native American Tribes are sovereign States. Although § 201.2 states that Indian tribal governments who chose to act as subgrantees are accountable to the State grantee, Indian tribal governments are not required to act as subgrantees. Furthermore, in § 201.3(e), Indian tribal governments may interact directly with the Federal government, or may choose to apply through a State as a subgrantee. This allows for an Indian tribal government to have the flexibility of either applying directly to FEMA for mitigation assistance, or, where the Indian tribal government has a working relationship with a State, apply through the State as a subgrantee. Some Indian tribal governments have participated on local level multi-jurisdictional plans, which have allowed them to participate in FEMA's mitigation programs while they gain expertise and management capability. It is entirely at the discretion of the Indian tribal government and the State whether funding should be sought by Indian tribal governments directly from FEMA or through the State. *Edits to § 206.434(d):* One commenter requested that in § 206.434(d), FEMA make available 7 percent of any unspent HMGP funds currently available to the States regardless of declaration date, and remove the word “tribal.” *FEMA's response:* Section 322 of the Stafford Act (42 U.S.C. 5165) limits 7 percent of the HMGP funds to be spent on mitigation planning, and since Indian tribal governments are eligible for mitigation funding, FEMA is unable to make them ineligible for HMGP planning grants. *Technical assistance:* One commenter wrote that mitigation planning has great public value for Indian tribes; however, Indian tribes do not have the financial resources or the technical capacity to undertake such exercises, and that the rule seems to overlook the role of technical assistance. *FEMA's response:* FEMA believes that technical assistance is critical to successful mitigation at all levels of government. FEMA has been working to technically assist all Federally-recognized Indian tribal governments regarding the availability of grant funding, training opportunities, as well as program requirements. *The definition of “Indian tribe:”* One commenter wrote that the term “Indian tribe” should be clarified to identify if FEMA means all Indian tribes, just Federally-recognized Indian tribes, or those tribes with either Federal or State recognition. *FEMA's response:* The term “Indian tribe” means all Federally recognized Indian tribes. Section 201.2 includes the definition for Indian tribal government: “* * * any Federally recognized governing body of an Indian or Alaska Native tribe, band, nation, pueblo, village, or community that the Secretary of Interior acknowledges to exist as an Indian tribe” under the Federally Recognized Indian Tribe List Act of 1994, 25 U.S.C. 479a. *Enhanced State Mitigation Plans:* Six commenters asked for additional clarification regarding Enhanced State Mitigation Plan requirements. *FEMA's response:* In July 2002, FEMA provided guidance titled “Multi-Hazard Mitigation Planning Guidance under the Disaster Mitigation Act of 2000” on the development of Enhanced State Mitigation Plans, FEMA revised that guidance in March 2004. These documents are available through FEMA regional offices, and the 2004 guidance, which retains the 2002 guidance but includes more explanations and examples, is available on the FEMA Web site at *http://www.fema.gov/plan/mitplanning/index.shtm.* These documents provide guidance on implementing each section of the enhanced plan requirements. FEMA established the criteria for enhanced plans to provide a more qualitative and less quantitative basis for evaluating the plans. In addition, FEMA's policy for reviewing enhanced plans has been to establish a panel consisting of two State representatives, staff from two FEMA Regions, and two FEMA Headquarters staff to review and evaluate the plan. This practice makes the plan review process more transparent and fair and provides States with an opportunity to see how the process works. As of August 2007, there are 9 States with approved Enhanced Mitigation Plans. *Confusion regarding § 201.5(b)(4):* Commenters wrote that there is confusion regarding § 201.5(b)(4), which states: “Demonstration that the State is committed to a comprehensive state mitigation program, which might include any of the following.” *FEMA's response:* The list of items in § 201.5(b)(4)(i) through

(vi)are provided as examples of that commitment, and are not expected to be addressed in every plan. *State ability to satisfy NEPA requirements:* One commenter wrote that States should not be required to ensure that all environmental reviews (categorical exclusions, environmental impact statements, etc.) are completed because they are incapable of performing an environmental assessment or environmental impact statement. *FEMA's response:* Section 201.5(b)(2)(iii)(B) requires States to prepare and submit accurate environmental reviews and benefit-cost analyses. FEMA concurs that it is FEMA's responsibility to develop the environmental documentation, in compliance with the National Environmental Protection Act (NEPA). However, FEMA's position is that the State is responsible for and is capable of ensuring that all appropriate information necessary to prepare the NEPA documentation is provided with project applications. *Documentation of capability to manage HMGP:* One commenter expressed concern regarding how the Enhanced State Mitigation Plan requirement in § 201.5(b)(2)(iii), “[d]emonstration that the State has the capability to effectively manage the HMGP as well as other mitigation grant programs, including a record of the following,” would be implemented. *FEMA's response:* FEMA recognized that it would be difficult for States to provide documentation of their capability in this section, so FEMA developed a policy that allows the Region and State to work together to complete the documentation for this requirement. This policy appears in the “Multi-Hazard Mitigation Planning Guidance under DMA2000, Part 2 Enhanced State Mitigation Plans, Program Management Capability,” which can be found at: *http://www.fema.gov/library.* For the initial Enhanced Plan approval, a State would be evaluated on their capability to effectively manage the HMGP as well as other mitigation grant programs over the previous four quarters. For subsequent plan update approvals, the State would be evaluated based on demonstrated capability for the full 3 years the plan had been in effect. *Private Nonprofit entities:* One commenter asked for more clarification regarding the planning requirements for private nonprofit entities (PNPs). *FEMA's response:* Private nonprofit

(PNP)organizations, especially those that may be eligible applicants for hazard mitigation projects under 44 CFR part 206, should participate in the development of the local mitigation plan. If a PNP has fully participated in the development and review of the local plan, it is not necessary for the PNP to approve/adopt the plan, as long as it is adopted by the local jurisdiction. PNP applicants for HMGP project grants do not need to have an approved multi-hazard mitigation plan in order to receive HMGP project funds. However, FEMA has developed a policy for PNP project applications; in order for the applications to be approved, the jurisdiction in which the project is located should have an approved plan, and the project must be consistent with the plan's goals and objectives. For FEMA's PDM program, PNPs are not eligible subapplicants, but an eligible local government could apply for a grant to mitigate a PNP facility. *Rural Electric Cooperatives:* One commenter wrote that a discrepancy exists regarding rural electric cooperatives. The commenter wrote that public power States with electrical services provided by districts administered by elected officials cover multiple local jurisdictions. These types of cooperatives do not conform to the definition of local jurisdictions and potentially multiple districts would have to be included in every local plan to qualify for future funding. This problem must be addressed in the rule. *FEMA's response:* Multi-jurisdictional utility PNPs, including Rural Electric Cooperatives (RECs), which sometimes span several counties, are eligible subapplicants for assistance under HMGP. Their infrastructure often sustains damage from severe snow and ice storms, and they frequently seek HMGP funding after disaster declarations from these storms to mitigate future similar losses. RECs are treated as PNPs for the purposes of disaster assistance provided by FEMA under the Stafford Act. They are not considered local governments. This distinction is important, because current regulations provide only for local governments, not PNPs, to meet the planning requirement by submitting a local mitigation plan

(LMP)to FEMA. For PNPs such as RECs or other multi-jurisdictional utilities, FEMA is identifying two ways in which RECs may meet the mitigation planning requirements to ensure that projects funded by HMGP are consistent with the mitigation strategies of the State, Tribal, and/or local jurisdiction in which the project is located: the local jurisdiction(s) within which the REC mitigation project is located must have FEMA approved LMPs, or the FEMA approved State Mitigation Plan must address RECs. Further guidance is available on this topic on FEMA's Web site at *http://www.fema.gov.* *Small and impoverished communities:* One commenter wrote that FEMA should identify criteria it will use to determine if a State identified community qualifies as “small and impoverished.” *FEMA's response:* The term “small and impoverished communities” is defined in § 201.2. This definition combines the term in section 203 of the Stafford Act, as amended by the Disaster Mitigation Act of 2000, with criteria for “economically disadvantaged” communities as used by the U.S. Environmental Protection Agency under their National Watershed Initiative. Communities can compare their per capita income to the Bureau of Economic Analysis's per capita income for the U.S. as a whole, issued annually; local unemployment data can be compared with the national unemployment rate according to the U.S. Bureau of Labor Statistics, also issued annually. Further guidance on FEMA's criteria for determining small and impoverished communities can be found on pages 1-10 of the FY 2007 Pre-Disaster Mitigation Program Guidance, which can be found at *http://www.fema.gov/library/viewRecord.do?id=2095.* *State authority:* Two commenters wrote that FEMA was taking away the State's authority to administer and manage mitigation programs. The commenters wrote that States should be able to approve local mitigation plans and prioritize mitigation funding decisions. *FEMA's response:* FEMA believes it is important to establish a national standard for local mitigation plans and to ensure that local jurisdictions are being evaluated based on the same criteria across the Nation. States may introduce additional criteria for their localities, but FEMA may only enforce the requirements of this rule. FEMA has worked to establish a solid baseline for mitigation plans, especially at the local level, and FEMA continues to work to ensure that plans are being evaluated in a fair and consistent manner. FEMA believes that the planning process supports the State's authority to administer the grant programs. By engaging in State-established planning processes, funding decisions can be made based on State-developed mitigation strategies. *Listening session:* One commenter wrote and questioned the value of listening sessions that were held to gather comments and suggestions on implementing the planning requirements. *FEMA's response:* The intent of the listening sessions was to gain input at an early stage from State and local officials, as well as other Federal agencies, for FEMA to consider as it began to develop regulations to implement the planning requirements. Much of the information generated by the listening session was very useful to FEMA in developing these regulations. *Definition of local government:* One commenter wrote to request the word “community” be used rather than “jurisdiction” regarding the terminology used to discuss the local entity developing the local level plan. *FEMA's response:* FEMA uses the term “jurisdiction” rather than “community” since the term “jurisdiction” is broader than the term “community.” A jurisdiction could be a county, city, township, parish, or other local entity. Furthermore, within FEMA, the term “community” is closely linked to the local entity that implements the National Flood Insurance Program. *Local plan eligibility:* One commenter wrote that local governments should be able to receive assistance if the local jurisdiction has an approved plan, even if the State does not have an approved plan. *FEMA's response:* The State is responsible for administering FEMA's programs. The requirement for a State plan as a condition for local governments to receive non-emergency disaster assistance was originally established through section 409 of the Stafford Act (42 U.S.C. 5176). However, section 409 was repealed by the Disaster Mitigation Act of 2000. In addition, every State has met the planning deadline thus far, and FEMA is confident that States will continue to meet the planning deadlines, thus ensuring that local plans can be approved. *Availability of post-disaster assistance:* Two commenters wrote to ask how post-disaster assistance would be affected by the lack of an approved State Mitigation Plan by the established deadline. *FEMA's response:* The post-disaster assistance that would be withheld by the lack of an approved State Mitigation Plan includes Public Assistance, categories C-G, HMGP, and Fire Management Assistance. As stated above, however, every State has thus far met the planning deadlines, so no post-disaster assistance has been withheld due to a State's lack of an established State plan. *State planning:* One commenter asked what the purpose of the State mitigation planning process is, how the term “effectiveness” will be measured, how the “factual basis” for proposed activities will be established, how State laws should be evaluated, and stated that the requirement that the plan contain an overview of “all natural hazards” that can affect the State is too comprehensive. *FEMA's response:* FEMA's approach to the planning process is to establish a mechanism for State and local governments to make informed decisions regarding their risk reduction activities rather than creating a prescriptive list of requirements. Section 201.4(a) describes the purpose of the State Mitigation Plan: “[t]he mitigation plan is the demonstration of the State's commitment to reduce risks from natural hazards and serves as a guide for State decision makers as they commit resources to reducing the effects of natural hazards.” FEMA looks to the State to establish baselines by which the State will measure the effectiveness of the programs and activities that it has identified that reduce its risks. FEMA is evaluating the effectiveness of plans based on how well the States document the planning process. The requirement regarding the “factual basis” for activities means that the State should be developing its mitigation strategy based on the facts (risks and vulnerabilities) established in its risk assessment. State laws would be evaluated based on the criteria established by the State to do so. Regarding the requirement that the plan contain overviews of all natural hazards, FEMA requires the State to *identify* all natural hazards that can affect the State, but only to *evaluate* those that pose the greatest risk (as determined by the State). This distinction ensures that natural hazards are not overlooked and can assist in future evaluations of the State's risk, by summarizing the process used to conduct the risk assessment. *Generic plans:* One commenter wrote that the required elements of a mitigation plan, such as listing facilities located in hazard areas or estimating the potential dollar losses to vulnerable structures, may produce generic plans or lists that are simply trying to comply with specifications rather than truly reducing risk. *FEMA's response:* The type of information indicated above is essential to developing a thorough risk assessment. It is not FEMA's intent to require plans that merely list information, but, rather, have States, Indian tribes, and local jurisdictions carefully analyze information to better establish their risks and vulnerabilities. FEMA will continue to provide guidance regarding the level of detail necessary in the planning process, and to ensure that the process remains relevant to those who develop plans. *Public Assistance:* Two commenters wrote that there should be a link between the mitigation plan and mitigation activities that might be funded through FEMA's Public Assistance program. *FEMA's response:* FEMA concurs with these comments, and continues to coordinate within the agency to ensure that our programs and requirements are implemented as consistently as possible. *Link between State and local plans:* Four comments requested clarification of the requirement that State Mitigation Plans be linked to local mitigation plans. *FEMA's response:* Section 201.4(c)(4) requires that State Mitigation Plans describe the processes for incorporating local planning efforts into the statewide plan and prioritizing assistance to local jurisdictions. The intent of this section is to ensure that the State mitigation strategies and priorities can be evaluated and incorporated into the local mitigation plans, as appropriate. In addition, risk assessment and other data used in the development of the State plan can be used by local jurisdictions developing their plans, and more site specific data developed in the local mitigation plans may be useful to the State as it progresses in the development of any updated State Mitigation Plans. When the State plans were originally prepared under this regulation, there were few local plans that met FEMA's planning requirement under part 201. Therefore, States had limited local information on which to base their plans. Since then, many local plans have been approved and adopted, providing States with the opportunity to better coordinate with local jurisdictions. *Types of resources for Local Mitigation Planning:* Two commenters requested additional information regarding the types of resources that are to be used to obtain information and data for the risk assessment and mitigation strategy in local mitigation plans. *FEMA's response:* The information used to develop the local mitigation plans will be driven by local needs, State priorities, and the availability of information and data. Our guidance has been for jurisdictions to do a reasonable search for risk assessment information, to use the “best available data” for the analysis, and to indicate how any lack of information or data will be addressed (if at all) in future plan updates. The mitigation strategy should be vetted through the process established by the local mitigation planning team, which should include a public involvement process. *Use of HMGP Planning Funds:* One commenter asked whether the 7 percent HMGP planning funding can be used for plan amendments at the local level. *FEMA's response:* HMGP planning funds can be used to update or amend mitigation plans. *Privacy concerns:* One comment stated that while State and local mitigation plans should identify factors that will be considered when developing specific projects, the plan should not be required to identify specific projects or properties, because doing so could affect privacy concerns and the perceived impact on land values. *FEMA's response:* FEMA agrees that specific property addresses should not be included in the plan; however, it may be appropriate to identify project areas for certain risk mitigation activities. For example, as part of a mitigation strategy, a list of properties or areas being considered for acquisition should be prepared, but the specifics regarding property addresses should remain within project applications and not in the plan document itself. *Definition of mitigation:* Two commenters wrote that the term “sustained” must be clarified to avoid confusion as to what specifically is appropriately termed hazard mitigation and what will be allowed for funding under FEMA programs. The commenters also noted that the term is at odds with the definition found in § 206.2(14). *FEMA's response:* As the commenters note, § 206.2(14)'s definition of “Hazard Mitigation” is any cost-effective measure which will reduce the potential for damage to a facility from a disaster event, while § 201.2's definition of “Hazard Mitigation” is any sustained action taken to reduce or eliminate the long-term risk to human life and property from hazards. The difference between the part 201 and part 206 definitions of hazard mitigation is that “sustained” is related to mitigation planning under part 201, and “cost-effective measures” is related to grant activities under part 206. The definition for hazard mitigation found in part 201 is meant to allow State, tribal, and local officials latitude to evaluate a wide range of options that might reduce risk; the term “sustained” was added to the definition in part 201 to make clear that mitigation activities should be a continuous undertaking, and is consistent with the long-term explanation of hazard mitigation projects in part 206. *Definition of local government:* One commenter wrote that the definition of local government was too broad, covering subdivisions of political jurisdictions, and that it is important to look at the community as a whole. *FEMA's response:* FEMA understands the commenter's concern. However, section 102 of the Stafford Act (42 U.S.C. 5122) contains a definition for “local government,” and this is the definition that FEMA closely follows. FEMA agrees that it is important to look at the whole community. FEMA developed guidance titled “Multi-Jurisdictional Mitigation Planning,” (FEMA 386-8), which assists jurisdictions in developing plans that can look at the whole community. A plan developed for a larger community can be adopted by sub-jurisdictions (as long as those sub-jurisdictions participated in the process), which ensures a sub-jurisdiction's eligibility for mitigation grant projects. *Assistance affected by lack of plan:* One commenter wrote that §§ 201.4(a) and 201.6(a)(1) are inconsistent with each other, as the former eliminates eligibility for all assistance other than emergency measures for all local governments in a State, if the State fails to secure approval of a plan, while the latter only eliminates eligibility for funding if local entities fail to complete a plan. Since the State is dependent upon local mitigation planning efforts for data, the two sections should be consistent. *FEMA's response:* The State Mitigation Plan is required in order for non-emergency disaster assistance, as well as mitigation grants, to be made available throughout the State. The local mitigation plan is required in order to receive mitigation project grants. Other non-emergency assistance is not affected by the lack of a local mitigation plan. FEMA recognizes that the initial State planning efforts will be limited by the lack of local mitigation plans, but updated State plans will be able to incorporate local level data as it becomes available. *“Ongoing State planning efforts:”* One commenter asked what is meant by “ongoing state planning efforts” in § 201.4(b). *FEMA's response:* Section 201.4(b) states that an effective planning process is essential in developing and maintaining a good standard State Mitigation Plan. “Ongoing state planning efforts” means that the process should include continued coordination to the extent possible with other State agencies, appropriate Federal agencies, and additional interested groups. It is up to the State to determine what other planning processes might be affected by the mitigation planning process. *Vulnerability Assessments:* One comment stated § 201.4(c)(2)(ii) would require the States to conduct vulnerability assessments based on local assessments of hazards and risk, but that it is not clear if the States would have to abandon their existing Hazard and Vulnerability Analysis methodology. Also, these risk analyses would have to be based on local participation, which cannot be mandated in many States. *FEMA's response:* FEMA does not intend for any State to abandon their existing Hazard and Vulnerability Analysis methodologies. The State Mitigation Plans should document the process used to gather and analyze the data, and explain the methodology in determining vulnerability assessments. This documentation of previous hazard events and potential future hazard events will ensure that current and future users of the mitigation plan will be able to understand the basis for the decisions made in the plan. FEMA agrees that local participation in the planning process cannot be mandated, but where there are local plans, the available data and information should be used. *State risk assessment:* One commenter questioned the level of detail required in the State risk assessment. The commenter stated that requiring the State Hazard Mitigation Plan to contain the potential losses to each structure, facility, or infrastructure identified as a risk by local governments for being located in an identified hazard area is redundant of the local mandates. *FEMA's response:* Section 201.4 requires the State plan to provide an overview and analysis of potential losses to identified vulnerable structures based on estimates provided in local risk assessments. The intent is to look more broadly on risk and vulnerability than can be done at a local level. The local mitigation plans provide the necessary detail, but the State Mitigation Plan is where the data can be evaluated and summarized to determine overall vulnerabilities and to identify areas that may need additional assistance. *State mitigation strategy:* One commenter questioned the level of detail required in the mitigation strategy section of the State Mitigation Plan. The commenter wrote that States may not be able to properly represent local actions and projects with respect to the elements in § 201.4(c)(3)(iii) because it would be quite costly to fully incorporate data for every local plan. *FEMA's response:* Section 201.4 (c)(3)(iii) is based on the risk assessment portion of the plan and includes actions that have been identified through the planning process. These actions may be statewide in nature (such as adopting statewide building codes or establishing a multi-agency grant evaluation panel). It is not intended that every activity or action identified in local mitigation plans would be specifically addressed in the State plan. The State plan, through the description of the planning process, the establishment of the mitigation strategy, and the plan maintenance process, will dictate how future plan updates will be evaluated. FEMA will look at what was completed, deleted, or deferred from the plan and the justification for the process. *Intense development pressure:* One comment asked for clarification of the term “intense development pressure.” *FEMA's response:* FEMA believes that States can reasonably interpret and apply the term “intense development pressure.” *Prioritizing HMGP funds:* One commenter requested that FEMA should consider allowing each State to prioritize the use of HMGP funds generated by a disaster based on whether the community has a multi-hazard plan. *FEMA's response:* FEMA agrees with this comment. Program regulations, policy, and guidance allow States to prioritize the use of HMGP funds. *Mandatory planning:* One commenter wrote that mitigation planning is a mandatory requirement, yet there is no guaranteed funding. *FEMA's response:* The mitigation planning requirement is not an independently enforced, mandatory requirement. Rather, mitigation planning is a condition of eligibility for receiving certain assistance under the Stafford Act. State mitigation planning can result in reduced disaster losses. While there is no guaranteed funding for mitigation planning, FEMA has provided over $157 million in mitigation planning grants to States, Indian tribal governments, and local jurisdictions from February 2002 through March 2007. Projects are funded based on a thorough understanding of the local risks and vulnerabilities and the mitigation strategy outlined in the local mitigation plan. *Executive Order 12898:* One comment stated that the rule substantially affects human health or the environment under Executive Order 12898 by creating a planning requirement that will be difficult for large urban cities and rural poor areas to meet, thereby denying those jurisdictions the opportunity to apply for HMGP project grants. *FEMA's response:* FEMA does not agree that the rule has a disproportionate, adverse impact on minority or low income populations or on large urban cities. After the first interim rule, FEMA recognized that insufficient time was originally allowed to prepare the plans, and issued another IR on October 1, 2002 that extended the planning requirement for local plans under the HMGP from November 1, 2003 to November 1, 2004. Currently, over 14,000 jurisdictions now have approved local level mitigation plans, covering over 50 percent of the United States population. Large urban cities generally have their own planning and emergency management departments with staff who can carry out the work related to preparing the plan and/or direct the efforts of contractors. FEMA also recognized the potential administrative burden on jurisdictions that did not budget for the costs associated with the development of mitigation planning, and FEMA has provided funding opportunities for jurisdictions (through planning grants) to allow projects to proceed in minority or low income populations. This eases the potential burden on these jurisdictions while maintaining the statutory intent. Through these programs, FEMA has approved over 1,400 planning grants between February 2002 and March 2007 with obligated Federal grants of over $157,000,000. In addition, § 201.6(a)(3) allows for an exception, in extraordinary circumstances, for a jurisdiction to receive an HMGP project grant without an approved plan. In this circumstance, the jurisdiction must agree to develop a plan within 12 months of receiving the project grant. This exception allows small or impoverished communities or jurisdictions with limited resources the opportunity to apply for project funds, while meeting the planning requirement. This exception is available after a disaster, which also allows FEMA to provide resources to jurisdictions that need to complete their mitigation plan. These resources can include training and workshops, new data leading to the risk assessment, assistance in holding and facilitating community meetings, as well as the grant funding for plan development. This allows such potentially disadvantaged communities to receive HMGP project grants concurrent with the development of their mitigation plan, and FEMA will work with those jurisdictions to assist them in meeting the planning requirement. Therefore, FEMA has implemented the planning requirement in a manner that addresses any potential disproportionate adverse effect on minority or low income populations by providing technical assistance and funding opportunities to meet the requirement, as well as exceptions allowing project grants to proceed even where the regular planning requirement is not yet met. *45-day FEMA review:* One comment wrote to express concern with the regulatory language that FEMA will review mitigation plans within 45 days, “whenever possible,” yet State, tribal, and local governments are required to meet firm deadlines. *FEMA's response:* While FEMA makes every effort to review all plans in a timely manner, it must have the flexibility to have an extended review period beyond 45 days, if necessary. FEMA cannot control for disaster activity, field deployments, or large numbers of plans being submitted within a short timeframe, but is not aware of any programs or project grants being denied due to the lack of a plan being approved. The FEMA Regional offices have established draft plan review procedures that expedite the review and approval of final plans. *Multi-jurisdictional plans:* One comment requested additional information regarding criteria for multi-jurisdictional planning. *FEMA's response:* FEMA has developed a guidance document titled “Multi-Jurisdictional Mitigation Planning” (FEMA 386-8). This document contains all of the guidance developed to date regarding multi-jurisdictional planning, and provides direction to those considering this type of planning process. This document can be obtained through any FEMA Regional office or on the FEMA Web site at *http://www.fema.gov/plan/mitplanning/index/shtm* . *Disaster funding restrictions and planning:* One commenter wrote that the Disaster Mitigation Act of 2000 did not intend to restrict disaster assistance to individuals due to the lack of a mitigation plan, and that failure to complete a plan should result in the denial of the increased mitigation dollars, not the entire mitigation grant program. *FEMA's response:* FEMA agrees that assistance to individuals and other emergency disaster assistance should not be impacted by the lack of a State Mitigation Plan, and have provided for this exception in the regulation in § 201.3(c)(1). However, regarding non-emergency disaster assistance, State Mitigation Plans are critical to the disaster recovery process. The State establishes the framework for the recovery regarding how to address specific issues arising from the disaster, how to address building codes in the recovery effort, and to set priorities for mitigation activities. The requirement for this plan is based on over 30 years of experience that State mitigation planning can result in reduced disaster losses. Since State-level mitigation plans have been required for over 30 years, and section 322 of the Stafford Act is intended to increase mitigation activities, FEMA allows for Enhanced Plans, which make States eligible for the increased share of HMGP funding. *Vulnerability information in State Plans:* One commenter wrote that every structure, infrastructure, and critical facility is vulnerable to the risk of disasters and the estimated total loss is potentially the total assessed value of all properties in a jurisdiction, excluding land; therefore, the requirement to analyze these losses as indicated in § 201.4(c)(2)(iii) is a meaningless and burdensome task. *FEMA's response:* Section 201.4 requires the State to provide an overview and analysis of potential losses in order to develop a strategy for reducing its risk and vulnerability. If an entire State is subject to losses from disasters, it would be important to assess that risk and determine the best approach to reducing vulnerabilities. FEMA has designed the planning criteria so that each State can develop its own approach to determining how to mitigate its risks. *Publish as a proposed regulation:* One comment stated that the regulation should be published as a proposed regulation to allow adequate consideration of the comments from State and local governments. *FEMA's response:* As FEMA noted in the interim rule, these regulations needed to be effective in order for State and local governments to be eligible for and to receive mitigation funds as soon as possible. The public benefit of an interim rule is to assist States and communities assess their risks and identify activities to strengthen the larger community in order to be less susceptible to disasters. For these reasons, delaying the effective date of this rule would not have furthered the public interest. Furthermore, prior to this rulemaking, FEMA hosted a meeting where interested parties provided comments and suggestions on how FEMA could implement planning requirements. FEMA has also considered comments provided by States and local governments during the rulemaking process in implementing the planning requirements. The agency will continue to assess the utility and practicality of the requirements based on the experiences of States, tribes, and local governments. *Mitigation under the Public Assistance Program:* One comment requested that FEMA change § 206.226(c) so that the hazard mitigation measures identified in a FEMA approved local hazard mitigation plan and associated with facilities and sites which subsequently suffer disaster related damage in a declared disaster are automatically incorporated into the entity's public assistance hazard mitigation proposal on the Project Worksheet as an eligible item. *FEMA's response:* Activities funded under § 206.226 must meet the basic eligibility requirements of the Public Assistance program. While mitigation measures identified in the approved mitigation plan may be worthwhile actions, they may not meet the requirements of the Public Assistance program, and would not be eligible. *New language for the regulation:* A number of comments proposed specific language revisions. One commenter wrote that the following language should be added to the FEMA responsibilities set out in § 201.3(b)(2), “* * * and assist the [S]tate in the identification of the appropriate mitigation actions that a [S]tate or locality must take in order to have a measurable impact on reducing or avoiding the adverse effects of a specific hazard or hazardous situation” because requiring the State to coordinate all State and local activities exceeds the State's capability and authority with regard to local control. Another commenter wrote that § 201.3(c) be revised to read “[t]he key responsibilities of the State are to coordinate all State and regional activities relating to hazard evaluation and mitigation, and to the extent possible, local activities relating to hazard evaluation and mitigation.” One commenter wrote that § 201.3(c)(4) should be removed as it is redundant to Subpart N, and that § 201.4(c)(4)(iii) should be stricken as it conflicts with § 201.4(c)(3)(iii). One comment suggested that FEMA should add the following to § 206.401: “* * * except where the local or [S]tate entity has adopted, in the post disaster period, new codes, standards, and ordinances that decrease risk to facilities from natural and manmade hazards.” One comment asked that the language in § 206.432(b)(1) and

(2)replace “not to exceed” with “equal to.” *FEMA's response:* Regarding the request to add “* * * and assist the [S]tate in the identification of the appropriate mitigation actions that a [S]tate or locality must take in order to have a measurable impact on reducing or avoiding the adverse effects of a specific hazard or hazardous situation” to FEMA's responsibilities; FEMA believes that the existing description requiring FEMA to provide technical assistance covers this type of activity, if necessary, but does not require the provision of the assistance in every situation, where it might not be required. In addition, FEMA believes that State and local jurisdictions often have a better understanding than FEMA of what is an appropriate mitigation action given the local conditions. Regarding the request to revise § 201.3(c) to read “[t]he key responsibilities of the State are to coordinate all State and regional activities relating to hazard evaluation and mitigation, and to the extent possible, local activities relating to hazard evaluation and mitigation;” FEMA understands that some States lack the authority to mandate local actions, but FEMA believes that this section can be (and is) interpreted broadly enough to accommodate this situation. The proposed language change emphasizes regional over local activities, and FEMA believes that if the State coordinates regional activities, it has met the requirements of this section, given the broad interpretation of local activities. Regarding the comment that § 201.3(c)(4) should be removed as it is redundant to Subpart N; FEMA believes that it is important to identify a potential source of funding for planning within the planning regulation, even if it addressed in Subpart N. Regarding the comment that § 201.4(c)(4)(iii) should be stricken as it conflicts with § 201.4(c)(3)(iii); FEMA believes that while the two sections are similar, they are not identical and both need to be retained. Under the Mitigation Strategy (§ 201.4(c)(3)(iii)), the intent is to identify a range of mitigation actions and activities that are prioritized based on a variety of criteria and under the Coordination of Local Mitigation Planning (§ 201.4(c)(4)(iii)), the requirement is to prioritize communities who might most benefit from either planning or project grants ( *i.e.* communities with high risk or multiple repetitive loss properties). Regarding the comment that FEMA add the following to § 206.401: “* * * except where the local or [S]tate entity has adopted, in the post disaster period, new codes, standards, and ordinances that decrease risk to facilities from natural and manmade hazards;” FEMA disagrees with this change since it would conflict with regulations guiding the restoration of damaged facilities under § 206.226(d), and would substitute a very broad qualitative criterion of codes in general, as opposed to the five very specific criteria in the current regulation, which specifically requires that codes must be written, adopted, universally applied, and have demonstrated evidence of prior enforcement. Regarding the comment that that the language in § 206.432(b)(1) and

(2)replace “not to exceed” with “equal to;” it would not be appropriate to lock in the HMGP funding level by replacing “not to exceed” with “equal to” since Congress has already demonstrated a willingness to modify the HMGP funding formula. In the future, FEMA intends to engage in additional discussions with interested groups on how to improve the planning process, which may include changes to the regulatory language. *Hazard Mitigation Surveys:* One comment requested that FEMA restore the Hazard Mitigation Early Implementation Strategy, the Hazard Mitigation Surveys, and the Interagency Hazard Mitigation Survey requirements. *FEMA's response:* FEMA will consider restoring these post-disaster surveys as part of the ongoing implementation of the Hazard Mitigation Grant Program. Comments on the Second IR *Support for the extension of the date:* One comment encouraged the interim rule to become final, and supported the extension of the date by which State and local governments must develop mitigation plans as a condition of grant assistance to November 1, 2004. *FEMA's response:* FEMA agrees and had already extended the date by which State and local governments must develop mitigation plans. *Plan updates:* One commenter asked about the process to bring existing mitigation plans into compliance with the regulations at part 201, and how plans are to be updated when they expire. *FEMA's response:* Plans approved prior to the implementation of part 201 must be reevaluated and re-approved by FEMA to ensure that they meet the planning requirements identified in part 201. FEMA has also provided guidance through FEMA's “Multi-Hazard Mitigation Planning Guidance under DMA2000” on how plans developed under the FMA program can be upgraded to meet the regulations at part 201. This document may be obtained through any Regional office or from the FEMA Web site at *http://www.fema.gov/plan/mitplanning/index.shtm* . In addition, FEMA is in the process of issuing specific guidance on how to update the State, tribal, and local plans when they expire. *Disaster costs and mitigation planning:* One commenter asked that FEMA provide each State and community with a detailed analysis of prior disaster assistance outlays by all Federal agencies, an integrated review of all structural projects in the community both as built and proposed, and a legal review regarding the authority of the planning process. *FEMA's response:* FEMA will work with State, tribal and local jurisdictions to ensure that they have information generated by FEMA regarding disaster outlays, and has developed guidance through its “Multi-Hazard Mitigation Planning Guidance under DMA2000” on how to obtain additional data. This document may be obtained through any Regional office or from the FEMA Web site at *http://www.fema.gov/plan/mitplanning/index.shtm* . Most State, tribal, and local jurisdictions have the authority to develop and implement plans. FEMA encourages the mitigation planning process to be integrated across jurisdictions to ensure that existing data and information is shared and that there is no duplication of effort in gathering and analyzing data. III. Regulatory Requirements A. Executive Order 12866, Regulatory Planning and Review FEMA has prepared and reviewed this rule under the provisions of Executive Order 12866, Regulatory Planning and Review. Under Executive Order 12866, a significant regulatory action is subject to the Office of Management and Budget

(OMB)review and the requirements of the Executive Order. OMB has determined that this rule is not a significant regulatory action. OMB has not reviewed this rule. The Executive Order defines “significant regulatory action” as one that is likely to result in a rule that may:

(2)Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3)Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4)Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. The purpose of this rule is to implement section 322 of the Stafford Act, which addresses mitigation planning at the State, local and tribal levels, identifies new local planning requirements, allows HMGP funds to be used for planning activities, and increases the amount of HMGP funds available to States that develop a comprehensive, Enhanced Mitigation Plan. The rule clarifies the requirements for State Mitigation Plans, identifies local mitigation planning requirements before approval of project grants, and requires our approval of an Enhanced State Mitigation Plan as a condition for increased mitigation funding. The rule also implements section 323 of the Stafford Act, which requires that repairs or construction funded by disaster loans or grants must comply with applicable standards and safe land use and construction practices. FEMA calculates the annual economic impact of the interim rules that this final rule finalizes to be approximately $46,000,000. As this final rule makes no significant change to these interim rules, FEMA is adopting the economic impact estimate of these interim rules as the economic impact of this final rule. The following paragraphs provide a more detailed explanation of the economic impact of this rulemaking. This rule modifies the State Mitigation planning requirement. Currently, all 50 States, the District of Columbia, 7 territories, and 33 Indian tribal governments have approved State level mitigation plans. FEMA estimates that it takes an average of 2,080 hours for States to prepare State Mitigation Plans to comply with this regulation. Using wage rates from the May 2004, U.S. Department of Labor, Bureau of Labor Statistics (BLS), Standard Occupation Classification

(SOC)System, the median hourly wage for urban and regional planners (SOC Code Number 19-3051) is $26.31 per hour. Adding 30 percent to the BLS figure to account for benefits, FEMA has calculated the burden using a wage rate of $34.20 per hour. Since there are a total of 91 State level plans, it is estimated that the one time cost of compliance to submit the State Mitigation plans is $6,473,376. This figure is calculated as follows: ((91 × 2,080) × $34.20). These State Mitigation Plans must be updated every 3 years. Since there are a total of 91 State level plans, the cost estimate will assume that, on average, there will be 31 updated plans each year. All States now have existing State Mitigation Plans, and the only continuing requirement is for plan updates. FEMA estimates that it would take an average of 320 hours for States to prepare plan updates. Using wage rates from the May 2004, U.S. Department of Labor, BLS, SOC System, the median hourly wage for urban and regional planners (SOC Code Number 19-3051) is $26.31 per hour. Adding 30 percent to the BLS figure to account for benefits, FEMA has calculated the burden using a wage rate of $34.20 per hour. Therefore, it is estimated that the annual cost of compliance to submit the updates to State Mitigation Plans is $339,264. This figure is calculated as follows: ((31 × 320) × $34.20). This rule also allows States to submit an Enhanced State Mitigation Plan, should they wish to increase the amount of HMGP funds they receive from 15 percent to 20 percent. States may now opt to create an Enhanced Mitigation Plan to receive additional funding. As of March 2007, there were 11 States with Enhanced Mitigation Plans. Two were approved in 2004, four in 2005, three in 2006, and two in 2007. These plans must be renewed every 3 years. As of July 2, 2007, there were only nine approved plans as two States opted not to renew their Enhanced Mitigation Plan. Once a State has a FEMA-approved Enhanced Mitigation Plan, its only remaining requirement is to review and update it once every 3 years. Using the data from the 5 years since the first interim rule was published the average number of plans submitted in a year is three. The cost estimates will assume three new and three renewal plans submitted to calculate the annual burden. Again, all States already have existing State Mitigation Plans. FEMA estimates that it would take an average of 320 hours for States to update their Enhanced Mitigation Plan, and an additional 160 hours for States to upgrade an existing Standard State Mitigation Plan to an Enhanced Plan. Since FEMA is encouraging States to update their plans when preparing an Enhanced Plan, the total hours for developing “new Enhanced Mitigation plans” is 480 hours (160 hours to upgrade from Standard to Enhanced plus 320 hours to update the plan). Using wage rates from the May 2004, U.S. Department of Labor, BLS, SOC System, the median hourly wage for urban and regional planners (SOC Code Number 19-3051) is $26.31 per hour. Adding 30 percent to the BLS figure to account for benefits, FEMA has calculated the burden using a wage rate of $34.20 per hour. Therefore, it is estimated that the annual cost of compliance to voluntarily submit an Enhanced Mitigation Plan is $82,080. This figure is calculated as follows: ((3 × 480) × $34.20) + ((3 × 320) × $34.20). After its Enhanced Mitigation Plan is approved, pursuant to § 206.432(b), a State is then able to receive an amount equal to 20 percent of the total estimated Federal assistance (excluding administrative costs) provided for a major disaster declaration, instead of 15 percent. The table below reflects all States with Enhanced Plans, each disaster that has been declared in that State since its Enhanced plan was approved, and reflects the amount of HMGP funds it was eligible for. Each State was given funds at the 20 percent rate, however, the 15 percent rate is provided to determine the economic benefit (transfer) received from having the approved Enhanced Plan. In some cases, these are not final lock-in figures, but it is the most accurate data that FEMA has as of August 2007. Table: HMGP Fund Eligibility for States With Enhanced Plans 2004—August 2007 State Enhanced plan approved date Disaster dates declared after enhanced plan Declaration No. 20% Amount 15% Amount Difference WA July 1, 2004 May 17, 2006 1641 $989,290.00 $741,967.50 $247,322.50. December 12, 2006 1671 6,106,627.00 4,579,970.25 1,526,656.75. February 14, 2007 1682 7,209,865.00 5,407,398.75 1,802,466.25. MO July 2, 2004 March 16, 2006 1631 1,290,726.00 968,044.50 322,681.50. April 5, 2006 1635 4,210,525.00 3,157,893.75 1,052,631.25. November 2, 2006 1667 128,676.00 96,507.00 32,169.00. December 29, 2006 1673 825,000.00 618,750.00 206,250.00. January 15, 2007 1676 16,549,000.00 12,411,750.00 4,137,250.00. June 11, 2007 1708 Data Unavailable Data Unavailable Data Unavailable. OK March 18, 2005 January 10, 2006 1623 2,138,136.00 1,603,602.00 534,534.00. April 13, 2006 1637 244,990.00 183,742.50 61,247.50. February 1, 2007 1677 746,250.00 559,687.50 186,562.50. February 1, 2007 1678 7,592,175.00 5,694,131.25 1,898,043.75. June 7, 2007 1707 Data Unavailable Data Unavailable Data Unavailable. OH May 17, 2005 July 2, 2006 1651 1,798,019.00 1,348,514.25 449,504.75. August 1, 2006 1656 3,411,736.00 2,558,802.00 852,934.00. MD August 26, 2005 July 2, 2006 1652 1,274,514.00 955,885.50 318,628.50. WI December 14, 2005 None NA NA NA NA. OR March 7, 2006 March 20, 2006 1632 1,511,700.00 1,133,775.00 377,925.00. December 29, 2006 1672 921,824.00 691,368.00 230,456.00. February 22, 2007 1683 687,362.00 515,521.50 171,840.50. FL August 22, 2006 February 3, 2007 1679 4,044,445.00 3,033,333.75 1,011,111.25. February 8, 2007 1680 263,916.00 197,937.00 65,979.00. PA August 23, 2006 February 23, 2007 1684 1,822,812.00 1,367,109.00 455,703.00. IA January 3, 2007 March 14, 2007 1688 Data Unavailable Data Unavailable Data Unavailable. May 25, 2007 1705 Data Unavailable Data Unavailable Data Unavailable. VA March 14, 2007 None NA NA NA NA. Totals 63,767,588.00 47,825,691.00 15,941,897.00. These disasters range in date from March 16, 2006 to Feb. 23, 2007, which is roughly one year. A total of $63,767,588 in HMGP funds were granted at the 20 percent rate due to the fact that these States had approved Enhanced Mitigation Plans. This 5 percent increase translates to an additional $15,941,897 in funds distributed as a result of this regulation. This rule also requires that after November 1, 2004, a local mitigation plan must be approved in order to receive HMGP project grants. As of June 2007, over 2,500 local mitigation plans covering over 13,000 jurisdictions have been approved. FEMA receives and approves approximately 280 local plans per year. The requirement of a local plan does not affect the amount of HMGP funds that were available to the jurisdiction before this regulation. The economic impact results from the cost to create the plan. If a local jurisdiction is covered by a plan, it will receive the same amount of HMGP project funds it would have received before this requirement was created. From experience over the past 5 years, FEMA expects approximately 280 new local plans to be developed annually. Once a local jurisdiction has a FEMA-approved Mitigation plan, they are required to review and update it once every 5 years. FEMA averages 280 plan updates per year. FEMA estimates that it would take an average of 2,080 hours to develop new plans, and 320 hours for plan updates, plus 8 hours for the State to review the local plan. Using wage rates from the May 2004, U.S. Department of Labor, BLS, SOC System, the median hourly wage for urban and regional planners (SOC Code Number 19-3051) is $26.31 per hour. Adding 30 percent to the BLS figure to account for benefits, FEMA has calculated the burden using a wage rate of $34.20 per hour. Therefore, it is estimated that the annual cost of compliance is (((280 × 2,080) + (280 × (320 + 8)) × 34.20) = $23,059,008. Under § 206.434(d), up to 7 percent of the State's HMGP grant may be used to develop State, tribal and/or local mitigation plans. This change does not have any effect on the actual amount of HMGP funds that a State is eligible for, but allows the cost to develop plans described above to be offset by HMGP planning grants. This regulation simply expands the eligible use of HMGP funds to include the development of mitigation plans. States are not required to use the funds for this purpose. Any HMPG funding spent on mitigation planning is accounted for in the analysis above, under each category of planning (Standard State Mitigation Plans, Enhanced State Mitigation Plans, and local mitigation plans). For the reasons stated above, the annual impact of this rule on the economy is approximately $46,000,000. This figure is calculated as follows: ($6,473,376+$339,264+ $82,080+$15,941,897+$23,059,008). B. Regulatory Flexibility Act Under the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ) (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121, 110 Stat. 857), FEMA is not required to prepare a final regulatory flexibility analysis for this final rule because the agency has not issued a notice of proposed rulemaking prior to this action. C. National Environmental Policy Act The National Environmental Policy Act of 1969 (42 U.S.C. 4321 *et seq.* )

(NEPA)implementing regulations governing FEMA activities at § 10.8(d)(2)(ii) categorically exclude the preparation, revision and adoption of regulations from the preparation of an environmental assessment or environmental impact statement, where the rule relates to actions that qualify for categorical exclusions. Mitigation plans to be developed under regulations revised or adopted by this rulemaking include hazard mitigation measures categorically excluded under § 10.8(d)(2)(iii). D. Executive Order 12898, Environmental Justice Under Executive Order 12898, “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations” (59 FR 7629, published February 16, 1994), FEMA incorporates environmental justice into its policies and programs. The Executive Order requires each Federal agency to conduct its programs, policies, and activities that substantially affect human health or the environment in a manner that ensures that those programs, policies, and activities do not have the effect of excluding persons from participation in programs, denying persons the benefits of programs, or subjecting persons to discrimination because of race, color, or national origin. FEMA believes that no action under the rule will have a disproportionately high or adverse effect on human health or the environment. This rulemaking implements sections 322 and 323 of the Stafford Act. Section 322 focuses specifically on mitigation planning to identify the natural hazards, risks, and vulnerabilities of areas in States, localities, and tribal areas; development of local mitigation plans; technical assistance to local and tribal governments for mitigation planning; and identifying and prioritizing mitigation actions that the State will support as resources become available. Section 323 requires compliance with applicable codes and standards in repair and construction, and use of safe land use and construction standards. This rulemaking is intended to result in the creation of hazard mitigation plans that will assist communities in planning for hazards, so as to protect human lives and the environment. The Hazard Mitigation Grant Program is available to all States, tribes and local communities regardless of race, color, or national origin. Accordingly, the requirements of Executive Order 12898 do not apply to this rule. E. Congressional Review of Agency Rulemaking FEMA has sent this final rule to the Congress and to the Government Accountability Office under the Congressional Review of Agency Rulemaking Act, (“Congressional Review Act”), Public Law 104-121. This rule is not a “major rule” within the meaning of the Congressional Review Act. The rule will not result in a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. It will not have “significant adverse effects” on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises. F. Unfunded Mandates Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), enacted as Public Law 104-4 on March 22, 1995, requires each Federal agency, to the extent permitted by law, to prepare a written assessment of the effects of any Federal mandate in a proposed or final agency rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This final rule is not an unfunded Federal mandate within the meaning of the UMRA. This final rule would not impose a significant cost or uniquely affect small governments. The final does not have an effect on the private sector of $100 million or more in any 1 year. Any enforceable duties that FEMA imposes are a condition of Federal assistance or a duty arising from participation in a voluntary Federal program. G. Executive Order 13132, Federalism Executive Order 13132, entitled “Federalism,” (64 FR 43255, published August 10, 1999), sets forth principles and criteria that agencies must adhere to in formulating and implementing policies that have federalism implications; that is, regulations that have substantial direct effects on the States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies must closely examine the statutory authority supporting any action that would limit the policymaking discretion of the States, and to the extent practicable, must consult with State and local officials before implementing any such action. FEMA has determined that this rule involves no policies that have federalism implications under Executive Order 13132. However, FEMA consulted with State, local and tribal officials in the promulgation of this rulemaking. Furthermore, in order to assist in the development of this rule, FEMA hosted a meeting to allow interested parties an opportunity to provide their perspectives on the legislation and options for implementation of the Stafford Act requirements. Stakeholders who attended the meeting included representatives from the National Emergency Management Association, the Association of State Floodplain Managers, the National Governors' Association, the International Association of Emergency Managers, the National Association of Development Organizations, the American Public Works Association, the National League of Cities, the National Association of Counties, the National Conference of State Legislatures, the International City/County Management Association, and the Bureau of Indian Affairs. FEMA received valuable input from all parties at the meeting which was taken into account in the development of the initial interim rule. In addition, FEMA received comments on the interim rules from 14 State emergency management agencies, 3 organizations, 2 local governments; and 1 independent group. H. Paperwork Reduction Act As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ), 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. OMB has approved a collection of information entitled “State/Local/Tribal Hazard Mitigation Plans—Section 322 of the Disaster Mitigation Act of 2000” (OMB No. 1660-0062) for the use of information gathered pursuant to this rulemaking. The OMB collection number for this collection is 1660-0062. An emergency extension was filed with OMB on June 18, 2007, and approved on June 25, 2007. The collection is currently set to expire on October 31, 2007. Before the collection expires, FEMA will submit a request for revision to this collection and begin the OMB clearance process for long-term approval by publishing a 60 day request for comments on the revision. I. Executive Order 13175, Consultation and Coordination With Indian Tribal Governments FEMA has reviewed this rule under Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, published November 9, 2000). FEMA finds that, while it does have “tribal implications” as defined in Executive Order 13175, it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Despite this determination, FEMA has, and continues to, consult with Indian tribal governments with respect to hazard mitigation. Before FEMA developed the interim rule, the agency met with representatives from State and local governments and the Bureau of Indian Affairs to discuss the new planning requirements of section 322 of the Stafford Act. The same opportunity for comment was offered to all parties. FEMA received valuable input from all attendees, which helped FEMA to develop the interim rule. Also, since FEMA published the interim rule, it has coordinated more directly with Indian tribal governments, and with organizations that represent them. For example, in conjunction with the National Congress of American Indians, FEMA hosted a Tribal Mitigation Conference in October 2002 at the Ak-Chin Indian Community, Arizona. This conference provided FEMA with an opportunity to better understand its responsibilities related to Indian tribal governments and to build a working relationship with many of the Indian tribal representatives. A follow-up conference was held at the Salish Kootenai Community, Montana in August 2003. As a direct result of these conferences, FEMA developed an EMI resident course titled “Mitigation for Tribal Officials.” This course provides a direct opportunity for coordination and information sharing between Indian tribal representatives and FEMA, resulting in refinements to FEMA's Indian tribal policy and guidance. Finally, FEMA believes that planning is critical to successful mitigation at all levels of government. The agency has been working to technically assist all federally-recognized Indian tribal governments regarding the availability of grant funding, training opportunities, as well as program requirements. List of Subjects 44 CFR Part 201 Administration practice and procedure, Disaster assistance, Grant programs, Reporting and recordkeeping requirements. 44 CFR Part 204 Administration practice and procedure, Fire prevention, Grant programs, Reporting and recordkeeping requirements. 44 CFR Part 206 Administrative practice and procedure, Coastal zone, Community facilities, Disaster assistance, Fire prevention, Grant programs—housing and community development, Housing, Insurance, Intergovernmental relations, Loan programs—housing and community development, Natural resources, Penalties, Reporting and recordkeeping requirements. Accordingly, for the reasons stated in the preamble, the interim rules amending 44 CFR parts 201, 204, and 206 that were published at 67 FR 8844 on February 26, 2002, 67 FR 61512 on October 1, 2002, 68 FR 61368 on October 28, 2003, 69 FR 55094 on September 13, 2004, and the correcting amendment published at 68 FR 63738 on November 10, 2003, are adopted as final with the following changes: PART 201—MITIGATION PLANNING 1. The authority citation for part 201 is revised to read as follows: Authority: 42 U.S.C. 5121-5206; 6 U.S.C. 101; Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127, 44 FR 19367, 3 CFR, 1979 Comp., p. 376; E.O. 12148, 44 FR 43239; 3 CFR, 1979 Comp., p. 412; E.O. 13286, 68 FR 10619, 3 CFR, 2003 Comp., p. 166. 2. Revise § 201.4 (c)(2)(ii) to read as follows: § 201.4 Standard State Mitigation Plans.

(c)* * *

(2)* * *

(ii)An overview and analysis of the State's vulnerability to the hazards described in this paragraph (c)(2), based on estimates provided in local risk assessments as well as the State risk assessment. The State shall describe vulnerability in terms of the jurisdictions most threatened by the identified hazards, and most vulnerable to damage and loss associated with hazard events. State owned or operated critical facilities located in the identified hazard areas shall also be addressed; Dated: October 24, 2007. Harvey E. Johnson, Jr., Deputy Administrator/Chief Operating Officer, Federal Emergency Management Agency. [FR Doc. E7-21264 Filed 10-30-07; 8:45 am] BILLING CODE 9110-41-P DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration 50 CFR Part 635 RIN 0648-XD44 Atlantic Highly Migratory Species; Atlantic Bluefin Tuna Fisheries AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce. ACTION: Temporary rule; inseason retention limit adjustment. SUMMARY: NMFS has determined that the Atlantic tunas General category daily Atlantic bluefin tuna

(BFT)retention limit should be adjusted for the November and December time periods of the 2007 fishing year and the January period of the 2008 fishing year. NMFS increases the daily BFT retention limits, including on previously scheduled Restricted Fishing Days (RFDs), to provide enhanced commercial fishing opportunities to harvest the established General category quota. DATES: The effective dates for the adjusted BFT daily retention limits are November 1, 2007, through January 31, 2008. FOR FURTHER INFORMATION CONTACT: Brad McHale or Sarah McLaughlin, 978-281-9260. SUPPLEMENTARY INFORMATION: Regulations implemented under the authority of the Atlantic Tunas Convention Act (16 U.S.C. 971 *et seq.* ) and the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act; 16 U.S.C. 1801 *et seq.* ) governing the harvest of BFT by persons and vessels subject to U.S. jurisdiction are found at 50 CFR part 635. Section 635.27 subdivides the U.S. BFT quota recommended by the International Commission for the Conservation of Atlantic Tunas (ICCAT) among the various domestic fishing categories, per the allocations established in the Consolidated Highly Migratory Species Fishery Management Plan (Consolidated HMS FMP). The latest

(2006)ICCAT recommendation for western Atlantic BFT included a U.S. quota of 1,190.12 mt, effective beginning in 2007, through 2008, and thereafter until changed (i.e., via a new ICCAT recommendation). The 2007 fishing year began on June 1, 2007, and ends December 31, 2007. NMFS published final specifications on June 18, 2007 (72 FR 33401) and increased the default General category retention limit of one large medium or giant BFT (measuring 73 inches (185 cm) curved fork length

(CFL)or greater) per vessel per day/trip to three large medium or giant BFT, measuring 73 inches CFL or greater, per vessel per day/trip through August 31, 2007. On August 31, 2007 (72 FR 50257), NMFS published a notice to increase the General category retention limit for September 1-October 31, 2007, to three large medium or giant BFT. NMFS took these actions to enhance commercial BFT fishing opportunities to those vessels permitted in the Atlantic tunas General category and the Highly Migratory Species

(HMS)Charter/Headboat category, while fishing commercially. In addition, NMFS stated that it would consider adjustment of retention limits for future time periods, if warranted. Daily Retention Limits Pursuant to this action, the daily BFT retention limits for the Atlantic tunas General and HMS Charter/Headboat categories are as follows: Adjustment of General Category Daily Retention Limits Under 50 CFR 635.23(a)(4), NMFS may increase or decrease the daily retention limit of large medium and giant BFT over a range of zero to a maximum of three per vessel to provide for maximum utilization of the General category quota for BFT. Such adjustments to the commercial retention limit are based on NMFS' consideration of the criteria provided under § 635.27(a)(8), which include: the usefulness of information obtained from catches in the particular category for biological sampling and monitoring of the status of the stock; the catches of the particular category quota to date and the likelihood of closure of that segment of the fishery if no adjustment is made; the projected ability of the vessels fishing under the particular category quota to harvest the additional amount of BFT before the end of the fishing year; the estimated amounts by which quotas for other gear categories of the fishery might be exceeded; effects of the adjustment on BFT rebuilding and overfishing; effects of the adjustment on accomplishing the objectives of the fishery management plan; variations in seasonal distribution, abundance, or migration patterns of BFT; effects of catch rates in one area precluding vessels in another area from having a reasonable opportunity to harvest a portion of the category's quota; and a review of dealer reports, daily landing trends, and the availability of the BFT on the fishing grounds. As of October 22, 2007, the coastwide General category has landed 74.8 metric tons

(mt)out of a possible 643.6 mt, and catch rates remain less that 1.0 mt per day even though the General category retention limit was increased to three BFT per vessel per trip, measuring 73 inches (185 cm) CFL or greater for June through October 2007. Starting on November 1, 2007, the General category daily retention limit, located at 50 C.F.R. 635.23(a)(2), is scheduled to revert back to the default retention limit of one large medium or giant BFT (measuring 73 inches (185 cm) CFL) or greater per vessel per day/trip. This scheduled retention limit applies to General category permitted vessels and HMS Charter/Headboat category permitted vessels (when fishing commercially for BFT). Each of the General category time periods (January, June-August, September, October-November, and December) is allocated a portion of the coastwide General category quota, thereby ensuring fishing opportunities are provided in years where high catch rates are experienced. In combination with the subquota rollover from previous 2007 fishing year time-periods, scheduled RFDs, current catch rates, and the daily retention limit reverting to one large medium or giant BFT per vessel per day on November 1, 2007, NMFS anticipates the full 2007 fishing year General category quota and January 2008 subquota will not be harvested. Adding an excessive amount of unused quota from one time-period subquota to the subsequent time-period subquota is undesirable because it effectively changes the time-period subquota allocation percentages established in the Consolidated HMS FMP and may contribute to excessive carry-overs to subsequent fishing years. NMFS has considered the set of criteria cited above and their applicability to the commercial BFT retention limit for the remainder of the 2007 fishing year and the January portion of the 2008 fishing year. Based on these considerations, NMFS has determined that the General category retention should be adjusted to allow for retention of the established General category quota. Therefore, NMFS increases the General category retention limit from the default limits effective November 1, 2007, through January 31, 2008. This adjustment increases the General category daily retention limit to three large medium or giant BFT, measuring 73 inches (185 cm) CFL or greater, per vessel per day/trip. This General category retention limit is effective in all areas, except for the Gulf of Mexico, and applies to those vessel permitted in the General category as well as to those HMS Charter/Headboat permitted vessels fishing commercially for BFT. Restricted Fishing Days The 2007 fishing year BFT specifications and effort controls included the following RFDs: all Saturdays and Sundays from November 17, 2007, through December 31, 2007, plus November 22 and December 25, 2007. These RFDs were designed to provide for an extended late season, south Atlantic BFT fishery for the commercial handgear fishermen in the General category. For the reasons referred to above, NMFS has determined that the scheduled RFDs are no longer required to meet their original purpose, but may in fact exacerbate low catch rates, and waives all previously scheduled RFDs for the 2007 fishing year. Therefore, NMFS has determined that an increase in the General category daily BFT retention limit effective from November 1, 2007, through January 31, 2008, inclusive of days that were previously scheduled as RFDs, is warranted. Thus, NMFS is extending the General category daily retention limit of three large medium or giant BFT per vessel per day/trip through January 31, 2008, including all Saturdays and Sundays in November and December 2007 as well as November 22 and December 25, 2007. This adjustment is intended to provide a reasonable opportunity to harvest the U.S. landings quota of BFT while maintaining an equitable distribution of fishing opportunities, to help achieve optimum yield in the General category BFT fishery, to collect a broad range of data for stock monitoring purposes, and to be consistent with the objectives of the Consolidated HMS FMP. Monitoring and Reporting NMFS selected the daily retention limit and the duration after examining an array of data as it pertains to the determination criteria. These data included, but were not limited to, current and previous catch and effort rates, quota availability, previous public comments on inseason management measures, stock status, etc. NMFS will continue to monitor the BFT fishery closely through the mandatory dealer landing reports, which NMFS requires to be submitted within 24 hours of a dealer receiving BFT. Depending on the level of fishing effort and catch rates of BFT, NMFS may determine that additional retention limit adjustments are necessary to ensure available quota is not exceeded or to enhance scientific data collection from, and fishing opportunities in, all geographic areas. Closures or subsequent adjustments to the daily retention limits, if any, will be published in the **Federal Register** . In addition, fishermen may call the Atlantic Tunas Information Line at

(888)872-8862 or

(978)281-9260, or access the internet at www.hmspermits.gov, for updates on quota monitoring and retention limit adjustments. Classification The Assistant Administrator for NMFS (AA), finds that it is impracticable and contrary to the public interest to provide prior notice of, and an opportunity for public comment on, this action for the following reasons: NMFS continues to receive information refining its understanding of the commercial sector's specific needs regarding retention limits through the latter portions of the 2007 season. NMFS assessments and analyses show catch rates to date have been low and that there is sufficient quota for an increase to the General category retention limit during the months of November 2007 through January 2008. The regulations implementing the Consolidated HMS FMP provide for inseason retention limit adjustments to respond to the unpredictable nature of BFT availability on the fishing grounds, the migratory nature of this species, and the regional variations in the BFT fishery. Affording prior notice and opportunity for public comment to implement these retention limits is impracticable as it would preclude NMFS from acting promptly to allow harvest of BFT that are available on the fishing grounds. Analysis of available data shows that the General category BFT retention limits may be increased with minimal risks of exceeding the ICCAT-allocated quota. Delays in increasing these retention limits would adversely affect those General and Charter/Headboat category vessels that would otherwise have an opportunity to harvest more than the default retention limit of one BFT per day and may exacerbate the problem of low catch rates and quota rollovers. Limited opportunities to harvest the respective quotas may have negative social and economic impacts to U.S. fishermen that either depend upon catching the available quota within the time periods designated in the Consolidated HMS FMP. Adjustment to the retention limit needs to be effective November 1, 2007, to minimize any unnecessary disruption in fishing patterns and for the impacted sectors to benefit from the adjustments so as to not preclude fishing opportunities from fishermen who only have access to the fishery during this time period. Therefore, the AA finds good cause under 5 U.S.C. 553(b)(B) to waive prior notice and the opportunity for public comment. For all of the above reasons, and because this action relieves a restriction (i.e., current default retention limit is one fish per vessel/trip but this action increases that limit and allows retention of more fish), there is also good cause under 5 U.S.C. 553(d) to waive the 30-day delay in effectiveness. This action is being taken under 50 CFR 635.23(a)(4) and (b)(3) and is exempt from review under Executive Order 12866. Authority: 16 U.S.C. 971 *et seq.* and 1801 *et seq.* Dated: October 25, 2007. Emily H. Menashes, Acting Director, Office of Sustainable Fisheries, National Marine Fisheries Service. [FR Doc. E7-21442 Filed 10-30-07; 8:45 am] BILLING CODE 3510-22-S 72 210 Wednesday, October 31, 2007 Proposed Rules FARM CREDIT ADMINISTRATION 12 CFR Part 615 RIN 3052-AC25 Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Capital Adequacy—Basel Accord AGENCY: Farm Credit Administration. ACTION: Advance notice of proposed rulemaking (ANPRM). SUMMARY: The Farm Credit Administration (FCA or we) is considering possible modifications to our risk-based capital rules for Farm Credit System institutions (FCS or System) that are similar to the standardized approach delineated in the New Basel Capital Accord. We are seeking comments to facilitate the development of a proposed rule that would enhance our regulatory capital framework and more closely align minimum capital requirements with risks taken by System institutions. We are also withdrawing our previously published ANPRM. DATES: You may send comments on or before March 31, 2008. ADDRESSES: We offer several methods for the public to submit comments. For accuracy and efficiency reasons, commenters are encouraged to submit comments by e-mail or through the Agency's Web site or the Federal eRulemaking Portal. Regardless of the method you use, please do not submit your comment multiple times via different methods. You may submit comments by any of the following methods: • *E-mail:* Send us an e-mail at *reg-comm@fca.go* v. • *Agency Web site: http://www.fca.gov.* Select “Legal Info,” then “Pending Regulations and Notices.” • *Federal eRulemaking Portal: http://www.regulations.gov* . Follow the instructions for submitting comments. • *Mail:* Gary K. Van Meter, Deputy Director, Office of Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090. • *Fax:*

(703)883-4477. Posting and processing of faxes may be delayed, as faxes are difficult for us to process and achieve compliance with section 508 of the Rehabilitation Act. Please consider another means to comment, if possible. You may review copies of comments we receive at our office in McLean, Virginia, or on our Web site at *http://www.fca.gov* . Once you are in the Web site, select “Legal Info,” and then select “Public Comments.” We will show your comments as submitted, but for technical reasons we may omit items such as logos and special characters. Identifying information that you provide, such as phone numbers and addresses, will be publicly available. However, we will attempt to remove e-mail addresses to help reduce Internet spam. FOR FURTHER INFORMATION CONTACT: Laurie Rea, Associate Director, Office of Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090,

(703)883-4232, TTY

(703)883-4434, or Wade Wynn, Policy Analyst, Office of Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090,

(703)883-4262, TTY

(703)883-4434, or Rebecca S. Orlich, Senior Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090,

(703)883-4020, TTY

(703)883-4020. SUPPLEMENTARY INFORMATION: I. Objectives The objective of this ANPRM is to gather information to facilitate the development of a comprehensive proposal that would: 1. Promote safe and sound banking practices and a prudent level of regulatory capital for System institutions; 1 1 The System was created by Congress in 1916 and is the oldest GSE in the United States. System institutions provide credit and financially related services to farmers, ranchers, producers or harvesters of aquatic products, and farmer-owned cooperatives. They also make credit available for agricultural processing and marketing activities, rural housing, certain farm-related businesses, agricultural and aquatic cooperatives, rural utilities, and foreign and domestic entities in connection with international agricultural trade. 2. Improve the risk sensitivity of our regulatory capital requirements while avoiding undue regulatory burden; 3. To the extent appropriate, minimize differences in regulatory capital requirements between System institutions and federally regulated banking organizations; 2 and 2 Banking organizations include commercial banks, savings associations, and their respective bank holding companies. 4. Foster economic growth in agriculture and rural America through the effective allocation of System capital. In addition, we are withdrawing our previous ANPRM on capital, published in the **Federal Register** on June 21, 2007 (72 FR 34191), as described more fully below. II. Background The FCA's risk-based capital requirements for System institutions are contained in subparts H and K of part 615 of our regulations. 3 Our risk-based capital framework is based, in part, on the “International Convergence of Capital Measurement and Capital Standards” (Basel I) as published by the Basel Committee on Banking Supervision (Basel Committee) 4 and is broadly consistent with the capital requirements of the other Federal financial regulatory agencies. 5 We first adopted a risk-based capital framework for the System as part of our 1988 regulatory capital revisions 6 required by the Agricultural Credit Act of 1987 7 and made subsequent revisions in 1997, 8 1998 9 and 2005. 10 Under the current capital framework, each on- and off-balance sheet credit exposure is assigned to one of five broad risk-weighting categories to determine the risk-adjusted asset base, which is the denominator for computing the permanent capital, total surplus, and core surplus ratios. 3 Our regulations can be accessed at *http://www.fca.gov/index.html* . 4 The Basel Committee on Banking Supervision was established in 1974 by central banks with bank supervisory authorities in major industrialized countries. The Basel Committee formulates standards and guidelines related to banking and recommends them for adoption by member countries and others. All Basel Committee documents are available at *http://www.bis.org* . 5 We refer collectively to the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision as the “other Federal financial regulatory agencies.” 6 *See* 53 FR 39229 (October 6, 1988). 7 Pub. L. 100-233 (January 6, 1988), section 301. The 1987 Act amended many provisions of the Farm Credit Act of 1971, as amended, which is codified at 12 U.S.C. 2001 *et seq.* 8 *See* 62 FR 4429 (January 30, 1997). 9 *See* 63 FR 39219 (July 22, 1998). 10 *See* 70 FR 35336 (June 17, 2005). For a number of years, the Basel Committee has worked to develop a more risk sensitive regulatory capital framework that incorporates recent innovations in the financial services industry. In June 2004, it published the “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (Basel II) to promote improved risk measurement and management processes and more closely align capital requirements with risk. 11 Basel II has three pillars:

(1)Minimum capital requirements for credit risk, operational risk, and market risk,

(2)supervision of capital adequacy, and

(3)market discipline through enhanced public disclosure. Banking organizations have various options for calculating the minimum capital requirements for credit and operational risk. For credit risk, the options are the standardized approach, the foundation internal ratings-based approach, and the advanced internal ratings-based approach (A-IRB). For operational risk, the options are the basic indicator approach, the standardized approach, and the advanced measurement approach (AMA). 11 *See http://www.bis.org/publ/bcbsca.htm* for the 2004 Basel II Accord as well as updates in 2005 and 2006. In September 2006, the other Federal financial regulatory agencies issued an interagency notice of proposed rulemaking for implementing the advanced approaches of Basel II in the United States (the advanced capital framework). 12 This advanced capital framework would require core banks 13 and permit opt-in banks 14 to use the A-IRB 15 to calculate the regulatory capital requirement for credit risk and the AMA 16 to calculate the regulatory capital requirement for operational risk. 17 12 *See* 71 FR 55830 (September 25, 2006). This document is at *http://www.federalreserve.gov/generalinfo/basel2/USImplementation.htm* . 13 Core banks are banking organizations that have consolidated total assets of $250 billion or more or have consolidated on-balance sheet foreign exposures of $10 billion or more. 14 Opt-in banks are banking organizations that do not meet the definition of a core bank but have the risk management and measurement capabilities to voluntarily implement the advanced approaches of Basel II with supervisory approval. 15 A banking organization computes internal estimates of certain key risk parameters for each credit exposure or pool of exposures and feeds the results into regulatory formulas to determine the risk-based capital requirement for credit risk. 16 Internal operational risk management systems and processes are used to compute risk-based capital requirements for operational risk. 17 The other Federal financial regulatory agencies also seek comments on whether core and opt-in banks should be permitted to use other credit and operational risk approaches. Given the small number of core banks and the complexity and cost associated with voluntarily adopting the advanced approaches, only a small number of U.S. banking organizations are expected to implement the advanced capital framework. As a result, a bifurcated regulatory capital framework will be created in the United States, which could result in different regulatory capital charges for similar products offered by those that apply the advanced capital framework and those that do not. Financial regulators, banking organizations, trade associations and other interested parties have raised concerns that the bifurcated structure could create a significant competitive disadvantage for those that do not apply the advanced capital framework. In December 2006, the other Federal financial regulatory agencies addressed these concerns by issuing an interagency notice of proposed rulemaking (Basel IA) to improve the risk sensitivity of the existing Basel I-based capital framework. 18 Subsequently, the FCA issued an ANPRM, 19 published in June 2007, addressing issues similar to those addressed in Basel IA. Basel IA was intended to help minimize the potential differences in the regulatory minimum capital requirements of those banks applying the advanced capital framework and those banks that would not. The other Federal financial regulatory agencies received a significant number of comments opposing their Basel IA proposal. Many commenters argued that the benefits of complying with Basel IA did not outweigh the burdens, and many questioned why the U.S. banking agencies were creating a separate rule that had only minor differences from the standardized approach under Basel II. On July 20, 2007, the other Federal financial regulatory agencies announced that they intended to replace the Basel IA proposal with a proposed rule that would provide all non-core banks the option to adopt the standardized approach under Basel II. 20 Their stated intent is to finalize a standardized approach for banks that do not adopt the advanced approaches before the core (and opt-in) banks begin their first transition period year under the advanced approaches of Basel II. 18 71 FR 77446 (December 26, 2006). This document is at *http://www.federalreserve.gov/generalinfo/basel2/USImplementation.htm* . 19 72 FR 34191 (June 21, 2007). 20 Joint Press Release, “Banking Agencies Reach Agreement On Basel II Implementation,” (July 20, 2007). This document is at *http://www.occ.gov/ftp/release/2007-77.htm* . The other Federal financial regulatory agencies plan to replace Basel IA with a proposed rule patterned after the standardized approach under Basel II. Consequently, we are withdrawing our previous ANPRM and replacing it with one that is also consistent with the standardized approach. We intend to develop a proposed rule that is similar to the capital requirements of the other Federal financial regulatory agencies where appropriate but also tailored to fit the System's distinct borrower-owned lending cooperative structure and Government-sponsored enterprise

(GSE)mission. The questions posed in this ANPRM are, for the most part, similar to the questions we asked in our previous ANPRM. 21 We have revised the technical material in most places to conform to the standardized approach of Basel II. For example, we replaced the risk-weight categories that were in the Basel IA proposed rule with the risk-weight categories that are contained in the standardized approach under Basel II. We ask commenters to consider the revised material when answering the following questions. We seek comments from all interested parties to help us develop a comprehensive proposal that would enhance our regulatory capital framework and increase the risk sensitivity of our risk-based capital rules without unduly increasing regulatory burden. 21 Questions 1, 3, 4, 5, 9 and 10 in this ANPRM are identical to those numbered questions posed in our previous ANPRM. Questions 2, 6 and 11 are slightly different. Question 7 in this ANPRM replaces Questions 7 and 8 in our previous ANPRM. Questions 8, 12, and 16 are new to this ANPRM. Questions 13 through 15 are identical to Questions 12 through 14 in our previous ANPRM. Question 17 is identical to Question 15 in our previous ANPRM. III. Questions When addressing the following questions, we ask commenters to consider the overarching objectives of Basel II to more closely align capital with the specific risks taken by the financial institution rather than relying on a “one-size-fits-all” approach for determining regulatory minimum risk-based capital requirements. Our objective is to develop a more dynamic risk-based capital framework that is more sensitive to the relative risks inherent in System lending and other mission-related activities. We seek comments on specific criteria that might be used to determine appropriate risk weights that meet this objective without creating undue burden. Specifically, we ask that you support your comments with data, to the extent possible, in response to our questions. 22 22 Please note that any data you submit will be made available to the public in our rulemaking file. A. Increase the Number of Risk-Weight Categories Our existing risk-based capital rules assign exposures to one of five risk-weight categories: 0, 20, 50, 100, and 200 percent. 23 The standardized approach of Basel II adds risk-weight categories of 35, 75, and 150 percent and replaces the 200-percent risk-weight category with a 350-percent risk-weight category. 24 The 35-percent risk-weight category would apply to certain residential mortgages. The 75-percent risk-weight category would apply to certain retail claims (e.g., small business loans). The 150-percent and 350-percent risk-weight categories would apply to certain higher risk externally rated exposures (e.g., those below investment grade). 23 FCA's risk-weight categories are set forth in 12 CFR 615.5211. 24 Basel IA proposed adding risk-weight categories of 35, 75, and 150 percent. *Question 1: We seek comment on what additional risk-weight categories, if any, we should consider for assigning risk weights to System institutions' on- and off-balance sheet exposures. If additional risk-weight categories are added, what assets should be included in each new risk-weight category?* B. Use of External Credit Ratings To Assign Risk-Weight Exposures 1. Direct Exposures In recent years, the FCA has permitted System institutions to use external ratings to assign risk weights to certain credit exposures linked to nationally recognized statistical rating organizations (NRSROs) ratings. 25 For example, in March 2003, we adopted an interim final rule that permitted System institutions to use NRSRO ratings to place highly rated investments in non-agency asset-backed securities

(ABS)and mortgage-backed securities

(MBS)in the 20-percent risk-weight category. 26 In April 2004, we expanded the use of NRSRO ratings to assign risk weights to loans to other financing institutions. 27 In June 2005, we adopted a ratings-based approach to assign risk weights to recourse obligations, direct credit substitutes (DCS), residual interests (other than credit-enhancing interest-only strips), and other ABS and MBS investments. 28 Furthermore, we recently permitted the use of NRSRO ratings to assign risk weights to certain electric cooperative credit exposures. 29 25 A NRSRO is a credit rating organization that is recognized by and registered with the Securities and Exchange Commission

(SEC)as a nationally recognized statistical rating organization. *See* 12 CFR 615.5201. *See* also Pub. L. 109-291. 26 *See* 68 FR 15045 (March 28, 2003). 27 Other financing institutions are non-System financial institutions that borrow from System banks. *See* 69 FR 29852 (May 26, 2004). 28 These changes are consistent with those of the other Federal financial regulatory agencies. *See* 70 FR 35336 (June 17, 2005). 29 *See* “Revised Regulatory Capital Treatment for Certain Electric Cooperatives Assets,” FCA Bookletter BL-053 (February 12, 2007). The standardized approach of Basel II expands the use of NRSRO ratings to determine the risk-based capital charge for long-term exposures to sovereign entities, non-central government public sector entities (PSEs), banks, 30 corporate entities, and securitizations as displayed in Table 1 set forth below. 31 30 Banks include multilateral development banks and securities firms. 31 Basel IA proposed the categories sovereign entities, non-sovereign entities, and securitizations with different risk-weight categories. Table 1.—The Standardized Approach Risk Weights Based on External Ratings for Long-Term Exposures Credit assessment Sovereign risk weight (in percent) PSE and bank * risk weights (in percent) Option 1 Option 2 Corporate risk weight (in percent) Securitization ** risk weight (in percent) AAA to AA− 0 20 20 20 20. A+ to A− 20 50 50 50 50. BBB+ to BBB− 50 100 50 100 100. BB+ to BB− 100 100 100 100 350. B+ to B− 100 100 100 150 Deduction.*** Below B− 150 150 150 150 Deduction.*** Unrated 100 100 50 100 Deduction.*** * The Standardized Approach provides two options for PSEs and bank exposures:

(1)Option 1 assigns a risk weight one category below that of sovereigns;

(2)Option 2 assigns a risk weight based on the individual bank rating. Option 2 also provides risk weights for short-term claims as follows:

(1)AAA to BBB− and unrated = 20 percent;

(2)BB+ to B−= 50 percent; and

(3)Below B−= 150 percent. ** Short-term rating categories are as follows:

(1)A-1/P-1 = 20 percent;

(2)A-2/P-2 = 50 percent;

(3)A-3/P-3 = 100 percent; and

(4)All other ratings or unrated = Deduction. *** Banks must deduct the entire amount from capital. However, if banks originate a securitization and the most senior exposure is unrated, the bank may use the “look through” treatment, which is the average risk weight of the underlying exposures subject to supervisory review. System institutions provide financing to agriculture and rural America through a variety of lending 32 and investment 33 products. They also hold highly rated liquid investments to manage liquidity, short-term surplus funds, and interest rate risk. Our existing risk-based capital rules assign most agricultural and rural business 34 loans and mission-related investment assets to the 100-percent risk-weight category unless the risk exposure is mitigated by an acceptable guarantee or collateral. The FCA is considering the expanded use of NRSRO ratings to assign risk weights to other externally rated credit exposures in the System, such as corporate debt securities and loans. 32 The Farm Credit Banks provide wholesale funding to their affiliated associations who, in turn, make retail loans to eligible borrowers. CoBank, ACB, provides both wholesale funding to its affiliated associations and retail loans to cooperatives and other eligible borrowers. 33 System banks and associations are permitted to make mission-related investments to agriculture and rural America. *See* “Investments in Rural America-Pilot Investment Programs,” FCA Informational Memorandum (January 11, 2005). 34 Agricultural businesses include farmer-owned cooperatives, food and fiber processors and marketers, manufacturers and distributors of agricultural inputs and services, and other agricultural-related businesses. Rural businesses include electric utilities and other energy-related businesses, communication companies, water and waste disposal businesses, ethanol plants, and other rural-related businesses. * Question 2: We seek comments on all aspects of the appropriateness of using NRSRO ratings to assign risk weights to credit exposures. If we expand the use of external ratings, how should we align the risk-weight categories with NRSRO ratings to determine the appropriate capital charge for externally rated credit exposures? * *Should any externally rated positions be excluded from this new ratings-based approach? We ask commenters to consider the substantial reliance on NRSRO ratings as a means of evaluating the quality of debt investments in view of recent events in the subprime mortgage market.* 2. Recognized Financial Collateral Our current risk-based capital rules assign lower risk weights to exposures collateralized by:

(1)Cash held by a System institution or its funding bank;

(2)securities issued or guaranteed by the U.S. Government, its agencies or Government-sponsored agencies;

(3)securities issued or guaranteed by central governments in other OECD 35 countries;

(4)securities issued by certain multilateral lending or regional development institutions; or

(5)securities issued by qualifying securities firms. 35 OECD stands for the Organization for Economic Cooperation and Development. The OECD is an international organization of countries that are committed to democratic government and the market economy. An up-to-date listing of member countries is available at *http://www.oecd.org* or *http://www.oecdwash.org.* The standardized approach of Basel II has two methods for recognizing a wider variety of collateral types for risk-weighting purposes. 36 Under the simple approach, the collateralized portion of the exposure would be assigned a risk weight (as listed in Table 1) according to the external rating of the collateral. The remainder of the exposure would be assigned a risk weight appropriate to the counterparty. Collateral would be subject to a 20-percent floor unless the collateral is cash, certain government securities or repurchase agreements, and it would be marked-to-market and revalued every 6 months. Securities issued by sovereigns or PSEs must be rated at least BB-or its equivalent by a NRSRO. Securities issued by other entities must be rated at least BBB-or its equivalent by an NRSRO. Short-term debt instruments used as collateral must be rated at least A-3/P-3 or its equivalent by an NRSRO. 36 Basel IA proposed assigning lower risk weights to exposures collateralized by securities issued by sovereigns or non-sovereigns that were externally rated at least investment grade. Under the comprehensive approach, the banking organization adjusts the value of the exposure by the discounted value of the collateral. Discount values, known as supervisory haircuts, are displayed in Table 2 set forth below. For example, sovereign debt rated A+ with a 5-year maturity used as collateral is discounted by 3 percent, and corporate debt rated A+ with a 5-year maturity is discounted at 6 percent. Table 2.—Standard Supervisory Haircuts in the Comprehensive Approach for Credit Mitigation Issue rating for debt securities Residual maturity Sovereigns and PSEs * (in percent) Other issuers ** (in percent) AAA to AA− or A− ≤ 1 year 0.5 1 > 1 year, ≤ 5 years 2 4 > 5 years 4 8 A+ to BBB− or A-2/A-3/P-3 ≤ 1 year 1 2 > 1 year, ≤ 5 years 3 6 > 5 years 6 12 BB+ to BB− All 15 * Includes PSEs treated as sovereigns. ** Includes PSEs not treated as sovereigns. *Question 3: We seek comment on whether recognizing additional types of eligible collateral would improve the risk sensitivity of our risk-based capital rules without being overly burdensome. We also seek comment on what additional types of collateral, if any, we should consider and what effect the collateral should have on the risk weighting of System exposures.* 3. Eligible Guarantors Our existing capital rules permit the use of third party guarantees to lower the risk weight of certain exposures. Guarantors include:

(1)The U.S. Government, its agencies or Government-sponsored agencies;

(2)U.S. state and local governments;

(3)central governments and banks in OECD countries;

(4)central governments in non-OECD countries (local currency exposures only);

(5)banks in non-OECD countries (short-term claims only);

(6)certain multilateral lending and regional development institutions; and

(7)qualifying securities firms. The standardized approach of Basel II expands the range of eligible guarantors to include sovereign entities, PSEs, banks and securities firms that have a lower risk weight than the counterparty. 37 All other guarantors must be rated A− (or its equivalent) or better by a NRSRO. The guarantee must:

(1)Represent a direct claim on the protection provider,

(2)be explicitly referenced to specific exposures or pools of exposures,

(3)be irrevocable, and

(4)unconditional. The guarantor's risk weight would be substituted for the risk weight assigned to the exposure. Non-guaranteed portions of the exposure would be assigned to the external rating of the exposure. 37 Basel IA proposed to include guarantees from any entity that had long-term senior debt rated at least investment grade (or issuer rating if a sovereign). *Question 4: We seek comment on what additional types of third party guarantees, if any, we should recognize and what effect such guarantees should have on the risk weighting of System exposures.* C. Direct Loans to System Associations The FCA is considering ways to better align our risk-based capital requirements for direct loans with System associations. System banks make direct loans to their affiliated associations who, in turn, make retail loans to eligible borrowers. Our current risk-based capital rules assign a 20-percent risk weight to direct loans at the bank level and another risk weight (depending upon the type of loan) to retail loans at the association level. 38 The 20-percent risk weight is intended to recognize the risks to the banks associated with lending to their affiliated associations. We are exploring methods to improve the risk sensitivity of our risk-based capital rules by assigning different risk weights to direct loan exposures based on the System association's distinct risk profile. 38 Our risk-based capital rules also assign a 20-percent risk weight to similar GSE and OECD depository institution exposures. *Question 5: We seek comment on what evaluative criteria or methods we should use to assign risk weights to direct loans to System associations. How should the criteria be used to adjust the risk weight as the quality of the direct loan changes over time?* D. Small Agricultural and Rural Business Loans Our existing risk-based capital rules assign small agricultural and rural business loans to the 100-percent risk-weight category unless the credit risk is mitigated by an acceptable guarantee or acceptable collateral. The standardized approach of Basel II applies a 75-percent risk weight to certain retail claims 39 provided:

(1)The exposure is to an individual person or persons or to a small business,

(2)the exposure is in the form of a revolving credit, line of credit, personal term loan or lease, or small business facility or commitment,

(3)the regulatory supervisor is satisfied that the retail portfolio is sufficiently diversified to warrant such a risk weight, and

(4)the total credit exposure to the borrower does not exceed approximately $1.4 million. 40 39 The other Federal financial regulatory agencies stated in Basel IA that they were exploring options to permit certain small business loans to qualify for a 75-percent risk weight. 40 We present a comparable threshold in terms of U.S. dollars. The standardized approach of Basel II has a threshold of €1 million. *Question 6: We seek comment on what approaches we should use to improve the risk sensitivity of our risk-based capital rules for small agricultural and rural business loans. More specifically, what criteria should we use to classify an agricultural or rural business as a small business? What criteria should we use to assign risk-weights of less than 100 percent to these types of loans?* E. Loans Secured by Liens on Real Estate The FCA is considering ways to use loan-to-value ratios

(LTV)and other criteria to determine the risk-based capital charges for farm real estate and qualified residential loans. Our existing capital rules assign farm real estate loans to the 100-percent risk-weight category and qualified residential loans 41 to the 50-percent risk-weight category. The standardized approach of Basel II assigns a 35-percent risk weight to all prudently underwritten residential mortgages. Basel IA had proposed to risk-weight loans secured by first and second liens on residential real estate based on LTV. We continue to believe that LTV is a viable option for determining appropriate risk-weights for farm real estate and qualified residential loans. We are also considering approaches that would combine borrower creditworthiness and other loan characteristics in conjunction with LTV. 41 Qualified residential loans are rural home loans (as defined by 12 CFR 613.3030) and single-family residential loans to bona fide farmers, ranchers, or producers or harvesters of aquatic products that meet the requirements listed in 12 CFR 615.5201. *Question 7: We seek comment on all aspects of using LTV to determine the appropriate risk-weight for farm real estate, qualified residential loans, or any other asset class. We also welcome comments on other methods that could be used to improve the risk sensitivity of our risk-based capital rules for these types of loans.* F. Loans 90 Days or More Past Due or in Nonaccrual 42 42 This section was not in the previous ANPRM. Our existing risk-based capital rules assign most loans to the 100-percent risk-weight category unless the credit risk is mitigated by an acceptable guarantee or collateral. When exposures reach 90 days or more past due or are in nonaccrual status, there is a higher probability that the financial institution might incur a loss. The standardized approach of Basel II addresses this potentially higher risk of loss by assigning the unsecured portion of a loan that is 90 days or more past due (net of specific provisions) as follows: • 150-percent risk weight when specific provisions are less than 20 percent of the outstanding amount of the loan; • 100-percent risk weight when specific provisions are 20 percent or more of the outstanding amount of the loan; • When specific provisions are 50 percent or more of the outstanding amount of the loan, the supervisor has the discretion to reduce the risk weight to 50 percent. *Question 8: We seek comment on all aspects related to risk-weighting exposures that reach 90 days or more past due or are in nonaccrual status.* G. Short- and Long-Term Commitments Under § 615.5212, off-balance sheet commitments are generally risk-weighted in two steps:

(1)The off-balance sheet commitment is multiplied by a credit conversion factor

(CCF)43 to determine its on-balance sheet credit equivalent; and

(2)the on-balance sheet credit equivalent is assigned to the appropriate risk-weight category in § 615.5211 according to the obligor, after considering any applicable collateral and guarantees. 44 The standardized approach of Basel II assigns a 0-percent CCF to unconditionally cancelable commitments, 45 a 20-percent CCF to short-term commitments, and a 50-percent CCF to long-term commitments. 46 43 A CCF is a number by which an off-balance sheet item is multiplied to obtain a credit equivalent before placing the item in a risk-weight category. 44 Our existing regulations assign a 0-percent CCF to unused commitments with an original maturity of 14 months or less. Unused commitments with an original maturity of greater than 14 months can also receive a 0-percent CCF provided the commitment is unconditionally cancelable and the System institution has the contractual right to make a separate credit decision before each drawing under the lending arrangement. All other unused commitments with an original maturity of greater than 14 months are assigned a 50-percent CCF. 45 An unconditionally cancelable commitment is one that can be canceled for any reason at any time without prior notice. 46 Basel IA proposed to retain the 0-percent CCF for all unconditionally cancelable commitments, apply a 10-percent CCF to all other short-term commitments, and retain the 50-percent CCF for all long-term commitments. *Question 9: We seek comment on what approaches we should use to risk weight short- and long-term commitments that are not unconditionally cancelable.* H. Adjusting Risk Weights on Exposures Over Time The FCA welcomes comment on additional approaches or criteria that might be used to adjust the risk weight of exposures throughout the life of the asset. Our existing risk-based capital rules assign a static risk weight to assets within a given asset class without providing for risk-weight adjustments as asset quality improves or deteriorates. For example, most loans to System borrowers are risk-weighted at 100 percent throughout the life of the loan without making risk-weight adjustments based on credit classifications or other credit performance factors. *Question 10: We seek comment on what methods we should use to adjust the risk weight of credit exposures as the asset quality or default probability changes over time.* I. Capital Charge for Operational Risk The FCA welcomes comments on possible approaches for determining a capital charge for operational risk. The broad risk-weighting categories under our existing capital rules are primarily designed to protect against credit or counterparty risk. As we move toward a more risk-sensitive capital framework, it may be appropriate to apply an explicit capital charge for operational risk, especially to cover risks associated with off-balance sheet activity. Basel II defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people, systems, or from external events. This definition includes legal risk but excludes strategic and reputational risk. As previously mentioned, Basel II has three methods for applying a capital charge for operational risk. Under the basic indicator approach, the operational capital charge is equal to 15 percent of the 3-year average of positive annual gross income. Under the standardized approach, the operational capital charge is equal to the sum of a fixed percentage of the 3-year average of the gross income of eight business lines. 47 Under the AMA, the operational capital charge is derived from a bank's internal operational risk management systems and processes. 47 Each business line is multiplied by a fixed percentage and then summed together to determine the annual gross income. The eight lines of business are corporate finance (18 percent), trading and sales (18 percent), retail banking (12 percent), commercial banking (15 percent), payment and settlement (18 percent), agency services (15 percent), asset management (12 percent), and retail brokerage (12 percent). *Question 11: We seek comment on what approach we should consider, if any, in determining a risk-based capital charge for operational risk.* J. Disclosure 48 48 This section was not in the previous ANPRM. The FCA recognizes that market discipline contributes to a safe and sound banking environment and enhances risk management practices. Pillar III of Basel II is designed to complement the minimum capital requirements and supervisory review process by encouraging market discipline through meaningful public disclosure. The disclosure requirements are intended to allow market participants to assess key information about an institution's risk profile and associated level of capital to better evaluate risk management performance, earnings potential and financial strength. Pillar III of Basel II presents the following general disclosure requirements:

(1)Banks should have a formal disclosure policy approved by the board of directors that addresses the institution's approach for determining the disclosures it should make; 49

(2)banks should implement a process for assessing the appropriateness of their disclosures, including validation and frequency of them;

(3)banks should decide which disclosures are relevant based on the materiality concept; 50 and

(4)the disclosures should be made on a semi-annual basis, subject to certain exceptions. 51 49 Disclosure is a qualifying criterion under Pillar I to obtain lower risk weightings and/or to apply specific methodologies. 50 Pillar III of Basel II provides minimum disclosure requirements on capital structure and adequacy, and risk exposure and assessment on credit risk, market risk, operational risk, equities, and interest rate risk in the banking book. 51 Disclosure of key capital ratios should be made on a quarterly basis. Qualitative disclosures providing a general summary of a bank's risk management objective and policies, reporting system and definitions may be published on an annual basis. The other Federal financial regulatory agencies have proposed the following additional requirements in the advanced capital framework:

(1)The disclosures would follow U.S. generally accepted accounting principles, SEC mandates, and existing regulatory reporting requirements;

(2)the banks would be required to disclose quantitative information on a quarterly basis following SEC deadlines;

(3)the disclosures would be made publicly available (for example, on a Web site) for each of the last 3 years (that is, 12 quarters); 52

(4)disclosure of key financial ratios must be provided in the footnotes to the year-end audited financial statements; 53

(5)the chief financial officer must certify that the disclosures are appropriate; and

(6)the board of directors and senior management are responsible for establishing the internal control structure over financial reporting. 52 U.S. Basel II banks are encouraged to provide this information in one place on the entity's public Web site. 53 These disclosures would be tested by external auditors as part of the financial statement audit. *Question 12: We seek comment on all aspects of the Basel II public disclosure requirements. Specifically, how would the System apply the public disclosure requirements of Pillar III given its unique cooperative structure?* K. Capital Leverage Ratio We are considering whether we should supplement our existing risk-based capital rules with a minimum capital leverage ratio requirement for all FCS institutions to further promote the safety and soundness of the System. Our existing capital regulations require System banks to maintain a minimum net collateral ratio

(NCR)54 of 103 percent 55 but do not impose a capital leverage ratio on System associations. The NCR provides a level of protection for operating and other forms of risk at System banks, but it does not differentiate higher quality from lower quality capital. The other Federal financial regulatory agencies currently supplement their risk-based capital rules with a leverage ratio of Tier 1 capital to total assets (Tier 1 leverage ratio). 56 The Tier 1 leverage ratio consists of only the most reliable and permanent forms of capital such as common stock, non-cumulative perpetual preferred stock, and retained earnings. 54 The net collateral ratio is a bank's net collateral as defined in 12 CFR 615.5301(c) divided by the bank's adjusted total liabilities. 55 *See* 12 CFR 615.5335(a). 56 *See* 12 CFR 3.6(b) and (c); 12 CFR part 208, appendix B and 12 CFR part 225, appendix D; 12 CFR 325.3; and 12 CFR 567.8. *Question 13: We seek comment on whether our capital rules should include a minimum capital leverage ratio requirement for all System institutions. We also seek comment on changes, if any, that should be made to the existing regulatory minimum NCR requirement applicable to System banks that would make it more comparable to the Tier 1 ratio used by the other Federal financial regulatory agencies.* L. Regulatory Capital Directives 57 57 12 CFR part 615, subpart M. We are considering whether we should modify our capital rules to specify potential early intervention criteria for the issuance of capital directives. Currently, FCA has the discretion to issue a capital directive 58 when an institution's capital is insufficient. The FCA, however, has not defined capital or other financial early intervention thresholds to require an institution to take corrective action as described in § 615.5355. Early intervention approaches have been used in other contexts, including the System's Market Access Agreement and the statutory requirements applicable to other regulated financial institutions. 59 An early intervention capital directive framework could provide a clearer indication of when we would impose additional and increasing supervisory oversight on an institution to address continuing deterioration in its financial condition and capital position from credit, interest rate, or other financial risks. 58 A capital directive is defined in § 615.5355(a) as an order issued to an institution that does not have or maintain capital at or greater than the minimum ratios set forth in 12 CFR 615.5205, 615.5330, and 615.5335, or established under subpart L of part 615, or by a written agreement under an enforcement or supervisory action, or as a condition of approval of an application. The FCA's authority is set forth in sections 4.3(b)(2) and 4.3A(e) of the Farm Credit Act (12 U.S.C. 2154(b)(2) and 2154a(e)). 59 *See* 12 U.S.C. 1831o for the prompt corrective action provisions that apply to commercial banks and savings associations. *Question 14: We seek comment on revising our current capital directive regulations to include an early intervention framework. We also seek comment on potential financial thresholds, such as capital ratios or risk measures, that would trigger an FCA capital directive action.* M. Multi-Dimensional Regulatory Structure As stated above, one of FCA's objectives is to implement a revised capital framework that improves the risk sensitivity of our capital rules while avoiding undue regulatory burden. There are currently five banks and 95 associations in the System with varying degrees of asset size, complexity of operations, and sophistication in their risk management practices. Some System institutions have the risk management capabilities to apply more complex, risk-sensitive regulatory capital requirements than other System institutions. It may be appropriate for the FCA to adopt more than one set of capital rules to account for these differences. However, this approach could result in different capital requirements for the same type of transaction and increase examination and oversight costs. As described above, the other Federal financial regulatory agencies are in the process of proposing two sets of capital rules for the financial institutions they regulate. The implementation of the advanced capital framework would be limited, for the most part, to the largest, internationally active banks that meet certain infrastructure requirements. Other banks would implement a simpler capital framework patterned after the standardized approach of Basel II. While our expectation is to implement a revised capital framework similar to the standardized approach of Basel II, we also recognize that some aspects of the advanced approaches may be appropriate for the larger, more complex System institutions. However, we are still reviewing the advanced approaches of Basel II and its potential application to the System. Therefore, we are not seeking comments on specific aspects of the advanced approaches at this time. Rather, we are considering the overall regulatory capital framework for the System in light of the changes occurring in the financial services industry and recent best practices for economic capital modeling. *Question 15: We seek comment on the most appropriate risk-based capital framework for the System and the reasons we should implement one framework over another. Should we consider creating a uniform regulatory capital structure for the System or a multi-dimensional regulatory structure and allow each System institution the option of choosing which capital framework it will apply? How might this new risk-based capital framework increase the costs or regulatory burden to the System? Would the increased costs be justified by improved risk sensitivity, risk management, and more efficient capital allocation?* N. Reporting Requirements and Transition Period 60 60 This section was not in the previous ANPRM. The other Federal financial regulatory agencies have announced that they will be replacing Basel IA with a proposed rule that would provide all non-core banks the option of adopting the standardized approach under Basel II. Their stated intent is to finalize a standardized approach for non-core banks before the core banks begin their first transition period year under the advanced capital framework. Our objective is to minimize, to the extent possible, the time interval between the issuance of their final rule and ours. We also need a transition period to make appropriate modifications to the Call Reporting System to track the new risk-based capital requirements. *Question 16: We seek comment on an appropriate timetable for implementing our new risk-based capital rules. Specifically, what is an appropriate time interval between the issuance of the other Federal financial regulatory agencies' final rule on the standardized approach of Basel II and ours? How long should the transition period be to allow System institutions to adjust to the new risk-based capital rules?* *Question 17: Additionally, we seek comment on any other methods that may be used to increase the risk sensitivity of our risk-based capital rules.* Dated: October 25, 2007. Roland E. Smith, Secretary, Farm Credit Administration Board. [FR Doc. E7-21422 Filed 10-30-07; 8:45 am] BILLING CODE 6705-01-P SMALL BUSINESS ADMINISTRATION 13 CFR Part 121 RIN 3245-AF67 Small Business Size Standards; Fuel Oil Dealers Industries AGENCY: U.S. Small Business Administration. ACTION: Proposed rule. SUMMARY: The U.S. Small Business Administration

(SBA)proposes to change the small business size standard for the Heating Oil Dealers industry (North American Industry Classification System (NAICS) code 454311)) from $11.5 million in average annual receipts to 50 employees, and the size standard for the Liquefied Petroleum Gas (Bottled Gas) Dealers industry (NAICS code 454312) from $6.5 million in average annual receipts to 50 employees. Large and fluctuating increases in the prices of heating oil and propane over the past several years indicate that a more stable measure of firm size based on number of employees rather than receipts is needed for these two industries. DATES: SBA must receive comments to this proposed rule on or before November 30, 2007. ADDRESSES: You may submit comments, identified by RIN 3245-AF67, by one of the following methods:

(1)Federal eRulemaking Portal: *http://www.regulations.gov* . Follow the instructions for submitting comments; or

(2)Mail/Hand Delivery/Courier: Gary M. Jackson, Assistant Director for Size Standards, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416. SBA will post all comments on www.Regulations.gov. If you wish to submit confidential business information

(CBI)as defined in the User Notice at *www.Regulations.gov* , please submit the information to Diane Heal, Office of Size Standards, 409 Third Street, SW., Mail Code 6530, Washington, DC 20416, or send an e-mail to *sizestandards@sba.gov* . Highlight the information that you consider to be CBI and explain why you believe SBA should hold this information as confidential. SBA will review the information and make the final determination of whether it will publish the information or not. FOR FURTHER INFORMATION CONTACT: Diane Heal, Office of Size Standards,

(202)205-6618 or *sizestandards@sba.gov* . SUPPLEMENTARY INFORMATION: Several small businesses, trade associations, and Members of Congress have requested that SBA review the $11.5 million size standard for the Heating Oil Dealers industry and the $6.5 million size standard for the Liquefied Petroleum Gas (Bottled Gas) Dealers (LPG dealers) industry. The requesters contend that SBA should either increase the receipt-based size standards for these industries to account for the impact of large increases in crude oil costs on heating oil and propane prices over the past several years or establish a size standard based on the number of employees of a business concern. They point out that under the existing receipts size standard, a heating oil or LPG dealer currently defined as small may abruptly exceed the size standard due to large and unpredictable increases in crude oil costs, even though it continues to deliver the same quantity of fuel products. The reason is because the cost of such fuel products is included when calculating the firm's receipts for size purposes. In addition to eligibility for SBA programs, small business status for heating oil and LPG dealers also determines the amount of registration fees business concerns and other organizational entities must pay to the U.S. Department of Transportation

(DOT)for transporting hazardous materials (HAZMAT). Small businesses pay a lower HAZMAT fee than other organizations. For the 2006-2007 and 2007-2008 registration periods, small businesses pay $275 per year while all other registrants pay $1,000. Many organizations register for a 3-year period. The requestors are concerned that a large number of small heating oil and LPG dealers that registered in 2004 and 2005 now have average annual receipts exceeding the $11.5 million and $6.5 million size standard for these two industries due solely to significantly higher prices of heating oil and propane since that time and, therefore, will be subject to a substantially higher HAZMAT registration fee. SBA's research of price trends for heating oil and propane verify that significant increases, as well as large fluctuations, in prices have occurred since 2002. The following table (Table 1) shows the residential prices of heating oil and propane as reported by the U.S. Energy Information Agency: Table 1.—Residential Price of Heating Oil and Propane—2002-2007 [Cents per gallon excluding taxes] Year Heating oil Average High Low Difference (high-low) (percent) Propane Average High Low Difference (high-low) (percent) 2002 123.6 140.8 116.0 21.4 115.2 125.5 112.2 11.9 2003 156.6 185.4 134.4 37.9 139.9 172.2 126.8 35.8 2004 180.7 206.0 149.8 34.5 160.7 172.9 142.8 21.1 2005 228.3 269.2 194.6 38.3 184.8 200.6 171.4 17.0 2006 241.6 246.3 237.0 3.9 197.6 201.3 193.3 4.1 2007 (Jan.-Mar.) 242.1 249.6 233.3 7.0 201.0 204.6 198.6 3.0 Source: U.S. Energy Information Administration; *http://tonto.eia.doe.gov/dnav/pet/pet_pnp_wiup_dcu_nus_w.htm* The data in the above table show that heating oil and propane average weekly prices have increased by 95.9 percent and 74.5 percent, respectively, between 2002 and 2007. Furthermore, prices have fluctuated by more than 35 percent in some years. On December 5, 2002, SBA had adjusted its receipts-based size standards by 8.7 percent to reflect the general rate of inflation in the economy since late 2001 (70 FR 72577). However, inflation in the heating oil and LPG industries has been greater than that level, substantiating the reasons for reviewing the existing size standards. Although price data exists to support an adjustment to the existing size standards by a level significantly higher than the general rate of inflation, SBA believes a preferable approach for these industries is to establish an employee-based size standard. The small business status of many business concerns can fluctuate from year to year because of the instability and uncertainty of the cost of crude oil, which affects the retail prices of heating oil and liquid propane gas, and a business concerns receipts. SBA believes that an industry's size standard measure should reflect the magnitude of operations of a business concern. Because of the volatility of heating oil and propane prices, a size standard based upon number of employees better reflects the real level of operations of heating oil and LPG dealers than a receipts-based size standard. SBA proposes to convert the existing heating oil and LPG dealers' receipts-based size standards to an equivalent employee-based size standard. The primary tool used to calculate an equivalent employee size standard associated with a receipts-based size standard is the receipts-to-employee ratio for an industry. Data to calculate these ratios were obtained by the SBA from the U.S. Bureau of the Census in a special tabulation of the 2002 Economic Census (The 2002 Economic Census is available at *http://www.census.gov/econ/census02/* ). For purposes of this calculation, SBA will apply a receipts-to-employee ratio of small businesses at or near the current receipt-based size standard. The following table (Table 2) shows the receipts-to-employee ratios for the heating oil and LPG dealer industries and an employee equivalent size standard using these data. Table 2.—Receipts-to-Employee Ratio Industry Size standard Receipts- employee-ratio Employee equivalent size Standard

(3)÷

(4)Heating Oil $11,500,000 $292,750 39.3 LPG 6,500,000 188,319 35.5 SBA recognizes that this estimate, while precise, does not take into account two factors that may result in a small business currently eligible under the existing average annual receipts size standard losing eligibility under the above calculated employee equivalent size standard. First, receipts-to-employees ratios vary by business concern. For small businesses that have a lower receipts-to-employee ratio than average, a given level of receipts will support a higher number of employees than estimated, and visa versa. For example, the average receipts-to-employee ratio of all small businesses as opposed to the ratio for small businesses near the size standard in the heating oil industry is $225,973 and in the LPG dealers industry is $155,646. Using these ratios instead of those in column 3 of table 2, the employee equivalent size standards become 54.4 and 41.8 employees, respectively. Second, under a 3-year average calculation of annual receipts, the size of an eligible small business in 1 or 2 of the 3-year averaging period may exceed the specific size standard. For example, a business concern with receipts of $3.0 million, $6.7 million and $8.0 million qualifies as small since its 3-year average equals $5.9 million. However, under an employee-based size standard, small business status is determined by the average number of employees over the past 12 months. Consequently, if SBA adopts an employee-based size standard by directly converting the level of a receipt-based size standard to number of employees, a business concern that is eligible under a 3-year average annual receipts may no longer qualify as small based on its average employment for the past 12 months. Assuming, for example, an eligible small business's current size is one-third higher than the current size standard, using the receipts-to-employee ratios in the above table the employee equivalent levels become 52.4 for heating oil dealers ($11,500,000 times 1.334 = $15,341,000 divided by $292,750) and 46 for LPG dealers ($6,500,000 times 1.334 = $8,671,000 divided by $188,319). In converting the heating oil and LPG dealers' size standards to number of employees, SBA seeks to maintain current small business eligibility as it establishes an employee-based size standard. Unfortunately, SBA does not have data at the firm level for receipts-to-employee ratios or on the historical distribution of receipts of individual business concerns by which to estimate a typical current level of receipts for small businesses whose 3-year average is at or below the size standard. In lieu of such data, SBA believes that adopting 50 employees for both industries, as indicated by the above examples, will adequately address those considerations in converting the existing average annual receipts size standards to an appropriate employee-based size standard. In proposing the 50-employee size standard, SBA would establish additional employee size standard level. SBA has established a general 500-employee size standard for the manufacturing sector and 100-employee size standard for the wholesale sector. After analyzing the heating oil and LPG industries, the 500- and 100-employee size standards would significantly increase the size standard for these two relevant industries. Rather than selecting one of the existing established employee levels, SBA believes it is more important to maintain the size status of businesses in these two industries and change only the size measure from revenue to number of employee. As stated earlier, the purpose of this rulemaking is not to increase the size standard, but to change the measure so it is not susceptible to the volatile prices of heating oil and propane. In March 2004, we proposed to convert all receipts-based size standards to number of employees (69 FR 13130, March 19, 2004). For the heating oil and LPG dealers industries, SBA proposed 50 employees and received no adverse comments. However, SBA withdrew the entire rule due to concerns unrelated to the heating oil and LPG dealers industries. SBA encourages comments on whether the proposed 50-employee standard is sufficient to maintain current small business eligibility. Compliance With Executive Orders 12866, 12988, and 13132, the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 601-612) The Office of Management and Budget

(OMB)has determined that this proposed rule is not a significant regulatory action for purposes of Executive Order 12866. In addition, this rule is not a major rule under the Congressional Review Act, 5 U.S.C. 800. For purposes of Executive Order 12988, SBA has determined that this rule is drafted, to the extent practicable, in accordance with the standards set forth in that Order. For purposes of Executive Order 13132, SBA has determined that this rule does not have any federalism implications warranting the preparation of a federalism assessment. For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this rule would not impose new reporting or recordkeeping requirements. Although the measure of size changes from receipts to number of employees, business concerns must maintain records on employees (such as payroll records) in the course of business. Providing information to SBA on the number of employees would occur only as a result of a request for a size determination related to an application for small business assistance. Initial Regulatory Flexibility Analysis Under the Regulatory Flexibility Act, this rule, if finalized, may have a significant impact on a substantial number of small entities in the heating oil and LPG dealers industries. This rule may affect the eligibility of heating and LPG dealers seeking SBA 7(a) Loans, SBA Economic Impact Disaster Loans, DOT HAZMAT Registration Program fees, and assistance from other Federal small business programs. Immediately below, SBA sets forth an initial regulatory flexibility analysis of this proposed rule addressing the following questions:

(1)What is the need for and objective of the rule,

(2)what is SBA's description and estimate of the number of small entities to which the rule will apply,

(3)what is the projected reporting, record keeping, and other compliance requirements of the rule,

(4)what are the relevant Federal rules which may duplicate, overlap or conflict with the rule, and

(5)what alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities? 1. *What is the need for and objective of the rule?* Significant increases and fluctuations in crude oil costs render a receipts-based size standard for the heating oil and LGP dealers industries an unsuitable measure of a dealer's level of business activity. Converting the existing receipts-based size standard to an employee-based size standard provides a more accurate measure of the operations of a heating oil dealer and LPG dealer and ensures a more stable small business designation to dealers of these fuel products. 2. *What is SBA's description and estimate of the number of small entities to which the rule will apply?* Based on data from the SBA's special tabulation of the U.S. Bureau of the Census's 2002 Economic Census, there were 3,729 small heating oil dealers and 2,005 small LPG dealers under the existing size standards. Taking into account historical trends of residential heating oil and propane prices between 2002 and 2007, 349 heating oil dealers and 269 LPG dealers may exceed the existing size standard due solely to higher receipts generated by higher prices. Establishing the proposed employee-based size standard for these two industries will restore the small business eligibility of those dealers. 3. *What are the projected reporting, record keeping, and other compliance requirements of the rule and an estimate of the classes of small entities which will be subject to the requirements?* Establishing an employee-based size standard for heating oil and LPG dealers does not impose any additional reporting, record keeping, or compliance requirements on small entities. Although the measure of size changes from receipts to number of employees, business concerns must maintain records on employees in the course of business. In response to a request for a size determination related to an application for small business assistance, small businesses must provide information on receipts or number of employees. This proposed rule does not create a new requirement to provide size information, only what type of information that is requested in reviewing a business concern's size. 4. *What are the relevant Federal rules which may duplicate, overlap or conflict with the rule?* This proposed rule overlaps with other Federal rules that use SBA's size standards to define a small business. Under Sec. 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA's size standards to define a small business, unless specifically authorized by statute. In 1995, SBA published in the **Federal Register** a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60 FR 57988-57991, dated November 24, 1995). In cases where an SBA size standard is not appropriate, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards with the approval of the SBA Administrator (13 CFR 121.902). For purposes of a regulatory flexibility analysis, agencies must consult with SBA's Office of Advocacy when developing different size standards for their programs (13 CFR 121.902(b)(4)). As discussed in the preamble, the most significant impact of this proposed rule would be on heating oil and LPG dealers that register with the DOT's HAZMAT Registration Program. DOT utilizes SBA's size standard to determine which registrants are eligible for a lower fee charged to small businesses. During the 2006-07 registration period, 2,194 heating oil dealers and 1,482 LPG dealers submitted HAZMAT applications. Of these, 2,111 heating oil and 1,406 LPG dealers qualified as small. 5. *What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?* SBA considered two alternatives to the proposed 50-employee size standard. First, SBA considered revising the existing size standards to account for the above average inflation increases of heating oil and propone price since 2002. As discussed in the preamble, SBA is concerned that with the wide fluctuations of these fuel prices the small business status of many heating oil and LPG dealers may change from year-to-year depending on the prices. An employee size standard is unaffected by inflation and provides stability in the small business status of heating oil and LPG dealers. Second, SBA considered excluding the cost of fuel products in the calculation of receipts size. This approach adds more complexity and uncertainty to the calculation of business size. This approach would also put an undue administrative burden on the small businesses in these industries by requiring them to separate out 3 years of receipts for the costs of fuel products in order to calculate their size status. This is not a common business practice for business concerns in this and similar service industries. SBA believes that receipts size standards should continue to be on a gross receipts concept. Otherwise, SBA and business concerns will encounter more difficulty in determining and validating small status. List of Subjects in 13 CFR Part 121 Administrative practice and procedure, Government procurement, Government property, Grant programs—business, Individuals with disabilities, Loan programs—business, Reporting and recordkeeping requirements, Small businesses. For the reasons set forth in the preamble, SBA proposes to amend 13 CFR part 121 as follows: PART 121—SMALL BUSINESS SIZE REGULATIONS 1. The authority citation for part 121 continues to read as follows: Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644, and 662(5); and Pub. L. 105-135, Sec. 401, *et seq.,* 111 Stat, 2592. 2. In § 121.201, in the table “Small Business Size Standards by NAICS Industry,” under the heading “Sector 44-45—Retail Trade,” “Subsector 454—Nonstore Retailers,” revise the entries for 454311 and 454312 to read as follows: § 121.201 What size standards has SBA identified by North American Industry Classification System codes? Small Business Size Standards by NAICS Industry NAICS codes NAICS U.S. industry title Size standards in millions of dollars Size standards in number of employees * * * * * * * Sector 44-45—Retail Trade * * * * * * * Subsector 454—Nonstore Retailing * * * * * * * 454311 Heating Oil Dealers 50 454312 Liquefied Petroleum Gas (Bottled Gas) Dealers 50 * * * * * * * Dated: October 24, 2007. Steven C. Preston, Administrator. [FR Doc. E7-21401 Filed 10-30-07; 8:45 am] BILLING CODE 8025-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2007-0115; Directorate Identifier 2007-CE-080-AD] RIN 2120-AA64 Airworthiness Directives; REIMS AVIATION S.A. Model F406 Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Notice of proposed rulemaking (NPRM). SUMMARY: We propose to adopt a new airworthiness directive

(AD)for the products listed above. This proposed AD results from mandatory continuing airworthiness information

(MCAI)originated by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as: On several occasions, leaks of the landing gear emergency blowdown bottle have been reported. Investigations revealed that the leakage was located on the nut manometer because of a design deficiency in the bottle head. If left uncorrected, the internal bottle pressure could not be maintained to an adequate level and could result in a malfunction, failing to extend landing gears during emergency situations. The proposed AD would require actions that are intended to address the unsafe condition described in the MCAI. DATES: We must receive comments on this proposed AD by November 30, 2007. ADDRESSES: You may send comments by any of the following methods: • *Federal eRulemaking Portal:* Go to *http://www.regulations.gov* . Follow the instructions for submitting comments. • *Fax:*

(202)493-2251. • *Mail:* U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590. • *Hand Delivery:* U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Examining the AD Docket You may examine the AD docket on the Internet at *http://www.regulations.gov* ; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone

(800)647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. FOR FURTHER INFORMATION CONTACT: Mike Kiesov, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4144; fax:

(816)329-4090. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2007-0115; Directorate Identifier 2007-CE-080-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments. We will post all comments we receive, without change, to *http://www.regulations.gov* , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD. Discussion The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA AD No.: 2007-0190, dated July 12, 2007 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states: On several occasions, leaks of the landing gear emergency blowdown bottle have been reported. Investigations revealed that the leakage was located on the nut manometer because of a design deficiency in the bottle head. If left uncorrected, the internal bottle pressure could not be maintained to an adequate level and could result in a malfunction, failing to extend landing gears during emergency situations. The MCAI requires you to replace the old landing gear emergency blowdown bottle with a newly designed landing gear emergency blowdown bottle. You may obtain further information by examining the MCAI in the AD docket. Relevant Service Information REIMS AVIATION S.A. has issued REIMS AVIATION INDUSTRIES Service Bulletin No.: F406-66, dated May 7, 2007. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI. FAA's Determination and Requirements of the Proposed AD This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with this State of Design Authority, they have notified us of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design. Differences Between This Proposed AD and the MCAI or Service Information We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information. We might also have proposed different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a Note within the proposed AD. Costs of Compliance Based on the service information, we estimate that this proposed AD would affect about 7 products of U.S. registry. We also estimate that it would take about 1 work-hour per product to comply with the basic requirements of this proposed AD. The average labor rate is $80 per work-hour. Required parts would cost about $11,330 per product. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $79,870, or $11,410 per product. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify this proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by adding the following new AD: **REIMS AVIATION S.A.:** Docket No. FAA-2007-0115; Directorate Identifier 2007-CE-080-AD. Comments Due Date

(a)We must receive comments by November 30, 2007. Affected ADs

(b)None. Applicability

(c)This AD applies to F406 airplanes, all serial numbers, that are:

(1)Equipped with landing gear emergency blowdown bottle part number (P/N) 9910154-4; and

(2)Certificated in any category. Subject

(d)Air Transport Association of America

(ATA)Code 32: Landing Gear. Reason

(e)The mandatory continuing airworthiness information

(MCAI)states: On several occasions, leaks of the landing gear emergency blowdown bottle have been reported. Investigations revealed that the leakage was located on the nut manometer because of a design deficiency in the bottle head. If left uncorrected, the internal bottle pressure could not be maintained to an adequate level and could result in a malfunction, failing to extend landing gears during emergency situations. The MCAI requires you to replace the old landing gear emergency blowdown bottle with a newly designed landing gear emergency blowdown bottle. Actions and Compliance

(f)Unless already done, within the next 12 calendar months after the effective date of this AD remove the emergency blowdown bottle P/N 9910154-4 and install the new emergency blowdown bottle P/N 4063700-1 following the accomplishment instructions of the REIMS AVIATION Industries Service Bulletin No.: F406-66, dated May 7, 2007. FAA AD Differences Note: This AD differs from the MCAI and/or service information as follows: No differences. Other FAA AD Provisions

(g)The following provisions also apply to this AD:

(1)*Alternative Methods of Compliance (AMOCs):* The Manager, Standards Office, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Send information to ATTN: Mike Kiesov, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4144; fax:

(816)329-4090. Before using any approved AMOC on any airplane to which the AMOC applies, notify your appropriate principal inspector

(PI)in the FAA Flight Standards District Office (FSDO), or lacking a PI, your local FSDO.

(2)*Airworthy Product:* For any requirement in this AD to obtain corrective actions from a manufacturer or other source, use these actions if they are FAA-approved. Corrective actions are considered FAA-approved if they are approved by the State of Design Authority (or their delegated agent). You are required to assure the product is airworthy before it is returned to service.

(3)*Reporting Requirements:* For any reporting requirement in this AD, under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.), the Office of Management and Budget

(OMB)has approved the information collection requirements and has assigned OMB Control Number 2120-0056. Related Information

(h)Refer to MCAI European Aviation Safety Agency

(EASA)AD No.: 2007-0190, dated July 12, 2007; and REIMS AVIATION INDUSTRIES Service Bulletin No.: F406-66, dated May 7, 2007, for related information. Issued in Kansas City, Missouri, on October 25, 2007. Kim Smith, Manager, Small Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-21400 Filed 10-30-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2007-0116; Directorate Identifier 2007-CE-082-AD] RIN 2120-AA64 Airworthiness Directives; PILATUS AIRCRAFT LTD. Model PC-12, PC-12/45, and PC-12/47 Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Notice of proposed rulemaking (NPRM). SUMMARY: We propose to adopt a new airworthiness directive

(AD)for the products listed above. This proposed AD results from mandatory continuing airworthiness information

(MCAI)originated by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as: It has been found that some of the above mentioned MLG special bolts can be defective. The problem is only applicable to specific bolts with serial numbers that start with the letters AT or have the supplier code AT. Investigations revealed that there is a possibility for hydrogen embrittlement which occurs during the manufacture process. Components in this condition can decrease the specific fatigue life and could lead to MLG collapse during operation with consequent loss of airplane control. The proposed AD would require actions that are intended to address the unsafe condition described in the MCAI. DATES: We must receive comments on this proposed AD by November 30, 2007. ADDRESSES: You may send comments by any of the following methods: • *Federal eRulemaking Portal:* Go to *http://www.regulations.gov* . Follow the instructions for submitting comments. • *Fax:*

(202)493-2251. • *Mail:* U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590. • *Hand Delivery:* U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Examining the AD Docket You may examine the AD docket on the Internet at *http://www.regulations.gov;* or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone

(800)647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. FOR FURTHER INFORMATION CONTACT: Doug Rudolph, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4059; fax:

(816)329-4090. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2007-0116; Directorate Identifier 2007-CE-082-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments. We will post all comments we receive, without change, to *http://www.regulations.gov* , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD. Discussion The Federal Office of Civil Aviation (FOCA), which is the aviation authority for Switzerland, has issued FOCA AD HB-2007-382, dated August 27, 2007 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states: It has been found that some of the above mentioned MLG special bolts can be defective. The problem is only applicable to specific bolts with serial numbers that start with the letters AT or have the supplier code AT. Investigations revealed that there is a possibility for hydrogen embrittlement which occurs during the manufacture process. Components in this condition can decrease the specific fatigue life and could lead to MLG collapse during operation with consequent loss of airplane control. In order to correct the situation, this AD requires the identification of all MLG special bolts to determine if the bolts have serial numbers that start with the letters AT or have the supplier code AT and the replacement of affected special bolts. You may obtain further information by examining the MCAI in the AD docket. Relevant Service Information PILATUS AIRCRAFT LTD. has issued PILATUS AIRCRAFT LTD. PC-12 Service Bulletin No: 32-020, dated July 24, 2007. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI. FAA's Determination and Requirements of the Proposed AD This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with this State of Design Authority, they have notified us of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design. Differences Between This Proposed AD and the MCAI or Service Information We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information. We might also have proposed different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a NOTE within the proposed AD. Costs of Compliance Based on the service information, we estimate that this proposed AD would affect about 480 products of U.S. registry. We also estimate that it would take about .5 work-hour per product to comply with the basic requirements of this proposed AD. The average labor rate is $80 per work-hour. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $19,200, or $40 per product. In addition, we estimate that any necessary follow-on actions would take about 4 work-hours and require parts costing $2,300, for a cost of $2,620 per product. We have no way of determining the number of products that may need these actions. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify this proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by adding the following new AD: **Pilatus Aircraft Limited:** Docket No. FAA-2007-0116; Directorate Identifier 2007-CE-082-AD. Comments Due Date

(a)We must receive comments by November 30, 2007. Affected ADs

(b)None. Applicability

(c)This AD applies to PC-12, PC-12/45, and PC-12/47 airplanes, serial numbers 101 through 749, certificated in any category; with one of more of the following installed:

(1)Main landing gear

(MLG)assemblies delivered before December 31, 2006, with the following part numbers (P/N): 532.10.12.037, 532.10.12.038, 532.10.12.041, 532.10.12.042, 532.10.12.043, 532.10.12.044, 532.10.12.047, 532.10.12.048, 532.10.12.049, 532.10.12.050, 532.10.12.051, or 532.10.12.052;

(2)Special bolts P/N 532.10.12.110, 532.10.12.205, 532.10.12.077, or 532.10.12.202 delivered before December 31, 2006; or

(3)Modification kit numbers 500.50.12.267, 500.50.12.286, or 500.50.12.299 delivered before December 31, 2006. Subject

(d)Air Transport Association of America

(ATA)Code 32: Landing Gear. Reason

(e)The mandatory continuing airworthiness information

(MCAI)states: It has been found that some of the above mentioned MLG special bolts can be defective. The problem is only applicable to specific bolts with serial numbers that start with the letters AT or have the supplier code AT. Investigations revealed that there is a possibility for hydrogen embrittlement which occurs during the manufacture process. Components in this condition can decrease the specific fatigue life and could lead to MLG collapse during operation with consequent loss of airplane control. In order to correct the situation, this AD requires the identification of all MLG special bolts to determine if the bolts have serial numbers that start with the letters AT or have the supplier code AT and the replacement of affected special bolts. Actions and Compliance

(f)Unless already done, do the following actions:

(1)Within the next 100 hours time-in-service

(TIS)after the effective date of this AD or within the next 3 months after the effective date of this AD, whichever occurs first, inspect the special bolts that attach the MLG retraction actuators and the special bolts that attach the shock absorbers to the MLG assemblies to identify the serial numbers that start with the letters AT or have the supplier code AT following PILATUS AIRCRAFT LTD. PC-12 Service Bulletin No: 32-020, dated July 24, 2007.

(2)If during the inspection required in paragraph (f)(1) of this AD any special bolts with the serial number starting with the letters AT or special bolts with the supplier code AT are found, before further flight, replace the specified bolts with new bolts with the new part numbers in all MLG assemblies following PILATUS AIRCRAFT LTD. PC-12 Service Bulletin No: 32-020, dated July 24, 2007.

(3)As of the effective date of this AD, do not install any of the special bolts that have serial numbers that start with the letters AT or have the supplier code AT on Models PC-12, PC-12/45, and PC-12/47 airplanes as indicated in PILATUS AIRCRAFT LTD. PC-12 Service Bulletin No: 32-020, dated July 24, 2007. MLG assemblies, special bolts, and modifications kits, as referenced in paragraphs (c)(1), (c)(2), and (c)(3) of this AD, delivered from PILATUS AIRCRAFT LTD. on or after December 31, 2006, will not incorporate the unsafe condition. FAA AD Differences Note: This AD differs from the MCAI and/or service information as follows: No differences. Other FAA AD Provisions

(g)The following provisions also apply to this AD:

(1)Alternative Methods of Compliance (AMOCs): The Manager, Standards Office, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Send information to ATTN: Doug Rudolph, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4059; fax:

(816)329-4090. Before using any approved AMOC on any airplane to which the AMOC applies, notify your appropriate principal inspector

(PI)in the FAA Flight Standards District Office (FSDO), or lacking a PI, your local FSDO.

(2)Airworthy Product: For any requirement in this AD to obtain corrective actions from a manufacturer or other source, use these actions if they are FAA-approved. Corrective actions are considered FAA-approved if they are approved by the State of Design Authority (or their delegated agent). You are required to assure the product is airworthy before it is returned to service.

(3)Reporting Requirements: For any reporting requirement in this AD, under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.), the Office of Management and Budget

(OMB)has approved the information collection requirements and has assigned OMB Control Number 2120-0056. Related Information

(h)Refer to Federal Office of Civil Aviation

(FOCA)AD HB-2007-382, dated August 27, 2007; and PILATUS AIRCRAFT LTD. PC-12 Service Bulletin No: 32-020, dated July 24, 2007, for related information. Issued in Kansas City, Missouri, on October 24, 2007. Kim Smith, Manager, Small Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-21421 Filed 10-30-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-107592-00; REG-105964-98] RIN 1545-BA11; RIN 1545-AW30 Consolidated Returns; Intercompany Obligations; Correction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Correction to notice of proposed rulemaking and withdrawal of proposed regulations. SUMMARY: This document contains corrections to a notice of proposed rulemaking (REG-107592-00) and withdrawal of proposed regulations (REG-105964-98) that were published in the **Federal Register** on Friday, September 28, 2007 (72 FR 55139) providing guidance regarding the treatment of transactions involving obligations between members of a consolidated group and the treatment of transactions involving the provision of insurance between members of a consolidated group. The regulations will affect corporations filing consolidated returns. FOR FURTHER INFORMATION CONTACT: Frances L. Kelly,

(202)622-7770 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background The correction notice that is the subject of this document is under section 1502 of the Internal Revenue Code. Need for Correction As published, the notice of proposed rulemaking (REG-107592-00) and withdrawal of proposed regulations (REG-105964-98) contain errors that may prove to be misleading and are in need of clarification. Correction of Publication Accordingly, the publication of proposed rulemaking (REG-107592-00) and withdrawal of proposed regulations (REG-105964-98), which were the subjects of FR Doc. E7-19134, is corrected as follows: 1. On page 55142, column 3, in the preamble, under the paragraph heading “E. Material Tax Benefit Rule”, eleventh line of the third paragraph, the language “a material tax benefit that would not” is corrected to read “a material Federal tax benefit that would not”. 2. On page 55143, column 1, in the preamble, under the paragraph heading “F. Off-Market Issuance Rule”, eleventh line of the second paragraph of the column, the language “tax benefit. In such cases, the” is corrected to read “Federal tax benefit. In such cases, the”. 3. On page 55143, column 1, in the preamble, under the paragraph heading “G. Outbound Transactions”, eighth line of the first paragraph, the language “obligation that became intercompany” is corrected to read “obligation that became an intercompany”. 4. On page 55144, column 1, in the preamble, under the paragraph heading “I. Other Request for Comments”, eleventh line of the first full paragraph of the column, the language “and basis (such as the issuance of note” is corrected to read “and basis (such as the issuance of a note”. § 1.1502-13 [Corrected] 5. On page 55146, column 2, § 1.1502-13(g)(2)(v), second line of the paragraph, the language “of a material net reduction in income or” is corrected to read “of, for Federal tax purposes, a material net reduction in income or”. 6. On page 55146, column 3, § 1.1502-13(g)(3)(i)(B), last line of the paragraph, the language “or ( *6* ) of this section apply.” is corrected to read “ or ( *6* ) of this section apply. The exceptions are as follows.”. 7. On page 55147, column 3, § 1.1502-13(g)(4)(iii), last line of the paragraph, the language “market interest rates.” is corrected to read “market interest rates).”. 8. On page 55149, column 2, § 1.1502-13(g)(7)(ii) *Example 2.* (vi), sixth line of the paragraph, the language “as selling all of its assets to X, including the” is corrected to read “as selling all of its assets to new S, including the”. 9. On page 55149, column 2, § 1.1502-13(g)(7)(ii) *Example 2.* (vi), seventeenth line of the paragraph, the language “to X for $70, the amount realized with” is corrected to read “to new S for $70, the amount realized with”. 10. On page 55150, column 3, § 1.1502-13(g)(7)(ii) *Example 6.* (i), sixth line of the paragraph, the language “repayment of $100 at the end of year 5. The” is corrected to read “repayment of $100 at the end of year 20. The”. 11. On page 55151, column 1, § 1.1502-13(g)(7)(ii) *Example 8.* (i), third line of the paragraph, the language “from a separate return limitation year (SRLY).” is corrected to read “from a separate return limitation year that is subject to limitation under § 1.1502-21(c) (a SRLY loss).”. 12. On page 55151, column 2, § 1.1502-13(g)(7)(ii) *Example 9.* (i), third through fourth lines of the paragraph, the language “material loss from a separate return limitation year (SRLY). T's sole shareholder,” is corrected to read “material SRLY loss. T's sole shareholder,”. 13. On page 55151, column 3, § 1.1502-13(g)(7)(ii) *Example 10* .(iii), ninth line of the paragraph, the language “principal amount, and a fair market value of” is corrected to read “principal amount, and fair market value of”. LaNita Van Dyke, Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration). [FR Doc. E7-21464 Filed 10-30-07; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 300 [REG-134923-07] RIN 1545-BG88 User Fees Relating to Enrollment to Perform Actuarial Services AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains proposed regulations relating to user fees for the initial and renewed enrollment to become an enrolled actuary. The charging of user fees is authorized by the Independent Offices Appropriations Act

(IOAA)of 1952. This document also contains a notice of public hearing on these proposed regulations. DATES: Written or electronic comments must be received by November 30, 2007. Outlines of topics to be discussed at the public hearing scheduled for November 26, 2007, at 10 a.m., must be received by November 19, 2007. ADDRESSES: Send comments to: CC:PA:LPD:PR (REG-134923-07), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-134923-07), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC. Alternatively, submissions may be sent electronically via the Federal eRulemaking Portal at *www.regulations.gov* (IRS REG-134923-07). FOR FURTHER INFORMATION CONTACT: Concerning submissions of comments and/or to be placed on the building access list to attend the hearing *Richard A.Hurst@irscounsel.treas.gov* or at

(202)622-7180; concerning cost methodology, Eva J. Williams at

(202)435-5514; concerning the proposed regulations, Joel Rutstein at

(202)622-4940 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background The Employee Retirement Income Security Act of 1974 (Pub. L. 93-406) ordered the Secretary of Labor and the Secretary of Treasury to establish a Joint Board for the Enrollment of Actuaries. 29 U.S.C. 1241. The Joint Board shall, by regulation, establish reasonable standards and qualifications for persons performing actuarial services and the Joint Board shall enroll such individuals who, upon application, satisfy such standards and qualifications. 29 U.S.C. 1242(a). The regulations at 20 CFR Part 901, Subpart B address eligibility for enrollment and renewal of enrollment. Pursuant to the Joint Board's bylaws, the Secretary of the Treasury is to appoint an Executive Director to the Board who has the delegated authority to administer the Board's enrollment program. The Secretary of the Treasury has delegated these functions to the Internal Revenue Service and the costs of these activities are borne by the Service. 20 CFR 901.11(d)(4) provides for a reasonable non-refundable fee for applications for renewal of enrollment. Form 5434-A, “Application for Renewal of Enrollment” presently states that the renewal fee is $25. Proposed 26 CFR 300.7 and 300.8 establish separate $250 user fees for the enrollment and renewal of enrollment process. These fees represent the IRS's costs in administering the program, and the $250 fee for renewal of enrollment will supplant the $25 fee. Authority The IOAA of 1952 (31 U.S.C. 9701) authorizes agencies to prescribe regulations that establish charges for services provided by the agency. The charges must be fair and be based on the costs to the Government, the value of the service to the recipient, the public policy or interest served, and other relevant facts. The IOAA of 1952 provides that regulations implementing user fees are subject to policies prescribed by the President, which are currently set forth in OMB Circular A-25, 58 FR 38142 (July 15, 1993) (the OMB Circular). The OMB Circular encourages user fees for government-provided services that confer benefits on identifiable recipients over and above those benefits received by the general public. Under the OMB Circular, an agency that seeks to impose a user fee for government-provided services must calculate its full cost of providing those services. In general, a user fee should be set at an amount in order for the agency to recover the cost of providing the special service, unless the Office of Management and Budget grants an exception. Pursuant to the guidelines in the OMB Circular, the IRS has calculated its cost of providing services under the enrolled actuaries program. The IRS has determined that the full cost of administering the enrollment and re-enrollment processes is $250 per enrolled actuary per process. The proposed user fees will be implemented under the authority of the IOAA of 1952 and the OMB Circular. Proposed Effective Date These regulations are proposed to apply 30 days after the date of publication in the **Federal Register** of the final regulations. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. This certification is based on the information that follows. These proposed rules affect enrolled actuaries, of which there are currently 4,600 active. The economic impact of these regulations on any small entity would result from a small entity, including a sole proprietor, being required to pay a fee prescribed by these regulations in order to obtain a particular service. The appropriate NAICS codes for enrolled actuaries relate to Insurance—Other (524298) and Administrative and General Management Consulting, Including Financial Consulting (541611). Entities identified under these codes are considered small under the SBA size standards (13 CFR 121.201) if their annual revenue is less than $6.5 million. The IRS estimates that as many as 2,070 enrolled actuaries may be operating as or employed by small entities. Therefore, the IRS has determined that these proposed rules will affect a substantial number of small entities. The dollar amounts of the fees are not, however, substantial enough to have a significant economic impact on any entity subject to the fees. The amounts of the fees are commensurate with, if not less than, the amount charged by professional organizations. Persons who elect to apply for enrollment or renewal of enrollment also receive benefits from obtaining the enrolled actuary designation. 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. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight

(8)copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the substance of the proposed regulations, as well as on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing has been scheduled after date of hearing listed above for November 26, 2007 at 10 a.m. in room 3716. Due to building security procedures, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit electronic or written comments by November 30, 2007 and an outline of the comments to be discussed and the time to be devoted to each topic (signed original and eight

(8)copies) by November 19, 2007. A period of ten

(10)minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. Drafting Information The principal author of these regulations is Joel S. Rutstein of the Office of the Associate Chief Counsel (Procedure & Administration). List of Subjects in 26 CFR Part 300 Reporting and recordkeeping requirements, User fees. Proposed Amendments to the Regulations Accordingly, 26 CFR part 300 is proposed to be amended as follows: PART 300—USER FEES **Paragraph 1.** The authority citation for part 300 continues to read as follows: **Authority:** 31 U.S.C. 9701. **Par. 2.** Section 300.0 is amended as follows: 1. Paragraphs (b)(7) and (b)(8) are added. 2. Paragraph

(c)is revised. The additions and revision read as follows: § 300.0 User fees, in general.

(b)* * *

(7)Enrolling an enrolled actuary.

(8)Renewing the enrollment of an enrolled actuary.

(c)*Effective/applicability date.* This part 300 is applicable March 16, 1995, except that the user fee for processing offers in compromise is applicable November 1, 2003; the user fee for the special enrollment examination, enrollment, and renewal of enrollment for enrolled agents is applicable November 6, 2006; the user fee for entering into installment agreements on or after January 1, 2007, is applicable January 1, 2007; the user fee for restructuring or reinstatement of an installment agreement on or after January 1, 2007, is applicable January 1, 2007; and the user fee for the enrollment and renewal of enrollment for enrolled actuaries is applicable thirty days after the date of publication in the **Federal Register** of the final regulations. **Par. 3.** Section 300.7 is added to read as follows: § 300.7 Enrollment of enrolled actuary fee.

(a)*Applicability.* This section applies to the initial enrollment of enrolled actuaries with the Joint Board for the Enrollment of Actuaries pursuant to 20 CFR part 901.

(b)*Fee.* The fee for initially enrolling as an enrolled actuary with the Joint Board for the Enrollment of Actuaries is $250.00.

(c)*Person liable for the fee.* The person liable for the enrollment fee is the applicant filing for enrollment as an enrolled actuary with the Joint Board for the Enrollment of Actuaries. **Par. 4.** Section 300.8 is added to read as follows: § 300.8 Renewal of enrollment of enrolled actuary fee.

(a)*Applicability.* This section applies to the renewal of enrollment of enrolled actuaries with the Joint Board for the Enrollment of Actuaries pursuant to 20 CFR Part 901.

(b)*Fee.* The fee for renewal of enrollment as an enrolled actuary with the Joint Board for the Enrollment of Actuaries is $250.00.

(c)*Person liable for the fee.* The person liable for the renewal of enrollment fee is the person renewing their enrollment as an enrolled actuary with the Joint Board for the Enrollment of Actuaries. Linda E. Stiff, Deputy Commissioner for Services and Enforcement. [FR Doc. 07-5428 Filed 10-26-07; 4:29 pm]

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