Water & Wasteloans & Grants

Rural Utilities Service, USDA

Pt. 1780

(a) Upon full payment of the guaranteed loan; or
(b) Upon full payment of any loss obligation or negotiated loss settlement
except for future recovery provisions;
or
(c) Upon written request from the
lender to the Agency, provided that the
lender holds all of the guaranteed portion and the original Loan Note Guarantee is returned to the Agency.
§§ 1779.97–1779.99

[Reserved]

§ 1779.100 OMB control number.
The reporting and recordkeeping requirements contained in this part have
been approved by the Office of Management and Budget and have been assigned OMB control number 0572–0122.

PART 1780—WATER AND WASTE
LOANS AND GRANTS
Subpart A—General Policies and
Requirements
Sec.
1780.1 General.
1780.2 Purpose.
1780.3 Definitions and grammatical rules of
construction.
1780.4 Availability of forms and regulations.
1780.5 [Reserved]
1780.6 Application information.
1780.7 Eligibility.
1780.8 [Reserved]
1780.9 Eligible loan and grant purposes.
1780.10 Limitations.
1780.11 Service area requirements.
1780.12 [Reserved]
1780.13 Rates and terms.
1780.14 Security.
1780.15 Other Federal, State, and local requirements.
1780.16 [Reserved]
1780.17 Selection priorities and process.
1780.18 Allocation of program funds.
1780.19 Public information.
1780.20–1780.23 [Reserved]
1780.24 Approval authorities.
1780.25 Exception authority.
1780.26–1780.30 [Reserved]

Subpart B—Loan and Grant Application
Processing
1780.31 General.
1780.32 Timeframes for application
essing.
1780.33 Application requirements.
1780.34 [Reserved]
1780.35 Processing office review.
1780.36 Approving official review.

proc-

1780.37 Applications determined ineligible.
1780.38 [Reserved]
1780.39 Application processing.
1780.40 [Reserved]
1780.41 Loan or grant approval.
1780.42 Transfer of obligations.
1780.43 [Reserved]
1780.44 Actions prior to loan or grant closing or start of construction, whichever
occurs first.
1780.45 Loan and grant closing and delivery
of funds.
1780.46 [Reserved]
1780.47 Borrower accounting methods, management reporting and audits.
1780.48 Regional commission grants.
1780.49 Rural or Native Alaskan villages.
1780.50–1780.52 [Reserved]

Subpart C—Planning, Designing, Bidding,
Contracting, Constructing and Inspections
1780.53 General.
1780.54 Technical services.
1780.55 Preliminary engineering reports and
Environmental Reports.
1780.56 [Reserved]
1780.57 Design policies.
1780.58–1780.60 [Reserved]
1780.61 Construction contracts.
1780.62 Utility purchase contracts.
1780.63 Sewage treatment and bulk water
sales contracts.
1780.64–1780.66 [Reserved]
1780.67 Performing construction.
1780.68 Owner’s contractual responsibility.
1780.69 [Reserved]
1780.70 Owner’s procurement regulations.
1780.71 [Reserved]
1780.72 Procurement methods.
1780.73 [Reserved]
1780.74 Contracts awarded prior to applications.
1780.75 Contract provisions.
1780.76 Contract administration.
1780.77–1780.79 [Reserved]

Subpart D—Information Pertaining to Preparation of Notes or Bonds and Bond
Transcript Documents for Public Body
Applicants
1780.80 General.
1780.81 Policies related to use of bond counsel.
1780.82 [Reserved]
1780.83 Bond transcript documents.
1780.84–1780.86 [Reserved]
1780.87 Permanent instruments for Agency
loans.
1780.88 [Reserved]
1780.89 Multiple advances of Agency funds
using permanent instruments.
1780.90 Multiple advances of Agency funds
using temporary debt instruments.
1780.91–1780.93 [Reserved]
1780.94 Minimum bond specifications.

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§ 1780.1

7 CFR Ch. XVII (1–1–06 Edition)

1780.95 Public bidding on bonds.
1780.96–1780.100 [Reserved]
AUTHORITY: 5 U.S.C. 301; 7 U.S.C. 1989; 16
U.S.C. 1005.
SOURCE: 62 FR 33478, June 19, 1997, unless
otherwise noted.

Subpart A—General Policies and
Requirements
§ 1780.1 General.
(a) This part outlines the policies and
procedures for making and processing
direct loans and grants for water and
waste projects. The Rural Utilities
Service (RUS) shall cooperate fully
with State and local agencies in making loans and grants to assure maximum support to the State strategy for
rural development. Agency officials
and their staffs shall maintain coordination and liaison with State agency
and substate planning districts.
(b) The income data used in this part
to determine median household income
must be that which most accurately reflects the income of the service area.
The median household income of the
service area and the nonmetropolitan
median household income of the State
will be determined from income data
from the most recent decennial census
of the United States. If there is reason
to believe that the census data is not
an accurate representation of the median household income within the area
to be served, the reasons will be documented and the applicant may furnish,
or the Agency may obtain, additional
information regarding such median
household income. Information will
consist of reliable data from local, regional, State or Federal sources or
from a survey conducted by a reliable
impartial source. The nonmetropolitan
median household income of the State
may only be updated on a national
basis by the RUS National Office. This
will be done only when median household income data for the same year for
all Bureau of the Census areas is available from the Bureau of the Census or
other reliable sources. Bureau of the
Census areas would include areas such
as: Counties, County Subdivisions, Cities, Towns, Townships, Boroughs, and
other places.
(c) RUS debt instruments will require
an agreement that if at any time it

shall appear to the Government that
the borrower is able to refinance the
amount of the indebtedness to the Government then outstanding, in whole or
in part, by obtaining a loan for such
purposes from responsible cooperative
or private credit sources, at reasonable
rates and terms for loans for similar
purposes and periods of time, the borrower will, upon request of the Government, apply for and accept such loan in
sufficient amount to repay the Government and will take all such actions as
may be required in connection with
such loan.
(d) Funds allocated for use under this
part are also for the use of Indian
tribes within the State, regardless of
whether State development strategies
include Indian reservations within the
State’s boundaries. Native Americans
residing on such reservations must
have equal opportunity to participate
in the benefits of these programs as
compared with other residents of the
State. Such tribes might not be subject
to State and local laws or jurisdiction.
However, any requirements of this part
that affect applicant eligibility, the
adequacy of RUS’s security, or the adequacy of service to users of the facility
and all other requirements of this part
must be met.
(e) RUS financial programs must be
extended without regard to race, color,
religion, sex, national origin, marital
status, age, or physical or mental
handicap.
(f) Any processing or servicing activity conducted pursuant to this part involving authorized assistance to Agency employees, members of their families, known close relatives, or business
or close personal associates, is subject
to the provisions of subpart D of part
1900 of this title. Applicants for assistance are required to identify any
known relationship or association with
a RUS employee.
(g) Water and waste facilities will be
designed, installed, and operated in accordance with applicable laws which
include but are not limited to the Safe
Drinking Water Act, Clean Water Act
and the Resource Conservation and Recovery Act.

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Rural Utilities Service, USDA

§ 1780.3

(h) RUS financed facilities will be
consistent with any current development plans of State, multijurisdictional areas, counties, or municipalities in which the proposed project
is located.
(i) Each RUS financed facility will be
in compliance with appropriate State
or Federal agency regulations which
have control of the appropriation, diversion, storage and use of water and
disposal of excess water.
(j) Water and waste applicants must
demonstrate that they possess the financial, technical, and managerial capability necessary to consistently comply with pertinent Federal and State
laws and requirements. In developing
water and waste systems, applicants
must consider alternatives of ownership, system design, and the sharing of
services.
(k) Applicants should be aware of and
comply with other Federal statute requirements including but not limited
to:
(1) Section 504 of the Rehabilitation Act
of 1973. Under section 504 of the Rehabilitation Act of 1973, as amended (29
U.S.C. 794 et seq.), no handicapped individual in the United States shall, solely by reason of their handicap, be excluded from participation in, be denied
the benefits of, or be subjected to discrimination under any program or activity receiving RUS financial assistance;
(2) Civil Rights Act of 1964. All borrowers are subject to, and facilities
must be operated in accordance with,
title VI of the Civil Rights Act of 1964
(42 U.S.C. 2000d et seq.) and subpart E of
part 1901 of this title, particularly as it
relates to conducting and reporting of
compliance reviews. Instruments of
conveyance for loans and/or grants subject to the Act must contain the covenant required by § 1901.202(e) of this
title;
(3) The Americans with Disabilities Act
(ADA) of 1990. This Act (42 U.S.C. 12101
et seq.) prohibits discrimination on the
basis of disability in employment,
State and local government services,
public transportation, public accommodations,
facilities,
and
telecommunications. Title II of the Act applies to facilities operated by State and
local public entities which provides

services, programs and activities. Title
III of the Act applies to facilities
owned, leased, or operated by private
entities which accommodate the public; and
(4) Age Discrimination Act of 1975. This
Act (42 U.S.C. 6101 et seq.) provides that
no person in the United States shall on
the basis of age, be excluded from participation in, be denied the benefits of,
or be subjected to discrimination under
any program or activity receiving Federal financial assistance.
§ 1780.2 Purpose.
Provide loan and grant funds for
water and waste projects serving the
most financially needy communities.
Financial assistance should result in
reasonable user costs for rural residents, rural businesses, and other rural
users.
§ 1780.3 Definitions and grammatical
rules of construction.
(a) Definitions. For the purposes of
this part:
Agency means the Rural Utilities
Service and any United States Department of Agriculture (USDA) employee
acting on behalf of the Rural Utilities
Service in accordance with appropriate
delegations of authority.
Agency identified target areas means
an identified area in the State strategic plan or other plans developed by
the Rural Development State Director.
Approval official means the USDA official at the State level who has been
delegated the authority to approve
loans or grants.
Equivalent Dwelling Unit (EDU) means
the level of service provided to a typical rural residential dwelling.
Parity bonds means bonds which have
equal standing with other bonds of the
same Issuer.
Poverty line means the level of income for a family of four, as defined in
section 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2)).
Processing office means the office designated by the State program official
to accept and process applications for
water and waste disposal assistance.
Project means all activity that an applicant is currently undertaking to be
financed in whole or part with RUS assistance.

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§ 1780.4

7 CFR Ch. XVII (1–1–06 Edition)

Protective advances are payments
made by a lender for items such as insurance or taxes in order to preserve
and protect the security or the lien or
priority of the lien securing the loan.
Rural and rural areas means any area
not in a city or town with a population
in excess of 10,000 inhabitants, according to the latest decennial census of
the United States.
Rural Development means the mission
area of the Under Secretary for Rural
Development.
Rural
Development
State and local offices will administer
this water and waste program on behalf
of the Rural Utilities Service.
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture established
pursuant to section 232 of the Department of Agriculture Reorganization
Act of 1994 (Pub. L. 103–354, 108 Stat.
3178), successor to the Farmer’s Home
Administration and the Rural Development Administration with respect to
certain water and waste disposal loan
and grant programs.
Service area means the area reasonably expected to be served by the
project.
Servicing office means the office designated by the State program official
to service water and waste disposal
loans and grants.
Similar system cost means the average
annual EDU user cost of a system within a community having similar economic conditions and being served by
the same type of established system.
Similar system cost shall include all
charges, taxes, and assessments attributable to the system including debt
service, reserves and operation and
maintenance costs.
State program official means the
USDA official at the State level who
has been delegated the responsibility of
administering the water and waste disposal programs under this regulation
for a particular State or States.
Statewide
nonmetropolitan
median
household income means the median
household income of the State’s nonmetropolitan counties and portions of
metropolitan counties outside of cities,
towns or places of 50,000 or more population.
(b) Rules of grammatical construction.
Unless the context otherwise indicates,

‘‘includes’’ and ‘‘including’’ are not
limiting, and ‘‘or’’ is not exclusive. The
terms defined in paragraph (a) of this
section include the plural as well as
the singular, and the singular as well
as the plural.
[62 FR 33478, June 19, 1997, as amended at 69
FR 65519, Nov. 15, 2004]

§ 1780.4 Availability of forms and regulations.
Information about the availability of
forms, instructions, regulations, bulletins, OMB Circulars, Treasury Circulars, standards, documents and publications cited in this part is available
from any USDA/Rural Development office or the Rural Utilities Service,
United States Department of Agriculture, Washington, DC 20250–1500.
§ 1780.5

[Reserved]

§ 1780.6

Application information.

(a) The Rural Development State Director in each State will determine the
office and staff that will be responsible
for delivery of the program (processing
office) and designate an approving office. Applications will be accepted by
the processing office.
(b) The applicant’s governing body
should designate one person to act as
contact person with the Agency during
loan and grant processing. Agency personnel should make every effort to involve the applicant’s contact person
when meeting with the applicant’s professional consultants or agents.
§ 1780.7

Eligibility.

Facilities financed by water and
waste disposal loans or grants must
serve rural areas.
(a) Eligible applicant. An applicant
must be:
(1) A public body, such as a municipality, county, district, authority, or
other political subdivision of a state,
territory or commonwealth;
(2) An organization operated on a
not-for-profit basis, such as an association, cooperative, or private corporation. The organization must be an association controlled by a local public
body or bodies, or have a broadly based
ownership by or membership of people
of the local community; or

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Rural Utilities Service, USDA

§ 1780.9

(3) Indian tribes on Federal and State
reservations and other Federally recognized Indian tribes.
(b) Eligible facilities. Facilities financed by RUS may be located in nonrural areas. However, loan and grant
funds may be used to finance only that
portion of the facility serving rural
areas, regardless of facility location.
(c) Eligible projects. (1) Projects must
serve a rural area which, if such
project is completed, is not likely to
decline in population below that for
which the project was designed.
(2) Projects must be designed and
constructed so that adequate capacity
will or can be made available to serve
the present population of the area to
the extent feasible and to serve the
reasonably foreseeable growth needs of
the area to the extent practicable.
(3) Projects must be necessary for orderly community development and
consistent with a current comprehensive community water, waste disposal,
or other current development plan for
the rural area.
(d) Credit elsewhere. Applicants must
certify in writing and the Agency shall
determine and document that the applicant is unable to finance the proposed project from their own resources
or through commercial credit at reasonable rates and terms.
(e) Legal authority and responsibility.
Each applicant must have or will obtain the legal authority necessary for
owning, constructing, operating, and
maintaining the proposed facility or
service and for obtaining, giving security for, and repaying the proposed
loan. The applicant shall be responsible
for operating, maintaining, and managing the facility, and providing for its
continued availability and use at reasonable user rates and charges. This responsibility shall be exercised by the
applicant even though the facility may
be operated, maintained, or managed
by a third party under contract or
management agreement. Guidance for
preparing a management agreement is
available from the Agency. Such contracts, management agreements, or
leases must not contain options or
other provisions for transfer of ownership.
(f) Economic feasibility. All projects financed under the provisions of this sec-

tion must be based on taxes, assessments, income, fees, or other satisfactory sources of revenues in an amount
sufficient to provide for facility operation and maintenance, reasonable reserves, and debt payment. If the primary use of the facility is by business
and the success or failure of the facility is dependent on the business, then
the economic viability of that business
must be assessed.
(g) Federal Debt Collection Act of 1990
(28 U.S.C. 3001 et seq.). An outstanding
judgment obtained by the United
States in a Federal Court (other than
in the United States Tax Court), which
has been recorded, shall cause the applicant to be ineligible to receive a
loan or grant until the judgment is
paid in full or otherwise satisfied.
[62 FR 33478, June 19, 1997, as amended at 64
FR 29946, June 4, 1999]

§ 1780.8

[Reserved]

§ 1780.9 Eligible loan and grant purposes.
Loan and grant funds may be used
only for the following purposes:
(a) To construct, enlarge, extend, or
otherwise improve rural water, sanitary sewage, solid waste disposal, and
storm wastewater disposal facilities.
(b) To construct or relocate public
buildings, roads, bridges, fences, or
utilities, and to make other public improvements necessary for the successful operation or protection of facilities
authorized in paragraph (a) of this section.
(c) To relocate private buildings,
roads, bridges, fences, or utilities, and
other private improvements necessary
for the successful operation or protection of facilities authorized in paragraph (a) of this section.
(d) For payment of other utility connection charges as provided in service
contracts between utility systems.
(e) When a necessary part of the
project relates to those facilities authorized in paragraphs (a), (b),(c) or (d)
of this section the following may be
considered:
(1) Loan or grant funds may be used
for:

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§ 1780.9

7 CFR Ch. XVII (1–1–06 Edition)

(i) Reasonable fees and costs such as:
legal, engineering, administrative services, fiscal advisory, recording, environmental analyses and surveys, possible salvage or other mitigation measures, planning, establishing or acquiring rights;
(ii) Costs of acquiring interest in
land; rights, such as water rights,
leases, permits, rights-of-way; and
other evidence of land or water control
or protection necessary for development of the facility;
(iii) Purchasing or renting equipment
necessary to install, operate, maintain,
extend, or protect facilities;
(iv) Cost of additional applicant labor
and other expenses necessary to install
and extend service; and
(v) In unusual cases, the cost for connecting the user to the main service
line.
(2) Only loan funds may be used for:
(i) Interest incurred during construction in conjunction with multiple advances or interest on interim financing;
(ii) Initial operating expenses, including interest, for a period ordinarily
not exceeding one year when the applicant is unable to pay such expenses;
(iii) The purchase of existing facilities when it is necessary either to improve service or prevent the loss of
service;
(iv) Refinancing debts incurred by, or
on behalf of, an applicant when all of
the following conditions exist:
(A) The debts being refinanced are a
secondary part of the total loan;
(B) The debts were incurred for the
facility or service being financed or
any part thereof; and
(C) Arrangements cannot be made
with the creditors to extend or modify
the terms of the debts so that a sound
basis will exist for making a loan; and
(v) Prepayment of costs for which
RUS grant funds were obligated.
(3) Grant funds may be used to restore loan funds used to prepay grant
obligated costs.
(f) Construction incurred before loan
or grant approval.
(1) Funds may be used to pay obligations for eligible project costs incurred
before loan or grant approval if such
requests are made in writing by the ap-

plicant and the Agency determines
that:
(i) Compelling reasons exist for incurring obligations before loan or
grant approval;
(ii) The obligations will be incurred
for authorized loan or grant purposes;
and
(iii) The Agency’s authorization to
pay such obligations is on the condition that it is not committed to make
the loan or grant; it assumes no responsibility for any obligations incurred by the applicant; and the applicant must subsequently meet all loan
or grant approval requirements, including environmental and contracting requirements.
(2) If construction is started without
Agency approval, post-approval in accordance with this section may be considered, provided the construction
meets applicable requirements including those regarding approval and environmental matters.
(g) Water or sewer service may be
provided through individual installations or small clusters of users within
an applicant’s service area. The approval official should consider items
such as: quantity and quality of the individual installations that may be developed; cost effectiveness of the individual facility compared with the initial and long term user cost on a central system; health and pollution problems attributable to individual facilities; operational or management problems peculiar to individual installations; and permit and regulatory agency requirements.
(1) Applicants providing service
through individual facilities must meet
the eligibility requirements in § 1780.7.
(2) The Agency must approve the
form of agreement between the applicant and individual users for the installation, operation, maintenance and
payment for individual facilities.
(3) If taxes or assessments are not
pledged as security, applicants providing service through individual facilities must obtain security necessary
to assure collection of any sum the individual user is obligated to pay the
applicant.
(4) Notes representing indebtedness
owed the applicant by a user for an individual facility will be scheduled for

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Rural Utilities Service, USDA

§ 1780.11

payment over a period not to exceed
the useful life of the individual facility
or the RUS loan, whichever is shorter.
The interest rate will not exceed the
interest rate charged the applicant on
the RUS indebtedness.
(5) Applicants providing service
through individual or cluster facilities
must obtain:
(i) Easements for the installation and
ingress to and egress from the facility
if determined necessary by RUS; and
(ii) An adequate method for denying
service in the event of nonpayment of
user fees.
§ 1780.10 Limitations.
(a) Loan and grant funds may not be
used to finance:
(1) Facilities which are not modest in
size, design, and cost;
(2) Loan or grant finder’s fees;
(3) The construction of any new combined storm and sanitary sewer facilities;
(4) Any portion of the cost of a facility which does not serve a rural area;
(5) That portion of project costs normally provided by a business or industrial
user,
such
as
wastewater
pretreatment, etc.;
(6) Rental for the use of equipment or
machinery owned by the applicant;
(7) For other purposes not directly
related to operating and maintenance
of the facility being installed or improved; and
(8) A judgment which would disqualify an applicant for a loan or grant
as provided for in § 1780.7(g).
(b) Grant funds may not be used to:
(1) Reduce EDU costs to a level less
than similar system cost;
(2) Pay any costs of a project when
the median household income of the
service area is more than 100 percent of
the nonmetropolitan median household
income of the State;
(3) Pay project costs when other loan
funding for the project is not at reasonable rates and terms; and
(4) Pay project costs when other
funding is a guaranteed loan obtained
in accordance with 7 CFR part 1779 of
this title.
(c) Grants may not be made in excess
of the following percentages of the
RUS eligible project development
costs. Facilities previously installed

will not be considered in determining
the development costs.
(1) 75 percent when the median household income of the service area is
below the higher of the poverty line or
80% of the state nonmetropolitan median income and the project is necessary to alleviate a health or sanitary
problem.
(2) 45 percent when the median household income of the service area exceeds
the 80 percent requirements described
in paragraph (c)(1) of this section but is
not more than 100 percent of the statewide nonmetropolitan median household income.
(3) Applicants are advised that the
percentages contained in paragraphs
(c)(1) and (c)(2) of this section are maximum amounts and may be further limited due to availability of funds or the
grant determination procedures contained in § 1780.35 (b).
[62 FR 33478, June 19, 1997, as amended at 64
FR 29946, June 4, 1999; 66 FR 23151, May 8,
2001]

§ 1780.11

Service area requirements.

(a) All facilities financed under the
provisions of this part shall be for public use. The facilities will be installed
so as to serve any potential user within
the service area who desires service
and can be feasibly and legally served.
This does not preclude:
(1)
Financing
or
constructing
projects in phases when it is not practical to finance or construct the entire
project at one time; and
(2) Financing or constructing facilities where it is not economically feasible to serve the entire area, provided
economic feasibility is determined on
the basis of the entire system and not
by considering the cost of separate extensions to or parts thereof; the applicant publicly announces a plan for extending service to areas not initially
receiving service from the system; and
potential users located in the areas not
to be initially served receive written
notice from the applicant that service
will not be provided until such time as
it is economically feasible to do so.
(b) Should the Agency determine
that inequities exist within the applicants service area for the same type
service proposed (i.e., water or waste

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§ 1780.12

7 CFR Ch. XVII (1–1–06 Edition)

disposal) such inequities will be remedied by the applicant prior to loan or
grant approval or included as part of
the project. Inequities are defined as
unjustified variations in availability,
adequacy or quality of service. User
rate schedules for portions of existing
systems that were developed under different financing, rates, terms or conditions do not necessarily constitute inequities.
(c) Developers are normally expected
to provide utility-type facilities in new
or developing areas in compliance with
appropriate State statutes. RUS financing will be considered to an eligible applicant only in such cases when
failure to complete development would
result in an adverse economic condition for the rural area (not the community being developed); the proposal is
necessary to the success of a current
area development plan; and loan repayment can be assured by:
(1) The applicant already having sufficient assured revenues to repay the
loan; or
(2) Developers providing a bond or
escrowed security deposit as a guarantee sufficient to meet expenses attributable to the area in question until
a sufficient number of the building
sites are occupied and connected to the
facility to provide enough revenues to
meet operating, maintenance, debt
service, and reserve requirements.
Such guarantees from developers will
meet
the
requirements
in
§ 1780.39(c)(4)(ii); or
(3) Developers paying cash for the increased capital cost and any increased
operating expenses until the developing area will support the increased
costs; or
(4) The full faith and credit of a public body where the debt is evidenced by
general obligation bonds; or
(5) The loan is to a public body evidenced by a pledge of tax revenue or assessments; or
(6) The user charges can become a
lien upon the property being served and
income from such lien can be collected
in sufficient time to be used for its intended purposes.

§ 1780.12

[Reserved]

§ 1780.13 Rates and terms.
(a) General. (1) Each loan will bear interest at the rate prescribed in RD Instruction 440.1, exhibit B. The interest
rates will be set by the Agency for each
quarter of the fiscal year. All rates will
be adjusted to the nearest one-eighth
of one per centum. The rate will be the
lower of the rate in effect at the time
of loan approval or the rate in effect at
the time of loan closing unless the applicant otherwise chooses.
(2) If the interest rate is to be that in
effect at loan closing on a loan involving multiple advances of RUS funds
using temporary debt instruments, the
interest rate charged shall be that in
effect on the date when the first temporary debt instrument is issued.
(b) Poverty rate. The poverty interest
rate will not exceed 5 per centum per
annum. All poverty rate loans must
comply with the following conditions:
(1) The primary purpose of the loan is
to upgrade existing facilities or construct new facilities required to meet
applicable health or sanitary standards; and
(2) The median household income of
the service area is below the higher of
the poverty line, or 80 percent of the
Statewide nonmetropolitan median
household income.
(c) Intermediate rate. The intermediate interest rate will be set at the
poverty rate plus one-half of the difference between the poverty rate and
the market rate, not to exceed 7 percent per annum. It will apply to loans
that do not meet the requirements for
the poverty rate and for which the median household income of the service
area is not more than 100 percent of the
nonmetropolitan median household income of the State.
(d) Market rate. The market interest
rate will be set using as guidance the
average of the Bond Buyer (11–GO
Bond) Index for the four weeks prior to
the first Friday of the last month before the beginning of the quarter. The
market rate will apply to all loans that
do not qualify for a different rate under
paragraph (b) or (c) of this section.
(e) Repayment terms. The loan repayment period shall not exceed the useful
life of the facility, State statute or 40

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Rural Utilities Service, USDA

§ 1780.14

years from the date of the note or
bond, whichever is less. Where RUS
grant funds are used in connection
with an RUS loan, the loan will be for
the maximum term permitted by this
part, State statute, or the useful life of
the facility, whichever is less, unless
there is an exceptional case where circumstances justify making an RUS
loan for less than the maximum term
permitted. In such cases, the reasons
must be fully documented.
(1) Principal payments may be deferred in whole or in part for a period
not to exceed 36 months following the
date the first interest installment is
due. If for any reason it appears necessary to permit a longer period of
deferment, the Agency may authorize
such deferment. Deferments of principal will not be used to:
(i) Postpone the levying of taxes or
assessments;
(ii) Delay collection of the full rates
which the borrower has agreed to
charge users for its services as soon as
those services become available;
(iii) Create reserves for normal operation and maintenance;
(iv) Make any capital improvements
except those approved by the Agency
which are determined to be essential to
the repayment of the loan or to maintain adequate security; and
(v) Make payment on other debt.
(2) Payment date. Loan payments will
be scheduled to coincide with income
availability and be in accordance with
State law. If State law only permits
principal plus interest (P&I) type
bonds, annual or semiannual payments
will be used. Insofar as practical
monthly payments will be scheduled
one full month following the date of
loan closing; or semiannual or annual
payments will be scheduled six or
twelve full months, respectively, following the date of loan closing or any
deferment period. Due dates falling on
the 29th, 30th or 31st day of the month
will be avoided.
(3) In all cases, including those in
which RUS is jointly financing with
another lender, the RUS payments of
principal and interest should approximate amortized installments.

§ 1780.14 Security.
Loans will be secured by the best security position practicable in a manner
which will adequately protect the interest of RUS during the repayment period of the loan. Specific security requirements for each loan will be included in a letter of conditions.
(a) Public bodies. Loans to such borrowers, including Federally recognized
Indian tribes as appropriate, will be
evidenced by notes, bonds, warrants, or
other contractual obligations as may
be authorized by relevant laws and by
borrower’s documents, resolutions, and
ordinances. Security, in the following
order of preference, will consist of:
(1) The full faith and credit of the
borrower when the debt is evidenced by
general obligation bonds; and/or
(2) Pledges of taxes or assessments;
and/or
(3) Pledges of facility revenue and,
when it is the customary financial
practice in the State, liens will be
taken on the interest of the applicant
in all land, easements, rights-of-way,
water rights, water purchase contracts,
water sales contracts, sewage treatment contracts, and similar property
rights, including leasehold interests,
used or to be used in connection with
the facility whether owned at the time
the loan is approved or acquired with
loan funds.
(b) Other-than-public bodies. Loans to
other-than-public body applicants and
Federally recognized Indian tribes, as
appropriate, will be secured in the following order of preference:
(1) Assignments of borrower income
will be taken and perfected by filing, if
legally permissible; and
(2) A lien will be taken on the interest of the applicant in all land, easements, rights-of-way, water rights,
water purchase contracts, water sales
contracts, sewage treatment contracts
and similar property rights, including
leasehold interest, used, or to be used
in connection with the facility whether
owned at the time the loan is approved
or acquired with loan funds. In unusual
circumstances where it is not legally
permissible or feasible to obtain a lien
on such land (such as land rights obtained from Federal or local government agencies, and from railroads) and
the approval official determines that

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§ 1780.15

7 CFR Ch. XVII (1–1–06 Edition)

the interest of RUS is otherwise adequately secured, the lien requirement
may be omitted as to such land rights.
For existing borrowers where the Agency already has a security position on
real property, the approval official
may determine that the interest of the
Government is adequately secured and
not require additional liens on such
land rights. When the subsequent loan
is approved or the acquisition of real
property is subject to an outstanding
lien indebtedness, the next highest priority lien obtainable will be taken if
the approval official determines that
the loan is adequately secured.
(c) Joint financing security. For
projects utilizing joint financing, when
adequate security of more than one
type is available, the other lender may
take one type of security with RUS
taking another type. For projects utilizing joint financing with the same security to be shared by RUS and another lender, RUS will obtain at least a
parity position with the other lender.
A parity position is to ensure that with
joint security, in the event of default,
each lender will be affected on a proportionate basis. A parity position will
conform with the following unless an
exception is granted by the approval
official:
(1) It is not necessary for loans to
have the same repayment terms. Loans
made by other lenders involved in joint
financing with RUS should be scheduled for repayment on terms similar to
those customarily used in the State for
financing such facilities.
(2) The use of a trustee or other similar paying agent by the other lender in
a joint financing arrangement is acceptable to RUS. A trustee or other
similar paying agent will not normally
be used for the RUS portion of the
funding unless required to comply with
State law. The responsibilities and authorities of any trustee or other similar paying agent on projects that include RUS funds must be clearly specified by written agreement and approved by the State program official
and the Office of the General Counsel
(OGC). RUS must be able to deal directly with the borrower to enforce the
provisions of loan and grant agreements and perform necessary servicing
actions.

(3) In the event adequate funds are
not available to meet regular installments on parity loans, the funds available will be apportioned to the lenders
based on the respective current installments of principal and interest due.
(4) Funds obtained from the sale or
liquidation of secured property or fixed
assets will be apportioned to the lenders on the basis of the pro rata amount
outstanding; provided, however, funds
obtained from such sale or liquidation
for a project that included RUS grant
funds will be apportioned as required
by the grant agreement.
(5) Protective advances must be
charged to the borrower’s account and
be secured by a lien on the security
property. To the extent consistent with
State law and customary lending practices in the area, repayment of protective advances made by either lender,
for the mutual protection of both lenders, should receive first priority in apportionment of funds between the lenders. To ensure agreement between lenders, efforts should be made to obtain
the concurrence of both lenders before
one lender makes a protective advance.
§ 1780.15 Other Federal,
local requirements.

State,

Proposals for facilities financed in
whole or in part with RUS funds will be
coordinated with appropriate Federal,
State and local agencies. If there are
conflicts between this part and State
or local laws or regulatory commission
regulations, the provisions of this part
will control. Applicants will be required to comply with Federal, State,
and local laws and any regulatory commission rules and regulations pertaining to:
(a) Organization of the applicant and
its authority to own, construct, operate, and maintain the proposed facilities;
(b) Borrowing money, giving security
therefore, and raising revenues for the
repayment thereof;
(c) Land use zoning; and
(d) Health and sanitation standards
and design and installation standards
unless an exception is granted by RUS.

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Rural Utilities Service, USDA
§ 1780.16

§ 1780.17

[Reserved]

§ 1780.17 Selection priorities and process.
When ranking eligible applications
for consideration for limited funds,
Agency officials must consider the priority items met by each application
and the degree to which those priorities are met. Points will be awarded as
follows:
(a) Population priorities. (1) The proposed project will primarily serve a
rural area having a population not in
excess of 1,000—25 points;
(2) The proposed project primarily
serves a rural area having a population
between 1,001 and 2,500—15 points;
(3) The proposed project primarily
serves a rural area having a population
between 2,501 and 5,500—5 points.
(b) Health priorities. The proposed
project is:
(1) Needed to alleviate an emergency
situation, correct unanticipated diminution or deterioration of a water supply, or to meet Safe Drinking Water
Act requirements which pertain to a
water system—25 points;
(2) Required to correct inadequacies
of a wastewater disposal system, or to
meet health standards which pertain to
a wastewater disposal system—25
points;
(3) Required to meet administrative
orders issued to correct local, State, or
Federal solid waste violations—15
points.
(c) Median household income priorities.
The median household income of the
population to be served by the proposed
project is:
(1) Less than the poverty line if the
poverty line is less than 80% of the
statewide
nonmetropolitan
median
household income—30 points;
(2) Less than 80 percent of the statewide nonmetropolitan median household income—20 points;
(3) Equal to or more than the poverty
line and between 80% and 100%, inclusive, of the State’s nonmetropolitan
median household income—15 points.
(d) Other priorities. (1) The proposed
project will: merge ownership, management, and operation of smaller facilities providing for more efficient management and economical service—15
points;

(2) The proposed project will enlarge,
extend, or otherwise modify existing
facilities to provide service to additional rural areas—10 points;
(3) Applicant is a public body or Indian tribe—5 points;
(4) Amount of other than RUS funds
committed to the project is:
(i) 50% or more—15 points;
(ii) 20% to 49%—10 points;
(iii) 5%—19%—5 points;
(5) Projects that will serve Agency
identified target areas—10 points;
(6) Projects that primarily recycle
solid waste products thereby limiting
the need for solid waste disposal—5
points;
(7) The proposed project will serve an
area that has an unreliable quality or
supply of drinking water—10 points.
(e) In certain cases the State program official may assign up to 15
points to a project. The points may be
awarded to projects in order to improve
compatibility and coordination between RUS’s and other agencies’ selection systems, to ensure effective RUS
fund utilization, and to assist those
projects that are the most cost effective. A written justification must be
prepared and placed in the project file
each time these points are assigned.
(f) Cost overruns. An application may
receive consideration for funding before others at the State or National Office level when it is a subsequent request for a previously approved project
which has encountered construction
cost overruns. The cost overruns must
be due to high bids or unexpected construction problems that cannot be reduced by negotiations, redesign, use of
bid alternatives, rebidding or other
means. Cost overruns exceeding 20% of
the development cost at time of loan or
grant approval or where the scope of
the original purpose has changed will
not be considered under this paragraph.
(g) National office priorities. In selecting projects for funding at the National
Office level State program official
points may or may not be considered.
The Administrator may assign up to 15
additional points to account for items
such as geographic distribution of
funds, the highest priority projects
within a state, and emergency conditions caused by economic problems or
natural disasters. The Administrator

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§ 1780.18

7 CFR Ch. XVII (1–1–06 Edition)

may delegate the authority to assign
the 15 points to appropriate National
Office staff.
§ 1780.18 Allocation of program funds.
(a) General. (1) The purpose of this
part is to set forth the methodology
and formulas by which the Administrator of the RUS allocates program
funds to the States. (The term ‘‘State’’
means any of the States of the United
States, the Commonwealth of Puerto
Rico, any territory or possession of the
United States, or the Western Pacific
Areas.)
(2) The formulas in this part are used
to allocate program loan and grant
funds to Rural Development State offices so that the overall mission of the
Agency can be carried out. Considerations used when developing the formulas include enabling legislation,
congressional direction, and administration policies. Allocation formulas
ensure that program resources are
available on an equal basis to all eligible individuals and organizations.
(3) The actual amounts of funds, as
computed by the methodology and formulas contained herein, allocated to a
State for a funding period, are distributed to each State office. The allocated
amounts are available for review in
any Rural Development State office.
(b) Definitions—(1) Amount available
for allocations. Funds appropriated or
otherwise made available to the Agency for use in authorized programs. On
occasion, the allocation of funds to
States may not be practical for a particular program due to funding or administrative constraints. In these
cases, funds will be controlled by the
National Office.
(2) Basic formula criteria, data source
and weight. Basic formulas are used to

Transition Range = 1.0 +

maximum 20%

×

calculate a basic State factor as a part
of the methodology for allocating funds
to the States. The formulas take a
number of criteria that reflect the
funding needs for a particular program
and through a normalization and
weighting process for each of the criteria calculate the basic State factor
(SF). The data sources used for each
criteria are believed to be the most
current and reliable information that
adequately quantifies the criterion.
The weight, expressed as a percentage,
gives a relative value to the importance of each of the criteria.
(3) Basic formula allocation. The result
of multiplying the amount available
for allocation less the total of any
amounts held in reserve or distributed
by base or administrative allocation
times the basic State factor for each
State. The basic formula allocation
(BFA) for an individual State is equal
to:
BFA=(Amount available for allocation¥NO reserve¥total base and administrative allocations) × SF.
(4) Transition formula. (i) A formula
based on a proportional amount of previous year allocation used to maintain
program continuity by preventing
large fluctuations in individual State
allocations. The transition formula
limits allocation shifts to any particular State in the event of changes
from year to year of the basic formula,
the basic criteria, or the weights given
the criteria. The transition formula
first checks whether the current year’s
basic formula allocation is within the
transition range (plus or minus 20 percentage points of the proportional
amount of the previous year’s BFA).
The formula follows:

(Amount available for allocation this year × State previous year BFA)

100

(Amount available for allocation previous year)

(ii) If the current year’s State BFA is
not within the transition range in
paragraph (b)(4)(i) of this section, the
State formula allocation is changed to
the amount of the transition range
limit closest to the BFA amount. After

having performed this transition adjustment for each State, the sum of the
funds allocated to all States will differ
from the amount of funds available for
BFA. This difference, whether a positive or negative amount, is distributed

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§ 1780.18

to all States receiving a formula allocation by multiplying the difference by
the SF. The end result is the transition
formula allocation. The transition
range will not exceed 40% (plus or
minus 20%), but when a smaller range
is used it will be stated in the individual program section.
(5) Base allocation.An amount that
may be allocated to each State dependent upon the particular program to
provide the opportunity for funding at
least one typical loan or grant in each
Rural Development State office. The
amount of the base allocation may be
determined by criteria other than that
used in the basic formula allocation
such as Agency historic data.
(6)
Administrative
allocations.Allocations made by the Administrator in cases where basic formula criteria information is not available. This
form of allocation may be used when
the Administrator determines the program objectives cannot be adequately
met with a formula allocation.
(7) Reserve.An amount retained under
the National Office control for each
loan and grant program to provide
flexibility in meeting situations of unexpected or justifiable need occurring
during the fiscal year. The Administrator may make distributions from
this reserve to any State when it is determined necessary to meet a program
need or Agency objective. The Administrator may retain additional amounts
to fund authorized demonstration programs.
(8) Pooling of funds.A technique used
to ensure that available funds are used
in an effective, timely and efficient
manner. At the time of pooling those
funds within a State’s allocation for
the fiscal year or portion of the fiscal
year, depending on the type of pooling,
that have not been obligated by the
State are placed in the National Office
reserve. The Administrator will establish the pooling dates for each affected
program.
(i) Mid-year: Mid-year pooling occurs
near the midpoint of the fiscal year.
(ii) Year-end: Year-end pooling usually occurs near the first of August.
(iii) Emergency: The Administrator
may pool funds at any time that it is
determined the conditions upon the
initial allocation was based have

changed to such a degree that it is necessary to pool funds in order to efficiently carry out the Agency mission.
(9)
Availability
of
the
allocation.Program funds are made available
to the Agency on a quarterly basis.
(10) Suballocation by the Rural Development State Director.The State Director may be directed or given the option
of suballocating the State allocation to
processing offices. When suballocating
the State Director may retain a portion of the funds in a State office reserve to provide flexibility in situations of unexpected or justified need.
When performing a suballocation the
State Director will use the same formula, criteria and weights as used by
the National Office.
(c) Water and waste disposal loans and
grants—(1) Amount available for allocations.See paragraph (b)(1) of this section.
(2) Basic formula criteria, data source
and weight.See paragraph (b)(2) of this
section.
(i) The criteria used in the basic formula are:
(A) State’s percentage of national
rural population will be 50 percent.
(B) State’s percentage of national
rural population with incomes below
the poverty level will be 25 percent.
(C) State’s percentage of national
nonmetropolitan unemployment will
be 25 percent.
(ii) Data source for each of these criterion is based on the latest census
data available. Each criterion is assigned a specific weight according to
its relevance in determining need. The
percentage representing each criterion
is multiplied by the weight factor and
summed to arrive at a State factor
(SF). The SF cannot exceed .05, as follows:
SF = (criterion in paragraph (b)(1)(i) of
this section × 50 percent) + (criterion
in paragraph(b)(1)(ii) of this section ×
25 percent) + (criterion in paragraph(b)(1)(iii) of this section × 25
percent)
(3) Basic formula allocation.See paragraph (b)(3) of this section. States receiving administrative allocations do
not receive formula allocations.
(4) Transition formula.See paragraph
(b)(4) of this section. The percentage

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§ 1780.19

7 CFR Ch. XVII (1–1–06 Edition)

range for the transition formula equals
30 percent (plus or minus 15%).
(5) Base allocation.See paragraph
(b)(5) of this section. States receiving
administrative allocations do not receive base allocations.
(6) Administrative allocation.See paragraph (b)(6) of this section. States participating in the formula and base allocation procedures do not receive administrative allocations.
(7) Reserve.See paragraph (b)(7) of this
section. Any State may request reserve
funds by forwarding a request to the
National Office. Generally, a request
for additional funds will not be honored
unless the State has insufficient funds
to obligate the loan requested.
(8) Pooling of funds.See paragraph
(b)(8) of this section. Funds are generally pooled at mid-year and year-end.
Pooled funds will be placed in the National Office reserve and will be made
available administratively.
(9) Availability of the allocation.See
paragraph (b)(9) of this section. The allocation of funds is made available for
States to obligate on an annual basis
although the Office of Management and
Budget apportions it to the Agency on
a quarterly basis.
(10) Suballocation by the State Director.See paragraph (b)(10) of this section. The State Director has the option
to suballocate funds to processing offices.
§ 1780.19 Public information.
(a) Public notice of intent to file an application with the Agency. Within 60
days of filing an application with the
Agency the applicant must publish a
notice of intent to apply for a RUS
loan or grant. The notice of intent
must be published in a newspaper of
general circulation in the proposed
area to be served.
(b) General public meeting. Applicants
should inform the general public regarding the development of any proposed project. Any applicant not required to obtain authorization by vote
of its membership or by public referendum, to incur the obligations of
the proposed loan or grant, must hold
at least one public information meeting. The public meeting must be held
not later than loan or grant approval.
The meeting must give the citizenry an

opportunity to become acquainted with
the proposed project and to comment
on such items as economic and environmental impacts, service area, alternatives to the project, or any other
issue identified by Agency. To the extent possible, this meeting should
cover items necessary to satisfy all
public information meeting requirements for the proposed project. To
minimize duplication of public notices
and public involvement, the applicant
shall, where possible, coordinate and
integrate the public involvement activities of the environmental review
process into this requirement. The applicant will be required, at least 10
days prior to the meeting, to publish a
notice of the meeting in a newspaper of
general circulation in the service area,
to post a public notice at the applicant’s principal office, and to notify
the Agency. The applicant will provide
the Agency a copy of the published notice and minutes of the public meeting.
A public meeting is not normally required for subsequent loans or grants
which are needed to complete the financing of a project.
§§ 1780.20–1780.23
§ 1780.24

[Reserved]

Approval authorities.

Appropriate reviews, concurrence,
and authorization must be obtained for
all loans or grants in excess of the
amounts indicated in RUS Staff Instruction 1780–1.
(a) Redelegation of authority by State
Directors.Unless restricted by memorandum from the RUS Administrator,
State Directors can redelegate their
approval authorities to State employees by memorandum.
(b) Restriction of approval authority by
the RUS Administrator. The RUS Administrator can make written restrictions
or revocations of the authority given
to any approval official.
§ 1780.25

Exception authority.

The Administrator may, in individual cases, make an exception to any
requirement or provision of this part
which is not inconsistent with the authorizing statute or other applicable
law and is determined to be in the Government’s interest.

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Rural Utilities Service, USDA
§§ 1780.26–1780.30

§ 1780.33

[Reserved]

Subpart B—Loan and Grant
Application Processing
§ 1780.31 General.
(a) Applicants are encouraged to contact the Agency processing office early
in the planning stages of their project.
Agency personnel are available to provide general advice and assistance regarding RUS programs, other funding
sources, and types of systems or improvements appropriate for the applicants needs. The Agency can also provide access to technical assistance and
other information resources for other
project development issues such as
public information, income surveys,
developing rate schedules, system operation and maintenance, and environmental
compliance
requirements.
Throughout the planning, application
processing and construction of the
project, Agency personnel will work
closely and cooperatively with the applicant and their representatives, other
State and Federal agencies and technical assistance providers.
(b) The processing office will handle
initial inquiries and provide basic information about the program. They are
to provide the application, SF 424.2,
‘‘Application for Federal Assistance
(For Construction),’’ assist applicants
as needed in completing SF 424.2, and
in filing a request for intergovernmental review. Federally recognized
Indian tribes are exempt from intergovernmental review. The processing
office will explain eligibility requirements and meet with the applicant
whenever necessary to discuss application processing.
(c) Applicants can make a written request for an eligibility determination
in lieu of filing an SF 424.2 along with
the information required by § 1780.33.
Applicants seeking only an eligibility
determination, should contact the
processing office to obtain a list of the
items needed to make this determination. An eligibility determination for
loan or grant assistance will not give
an applicant priority for funding as set
forth in § 1780.17.
(d) Applications that are not developed in a reasonable period of time
taking into account the size and com-

plexity of the proposed project may be
removed from the State’s active file.
Applicants will be consulted prior to
taking such action.
(e) Starting with the earliest discussion with prospective applicants, the
State Environmental Coordinator shall
discuss with prospective applicants and
be available for consultation during
the application process the environmental review requirements for evaluating the potential environmental consequences of the project. Pursuant to 7
CFR part 1794 and guidance in RUS
Bulletin 1794A–602, the environmental
review requirements shall be performed
by the applicant simultaneously and
concurrently with the project’s engineering planning and design. This
should provide flexibility to consider
reasonable alternatives to the project
and development methods to mitigate
identified adverse environmental effects. Mitigation measures necessary
to avoid or minimize any adverse environmental effects must be integrated
into project design.
[62 FR 33478, June 19, 1997, as amended at 63
FR 68655, Dec. 11, 1998]

§ 1780.32 Timeframes for application
processing.
(a) The processing office will determine if the application is properly assembled. If not, the applicant will be
notified within fifteen federal working
days as to what additional submittal
items are needed.
(b) The processing and approval offices will coordinate their reviews to
ensure that the applicant is advised
about eligibility and anticipated fund
availability within 45 days of the receipt of a completed application.
§ 1780.33 Application requirements.
An initial application consists of the
following:
(a) One copy of a completed SF 424.2;
(b) A copy of the State intergovernmental comments or one copy of the
filed application for State intergovernmental review; and
(c) Two copies of the preliminary engineering report (PER) for the project.
(1) The PER may be submitted to the
processing office prior to the rest of
the application material if the applicant desires a preliminary review.

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§ 1780.34

7 CFR Ch. XVII (1–1–06 Edition)

(2) The processing office will forward
one copy of the PER with comments
and recommendations to the State
staff engineer for review upon receipt
from the applicant.
(3) The State staff engineer will consult with the applicant’s engineer as
appropriate to resolve any questions
concerning the PER. Written comments will be provided by the State
staff engineer to the processing office
to meet eligibility determination time
lines.
(d) Written certification that other
credit is not available.
(e) Supporting documentation necessary to make an eligibility determination such as financial statements,
audits, organizational documents, or
existing debt instruments. The processing office will advise applicants regarding the required documents. Applicants that are indebted to RUS will not
need to submit documents already on
file with the processing office.
(f) Environmental Report. For those
actions listed in §§ 1794.22(b) and
1794.23(b), the applicant shall submit,
in accordance with RUS Bulletin
1794A–602, two copies of the completed
Environmental Report.
(1) Upon receipt of the Environmental Report, the processing office
shall forward one copy of the report
with comments and recommendation
to the State Environmental Coordinator for review.
(2) The State Environmental Coordinator will consult with the applicant
as appropriate to resolve any environmental concerns. Written comments
will be provided by the State Environmental Coordinator to the processing
office to meet eligibility determination
time lines.
(g) The applicant’s Internal Revenue
Service Taxpayer Identification Number (TIN). The TIN will be used by the
Agency to assign a case number which
will be the applicant’s or transferee’s
TIN preceded by State and County
Code numbers. Only one case number
will be assigned to each applicant regardless of the number of loans or
grants or number of separate facilities,
unless an exception is authorized by
the National Office.
(h) Other Forms and certifications.
Applicants will be required to submit

the following items to the processing
office, upon notification from the processing office to proceed with further
development of the full application:
(1) Form RD 442–7, ‘‘Operating Budget’’;
(2) Form RD 1910–11, ‘‘Application
Certification, Federal Collection Policies for Consumer or Commercial
Debts’’;
(3) Form RD 400–1, ‘‘Equal Opportunity Agreement’’;
(4) Form RD 400–4, ‘‘Assurance Agreement’’;
(5) Form AD–1047, ‘‘Certification Regarding Debarment, Suspension and
other Responsibility Matters’’;
(6) Form AD–1049, Certification regarding Drug-Free Workplace Requirements (Grants) Alternative I For
Grantees Other Than Individuals;
(7) Certifications for Contracts,
Grants, and Loans (Regarding Lobbying); and
(8) Certification regarding prohibited
tying arrangements. Applicants that
provide electric service must provide
the Agency a certification that they
will not require users of a water or
waste facility financed under this part
to accept electric service as a condition of receiving assistance.
[62 FR 33478, June 19, 1997, as amended at 63
FR 68655, Dec. 11, 1998]

§ 1780.34

[Reserved]

§ 1780.35 Processing office review.
Review of the application will usually include the following:
(a) Nondiscrimination. Boundaries for
the proposed service area must not 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. This does
not preclude construction of the
project in phases as noted in § 1780.11 as
long as it is not done in a discriminatory manner.
(b) Grant determination. Grants will be
determined by the processing office in
accordance with the following provisions and will not result in EDU costs
below similar system user cost.
(1) Maximum grant. Grants may not
exceed the percentages in § 1780.10(c) of
the eligible RUS project development
costs listed in § 1780.9.

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§ 1780.37

(2) Debt service. Applicants will be
considered for grant assistance when
the debt service portion of the average
annual EDU cost, for users in the applicant’s service area, exceeds the following percentages of median household income:
(i) 0.5 percent when the median
household income of the service area is
equal to or below 80% of the statewide
nonmetropolitan median income.
(ii) 1.0 percent when the median
household income of the service area
exceeds the 0.5 percent requirement but
is not more than 100 percent the statewide nonmetropolitan household income.
(3) Similar system cost. If the grant determined in paragraph (b)(2) of this section results in an annual EDU cost that
is not comparable with similar systems, the Agency will determine a
grant amount based on achieving EDU
costs that are not below similar system
user costs.
(4) Wholesale service. When an applicant provides wholesale sales or services on a contract basis to another system or entity, similar wholesale system cost will be used in determining
the amount of grant needed to achieve
a reasonable wholesale user cost.
(5) Subsidized cost. When annual cost
to the applicant for delivery of service
is subsidized by either the state, commonwealth, or territory, and uniform
flat user charges regardless of usage
are imposed for similar classes of service throughout the service area, the
Agency may proceed with a grant in an
amount necessary to reduce such delivery cost to a reasonable level.
(c) User charges. The user charges
should be reasonable and produce
enough revenue to provide for all costs
of the facility after the project is complete. The planned revenue should be
sufficient to provide for all debt service, debt reserve, operation and maintenance, and, if appropriate, additional
revenue for facility replacement of
short-lived assets without building a
substantial surplus. Ordinarily, the
total debt service reserve will be equal
to one average annual loan installment
which will accumulate at the rate of
one-tenth of the total each year.
[62 FR 33478, June 19, 1997, as amended at 64
FR 29946, June 4, 1999]

§ 1780.36

Approving official review.

Projects may be obligated as their
applications are completed and approved.
(a) Selection of applications for further
processing. The application and supporting information submitted will be
used to determine the applications selected for further development and
funding. After completing the review,
the approval official will normally select those eligible applications with
the highest priority scores for further
processing. When authorizing the development of an application for funding, the following will be considered:
(1) Funds available in State allocation;
(2) Anticipated allocation of funds for
the next fiscal year; and
(3) Time necessary for applicant to
complete the application.
(b) Lower scoring projects. (1) In cases
where preliminary cost estimates indicate that an eligible, high scoring application is unfeasible or would require
an amount of funding from RUS that
exceeds either 25 percent of a State’s
current annual allocation or an
amount greater than that remaining in
the State’s allocation, the approval official may instead select the next lower
scoring application for further processing provided the high scoring applicant is notified of this action and given
an opportunity to revise the proposal
and resubmit it.
(2) If it is found that there is no effective way to reduce costs or no other
funding sources, the approval official,
after consultation with applicant, may
submit a request for an additional allocation of funds for the proposed project
to the National Office. The request
should be submitted during the fiscal
year in which obligation is anticipated.
Such request will be considered along
with all others on hand. A written justification must be prepared and placed
in the project file.
§ 1780.37 Applications determined ineligible.
If at any time an application is determined ineligible, the processing office
will notify the applicant in writing of
the reasons. The notification to the applicant will state that an appeal of this

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§ 1780.38

7 CFR Ch. XVII (1–1–06 Edition)

decision may be made by the applicant
under 7 CFR part 11.
§ 1780.38

[Reserved]

§ 1780.39

Application processing.

(a) Processing conference. Before starting to assemble the full application,
the applicant should arrange through
the processing office an application
conference to provide a basis for orderly application assembly. The processing office will explain program requirements, public information requirements and provide guidance on
preparation of items necessary for approval.
(b) Professional services and contracts
related to the facility. Fees provided for
in contracts or agreements shall be
reasonable. The Agency shall consider
fees to be reasonable if they are not in
excess of those ordinarily charged by
the profession as a whole for similar
work when RUS financing is not involved. Applicants will be responsible
for providing the services necessary to
plan projects including design of facilities, environmental review and documentation requirements, preparation
of cost and income estimates, development of proposals for organization and
financing, and overall operation and
maintenance of the facility. Applicants
should negotiate for procurement of
professional services, whereby competitors’ qualifications are evaluated and
the most qualified competitor is selected, subject to negotiations of fair
and reasonable compensation. Contracts or other forms of agreement between the applicant and its professional and technical representatives
are required and are subject to RUS
concurrence.
(1) Engineering and architectural services. (i) Applicants shall publicly announce all requirements for engineering and architectural services, and negotiate contracts for engineering and
architectural services on the basis of
demonstrated competence and qualifications for the type of professional
services required and at a fair and reasonable price.
(ii) When project design services are
procured separately, the selection of
the engineer or architect shall be done
by requesting qualification-based pro-

posals and in accordance with this section.
(iii) Applicants may procure engineering and architectural services in
accordance with applicable State statutes or local requirements provided the
State Director determines that such
procurement meets the intent of this
section.
(2) Other professional services. Professional services of the following may be
necessary: Attorney, bond counsel, accountant, auditor, appraiser, environmental professionals, and financial advisory or fiscal agent (if desired by applicant). Guidance on entering into an
agreement for legal services is available from the Agency.
(3) Bond counsel. Unless otherwise
provided by subpart D of this part, public bodies are required to obtain the
service of recognized bond counsel in
the preparation of evidence of indebtedness.
(4) Contracts for other services. Contracts or other forms of agreements for
other services including management,
operation, and maintenance will be developed by the applicant and presented
to the Agency for review and concurrence. Guidance on entering into a
management agreement is available
from the Agency.
(c) User estimates. Applicants dependent on users fees for debt payment or
operation and maintenance expenses
shall base their income and expense
forecast on realistic user estimates.
For users presently not receiving service, consideration must be given to the
following:
(1) An estimated number of maximum users should not be used when
setting user fees and rates since it may
be several years before all residents
will need service by the system. In establishing rates a realistic number of
users should be employed.
(2) New user cash contributions. The
amount of cash contributions required
will be set by the applicant and concurred in by the approval official. Contributions 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,

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§ 1780.39

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 potential user
cash contributions, the contribution,
membership fee or other fees that may
be imposed are not a loan requirement
under this section. A new user cash
contribution is not required when:
(i) The Agency determines that the
potential users as a whole in the applicant’s service area cannot make cash
contributions; or
(ii) State statutes or local ordinances
require mandatory use of the system
and the applicant or legal entity having such authority agrees in writing to
enforce such statutes, or ordinances.
(3) An enforceable user agreement
with a penalty clause is required (RUS
Bulletin 1780–9 can be used) except:
(i) For users presently receiving service; or
(ii) Where mandatory use of the system is required.
(4) Individual vacant property owners
will not be considered when determining project feasibility unless:
(i) The owner has plans to develop
the property in a reasonable period of
time and become a user of the facility;
and
(ii) The owner agrees in writing to
make a monthly payment at least
equal to the proportionate share of
debt service attributable to the vacant
property until the property is developed and the facility is utilized on a
regular basis. A bond or escrowed security deposit must be provided to guarantee this monthly payment and to
guarantee an amount at least equal to
the owner’s proportionate share of construction costs. If a bond is provided, it
must be executed by a surety company
that appears on the Treasury Department’s most current list (Circular 570,
as amended) and be authorized to
transact business in the State where
the project is located. The guarantee
shall be payable jointly to the borrower and the United States of America.
(5) Applicants must provide a positive program to encourage connection
by all users as soon as service is available. The program will be available for
review and concurrence by the proc-

essing office before loan closing or
commencement of construction, whichever occurs first. Such a program shall
include:
(i) An aggressive information program to be carried out during the construction period. The applicant should
send written notification to all signed
users in advance of the date service
will be available, stating the date users
will be expected to have their connections completed, and the date user
charges will begin;
(ii) Positive steps to assure that installation services will be available.
These may be provided by the contractor installing the system, local
plumbing companies, or local contractors;
(iii) Aggressive action to see that all
signed users can finance their connections.
(d) Interim financing. For all loans exceeding $500,000, where funds can be
borrowed at reasonable interest rates
on an interim basis from commercial
sources for the construction period,
such interim financing may be obtained so as to preclude the necessity
for multiple advances of RUS loan
funds. However, the approval official
may make an exception when interim
financing is cost prohibitive or unavailable. Guidance on informing the
private lender of RUS’s commitment is
available from the Agency. When interim commercial financing is used,
the application will be processed, including obtaining construction bids, to
the stage where the RUS loan would
normally be closed, that is immediately prior to the start of construction. The RUS loan should be closed as
soon as possible after the disbursal of
all interim funds.
(e) Reserve requirements. Provision for
the accumulation of necessary reserves
over a reasonable period of time will be
included in the loan documents.
(1) General obligation or special assessment bonds. Ordinarily, the requirements for reserves will be considered to
have been met if general obligation or
other bonds which pledge the full faith
and credit of the political subdivision
are used, or special assessment bonds
are used, and if such bonds provide for
the annual collection of sufficient

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§ 1780.39

7 CFR Ch. XVII (1–1–06 Edition)

taxes or assessments to cover debt
service.
(2) Other than general obligation or special assessment bonds. Each borrower
will be required to establish and maintain reserves sufficient to assure that
loan installments will be paid on time,
for emergency maintenance, for extensions to facilities, and for replacement
of short-lived assets which have a useful life significantly less than the repayment period of the loan. Borrowers
issuing bonds or other evidences of
debt pledging facility revenues as security will plan their debt reserve to provide for at least one average annual
loan installment. The debt reserve will
accumulate at the rate of one-tenth of
an average annual loan installment
each year unless prohibited by state
law.
(f) Membership authorization. For organizations other than public bodies,
the membership will authorize the
project and its financing. Form RD
1942–8, ‘‘Resolution of Members or
Stockholders,’’ may be used for this
authorization. The approval official
may accept RUS Bulletin 1780–28,
‘‘Loan Resolution Security Agreement,’’ without such membership authorization when State statutes and
the organization’s charter and bylaws
do not require such authorization; and
(1) The organization is well established and is operating with a sound financial base; or
(2) The members of the organization
have all signed an enforceable user
agreement with a penalty clause and
have made the required meaningful
user cash contribution.
(g) Insurance. The purpose of RUS’s
insurance requirements is to protect
the government’s financial interest
based on the facility financed with loan
funds. It is the responsibility of the applicant and not that of RUS to assure
that adequate insurance and fidelity or
employee dishonesty bond coverage is
maintained. The requirements below
apply to all types of coverage determined necessary. The approval official
may grant exceptions to normal requirements when appropriate justification is provided establishing that it is
in the best interest of the applicant
and will not adversely affect the government’s interest.

(1) Insurance requirements proposed
by the applicant will be accepted if the
processing office determines that proposed coverage is adequate to protect
the government’s financial interest.
Applicants are encouraged to have
their attorney, consulting engineer,
and/or insurance provider(s) review
proposed types and amounts of coverage, including any deductible provisions.
(2) The use of deductibles may be allowed by RUS providing the applicant
has financial resources which would
likely be adequate to cover potential
claims requiring payment of the deductible.
(3) Fidelity or employee dishonesty
bonds. Applicants will provide coverage
for all persons who have access to
funds, including persons working under
a contract or management agreement.
Coverage may be provided either for all
individual positions or persons, or
through ‘‘blanket’’ coverage providing
protection for all appropriate employees. An exception may be granted by
the approval official when funds relating to the facility financed are handled
by another entity and it is determined
that the entity has adequate coverage
or the government’s interest would
otherwise be adequately protected. The
amount of coverage required by RUS
will normally approximate the total
annual debt service requirements for
the RUS loans.
(4) Property insurance. Fire and extended coverage will normally be maintained on all structures except as noted
below. Ordinarily, RUS should be listed
as mortgagee on the policy when RUS
has a lien on the property. Normally,
major items of equipment or machinery located in the insured structures
must also be covered. Exceptions:
(i) Reservoirs, pipelines and other
structures if such structures are not
normally insured;
(ii) Subsurface lift stations except for
the value of electrical and pumping
equipment therein.
(5) General liability insurance, including vehicular coverage.
(6) Flood insurance required for facilities located in special flood-and
mudslide-prone areas.

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§ 1780.44

(7) Worker’s compensation. The borrower will carry worker’s compensation insurance for employees in accordance with State laws.
(h) [Reserved]
(i) The processing office will assure
that appropriate forms and documents
listed in RUS Bulletin 1780–6 are complete. Letters of conditions will not be
issued unless funds are available.
[62 FR 33478, June 19, 1997, as amended at 63
FR 68655, Dec. 11, 1998; 64 FR 29946, June 4,
1999]

§ 1780.40

[Reserved]

§ 1780.41

Loan or grant approval.

(a) The processing office will submit
the following to the approval official:
(1) Form RD 1942–45, ‘‘Project Summary’’;
(2) Form RD 442–7, ‘‘Operating Budget’’;
(3) Form RD 442–3, ‘‘Balance Sheet’’
or a financial statement or audit that
includes a balance sheet;
(4) Form RD 442–14, ‘‘Association
Project Fund Analysis’’;
(5) ‘‘Letter of Conditions’’;
(6) Form RD 1942–46, ‘‘Letter of Intent to Meet Conditions’’;
(7) Form RD 1940–1, ‘‘Request for Obligation of Funds’’;
(8) Completed environmental review
documents including copies of public
notices and appropriate proof of publication, if applicable; and
(9) Grant determination, if applicable.
(b) Approval and applicant notification will be accomplished by mailing to
the applicant on the obligation date a
copy of Form RD 1940–1. The date the
applicant is notified is also the date
the interest rate at loan approval is established.
[62 FR 33478, June 19, 1997, as amended at 63
FR 68655, Dec. 11, 1998]

§ 1780.42

Transfer of obligations.

An obligation of funds established for
an applicant may be transferred to a
different (substituted) applicant provided:
(a) The substituted applicant is eligible and has the authority to receive
the assistance approved for the original
applicant; and

(b) The need, purpose(s) and scope of
the project for which RUS funds will be
used remain substantially unchanged.
§ 1780.43

[Reserved]

§ 1780.44 Actions prior to loan or grant
closing or start of construction,
whichever occurs first.
(a) Applicants must provide evidence
of adequate insurance and fidelity or
employee dishonesty bond coverage.
(b) Verification of users and other
funds. In connection with a project
that involves new users and will be secured by a pledge of user fees or revenues, the processing office will authenticate the number of users. Ordinarily
each signed user agreement will be reviewed and checked for evidence of
cash contributions. If during the review any indication is received that all
signed users may not connect to the
system, there will be such additional
investigation made as deemed necessary to determine the number of
users who will connect to the system.
(c) Initial compliance review. An initial
compliance review should be completed
under subpart E of part 1901 of this
title.
(d) Applicant contribution. An applicant contributing funds toward the
project cost shall deposit these funds in
its project account before start of construction. Project costs paid with applicant funds prior to the required deposit time shall be appropriately accounted for.
(e) Excess RUS loan and grant funds. If
there is a significant reduction in
project cost, the applicant’s funding
needs will be reassessed. Decreases in
RUS funds will be based on revised
project costs and current number of
users, however, other factors including
RUS regulations used at the time of
loan or grant approval will remain the
same. Obligated loan or grant funds
not needed to complete the proposed
project will be deobligated. Any reduction will be applied to grant funds first.
In such cases, applicable forms, the letter of conditions, and other items will
be revised.
(f) Evidence of and disbursement of
other funds. Applicants expecting funds
from other sources for use in completing projects being partially financed with RUS funds will present

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§ 1780.44

7 CFR Ch. XVII (1–1–06 Edition)

evidence of the commitment of these
funds from such other sources. An
agreement should be reached with all
funding sources on how funds are to be
disbursed before the start of construction. RUS funds will not be used to prefinance funds committed to the project
from other sources.
(g) Acquisition of land, easements,
water rights, and existing facilities. Applicants are responsible for acquisition
of all property rights necessary for the
project and will determine that prices
paid are reasonable and fair. RUS may
require an appraisal by an independent
appraiser or Agency employee.
(1) Rights-of-way and easements. Applicants will obtain valid, continuous and
adequate rights-of-way and easements
needed for the construction, operation,
and maintenance of the facility.
(i) The applicant must provide a legal
opinion relative to the title to rightsof-way and easements. Form RD 442–22,
‘‘Opinion of Counsel Relative to
Rights-of-Way,’’ may be used. When a
site is for major structures such as a
reservoir or pumping station and the
applicant is able to obtain only a rightof-way or easement on such a site rather than a fee simple title, the applicant
will furnish a title report thereon by
the applicant’s attorney showing ownership of the land and all mortgages or
other lien defects, restrictions, or encumbrances, if any.
(ii) For user connections funded by
RUS, applicants will obtain adequate
rights to construct and maintain the
connection line or other facilities located on the user’s property. This right
may be obtained through formal easement or user agreements.
(2) Title for land or existing facilities.
Title to land essential to the successful
operation of facilities or title to facilities being purchased, must not contain
any restrictions that will adversely affect the suitability, successful operation, security value, or transferability
of the facility. Preliminary and final
title opinions must be provided by the
applicant’s attorney. The opinions
must be in sufficient detail to assess
marketability of the property. Form
RD 1927–9, ‘‘Preliminary Title Opinion,’’ and Form RD 1927–10, ‘‘Final
Title Opinion,’’ may be used to provide
the required title opinions.

(i) In lieu of receiving title opinions
from the applicant’s attorney, the applicant may use a title insurance company. If a title insurance company is
used, the applicant must provide the
Agency a title insurance binder, disclosing all title defects or restrictions,
and include a commitment to issue a
title insurance policy. The policy
should be in an amount at least equal
to the market value of the property as
improved. The title insurance binder
and commitment should be provided to
the Agency prior to requesting closing
instructions. The Agency will be provided a title insurance policy which
will insure RUS’s interest in the property without any title defects or restrictions which have not been waived
by the Agency.
(ii) The approval official may waive
title defects or restrictions, such as
utility easements, that do not adversely affect the suitability, successful operation, security value, or transferability of the facility.
(3) Water rights. The following will be
furnished as applicable:
(i) A statement by the applicant’s attorney regarding the nature of the
water rights owned or to be acquired
by the applicant (such as conveyance of
title, appropriation and decree, application and permit, public notice and
appropriation and use).
(ii) A copy of a contract with another
company or municipality to supply
water; or stock certificates in another
company which represents the right to
receive water.
(4) Lease agreements. Where the right
of use or control of real property not
owned by the applicant is essential to
the successful operation of the facility
during the life of the loan, such right
will be evidenced by written agreements or contracts between the owner
of the property and the applicant.
Lease agreements shall not contain
provisions for restricted use of the site
of facility, forfeiture or summary cancellation clauses. Lease agreements
shall provide for the right to transfer,
encumber, assign and sub-lease without
restriction. Lease agreements will ordinarily be written for a term at least
equal to the term of the loan. Such
lease contracts or agreements will be
approved by the approval official with

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§ 1780.45

the advice and counsel of OGC, as necessary.
(h) Obtaining loan closing instructions.
The information required by OGC will
be transmitted to OGC with request for
closing instructions. Upon receipt of
closing instructions, the processing office will discuss with the applicant and
its engineer, attorney, and other appropriate representatives, the requirements contained therein and any actions necessary to proceed with closing. State program officials have the
option to work with OGC to obtain
waivers for closing instructions in certain cases. Closing instructions are not
required for grants.
§ 1780.45 Loan and grant closing and
delivery of funds.
(a) Loan closing. Notes and bonds will
be completed on the date of loan closing except for the entry of subsequent
RUS multiple advances where applicable. The amount of each note will be in
multiples of not less than $100. The
amount of each bond will ordinarily be
in multiples of not less than $1,000.
(1) Form RD 440–22, ‘‘Promissory
Note (Association or Organization),’’
will ordinarily be used for loans to nonpublic bodies.
(2) RUS Bulletins 1780–27, ‘‘Loan Resolution (Public Bodies),’’ or 1780–28,
‘‘Loan Resolution Security Agreement,’’ will be adopted by public and
other-than-public bodies. These resolutions supplement other provisions in
this part.
(3) Subpart D of this part contains instructions for preparation of notes and
bonds evidencing indebtedness of public bodies.
(b) Loan disbursement. (1) Multiple advances. Multiple advances will be used
only for loans in excess of $100,000. Advances will be made only as needed to
cover disbursements required by the
borrower over a 30-day period.
(i) Subpart D of this part contains instructions for making multiple advances to public bodies.
(ii) Advances will be requested by the
borrower in writing. The request
should be in sufficient amounts to pay
cost of construction, rights-of-way and
land, legal, engineering, interest, and
other expenses as needed. The borrower
may use Form RD 440–11, ‘‘Estimate of

Funds Needed for 30 Day Period Commencing XXX,’’ to show the amount of
funds needed during the 30-day period.
(2) RUS loan funds obligated for a
specific purpose, such as the paying of
interest, but not needed at the time of
loan closing will remain in the Finance
Office until needed unless State statutes require all funds to be delivered to
the borrower at the time of closing.
Loan funds may be advanced to prepay
costs under § 1780.9 (e)(2)(iv). If all funds
must be delivered to the borrower at
the time of closing to comply with
State statutes, funds not needed at
loan closing will be handled as follows:
(i) Deposited in an appropriate borrower account, such as debt service or
construction accounts; or
(ii) Deposited in a joint bank account
under paragraph (e)(3) of this section.
(c) Grant closing. RUS Bulletin 1780–12
‘‘Water or Waste System Grant Agreement’’ of this part will be completed
and executed in accordance with the
requirements of grant approval. The
grant will be considered closed when
RUS Bulletin 1780–12 has been properly
executed. Processing or approval officials are authorized to sign the grant
agreement on behalf of RUS. For
grants that supplement RUS loan
funds, the grant should be closed simultaneously with the closing of the
loan. However, when grant funds will
be disbursed before loan closing, as provided in paragraph (d)(1) of this section, the grant will be closed not later
than the delivery date of the first advance of grant funds.
(d) Grant disbursements. RUS policy is
not to disburse grant funds from the
Treasury until they are actually needed by the applicant. Applicant funds
will be disbursed before the disbursal of
any RUS grant funds. RUS loan funds
will be disbursed before the disbursal of
any RUS grant funds except when:
(1) Interim financing of the total estimated amount of loan funds needed
during construction is arranged; and
(2) All interim funds have been disbursed; and
(3) RUS grant funds are needed before
the RUS loan can be closed.
(e) Use and accountability of funds. (1)
Arrangements will be agreed upon for
the prior concurrence by the Agency of

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§ 1780.46

7 CFR Ch. XVII (1–1–06 Edition)

the bills or vouchers upon which warrants will be drawn. Form RD 402–2,
‘‘Statement of Deposits and Withdrawals,’’ or similar form will be used
by the Agency to monitor funds. Periodic reviews of these accounts shall be
made by the Agency.
(2) Pledge of collateral for grants to
nonprofit organizations. Grant funds
must be deposited in a bank with Federal Deposit Insurance Corporation
(FDIC) insurance coverage. Also, if the
balance in the account containing
grant funds exceeds the FDIC insurance coverage, the excess amount must
be collaterally secured. The pledge of
collateral for the excess will be in accordance with Treasury Circular 176.
(3) Joint RUS/borrower bank account.
RUS funds and any funds furnished by
the borrower including contributions
to purchase major items of equipment,
machinery, and furnishings will be deposited in a joint RUS/borrower bank
account if determined necessary by the
approval official. When RUS has a
Memorandum of Understanding with
another agency that provides for the
use of joint RUS/borrower accounts, or
when RUS is the primary source of
funds for a project and has determined
that the use of a joint RUS/borrower
bank account is necessary, project
funds from other sources may also be
deposited in the joint bank account.
RUS shall not be accountable to the
source of the other funds nor shall RUS
undertake responsibility to administer
the funding program of the other entity. Joint RUS/borrower bank accounts
should not be used for funds advanced
by an interim lender. When funds exceeds the FDIC insurance coverage, the
excess must have a pledge of collateral
in accordance with Treasury Circular
176.
(4) Payment for project costs. Project
costs will be monitored by the RUS
processing office. Invoices will be approved by the borrower and their engineer, as appropriate, and submitted to
the processing office for concurrence.
The review and acceptance of project
costs, including construction pay estimates, by RUS does not attest to the
correctness of the amounts, the quantities shown or that the work has been
performed under the terms of the
agreements or contracts.

(f) Use of remaining funds. Funds remaining after all costs incident to the
basic project have been paid or provided for will not include applicant
contributions. Funds remaining, may
be considered in direct proportion to
the amounts obtained from each
source. Remaining funds will be handled as follows:
(1) Remaining funds may be used for
eligible loan or grant purposes, provided the use will not result in major
changes to the facility(s) and the purpose of the loan and grant remains the
same;
(2) RUS loan funds that are not needed will be applied as an extra payment
on the RUS indebtedness unless other
disposition is required by the bond ordinance, resolution, or State statute;
and
(3) Grant funds not expended under
paragraph (f)(1) of this section will be
canceled. Prior to the actual cancellation, the borrower, its attorney and its
engineer will be notified of RUS’s intent to cancel the remaining funds.
The applicant will be given appropriate
appeal rights.
(g) Post review of loan closing. In order
to determine that the loan has been
properly closed the loan docket will be
reviewed by OGC. The State program
official has the option to consult with
OGC to obtain waivers of this review.
[62 FR 33478, June 19, 1997, as amended at 64
FR 29946, June 4, 1999]

§ 1780.46

[Reserved]

§ 1780.47 Borrower accounting methods, management reporting and audits.
(a) Borrowers are required to provide
RUS an annual audit or financial statements.
(b) Method of accounting and preparation of financial statements. Annual organization-wide financial statements
must be prepared on the accrual basis
of accounting, in accordance with generally accepted accounting principles
(GAAP), unless State statutes or regulatory agencies provide otherwise, or
an exception is granted by the Agency.
An organization may maintain its accounting records on a basis other than

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§ 1780.48

accrual accounting, and make the necessary adjustments so that annual financial statements are presented on
the accrual basis.
(c) Record retention. Each borrower
shall retain all records, books, and supporting material for 3 years after the
issuance of the audit or management
reports. Upon request, this material
will be made available to RUS, Office
of the Inspector General (OIG), United
States Department of Agriculture
(USDA), the Comptroller General, or to
their assignees.
(d) Audits. All audits are to be performed in accordance with the latest
revision of the generally accepted government auditing standards (GAGAS),
developed by the Comptroller General
of the United States. In addition, the
audits are also to be performed in accordance with various Office of Management and Budget (OMB) Circulars.
The type of audit each borrower is required to submit will be designated by
RUS. Further guidance on preparing an
acceptable audit can be obtained from
RUS. It is not intended that audits required by this part be separate and
apart from audits performed in accordance with State and local laws. To the
extent feasible, the audit work should
be done in conjunction with those audits. Audits shall be annual unless otherwise prohibited and supplied to the
processing office as soon as possible
but in no event later than 150 days following the period covered by the audit.
OMB Circulars are available in any
USDA/RUS office.
(e) Borrowers exempt from audits. All
borrowers who are exempt from audits,
will, within 60 days following the end
of each fiscal year, furnish the RUS
with annual financial statements, consisting of a verification of the organization’s balance sheet and statement of
income and expense by an appropriate
official of the organization. Forms RD
442–2, ‘‘Statement of Budget, Income
and Equity,’’ and 442–3 may be used.
(f) Management reports. These reports
will furnish management with a means
of evaluating prior decisions and serve
as a basis for planning future operations and financial strategies. In
those cases where revenues from multiple sources are pledged as security for
an RUS loan, two reports will be re-

quired; one for the project being financed by RUS and one combining the
entire operation of the borrower. In
those cases where RUS loans are secured by general obligation bonds or
assessments and the borrower combines revenues from all sources, one
management report combining all such
revenues is acceptable. The following
management data will be submitted by
the borrower to the processing office.
These reports at a minimum will include a balance sheet and income and
expense statement.
(1) Quarterly reports. A quarterly
management report will be required for
the first year for new borrowers and for
all borrowers experiencing financial or
management problems for one year
from the date problems were noted. If
the borrower’s account is current at
the end of the year, the processing office may waive the required reports.
(2) Annual management reports. Prior
to the beginning of each fiscal year the
following will be submitted to the
processing office. (If Form RD 442–2 is
used as the annual management report,
enter data in column three only of
Schedule 1, and complete all of Schedule 2.)
(i) Two copies of the management reports and proposed ‘‘Annual Budget’’.
(ii) Financial information may be reported on Form RD 442–2 which includes Schedule 1, ‘‘Statement of Budget, Income and Equity’’ and Schedule 2,
‘‘Projected Cash Flow’’ or information
in similar format.
(iii) A copy of the rate schedule in effect at the time of submission.
(g) Substitute for management reports.
When RUS loans are secured by the
general obligation of the public body or
tax assessments which total 100 percent of the debt service requirements,
the State program official may authorize an annual audit to substitute for
other management reports if the audit
is received within 150 days following
the period covered by the audit.
§ 1780.48 Regional commission grants.
Grants are sometimes made by regional commissions for projects eligible for RUS assistance. RUS has agreed
to administer such funds in a manner
similar to administering RUS assistance.

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§ 1780.49

7 CFR Ch. XVII (1–1–06 Edition)

(a) When RUS has funds in the
project, no charge will be made for administering
regional
commission
funds.
(b) When RUS has no loan or grant
funds in the project, an administrative
charge will be made pursuant to the
Economy Act of 1932 (31 U.C.S. 1535). A
fee of 5 percent of the first $100,000 of a
regional commission grant and 1 percent of any amount over $100,000 will be
paid to RUS by the commission.
(1) Appalachian Regional Commission
(ARC). RUS Bulletin 1780–23 will be followed in determining the responsibilities of RUS. The ARC Federal Cochairman and the State program official will provide each other with the
necessary notification and certification.
(2) Other regional commissions. Title V
of the Public Works and Economic Development Act of 1965 (42 U.S.C. 3121 et
seq.) authorizes other commissions
similar to ARC. RUS Bulletin 1780–23
will be used to develop a separate
project management agreement between RUS and the commission for
each project. The agreement should be
prepared by the State program official
as soon as notification is received that
a commission grant will be made and
the amount is confirmed.
(c) Regional commission grants
should be obligated as soon as possible
in accordance with § 1780.41, except that
the announcement procedure referred
to in RUS Staff Instruction 1780–2 is
not applicable. Regional commission
grants will be disbursed from the Finance Office in the same manner as
RUS funds.
[62 FR 33478, June 19, 1997, as amended at 64
FR 29946, June 4, 1999]

§ 1780.49 Rural or Native Alaskan villages.
(a) General. (1) This section contains
regulations for providing grants to
remedy the dire sanitation conditions
in rural Alaskan villages using funds
specifically made available for this
purpose.

(2) Unless specifically modified by
this section, grants will be made, processed, and serviced in accordance with
this subpart.
(b) Definitions—(1) Dire sanitation condition. For the purpose of this section a
dire sanitation condition exists where:
(i) Recurring instances of a waterborne communicable disease have been
documented; or
(ii) No community-wide water and
sewer system exists and individual
residents must haul water to or human
waste from their homes and/or use pit
privies.
(2) Rural or Native Alaskan village. A
rural or Native Alaskan community
which meets the definition of a village
under State statutes and does not have
a population in excess of 10,000 inhabitants, according to the latest decennial Census of the United States.
(c) Eligibility. (1) The applicant must
be a rural or Native Alaskan village.
(2) The median household income of
the village cannot exceed 110 percent of
the statewide nonmetropolitan household income.
(3) A dire sanitation condition must
exist in the village.
(4) The applicant must obtain 25 percent of project development costs from
State or local contributions. The local
contribution can be from loan funds
authorized under this part.
(d) Grant amount. Grants will be made
for up to 75 percent of the project development costs.
(e) Use of funds. Grant funds can be
used to pay reasonable costs associated
with providing potable water or waste
disposal services to residents of rural
or Native Alaskan villages.
(f) Construction. (1) If the State of
Alaska is contributing to the project
costs, the project does not have to
meet the construction requirements of
this subpart.
(2) If a loan is made in accordance
with this part for part of the local contribution, all of the requirements of
this part apply.
[62 FR 33478, June 19, 1997, as amended at 64
FR 29946, June 4, 1999]

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Rural Utilities Service, USDA
§§ 1780.50–1780.52

§ 1780.57

[Reserved]

Subpart C—Planning, Designing,
Bidding, Contracting, Constructing and Inspections
§ 1780.53

General.

This subpart is specifically designed
for use by owners including the professional or technical consultants or
agents who provide assistance and
services such as engineering, environmental, inspection, financial, legal or
other services related to planning, designing, bidding, contracting, and constructing water and waste disposal facilities. These procedures do not relieve the owner of the contractual obligations that arise from the procurement of these services. For this subpart, an owner is defined as an applicant, borrower, or grantee.
§ 1780.54

Technical services.

Owners are responsible for providing
the engineering, architect and environmental services necessary for planning,
designing, bidding, contracting, inspecting, and constructing their facilities. Services may be provided by the
owner’s ‘‘in house’’ engineer or architect or through contract, subject to
Agency concurrence. Engineers and architects must be licensed in the State
where the facility is to be constructed.
§ 1780.55 Preliminary engineering reports and Environmental Reports.
Preliminary
engineering
reports
(PERs) must conform to customary
professional standards. PER guidelines
for water, sanitary sewer, solid waste,
and storm sewer are available from the
Agency. Environmental Reports must
meet the policies and intent of the National Environmental Policy Act and
RUS procedures. Guidelines for preparing Environmental Reports are
available in RUS Bulletin 1794A–602.
[64 FR 29946, June 4, 1999]

§ 1780.56

[Reserved]

§ 1780.57

Design policies.

Facilities financed by the Agency
will be designed and constructed in accordance with sound engineering prac-

tices, and must meet the requirements
of Federal, State and local agencies.
(a) Environmental review. Facilities financed by the Agency must undergo an
environmental impact analysis in accordance with the National Environmental Policy Act and RUS procedures. Facility planning and design
must not only be responsive to the
owner’s needs but must consider the
environmental consequences of the
proposed project. Facility design shall
incorporate and integrate, where practicable, mitigation measures that
avoid or minimize adverse environmental impacts. Environmental reviews serve as a means of assessing environmental impacts of project proposals, rather than justifying decisions
already made. Applicants may not take
any action on a project proposal that
will have an adverse environmental impact or limit the choice of reasonable
project alternatives being reviewed
prior to the completion of the Agency’s
environmental review.
(b) Architectural barriers. All facilities
intended for or accessible to the public
or in which physically handicapped
persons may be employed must be developed in compliance with the Architectural Barriers Act of 1968 (42 U.S.C.
4151 et seq.) as implemented by 41 CFR
101–19.6, section 504 of the Rehabilitation Act of 1973 (42 U.S.C 1474 et seq.) as
implemented by 7 CFR parts 15 and 15b,
and Titles II and III of the Americans
with Disabilities Act of 1990 (42 U.S.C.
12101 et seq.).
(c) Energy/environment. Facility design should consider cost effective energy-efficient and environmentallysound products and services.
(d) Fire protection. Water facilities
should have sufficient capacity to provide reasonable fire protection to the
extent practicable.
(e) Growth capacity. Facilities should
have sufficient capacity to provide for
reasonable growth to the extent practicable.
(f) Water conservation. Owners are encouraged, when economically feasible,
to incorporate water conservation
practices into a facility’s design. For
existing water systems, evidence must
be provided showing that the distribution system water losses do not exceed
reasonable levels.

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§§ 1780.58–1780.60

7 CFR Ch. XVII (1–1–06 Edition)

(g) Conformity with State drinking
water standards. No funds shall be made
available under this part for a water
system unless the Agency determines
that the water system will make significant progress toward meeting the
standards established under title XIV
of the Public Health Service Act (commonly known as the ‘Safe Drinking
Water Act’) (42 U.S.C. 300f et seq.).
(h) Conformity with Federal and State
water pollution control standards. No
funds shall be made available under
this part for a water treatment discharge or waste disposal system unless
the Agency determines that the effluent from the system conforms with applicable Federal and State water pollution control standards.
(i) Combined sewers. New combined
sanitary and storm water sewer facilities will not be financed by the Agency.
Extensions to existing combined systems can only be financed when separate systems are impractical.
(j) Dam safety. Projects involving any
artificial barrier which impounds or diverts water, or the rehabilitation or
improvement of such a barrier, must
comply with the provisions for dam
safety as set forth in the Federal
Guidelines for Dam Safety (Government Printing Office stock No. 041–001–
00187–5, Superintendent of Documents,
Attn: New Orders, P.O. Box 371954,
Pittsburgh, PA 15250–7954) as prepared
by the Federal Coordinating Council
for Science, Engineering and Technology.
(k) Pipe. All pipe used shall meet current American Society for Testing Materials (ASTM) or American Water
Works Association (AWWA) standards.
(l) Water system testing. For new water
systems or extensions to existing water
systems, leakage shall not exceed limits set by either ASTM or AWWA
whichever is the more stringent.
(m) Metering devices. Water facilities
financed by the Agency will have metering devices for each connection. An
exception to this requirement may be
granted by the State program official
when the owner demonstrates that installation of metering devices would be
a significant economic detriment and
that
environmental
considerations
would not be adversely affected by not
installing such devices. Sanitary sewer

projects should incorporate water system metering devices whenever practicable.
(n) Economical service. The facility’s
design must provide the most economical service practicable.
(o) Seismic safety. All new structures,
fully or partially enclosed, used or intended for sheltering persons or property will be designed with appropriate
seismic safety provisions in compliance
with the Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et seq.),
and Executive Order 12699, Seismic
Safety of Federal and Federally Assisted or Regulated New Building Construction (3 CFR, 1990 Comp., p. 269).
Designs of components essential for
system operation and substantial rehabilitation of structures that are used
for sheltering persons or property
should incorporate seismic safety provisions to the extent practicable. RUS
implementing regulations for seismic
safety are in 7 CFR part 1972, subpart
C.
[62 FR 33478, June 19, 1997, as amended at 63
FR 68655, Dec. 11, 1998; 64 FR 29946, June 4,
1999]

§§ 1780.58–1780.60

[Reserved]

§ 1780.61 Construction contracts.
Contract documents must be sufficiently descriptive and legally binding
in order to accomplish the work as economically and expeditiously as possible.
(a) Standard construction contract documents. If the construction contract
documents utilized are not in the format previously approved by the Agency, OGC’s review of the construction
contract documents will be obtained
prior to their use.
(b) Contract review and concurrence.
The owner’s attorney will review the
executed contract documents, including performance and payment bonds,
and will certify that they are adequate,
and that the persons executing these
documents have been properly authorized to do so. The contract documents,
engineer’s recommendation for award,
and bid tabulation sheets will be forwarded to the Agency for concurrence
prior to awarding the contract. All
contracts will contain a provision that
they are not effective until they have

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§ 1780.62

been concurred in by the Agency. The
State program official or designee is
responsible for concurring in construction contracts with the legal advice
and guidance of the OGC when necessary.
§ 1780.62 Utility purchase contracts.
Applicants proposing to purchase
water or other utility service from private or public sources shall have written contracts for supply or service
which are reviewed and concurred in by
the Agency. To the extent practical,
the Agency review and concurrence of
such contracts should take place prior
to their execution by the owner. OGC
advice and guidance may be requested.
Form RD 442–30, ‘‘Water Purchase Contract,’’ may be used when appropriate.
If the Agency loan will be repaid from
system revenues, the contract will be
pledged to the Agency as part of the security for the loan. Such contracts
will:
(a) Include a commitment by the supplier to furnish, at a specified point, an
adequate quantity of water or other
service and provide that, in case of
shortages, all of the supplier’s users
will proportionately share shortages.
(b) Set out the ownership and maintenance responsibilities of the respective parties including the master meter
if a meter is installed at the point of
delivery.
(c) Specify the initial rates and provide a type of escalator clause which
will permit rates for the association to
be raised or lowered proportionately as
certain specified rates for the supplier’s regular customers are raised or
lowered. Provisions may be made for
altering rates in accordance with the
decisions of the appropriate State
agency which may have regulatory authority.
(d) Cover period of time which is at
least equal to the repayment period of
the loan. State program officials may
approve contracts for shorter periods of
time if the supplier cannot legally contract for such period, or if the owner
and supplier find it impossible or impractical to negotiate a contract for
the maximum period permissible under
State law, provided:
(1) The supplier is subject to regulations of the Federal Energy Regulatory

Commission or other Federal or State
agency whose jurisdiction can be expected to prevent unwarranted curtailment of supply; or
(2) The contract contains adequate
provisions for renewal; or
(3) A determination is made that in
the event the contract is terminated,
there are or will be other adequate
sources available to the owner that can
feasibly be developed or purchased.
(e) Set out in detail the amount of
connection or demand charges, if any,
to be made by the supplier as a condition to making the service available to
the owner. However, the payment of
such charges from loan funds shall not
be approved unless the Agency determines that it is more feasible and economical for the owner to pay such a
connection charge than it is for the
owner to provide the necessary supply
by other means.
(f) Provide for a pledge of the contract to the Agency as part of the security for the loan.
(g) Not contain provisions for:
(1) Construction of facilities which
will be owned by the supplier. This
does not preclude the use of money
paid as a connection charge for construction to be done by the supplier.
(2) Options for the future sale or
transfer. This does not preclude an
agreement recognizing that the supplier and owner may at some future
date agree to a sale of all or a portion
of the facility.
(h) If it is impossible to obtain a firm
commitment for either an adequate
quantity or sharing shortages proportionately, a contract may be executed
and concurred in provided adequate
evidence is furnished to enable the
Agency to make a determination that
the supplier has adequate supply and/or
treatment facilities to furnish its other
users and the applicant for the foreseeable future; and:
(1) The supplier is subject to regulations of the Federal Energy Regulatory
Commission or other Federal or State
agency whose jurisdiction can be expected to prevent unwarranted curtailment of supply; or
(2) A suitable alternative supply
could be arranged within the repayment ability of the borrower if it
should become necessary; or

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§ 1780.63

7 CFR Ch. XVII (1–1–06 Edition)

(3) Concurrence in the proposed contract is obtained from the National Office.
§ 1780.63 Sewage treatment and bulk
water sales contracts.
Owners entering into agreements
with private or public parties to treat
sewage or supply bulk water shall have
written contracts for such service and
all such contracts shall be subject to
the
Agency
concurrence.
Section
1780.62 should be used as a guide to prepare such contracts.
§§ 1780.64–1780.66

[Reserved]

§ 1780.67 Performing construction.
Owners are encouraged to accomplish
construction through contracts with
qualified contractors. Owners may accomplish construction by using their
own personnel and equipment provided
the owners possess the necessary skills,
abilities and resources to perform the
work and provided a licensed engineer
prepares design drawings and specifications and inspects construction and
furnishes inspection reports as required
by § 1780.76. Inspection services may be
provided by individuals as approved by
the State staff engineer. Payments for
construction will be handled under
§ 1780.76(e).
§ 1780.68 Owner’s contractual responsibility.
This part does not relieve the owner
of any responsibilities under its contract. The owner is responsible for the
settlement of all contractual and administrative issues arising out of procurement entered into in support of a
loan or grant. These include, but are
not limited to: source evaluation, protests, disputes, and claims. Matters
concerning violation of laws are to be
referred to the applicable local, State,
or Federal authority.
§ 1780.69

[Reserved]

§ 1780.70 Owner’s procurement regulations.
Owner’s procurement requirements
must comply with the following standards:
(a) Code of conduct. Owners shall
maintain a written code or standards
of conduct which shall govern the per-

formance of their officers, employees
or agents engaged in the award and administration of contracts supported by
Agency funds. No employee, officer or
agent of the owner shall participate in
the selection, award, or administration
of a contract supported by Agency
funds if a conflict of interest, real or
apparent, would be involved. Examples
of such conflicts would arise when: the
employee, officer or agent; any member of their immediate family; their
partner; or an organization which employs, or is about to employ, any of the
above; has a financial or other interest
in the firm selected for the award.
(1) The owner’s officers, employees or
agents shall neither solicit nor accept
gratuities, favors or anything of monetary value from contractors, potential
contractors, or parties to subagreements.
(2) To the extent permitted by State
or local law or regulations, the owner’s
standards of conduct shall provide for
penalties, sanctions, or other disciplinary actions for violations of such
standards by the owner’s officers, employees, agents, or by contractors or
their agents.
(b) Maximum open and free competition. All procurement transactions, regardless of whether by sealed bids or by
negotiation and without regard to dollar value, shall be conducted in a manner that provides maximum open and
free competition. Procurement procedures shall not restrict or eliminate
competition. Examples of what are
considered to be restrictive of competition include, but are not limited to:
placing unreasonable requirements on
firms in order for them to qualify to do
business; noncompetitive practices between firms; organizational conflicts of
interest; and unnecessary experience
and bonding requirements. In specifying materials, the owner and its consultant will consider all materials normally suitable for the project commensurate with sound engineering practices and project requirements. The
Agency shall consider fully any recommendation made by the owner concerning the technical design and choice
of materials to be used for a facility. If
the Agency determines that a design or
material, other than those that were
recommended should be considered by

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§ 1780.72

including them in the procurement
process as an acceptable design or material in the water or waste disposal facility, the Agency shall provide such
owner with a comprehensive justification for such a determination. The justification will be documented in writing.
(c) Owner’s review. Proposed procurement actions shall be reviewed by the
owner’s officials to avoid the purchase
of unnecessary or duplicate items. Consideration should be given to consolidation or separation of procurement
items to obtain a more economical purchase. Where appropriate, an analysis
shall be made of lease versus purchase
alternatives, and any other appropriate
analysis to determine which approach
would be the most economical. To foster greater economy and efficiency,
owners are encouraged to enter into
State and local intergovernmental
agreements for procurement or use of
common goods and services.
(d) Solicitation of offers, whether by
competitive sealed bid or competitive
negotiation, shall:
(1) Incorporate a clear and accurate
description of the technical requirements for the material, product or
service to be procured. When it is impractical or uneconomical to make a
clear and accurate description of the
technical requirements, a ‘‘brand name
or equal’’ description may be used to
define the performance or other salient
requirements of a procurement. The
specific feature of the name brands
which must be met by the offeror shall
be clearly stated; and
(2) Clearly specify all requirements
which offerors must fulfill and all
other factors to be used in evaluating
bids or proposals.
(e) Affirmative steps should be taken
to assure that small, minority, and
women businesses are utilized when
possible as sources of supplies, equipment, construction and services.
(f) Contract pricing. Cost plus a percentage of cost method of contracting
shall not be used.
(g) Unacceptable bidders. The following will not be allowed to bid on, or
negotiate for, a contract or subcontract related to the construction of
the project:

(1) An engineer as an individual or
firm who has prepared plans and specifications or who will be responsible for
monitoring the construction;
(2) Any firm or corporation in which
the owner’s engineer is an officer, employee, or holds or controls a substantial interest;
(3) The governing body’s officers, employees, or agents;
(4) Any member of the immediate
family or partners in the entities referred to in paragraphs (g)(1), (g)(2) or
(g)(3) of this section; or
(5) An organization which employs,
or is about to employ, any person in
the entities referred to in paragraphs
(g)(1), (g)(2), (g)(3) or (g)(4) of this section.
(h) Contract award. Contracts shall be
made only with responsible parties possessing the potential ability to perform
successfully under the terms and conditions of a proposed procurement. Consideration shall include but not be limited to matters such as integrity,
record of past performance, financial
and technical resources, and accessibility to other necessary resources.
Contracts shall not be made with parties who are suspended or debarred by
any Agency of the United States Government.
§ 1780.71

[Reserved]

§ 1780.72

Procurement methods.

Procurement shall be made by one of
the following methods: Small purchase
procedures; competitive sealed bids
(formal advertising); competitive negotiation; or noncompetitive negotiation.
Competitive sealed bids (formal advertising) is the preferred procurement
method for construction contracts.
(a) Small purchase procedures. Small
purchase procedures are those relatively simple and informal procurement methods that are sound and appropriate for a procurement of services,
supplies or other property, costing in
the aggregate not more than $100,000. If
small purchase procedures are used for
a procurement, written price or rate
quotations shall be requested from at
least three qualified sources.
(b) Competitive sealed bids. In competitive sealed bids (formal advertising),
an invitation for sealed bids is publicly

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§ 1780.73

7 CFR Ch. XVII (1–1–06 Edition)

advertised and a firm-fixed-price contract (lump sum or unit price) is
awarded to the responsible bidder
whose bid, conforming with all the material terms and conditions of the invitation for bids, is lowest, price and
other factors considered. When using
this method the following shall apply:
(1) The invitation for bids shall be
publicly advertised at a sufficient time
prior to the date set for opening of
bids. The invitation shall comply with
the requirements in § 1780.70(d). Bids
shall be solicited from an adequate
number of qualified sources;
(2) All bids shall be opened publicly
at the time and place stated in the invitation for bids;
(3) 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; and
(4) Any or all bids may be rejected by
the owner when it is in its best interest.
(c) Competitive negotiation. In competitive negotiations, proposals are requested from a number of sources and
the Request for Proposal is publicized.
Negotiations are normally conducted
with more than one of the sources submitting offers. Competitive negotiation may be used if conditions are not
appropriate for the use of formal advertising and where discussions and bargaining with a view to reaching agreement on the technical quality, price,
other terms of the proposed contract
and specifications may be necessary. If
competitive negotiation is used for a
procurement, the following requirements shall apply:
(1) 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;

(2) The Request for Proposal shall
identify all significant evaluation factors and their relative importance;
(3) 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; and
(4) Award may be made to the responsible offeror whose proposal will be
most advantageous to the owner. Unsuccessful offerors should be promptly
notified.
(d) Noncompetitive negotiation. Noncompetitive negotiation is procurement through solicitation of a proposal
from only one source, or after solicitation of a number of sources, competition is determined inadequate. Noncompetitive negotiation may be used
when the award of a contract is not
feasible under small purchase or competitive sealed bids. Circumstances
under which a contract may be awarded by noncompetitive negotiations are
limited to the following:
(1) The item is available only from a
single source; or
(2) There exists a public exigency or
emergency and the urgency for the requirement will not permit a delay incident to competitive solicitation; or
(3) After solicitation of a number of
sources, competition is determined inadequate; or
(4) No acceptable bids have been received after formal advertising; or
(5) The procurement is for professional services; or
(6) The aggregate amount does not
exceed $100,000.
§ 1780.73

[Reserved]

§ 1780.74 Contracts awarded prior to
applications.
Owners awarding construction or
other procurement contracts prior to
filing an application, must provide evidence that is satisfactory to the Agency that the contract was entered into
without intent to circumvent the requirements of Agency regulations.
(a) Modifications. The contract shall
be modified to conform with the provisions of this part. Where this is not
possible, modifications will be made to
the extent practicable and, as a minimum, the contract must comply with

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§ 1780.75

all State and local laws and regulations as well as statutory requirements
and executive orders related to the
Agency financing. When all construction is complete and it is impracticable
to modify the contracts, the owner
must provide the certification required
by paragraph (c) of this section.
(b) Consultant’s certification. Provide a
certification by an engineer, licensed
in the State where the facility is constructed, that any construction performed complies fully with the plans
and specifications.
(c) Owner’s certification. Provide a
certification by the owner that the
contractor has complied with applicable statutory and executive requirements related to Agency financing for
construction already performed.
§ 1780.75 Contract provisions.
In addition to provisions required for
a valid and legally binding contract,
any recipient of Agency funds shall include the following contract provisions
in all contracts.
(a) Remedies. Contracts other than
small purchases shall contain provisions or conditions which will allow for
administrative, contractual, or legal
remedies in instances where contractors violate or breach contract terms,
and provide for such sanctions and penalties as may be appropriate. A realistic liquidated damage provision
should be included in all contracts for
construction.
(b) Termination. All contracts exceeding $10,000, shall contain suitable provisions for termination by the owner including the manner by which it will be
effected and the basis for settlement.
In addition, such contracts shall describe conditions under which the contract may be terminated for default as
well as conditions where the contract
may be terminated because of circumstances beyond the control of the
contractor.
(c) Surety. In all contracts for construction or facility improvements exceeding $100,000, the owner shall require bonds or cash deposit in escrow
assuring performance and payment
each in the amount of 100 percent of
the contract cost. The surety will be in
the form of performance bonds and
payment bonds. For contracts of lesser

amounts, the owner may require surety. When a surety is not provided,
contractors will furnish evidence of
payment in full for all materials, labor,
and any other items procured under
the contract. Form RD 1924–10, ‘‘Release by Claimants,’’ and Form RD
1924–9, ‘‘Certificate of Contractor’s Release,’’ may be used for this purpose.
Companies
providing
performance
bonds and payment bonds must hold a
certificate of authority as an acceptable surety on Federal bonds as listed
in Treasury Circular 570 as amended
and the surety must be listed as having
a license to do business in the State
where the facility is located.
(d) Equal employment opportunity. All
contracts awarded in excess of $10,000
by owners shall contain a provision requiring compliance with Executive
Order 11246 (3 CFR, 1966 Comp., p.339),
entitled, ‘‘Equal Employment Opportunity,’’ as amended by Executive
Order 11375 (3 CFR, 1968 Comp., p. 321),
and as supplemented by Department of
Labor regulations 41 CFR chapter 60.
(e) Anti-kickback. All contracts for
construction shall include a provision
for compliance with the Copeland
‘‘Anti-Kickback’’ Act (18 U.S.C. 874).
This Act provides that each contractor
shall be prohibited from inducing, by
any means, any person employed in the
construction, completion, or repair of
public work, to give up any part of the
compensation to which they are otherwise entitled. The owner shall report
suspected or reported violations to the
Agency.
(f) Records. All negotiated contracts
(except those of $10,000 or less) awarded
by owners shall include a provision to
the effect that the owner, the Agency,
the Comptroller General of the United
States, or any of their duly authorized
representatives, shall have access to
any books, documents, papers, and
records of the contractor which are directly pertinent to a specific Federal
loan or grant program for the purpose
of making audits, examinations, excerpts, and transcriptions. Owners
shall require contractors to maintain
all required records for 3 years after
making final payment and all other
pending matters are closed.
(g) State energy conservation plan.
Contracts shall incorporate mandatory

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§ 1780.76

7 CFR Ch. XVII (1–1–06 Edition)

standards and policies relating to energy efficiency which are contained in
the State energy conservation plan
issued in compliance with the Energy
Policy and Conservation Act (42 U.S.C.
6201).
(h) Change orders. The construction
contract shall require that all contract
change orders be concurred in by the
Agency.
(i) Agency concurrence. All contracts
must contain a provision that they
shall not be effective unless and until
the State program official or designee
concurs in writing.
(j) Retainage. All construction contracts shall contain adequate provisions for retainage. No payments will
be made that would deplete the
retainage nor place in escrow any funds
that are required for retainage nor invest the retainage for the benefit of the
contractor. The retainage shall not be
less than an amount equal to 5 percent
of an approved partial payment estimate until the project is substantially
complete and accepted by the owner,
consulting engineer and Agency. The
contract must provide that additional
amounts may be retained if the job is
not proceeding satisfactorily.
(k) Other compliance requirements.
Contracts in excess of $100,000 shall
contain a provision which requires
compliance with all applicable standards, orders, or requirements issued
under section 306 of the Clean Air Act
(42 U.S.C. 1857(h)), section 508 of the
Clean Water Act (33 U.S.C. 1368), Executive Order 11738 (3 CFR, 1974 Comp.,
p.209), and Environmental Protection
Agency (EPA) regulations 40 CFR part
15, which prohibit the use under nonexempt Federal contracts, grants or
loans of facilities included on the EPA
List of Violating Facilities. The provision shall require reporting of violations to the Agency and to the U.S. Environmental Protection Agency, Assistant Administrator for Enforcement.
Solicitations and contract provisions
shall include the requirements of 4
CFR 15.4(c) as set forth in RUS Bulletin 1780–14.
§ 1780.76 Contract administration.
Owners shall be responsible for maintaining a contract administration system to monitor the contractors’ per-

formance and compliance with the
terms, conditions, and specifications of
the contracts.
(a) Preconstruction conference. Prior
to beginning construction, the owner
will schedule a preconstruction conference where the consulting engineer
will review the planned development
with the Agency, owner, resident inspector, attorney, contractor, and
other interested parties. The conference will thoroughly cover applicable items included in Form RD 1924–16,
‘‘Record of Pre-construction Conference,’’ and the discussions and
agreements will be documented.
(b) Monitoring reports. The owner is
required to monitor construction and
provide a report to the Agency giving a
full explanation under the following
circumstances:
(1) Reasons why approved construction schedules were not met;
(2) Analysis and explanation of cost
overruns and how payment is to be
made for the same; and
(3) If events occur which have a significant impact upon the project.
(c) Inspection. Full-time resident inspection is required for all construction unless a written exception is made
by the Agency upon written request of
the owner. Unless otherwise agreed,
the resident inspector will be provided
by the consulting engineer. Prior to
the preconstruction conference, the
consulting engineer will submit a resume of qualifications of the resident
inspector to the owner and to the
Agency for acceptance in writing. If
the owner provides the resident inspector, it must submit a resume of the inspector’s qualifications to the project
engineer for comments and the Agency
for acceptance in writing prior to the
preconstruction conference. The resident inspector will work under the
technical supervision of the project engineer and the role and responsibilities
will be defined in writing.
(d) Inspector’s daily diary. The resident inspector will maintain a record
of the daily construction progress in
the form of a daily diary and daily inspection reports. The daily entries
shall be made available to the Agency
personnel and will be reviewed during
project inspections. The original complete set will be furnished to the owner

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§ 1780.81

upon completion of construction. RUS
Bulletin 1780–18 is available from the
Agency for preparing daily inspection
reports or the reports can be provided
in other formats approved by the State
staff engineer.
(e) Payment for Construction. Form
RD 1924–18, ‘‘Partial Payment Estimate,’’ or other similar form may be
used for construction payments. If
Form 1924–18 is not used, prior concurrence by the State staff engineer must
be obtained.
(1) Payment of contract retainage
will not be made until such retainage
is due and payable under the terms of
the contact.
(2) Invoices for the payment of construction costs must be approved by
the owner, project engineer and concurred in by the Agency.
(3) The review and acceptance of
project costs, including construction
payment estimates by the Agency shall
not attest to the correctness of the
amounts, the quantities shown, or that
the work has been performed under the
terms of agreements or contracts.
(f) Prefinal inspections. A prefinal inspection will be made by the owner,
resident inspector, project engineer,
contractor, representatives of other
agencies involved, and Agency representative (preferably the State staff
engineer or designee). The inspection
results will be recorded by the project
engineer and a copy provided to all interested parties.
(g) Final inspection. A final inspection
will be made by the Agency before final
payment is made.
(h) Changes in development plans. (1)
Changes in development plans shall be
reviewed and approved by the Agency
provided:
(i) Funds are available to cover any
additional costs; and
(ii) The change is for an authorized
loan or grant purpose; and
(iii) It will not adversely affect the
soundness of the facility operation or
the Agency’s security; and
(iv) The change is within the scope of
the contract,
(2) Changes will be recorded on Form
RD 1924–7, ‘‘Contract Change Order,’’ or
other similar form if approved by the
State program official or designee. Regardless of the form, change orders

must be approved by the State program
official or designee.
(3) Changes should be accomplished
only after Agency approval and shall
be authorized only by means of contract change order. The change order
will include items such as:
(i) Any changes in labor and material;
(ii) Changes in facility design;
(iii) Any decrease or increase in
quantities based on final measurements that are different from those
shown in the bidding schedule; and
(iv) Any increase or decrease in the
time to complete the project.
(4) All changes shall be recorded on
chronologically numbered contract
change orders as they occur. Change
orders will not be included in payment
estimates until approved by all parties.
§§ 1780.77–1780.79

[Reserved]

Subpart D—Information Pertaining
to Preparation of Notes or
Bonds and Bond Transcript
Documents for Public Body
Applicants
§ 1780.80

General.

This subpart includes information for
use by public body applicants in the
preparation and issuance of evidence of
debt (bonds, notes, or debt instruments, referred to as bonds in this subpart) and other necessary loan documents.
§ 1780.81 Policies
bond counsel.

related

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The applicant is responsible for preparation of bonds and bond transcript
documents. The applicant will obtain
the services and opinion of recognized
bond counsel experienced in municipal
financing with respect to the validity
of a bond issue, except for issues of
$100,000 or less. With prior approval of
the approval official, the applicant
may elect not to use bond counsel.
Such issues will be closed in accordance with the following:
(a) The applicant must recognize and
accept the fact that application processing may require additional legal and
administrative time;

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§ 1780.82

7 CFR Ch. XVII (1–1–06 Edition)

(b) It must be established that not
using bond counsel will produce significant savings in total legal costs;
(c) The local attorney must be able
and experienced in handling this type
of legal work;
(d) The applicant must understand
that it will likely have to obtain an
opinion from bond counsel at its expense should the Agency require refinancing of the debt;
(e) Bonds will be prepared in accordance with this regulation and conform
as closely as possible to the preferred
methods of preparation stated in
§ 1780.94; and
(f) Closing instructions must be
issued by OGC.
§ 1780.82

[Reserved]

§ 1780.83

Bond transcript documents.

Any questions relating to Agency requirements should be discussed with
Agency representatives. Bond counsel
or local counsel, as appropriate, must
furnish at least two complete sets of
the following to the applicant, who will
furnish one complete set to the Agency:
(a) Copies of all organizational documents;
(b) Copies of general incumbency certificate;
(c) Certified copies of minutes or excerpts from all meetings of the governing body at which action was taken
in connection with the authorizing and
issuing of the bonds;
(d) Certified copies of documents evidencing that the applicant has complied fully with all statutory requirements incident to calling and holding a
favorable bond election, if one is necessary;
(e) Certified copies of the resolutions,
ordinances, or other documents such as
the bond authorizing resolutions or ordinances and any resolution establishing rates and regulating use of facility, if such documents are not included in the minutes furnished;
(f) Copies of the official Notice of
Sale and the affidavit of publication of
the Notice of Sale when State statute
requires a public sale;
(g) Specimen bond, with any attached
coupons;

(h) Attorney’s no-litigation certificate;
(i) Certified copies of resolutions or
other documents pertaining to the
bond award;
(j) Any additional or supporting documents required by bond counsel;
(k) For loans involving multiple advances of Agency loan funds, a preliminary approving opinion of bond counsel
(or local counsel if no bond counsel is
involved) if a final unqualified opinion
cannot be obtained until all funds are
advanced. The preliminary opinion for
the entire issue shall be delivered at or
before the time of the first advance of
funds. It will state that the applicant
has the legal authority to issue the
bonds, construct, operate and maintain
the facility, and repay the loan, subject
only to changes occurring during the
advance of funds, such as litigation resulting from the failure to advance
loan funds, and receipt of closing certificates;
(l) Final unqualified approving opinion of bond counsel, (and preliminary
approving opinion, if required) or local
counsel if no bond counsel is involved,
including an opinion as to whether interest on bonds will be exempt from
Federal and State income taxes. With
approval of the State program official,
a final opinion may be qualified to the
extent that litigation is pending relating to Indian claims that may affect
title to land or validity of the obligation. It is permissible for such opinion
to contain language referring to the
last sentence of section 306 (a)(1) or to
section 309A (h) of the Consolidated
Farm and Rural Development Act (7
U.S.C. 1926 (a)(1) or 1929a (h)).
§§ 1780.84–1780.86

[Reserved]

§ 1780.87 Permanent instruments for
Agency loans.
Agency loans will be evidenced by an
instrument determined legally sufficient and in accordance with the following order of preference:
(a) First preference—Form RD 440–22,
‘‘Promissory Note’’. Refer to paragraph
(b) of this section for methods of various frequency payment calculations.
(b) Second preference—single instruments with amortized installments. A single instrument providing for amortized

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§ 1780.89

installments which follows Form RD
440–22 as closely as possible. The full
amount of the loan must show on the
face of the instrument, and there must
be provisions for entering the date and
amount of each advance on the reverse
or an attachment. When principal payments are deferred, the instrument will
show that ‘‘interest only’’ is due on interest-only installment dates, rather
than specific dollar amounts. The payment period including the ‘‘interest
only’’ installment cannot exceed 40
years, the useful life of the facility, or
State statute limitations, whichever
occurs first. The amortized installment, computed as follows, will be
shown as due on installment dates
thereafter.
(1) Monthly payments. Multiply by
twelve the number of years between
the due date of the last interest-only
installment and the final installment
to determine the number of monthly
payments. When there are no interestonly installments, multiply by twelve
the number of years over which the
loan is amortized. Then multiply the
loan amount by the amortization factor and round to the next higher dollar.
(2) Semiannual payments. Multiply by
two the number of years between the
due date of the last interest-only installment and the due date of the final
installment to determine the correct
number of semiannual periods. When
there are no interest-only installments, multiply by two the number of
years over which the loan is amortized.
Then multiply the loan amount by the
applicable amortization factor.
(3) Annual payments. Subtract the due
date of the last interest-only installment from the due date of the final installment to determine the number of
annual payments. When there are no
interest-only installments, the number
of annual payments will equal the
number of years over which the loan is
amortized. Then multiply the loan
amount by the applicable amortization
factor and round to the next higher
dollar.
(c) Third preference—single instruments
with installments of principal plus interest. If a single instrument with amortized installments is not legally permissible, use a single instrument providing for installments of principal

plus interest accrued on the principal
balance. For bonds with semiannual interest and annual principal, the interest is calculated by multiplying the
principal balance times the interest
rate and dividing this figure by two.
Principal installments are to be scheduled so that total combined interest
and principal payments closely approximate amortized payments.
(1) The repayment terms concerning
interest only installments described in
paragraph (b) of this section apply.
(2) The instrument shall contain in
substance provisions indicating:
(i) Principal maturities and due
dates;
(ii) Regular payments shall be applied first to interest due through the
next principal and interest installment
due date and then to principal due in
chronological order stipulated in the
bond; and
(iii) Payments on delinquent accounts will be applied in the following
sequence:
(A) Billed delinquent interest;
(B) Past due interest installments;
(C) Past due principal installments;
(D) Interest installment due; and
(E) Principal installment due.
(d) Fourth preference—serial bonds
with installments of principal plus interest. If instruments described under the
first, second, and third preferences are
not legally permissible, use serial
bonds with a bond or bonds delivered in
the amount of each advance. Bonds will
be numbered consecutively and delivered in chronological order. Such bonds
will conform to the minimum requirements of § 1780.94. Provisions for application of payments will be the same as
those set forth in paragraph (c)(2)(ii) of
this section.
(e) Coupon bonds. Coupon bonds will
not be used unless required by State
statute. Such bonds will conform to
the minimum requirements of § 1780.94.
§ 1780.88

[Reserved]

§ 1780.89 Multiple advances of Agency
funds using permanent instruments.
Where interim financing from commercial sources is not used, Agency
loan proceeds will be disbursed on an
‘‘as needed by borrower’’ basis in

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§ 1780.90

7 CFR Ch. XVII (1–1–06 Edition)

amounts not to exceed the amount
needed during 30-day periods.
§ 1780.90 Multiple advances of Agency
funds using temporary debt instruments.
When none of the instruments described in § 1780.87 are legally permissible or practical, a bond anticipation
note or similar temporary debt instrument may be used. The debt instrument will provide for multiple advances of Agency funds and will be for
the full amount of the Agency loan.
The instrument will be prepared by
bond counsel, or local counsel if bond
counsel is not involved, and approved
by the State program official and OGC.
At the same time the Agency delivers
the last advance, the borrower will deliver the permanent bond instrument
and the canceled temporary instrument will be returned to the borrower.
The approved debt instrument will
show at least the following:
(a) The date from which each advance
will bear interest;
(b) The interest rate as determined
by § 1780.13;
(c) A payment schedule providing for
interest on outstanding principal at
least annually; and
(d) A maturity date which shall be no
earlier than the anticipated issuance
date of the permanent instruments and
no longer than the 40-year statutory
limit.
§§ 1780.91–1780.93

[Reserved]

§ 1780.94 Minimum
bond
specifications.
The provisions of this section are
minimum specifications only and must
be followed to the extent legally permissible.
(a) Type and denominations. Bond resolutions or ordinances will provide
that the instruments be either a bond
representing the total amount of the
indebtedness or serial bonds in denominations customarily accepted in municipal financing (ordinarily in multiples of not less than $1,000). Single
bonds may provide for repayment of
principal plus interest or amortized installments. Amortized installments are
preferred by the Agency.
(b) Bond registration. Bonds will contain provisions permitting registration

for both principal and interest. Bonds
purchased by the Agency will be registered in the name of ‘‘United States
of America’’ and will remain so registered at all times while the bonds are
held or insured by the Government.
The Agency address for registration
purposes will be that of the Finance Office.
(c) Size and quality. Size of bonds and
coupons should conform to standard
practice. Paper must be of sufficient
quality
to
prevent
deterioration
through ordinary handling over the life
of the loan.
(d) Date of bond. Bonds will normally
be dated as of the day of delivery. However, the borrower may use another
date if approved by the Agency. Loan
closing is the date of delivery of the
bonds or the date of delivery of the
first bond when utilizing serial bonds,
regardless of the date of delivery of the
funds. The date of delivery will be stated in the bond if different from the
date of the bond. In all cases, interest
will accrue from the date of delivery of
the funds.
(e) Payment date. Loan payments will
be scheduled to coincide with income
availability and be in accordance with
State law.
(1) If income is available monthly,
monthly payments are recommended
unless precluded by State law. If income is available quarterly or otherwise more frequently than annually,
payments must be scheduled on such
basis. However, if State law only permits principal plus interest (P&I) type
bonds, annual or semiannual payments
will be used.
(2) The payment schedule will be enumerated in the evidence of debt, or if
that is not feasible, in a supplemental
agreement.
(3) If feasible, the first payment will
be scheduled one full month, or other
period, as appropriate, from the date of
loan closing or any deferment period.
Due dates falling on the 29th, 30th, and
31st day of the month will be avoided.
When principal payments are deferred,
interest-only payments will be scheduled at least annually.
(f) Extra payments. Extra payments
are derived from the sale of basic chattel or real estate security, refund of
unused loan funds, cash proceeds of

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Rural Utilities Service, USDA

§ 1780.94

property insurance and similar actions
which reduce the value of basic security. At the option of the borrower,
regular facility revenue may also be
used as extra payments when regular
payments are current. Unless otherwise established in the note or bond,
extra payments will be applied as follows:
(1) For loans with amortized debt instruments, extra payments will be applied first to interest accrued to the
date of receipt of the payment and second to principal.
(2) For loans with debt instruments
with P&I installments, the extra payment will be applied to the final unpaid
principal installment.
(3) For borrowers with more than one
loan, the extra payment will be applied
to the account secured by the lowest
priority of lien on the property from
which the extra payments was obtained. Any balance will be applied to
other Agency loans secured by the
property from which the extra payment was obtained.
(4) For assessment bonds, see paragraph (k) of this section.
(g) The place of payments on bonds
purchased by the Agency will be determined by the Agency.
(h) Redemptions. Bonds will normally
contain customary redemption provisions. However, no premium will be
charged for early redemption on any
bonds held by the Government.
(i) Additional revenue bonds. Parity
bonds may be issued to complete the
project. Otherwise, parity bonds may
not be issued unless acceptable documentation is provided establishing that
net revenues for the fiscal year following the year in which such bonds
are to be issued will be at least 120 percent of the average annual debt serviced requirements on all bonds outstanding, including the newly-issued
bonds. For purposes of this section, net
revenues are, unless otherwise defined
by State statute, gross revenues less
essential operation and maintenance
expenses. This limitation may be
waived or modified by the written consent of bondholders representing 75 percent of the then-outstanding principal
indebtedness. Junior and subordinate
bonds may be issued in accordance
with the loan resolution.

(j) Precautions. The following types of
provisions in debt instruments should
be avoided:
(1) Provisions for the holder to manually post each payment to the instrument.
(2) Provisions for returning the permanent or temporary debt instrument
to the borrower in order that it, rather
than the Agency, may post the date
and amount of each advance or repayment on the instrument.
(3) Provisions that amend covenants
contained in RUS Bulletins 1780–27 or
1780–28.
(4) Defeasance provisions in loan or
bond resolutions. When a bond issue is
defeased, a new issue is sold which supersedes the contractual provisions of
the prior issue, including the refinancing requirement and any lien on
revenues. Since defeasance in effect
precludes the Agency from requiring
refinancing before the final maturity
date, it represents a violation of the
statutory
refinancing
requirement;
therefore, it is disallowed. No loan documents shall include a provision of defeasance.
(k) Assessment bonds. When security
includes special assessment to be collected over the life of the loan, the instrument should address the method of
applying any payments made before
they are due. It may be desirable for
such payments to be distributed over
remaining payments due, rather than
to be applied in accordance with normal procedures governing extra payments, so that the account does not become delinquent.
(l) Multiple debt instruments. The following will be adhered to when preparing debt instruments:
(1) When more than one loan type is
used in financing a project, each type
of loan will be evidenced by a separate
debt instrument or series of debt instruments;
(2) Loans obligated in different fiscal
years and those obligated with different terms in the same fiscal year
will be evidenced by separate debt instruments;
(3) Loans obligated for the same loan
type in the same fiscal year with the
same term may be combined in the
same debt instrument;

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§ 1780.95

7 CFR Ch. XVII (1–1–06 Edition)

(4) Loans obligated in the same fiscal
year with different interest rates that
will be closed at the same interest rate
may be combined in the same debt instrument.
[62 FR 33478, June 19, 1997, as amended at 64
FR 29947, June 4, 1999]

§ 1780.95 Public bidding on bonds.
Bonds offered for public sale shall be
offered in accordance with State law
and in such a manner to encourage
public bidding. The Agency will not
submit a bid at the advertised sale unless required by State law, nor will reference to Agency’s rates and terms be
included. If no acceptable bid is received, the Agency will negotiate the
purchase of the bonds.
§§ 1780.96–1780.100

[Reserved]

PART
1781—RESOURCE
CONSERVATION AND DEVELOPMENT
(RCD) LOANS AND WATERSHED
(WS) LOANS AND ADVANCES
Sec.
1781.1 Purpose.
1781.2 Policy.
1781.3 Authorities, responsibilities, and delegation of authority.
1781.4 Definitions.
1781.5 Eligibility.
1781.6 Loan purposes.
1781.7 Loan and advance limitations and obligations incurred before loan closing.
1781.8 Rates and terms—WS loans and WS
advances and RCD loans.
1781.9 Security, feasibility, evidence of
debt, title, insurance, and other requirements.
1781.10 [Reserved]
1781.11 Other considerations.
1781.12 Preapplication and application processing.
1781.13 [Reserved]
1781.14 Planning, options, and appraisals.
1781.15 Planning and performing development.
1781.16 [Reserved]
1781.17 Docket preparation and processing.
1781.18 Feasibility.
1781.19 Approval, closing, and cancellation.
1781.20 Disbursement of WS and RCD loan
funds and WS advance funds.
1781.21 Borrower accounting methods, management, reporting, and audits.
1781.22 Subsequent loans.
1781.23 Servicing.
1781.24 State supplements and availability
of bulletins, instructions, forms, and
memorandums.

1781.25–1781.100

[Reserved]

AUTHORITY: 5 U.S.C. 301; 7 U.S.C. 1989; 16
U.S.C. 1005.
SOURCE: 62 FR 33500, June 19, 1997, unless
otherwise noted.

§ 1781.1 Purpose.
This part prescribes the policies and
procedures for making:
(a) Watershed (WS) loans and Watershed (WS) advances for works of improvement in a watershed project; and
(b) Resource Conservation and Development (RCD) loans for measures or
projects needed to implement the RCD
area plan to achieve objectives in an
RCD area.
§ 1781.2 Policy.
(a) Rural Utilities Service (RUS), is
an agency of the United States Department of Agriculture established pursuant to section 232 of the Department of
Agriculture Reorganization Act of 1994
(Pub. L. 103–354, 108 Stat. 3178), successor to the Farmers’s Home Administration. Natural Resources Conservation Service (NRCS), is an agency of
the United States Department of Agriculture established pursuant to section
232 of the Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103–
354, 108 Stat. 3178), successor to the Soil
Conservation Service. RUS will make
WS and RCD loans available to sponsoring local public bodies, agencies,
and nonprofit organizations to assist
them in obtaining the local cost of WS
works of improvement and RCD measures. Any processing or servicing activity conducted pursuant to this part involving authorized assistance to RUS
employees, members of their families,
known close relatives, or business or
close personal associates, is subject to
the provisions of subpart D of Part 1900
of this title. Applicants for this assistance are required to identify any
known relationship or association with
an RUS employee. RUS will assist the
local sponsors and the NRCS in making
loans from NRCS construction funds as
WS advances when needed for the development of future water supplies or
for site preservation.
(b) Rural Development State and
local offices will administer these programs on behalf of RUS and will coordinate application processing with

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