Farm Storage Facility Loan Program, Security Requirements, 13189-13192 [2014-05101]

Agencies

• DEPARTMENT OF AGRICULTURE
• Commodity Credit Corporation

[Federal Register Volume 79, Number 46 (Monday, March 10, 2014)]
[Rules and Regulations]
[Pages 13189-13192]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05101]



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Federal Register / Vol. 79, No. 46 / Monday, March 10, 2014 / Rules 
and Regulations

[[Page 13189]]



DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1436

RIN 0560-AI19


Farm Storage Facility Loan Program, Security Requirements

AGENCY: Commodity Credit Corporation and Farm Service Agency, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Commodity Credit Corporation (CCC) is amending the Farm 
Storage Facility Loan (FSFL) Program regulations to increase the loan 
amount, for which additional security or a severance agreement is 
required, from $50,000 to $100,000. We are making a related change for 
loans secured with collateral that does not have any resale value. The 
purpose of these amendments is to make the loan process easier for 
borrowers, especially producers who may not have additional security, 
but are unlikely to default on a relatively small loan. Raising the 
threshold for which additional security is required from $50,000 to 
$100,000 should help more small producers qualify for a loan between 
$50,000 and $100,000, and will likely reduce their cost to qualify for 
such a loan.

DATES: Effective Date: March 10, 2014.

FOR FURTHER INFORMATION CONTACT: Toni Williams; phone (202) 720-2270. 
Persons with disabilities who require alternative means of 
communication (Braille, large print, audio tape, etc.) should contact 
the USDA Target Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Background

    The FSFL Program provides low interest loans for producers to build 
or upgrade farm storage and handling facilities. FSFLs can be used for 
items such as drying and cooling equipment, safety equipment, and new 
concrete foundations, as well as for storage buildings and grain bins. 
The FSFL Program is a CCC program administered by the Farm Service 
Agency (FSA). As specified in the CCC Charter Act (15 U.S.C. 714b), the 
goal of the FSFL Program is to increase producer-owned storage capacity 
to alleviate national, regional, and local shortages in the storage of 
eligible commodities. Eligible commodities include grains, sugar, pulse 
crops, hay, honey, renewable biomass, fruits, nuts, and vegetables. 
Loans are available in amounts up to $500,000 for terms of 7, 10, or 12 
years. Since 2000, more than 33,000 FSFLs have been disbursed totaling 
$1.8 billion. On average, about 2,100 new FSFLs are made each year, 
with about 16,000 loans currently outstanding. The default rate for the 
FSFL Program is extremely low, less than 0.1 percent.
    Having on-farm storage helps producers to sell their crop at a time 
when the market is favorable for them, rather than being forced to sell 
immediately after harvest or pay for commercial storage. Producers can 
use on-farm storage to store livestock feed grown on-farm, rather than 
buying feed. On-farm storage allows producers to better serve their 
customers that buy commodities throughout the year, such as bioenergy 
facilities.
    All FSFLs require security. The collateral securing an FSFL is 
typically the storage facility or equipment itself. The FSFL 
regulations in 7 CFR 1436.8, ``Security for Loan,'' currently require 
certain levels of security depending on if the loan amount is less than 
or equal to $50,000 or greater than $50,000. Loans greater than $50,000 
or where the borrower has multiple outstanding FSFLs that total over 
$50,000 require additional security. The additional security can 
include an irrevocable letter of credit or a lien on real estate where 
the facility is located, as well as a severance agreement for any 
existing liens on the real estate parcel on which the storage facility 
is located. Livestock, machinery, vehicles, and other equipment cannot 
be used as security for FSFL. This rule raises the threshold, from 
$50,000 or less to $100,000 for which additional security is required, 
which should make the loan process easier and less expensive for 
borrowers of loans under $100,000. Loan applicants, not FSA, pay loan 
closing costs, so reducing the security requirements for certain loan 
amounts will eliminate the cost to applicants for obtaining letters of 
credit, severance agreements, appraisals, and similar documents. This 
will benefit producers who take out new FSFLs up to $100,000, including 
some producers who may not have real estate to offer as security.

Security for Loan

    This rule amends 7 CFR 1436.8, ``Security for Loan,'' in three 
ways. First, additional security will only be required for loans in 
excess of $100,000, when the total aggregate outstanding FSFLs by the 
borrower will exceed $100,000. The Deputy Administrator for Farm 
Programs or a State Committee may at any time lower the dollar 
threshold for which additional security is required for all FSFLs in 
the respective State, if such security is needed to properly secure 
such loans. The dollar threshold for which additional security is 
required cannot be less than $50,000, and the same threshold must apply 
to all FSFLs in a State. Currently, all loans in excess of $50,000 
require additional security, specifically a lien on the real estate 
parcel on which the storage facility is located. The value of the real 
estate security for the loan must be at least equal to the loan amount. 
For some producers, this can be a barrier to qualifying for a loan 
greater than $50,000, because they do not own real estate of high 
enough value. Also, obtaining the lien can cost the producer about 
$1,000 in legal and appraisal fees. Raising the threshold for which 
additional security is required to $100,000 should help more small 
producers qualify for a loan between $50,000 and $100,000, and reduce 
their cost to qualify for such a loan.
    Second, this rule specifies that a severance agreement from the 
holder of any prior lien on the real estate parcel on which the storage 
facility is located will not be required unless the loan is in excess 
of $100,000, or the total aggregate outstanding FSFLs balance will 
exceed $100,000. Currently, loans in excess of $50,000 require a 
severance agreement. For loans of $50,000 or less, in lieu of a 
severance agreement, the producer can provide security for the loan in 
other ways, specifically by

[[Page 13190]]

increasing the down payment from 15 percent to 20 percent or by 
providing another form of security, such as an irrevocable letter of 
credit. These security alternatives can be less time consuming and less 
costly for the producer to obtain than a severance agreement. Raising 
the threshold for which a severance agreement is required should reduce 
costs to allow producers to qualify for a loan between $50,000 and 
$100,000.
    Third, this rule specifies that additional security will not be 
required for loans secured by collateral without any resale value 
unless the loan exceeds $100,000, or the total aggregate outstanding 
FSFLs balance will exceed $100,000. The current threshold is $50,000. 
Collateral without any resale value is collateral that has insufficient 
value and cannot easily be removed and sold, such as, but not limited 
to, permanent equipment upgrades, electrical wiring, or a new concrete 
foundation. Again, small producers who are otherwise creditworthy may 
not have the means to provide additional security, particularly since 
items commonly owned by producers that do have resale value, such as 
livestock and machinery, cannot be used as additional security for 
FSFL. Raising the threshold to $100,000 should help more small 
producers qualify for a loan between $50,000 and $100,000, and should 
reduce their cost to qualify for such a loan.
    This rule also makes minor editorial changes to improve the clarity 
and consistency of the security requirements as specified in the 
regulations. For example, the language with respect to requirements for 
loans secured without collateral is clarified to state that only loans 
of $100,000 or more will require extra security. The previous language 
was ambiguous and implied that all loans secured without collateral 
would require additional security, which is not FSA policy and 
therefore required clarification. References to ``exceeding'' a certain 
amount, ``less than'' a certain amount, or an amount ``or less,'' were 
edited to ``equal to or less than'' or ``greater than'' to be 
consistent within 7 CFR part 1436. A reference to bonds was removed; 
bonds have not been used by producers as security in many years and 
cannot be accepted by FSA's current financial system.

Intended Effect

    The intent of the amendments is to make the loan process for 
relatively small FSFLs simpler and less expensive for producers. This 
rule will benefit most producers who apply for a loan between $50,000 
and $100,000, including those who do have additional security, because 
the changes in this rule will reduce the time and expense required to 
apply for a loan. Specifically, if no severance agreement, lien on real 
estate, appraisal, or letter of credit is required, borrowers may be 
able to reduce their closing costs for the loan by about $1,000 per 
loan, depending upon the facts of each situation. About a quarter of 
all FSFLs each year are for amounts between $50,000 and $100,000. The 
changes in this rule should help both borrowers who are building new 
on-farm storage and borrowers who are expanding their farm business 
with additional equipment or storage facilities.
    The regulatory changes will allow the FSFL Program to continue to 
provide economic stability and reduce short-term income volatility for 
producers, by allowing the producer to finance on-farm storage, 
providing them more control over when to sell their crop. Because the 
FSFL Program default rate has been consistently low, and borrowers must 
pass a rigorous financial analysis to qualify for a loan, it is 
appropriate to reduce the security requirements for smaller loans. The 
additional security requirements will remain the same for loans above 
$100,000, which account for less than 20 percent of loans in the FSFL 
Program, and are unlikely to be loans made to small producers. Overall, 
the intent of this rule is to provide an increased opportunity for 
access to credit for small producers, without increasing the risk of 
loan defaults.

Flexibility in Implementation

    This rule provides flexibility for CCC to require additional 
security for loan amounts less than $100,000 in the future, if needed 
to protect CCC's interests. As specified in this rule and in the 
current regulations, the approving State Committee, on a state-wide 
basis, may require security on smaller loans, if it is determined that 
security is needed to protect CCC's interests, but not on loans less 
than $50,000. Also, FSA's Deputy Administrator for Farm Programs or a 
State Committee, for all FSFLs in a State, may at any time, lower the 
dollar threshold for which additional security is required for all 
loans in a State, but not for loans less than $50,000. This means that, 
for example, if the default rate rises or if credit market conditions 
change, FSA would have the ability to lower the security threshold for 
loans at the State or the national level.
    This rule does not require every State to use the new higher 
thresholds for security. We anticipate that some State committees will 
retain the more conservative threshold of $50,000, particularly for 
loans that are secured with collateral that has been determined to not 
have any resale value.

Notice and Comment

    In general, the Administrative Procedure Act (5 U.S.C. 553) 
requires that a notice of proposed rulemaking be published in the 
Federal Register and interested persons be given an opportunity to 
participate in the rulemaking through submission of written data, 
views, or arguments with or without opportunity for oral presentation. 
Regulations for this program are exempt from the notice and comment 
requirements in 5 U.S.C. 553, as specified in section 1601(c) of the 
Food, Conservation, and Energy Act of 2008 (Pub. L. 110-246, the 2008 
Farm Bill), which allows that the regulations be promulgated and 
administered without regard to the notice and comment requirements in 5 
U.S.C. 553.

Effective Date

    The Administrative Procedure Act (5 U.S.C. 553) provides generally 
that before rules are issued by Government agencies, the rule must be 
published in the Federal Register, and the required publication of a 
substantive rule is to be not less than 30 days before its effective 
date. However, one of the exceptions is that section 553 does not apply 
to rulemaking that involves a matter relating to loans. Therefore, to 
provide greater access to capital for small farmers as soon as possible 
before the 2014 planting season, this final rule is effective when 
published in the Federal Register.

Executive Order 12866 and 13563

    Executive Order 12866, ``Regulatory Planning and Review,'' and 
Executive Order 13563, ``Improving Regulation and Regulatory Review,'' 
direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasizes the importance 
of quantifying both costs and benefits, of reducing costs, of 
harmonizing rules, and of promoting flexibility.
    The Office of Management and Budget (OMB) designated this final 
rule as not significant under Executive Order 12866 and, therefore, OMB 
was not required to review this final rule.

[[Page 13191]]

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act (5 
U.S.C. 553) or any other statute, unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. This rule is not subject to the Regulatory 
Flexibility Act because CCC is not required by any law to publish a 
proposed rule for public comments on this rule.

Environmental Review

    The environmental impacts of this rule have been considered in a 
manner consistent with the provisions of the National Environmental 
Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508), and the FSA 
regulations for compliance with NEPA (7 CFR 799 and 7 CFR part 1940, 
subpart G). The proposed changes to the FSFL program were analyzed and 
evaluated in a Programmatic Environmental Assessment and subsequent 
Finding of No Significant Impact (74 FR 71674) after the 2008 Farm 
Bill. The scope of that environmental review included provisions that 
have already been implemented as well as those provisions proposed in 
this rule. FSA has determined that these provisions will not have a 
significant impact on the quality of the human environment either 
individually or cumulatively. Therefore, no Environmental Assessment or 
Environmental Impact Statement will be prepared.

Executive Order 12372

    Executive Order 12372, ``Intergovernmental Review of Federal 
Programs,'' requires consultation with State and local officials. The 
objectives of the Executive Order are to foster an intergovernmental 
partnership and a strengthened Federalism, by relying on State and 
local processes for State and local government coordination and review 
of proposed Federal Financial assistance and direct Federal 
development. For reasons specified in the Notice to 7 CFR part 3015, 
subpart V (48 FR 29115, June 24, 1983), the programs and activities 
within this rule are excluded from the scope of Executive Order 12372 
which requires intergovernmental consultation with State and local 
officials.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, ``Civil 
Justice Reform.'' This rule will not preempt State or local laws, 
regulations, or policies unless they present an irreconcilable conflict 
with this rule. This rule will not have retroactive effect. Before any 
judicial action may be brought regarding the provisions of this rule, 
the administrative appeal provisions of 7 CFR parts 11 and 780 must be 
exhausted.

Executive Order 13132

    This rule has been reviewed under Executive Order 13132, 
``Federalism.'' The policies contained in this rule do not have any 
substantial direct effect on States, on the relationship between the 
national government and the States, or on the distribution of power and 
responsibilities among the various levels of government, except as 
required by law. Nor does this rule impose substantial direct 
compliance costs on State and local governments. Therefore, 
consultation with the States is not required.

Executive Order 13175

    This rule has been reviewed for compliance with Executive Order 
13175, ``Consultation and Coordination With Indian Tribal 
Governments.'' Executive Order 13175 imposes requirements on the 
development of regulatory policies that have Tribal implications or 
preempt Tribal laws. The policies contained in this rule do not, to our 
knowledge, impose substantial unreimbursed direct compliance costs on 
Indian Tribal governments, have Tribal implications, or preempt Tribal 
law. USDA continues to consult with Tribal officials to have a 
meaningful consultation and collaboration on the development and 
strengthening of USDA regulations. USDA will respond in a timely and 
meaningful manner to all Tribal government requests for consultation 
concerning this rule and will provide additional venues, such as 
Webinars and teleconferences, to periodically host collaborative 
conversations with Tribal leaders and their representatives concerning 
ways to improve this rule in Indian country.

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, and Tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rules with 
Federal mandates that may result in expenditures of $100 million or 
more in any 1 year for State, local, or Tribal governments, in the 
aggregate, or to the private sector. UMRA generally requires agencies 
to consider alternatives and adopt the more cost effective or least 
burdensome alternative that achieves the objectives of the rule. This 
rule contains no Federal mandates, as defined in Title II of UMRA, for 
State, local, and tribal governments or the private sector. Therefore, 
this rule is not subject to the requirements of sections 202 and 205 of 
the UMRA.

Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)

    This rule is not a major rule under the Small Business Regulatory 
Enforcement Fairness Act of 1996, (Pub. L. 104-121, SBREFA). Therefore, 
CCC is not required to delay the effective date for 60 days from the 
date of publication to allow for Congressional review. Accordingly, 
this rule is effective on the date of publication in the Federal 
Register.

Federal Assistance Programs

    The title and number of the Federal Domestic Assistance Program in 
the Catalog of Federal Domestic Assistance to which this rule applies 
is the Farm Storage Facility Loans--10.056.

Paperwork Reduction Act

    The regulations in this rule are exempt from requirements of the 
Paperwork Reduction Act (44 U.S.C. Chapter 35), as specified in section 
1601(c)(2) of the 2008 Farm Bill, which provides that the programs in 
Title I of the 2008 Farm Bill be administered without regard to the 
Paperwork Reduction Act.

E-Government Act Compliance

    FSA and CCC are committed to complying with the E-Government Act, 
to promote the use of the Internet and other information technologies 
to provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

List of Subjects in 7 CFR Part 1436

    Administrative practice and procedure, Loan programs-agriculture, 
Penalties, Price support programs, Reporting and recordkeeping 
requirements.

    For the reasons discussed above, CCC amends 7 CFR part 1436 as 
follows:

[[Page 13192]]

PART 1436--FARM STORAGE FACILITY LOAN PROGRAM REGULATIONS

0
1. The authority citation for part 1436 continues to read as follows:

    Authority:  7 U.S.C. 7971 and 8789; and 15 U.S.C. 714-714p.

0
2. Amend Sec.  1436.8 as follows:
0
a. Revise paragraphs (b) introductory text, (c) introductory text, 
(c)(2), and (i),
0
b. In paragraph (b)(1), remove the word ``Agrees'' and add the word 
``Agree'' in its place,
0
c. In paragraph (b)(2), remove the words ``credit, bond, or other form 
of security, as'' and add the words ``credit or other form of 
security'' in its place,
0
d. In paragraph (c)(1), at the end, remove the period and add the 
punctuation and word ``; and'' in its place.
    The revisions read as follows:


Sec.  1436.8  Security for loan.

* * * * *
    (b) For loan amounts equal to or less than $100,000, or when the 
aggregate outstanding FSFLs balance will be equal to or less than 
$100,000, CCC will not require a severance agreement from the holder of 
any prior lien on the real estate parcel on which the storage facility 
is located. However, the Deputy Administrator, Farm Programs, or a 
State Committee may, at their discretion, require a severance agreement 
for loan amounts greater than $50,000 or less than $100,000 for all 
FSFLs in the State, if deemed necessary to protect the interests of 
CCC. If no severance agreement is provided, then the borrower must:
* * * * *
    (c) For loan amounts equal to or less than $100,000, or when the 
aggregate outstanding FSFLs balance will be equal to or less than 
$100,000, CCC will not require a lien on the real estate parcel on 
which the farm storage facility is located. However, the Deputy 
Administrator, Farm Programs or a State Committee may, at their 
discretion, require a lien in the form of a real estate mortgage, deed 
of trust, or other security instrument approved by USDA's Office of the 
General Counsel for loans greater than $50,000 or less than $100,000 
for all FSFLs in the State, if deemed necessary to protect the 
interests of CCC. Liens are required for all loans greater than 
$100,000. All liens must meet the following conditions:
* * * * *
    (2) The real estate security for the loan must be at least equal to 
the loan amount; and
* * * * *
    (i) For loan amounts equal to or less than $100,000, or when the 
aggregate outstanding FSFLs balance will be equal to or less than 
$100,000, and secured by collateral without any resale value, as 
determined by CCC, additional security will not be required. However, 
the Deputy Administrator, Farm Programs or a State Committee may, at 
their discretion, for all FSFLs in the State, require additional 
security for loan amounts greater than $50,000 or less than $100,000 
that are secured by collateral without any resale value if deemed 
necessary to protect the interests of the CCC.
* * * * *

    Signed on March 4, 2014.
Juan M. Garcia,
Administrator, Farm Service Agency, and Executive Vice President, 
Commodity Credit Corporation.
[FR Doc. 2014-05101 Filed 3-7-14; 8:45 am]
BILLING CODE 3410-05-P