7 CFR Part 1942 — Associations

PART 1942—ASSOCIATIONS Authority: 5 U.S.C. 301; 7 U.S.C. 1989. Editorial Notes: Nomenclature changes to part 1942 appear at 80 FR 9878, Feb. 24, 2015. Subpart A—Community Facility Loans Source: 50 FR 7296, Feb. 22, 1985, unless otherwise noted. § 1942.1 General. (a) This subpart outlines the policies and procedures for making and processing direct loans for Community Facilities except fire and rescue and other small essential community facility loans and water and waste disposal facilities. This subpart applies to Community Facilities loans for fire and rescue and other small essential community facility loans only as specifically provided for in subpart C of this part. Water and waste loans are provided for in part 1780 of this title. (1) The policies and procedures in this subpart address both loans between the Agency and the applicant and between the Agency and an approved eligible re-lender who then relends the funds to eligible applicants for eligible projects under this subpart. (2) The Agency shall cooperate fully with State, Tribal and local agencies in making loans to assure maximum support to the State and Tribal strategies for rural development. State Directors and their staffs shall maintain coordination and liaison with State agency and substate planning districts. Funds allocated for use under this subpart 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. Indians residing on such reservations must have equal opportunity to participate in the benefits of these programs as compared with other residents of the State. (3) Federal statutes provide for extending Agency financial programs without regard to race, color, religion, sex, national origin, marital status, age, or physical/mental handicap. The participants must possess the capacity to enter into legal contracts under State and local statutes. (4) Any processing or servicing activity conducted pursuant to this subpart 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 chapter. Applicants for this assistance are required to identify any known relationship or association with an Agency employee. (b) Indian tribes on Federal and State reservations and other Federally recognized Indian tribes are eligible to apply for and are encouraged to participate in this program. Such tribes might not be subject to State and local laws or jurisdiction. However, any requirements of this subpart that affect applicant eligibility, the adequacy of Agency's security or the adequacy of service to users of the facility and all other requirements of this subpart must be met. (c) Loans sold without insurance by RD to the private sector will be serviced in the private sector and will not be serviced under this subpart. The provisions of this subpart are not applicable to such loans. Future changes to this subpart will not be made applicable to such loans. (d) The District Office will normally be the entry point for preapplications and serve as a local point. Applications will be filed with the District Office and loans will be processed to the maxium extent possible by the District Office staff. The applicant's governing body should designate one person to coordinate the activities of its engineer, architect, attorney, and any other professional employees and to act as contact person during loan processing. Agency personnel should make every effort to involve the applicant's contact person when meeting with the applicant's professional consultants and/or agents. The State Office staff will monitor community programs loanmaking and servicing, and will provide assistance to District Office personnel to the extent necessary to assure that the activities are being accomplished in an orderly manner consistent with Agency regulations. (e) The Office of Management and Budget (OMB) issued guidance on Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards at 2 CFR part 200 on December 26, 2013. In 2 CFR 400.1, the Department adopted OMB's guidance in subparts A through F of 2 CFR part 200 as the Department's policies and procedures for uniform administrative requirements, cost principles, and audit requirements for federal awards. As a result, this regulation contains references to 2 CFR part 200 as it has regulatory effect for the Department's programs and activities. [50 FR 7296, Feb. 22, 1985, as amended at 52 FR 38908, Oct. 20, 1987; 52 FR 43725, Nov. 16, 1987; 52 FR 47097, Dec. 11, 1987; 57 FR 21193, May 19, 1992; 58 FR 226, Jan. 5, 1993; 62 FR 33510, June 19, 1997; 68 FR 65830, Nov. 24, 2003; 79 FR 76007, Dec. 19, 2014; 81 FR 43935, July 6, 2016] § 1942.2 Processing applications. (a) Preapplications. (i) Eligibility determination and recommendations. (ii) One copy of SF 424.2. (iii) State intergovernmental review comments and recommendations (clearinghouse comments), as outlined in 2 CFR part 400, if applicable. (iv) Priority recommendations. (v) Supporting documentation necessary to make an eligibility determination such as financial statements, audits, or copies of organizational documents or existing debt instruments. The District Director will advise applicants on what documents are necessary. Applicants should not be required to expend significant amounts of money or time developing supporting documentation at the preapplication stage. (2) The State Director will review each SF 424.2 along with other information that is deemed necessary to determine whether financing from commercial sources at reasonable rates and terms is available. If credit elsewhere is indicated, the State Director will instruct the District Director to so inform the applicant and recommend the applicant apply to commercial sources for financing. Projects may be funded jointly with other lenders provided the requirements of § 1942.17 (g) of this subpart are met. Joint financing occurs when two or more lenders make separate loans to supply the funds required by one applicant for a project. (i) In order to provide a basis for referral of preapplications of only those applicants who may be able to finance projects through commercial sources, State Directors should maintain liaison with representatives of banks, investment bankers, financial advisors, and other lender representatives in the State. State Directors with their assistance, should maintain criteria for determining preapplications which should be referred to commercial lenders. A list of lender representatives interested in receiving such referrals should be maintained. (ii) The State Director shall maintain a working relationship with the State Office or official that has been designated as the single point of contact for the intergovernmental review process and give full consideration to their comments when selecting preapplications to be processed. (iii) The State Director will review the District Director's eligibility determination and recommendations in sufficient time for the District Director's use in preparing and issuing Form AD-622. (iv) Form AD-622 will be prepared by the District Director within forty-five (45) calendar days from receipt of the preapplication by RD, stating the results of the review action. The original will be signed and delivered to the applicant with a copy to the State Director. (3) For preapplications eligible for Agency funding which have the necessary priority to compete with similar preapplications, the Agency will issue Form AD-622 inviting an application containing the following statement: You are advised against taking any actions or incurring any obligations which would either limit the range of alternatives to be considered, or which would have an adverse effect on the environment. Satisfactory completion of the environmental review process must occur prior to the issuance of the letter of conditions. (4) The following statement must be added to Form AD-622 when notifying preapplicants who are eligible, but do not have the priority necessary for further consideration at this time: You are advised against incurring obligations which would limit the range of alternatives to be considered, or which cannot be fulfilled without Rural Development funds until the funds are actually made available. Therefore, you should refrain from such actions as initiating engineering and legal work, taking actions which would have an adverse effect on the environment, taking options on land rights, developing detailed plans and specifications, or inviting construction bids until notified by Rural Development to proceed. (b) Environmental review requirements. (c) Applications. (1) State Directors should have applications in process representing approximately 150 percent of the current State allocation. (2) The application docket will include SF 424.2, and related forms, materials, and information. The application will be assembled in accordance with guide 15 of this subpart or State guides developed under § 1942.16 of this subpart. (3) When an applicant is notified to proceed with an application, the District Director should arrange for a conference with the applicant to provide copies of appropriate appendices and forms; furnish guidance necessary for orderly application processing; and to initiate a processing checklist for establishing a time schedule for completing items using Form RD 1942-39, “Processing Check List (Other Than Public Bodies),” or Form RD 1942-40, “Processing Check List (Public Bodies),” or other checklist adopted for use in the State. The District Director will confirm decisions made at this conference by letter to the applicant and by a copy of the processing checklist. The original and a copy of the processing checklist will be retained in the District Office and a copy will be forwarded to the State Office. The original and copy of the checklist retained in the District Office will be kept current as application processing actions are taken. The copy will be sent to the State Office to use in updating its copy of this form. The State Office will then return the District Office's copy. As the application is being processed, and the need develops for additional conferences, the District Director will arrange with the applicant for such conference to extend and update the processing checklist. (d) Review of decision. The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided that the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income is derived from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal agency that administers compliance with this law is the Federal Trade Commission, Equal Credit Opportunity, Washington, DC 20580. (e) Joint funding. [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6786, Mar. 3, 1988; 54 FR 47197, Nov. 13, 1989; 55 FR 13503, 15304, Apr. 11, 1990; 57 FR 21194, May 19, 1992; 61 FR 6309, Feb. 20, 1996; 79 FR 76007, Dec. 19, 2014; 81 FR 11030, Mar. 2, 2016] § 1942.3 Preparation of appraisal reports. When the loan approval official requires an appraisal, Form RD 442-10, “Appraisal Report—Water and Waste Disposal Systems,” may be used with appropriate supplements. Form RD 442-10 may be modified as appropriate or other appropriate format may be used for facilities other than water and waste disposal. Appraisal reports prepared for use in connection with the purchase of existing essential community facilities or when required by § 1942.17 (g)(2)(iii)(B)( 2 2 [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6786, Mar. 3, 1988] § 1942.4 Borrower contracts. The State Director will, with assistance as necessary by the Office of the General Counsel (OGC), concur in agreements between borrowers and third parties such as contracts for professional and technical services and contracts for the purchase of water or treatment of waste. State Directors are expected to work closely with representatives of engineering and architectural societies, bar associations, commercial lenders, accountant associations, and others in developing standard forms of agreements, where needed, and other such matters in order to expedite application processing, minimize referrals to OGC, and resolve problems which may arise. § 1942.5 Application review and approval. (a) Procedures for review. (1) The Rural Development manager will complete the project summary, including written analysis and recommendations, and will prepare a draft letter of conditions listing all the requirements that the applicant must agree to meet within a specific time. (i) Requirements listed in letters of conditions will include the following unless inappropriate due to the particular type of funding or entity involved: Maximum amount of loan and/or grant which may be considered, scheduling of payments, term of loan and any deferment of principal which may be allowed, reserve requirements, compliance with section 504 of the Rehabilitation Act of 1973, number of users (members) and verification required, contributions rates and charges, interim financing, disbursement of funds, security requirements, graduation requirements, debt collection policies execution of Form RD 1910-11, “Application Certification, Federal Collection Policies for Consumer or Commercial Debts,” organization, business operations, insurance and bonding (including applicant/borrower and contractor), construction contract documents and bidding, accounts, records, and audit reports required (including requirements of OMB Circulars A-128 and A-110), adoption of Form RD 1942-47, “Loan Resolution (Public Bodies),” for public bodies or Form RD 1942-9, “Loan Resolution (Security Agreement),” for other than public bodies, closing instructions, and other requirements. (ii) Each letter of conditions will contain the following paragraphs: This letter establishes conditions which must be understood and agreed to by you before further consideration may be given to the application. Any changes in the project cost, source of funds, scope of services, or any other significant changes in the project or applicant must be reported to and approved by RD written amendment to this letter. Any changes not approved by RD shall be cause for discontinuing processing of the application. This letter is not to be considered as loan approval or as representation to the availability of funds. The docket may be completed on the basis of a loan not to exceed $______. If (insert agency name) makes the loan, you may make a written request that the interest rate be the lower of the rate in effect at the time of loan approval or the time of loan closing. If you do not request the lower of the two interest rates, the interest rate charged will be the rate in effect at the time of loan approval. The loan will be considered approved on the date a signed copy of Form RD 1940-1, “Request for Obligation of Funds,” is mailed to you. If you want the lower of the two rates, your written request should be submitted to RD as soon as practical. In order to avoid possible delays in loan closing such a request should ordinarily be submitted at least 30 calendar days before loan closing. Please complete and return the attached Form RD 1942-46, “Letter of Intent to Meet Conditions,” if you desire that further consideration be given your application. (iii) Rural Development Managers may add the following: If the conditions set forth in this letter are not met within ______ days from the date hereof, FmHA or its successor agency under Public Law 103-354 reserves the right to discontinue the processing of the application. (2) The State staff engineer or architect, as appropriate, will include a written analysis and recommendations on the project summary. (3) The Chief, Community Programs or Community and Business Programs, will review the assembled application and include in the project summary a written analysis and recommendations, including the availability of other credit and other eligibility determinations. The draft letter of conditions will be reviewed and any necessary modifications made. (b) Project requiring National Office review. (1) The Rural Development Manager should assemble applications for the National Office review in the following order from top to bottom and forward them to the State Director for review and recommedation prior to submission to the National Office: (i) Transmittal memorandum including: (A) Recommendation. (B) Date of expected obligation. (C) Any unusual circumstances. (ii) Copies of the following: (A) Proposed letter of conditions. (B) Applicable State Intergovernmental Review comments, if the program or activity has been selected under the State. RD Instruction 1970-I, available in any Rural Development office. (C) Community Facilities Project Summary. (D) Preliminary architectural or engineering report. (E) Form RD 442-3, “Balance Sheet,” or a financial statement or audit that includes a balance sheet. (F) For other essential community facility loan applicants whose proposals do not meet the assured income or tax based security requirements of § 1942.17 (g)(2)(iii) and (g)(3)(iii) of this subpart, financial information for the last five years of operation will be submitted if available. The type of financial information to be submitted should be determined based on what is available and the following order of preference: ( 1 ( 2 ( 3 (G) For other essential community facility loans secured under paragraph (b)(1)(ii)(F) of this section, submit a detailed explanation of the proposed security; evidence that the application cannot be processed and the loan secured under paragraph (b)(1)(ii)(F) of this section; evidence supporting the efforts by the applicant in persuading appropriate public bodies to provide the proposed facility and services and the results, and comments of the Regional Attorney concurring in the applicants' legal authority to give the proposed security. (H) Financial Feasibility Report when required by § 1942.17 (h)(1). (I) Proposed lease agreements, management agreements, or other agreements when facility management will be provided by other than the applicant. (J) Other forms and documents on which there are specific questions. (K) Environmental impact analysis and documentation. (2) For applications to be reviewed in the State or field, at least those items in paragraph (b)(1)(ii) of this section, should be available. (c) For all applications. (1) The letter of conditions should not ordinarily be issued unless the State Director expects to have adequate funds in the State allocation to fund the project within the next 12 months based on historic allocations or other reliable projections. (2) If the applicant declines to execute Form RD 1942-46, the Rural Development Manager will immediately notify the State Director and provide complete information as to the reasons for such declination. (3) If the applicant accepts the letter of conditions, the Rural Development Manager will forward the executed Form RD 1942-46 and a signed and an unsigned copy of Form RD 1940-1 to the State Director. (d) Loan approval and obligating funds. (1) Form RD 1940-1, authorizing funds to be reserved, may be executed by the loan approval official providing the applicant has the legal authority to contract for a loan and to enter into required agreements and has signed Form RD 1940-1. (2) If approval was concurred in by the National Office, a copy of the concurring memorandum will be attached to the original of Form RD 1940-1. (3) The State Director or designee will request an obligation of loan and/or grant funds via the automated terminal system after signing Form RD 1940-1. The requesting official will furnish security identification as necessary. The requesting official will record the date, time of request, and their initials on the original Form RD 1940-1. (4) The date the applicant is notified of loan and/or grant approval is six working days from the date funds are reserved unless an exception is granted by the National Office. (5) Immediately after verifying that funds have been reserved, utilizing the Rural Development Field Office terminal system status inquiry function, the State Director or designee will notify by telephone, the Legislative and Public Affairs Staff in the Rural Development National Office as required by RD Instruction 2015-C, “Announcement of Approval of Loans, Grants, or Guaranteed Loans for Rural Project,” (available in any FmHA or its successor agency under Public Law 103-354 State Office). (6) Loan approval and applicant notification will be accomplished by the State Director or designee by mailing to the applicant, 6 working days from the obligation date, a copy of Form RD 1940-1 which has been previously signed by the applicant and loan approval official. The date the applicant is notified is also the date the interest rate at loan approval is established. The State Director or designee will record the date of applicant notification and the interest rate in effect at that time on the original of Form RD 1940-1 and include it as a permanent part of the District Director project file with a copy placed in the State Office file. (7) If a transfer of obligation of funds is necessary, complete Form RD 450-10, “Advice of Borrower's Change of Address, Name, Case Number, or Loan Number,” and process via the Rural Development Field Office terminal system. An obligation of funds established for an applicant may be transferred to a different (substituted) applicant provided: (i) The substituted applicant is eligible to receive the assistance approved for the original applicant; and (ii) The substituted applicant bears a close and genuine relationship to the original applicant (such as two organizations that are controlled by the same individuals); and (iii) The need for and scope of the project and the purpose(s) for which Rural Development funds will be used remain substantially unchanged. [50 FR 7296, Feb. 22, 1985, as amended at 50 FR 33332, Aug. 19, 1985; 50 FR 43378, Oct. 25, 1985; 53 FR 6787, Mar. 3, 1988; 54 FR 47196, Nov. 13, 1989; 63 FR 16089, Apr. 2, 1998; 67 FR 60584, Sept. 27, 2002; 67 FR 63019, Oct. 9, 2002; 76 FR 80730, Dec. 27, 2011; 79 FR 76007, Dec. 19, 2014; 79 FR 55967, Sept. 18, 2014] Editorial Note: At 80 FR 9879, Feb. 24, 2015, § 1942.5 was amended in paragraph (a)(1)(ii) by removing “FmHA or its successor agency under Public Law 103-354 reserves” and adding “Rural Development reserves” in its place; however, the amendment could not be incorporated because the phrase did not exist in the paragraph. § 1942.6 Preparation for loan closing. (a) Obtaining closing instructions. (b) Verification of users and other funds. (2) In all cases the availability and amounts of other funds to be used in the project will be verified by Rural Development. (c) Initial compliance review. (d) Ordering loan checks. (1) The applicant has complied with approval conditions and closing instructions, except for those actions which are to be completed on the date of loan closing or subsequent thereto; and (2) The applicant is ready to start construction or funds are needed to pay interim financing obligations. (e) Multiple advances of Rural Development funds. (1) The Finance Office will be notified of the anticipated date for retirement of the interim instruments and issuance of permanent instruments of debt. (2) The Finance Office will prepare a statement of account including accrued interest through the proposed date of retirement and also show the daily interest accrual. The statement of account and the interim financing instruments will be forwarded to the District Director. (3) The District Director will collect interest through the actual date of the retirement and obtain the permanent instrument(s) of debt in exchange for the interim financing instruments. The permanent instruments and the cash collection will be forwarded to the Finance Office immediately, except that for promissory notes and single instrument bonds fully registered as to principal and interest, the original will be retained in the District Office and a copy will be forwarded to the Finance Office. In developing the permanent instruments, the sequence of preference set out in § 1942.19(e) of this subpart will be followed. [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988; 53 FR 26589, July 14, 1988] § 1942.7 Loan closing. Loans will be closed in accordance with the closing instructions issued by the OGC and § 1942.17(o) of this subpart and as soon as possible after receiving the check. (a) Authority to execute, file, and record legal instruments. (b) Preparation of mortgages. (c) Source of funds for insured loans. (d) Unused funds. (e) Loan disbursements. (f) Supervised bank accounts. [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988; 59 FR 54788, Nov. 2, 1994; 68 FR 61331, Oct. 28, 2003; 70 FR 19253, Apr. 13, 2005] § 1942.8 Actions subsequent to loan closing. (a) Mortgages. (b) Notes and bonds. (c) Multiple advances—bond(s). (d) Bond registration record. (e) Disposition of title evidence. (f) Material for State Office. (1) The complete docket; and (2) A statement covering information other than the completion of legal documents showing what was done in carrying out loan closing instructions. (g) State Office review of loan closing. (h) Safeguarding bond shipments. (i) Water stock certificates. [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988] Editorial Note: At 80 FR 9879, Feb. 24, 2015, § 1942.8 was amended in paragraph (h) by removing “FmHA or its successor agency under Public Law 103-354 Instruction” and adding “RD Instruction” in its place; however, the amendment could not be incorporated because the phrase did not occur in the paragraph. § 1942.9 Planning, bidding, contracting, and constructing. (a) Review of construction plans and specifications. (b) Contract approval. (1) State Director's and Rural Development engineer/architect's comments and recommendations, and if noncompetitive negotiation per § 1942.18(k)(4) is accepted by the Agency, submit an evaluation of previous work of the proposed construction firm. (2) Regional attorney's opinion and comments regarding the legal adequacy of the proposed procurement method and proposed contract documents. (3) Copy of owner's written request and description of the procurement method proposed. (4) Copy of the proposed contract. (c) Bid irregularities. (d) Noncompliance. [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988; 77 FR 29539, May 18, 2012] § 1942.10 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] § 1942.11 [Reserved] § 1942.12 Loan cancellation. Loans which have been approved and obligations which have been established may be canceled before closing as follows: (a) Form Rural Development 1940-10, “Cancellation of U.S. Treasury Check and/or Obligation.” (b) Notice of cancellation. [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 26589, July 14, 1988; 54 FR 39727, Sept. 28, 1989; 59 FR 54788, Nov. 2, 1994; 70 FR 19254, Apr. 13, 2005] § 1942.13 Loan servicing. Loans will be serviced under subpart E of part 1951 of this chapter. § 1942.14 Subsequent loans. Subsequent loans will be processed under this subpart. § 1942.15 Delegation and redelegation of authority. The State Director is responsible for implementing the authorities in this subpart and for issuing State supplements redelegating authorities. Loan and grant approval authority is in Subpart A of Part 1901 of this chapter. Except for loan and grant approval authority, Rural Development Manager may redelegate their duties to qualified staff members. [70 FR 19254, Apr. 13, 2005] § 1942.16 State supplements and guides. State Directors will obtain National Office clearance for all State supplements and guides under RD Instruction 2006-B (available in any Rural Development office). (a) State supplements. (b) State guides. § 1942.17 Community facilities. (a) General. (b) Eligibility. (1) Applicant. (A) Loans for water or waste disposal facilities will not be made to a city or town with a population in excess of 10,000 inhabitants. The population figure is obtained from the most recent decennial Census of the United States (decennial Census). If the applicable population figure cannot be obtained from the most recent decennial Census, RD will determine the applicable population figure based on available population data. (B) Loans for essential community facilities will not be made to a city or town with a population in excess of 20,000 inhabitants according to the most recent decennial Census. (ii) An organization operated on a not-for-profit basis, such as an association, cooperative, and private corporation. Applicants organized under the general profit corporation laws may be eligible if they actually will be operated on a not-for-profit basis under their charter, bylaws, mortgage, or supplemental agreement provisions as may be required as a condition of loan approval. Essential community facility applicants other than utility-type must have significant ties with the local rural community. Such ties are necessary to ensure to the greatest extent possible that a facility under private control will carry out a public purpose and continue to primarily serve rural areas. Ties may be evidenced by items such as: (A) Association with or controlled by a local public body or bodies, or broadly based ownership and controlled by members of the community. (B) Substantial public funding through taxes, revenue bonds, or other local Government sources, and/or substantial voluntary community funding, such as would be obtained through a community-wide funding campaign. (iii) Indian tribes on Federal and State reservations and other Federally recognized Indian tribes. (2) Facility. (ii) Essential community facilities must primarily serve rural areas. (iii) For essential community facilities, the terms rural rural area (3) Credit elsewhere. (4) Legal authority and responsibility. (5) Refinancing debt. (6) Expanded eligibility for timber-dependent communities in Pacific Northwest. In the Pacific Northwest, defined as an area containing national forest covered by the Federal document entitled, “Forest Plan for a Sustainable Economy and a Sustainable Environment,” dated July 1, 1993; the population limits contained § 1942.17(b) are expanded to include communities with not more than 25,000 inhabitants until September 30, 1998, if: (i) Part or all of the community lies within 100 miles of the boundary of a national forest covered by the Federal document entitled, “Forest Plan for a Sustainable Economy and a Sustainable Environment,” dated July 1, 1993; and (ii) The community is located in a county in which at least 15 percent of the total primary and secondary labor and proprietor income is derived from forestry, wood products, or forest-related industries such as recreation and tourism. (c) Priorities Truly rural areas. (2) Project selection process. (i) Preapplications. (ii) State Office review. (iii) Selection priorities. (A) Population priorities. ( 1 ( 2 1 (B) Health priorities. ( 1 Water and Waste Disposal preapplications only. ( i ( ii ( 2 Community Facility preapplication only. (C) Income priorities. ( 1 ( 2 (D) Other factors. ( 1 Water and Waste Disposal preapplications only. ( 2 Community Facilities preapplications only. ( i ( ii 2 ( 3 Water and Waste Disposal and Community Facilities preapplications. ( i ( ii ( iii ( a ( b (E) In certain cases the State Director may assign up to 15 points to a preapplication, in addition to those that may be scored under paragraphs (c)(2)(iii) (A) through (D), of this section. These points are primarily intended to address an unforeseen exigency or emergency, such as the loss of a community facility due to accident or natural disaster or the loss of joint financing if Rural Development funds are not committed in a timely fashion. However, the points may also be awarded to projects in order to improve compatibility/coordination between Rural Development's and other agencies' selection systems 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 the State Director assigns these points. (iv) Results of State Office review. 1 2 1 i ii 2 (v) Application development. (vi) Project obligations. (vii) Requests for additional funding. Priority Points 1 5 2 3 3 1 (viii) Cost overruns. (d) Eligible loan purposes. (i) To construct, enlarge, extend, or otherwise improve water or waste disposal and other essential community facilities providing essential service primarily to rural residents and rural businesses. Rural businesses would include facilities such as educational and other publicly owned facilities. (A) Water or waste disposal facilities (B) Essential community facilities ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 (C) Otherwise improve ( 1 ( 2 ( 3 (ii) To construct or relocate public buildings, roads, bridges, fences, or utilities, and to make other public improvements necessary to the successful operation or protection of facilities authorized in paragraph (d)(1)(i) of this section. (iii) To relocate private buildings, roads, bridges, fences, or utilities, and other private improvements necessary to the successful operation or protection of facilities authorized in paragraph (d)(1)(i) of this section. (iv) To pay the following expenses, but only when such expenses are a necessary part of a loan to finance facilities authorized in paragraphs (d)(1)(i), (d)(1)(ii) and (d)(1)(iii) of this section. (A) Reasonable fees and costs such as legal, engineering, architectural, fiscal advisory, recording, environmental impact analyses, archeological surveys and possible salvage or other mitigation measures, planning, establishing or acquiring rights. (B) Interest on loans until the facility is self-supporting, but not for more than three years unless a longer period is approved by the National Office; interest on loans secured by general obligation bonds until tax revenues are available for payment, but not for more than two years unless a longer period is approved by the National Office; and interest on interim financing, including interest charges on interim financing from sources other than Rural Development. (C) Costs of acquiring interest in land; rights, such as water rights, leases, permits, rights-of-way; and other evidence of land or water control necessary for development of the facility. (D) Purchasing or renting equipment necessary to install, maintain, extend, protect, operate, or utilize facilities. (E) Initial operating expenses for a period ordinarily not exceeding one year when the borrower is unable to pay such expenses. (F) Refinancing debts incurred by, or on behalf of, a community when all of the following conditions exist: ( 1 ( 2 ( 3 (G) Prepay costs for which Rural Development grant funds were obligated provided there is: ( 1 ( 2 ( i ( ii (v) To pay obligations for construction incurred before loan approval. Construction work should not be started and obligations for such work or materials should not be incurred before the loan is approved. However, if there are compelling reasons for proceeding with construction before loan approval, applicants may request Rural Development approval to pay such obligations. Such requests may be approved if Rural Development determines that: (A) Compelling reasons exist for incurring obligations before loan approval; and (B) The obligations will be incurred for authorized loan purposes; and (C) Contract documents have been approved by Rural Development; and (D) All environmental requirements applicable to Rural Development and the applicant have been met; and (E) The applicant has the legal authority to incur the obligations at the time proposed, and payment of the debts will remove any basis for any mechanic, material, or other liens that may attach to the security property. Rural Development may authorize payment of such obligations at the time of loan closing. Rural Development's authorization to pay such obligations, however, is on the condition that it is not committed to make the loan; it assumes no responsibility for any obligations incurred by the applicant; and the applicant must subsequently meet all loan approval requirements. The applicant's request and Rural Development authorization for paying such obligations shall be in writing. If construction is started without Rural Development approval, post approval in accordance with this section may be considered. (2) Funds may not be used to finance: (i) On-site utility systems or business and industrial buildings in connection with industrial parks. (ii) Facilities to be used primarily for recreation purposes. (iii) Community antenna television services or facilities. (iv) Electric generation or transmission facilities or telephone systems, except as provided in paragraph (d)(1)(i)(B)( 4 5 (v) Facilities which are not modest in size, design, and cost. (vi) Loan or grant finder's fees. (vii) Projects located within the Coastal Barriers Resource System that do not qualify for an exception as defined in section 6 of the Coastal Barriers Resource Act, Pub. L. 97-348. (viii) New combined sanitary and storm water sewer facilities. (ix) That portion of a water and/or waste disposal facility normally provided by a business or industrial user. (e) Facilities for public use. (1) Utility-type service facilities will be installed so as to serve any user within the service area who desires service and can be feasibly and legally served. Applicants and borrowers must obtain written concurrence of the Rural Development prior to refusing service to such user. Upon failure to provide service which is reasonable and legal, such user shall have direct right of action against the applicant/borrower. A notice of the availability of this service should be given by the applicant/borrower to all persons living within the area who can feasibly and legally be served by the phase of the project being financed. (i) If a mandatory hookup ordinance will be adopted, the required bond ordinance or resolution advertisement will be considered adequate notification. (ii) When any portion of the income will be derived from user fees and a mandatory hookup ordinance will not be adopted, each potent user will be afforded an opportunity to request service by signing a Users Agreement. Those declining service will be afforded an opportunity to sign a statement to such effect. Rural Development has guides available for these purposes in all Rural Development offices. (2) In no case will boundaries for the proposed service area be chosen in such a way that any user or area will be excluded because of race, color, religion, sex, marital status, age, handicap, or national origin. (3) This does not preclude: (i) Financing or constructing projects in phases when it is not practical to finance or construct the entire project at one time; and (ii) 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, and (iii) Extending services to industrial areas when service is made available to users located along the extensions. (4) The State Director will determine that, when feasibly and legally possible, inequities within the proposed project's service area for the same type service proposed ( i.e. (5) Before a loan is made to an applicant other than a public body, for other than utility type projects, the articles of incorporation or loan agreement will include a condition similar to the following: In the event of dissolution of this corporation, or in the event it shall cease to carry out the objectives and purposes herein set forth, all business, property, and assets of the corporation shall go and be distributed to one or more nonprofit corporations or public bodies as may be selected by the board of directors of this corporation and approved by at least 75 percent of the users or members to be used for, and devoted to, the purpose of a community facility project or other purpose to serve the public welfare of the community. In no event shall any of the assets or property, in the event of dissolution thereof, go or be distributed to members, directors, stockholders, or others having financial or managerial interest in the corporation either for the reimbursement of any sum subscribed, donated or contributed by such members or for any other purposes, provided that nothing herein shall prohibit the corporation from paying its just debts. (f) Rates and terms General. (2) Poverty line rate. (i) The primary purpose of the loan is to upgrade existing facilities or construct new facilities required to meet applicable health or sanitary standards. Documentation will be obtained from the appropriate regulatory agency with jurisdiction to establish the standard, to verify that a bonafide standard exists, what that standard is, and that the proposed improvements are needed and required to meet the standard; and (ii) The median household income of the service area is below the poverty line for a family of four, as defined in section 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2)), or below 80 percent of the Statewide nonmetropolitan median household income. (3) Intermediate rate. (4) Market rate. (5) Prime farmland. (6) Income determination. (7) Repayment terms. (i) 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 State Director may authorize such deferment with the prior approval of the National Office. Deferments of principal will not be used to: (A) Postpone the levying of taxes or assessments. (B) Delay collection of the full rates which the borrower has agreed to charge users for its services as soon as major benefits or the improvements are available to those users. (C) Create reserves for normal operation and maintenance. (D) Make any capital improvements except those approved by Rural Development determined to be essential to the repayment of the loan or to the obtaining of adequate security thereof. (E) Accelerate the payment of other debts. (ii) Payment date. (g) Security. (1) Joint financing security. (i) Terms. (ii) Use of trustee or other similar paying agent. (iii) Regular payments. (iv) Disposition of property. (v) Protective advances. (2) Public bodies. (i) Utility-type facilities such as water and sewer systems, natural gas distribution systems, electric systems, etc., will be secured by: (A) The full faith and credit of the borrower when the debt is evidenced by general obligation bonds; and/or (B) Pledges of taxes or assessments; and/or (C) 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 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; and/or (D) In those cases involving water and waste disposal projects where there is a substantial number of other than full-time users and facility costs result in a higher than reasonable rate for such full-time users, the loan will be secured by the full faith and credit of the borrower or by an assignment or pledge of taxes or assessments from public bodies or other organizations having the authority to issue bonds or pledge such taxes or assessments. (ii) Solid waste systems. (iii) Other essential community facilities (A) Such loans will be secured by one or a combination of the following and in the following order of preference: ( 1 ( 2 ( 3 ( 4 ( 5 ( 6 ( 7 ( 8 ( 9 1 8 ( i ( ii ( iii ( iv (B) Real estate and chattel property taken as security in accordance with paragraphs (g)(2)(iii)(A) ( 6 9 ( 1 ( 2 ( 3 (C) When security is not available in accordance with paragraphs (g)(2)(iii)(A) ( 1 5 6 9 (3) Other-than-public bodies. (i) Utility-type facilities eligible for Rural Development assistance under paragraph (d) of this section such as water and sewer systems, natural gas distribution systems, electric systems, etc., will be secured as follows: (A) Assignments of borrower income will be taken and perfected by filing, if legally permissable; and (B) 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 feasible to obtain a lien on such land (such as land rights obtained from Federal or local government agencies, and from railroads) and the loan approval official `determines that the interest of the United States otherwise is secured adequately, the lien requirement may be omitted as to such land rights. (C) When the 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 loan approval official determines that the loan is adequately secured. (D) Other security. (E) In those cases where there is a substantial number of other than full-time users and facility costs result in a higher than reasonable rate for such full-time users, the loan will be secured by an assignment or pledge of general obligation bonds, taxes, or assessments from public bodies or other organizations having the authority to issue bonds or pledge such taxes, or assessments. (ii) Solid waste systems. (iii) Essential community facilities (A) Such loans will be secured by one or a combination of the following and in the following order of preference: ( 1 ( 2 ( 3 ( 4 ( 5 1 4 ( i ( ii ( iii ( iv ( 6 (B) Real estate and chattel property taken as security: ( 1 ( 2 ( 3 (h) Economic feasibility requirements. (1) Financial feasibility reports. (i) Included as part of the preliminary engineer/architectural report using guides 6 through 10 as applicable; or (ii) Prepared by a qualified firm or individual not having a direct interest in the management or construction of the facility using guide 5 when: (A) The project will significantly affect the applicant's financial operations and is not a utility-type facility but is dependent on revenues from the facility to repay the loan; or (B) It is specifically requested by Rural Development. (2) Applicants for loans for utility-type facilities (i) In estimating the number of users and establishing rates or fees on which the loan will be based for new systems and for extensions or improvements to existing systems, consideration should be given to the following: (A) An estimated number of maximum initial users should not be used when setting user fees and rates since it may be several years before all residents in the community will need the services provided by the system. In establishing rates a realistic number of initial users should be employed. (B) User agreements from individual vacant property owners will not be considered when determining project feasibility unless: ( 1 ( 2 ( 3 (C) Income from other vacant property owners will be considered only as extra income. (ii) Realistic user estimates will be established as follows: (A) Meaningful potential user cash contributions. Potential user cash contributions are required except: ( 1 ( 2 ( 3 (B) The amount of cash contributions required in paragraph (h)(2)(ii)(A) of this section will be set by the applicant and concurred in by Rural Development. Contribtions should be an amount high enough to indicate sincere interest on the part of the potential user, but not so high as to preclude service to low income families. Contributions ordinarily should be an amount approximating one year's minimum user fee, and shall be paid in full before loan closing or commencement of construction, whichever occurs first. Once economic feasibility is ascertained based on a demonstration of meaningful potential user cash contributions, the contribution, membership fee or other fees that may be imposed are not a requirement of Rural Development under this section. However, borrowers do have an additional responsibility relating to generating sufficient revenues as set forth in paragraph (n)(2)(iii) of this section. (C) Enforceable user agreement. Except for users presently receiving service, an enforceable user agreement with a penalty clause is required unless 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. (iii) In those cases where all or part of the borrower's debt payment revenues will come from user fees, 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 approval by Rural Development before loan closing or commencement of construction, whichever occurs first. Such a program shall include: (A) An aggressive information program to be carried out during the construction period. The borrower should send written notification to all signed users at least three weeks 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. (B) 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. (C) Aggressive action to see that all signed users can finance their connections. This might require collection of sufficient user contributions to finance connections. Extreme cases might necessitate additional loan funds for this purpose; however, loan funds should be used only when absolutely necessary and when approved by Rural Development prior to loan closing. (3) Utility-type facilities for new developing communities or areas. (i) The applicant already having sufficient assured revenues to repay the loan; or (ii) 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 paragraph (h)(2)(i)(B) of this section; or (iii) Developers paying cash for the increased capital cost and any increased operating expenses until the developing area will support the increased costs; or (iv) The full faith and credit of a public body where the debt is evidenced by general obligation bonds; or (v) The loan is to a public body evidenced by a pledge of tax assessments; or (vi) The user charges can become a tax lien upon the property being served and income from such lien can be collected in sufficient time to be used for its intended purposes. (i) Reserve requirements. (1) General obligation or special assessment bonds. (2) Other than general obligation or special assessment bonds. (j) General requirements Membership authorization. (i) The organization is well established and is operating with a sound financial base; or (ii) For utility-type projects 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, except for members presently receiving service or when State statutes or local ordinances require mandatory use of the facility. (2) Planning, bidding, contracting, constructing. (3) Insurance and fidelity bonds. (i) General. (B) Insurance and fidelity bond requirements by Rural Development shall normally not exceed those proposed by the applicant/borrower if the Rural Development loan approval or servicing official determines that proposed coverage is adequate to protect the government's financial interest. Applicants/borrowers are encouraged to have their attorney, consulting engineer/architect, and/or insurance provider(s) review proposed types and amounts of coverage, including any deductible provisions. If the FmHA or its successor agency under Public Law 103-354 official and the applicant/borrower cannot agree on the acceptability of coverage proposed, a decision will be made by the State Director. (C) The use of deductibles, i.e. (D) Borrowers must provide evidence to Rural Development that adequate insurance and fidelity bond coverage is being maintained. This may consist of a listing of policies and coverage amounts in yearend reports submitted with management reports required under § 1942.17(q)(2) or other documentation. The borrower is responsible for updating and/or renewing policies or coverage which expire between submissions to Rural Development. Any monitoring of insurance and fidelity bond coverage by FmHA or its successor agency under Public Law 103-354 is solely for the benefit of FmHA or its successor agency under Public Law 103-354, and does not relieve the applicant/borrower of its obligation under the loan resolution to maintain such coverage. (ii) Fidelity bond. (A) The amount of coverage required by Rural Development will normally approximate the total annual debt service requirements for the Rural Development loans. (B) Form RD 440-24, “Position Fidelity Schedule Bond” may be used. Similar forms may be used if determined acceptable to Rural Development. Other types of coverage may be considered acceptable if it is determined by Rural Development that they fulfill essentially the same purpose as a fidelity bond. (C) Fidelity bonds must be obtained from companies holding certificates of authority as acceptable sureties, as prescribed in 31 CFR part 223, “Surety Companies doing Business with the United States.” (iii) Insurance. (A) Property insurance. 1 2 ( 1 ( 2 (B) Liability and property damage insurance, including vehicular coverage. (C) Malpractice insurance. (D) Flood insurance. (E) Worker's compensation. (4) Acquisition of land, easements, water rights, and existing facilities. (i) Title for land, rights-of-way, easements, or existing facilities. (A) Rights-of-way and easements. (B) Title for land or existing facilities. ( 1 ( 2 (ii) Water rights. (A) 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). (B) 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. (iii) Land purchase contract: (B) Applicants may obtain land through land purchase contracts when all of the following conditions are met: ( 1 ( 2 ( 3 ( 4 2 (C) The land purchase contract must provide for the transfer of ownership by the seller without any restrictions, liens or other title defects. The contract must not contain provisions for future advances (except for taxes, insurance, or other costs needed to protect the security), summary cancellations, summary forfeiture, or other clauses that may jeopardize the Government's interest or the purchaser's ability to pay the Rural Development loan. The contract must provide that if the purchaser fails to make payment that Rural Development will be given at least 90 days written notice with an option to cure the default before the contract can be cancelled, terminated or foreclosed. Then Rural Development must have the option of making the payment and charging it to the purchaser's account, making the payment and taking over the ownership of the purchase contract, or taking any other action necessary to protect the Government's interest. (D) Prior to loan closing or the beginning of construction, whichever occurs first, the following actions must be taken in the order listed below: ( 1 ( 2 ( 3 (5) Lease agreements. (6) Notes and bonds. (i) Form RD 440-22, “Promissory Note (Association or Organization),” will ordinarily be used for loans to nonpublic bodies. (ii) Section 1942.19 contains instructions for preparation of notes and bonds evidencing indebtedness of public bodies. (7) Environmental review requirements. (8) Health care facilities. (i) A statement from the responsible State agency certifying that the proposed health care facility is not inconsistent with the State Medical Facilities Plan. (ii) A statement from the responsible State agency or regional office of the Department of Health and Services certifying that the proposed facility meets the standards in § 1942.18(d)(4). (9) Public information. (10) Service through individual installation. (i) Applicants providing service through individual facilities must meet the eligibility requirements in § 1942.17(b). (ii) Rural Development must approve the form of agreement between the owner and individual users for the installation, operation and payment for individual facilities. (iii) If taxes or assessments are not pledged as security, owners providing service through individual facilities must obtain security as necessary to assure collection of any sum the individual user is obligated to pay the owner. (iv) Notes representing indebtedness owed the owner 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 loan, whichever is shorter. The interest rate will not exceed the interest rate charged the owner on the Rural Development indebtedness. (v) Owners providing service through individual or cluster facilities must obtain: (A) Easements for the installation and ingress to and egress from the facility; and (B) An adequate method for denying service in the event of nonpayment of user fees. (11) Funds from other sources. (k) Other Federal, State, and local requirements. (1) Compliance with special laws and regulations. (i) Organization of the applicant and its authority to construct, operate, and maintain the proposed facilities; (ii) Borrowing money, giving security therefore, and raising revenues for the repayment thereof; (iii) Land use zoning; and (iv) Health and sanitation standards and design and installation standards unless an exception is granted by Rural Development. (2) Compliance exceptions. (3) State Pollution Control or Environmental Protection Agency Standards. (4) Consistency with other development plans. (5) State agency regulating water rights. (6) Civil Rights Act of 1964. (7) Title IX of the Education Amendments of 1972. (8) Section 504 of the Rehabilitation Act of 1973. (9) Age Discrimination Act of 1975. et. seq. (l) Professional services and contracts related to the facility Professional services. (2) Bond counsel. (3) Contracts for other services. (4) Fees. (m) Applying for the Agency loans Preapplication. (2) Preapplication review. (3) Incurring obligations. (4) Results of preapplication review. (5) Application conference. (6) Application completion and assembling. (7) Review of decision. (n) Actions prior to loan closing and start of construction Excess Rural Development loan and grant funds. (2) Loan resolutions. (i) To indemnify the Government for any payments made or losses suffered by the Government on behalf of the association. Such indemnification shall be payable from the same source of funds pledged to pay the bonds or any other legally permissible source. (ii) To comply with applicable local, State and Federal laws, regulations, and ordinances. (iii) To provide for the receipt of adequate revenues to meet the requirements of debt service, operation and maintenance, establishment of adequate reserves, and to continually operate and maintain the facility in good condition. Except for utility-type facilities, free service use may be permitted. If free services are extended no distinctions will be made in the extension of those services because of race, color, religion, sex, national origin, marital status, or physical or mental handicap. (iv) To acquire and maintain such insurance coverage including fidelity bonds, as may be required by the Government. (v) To establish and maintain such books and records relating to the operation of the facility and its financial affairs and to provide for required audit thereof in such a manner as may be required by the Government and to provide the Government without its request, a copy of each such audit and to make and forward to the Government such additional information and reports as it may, from time to time, require. (vi) To provide the Government at all reasonable times, access to all books and records relating to the facility and access to the property of the system so that the Government may ascertain that the association is complying with the provisions hereof and of the instruments incident to the making or insuring of the loan. (vii) To provide adequate service to all persons within the service area who can feasibly and legally be served and to obtain Rural Development's concurrence prior to refusing new or adequate services to such persons. Upon failure of the applicant to provide services which are feasible and legal, such person shall have a direct right of action against the applicant organization. (viii) To have prepared on its behalf and to adopt an ordinance or resolution for the issuance of its bonds or notes or other debt instruments or other such items and in such forms as are required by State statutes and as are agreeable and acceptable to the Government. (ix) To refinance the unpaid balance, in whole or in part, of its debt upon the request of the Government if at any time it should appear to the Government that the association is able to refinance its bonds by obtaining a loan for such purposes from responsible cooperative or private sources at reasonable rates and terms. (x) To provide for, execute, and comply with Form RD 400-4, “Assurance Agreement,” and Form RD 400-1, “Equal Opportunity Agreement,” including an “Equal Opportunity Clause,” which is to be incorporated in or attached as a rider to each construction contract and subcontract in excess of $10,000. (xi)(A) To place the proceeds of the loan on deposit in a manner approved by the Government. Funds must be deposited and maintained in insured accounts whenever possible. Funds must be maintained in interest bearing accounts, unless the following apply: ( 1 ( 2 ( 3 ( 4 (B) Interest earned on Federal payments deposited in interest-bearing accounts must be remitted annually to the Department of Health and Human Services, Payment Management System, Rockville, MD 20852. Interest amounts up to $500 per year may be retained by the non-Federal entity for administrative expense. (xii) Not to sell, transfer, lease, or otherwise encumber the facility or any portion thereof or interest therein, and not to permit others to do so, without the prior written consent of the Government. (xiii) Not to borrow any money from any source, enter into any contract or agreement, or incur any other liabilities in connection with making enlargements, improvements or extensions to, or for any other purpose in connection with the facility (exclusive of normal maintenance) without the prior written consent of the Government if such undertaking would involve the source of funds pledged to repay the debt to Rural Development. (xiv) That upon default in the payments of any principal and accrued interest on the bonds or in the performance of any covenant or agreement contained herein or in the instruments incident to making or insuring the loan, the Government, at its option, may: (A) Declare the entire principal amount then outstanding and accrued interest, due and payable; (B) For the account of the association (payable from the source of funds pledged to pay the bonds or notes or any other legally permissiable source), incur and pay reasonable expenses for repair, maintenance and operation of the facility and such other reasonable expenses as may be necessary to cure the cause of default; and/or (C) Take possession of the facility, repair, maintain and operate, or otherwise dispose of the facility. Default under the provisions of the resolution or any instrument incident to the making or insuring of the loan may be construed by the Government to constitute default under any other instrument held by the Government and executed or assumed by the association and default under any such instrument may be construed by the Government to constitute default hereunder. (3) Interim financing. (i) Statements to the extent possible are obtained; (ii) The interest of Rural Development can be adequately protected and its security position is not impaired; and (iii) Adequate provisions are made for handling the unpaid accounts by withholding or escrowing sufficient funds to pay such claims. (4) Obtaining closing instructions. (5) Applicant contribution. (6) Evidence of and disbursement of other funds. (o) Loan closing Closing instructions. (2) Obtaining insurance and fidelity bonds. (3) Distribution of recorded documents. (4) Review of loan closing. (p) Project monitoring and fund delivery during construction Coordination of funding sources. (2) Multiple advances. (i) Section 1942.19 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 applicant may use Form RD 440-11, “Estimate of Funds Needed for 30 Day Period Commencing ______,” to show the amount of funds needed during the 30-day period. (iii) Rural Development 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 paragraph (d)(1)(iv)(G) of this section. 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: (A) Deposited in an appropriate borrower account, such as the debt service account, or (B) Deposited in a supervised bank account under paragraph (p)(3)(i) of this section. (3) Use and accountability of funds Supervised bank account. (ii) Other than supervised bank account. (iii) Use of minority owned banks. (4) Development inspections. (5) Payment for construction. (6) Use of remaining funds. (i) Agency loan and/or grant funds. (A) On projects that only involve an agency loan and no agency grant, funds that are not needed will be applied as an extra payment on the RD indebtedness unless other disposition is required by the bond ordinance, resolution, or State statute. (B) On projects that involve an agency grant, all remaining agency funds will be considered to be grant funds up to the full amount of the grant. Grant funds not expended under paragraph (p)(6)(i) of this section will be deobligated. (ii) Funds from other sources. (q) Borrower accounting methods, management reporting and audits Annual financial statements. (2) Method of accounting and preparation of financial statements. (3) Record retention. (4) Audits. (5) Exemption from audits. (6) Deadlines for submitting audits and management reports. (7) Additional information to be submitted with audits and management reports. Insurance. (ii) Reserve account(s). (iii) Property tax information. (iv) A list of directors and officers. (8) Quarterly reports. (i) One copy of Form RD 442-2, or equivalent, Schedule 1, page 1, columns 4-6, as appropriate, and page 2. This information should be received in the Servicing Office 30 days after the end of each of the first three quarters of the fiscal year. (ii) The Servicing Office may request a borrower experiencing financial or management problems to submit quarterly copies of Form RD 442-2, or equivalent, Schedule 1, pages 1 and 2. [50 FR 7296, Feb. 22, 1985] Editorial Note: For Federal Register www.govinfo.gov. § 1942.18 Community facilities—Planning, bidding, contracting, constructing. (a) General. (b) Technical services. (c) Preliminary reports. (d) Design policies. (1) Natural resources. (2) Historic preservation. (3) Architectural barriers. (4) Health care facilities. 1985 (5) Energy conservation. (6) Lead base paints. (7) Fire protection. (8) Growth capacity. (9) Water conservation. (10) Water quality. (11) Combined sewers. (12) Compliance. (13) Dam safety. (14) Pipe. (15) Water system testing. 1/2 (16) Metering devices. (17) Seismic safety. (A) 1991 International Conference of Building Officials (ICBO) Uniform Building Code; (B) 1993 Building Officials and Code Administrators International, Inc. (BOCA) National Building Code; or (C) 1992 Amendments to the Southern Building Code Congress International (SBCCI) Standard Building Code. (ii) The date, signature, and seal of a registered architect or engineer and the identification and date of the model building code on the plans and specifications will be evidence of compliance with the seismic requirements of the appropriate building code. (e) Construction contracts. (1) Standard construction contract documents (2) Contract review and approval. (3) Separate contracts. (f) Utility purchase contracts. (1) 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. If it is impossible to obtain a firm commitment for either an adequate quantity or sharing shortages proportionately, a contract may be executed and approved provided adequate evidence is furnished to enable Rural Development 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 (i) 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 (ii) A suitable alternative supply could be arranged within the repayment ability of the borrower if it should become necessary; or (iii) Prior approval is obtained from the National Office. The following information should be submitted to the National Office: (A) Transmittal memorandum including: ( 1 ( 2 ( 3 (B) Copies of the following: ( 1 ( 2 ( 3 ( 4 ( 5 (C) Owner and Rural Development engineer's comments and recommendations. (D) Documentation and statement from the supplier that it has an adequate supply and treatment facilities available to meet the needs of its users and the owner for the foreseeable future. (2) 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. (3) Specify the initial rates and provide some kind 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. (4) Run for a period of time which is at least equal to the repayment period of the loan. State Directors 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: (i) 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 (ii) The contract contains adequate provisions for renewal; or (iii) 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. (5) 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 Rural Development 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. (6) Provide for a pledge of the contract to Rural Development as part of the security for the loan. (7) Not contain provisions for: (i) 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. (ii) 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. (g) Sewage treatment and bulk water sales contracts. (h) Performing construction. (i) Owner's contractual responsibility. (j) Owner's procurement regulations. (1) Code of conduct. (i) 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 of subagreements. (ii) 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. (2) Maximum open and free competition. (3) Owner's review. (4) Solicitation of offers, (i) Incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured. The description shall not, in competitive procurements, contain features which unduly restrict competition. The description may include a statement of the qualitative nature of the material, product or service to be procured, and when necessary shall set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use. Detailed product specifications should be avoided if at all possible. 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 features of the named brands which must be met by offerors shall be clearly stated. (ii) Clearly specify all requirements which offerors must fulfill and all other factors to be used in evaluating bids or proposals. (5) Small, minority, and women's businesses and labor surplus area firms. (A) Include qualified small and minority businesses on solicitation lists. (B) Assure that small and minority businesses are solicited whenever they are potential sources. (C) When economically feasible, divide total requirements into smaller tasks or quantities so as to permit maximum small and minority business participation. (D) Where the requirement permits, establish delivery schedules which will encourage participation by small and minority businesses. (E) Use the services and assistance of the Small Business Administration and the Office of Minority Business Enterprise of the Department of Commerce. (F) If any subcontracts are to be let, require the prime contractor to take the affirmative steps in paragraphs (j)(5)(i) (A) through (E) of this section. (ii) Owners shall take similar appropriate affirmative action in support of women's businesses. (iii) Owners are encouraged to procure goods and services from labor surplus areas. (iv) Owners shall submit a written statement or other evidence to Rural Development of the steps taken to comply with paragraphs (j)(5)(i) (A) through (F), (j)(5)(ii), and (j)(5)(iii) of this section. (6) Contract pricing. (7) Unacceptable bidders. (i) An engineer or architect as an individual or firm who has prepared plans and specifications or who will be responsible for monitoring the construction; (ii) Any firm or corporation in which the owner's architect or engineer is an officer, employee, or holds or controls a substantial interest; (iii) The governing body's officers, employees, or agents; (iv) Any member of the immediate family or partners in paragraphs (j)(7)(i), (j)(7)(ii), or (j)(7)(iii) of this section; or (v) An organization which employs, or is about to employ, any person in paragraph (j)(7)(i), (j)(7)(ii), (j)(7)(iii) or (j)(7)(iv) of this section. (8) Contract award. (k) Procurement methods. (1) Small purchase procedures. (2) Competitive sealed bids. (i) At a sufficient time prior to the date set for opening of bids, bids shall be solicited from an adequate number of qualified sources. In addition, the invitation shall be publicly advertised. (ii) The invitation for bids, including specifications and perinent attachments, shall clearly define the items or services needed in order for the bidders to properly respond to the invitation under paragraph (j)(4) of this section. (iii) All bids shall be opened publicly at the time and place stated in the invitation for bids. (iv) A firm-fixed-price contract award shall be made by written notice to that responsible bidder whose bid, conforming to the invitation for bids, is lowest. When specified in the bidding documents, factors such as discounts and transportation costs shall be considered in determining which bid is lowest. (v) Any or all bids may be rejected by the owner when it is in their best interest. (3) Competitive negotiation. (i) Proposals shall be solicited from an adequate number of qualified sources to permit reasonable competition consistent with the nature and requirements of the procurement. The Request for Proposal shall be publicized and reasonable requests by other sources to compete shall be honored to the maximum extent practicable. (ii) The Request for Proposal shall identify all significant evaluation factors, including price or cost where required, and their relative importance. (iii) The owner shall provide mechanisms for technical evaluation of the proposals received, determination of responsible offerors for the purpose of written or oral discussions, and selection for contract award. (iv) Award may be made to the responsible offeror whose proposal will be most advantageous to the owner, price and other factors considered. Unsuccessful offerors should be promptly notified. (v) Owners may utilize competitive negotiation procedures for procurement of architectural/engineering and other professional services, whereby competitors' qualifications are evaluated and the most qualified competitor is selected, subject to negotiations of fair and reasonable compensation. (4) Noncompetitive negotiation. (i) The item is available only from a single source; or (ii) There exists a public exigency or emergency and the urgency for the requirement will not permit a delay incident to competitive solicitation; or (iii) After solicitation of a number of sources, competition is determined inadequate; or (iv) No acceptable bids have been received after formal advertising; or (v) The procurement of architectural/engineering and other professional services. (vi) The aggregate amount does not exceed $50,000. (5) Additional procurement methods. (l) Alternate contracting methods. (1) The owner will request Rural Development approval by providing the following information to the State Office for review and approval by the State Architect: (i) The owner's written request to use an unconventional contracting method with a description of the proposed method. (ii) A proposed scope of work describing in clear, concise terms the technical requirements for the contract. This would include a nontechnical statement summarizing the work to be performed by the contractor, the expected results, the sequence in which the work is to be performed, and a proposed construction schedule. (iii) A proposed firm-fixed-price contract for the entire project which provides that the contractor shall be responsible for any extra cost which may result from errors or omissions in the services provided under the contract and compliance with all Federal, State, and local requirements effective on the contract execution date. (iv) An evaluation of the contractor's performance on previous similar projects in which the contractor acted in a similar capacity. (v) A detailed listing and cost estimate of equipment and supplies not included in the construction contract but which are necessary to properly operate the facility. (vi) Evidence that a qualified construction inspector who is independent of the contractor has or will be hired. (vii) Preliminary plans and outline specifications. However, final plans and specifications must be completed and reviewed by Rural Development prior to the start of construction. (viii) The owner's attorney's opinion and comments regarding the legal adequacy of the proposed contract documents and evidence that the owner has the legal authority to enter into and fulfill the contract. (2) The State Office may approve design/build or construction management/constructor projects if the contract amount is equal to or less than $250,000. (3) If the contract amount exceeds $250,000, National Office prior concurrence must be obtained in accordance with § 1942.9(b) of this subpart. Additional information, such as plans and specifications, may be requested by the National Office. (4) The Design/Build method of construction is one in which the architectural and engineering services, normally provided by an independent consultant to the owner, are combined with those of the General Contractor under a single source contract. These services are commonly provided by a Design/Build firm, a joint venture between an architectural firm and a construction firm, or a company providing pre-engineered buildings and design services. (5) The Construction Management/constructor (CMc), acts in the capacity of a General Contractor and is actually responsible for the construction. This type of construction management is also referred to as Construction Manager “At Risk.” The construction contract is between the owner and the CMc. The CMc, in turn, may subcontract for some or all of the work. (6) The National Office may approve other alternative contact methods, such as Construction Management/advisor (CMa), with a recommendation from the State Office. The recommendation shall indicate the circumstances which prove this method advantageous to the applicant and the Government. A CMa acts in an advisory capacity to the owner, and the actual contract for construction is between the owner and a prime contractor or multiple prime contractors. When a contract for an architect and a CMa are being provided, it is important to make sure that separate professionals are not being paid to provide similar services. Further, paragraph (e)(3) of this section discourages separate contracts for construction. (7) All alternate contracting method projects must comply with the requirements for “maximum open and free competition” in paragraph (j)(2) of this section. Choosing an alternate contracting method is not a way to avoid competition. Further information on procurement methods, which must be followed, is provided in paragraph (k) of this section. (m) Contracts awarded prior to preapplications. (1) Evidence. (i) The lapse of a reasonable period of time between the date of contract award and the date of filing the preapplication which clearly indicates an irreconcilable failure of previous financial arrangements; or (ii) A written statement explaining initial plans for financing the project and reasons for failure to obtain the planned credit. (2) Modifications. (3) Consultant's certification. (4) Owner's certification. (n) Contract provisions. (1) Remedies. (2) Termination. (3) Surety. (4) Equal Employment Opportunity. (5) Anti-kickback. (6) Records. (7) State Energy Conservation Plan. (8) Change orders. (9) Rural Development concurrence. (10) Retainage. (11) Other compliance requirements. (o) Contract administration. (1) Preconstruction conference. (2) Monitoring reports. (i) A comparison of actual accomplishments with the construction schedule established for the period. The partial payment estimate may be used for this purpose. (ii) A narrative statement giving full explanation of the following: (A) Reasons why established goals were not met. (B) Analysis and explanation of cost overruns or high unit costs and how payment is to be made for the same. (iii) If events occur between reports which have a significant impact upon the project, the owner will notify Rural Development as soon as any of the following conditions are met: (A) Problems, delays, or adverse conditions which will materially affect the ability to attain program objectives or prevent the meeting of project work units by established time periods. This disclosure shall be accompanied by a statement of the action taken, or contemplated, and any Federal assistance needed to resolve the situation. (B) Favorable developments or events which enable meeting time schedules and goals sooner than anticipated or producing more work units than originally projected or which will result in cost underruns or lower unit costs than originally planned and which may result in less Rural Development assistance. (3) Inspection. (4) Inspector's daily diary. (i) A complete set of all daily construction records will be maintained and the original set furnished to the owner upon completion of construction. (ii) All entries shall be legible and shall be made in ink. (iii) Daily entries shall include but not be limited to the date, weather conditions, number and classification of personnel working on the site, equipment being used to perform the work, persons visiting the site, accounts of substantive discussions, instructions given to the contractors, directions received, all significant or unusual happenings involving the work, any delays, and daily work accomplished. (iv) The daily entries shall be made available to Rural Development personnel and will be reviewed during project inspections. (5) Prefinal inspections. (6) Final inspection. (7) Change is development plans. (A) Funds are available to cover any additional costs; and (B) The change is for an authorized loan purpose; and (C) It will not adversely affect the soundness of the facility operation or Rural Development's security; and (D) The change is within the scope of the contract. (ii) Changes will be recorded on Form RD 1924-7, “Contract Change Order,” or, other similar forms may be used with the prior approval of the State Director or designee. Regardless of the form, change orders must be approved by the Rural Development State Director or a designated representative. (iii) Changes should be accomplished only after Rural Development approval on all changes which affect the work and shall be authorized only by means of contract change order. The change order will include items such as: (A) Any changes in labor and material and their respective cost. (B) Changes in facility design. (C) Any decrease or increase in quantities based on final measurements that are different from those shown in the bidding schedule. (D) Any increase or decrease in the time to complete the project. (iv) 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. [50 FR 7296, Feb. 22, 1985, as amended at 52 FR 8035, Mar. 13, 1987; 53 FR 6791, Mar. 3, 1988; 54 FR 14334, Apr. 11, 1989; 54 FR 18883, May 3, 1989; 61 FR 65156, Dec. 11, 1996; 77 FR 29539, May 18, 2012; 79 FR 76001, Dec. 19, 2014; 81 FR 11030, Mar. 2, 2016] § 1942.19 Information pertaining to preparation of notes or bonds and bond transcript documents for public body applicants. (a) General. (b) Policies related to use of bond counsel. (1) Issues of $250,000 or less. (2) Issues of $50,000 or less. (i) The amount of the issue does not exceed $50,000 and the applicant recognizes and accepts the fact that processing the application may require additional legal and administrative time. (ii) There is a significant cost saving to the applicant particularly with reference to total legal fees after determining what bond counsel would charge as compared with what the local attorney will charge without bond counsel. (iii) The local attorney is able and experienced in handling this type of legal work. (iv) The applicant understands that, if it is required by Rural Development to refinance its loan pursuant to the statutory refinancing requirements, it will probably have to obtain at its expense a bond counsel's opinion at that time. (v) All bonds will be prepared in accordance with this regulation and will conform as nearly as possible to the preferred methods of preparation stated in paragraph (e) of this section but still be consistent with State law. (vi) Many matters necessary to comply with Rural Development requirements such as land rights, easements, and organizational documents will be handled by the applicant's local attorney. Specific closing instructions will be issued by the Office of the General Counsel of the U.S. Department of Agriculture for the guidance of Rural Development. (3) For loans of less than $500,000. (c) Bond transcript documents. (1) Copies of all organizational documents. (2) Copies of general incumbency certificate. (3) Certified copies of minutes or excerpts therefrom of all meetings of the applicant's governing body at which action was taken in connection with the authorization and issuance of the bonds. (4) Certified copies of documents evidencing that the applicant has complied fully with all statutory requirements incident to calling and holding of a favorable bond election, if such an election is necessary in connection with bond issuance. (5) Certified copies of the resolution or ordinances or other documents, such as the bond authorizing resolutions or ordinance and any resolution establishing rates and regulating the use of the improvement, if such documents are not included in the minutes furnished. (6) Copies of official Notice of Sale and affidavit of publication of Notice of Sale where a public sale is required by State statute. (7) Specimen bond, with any attached coupons. (8) Attorney's no-litigation certificate. (9) Certified copies of resolutions or other documents pertaining to the bond award. (10) Any additional or supporting documents required by bond counsel. (11) For loans involving multiple advances of Rural Development 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 on or before the first advance of loan funds and 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 during the advance of funds such as litigation resulting from the failure to advance loan funds, and receipt of closing certrificates. (12) Preliminary approving opinion, if any, and final unqualified approving opinion of recognized bond counsel (or local counsel if no bond counsel is involved) including opinion regarding interest on bonds being exempt from Federal and any State income taxes. On approval of the Administrator, 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 opinions 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)], and providing that if the bonds evidencing the indebtedness in question are required by the Federal Government and sold on an insured basis from the Agriculture Credit Insurance Fund, or the Rural Development Insurance Fund, the interest on such bonds will be included in gross income for the purpose of the Federal income tax statutes. (d) Interim financing from commercial sources during construction period for loans of $50,000 or more. (e) Permanent instruments for Rural Development loans to repay interim commercial financing. (1) First preference—Form RD 440-22, “Promissory Note (Association or Organization)”. (2) Second preference—single instruments with amortized installments. (i) Annual payments—Subtract the due date of the last annual interest only Date of Loan Closing: 7-5-1976 Amount of Loan: $100,000.00 Interest Rate: 5% Amortization Period: 40 years Interest Only Installments: 7-5-1977 and 7-5-1978 First Regular Installment: 7-5-1979 Final Installment: 7-5-2016 Computation: 2016 − 1978 = 38 annual payments $100,000.00 × .05929 = $5,929.00 annual payment due (ii) Semiannual payments—Multiply by two the number of years between the due date of the last annual interest only Date of Loan Closing: 7-5-1976 Amount of Loan: $100,000.00 Interest Rate: 5% Amortization Period: 40 years Interest Only Installments: 7-5-1977 and 7-5-1978 First Regular Installment: 7-5-1979 Final Installment: 7-5-2016 Computation: 2016 − 1978 = 38 × 2 = 76 semiannual periods $100,000.00 × .02952 = $2,952.00 semiannual payment due (iii) Monthly payments—Multiply by twelve the number of years between the due date of the last annual interest only Date of Loan Closing: 7-5-1976 Amount of Loan: $100,000.00 Interest Rate: 5% Amortization Period: 40 years Interest Only Installments: 7-5-1977 and 7-5-1978 First Regular Installment: 7-5-1979 Final Installment: 7-5-2016 Computation: 2016 − 1978 = 38 × 12 = 456 monthly payments $100,000.00 × .00491 = $491.00 monthly payment due (3) Third preference—single instrument with installments of principal plus interest. (i) The repayment terms concerning interest only installments described in paragraph (e)(2) of this section, “Second perference” applies. (ii) The instrument shall contain in substance the following provisions: (A) A statement of principal maturities and due dates. (B) Payments made on indebtedness evidenced by this instrument shall be applied to the interest due through the next installment due date and the balance to principal in accordance with the terms of the bond. Payments on delinquent accounts will be applied in the following sequence: ( 1 ( 2 ( 3 ( 4 ( 5 Extra payments and payments made from security depleting sources shall be applied to the principal last to come due or as specified in the bond instrument. (4) Fourth preference—serial bonds with installments of principal plus interest. use serial bonds with a bond or bonds delivered in the amount of each advance. Bonds will be delivered in the order of their numbers. (f) Multiple advances of Rural Development funds using permanent instruments. (g) Multiple advances of Rural Development funds using temporary debt instrument. (1) The date from which each advance will bear interest. (2) The interest rate. (3) A payment schedule providing for interest on outstanding principal at least annually. (4) A maturity date which shall be no earlier than the anticipated issuance date of the permanent instrument(s). (h) Minimum bond specifications. (1) Type and denominations. (i) To compute the value of each coupon when the bond denomination is consistent: (A) Multiply the amount of the loan or advance by the interest rate and divide the product by 365 days. (B) Multiply the daily accrual factor determined in (A) by the number of days from the date of advance or last installment date to the next installment date. (C) Divide the interest computed in (B) by the number of bonds securing the advance; this is the individual coupon amount. (ii) to compute the value of each coupon when the bond denomination varies: (A) Multiply the denomination of the bond by the interest rate and divide the product by 365 days. (B) Multiply the daily accrual factor determined in (A) by the number of days from the date of advance or last installment date to the next installment due date; this is the individual coupon amount. (2) Bond registration. (3) Size and quality. (4) Date of bond. (5) Payment date. (6) [Reserved] (7) Redemptions. (8) Additional revenue bonds. (9) Scheduling of Rural Development payments when joint financing is involved. (10) Precautions. (i) Provisions for the holder to manually post each payment to the instrument. (ii) Provisions for returning the permanent or temporary debt instrument to the borrower in order that it, rather than Rural Development, may post the date and amount of each advance or repayment on the instrument. (iii) 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 Rural Development from requiring graduation before the final maturity date, it represents a violation of the statutory refinancing requirement, therefore it is disallowed. (iv) Provisions that amend convenants contained in Forms RD 1942-47, “Loan Resolution (Public Bodies),” or FmHA 1942-9, “Loan Resolution Security Agreement.” (11) Multiple Loan Instruments. (i) 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. (ii) Loan funds obligated in different fiscal years and those obligated with different interest rates or terms in the same fiscal year will be evidenced by separate debt instruments. (iii) Loan funds obligated for the same loan type in the same fiscal year at the same interest rate and term may be combined in the same debt instrument; provided the borrower has been notified on Form RD 1940-1, “Request for Obligation of Funds”, of the action. (i) Bidding by Rural Development. [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6791, Mar. 3, 1988; 54 FR 18883, May 3, 1989; 56 FR 29168, June 26, 1991; 68 FR 61331, Oct. 28, 2003] § 1942.20 Community Facility Guides. (a) The following documents are attached and made part of this subpart and may be used by officials in administering this program. (1) Guide 1 and 1a—Guide Letter for Use in Informing Private Lender of Agency's Commitment. (2) Guide 2—Water Users Agreement. (3) Guide 3—Service Declination Statement. (4) Guide 4—Bylaws. (5) Guide 5—Financial Feasibility Report. (6) Guide 6—Preliminary Architectural Feasibility Report. (7) Guide 7—Preliminary Engineering Report Water Facility. (8) Guide 8—Preliminary Engineering Report Sewerage Systems. (9) Guide 9—Preliminary Engineering Report Solid Waste Disposal Systems. (10) Guide 10—Preliminary Engineering Report Storm Waste-Water Disposal. (11) Guide 11—Daily Inspection Report. (12) Guide 12—Memorandum of Understanding Between the Economic Development Administration—Department of Commerce and the Department of Agriculture Pertaining to EDA Public Works Projects Assisted by an Agency loan. (13) Guide 13—Memorandum of Understanding Between the Economic Development Administration—Department of Commerce and the Department of Agriculture Regarding Supplementary Grant Assistance for the Construction of Public Works and Development Facilities. (14) Guide 14—Legal Services Agreement. (15) Guide 15—Community Facility Borrower's Application. (16) Guide 16—Community Facility Loan Docket. (17) Guide 17—Construction Contract Documents—Short Form. (18) Guide 18—Agency Supplemental General Conditions. (19) Guide 19—Construction Contract Documents. (20) Guide 20—Agreement for Engineering Services (Agency/EPA Jointly Funded Projects). (21) Guide 21—Review of Audit Reports. (22) Guide 22—Delinquent Accounts Positive Action Plan. (23) Guide 23—Agreement for Joint Use of Electric System Poles. (24) Guide 24—Minimum Suggested Contents of Management Agreements. (25) Guide 25—Joint Policy Statement Between Environmental Protection Agency and the Agency. (26) Guide 26—Community Programs Project Selection Criteria. (27) Exhibit A—Circular No. A-128. (28) Exhibit B—Department of Agriculture Regional Inspector General (OIG). (b) These guides and exhibits are for use by Agency officials, applicants and applicant's officials and/or agents on certain matters related to the planning, development, and operation of essential community facilities which involve the use of loans and/or grants from Agency. This includes activities related to applying for and obtaining such financial assistance. These guides and exhibits are not published in the Federal Register, [50 FR 7296, Feb. 22, 1985, as amended at 53 FR 6787, Mar. 3, 1988] § 1942.21 Statewide nonmetropolitan median household income. Statewide nonmetropolitan median household income [69 FR 65519, Nov. 15, 2004] §§ 1942.22-1942.29 [Reserved] § 1942.30 Re-lending. The provisions in this section establish the process by which the Agency may make loans to eligible re-lenders who then in turn re-loan the funds to eligible applicants for eligible projects under this subpart. This section may be supplemented by provisions in annual notices published in the Federal Register. (a) Re-lender eligibility. (1) Demonstrate the legal authority necessary to make and service loans involving community infrastructure and development similar to the type of projects listed in § 1942.17(d); (2) Meet federal, state and local requirements in accordance with § 1942.17(k); (3) As specified in the annual Federal Register (4) Agree to provide adequate collateral, as determined by the Agency, to support the loan request; (5) Provide a Letter of Intent from a financial institution that an Irrevocable Letter of Credit (or performance guarantee) acceptable to the Agency will be issued by the financial institution if the Re-lender is approved for funding; (6) As specified in the annual Federal Register (7) Demonstrate one of the following, as provided in the annual Federal Register (i) Re-lender is regulated and supervised by a Federal or State Banking Regulatory Agency that is subject to credit examination, AND the institution, its subsidiaries, holding companies, and affiliates are not on their respective regulatory agency's watch list and have no regulatory actions outstanding against them; (ii) Re-lender has a strong Financial Strength and Performance Rating as specified in the annual Federal Register (iii) At the time of application, Re-lender provides written documentation, acceptable to the Agency, from a financial institution that an Irrevocable Letter of Credit (or performance guarantee) acceptable to the Agency will be issued by the financial institution, if the Re-lender is approved for funding; and the Re-lender: (A) Obtains a strong Financial Strength and Performance Rating as specified in the Annual Federal Register (B) Proves to be a financially sound institution as determined by the Agency in accordance with the annual Federal Register (8) Be a legal, non-governmental entity at the time of application (with the exception of Tribal governmental entities); (9) Be a member of a national organization that provides training, technical assistance and credit evaluation of member organizations, such as FDIC, NCUA or other similar organizations; or be certified by a Government agency as having a primary mission of promoting community development in low-income target markets and perform training and technical assistance as part of that mission; (10) Agrees to loan a majority of Agency funds, as specified in the annual Federal Register (11) Meet any other criteria specified by the Agency in the annual Notice published in the Federal Register (b) Applicant and project eligibility. (1) The applicant must meet the eligibility requirements found in this subpart, including but not limited to those in § 1942.2(a)(2) regarding the inability to obtain credit elsewhere and § 1942.17(b) and (k); (2) The applicant must comply with any other criteria specified by the Agency in the annual Program Notice published in the Federal Register (3) The project must: (i) Meet all of the eligibility requirements for a project found in this subpart, including but not limited to § 1942.17(b)(2), (d), (e), and (g) and all environmental review requirements as specified in § 1942.2(b) and 7 CFR part 1970; and (ii) Meet any additional requirements that may be specified in the program's annual Notice published in the Federal Register (c) Application submission requirements. Federal Register (d) Evaluation criteria. Federal Register (e) Other Re-lender requirements. (1) Enter into a Re-lender's agreement provided by the Agency; (2) Execute a promissory note; (3) Provide an Agency approved Irrevocable Letter of Credit (or performance guarantee) acceptable to the Agency in the minimum amount equal to the principal and interest installments due during the first five (5) years of the loan, prior to receiving any loan disbursements; (4) Provide adequate collateral satisfactory to the agency; and (5) Meet any other loan conditions as described in the annual Notice published in the Federal Register (f) Loan origination and servicing Re-lenders. (i) Presenting to the Agency eligible CF direct loan applications in accordance with this subpart and any additional terms established in the applicable annual Notice published in the Federal Register (ii) Underwriting and servicing each loan reviewed and approved by the Agency under this section; (iii) Submitting reports to the Agency after any loan disbursement as specified in the annual Federal Register (iv) Certifying to the Agency that the Re-lender and Borrower have met the requirements of 7 CFR 3575.42 and 3575.43 for planning, bidding, contracting and construction, as specified in the annual Federal Register (v) Complying with other Agency requirements as specified in the annual Federal Register (vi) Obtaining disbursement of loan funds according to this section and the annual Federal Register (2) Agency responsibilities. (ii) The Agency will notify the re-lender of its determination and any administrative review or appeal rights for Agency decisions made under this subpart. Programmatic decisions based on clear and objective statutory or regulatory requirements are not appealable; however, such decisions are reviewable for appealability by the National Appeals Division (NAD). The applicant and re-lender may appeal any Agency decision that directly and adversely impacts them. For an adverse decision that impacts the applicant, the re-lender and applicant must jointly execute a written request for appeal for an alleged adverse decision made by the Agency. An adverse decision that only impacts the re-lender may be appealed by the re-lender only. A decision by a re-lender adverse to the interest of an applicant or borrower is not a decision by the Agency, whether or not concurred in by the Agency. Appeals will be conducted by USDA NAD and will be handled in accordance with 7 CFR part 11. (iii) For approved eligible borrowers and projects, the Agency will confirm that all environmental requirements as specified in this subpart and 7 CFR part 1970 have been met and that the Re-lender has provided adequate security for its loan, before the Agency will disburse funds to the Re-lender; (iv) The Agency will service each re-lender's loan in accordance with 7 CFR part 1951, subpart E. The Agency may suspend further disbursements, and pursue any other available and appropriate remedies, if any of the re-lender loans become troubled, delinquent, or otherwise in default status, or if the re-lender is not meeting the terms of its Relender's Agreement. [81 FR 43936, July 6, 2016] §§ 1942.31-1942.49 [Reserved] § 1942.50 OMB control number. The reporting and recordkeeping requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0015. Public reporting burden for this collection of information is estimated to vary from five minutes to 15 hours per response, with an average of 2.7 hours per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden to the Department of Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, DC 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB #0575-0015), Washington, DC 20503. [60 FR 11019, Mar. 1, 1995] Subpart B [Reserved] Subpart C—Fire and Rescue and Other Small Community Facilities Projects Source: 52 FR 43726, Nov. 16, 1987, unless otherwise noted. § 1942.101 General. This subpart provides the policies and procedures for making and processing insured Community Facilities (CF) loans for facilities that will primarily provide fire or rescue services and other small essential community facility projects and applies to fire and rescue and other Community Facilities loans for projects costing $300,000 and under. Any processing or servicing activity conducted pursuant to this subpart involving authorized assistance to Rural Development 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 chapter. Applicants for this assistance are required to identify any known relationship or association with a Rural Development employee. Community Facilities loans for other types of facilities, and those costing in excess of $300,000, are defined in subpart A of this part. [68 FR 65830, Nov. 24, 2003] § 1942.102 Nondiscrimination. (a) Federal statutes provide for extending Agency financial programs without regard to race, color, religion, sex, national origin, marital status, age, or physical/mental handicap. The participants must possess the capacity to enter into legal contracts under State and local statutes. (b) Indian tribes on Federal and State reservations and other Federally recognized Indian tribes are eligible to apply for and are encouraged to participate in this program. Such tribes might not be subject to State and local laws or jurisdiction. However, any requirements of this subpart that affect applicant eligibility, the adequacy of RD's security or the adequacy of service to users of the facility and all other requirements of this subpart must be met. § 1942.103 Definitions. Agency. Approval official. Construction. Owner. Processing office. Regional Attorney or OGC. Small Community Facilities projects. [68 FR 65830, Nov. 24, 2003] § 1942.104 Application processing. (a) General. (b) Unfavorable decision. The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided that the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income is derived from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal agency that administers compliance with this law is the Federal Trade Commission, Equal Credit Opportunity, Washington, DC 20580. [52 FR 43726, Nov. 16, 1987, as amended at 54 FR 47197, Nov. 13, 1989; 55 FR 13504, Apr. 11, 1990; 68 FR 65830, Nov. 24, 2003; 68 FR 69001, Dec. 11, 2003] § 1942.105 Environmental review requirements. Loans made under this subpart must be in compliance with the environmental review requirements in accordance with 7 CFR part 1970. [81 FR 11031, Mar. 2, 2016] § 1942.106 Intergovernmental review. (a) Loans under this subpart are subject to intergovernmental review requirements set forth in U. S. Department of Agriculture regulations 7 CFR 3015, subpart V and RD Instruction 1970-I, ‘Intergovernmental Review,’ available in any Agency office or on the Agency's Web site. (b) State intergovernmental review agencies that have selected community facility loans as a program they want to review may not be interested in reviewing proposed loans for fire and rescue facilities. In such cases, the State Director should obtain a letter from the State single point of contact exempting fire and rescue loans from intergovernmental consultation review. A copy of the letter should be placed in the case file for each fire and rescue facility application in lieu of completing the intergovernmental review process. (c) When an application is filed and adverse comments are not expected, the District Director should proceed with application processing pending intergovernmental review. The loan should not be obligated until any required review process has been completed. (d) Funds allocated for use under this subpart are also for the use of eligible Indian tribes within the State, regardless of whether State development strategies include Indian reservations. Eligible Indian tribes must have equal opportunity to participate in the program as compared with other residents of the State. [52 FR 43726, Nov. 16, 1987, as amended at 61 FR 6309, Feb. 20, 1996; 76 FR 80730, Dec. 27, 2011] § 1942.107 Priorities. (a) Eligible applications must be selected for processing in accordance with § 1942.17(c) of subpart A of this part 1942. (b) The District Director must score each eligible application in accordance with § 1942.17(c)(2)(iii) of subpart A of this part 1942. The District Director must then notify the State Director of the score, proposed loan amount, and other pertinent data. The State Director should determine as soon as possible if the project has sufficient priority for further processing and notify the District Director. Normally, this consultation should be handled by telephone and documented in the running record. (c) Applicants who appear eligible but do not have the priority necessary for further consideration at this time should be notified that funds are not available, requested to advise whether they wish to have their application maintained for future consideration and given the following notice: You are advised against incurring obligations which would limit the range of alternatives to be considered, or which cannot be fulfilled without Agency funds until the funds are actually made available. Therefore, you should refrain from such actions as initiating engineering and legal work, taking actions which would have an adverse effect on the environment, taking options on land rights, developing detailed plans and specifications, or inviting construction bids until notified by RD to proceed. § 1942.108 Application docket preparation and review. (a) Guides. (b) [Reserved] (c) Budgets. (d) Letter of conditions. (e) Organizational review. (f) National Office review. (g) State Office review. (h) Loan approval and fund obligation. [52 FR 43726, Nov. 16, 1987, as amended at 54 FR 47197, Nov. 13, 1989; 67 FR 60854, Sept. 27, 2002; 68 FR 65830, Nov. 24, 2003] § 1942.109 [Reserved] § 1942.110 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] § 1942.111 Applicant eligibility. (a) General. (b) Credit elsewhere determinations. (c) Public use. [52 FR 43726, Nov. 16, 1987, as amended at 68 FR 65830, Nov. 24, 2003] § 1942.112 Eligible loan purposes. (a) Funds may be used: (1) To construct, enlarge, extend, or otherwise improve essential community facilities primarily providing fire or rescue services primarily to rural residents and rural business. Rural businesses would include facilities such as educational and other publicly owned facilities. “Otherwise improve” includes but is not limited to the following: (i) The purchase of major equipment, such as fire trucks and ambulances, which will, in themselves, provide an essential service to rural residents. (ii) The purchase of existing facilities when it is necessary either to improve or to prevent a loss of service. (iii) The construction or development of an essential community facility requisite to the beneficial and orderly development of a community operated on a nonprofit basis in accordance with § 1942.17(d) of this subpart. This subpart includes those projects meeting the definition of a small community facility project. (2) To pay the following expenses, but only when such expenses are a necessary part of a loan to finance facilities authorized in paragraph (a)(1) of this section: (i) Reasonable fees and costs such as legal, engineering, architectural, fiscal advisory, recording, environmental impact analyses, archaeological surveys and possible salvage or other mitigation measures, planning, establishing or acquiring rights. (ii) Interest on loans until the facility is self-supporting but not for more than 3 years unless a longer period is approved by the National Office; interest on loans secured by general obligation bonds until tax revenues are available for payment, but not for more than 2 years unless a longer period is approved by the National Office; and interest on interim financing, including interest charges on interim financing from sources other than RD. (iii) Costs of acquiring interest in land, rights such as water rights, leases, permits, rights-of-way, and other evidence of land or water control necessary for development of the facility. (iv) Purchasing or renting equipment necessary to install, maintain, extend, protect, operate, or utilize facilities. (v) Initial operating expenses for a period ordinarily not exceeding 1 year when the borrower is unable to pay such expenses. (vi) Refinancing debts incurred by, or on behalf of, a community when all of the following conditions exist: (A) The debts being refinanced are a secondary part of the total loan; (B) The debts are 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. (3) To pay obligations for construction or procurement incurred before loan approval. Construction work or procurement actions should not be started and obligations for such work or materials should not be incurred before the loan is approved. However, if there are compelling reasons for proceeding with construction or procurement before loan approval, applicants may request Agency approval to pay such obligations. Such requests may be approved if RD determines that: (i) Compelling reasons exist for incurring obligations before loan approval; and (ii) The obligations will be incurred for authorized loan purposes; and (iii) Contract documents have been approved by RD; and (iv) All environmental requirements applicable to RD and the applicant have been met; and (v) The applicant has the legal authority to incur the obligations at the time proposed, and payment of the debts will remove any basis for any mechanic, material or other liens that may attach to the security property. RD may authorize payment of such obligations at the time of loan closing. RD's authorization to pay such obligations, however, is on the condition that it is not committed to make the loan; it assumes no responsibility for any obligations incurred by the applicant; and the applicant must subsequently meet all loan approval requirements. The applicant's request and Agency authorization for paying such obligations shall be in writing. If construction or procurement is started without Agency approval, post approval in accordance with this section may be considered. (b) Funds may not be used to finance: (1) Facilities which are not modest in size, design, and cost. (2) Loan finder's fees. (3) Projects located within the Coastal Barriers Resource system that do not qualify for an exception as defined in section 6 of the Coastal Barriers Resource Act, Pub. L. 97-348. [52 FR 43726, Nov. 16, 1987, as amended at 57 FR 21195, May 19, 1992; 68 FR 65831, Nov. 24, 2003] § 1942.113 Rates and terms. Rates and terms for loans under this subpart are as set out in § 1942.17(f) of subpart A of this part 1942. § 1942.114 Security. Specific requirements for security for each loan will be included in the letter of conditions. Loans must be secured by the best security position practicable, in a manner which will adequately protect the interest of RD during the repayment period of the loan, and in accordance with the following; (a) Security must include one of the following: (1) A pledge of revenue and a lien on all real estate and major equipment purchased or developed with the Agency loan; or (2) General obligation bonds or bonds pledging other taxes. (b) Additional security may be required as determined necessary by the loan approval official. In determining the need for additional security the loan approval official should carefully consider: (1) The estimated market value of real estate and equipment security. (2) The adequacy and dependability of the applicant's revenues, based on the applicant's financial records, the project financial feasibility report, and the project budgets. (3) The degree of community commitment to the project, as evidenced by items such as active broad based membership, aggressive leadership, broad based fund drives, or contributions by local public bodies. (c) Additional security may include, but is not limited to, the following: (1) Liens on additional real estate or equipment. (2) A pledge of revenues from additional sources. (3) An assignment of assured income in accordance with § 1942.17(g)(3)(iii)(A)( 1 (d) Review and approval or concurrence in the State Office is required if the security will not include a pledge of taxes and the applicant cannot provide evidence of the financially successful operation of a similar facility for the 5 years immediately prior to loan application. (e) Review and concurrence in the National Office is required if the security will not include a pledge of taxes, the applicant cannot provide evidence of the financially successful operation of a similar facility for the 5 years immediately prior to loan application, and the amount of the loan will exceed $250,000. (f) Loans under this subpart are subject to the provisions of § 1942.17(g)(1) of subpart A of this part 1942, regarding security for projects utilizing joint financing. [52 FR 43726, Nov. 16, 1987; 52 FR 47097, Dec. 11, 1987] § 1942.115 Reasonable project costs. Applicants are responsible for determining that prices paid for property rights, construction, equipment, and other project development are reasonable and fair. RD may require an appraisal by an independent appraiser or Agency employee. § 1942.116 Economic feasibility requirements. All projects financed under this section must be based on taxes, assessments, revenues, fees, or other satisfactory sources of revenues in an amount sufficient to provide for facility operation and maintenance, a reasonable reserve, and debt payment. An overall review of the applicant's financial status, including a review of all assets and liabilities, will be a part of the docket review process by the Agency staff and approval official. All applicants will be expected to provide a financial feasibility report. These financial feasibility reports will normally be: (a) Included as part of the preliminary engineer/architectural report using guide 6 to subpart A of this part 1942 (available in any RD Office), or (b) Prepared by the applicant using Form RD 1942-54, “Applicant's Feasibility Report.” § 1942.117 General requirements. (a) Reserve requirements. (b) Membership authorization. (c) Insurance and bonding. (d) Acquisition of land and rights. (e) Lease agreements. (f) Notes and bonds. (g) Public information. (h) Joint funding. § 1942.118 Other Federal, State, and local requirements. (a) Loans under this subpart are subject to the provisions of § 1942.17 (k) of subpart A of this part 1942. (b) An initial compliance review should be completed under subpart E of part 1901 of this chapter. § 1942.119 Professional services and borrower contracts. (a) Loans under this subpart are subject to the provisions of § 1942.17 (l) of subpart A of this part 1942. (b) The District Director will, with assistance as necessary by the State Director and OGC, concur in agreements between borrowers and third parties such as contracts for professional and technical services. The State Director may require State Office review of such documents in accordance with § 1942.108 (g) of this subpart. State Directors are expected to work closely with representatives of engineering and architectural societies, bar associations, commercial lenders, accountant associations, and others in developing standard forms of agreements, where needed, and other matters to expedite application processing, minimize referrals to OGC, and resolve problems which may arise. Standard forms should be reviewed by and approved by OGC. §§ 1942.120-1942.121 [Reserved] § 1942.122 Actions prior to loan closing and start of construction. (a) Excess Agency loan funds. (b) Loan resolutions. (c) Interim financing. (d) Applicant contribution. (e) Evidence of and disbursement of other funds. (f) Assurance agreement. § 1942.123 Loan closing. (a) Ordering loan checks. (1) Form RD 440-57, “Acknowledgement of Obligated Funds/Check Request,” has been received from the Finance Office. (2) The applicant has complied with approval conditions and any closing instructions, except for those actions which are to be completed on the date of loan closing or subsequent thereto. (3) The applicant is ready to start construction or funds are needed to pay interim financing obligations. (b) Public bodies and Indian tribes. (2) Loans will be closed in accordance with the closing instructions issued by OGC and § 1942.19 of subpart A of this part 1942. (c) Organizations other than public bodies and Indian tribes. (d) Authority to execute, file, and record legal instruments. (e) Mortgages. (f) Notes and bonds. (g) Disposition of title evidence. (h) Multiple advances. (1) The Finance Office will be notified of the anticipated date for the retirement of the interim instruments and the issuance of permanent instruments of debt. (2) The Office of the Deputy Chief Financial Officer will prepare a statement of account including accrued interest through the proposed date of retirement and also show the daily interest accrual. The statement of account and the interim financing instruments will be forwarded to the Rural Development Manager. (3) The Rural Development Manager will collect interest through the actual date of the retirement and obtain the permanent instrument(s) of debt in exchange for the interim financing instruments. The permanent instruments and the cash collection will be forwarded to the Office of the Deputy Chief Financial Officer immediately, except that for notes and single instrument bonds fully registered as to principal and interest the original will be retained in the Area Office and a copy will be forwarded to the Office of the Deputy Chief Financial Officer. In developing the permanent instruments, the sequence of preference set out § 1942.19(e) of subpart A of part 1942 of this chapter will be followed. (i) Bond registration record. (j) Loan disbursements. (k) Safeguarding bond shipments. (l) Review of loan closing. (m) Loan cancellation. [52 FR 43726, Nov. 16, 1987, as amended at 59 FR 54788, Nov. 2, 1994; 70 FR 19254, Apr. 13, 2005] §§ 1942.124-1942.125 [Reserved] § 1942.126 Planning, bidding, contracting, constructing, procuring. (a) General. (b) Technical services. (1) Preliminary reports. (2) Final reports. (3) Major equipment. (c) Design policies. (d) Construction contracts. (1) Standard construction contract documents. (2) Contract review and approval. (3) Separate contracts. (e) Performing construction. (f) Owner's contractual responsibility. (g) Owner's procurement regulations. (h) Procurement methods. (1) Small purchase procedures as provided in § 1942.18(k)(1) of subpart A of this part 1942. (2) Competitive sealed bids as provided in § 1942.18(k)(2) of subpart A of this part 1942. Competitive sealed bids is the preferred procurement method of construction projects, except for buildings costing $100,000 or less when the owner desires to use a “preengineered” or “packaged” building. (3) Competitive negotiation as provided in § 1942.18(k)(3) of subpart A of this part 1942. Competitive negotiation is the preferred procurement method of buildings not exceeding $100,000 in cost when the owner desires to use a “pre-engineered” or “packaged” building and for major equipment. (4) Noncompetitive negotiation as provided in § 1942.18(k)(4) of subpart A of this part 1942. (i) Contracting methods. (j) Contracts awarded prior to preapplications. (k) Construction contract provisions. (l) Construction contract administration. (1) Preconstruction conference. (2) Monitoring reports. (i) A comparison of actual accomplishments with the construction schedule established for the period. The partial payment estimate may be used for this purpose. (ii) A narrative statement giving full explanation of the following: (A) Reasons why established goals were not met. (B) Analysis and explanation of cost overruns or high unit costs and how payment is to be made for the same. (iii) If events occur between reports which have a significant impact upon the project, the owner will notify RD as soon as any of the following conditions are known: (A) Problems, delays, or adverse conditions which will materially affect the ability to attain program objectives or prevent the meeting of project work units by established time periods. This disclosure shall be accompanied by a statement of the action taken, or contemplated, and any Federal assistance needed to resolve the situation. (B) Favorable developments or events which enable meeting time schedules and goals sooner than anticipated or producing more work units than originally projected or which will result in cost underruns or lower unit costs than originally planned and which may result in less Agency assistance. (3) Inspection. (i) An initial inspection should be made just prior to or during the placement of concrete footings or monolithic footings and floor slabs. At this point, foundation excavations are complete, forms or trenches and steel are ready for concrete placement and the subsurface installation is roughed in. If the building design does not include concrete footings the initial inspection should be made just after or during the placement of poles or other foundation materials. (ii) An inspection should be made when the building is enclosed, structural members are still exposed, roughing in for heating, plumbing and electrical work is in place and visible, and wall insulation and vapor barriers are installed. (iii) A final inspection should be made when all development of the structure has been completed and the structrure is ready for its intended use. (4) Prefinal inspections. (5) Final inspection. (6) Changes in development plans. (A) Funds are available to cover any additional costs; and (B) The change is for an authorized loan purpose; and (C) It will not adversely affect the soundness of the facility operation or RD's security; and (D) The change is within the scope of the contract; and (E) Any applicable requirements of 7 CFR part 1970 have been met. (ii) Changes will be recorded on Form RD 1924-7, “Contract Change Order,” or other similar forms may be used with the prior approval of the District Director. Regardless of the form, change orders must be approved by the Agency District Director. (iii) Changes should be accomplished only after Agency approval on all changes which affect the work and shall be authorized only by means of contract change order. The change order will include items such as: (A) Any changes in labor and material and their respective cost. (B) Changes in facility design. (C) Any decrease or increase in quantities based on final measurements that are different from those shown in the bidding schedule. (D) Any increase or decrease in the time to complete the project. (iv) 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. [52 FR 43726, Nov. 16, 1987; 52 FR 47097, Dec. 11, 1987, as amended at 81 FR 11031, Mar. 2, 2016] § 1942.127 Project monitoring and fund delivery. (a) Coordination of funding sources. (b) Multiple advances. (c) Use and accountability of funds. (d) Development inspections. (e) Payment for project costs. (1) Construction. (2) Major equipment. (f) Use of remaining funds. [52 FR 43726, Nov. 16, 1987; 52 FR 47097, Dec. 11, 1987] § 1942.128 Borrower accounting methods, management reports and audits. (a) Loans under this subpart are subject to the provisions of § 1942.17(q) of subpart A of this part 1942 except as provided in this section. (b) Borrowers with annual incomes not exceeding $100,000 may, with concurrence of the District Director, use Form RD 1942-53, “Cash Flow Report,” instead of page one of schedule one and schedule two of Form RD 442-2, “Statement of Budget, Income, and Equity.” When used for budgeting, the cash statement should be projected for the upcoming fiscal year. When used for quarterly or annual reports, the cash flow report should include current year projections and actual data for the prior year, the quarter just ended, and the current year to date. § 1942.129 Borrower supervision and servicing. Loans under this subpart are subject to the provisions of § 1942.17(r) of subpart A of this part 1942 and subpart E of part 1951 of this chapter. §§ 1942.130-1942.131 [Reserved] § 1942.132 Subsequent loans. Subsequent loans will be processed under this subpart. § 1942.133 Delegation and redelegation of authority. Loan approval authority is in subpart A of part 1901 of this chapter. State Directors may delegate approval authority to District Directors to approve fire and rescue loans regardless of whether authority to approve other community facility loans is delegated. Except for loan approval authority, District Directors may redelegate their duties to qualified staff members. § 1942.134 State supplements and guides. State Directors will obtain National Office clearance for all State supplements and guides under RD Instruction 2006-B (available in any Rural Development office). (a) State supplements. (b) State guides. §§ 1942.135-1942.149 [Reserved] § 1942.150 OMB control number. The collection of information requirements in this regulation have been approved by the Office of Management and Budget and have been assigned OMB control number 0575-0120. Subparts D-H [Reserved]

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