7 CFR Part 1780 — Water and Waste Loans and Grants

PART 1780—WATER AND WASTE LOANS AND GRANTS Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005. Source: 62 FR 33478, June 19, 1997, unless otherwise noted. Subpart A—General Policies and Requirements § 1780.1 General. (a) This part outlines the policies and procedures for making and processing direct loans and grants for water and waste projects. The Rural Utilities Service (RUS) shall cooperate fully with State and local agencies in making loans and grants to assure maximum support to the State strategy for rural development. Agency officials and their staffs shall maintain coordination and liaison with State agency and substate planning districts. (b) The income data used in this part to determine median household income must be that which most accurately reflects the income of the service area. The median household income of the service area and the nonmetropolitan median household income of the State will be determined from income data from 5-year income data from the American Community Survey (ACS) or, if needed, other Census Bureau data. If there is reason to believe that the ACS or other Census Bureau data does not accurately represent the median household income within the area to be served, the reasons will be documented and the applicant may furnish, or RD may obtain, additional information regarding such median household income data. Information must consist of reliable data from local, regional, State or Federal sources or from a survey conducted by a reliable impartial source. The nonmetropolitan median household income of the State may only be updated on a national basis by the RUS National Office. This will be done only when median household income data for the same year for all Bureau of the Census areas is available from the Bureau of the Census or other reliable sources. Bureau of the Census areas would include areas such as: Counties, County Subdivisions, Cities, Towns, Townships, Boroughs, and other places. (c) RUS debt instruments will require an agreement that if at any time it shall appear to the Government that the borrower is able to refinance the amount of the indebtedness to the Government then outstanding, in whole or in part, by obtaining a loan for such purposes from responsible cooperative or private credit sources, at reasonable rates and terms for loans for similar purposes and periods of time, the borrower will, upon request of the Government, apply for and accept such loan in sufficient amount to repay the Government and will take all such actions as may be required in connection with such loan. (d) Funds allocated for use under this part are also for the use of Indian tribes within the State, regardless of whether State development strategies include Indian reservations within the State's boundaries. Native Americans residing on such reservations must have equal opportunity to participate in the benefits of these programs as compared with other residents of the State. Such tribes might not be subject to State and local laws or jurisdiction. However, any requirements of this part that affect applicant eligibility, the adequacy of RUS's security, or the adequacy of service to users of the facility and all other requirements of this part must be met. (e) RUS financial programs must be extended without regard to race, color, religion, sex, national origin, marital status, age, or physical or mental handicap. (f) Any processing or servicing activity conducted pursuant to this part involving authorized assistance to Agency employees, members of their families, known close relatives, or business or close personal associates, is subject to the provisions of subpart D of part 1900 of this title. Applicants for assistance are required to identify any known relationship or association with a RUS employee. (g) Water and waste facilities will be designed, installed, and operated in accordance with applicable laws which include but are not limited to the Safe Drinking Water Act, Clean Water Act and the Resource Conservation and Recovery Act. (h) RUS financed facilities will be consistent with any current development plans of State, multijurisdictional areas, counties, or municipalities in which the proposed project is located. (i) Each RUS financed facility will be in compliance with appropriate State or Federal agency regulations which have control of the appropriation, diversion, storage and use of water and disposal of excess water. (j) Water and waste applicants must demonstrate that they possess the financial, technical, and managerial capability necessary to consistently comply with pertinent Federal and State laws and requirements. In developing water and waste systems, applicants must consider alternatives of ownership, system design, and the sharing of services. (k) Applicants should be aware of and comply with other Federal statute requirements including but not limited to: (1) Section 504 of the Rehabilitation Act of 1973. et seq. (2) Civil Rights Act of 1964. et seq. (3) The Americans with Disabilities Act (ADA) of 1990. et seq. (4) Age Discrimination Act of 1975. et seq. (l) Applicants for grant assistance will be required to comply with the following requirements as applicable: (1) 2 CFR part 200, as adopted by USDA through 2 CFR part 400, ” Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards”. (2) 2 CFR part 415—General Program Administrative Regulations. (3) 2 CFR part 421-Requirements for Drug-Free Workplace (Financial Assistance). (m) Applicants for loan or grant assistance will be required to comply with the following requirements as applicable: (1) 2 CFR part 200, subpart F, “Audit Requirements.” (2) 2 CFR part 180, as adopted by USDA through 2 CFR part 417, Nonprocurement Debarment and Suspension, implementation of Executive Order 12549 and Executive Order 12689 on debarment and suspension. (3) 2 CFR part 418, New Restrictions on Lobbying. [62 FR 33478, June 19, 1997, as amended at 79 FR 76006, Dec. 19, 2014; 80 FR 9863, Feb. 24, 2015; 81 FR 7697, Feb. 16, 2016] § 1780.2 Purpose. Provide loan and grant funds for water and waste projects serving the most financially needy communities. Financial assistance should result in reasonable user costs for rural residents, rural businesses, and other rural users. § 1780.3 Definitions and grammatical rules of construction. (a) Definitions. Agency Agency identified target areas Approval official Equivalent Dwelling Unit (EDU) Parity bonds Poverty line Processing office Project Protective advances Rural and rural areas Rural Development RUS Service area Servicing office Similar system cost Simplified acquisition threshold State program official Statewide nonmetropolitan median household income (b) Rules of grammatical construction. [62 FR 33478, June 19, 1997, as amended at 69 FR 65519, Nov. 15, 2004; 80 FR 9863, Feb. 24, 2015; 81 FR 7697, Feb. 16, 2016; 85 FR 72913, Nov. 16, 2020; 87 FR 38643, June 29, 2022] § 1780.4 Availability of forms and regulations. Information about the availability of forms, instructions, regulations, bulletins, OMB Circulars, Treasury Circulars, standards, documents and publications cited in this part is available from any USDA/Rural Development office or the Rural Utilities Service, United States Department of Agriculture, Washington, DC 20250-1500. § 1780.5 [Reserved] § 1780.6 Application information. (a) The Rural Development State Director in each State will determine the office and staff that will be responsible for delivery of the program (processing office) and designate an approving office. Applications will be accepted by the processing office. (b) The applicant's governing body should designate one person to act as contact person with the Agency during loan and grant processing. Agency personnel should make every effort to involve the applicant's contact person when meeting with the applicant's professional consultants or agents. § 1780.7 Eligibility. Facilities financed by water and waste disposal loans or grants must serve rural areas. (a) Eligible applicant. (1) A public body, such as a municipality, county, district, authority, or other political subdivision of a state, territory or commonwealth; (2) An organization operated on a not-for-profit basis, such as an association, cooperative, or private corporation. The organization must be an association controlled by a local public body or bodies, or have a broadly based ownership by or membership of people of the local community; or (3) Indian tribes on Federal and State reservations and other Federally recognized Indian tribes. (b) Eligible facilities. (c) Eligible projects. (2) Projects must be designed and constructed so that adequate capacity will or can be made available to serve the present population of the area to the extent feasible and to serve the reasonably foreseeable growth needs of the area to the extent practicable. (3) Projects must be necessary for orderly community development and consistent with a current comprehensive community water, waste disposal, or other current development plan for the rural area. (d) Credit elsewhere. (e) Legal authority and responsibility. (f) Economic feasibility. (g) Federal Debt Collection Act of 1990 (28 U.S.C. 3001 et seq.). [62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999] § 1780.8 [Reserved] § 1780.9 Eligible loan and grant purposes. Loan and grant funds may be used only for the following purposes: (a) To construct, enlarge, extend, or otherwise improve rural water, sanitary sewage, solid waste disposal, and storm wastewater disposal facilities. (b) To construct or relocate public buildings, roads, bridges, fences, or utilities, and to make other public improvements necessary for the successful operation or protection of facilities authorized in paragraph (a) of this section. (c) To relocate private buildings, roads, bridges, fences, or utilities, and other private improvements necessary for the successful operation or protection of facilities authorized in paragraph (a) of this section. (d) For payment of other utility connection charges as provided in service contracts between utility systems. (e) When a necessary part of the project relates to those facilities authorized in paragraphs (a), (b), (c) or (d) of this section the following may be considered: (1) Loan or grant funds may be used for: (i) Reasonable fees and costs such as: legal, engineering, administrative services, fiscal advisory, recording, environmental analyses and surveys, possible salvage or other mitigation measures, planning, establishing or acquiring rights; (ii) Costs of acquiring interest in land; rights, such as water rights, leases, permits, rights-of-way; and other evidence of land or water control or protection necessary for development of the facility; (iii) Purchasing or renting equipment necessary to install, operate, maintain, extend, or protect facilities; (iv) Cost of additional applicant labor and other expenses necessary to install and extend service; and (v) In unusual cases, the cost for connecting the user to the main service line. (2) Only loan funds may be used for: (i) Interest incurred during construction in conjunction with multiple advances or interest on interim financing; (ii) Initial operating expenses, including interest, for a period ordinarily not exceeding one year when the applicant is unable to pay such expenses; (iii) The purchase of existing facilities when it is necessary either to improve service or prevent the loss of service; (iv) Refinancing debts incurred by, or on behalf of, an applicant when all of the following conditions exist: (A) The debts being refinanced are a secondary part of the total loan; (B) The debts were incurred for the facility or service being financed or any part thereof; and (C) Arrangements cannot be made with the creditors to extend or modify the terms of the debts so that a sound basis will exist for making a loan; and (v) Prepayment of costs for which RUS grant funds were obligated. (3) Grant funds may be used to restore loan funds used to prepay grant obligated costs. (f) Construction incurred before loan or grant approval. (1) Funds may be used to pay obligations for eligible project costs incurred before loan or grant approval if such requests are made in writing by the applicant and the Agency determines that: (i) Compelling reasons exist for incurring obligations before loan or grant approval; (ii) The obligations will be incurred for authorized loan or grant purposes; and (iii) The Agency's authorization to pay such obligations is on the condition that it is not committed to make the loan or grant; it assumes no responsibility for any obligations incurred by the applicant; and the applicant must subsequently meet all loan or grant approval requirements, including environmental and contracting requirements. (2) If construction is started without Agency approval, post-approval in accordance with this section may be considered, provided the construction meets applicable requirements including those regarding approval and environmental matters. (g) Water or sewer service may be provided through individual installations or small clusters of users within an applicant's service area. The approval official should consider items such as: quantity and quality of the individual installations that may be developed; cost effectiveness of the individual facility compared with the initial and long term user cost on a central system; health and pollution problems attributable to individual facilities; operational or management problems peculiar to individual installations; and permit and regulatory agency requirements. (1) Applicants providing service through individual facilities must meet the eligibility requirements in § 1780.7. (2) The Agency must approve the form of agreement between the applicant and individual users for the installation, operation, maintenance and payment for individual facilities. (3) If taxes or assessments are not pledged as security, applicants providing service through individual facilities must obtain security necessary to assure collection of any sum the individual user is obligated to pay the applicant. (4) Notes representing indebtedness owed the applicant by a user for an individual facility will be scheduled for payment over a period not to exceed the useful life of the individual facility or the RUS loan, whichever is shorter. The interest rate will not exceed the interest rate charged the applicant on the RUS indebtedness. (5) Applicants providing service through individual or cluster facilities must obtain: (i) Easements for the installation and ingress to and egress from the facility if determined necessary by RUS; and (ii) An adequate method for denying service in the event of nonpayment of user fees. (h) A borrower is permitted to use up to 10 percent of the amount provided under this part to construct, improve, or acquire broadband infrastructure related to the project financed, subject to the requirements of 7 CFR part 1980, subpart M. [62 FR 33478, June 19, 1997, as amended at 85 FR 57081, Sept. 15, 2020] § 1780.10 Limitations. (a) Loan and grant funds may not be used to finance: (1) Facilities which are not modest in size, design, and cost; (2) Loan or grant finder's fees; (3) The construction of any new combined storm and sanitary sewer facilities; (4) Any portion of the cost of a facility which does not serve a rural area; (5) That portion of project costs normally provided by a business or industrial user, such as wastewater pretreatment, etc.; (6) Rental for the use of equipment or machinery owned by the applicant; (7) For other purposes not directly related to operating and maintenance of the facility being installed or improved; and (8) A judgment which would disqualify an applicant for a loan or grant as provided for in § 1780.7(g). (b) Grant funds may not be used to: (1) Reduce EDU costs to a level less than similar system cost; (2) Pay any costs of a project when the median household income of the service area is more than 100 percent of the nonmetropolitan median household income of the State; (3) Pay project costs when other loan funding for the project is not at reasonable rates and terms; and (4) Pay project costs when other funding is a guaranteed loan obtained in accordance with 7 CFR part 1779 of this title. (c) Grants may not be made in excess of the following percentages of the RUS eligible project development costs. Facilities previously installed will not be considered in determining the development costs. (1) 75 percent when the median household income of the service area is below the higher of the poverty line or 80% of the state nonmetropolitan median income and the project is necessary to alleviate a health or sanitary problem. (2) 45 percent when the median household income of the service area exceeds the 80 percent requirements described in paragraph (c)(1) of this section but is not more than 100 percent of the statewide nonmetropolitan median household income. (3) Applicants are advised that the percentages contained in paragraphs (c)(1) and (c)(2) of this section are maximum amounts and may be further limited due to availability of funds or the grant determination procedures contained in § 1780.35 (b). [62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999; 66 FR 23151, May 8, 2001] § 1780.11 Service area requirements. (a) All facilities financed under the provisions of this part shall be for public use. The facilities will be installed so as to serve any potential user within the service area who desires service and can be feasibly and legally served. This does not preclude: (1) Financing or constructing projects in phases when it is not practical to finance or construct the entire project at one time; and (2) Financing or constructing facilities where it is not economically feasible to serve the entire area, provided economic feasibility is determined on the basis of the entire system and not by considering the cost of separate extensions to or parts thereof; the applicant publicly announces a plan for extending service to areas not initially receiving service from the system; and potential users located in the areas not to be initially served receive written notice from the applicant that service will not be provided until such time as it is economically feasible to do so. (b) Should the Agency determine that inequities exist within the applicants service area for the same type service proposed (i.e., water or waste disposal) such inequities will be remedied by the applicant prior to loan or grant approval or included as part of the project. Inequities are defined as unjustified variations in availability, adequacy or quality of service. User rate schedules for portions of existing systems that were developed under different financing, rates, terms or conditions do not necessarily constitute inequities. (c) Developers are normally expected to provide utility-type facilities in new or developing areas in compliance with appropriate State statutes. RUS financing will be considered to an eligible applicant only in such cases when failure to complete development would result in an adverse economic condition for the rural area (not the community being developed); the proposal is necessary to the success of a current area development plan; and loan repayment can be assured by: (1) The applicant already having sufficient assured revenues to repay the loan; or (2) Developers providing a bond or escrowed security deposit as a guarantee sufficient to meet expenses attributable to the area in question until a sufficient number of the building sites are occupied and connected to the facility to provide enough revenues to meet operating, maintenance, debt service, and reserve requirements. Such guarantees from developers will meet the requirements in § 1780.39(c)(4)(ii); or (3) Developers paying cash for the increased capital cost and any increased operating expenses until the developing area will support the increased costs; or (4) The full faith and credit of a public body where the debt is evidenced by general obligation bonds; or (5) The loan is to a public body evidenced by a pledge of tax revenue or assessments; or (6) The user charges can become a lien upon the property being served and income from such lien can be collected in sufficient time to be used for its intended purposes. § 1780.12 [Reserved] § 1780.13 Rates and terms. (a) General. (2) If the interest rate is to be that in effect at loan closing on a loan involving multiple advances of RUS funds using temporary debt instruments, the interest rate charged shall be that in effect on the date when the first temporary debt instrument is issued. (3) For a loan for a specific project that has been approved, but not closed on or before May 22, 2008, the rate structure in effect at that time will determine the interest rates. For loans approved on or after May 23, 2008, a percentage of the market rate will be used to determine the poverty and intermediate interest rates. (b) Poverty rate. (1) The primary purpose of the loan is to upgrade existing facilities or construct new facilities required to meet applicable health or sanitary standards; and (2) The median household income of the service area is below the higher of the poverty line, or 80 percent of the Statewide nonmetropolitan median household income. (c) Intermediate rate. (d) Market rate. (e) Repayment terms. (1) Principal payments may be deferred in whole or in part for a period not to exceed 36 months following the date the first interest installment is due. If for any reason it appears necessary to permit a longer period of deferment, the Agency may authorize such deferment. Deferments of principal will not be used to: (i) Postpone the levying of taxes or assessments; (ii) Delay collection of the full rates which the borrower has agreed to charge users for its services as soon as those services become available; (iii) Create reserves for normal operation and maintenance; (iv) Make any capital improvements except those approved by the Agency which are determined to be essential to the repayment of the loan or to maintain adequate security; and (v) Make payment on other debt. (2) Payment date. (3) In all cases, including those in which RUS is jointly financing with another lender, the RUS payments of principal and interest should approximate amortized installments. [62 FR 33478, June 19, 1997, as amended at 74 FR 395, Jan. 6, 2009; 82 FR 43671, Sept. 19, 2017] § 1780.14 Security. Loans will be secured by the best security position practicable in a manner which will adequately protect the interest of RUS during the repayment period of the loan. Specific security requirements for each loan will be included in a letter of conditions. (a) Public bodies. (1) The full faith and credit of the borrower when the debt is evidenced by general obligation bonds; and/or (2) Pledges of taxes or assessments; and/or (3) Pledges of facility revenue and, when it is the customary financial practice in the State, liens will be taken on the interest of the applicant in all land, easements, rights-of-way, water rights, water purchase contracts, water sales contracts, sewage treatment contracts, and similar property rights, including leasehold interests, used or to be used in connection with the facility whether owned at the time the loan is approved or acquired with loan funds. (b) Other-than-public bodies. (1) Assignments of borrower income will be taken and perfected by filing, if legally permissible; and (2) A lien will be taken on the interest of the applicant in all land, easements, rights-of-way, water rights, water purchase contracts, water sales contracts, sewage treatment contracts and similar property rights, including leasehold interest, used, or to be used in connection with the facility whether owned at the time the loan is approved or acquired with loan funds. In unusual circumstances where it is not legally permissible or feasible to obtain a lien on such land (such as land rights obtained from Federal or local government agencies, and from railroads) and the approval official determines that the interest of RUS is otherwise adequately secured, the lien requirement may be omitted as to such land rights. For existing borrowers where the Agency already has a security position on real property, the approval official may determine that the interest of the Government is adequately secured and not require additional liens on such land rights. When the subsequent loan is approved or the acquisition of real property is subject to an outstanding lien indebtedness, the next highest priority lien obtainable will be taken if the approval official determines that the loan is adequately secured. (c) Joint financing security. (1) It is not necessary for loans to have the same repayment terms. Loans made by other lenders involved in joint financing with RUS should be scheduled for repayment on terms similar to those customarily used in the State for financing such facilities. (2) The use of a trustee or other similar paying agent by the other lender in a joint financing arrangement is acceptable to RUS. A trustee or other similar paying agent will not normally be used for the RUS portion of the funding unless required to comply with State law. The responsibilities and authorities of any trustee or other similar paying agent on projects that include RUS funds must be clearly specified by written agreement and approved by the State program official and the Office of the General Counsel (OGC). RUS must be able to deal directly with the borrower to enforce the provisions of loan and grant agreements and perform necessary servicing actions. (3) In the event adequate funds are not available to meet regular installments on parity loans, the funds available will be apportioned to the lenders based on the respective current installments of principal and interest due. (4) Funds obtained from the sale or liquidation of secured property or fixed assets will be apportioned to the lenders on the basis of the pro rata amount outstanding; provided, however, funds obtained from such sale or liquidation for a project that included RUS grant funds will be apportioned as required by the grant agreement. (5) Protective advances must be charged to the borrower's account and be secured by a lien on the security property. To the extent consistent with State law and customary lending practices in the area, repayment of protective advances made by either lender, for the mutual protection of both lenders, should receive first priority in apportionment of funds between the lenders. To ensure agreement between lenders, efforts should be made to obtain the concurrence of both lenders before one lender makes a protective advance. § 1780.15 Other Federal, State, and local requirements. Proposals for facilities financed in whole or in part with RUS funds will be coordinated with appropriate Federal, State and local agencies. If there are conflicts between this part and State or local laws or regulatory commission regulations, the provisions of this part will control. Applicants will be required to comply with Federal, State, and local laws and any regulatory commission rules and regulations pertaining to: (a) Organization of the applicant and its authority to own, construct, operate, and maintain the proposed facilities; (b) Borrowing money, giving security therefore, and raising revenues for the repayment thereof; (c) Land use zoning; and (d) Health and sanitation standards and design and installation standards unless an exception is granted by RUS. § 1780.16 [Reserved] § 1780.17 Selection priorities and process. When ranking eligible applications for consideration for limited funds, Agency officials must consider the priority items met by each application and the degree to which those priorities are met. Points will be awarded as follows: (a) Population priorities. (2) The proposed project primarily serves a rural area having a population between 1,001 and 2,500—15 points; (3) The proposed project primarily serves a rural area having a population between 2,501 and 5,500—5 points. (b) Health priorities. (1) Needed to alleviate an emergency situation, correct unanticipated diminution or deterioration of a water supply, or to meet Safe Drinking Water Act requirements which pertain to a water system—25 points; (2) Required to correct inadequacies of a wastewater disposal system, or to meet health standards which pertain to a wastewater disposal system—25 points; (3) Required to meet administrative orders issued to correct local, State, or Federal solid waste violations—15 points. (c) Median household income priorities. (1) Less than the poverty line if the poverty line is less than 80% of the statewide nonmetropolitan median household income—30 points; (2) Less than 80 percent of the statewide nonmetropolitan median household income—20 points; (3) Equal to or more than the poverty line and between 80% and 100%, inclusive, of the State's nonmetropolitan median household income—15 points. (d) Other priorities. (2) The proposed project will enlarge, extend, or otherwise modify existing facilities to provide service to additional rural areas—10 points; (3) Applicant is a public body or Indian tribe—5 points; (4) Amount of other than RUS funds committed to the project is: (i) 50% or more—15 points; (ii) 20% to 49%—10 points; (iii) 5%—19%—5 points; (5) Projects that will serve Agency identified target areas—10 points; (6) Projects that primarily recycle solid waste products thereby limiting the need for solid waste disposal—5 points; (7) The proposed project will serve an area that has an unreliable quality or supply of drinking water—10 points. (e) In certain cases the State program official may assign up to 15 points to a project. The points may be awarded to projects in order to improve compatibility and coordination between RUS's and other agencies' selection systems, to ensure effective RUS fund utilization, and to assist those projects that are the most cost effective. A written justification must be prepared and placed in the project file each time these points are assigned. (f) Cost overruns. (g) National office priorities. § 1780.18 Allocation of program funds. (a) General. (2) The formulas in this part are used to allocate program loan and grant funds to Rural Development State offices so that the overall mission of the Agency can be carried out. Considerations used when developing the formulas include enabling legislation, congressional direction, and administration policies. Allocation formulas ensure that program resources are available on an equal basis to all eligible individuals and organizations. (3) The actual amounts of funds, as computed by the methodology and formulas contained herein, allocated to a State for a funding period, are distributed to each State office. The allocated amounts are available for review in any Rural Development State office. (b) Definitions Amount available for allocations. (2) Basic formula criteria, data source and weight. (3) Basic formula allocation. BFA = (Amount available for allocation − NO reserve − total base and administrative allocations) × SF. (4) Transition formula. (ii) If the current year's State BFA is not within the transition range in paragraph (b)(4)(i) of this section, the State formula allocation is changed to the amount of the transition range limit closest to the BFA amount. After having performed this transition adjustment for each State, the sum of the funds allocated to all States will differ from the amount of funds available for BFA. This difference, whether a positive or negative amount, is distributed to all States receiving a formula allocation by multiplying the difference by the SF. The end result is the transition formula allocation. The transition range will not exceed 40% (plus or minus 20%), but when a smaller range is used it will be stated in the individual program section. (5) Base allocation. (6) Administrative allocations. (7) Reserve. (8) Pooling of funds. (i) Mid-year: Mid-year pooling occurs near the midpoint of the fiscal year. (ii) Year-end: Year-end pooling usually occurs near the first of August. (iii) Emergency: The Administrator may pool funds at any time that it is determined the conditions upon the initial allocation was based have changed to such a degree that it is necessary to pool funds in order to efficiently carry out the Agency mission. (9) Availability of the allocation. (10) Suballocation by the Rural Development State Director. (c) Water and waste disposal loans and grants Amount available for allocations. (2) Basic formula criteria, data source and weight. (i) The criteria used in the basic formula are: (A) State's percentage of national rural population will be 50 percent. (B) State's percentage of national rural population with income below the poverty level will be 25 percent. (C) State's percentage of national nonmetropolitan unemployment will be 25 percent. (ii) The data sources for each criterion identified in paragraph (c)(2) of this section are specified in paragraphs (c)(2)(ii)(A) through (C) of this section. Each criterion is assigned a specific weight according to its relevance in determining need. The percentage representing each criterion is multiplied by the weight factor and summed to arrive at a State factor (SF). The SF cannot exceed 0.05, as follows: SF = (criterion in paragraph (b)(2)(i)(A) of this section × 50 percent) + (criterion in paragraph (b)(2)(i)(B) × 25 percent) + (criterion in paragraph (b)(2)(i)(C) of this section × 25 percent) (A) For the criterion specified in paragraph (b)(2)(i)(A) of this section, the most recent decennial Census data. (B) For the criterion specified in paragraph (b)(2)(i)(B) of this section, 5-year income data from the American Community Survey (ACS). (C) For the criterion specified in paragraph (b)(2)(i)(C) of this section, the 5-year data from the ACS. (3) Basic formula allocation. (4) Transition formula. (5) Base allocation. (6) Administrative allocation. (7) Reserve. (8) Pooling of funds. (9) Availability of the allocation. (10) Suballocation by the State Director. [62 FR 33478, June 19, 1997, as amended at 80 FR 9863, Feb. 24, 2015; 89 FR 34961, May 1, 2024] § 1780.19 Public information. (a) Public notice of intent to file an application with the Agency. (b) General public meeting. §§ 1780.20-1780.23 [Reserved] § 1780.24 Approval authorities. Appropriate reviews, concurrence, and authorization must be obtained for all loans or grants in excess of the amounts indicated in RUS Staff Instruction 1780-1. (a) Redelegation of authority by State Directors. (b) Restriction of approval authority by the RUS Administrator. § 1780.25 Exception authority. The Administrator may, in individual cases, make an exception to any requirement or provision of this part which is not inconsistent with the authorizing statute or other applicable law and is determined to be in the Government's interest. §§ 1780.26-1780.30 [Reserved] Subpart B—Loan and Grant Application Processing § 1780.31 General. (a) Applicants are encouraged to contact the Agency processing office early in the planning stages of their project. Agency personnel are available to provide general advice and assistance regarding RUS programs, other funding sources, and types of systems or improvements appropriate for the applicants needs. The Agency can also provide access to technical assistance and other information resources for other project development issues such as public information, income surveys, developing rate schedules, system operation and maintenance, and environmental compliance requirements. Throughout the planning, application processing and construction of the project, Agency personnel will work closely and cooperatively with the applicant and their representatives, other State and Federal agencies and technical assistance providers. (b) The processing office will handle initial inquiries and provide basic information about the program. They are to provide the application, SF 424.2, “Application for Federal Assistance (For Construction),” assist applicants as needed in completing SF 424.2, and in filing a request for intergovernmental review. Federally recognized Indian tribes are exempt from intergovernmental review. The processing office will explain eligibility requirements and meet with the applicant whenever necessary to discuss application processing. (c) Applicants can make a written request for an eligibility determination in lieu of filing an SF 424.2 along with the information required by § 1780.33. Applicants seeking only an eligibility determination, should contact the processing office to obtain a list of the items needed to make this determination. An eligibility determination for loan or grant assistance will not give an applicant priority for funding as set forth in § 1780.17. (d) Applications that are not developed in a reasonable period of time taking into account the size and complexity of the proposed project may be removed from the State's active file. Applicants will be consulted prior to taking such action. (e) During the earliest discussion with prospective applicants, the Agency will advise prospective applicants on environmental review requirements and evaluation of potential environmental impacts of the proposal. In accordance with 7 CFR part 1970, environmental review requirements shall be performed by the applicant simultaneously and concurrently with the proposal's engineering planning and design. [62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 81 FR 11028, Mar. 2, 2016] § 1780.32 Timeframes for application processing. (a) The processing office will determine if the application is properly assembled. If not, the applicant will be notified within fifteen federal working days as to what additional submittal items are needed. (b) The processing and approval offices will coordinate their reviews to ensure that the applicant is advised about eligibility and anticipated fund availability within 45 days of the receipt of a completed application. § 1780.33 Application requirements. An initial application consists of the following: (a) One copy of a completed SF 424.2; (b) A copy of the State intergovernmental comments or one copy of the filed application for State intergovernmental review; and (c) Two copies of the preliminary engineering report (PER) for the project. (1) The PER may be submitted to the processing office prior to the rest of the application material if the applicant desires a preliminary review. (2) The processing office will forward one copy of the PER with comments and recommendations to the State staff engineer for review upon receipt from the applicant. (3) The State staff engineer will consult with the applicant's engineer as appropriate to resolve any questions concerning the PER. Written comments will be provided by the State staff engineer to the processing office to meet eligibility determination time lines. (d) Written certification that other credit is not available. (e) Supporting documentation necessary to make an eligibility determination such as financial statements, audits, organizational documents, or existing debt instruments. The processing office will advise applicants regarding the required documents. Applicants that are indebted to RUS will not need to submit documents already on file with the processing office. (f) Environmental review requirements. (1) Upon receipt of the Environmental Report, the processing office shall forward one copy of the report with comments and recommendation to the State Environmental Coordinator for review. (2) The State Environmental Coordinator will consult with the applicant as appropriate to resolve any environmental concerns. Written comments will be provided by the State Environmental Coordinator to the processing office to meet eligibility determination time lines. (g) The applicant's Internal Revenue Service Taxpayer Identification Number (TIN). The TIN will be used by the Agency to assign a case number which will be the applicant's or transferee's TIN preceded by State and County Code numbers. Only one case number will be assigned to each applicant regardless of the number of loans or grants or number of separate facilities, unless an exception is authorized by the National Office. (h) Other Forms and certifications. Applicants will be required to submit the following items to the processing office, upon notification from the processing office to proceed with further development of the full application: (1) Form RD 442-7, “Operating Budget”; (2) Form RD 1910-11, “Application Certification, Federal Collection Policies for Consumer or Commercial Debts”; (3) Form RD 400-1, “Equal Opportunity Agreement”; (4) Form RD 400-4, “Assurance Agreement”; (5) Form AD-1047, “Certification Regarding Debarment, Suspension and other Responsibility Matters”; (6) Form AD-1049, Certification regarding Drug-Free Workplace Requirements (Grants) Alternative I For Grantees Other Than Individuals; (7) Certifications for Contracts, Grants, and Loans (Regarding Lobbying); and (8) Certification regarding prohibited tying arrangements. Applicants that provide electric service must provide the Agency a certification that they will not require users of a water or waste facility financed under this part to accept electric service as a condition of receiving assistance. [62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 81 FR 11028, Mar. 2, 2016] § 1780.34 Strategic economic and community development. Applicants with projects that support the implementation of Strategic Community Investment Plans are encouraged to review and consider 7 CFR part 1980, subpart K, which contains provisions for providing priority to projects that support the implementation of Strategic Community Investment Plans on a multi-jurisdictional and multi-sectoral basis. [85 FR 59393, Sept. 22, 2020] § 1780.35 Processing office review. Review of the application will usually include the following: (a) Nondiscrimination. (b) Grant determination. (1) Maximum grant. (2) Debt service. (i) 0.5 percent when the median household income of the service area is equal to or below 80% of the statewide nonmetropolitan median income. (ii) 1.0 percent when the median household income of the service area exceeds the 0.5 percent requirement but is not more than 100 percent the statewide nonmetropolitan household income. (3) Similar system cost. (4) Wholesale service. (5) Subsidized cost. (c) User charges. [62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999] § 1780.36 Approving official review. Projects may be obligated as their applications are completed and approved. (a) Selection of applications for further processing. (1) Funds available in State allocation; (2) Anticipated allocation of funds for the next fiscal year; and (3) Time necessary for applicant to complete the application. (b) Lower scoring projects. (2) If it is found that there is no effective way to reduce costs or no other funding sources, the approval official, after consultation with applicant, may submit a request for an additional allocation of funds for the proposed project to the National Office. The request should be submitted during the fiscal year in which obligation is anticipated. Such request will be considered along with all others on hand. A written justification must be prepared and placed in the project file. § 1780.37 Applications determined ineligible. If at any time an application is determined ineligible, the processing office will notify the applicant in writing of the reasons. The notification to the applicant will state that an appeal of this decision may be made by the applicant under 7 CFR part 11. § 1780.38 [Reserved] § 1780.39 Application processing. (a) Processing conference. (b) Professional services and contracts related to the facility. (1) Engineering and architectural services. (ii) When project design services are procured separately, the selection of the engineer or architect shall be done by requesting qualification-based proposals and in accordance with this section. (iii) Applicants may procure engineering and architectural services in accordance with applicable State statutes or local requirements provided the State Director determines that such procurement meets the intent of this section. (2) Other professional services. (3) Bond counsel. (4) Contracts for other services. (c) User estimates. (1) An estimated number of maximum users should not be used when setting user fees and rates since it may be several years before all residents will need service by the system. In establishing rates a realistic number of users should be employed. (2) New user cash contributions. (i) The Agency determines that the potential users as a whole in the applicant's service area cannot make cash contributions; or (ii) State statutes or local ordinances require mandatory use of the system and the applicant or legal entity having such authority agrees in writing to enforce such statutes, or ordinances. (3) An enforceable user agreement with a penalty clause is required (RUS Bulletin 1780-9 can be used) except: (i) For users presently receiving service; or (ii) Where mandatory use of the system is required. (4) Individual vacant property owners will not be considered when determining project feasibility unless: (i) The owner has plans to develop the property in a reasonable period of time and become a user of the facility; and (ii) The owner agrees in writing to make a monthly payment at least equal to the proportionate share of debt service attributable to the vacant property until the property is developed and the facility is utilized on a regular basis. A bond or escrowed security deposit must be provided to guarantee this monthly payment and to guarantee an amount at least equal to the owner's proportionate share of construction costs. If a bond is provided, it must be executed by a surety company that appears on the Treasury Department's most current list (Circular 570, as amended) and be authorized to transact business in the State where the project is located. The guarantee shall be payable jointly to the borrower and the United States of America. (5) Applicants must provide a positive program to encourage connection by all users as soon as service is available. The program will be available for review and concurrence by the processing office before loan closing or commencement of construction, whichever occurs first. Such a program shall include: (i) An aggressive information program to be carried out during the construction period. The applicant should send written notification to all signed users in advance of the date service will be available, stating the date users will be expected to have their connections completed, and the date user charges will begin; (ii) Positive steps to assure that installation services will be available. These may be provided by the contractor installing the system, local plumbing companies, or local contractors; (iii) Aggressive action to see that all signed users can finance their connections. (d) Interim financing. (e) Reserve requirements. (1) General obligation or special assessment bonds. (2) Other than general obligation or special assessment bonds. (f) Membership authorization. (1) The organization is well established and is operating with a sound financial base; or (2) The members of the organization have all signed an enforceable user agreement with a penalty clause and have made the required meaningful user cash contribution. (g) Insurance. (1) Insurance requirements proposed by the applicant will be accepted if the processing office determines that proposed coverage is adequate to protect the government's financial interest. Applicants are encouraged to have their attorney, consulting engineer, and/or insurance provider(s) review proposed types and amounts of coverage, including any deductible provisions. (2) The use of deductibles may be allowed by RUS providing the applicant has financial resources which would likely be adequate to cover potential claims requiring payment of the deductible. (3) Fidelity or employee dishonesty bonds. (4) Property insurance. (i) Reservoirs, pipelines and other structures if such structures are not normally insured; (ii) Subsurface lift stations except for the value of electrical and pumping equipment therein. (5) General liability insurance, including vehicular coverage. (6) Flood insurance required for facilities located in special flood-and mudslide-prone areas. (7) Worker's compensation. (h) [Reserved] (i) The processing office will assure that appropriate forms and documents listed in RUS Bulletin 1780-6 are complete. Letters of conditions will not be issued unless funds are available. [62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 64 FR 29946, June 4, 1999] § 1780.40 [Reserved] § 1780.41 Loan or grant approval. (a) The processing office will submit the following to the approval official: (1) Form RD 1942-45, “Project Summary”; (2) Form RD 442-7, “Operating Budget”; (3) Form RD 442-3, “Balance Sheet” or a financial statement or audit that includes a balance sheet; (4) Form RD 442-14, “Association Project Fund Analysis”; (5) “Letter of Conditions”; (6) Form RD 1942-46, “Letter of Intent to Meet Conditions”; (7) Form RD 1940-1, “Request for Obligation of Funds”; (8) Completed environmental review documents including copies of public notices and appropriate proof of publication, if applicable; and (9) Grant determination, if applicable. (b) Approval and applicant notification will be accomplished by mailing to the applicant on the obligation date a copy of Form RD 1940-1. The date the applicant is notified is also the date the interest rate at loan approval is established. [62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998] § 1780.42 Transfer of obligations. An obligation of funds established for an applicant may be transferred to a different (substituted) applicant provided: (a) The substituted applicant is eligible and has the authority to receive the assistance approved for the original applicant; and (b) The need, purpose(s) and scope of the project for which RUS funds will be used remain substantially unchanged. § 1780.43 [Reserved] § 1780.44 Actions prior to loan or grant closing or start of construction, whichever occurs first. (a) Applicants must provide evidence of adequate insurance and fidelity or employee dishonesty bond coverage. (b) Verification of users and other funds. (c) Initial compliance review. (d) Applicant contribution. (e) Excess RUS loan and grant funds. (f) Evidence of and disbursement of other funds. (g) Acquisition of land, easements, water rights, and existing facilities. (1) Rights-of-way and easements. (i) The applicant must provide a legal opinion relative to the title to rights-of-way and easements. Form RD 442-22, “Opinion of Counsel Relative to Rights-of-Way,” may be used. When a site is for major structures such as a reservoir or pumping station and the applicant is able to obtain only a right-of-way or easement on such a site rather than a fee simple title, the applicant will furnish a title report thereon by the applicant's attorney showing ownership of the land and all mortgages or other lien defects, restrictions, or encumbrances, if any. (ii) For user connections funded by RUS, applicants will obtain adequate rights to construct and maintain the connection line or other facilities located on the user's property. This right may be obtained through formal easement or user agreements. (2) Title for land or existing facilities. (i) In lieu of receiving title opinions from the applicant's attorney, the applicant may use a title insurance company. If a title insurance company is used, the applicant must provide the Agency a title insurance binder, disclosing all title defects or restrictions, and include a commitment to issue a title insurance policy. The policy should be in an amount at least equal to the market value of the property as improved. The title insurance binder and commitment should be provided to the Agency prior to requesting closing instructions. The Agency will be provided a title insurance policy which will insure RUS's interest in the property without any title defects or restrictions which have not been waived by the Agency. (ii) The approval official may waive title defects or restrictions, such as utility easements, that do not adversely affect the suitability, successful operation, security value, or transferability of the facility. (3) Water rights. (i) A statement by the applicant's attorney regarding the nature of the water rights owned or to be acquired by the applicant (such as conveyance of title, appropriation and decree, application and permit, public notice and appropriation and use). (ii) A copy of a contract with another company or municipality to supply water; or stock certificates in another company which represents the right to receive water. (4) Lease agreements. (h) Obtaining loan closing instructions. § 1780.45 Loan and grant closing and delivery of funds. (a) Loan closing. (1) Form RD 440-22, “Promissory Note (Association or Organization),” will ordinarily be used for loans to nonpublic bodies. (2) RUS Bulletins 1780-27, “Loan Resolution (Public Bodies),” or 1780-28, “Loan Resolution Security Agreement,” will be adopted by public and other-than-public bodies. These resolutions supplement other provisions in this part. (3) Subpart D of this part contains instructions for preparation of notes and bonds evidencing indebtedness of public bodies. (b) Loan disbursement. (i) Subpart D of this part contains instructions for making multiple advances to public bodies. (ii) Advances will be requested by the borrower in writing. The request should be in sufficient amounts to pay cost of construction, rights-of-way and land, legal, engineering, interest, and other expenses as needed. The borrower may use Form RD 440-11, “Estimate of Funds Needed for 30 Day Period Commencing XXX,” to show the amount of funds needed during the 30-day period. (2) RUS loan funds obligated for a specific purpose, such as the paying of interest, but not needed at the time of loan closing will remain in the Finance Office until needed unless State statutes require all funds to be delivered to the borrower at the time of closing. Loan funds may be advanced to prepay costs under § 1780.9 (e)(2)(iv). If all funds must be delivered to the borrower at the time of closing to comply with State statutes, funds not needed at loan closing will be handled as follows: (i) Deposited in an appropriate borrower account, such as debt service or construction accounts; or (ii) Deposited in a joint bank account under paragraph (e)(3) of this section. (c) Grant closing. (d) Grant disbursements. (1) Interim financing of the total estimated amount of loan funds needed during construction is arranged; and (2) All interim funds have been disbursed; and (3) RUS grant funds are needed before the RUS loan can be closed. (e) Use and accountability of funds. (2) Pledge of collateral for grants to nonprofit organizations. (3) Joint RUS/borrower bank account. (4) Payment for project costs. (f) Use of remaining funds. (1) Remaining funds may be used for eligible loan or grant purposes, provided the use will not result in major changes to the facility(s) and the purpose of the loan and grant remains the same; (2) RUS loan funds that are not needed will be applied as an extra payment on the RUS indebtedness unless other disposition is required by the bond ordinance, resolution, or State statute; and (3) Grant funds not expended under paragraph (f)(1) of this section will be canceled. Prior to the actual cancellation, the borrower, its attorney and its engineer will be notified of RUS's intent to cancel the remaining funds. The applicant will be given appropriate appeal rights. (g) Post review of loan closing. [62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999] § 1780.46 [Reserved] § 1780.47 Borrower accounting methods, management reporting and audits. (a) Borrowers are required to provide RUS an annual audit or financial statements. (b) Method of accounting and preparation of financial statements. (c) Record retention. (d) Audits. (e) Borrowers exempt from audits. (f) Management reports. (1) Quarterly reports. (2) Annual management reports. (i) Two copies of the management reports and proposed “Annual Budget”. (ii) Financial information may be reported on Form RD 442-2 which includes Schedule 1, “Statement of Budget, Income and Equity” and Schedule 2, “Projected Cash Flow” or information in similar format. (iii) A copy of the rate schedule in effect at the time of submission. (g) Substitute for management reports. [62 FR 33478, June 19, 1997, as amended at 79 FR 76006, Dec. 19, 2014] § 1780.48 Regional commission grants. Grants are sometimes made by regional commissions for projects eligible for RUS assistance. RUS has agreed to administer such funds in a manner similar to administering RUS assistance. (a) When RUS has funds in the project, no charge will be made for administering regional commission funds. (b) When RUS has no loan or grant funds in the project, an administrative charge will be made pursuant to the Economy Act of 1932 (31 U.C.S. 1535). A fee of 5 percent of the first $100,000 of a regional commission grant and 1 percent of any amount over $100,000 will be paid to RUS by the commission. (1) Appalachian Regional Commission (ARC). (2) Other regional commissions. et seq. (c) Regional commission grants should be obligated as soon as possible in accordance with § 1780.41, except that the announcement procedure referred to in RUS Staff Instruction 1780-2 is not applicable. Regional commission grants will be disbursed from the Finance Office in the same manner as RUS funds. [62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999] §§ 1780.49-1780.52 [Reserved] Subpart C—Planning, Designing, Bidding, Contracting, Constructing and Inspections § 1780.53 General. This subpart is specifically designed for use by owners including the professional or technical consultants or agents who provide assistance and services such as engineering, environmental, inspection, financial, legal or other services related to planning, designing, bidding, contracting, and constructing water and waste disposal facilities. These procedures do not relieve the owner of the contractual obligations that arise from the procurement of these services. For this subpart, an owner is defined as an applicant, borrower, or grantee. § 1780.54 Technical services. Owners are responsible for providing the engineering, architect and environmental services necessary for planning, designing, bidding, contracting, inspecting, and constructing their facilities. Services may be provided by the owner's “in house” engineer or architect or through contract, subject to Agency concurrence. Engineers and architects must be licensed in the State where the facility is to be constructed. § 1780.55 Preliminary engineering reports and environmental review documentation. Preliminary engineering reports (PERs) must conform to customary professional standards. PER guidelines for water, sanitary sewer, solid waste, and storm sewer are available from the Agency. Environmental review documentation must comply with the environmental review requirements in accordance with 7 CFR part 1970. [81 FR 11028, Mar. 2, 2016] § 1780.56 [Reserved] § 1780.57 Design policies. Facilities financed by the Agency will be designed and constructed in accordance with sound engineering practices, and must meet the requirements of Federal, State and local agencies. (a) Environmental review. (b) Architectural barriers. et seq. et seq. et seq. (c) Energy/environment. (d) Fire protection. (e) Growth capacity. (f) Water conservation. (g) Conformity with State drinking water standards. et seq. (h) Conformity with Federal and State water pollution control standards. (i) Combined sewers. (j) Dam safety. (k) Pipe. (l) Water system testing. (m) Metering devices. (n) Economical service. (o) Seismic safety. et seq. [62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 64 FR 29946, June 4, 1999] §§ 1780.58-1780.60 [Reserved] § 1780.61 Construction contracts. Contract documents must be sufficiently descriptive and legally binding in order to accomplish the work as economically and expeditiously as possible. (a) Standard construction contract documents. (b) Contract review and concurrence. § 1780.62 Utility purchase contracts. Applicants proposing to purchase water or other utility service from private or public sources shall have written contracts for supply or service which are reviewed and concurred in by the Agency. To the extent practical, the Agency review and concurrence of such contracts should take place prior to their execution by the owner. OGC advice and guidance may be requested. Form RD 442-30, “Water Purchase Contract,” may be used when appropriate. If the Agency loan will be repaid from system revenues, the contract will be pledged to the Agency as part of the security for the loan. Such contracts will: (a) Include a commitment by the supplier to furnish, at a specified point, an adequate quantity of water or other service and provide that, in case of shortages, all of the supplier's users will proportionately share shortages. (b) Set out the ownership and maintenance responsibilities of the respective parties including the master meter if a meter is installed at the point of delivery. (c) Specify the initial rates and provide a type of escalator clause which will permit rates for the association to be raised or lowered proportionately as certain specified rates for the supplier's regular customers are raised or lowered. Provisions may be made for altering rates in accordance with the decisions of the appropriate State agency which may have regulatory authority. (d) Cover period of time which is at least equal to the repayment period of the loan. State program officials may approve contracts for shorter periods of time if the supplier cannot legally contract for such period, or if the owner and supplier find it impossible or impractical to negotiate a contract for the maximum period permissible under State law, provided: (1) The supplier is subject to regulations of the Federal Energy Regulatory Commission or other Federal or State agency whose jurisdiction can be expected to prevent unwarranted curtailment of supply; or (2) The contract contains adequate provisions for renewal; or (3) A determination is made that in the event the contract is terminated, there are or will be other adequate sources available to the owner that can feasibly be developed or purchased. (e) Set out in detail the amount of connection or demand charges, if any, to be made by the supplier as a condition to making the service available to the owner. However, the payment of such charges from loan funds shall not be approved unless the Agency determines that it is more feasible and economical for the owner to pay such a connection charge than it is for the owner to provide the necessary supply by other means. (f) Provide for a pledge of the contract to the Agency as part of the security for the loan. (g) Not contain provisions for: (1) Construction of facilities which will be owned by the supplier. This does not preclude the use of money paid as a connection charge for construction to be done by the supplier. (2) Options for the future sale or transfer. This does not preclude an agreement recognizing that the supplier and owner may at some future date agree to a sale of all or a portion of the facility. (h) If it is impossible to obtain a firm commitment for either an adequate quantity or sharing shortages proportionately, a contract may be executed and concurred in provided adequate evidence is furnished to enable the Agency to make a determination that the supplier has adequate supply and/or treatment facilities to furnish its other users and the applicant for the foreseeable future; and: (1) The supplier is subject to regulations of the Federal Energy Regulatory Commission or other Federal or State agency whose jurisdiction can be expected to prevent unwarranted curtailment of supply; or (2) A suitable alternative supply could be arranged within the repayment ability of the borrower if it should become necessary; or (3) Concurrence in the proposed contract is obtained from the National Office. § 1780.63 Sewage treatment and bulk water sales contracts. Owners entering into agreements with private or public parties to treat sewage or supply bulk water shall have written contracts for such service and all such contracts shall be subject to the Agency concurrence. Section 1780.62 should be used as a guide to prepare such contracts. §§ 1780.64-1780.66 [Reserved] § 1780.67 Performing construction. Owners are encouraged to accomplish construction through contracts with qualified contractors. Owners may accomplish construction by using their own personnel and equipment provided the owners possess the necessary skills, abilities and resources to perform the work and provided a licensed engineer prepares design drawings and specifications and inspects construction and furnishes inspection reports as required by § 1780.76. Inspection services may be provided by individuals as approved by the State staff engineer. Payments for construction will be handled under § 1780.76(e). § 1780.68 Owner's contractual responsibility. This part does not relieve the owner of any responsibilities under its contract. The owner is responsible for the settlement of all contractual and administrative issues arising out of procurement entered into in support of a loan or grant. These include, but are not limited to: source evaluation, protests, disputes, and claims. Matters concerning violation of laws are to be referred to the applicable local, State, or Federal authority. § 1780.69 [Reserved] § 1780.70 Owner's procurement regulations. Owner's procurement requirements must comply with the following standards: (a) Code of conduct. (1) The owner's officers, employees or agents shall neither solicit nor accept gratuities, favors or anything of monetary value from contractors, potential contractors, or parties to subagreements. (2) To the extent permitted by State or local law or regulations, the owner's standards of conduct shall provide for penalties, sanctions, or other disciplinary actions for violations of such standards by the owner's officers, employees, agents, or by contractors or their agents. (b) Maximum open and free competition. (c) Owner's review. (d) Solicitation of offers, whether by competitive sealed bid or competitive negotiation, shall: (1) Incorporate a clear and accurate description of the technical requirements for the material, product or service to be procured. When it is impractical or uneconomical to make a clear and accurate description of the technical requirements, a “brand name or equal” description may be used to define the performance or other salient requirements of a procurement. The specific feature of the name brands which must be met by the offeror shall be clearly stated; and (2) Clearly specify all requirements which offerors must fulfill and all other factors to be used in evaluating bids or proposals. (e) Affirmative steps should be taken to assure that small, minority, and women businesses are utilized when possible as sources of supplies, equipment, construction and services. (f) Contract pricing. (g) Unacceptable bidders. (1) An engineer as an individual or firm who has prepared plans and specifications or who will be responsible for monitoring the construction; (2) Any firm or corporation in which the owner's engineer is an officer, employee, or holds or controls a substantial interest; (3) The governing body's officers, employees, or agents; (4) Any member of the immediate family or partners in the entities referred to in paragraphs (g)(1), (g)(2) or (g)(3) of this section; or (5) An organization which employs, or is about to employ, any person in the entities referred to in paragraphs (g)(1), (g)(2), (g)(3) or (g)(4) of this section. (h) Contract award. § 1780.71 [Reserved] § 1780.72 Procurement methods. Procurement shall be made by one of the following methods and in accordance with requirements of 2 CFR 200.320: Micro-purchases, procurement by small purchase procedures, procurement by sealed bids (formal advertising), procurement by competitive proposals, or procurement by noncompetitive proposals. The sealed bid method is the preferred method for procuring construction. [81 FR 47689, July 22, 2016] § 1780.73 [Reserved] § 1780.74 Contracts awarded prior to applications. Owners awarding construction or other procurement contracts prior to filing an application, must provide evidence that is satisfactory to the Agency that the contract was entered into without intent to circumvent the requirements of Agency regulations. (a) Modifications. (b) Consultant's certification. (c) Owner's certification. § 1780.75 Contract provisions. In addition to provisions required for a valid and legally binding contract, any recipient of Agency funds shall include the following contract provisions in all contracts. (a) Remedies. (b) Termination. (c) Surety. (d) Equal employment opportunity. (e) Anti-kickback. (f)-(g) [Reserved] (h) Change orders. (i) Agency concurrence. (j) Retainage. (k) Clean Air Act (42 U.S.C. 7401-7671q) and the Federal Water Pollution Control Act (33 U.S.C. 1251-1388). (l) Contract Work Hours and Safety Standards Act (40 U.S.C. 3701-3708). (m) Debarment and suspension. (n) Byrd anti-lobbying amendment (31 U.S.C. 1352). (o) Procurement of recovered materials. [62 FR 33478, June 19, 1997, as amended at 81 FR 7697, Feb. 16, 2016] § 1780.76 Contract administration. Owners shall be responsible for maintaining a contract administration system to monitor the contractors' performance and compliance with the terms, conditions, and specifications of the contracts. (a) Preconstruction conference. (b) Monitoring reports. (1) Reasons why approved construction schedules were not met; (2) Analysis and explanation of cost overruns and how payment is to be made for the same; and (3) If events occur which have a significant impact upon the project. (c) Inspection. (d) Inspector's daily diary. (e) Payment for Construction. (1) Payment of contract retainage will not be made until such retainage is due and payable under the terms of the contact. (2) Invoices for the payment of construction costs must be approved by the owner, project engineer and concurred in by the Agency. (3) The review and acceptance of project costs, including construction payment estimates by the Agency shall not attest to the correctness of the amounts, the quantities shown, or that the work has been performed under the terms of agreements or contracts. (f) Prefinal inspections. (g) Final inspection. (h) Changes in development plans. (i) Funds are available to cover any additional costs; and (ii) The change is for an authorized loan or grant purpose; and (iii) It will not adversely affect the soundness of the facility operation or the Agency's security; and (iv) The change is within the scope of the contract, (2) Changes will be recorded on Form RD 1924-7, “Contract Change Order,” or other similar form if approved by the State program official or designee. Regardless of the form, change orders must be approved by the State program official or designee. (3) Changes should be accomplished only after Agency approval and shall be authorized only by means of contract change order. The change order will include items such as: (i) Any changes in labor and material; (ii) Changes in facility design; (iii) Any decrease or increase in quantities based on final measurements that are different from those shown in the bidding schedule; and (iv) Any increase or decrease in the time to complete the project. (4) All changes shall be recorded on chronologically numbered contract change orders as they occur. Change orders will not be included in payment estimates until approved by all parties. §§ 1780.77-1780.79 [Reserved] Subpart D—Information Pertaining to Preparation of Notes or Bonds and Bond Transcript Documents for Public Body Applicants § 1780.80 General. This subpart includes information for use by public body applicants in the preparation and issuance of evidence of debt (bonds, notes, or debt instruments, referred to as bonds in this subpart) and other necessary loan documents. § 1780.81 Policies related to use of bond counsel. The applicant is responsible for preparation of bonds and bond transcript documents. The applicant will obtain the services and opinion of recognized bond counsel experienced in municipal financing with respect to the validity of a bond issue, except for issues of $100,000 or less. With prior approval of the approval official, the applicant may elect not to use bond counsel. Such issues will be closed in accordance with the following: (a) The applicant must recognize and accept the fact that application processing may require additional legal and administrative time; (b) It must be established that not using bond counsel will produce significant savings in total legal costs; (c) The local attorney must be able and experienced in handling this type of legal work; (d) The applicant must understand that it will likely have to obtain an opinion from bond counsel at its expense should the Agency require refinancing of the debt; (e) Bonds will be prepared in accordance with this regulation and conform as closely as possible to the preferred methods of preparation stated in § 1780.94; and (f) Closing instructions must be issued by OGC. § 1780.82 [Reserved] § 1780.83 Bond transcript documents. Any questions relating to Agency requirements should be discussed with Agency representatives. Bond counsel or local counsel, as appropriate, must furnish at least two complete sets of the following to the applicant, who will furnish one complete set to the Agency: (a) Copies of all organizational documents; (b) Copies of general incumbency certificate; (c) Certified copies of minutes or excerpts from all meetings of the governing body at which action was taken in connection with the authorizing and issuing of the bonds; (d) Certified copies of documents evidencing that the applicant has complied fully with all statutory requirements incident to calling and holding a favorable bond election, if one is necessary; (e) Certified copies of the resolutions, ordinances, or other documents such as the bond authorizing resolutions or ordinances and any resolution establishing rates and regulating use of facility, if such documents are not included in the minutes furnished; (f) Copies of the official Notice of Sale and the affidavit of publication of the Notice of Sale when State statute requires a public sale; (g) Specimen bond, with any attached coupons; (h) Attorney's no-litigation certificate; (i) Certified copies of resolutions or other documents pertaining to the bond award; (j) Any additional or supporting documents required by bond counsel; (k) For loans involving multiple advances of Agency loan funds, a preliminary approving opinion of bond counsel (or local counsel if no bond counsel is involved) if a final unqualified opinion cannot be obtained until all funds are advanced. The preliminary opinion for the entire issue shall be delivered at or before the time of the first advance of funds. It will state that the applicant has the legal authority to issue the bonds, construct, operate and maintain the facility, and repay the loan, subject only to changes occurring during the advance of funds, such as litigation resulting from the failure to advance loan funds, and receipt of closing certificates; (l) Final unqualified approving opinion of bond counsel, (and preliminary approving opinion, if required) or local counsel if no bond counsel is involved, including an opinion as to whether interest on bonds will be exempt from Federal and State income taxes. With approval of the State program official, a final opinion may be qualified to the extent that litigation is pending relating to Indian claims that may affect title to land or validity of the obligation. It is permissible for such opinion to contain language referring to the last sentence of section 306 (a)(1) or to section 309A (h) of the Consolidated Farm and Rural Development Act (7 U.S.C. 1926 (a)(1) or 1929a (h)). §§ 1780.84-1780.86 [Reserved] § 1780.87 Permanent instruments for Agency loans. Agency loans will be evidenced by an instrument determined legally sufficient and in accordance with the following order of preference: (a) First preference—Form RD 440-22, “Promissory Note”. (b) Second preference—single instruments with amortized installments. (1) Monthly payments. (2) Semiannual payments. (3) Annual payments. (c) Third preference—single instruments with installments of principal plus interest. (1) The repayment terms concerning interest only installments described in paragraph (b) of this section apply. (2) The instrument shall contain in substance provisions indicating: (i) Principal maturities and due dates; (ii) Regular payments shall be applied first to interest due through the next principal and interest installment due date and then to principal due in chronological order stipulated in the bond; and (iii) Payments on delinquent accounts will be applied in the following sequence: (A) Billed delinquent interest; (B) Past due interest installments; (C) Past due principal installments; (D) Interest installment due; and (E) Principal installment due. (d) Fourth preference—serial bonds with installments of principal plus interest. (e) Coupon bonds. § 1780.88 [Reserved] § 1780.89 Multiple advances of Agency funds using permanent instruments. Where interim financing from commercial sources is not used, Agency loan proceeds will be disbursed on an “as needed by borrower” basis in amounts not to exceed the amount needed during 30-day periods. § 1780.90 Multiple advances of Agency funds using temporary debt instruments. When none of the instruments described in § 1780.87 are legally permissible or practical, a bond anticipation note or similar temporary debt instrument may be used. The debt instrument will provide for multiple advances of Agency funds and will be for the full amount of the Agency loan. The instrument will be prepared by bond counsel, or local counsel if bond counsel is not involved, and approved by the State program official and OGC. At the same time the Agency delivers the last advance, the borrower will deliver the permanent bond instrument and the canceled temporary instrument will be returned to the borrower. The approved debt instrument will show at least the following: (a) The date from which each advance will bear interest; (b) The interest rate as determined by § 1780.13; (c) A payment schedule providing for interest on outstanding principal at least annually; and (d) A maturity date which shall be no earlier than the anticipated issuance date of the permanent instruments and no longer than the 40-year statutory limit. §§ 1780.91-1780.93 [Reserved] § 1780.94 Minimum bond specifications. The provisions of this section are minimum specifications only and must be followed to the extent legally permissible. (a) Type and denominations. (b) Bond registration. (c) Size and quality. (d) Date of bond. (e) Payment date. (1) If income is available monthly, monthly payments are recommended unless precluded by State law. If income is available quarterly or otherwise more frequently than annually, payments must be scheduled on such basis. However, if State law only permits principal plus interest (P&I) type bonds, annual or semiannual payments will be used. (2) The payment schedule will be enumerated in the evidence of debt, or if that is not feasible, in a supplemental agreement. (3) If feasible, the first payment will be scheduled one full month, or other period, as appropriate, from the date of loan closing or any deferment period. Due dates falling on the 29th, 30th, and 31st day of the month will be avoided. When principal payments are deferred, interest-only payments will be scheduled at least annually. (f) Extra payments. (1) For loans with amortized debt instruments, extra payments will be applied first to interest accrued to the date of receipt of the payment and second to principal. (2) For loans with debt instruments with P&I installments, the extra payment will be applied to the final unpaid principal installment. (3) For borrowers with more than one loan, the extra payment will be applied to the account secured by the lowest priority of lien on the property from which the extra payments was obtained. Any balance will be applied to other Agency loans secured by the property from which the extra payment was obtained. (4) For assessment bonds, see paragraph (k) of this section. (g) The place of payments on bonds purchased by the Agency will be determined by the Agency. (h) Redemptions. (i) Additional revenue bonds. (j) Precautions. (1) Provisions for the holder to manually post each payment to the instrument. (2) Provisions for returning the permanent or temporary debt instrument to the borrower in order that it, rather than the Agency, may post the date and amount of each advance or repayment on the instrument. (3) Provisions that amend covenants contained in RUS Bulletins 1780-27 or 1780-28. (4) Defeasance provisions in loan or bond resolutions. When a bond issue is defeased, a new issue is sold which supersedes the contractual provisions of the prior issue, including the refinancing requirement and any lien on revenues. Since defeasance in effect precludes the Agency from requiring refinancing before the final maturity date, it represents a violation of the statutory refinancing requirement; therefore, it is disallowed. No loan documents shall include a provision of defeasance. (k) Assessment bonds. (l) Multiple debt instruments. (1) When more than one loan type is used in financing a project, each type of loan will be evidenced by a separate debt instrument or series of debt instruments; (2) Loans obligated in different fiscal years and those obligated with different terms in the same fiscal year will be evidenced by separate debt instruments; (3) Loans obligated for the same loan type in the same fiscal year with the same term may be combined in the same debt instrument; (4) Loans obligated in the same fiscal year with different interest rates that will be closed at the same interest rate may be combined in the same debt instrument. [62 FR 33478, June 19, 1997, as amended at 64 FR 29947, June 4, 1999] § 1780.95 Public bidding on bonds. Bonds offered for public sale shall be offered in accordance with State law and in such a manner to encourage public bidding. The Agency will not submit a bid at the advertised sale unless required by State law, nor will reference to Agency's rates and terms be included. If no acceptable bid is received, the Agency will negotiate the purchase of the bonds. §§ 1780.96-1780.100 [Reserved]

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