Implementation of Revolving Loan Fund Risk Analysis System, 56942-56947 [2017-25276]

Download as PDF 56942 Federal Register / Vol. 82, No. 230 / Friday, December 1, 2017 / Notices generated from this meeting may also be inspected and reproduced at the Regional Programs Unit, as they become available, both before and after the meeting. Persons interested in the work of this Committee are directed to the Commission’s Web site, https:// www.usccr.gov, or may contact the Regional Programs Unit at the above email or street address. Agenda I. Welcome II. Discuss Potential Panelists III. Discuss Potential Panel Categories IV. Public Comment V. Next Steps VI. Adjournment Exceptional Circumstance: Pursuant to 41 CFR 102–3.150, the notice for this meeting is given less than 15 calendar days prior to the meeting because of the exceptional circumstance of the Committee needing to plan a briefing on voting rights to satisfy the U.S. Commission on Civil Rights’ 2018 Statutory Enforcement report timeline. Dated: November 27, 2017. David Mussatt, Supervisory Chief, Regional Programs Unit. BILLING CODE P DEPARTMENT OF COMMERCE Economic Development Administration Implementation of Revolving Loan Fund Risk Analysis System This notice outlines and solicits public comments on the performance measures that the Economic Development Administration (EDA) has selected to implement the Risk Analysis System to monitor the Revolving Loan Fund (RLF) Program. The Risk Analysis System, which is being implemented by concurrent changes to EDA regulations, is designed to lessen reporting and compliance burdens on RLF Recipients while providing for more efficient and effective oversight of the RLF Program. The Risk Analysis System measures are adapted from the Uniform Financial Institutions Rating System and evaluate RLF Recipients based on factors used by that system and data provided by RLF Recipients via the standard RLF Financial Report, Form ED–209. This notice seeks public comment on the sradovich on DSK3GMQ082PROD with NOTICES 16:44 Nov 30, 2017 Jkt 244001 Mitchell Harrison, Program Analyst, Performance and National Programs Division, Economic Development Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW., Mail Stop 71030, Washington, DC 20230 or via email at mharrison@ eda.gov. SUPPLEMENTARY INFORMATION: Economic Development Administration, U.S. Department of Commerce. ACTION: Notice of proposed performance measures and request for comments. AGENCY: VerDate Sep<11>2014 Written comments are due on or before January 2, 2018. ADDRESSES: Comments on the notice may be submitted through any of the following methods: • Email: regulations@eda.gov. Include ‘‘Comments on EDA Notice’’ and ‘‘Implementation of Revolving Loan Fund Risk Analysis System’’ in the subject line of the message. • Fax: (202) 482–5671. Please indicate ‘‘Attention: Office of the Chief Counsel,’’ ‘‘Comments on EDA Notice,’’ and ‘‘Implementation of Revolving Loan Fund Risk Analysis System’’ on the cover page. • Mail: Ryan Servais, Attorney Advisor, Office of the Chief Counsel, Economic Development Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW., Suite 72023, Washington, DC 20230. Please indicate ‘‘Comments on EDA Notice’’ and ‘‘Implementation of Revolving Loan Fund Risk Analysis System’’ on the envelope. DATES: FOR FURTHER INFORMATION CONTACT: [FR Doc. 2017–25878 Filed 11–30–17; 8:45 am] SUMMARY: measures EDA will use to assess performance under the Risk Analysis System. I. Overview Investments to capitalize or recapitalize RLFs are governed by, inter alia, the Public Works and Economic Development Act of 1965, as amended (PWEDA) (42 U.S.C. 3121 et seq.), the regulations outlined at 13 CFR part 307, subpart B, and the EDA RLF Standard Terms and Conditions attached to RLF grant awards. The purpose of RLF grants is to provide regions with a flexible and continuing source of capital, to be used with other economic development tools, for creating and retaining jobs and inducing private investment that will contribute to long-term economic stability and growth. RLF grants are awarded to States, regional development organizations, local governments, Indian tribes, and non-profit organizations. Currently, EDA applies a limited compliance-based approach to determine whether RLF Recipients adhere to regulatory requirements and fulfill the terms of RLF awards. RLF Recipients found to be non-compliant are subject to possible corrective action PO 00000 Frm 00002 Fmt 4703 Sfmt 4703 plans (CAPs), sequestration, and termination. As part of its most recent amendment to the regulations implementing PWEDA, which are effectuated through a Final Rule published contemporaneously with this notice,1 EDA revised its RLF regulations to reflect best practices within the financial community and to strengthen EDA’s efforts to evaluate, monitor, and improve RLF performance by moving to a risk-based approach to assess individual RLFs. This new approach, known as the Risk Analysis System, is modeled on the Uniform Financial Institutions Rating System, commonly known as the Capital, Assets, Management, Earnings, Liquidity, and Sensitivity (CAMELS) rating system, which has been used since 1979 by a number of Federal agencies to assess financial institutions on a uniform basis and to identify those in need of additional oversight. The CAMELS system produces a composite rating by examining six components: Capital adequacy, asset quality, management capability, earnings, liquidity, and sensitivity to market risk. The Risk Analysis System uses a set of metrics that generally examine these same components. However, because of the unique goal of the RLF Program as a driver of critical economic development, particularly within distressed communities, EDA has developed a modified approach. In addition to assessing RLF Recipients based on metrics for capital adequacy, asset quality, management capability, earnings, and liquidity, EDA will consider metrics examining strategic results, rather than sensitivity to market risk. EDA’s newly revised regulations include key changes to support this shift to the Risk Analysis System and to ease the transition for RLF Recipients. These changes include the following: • Replacing the formerly employed Capital Utilization Standard with the new Allowable Cash Percentage (ACP). In the current version of the RLF regulation at 13 CFR 307.16(c), the Capital Utilization Standard was applicable during the revolving phase of an RLF and required RLF Recipients to ‘‘provide that at all times at least 75 percent of the RLF Capital is loaned or 1 The Department notes that the President’s Fiscal Year 2018 Budget calls for the elimination of EDA. The Department considers the Final Rule amending the PWEDA implementing regulations to be important because the Department would need to continue to administer and monitor RLF grants in perpetuity under current statutory authorities. The regulatory changes in the Final Rule will enable the Department to more efficiently manage the residual RLF portfolio going forward. E:\FR\FM\01DEN1.SGM 01DEN1 sradovich on DSK3GMQ082PROD with NOTICES Federal Register / Vol. 82, No. 230 / Friday, December 1, 2017 / Notices committed. . . .’’ The new ACP standard is defined as ‘‘the average percentage of the RLF Capital Base maintained as RLF Cash Available for Lending by RLF Recipients in each EDA regional office’s portfolio of RLF Grants over the previous year.’’ This will be defined annually by each EDA regional office for that region’s RLF grants based on the previous year’s average percentage of RLF Cash Available for Lending (i.e., funds not currently deployed or committed for new loans) held by the region’s portfolio of RLFs. The adoption of the ACP also removes the requirement for automatic sequestration. Under EDA’s previous sequestration policy, EDA could require sequestration if an RLF Recipient failed to satisfy the Capital Utilization Standard for two consecutive Reporting Periods, and EDA generally required sequestration after four consecutive Reporting Periods. Instead, under the revised regulations, if an RLF’s Cash Available for Lending as a percentage of the RLF Capital Base reaches 50%, and persists for two years, the RLF may be subject to a disallowance of the excess cash. • Changing the Reporting Period to align with each RLF Recipient’s fiscal year end in order to ensure consistency between RLF financial reports (Form ED–209) submitted to EDA and RLF Recipient annual audit reports. Additionally, EDA revised the regulations to state that the reporting frequency for an RLF Recipient will be determined by EDA. This enables EDA to base reporting frequency on the risk assessment of the RLF Recipient. Those RLF Recipients with a high rating through the Risk Analysis System will be placed on an annual reporting cycle, while RLF Recipients receiving lower ratings will be required to maintain semi-annual reporting. • Adopting a more tailored approach to remedying non-compliance. The Risk Analysis System will enable EDA to provide targeted assistance to RLF Recipients with identified weaknesses. By reviewing the Recipient’s score under the Risk Analysis System, EDA will be able to select from a list of options for intervening with the Recipient to achieve compliance, rather than applying the previous one-size-fitsall approach through sequestration or termination. II. How EDA’s Risk Analysis System Works The Risk Analysis System rates each RLF according to the performance metrics of the modified CAMELS approach using the data reported by the RLF Recipient through the standard RLF VerDate Sep<11>2014 16:44 Nov 30, 2017 Jkt 244001 financial report (Form ED–209), audits, and other submissions. Specifically, it uses fifteen defined measures to evaluate a Recipient’s administration of each RLF’s capital, assets, management, earnings, liquidity, and strategic results. This approach provides EDA with an internal tool for assessing the strengths and weaknesses of each RLF and for identifying RLFs that require additional monitoring, technical assistance, or other corrective action. It also provides RLF Recipients with a set of portfolio management and operational standards to evaluate their RLFs and improve performance. EDA believes this new Risk Analysis System will provide greater flexibility by assessing each RLF’s strengths and weaknesses under their own specific and unique circumstances, and that information will be used by EDA to prioritize and focus EDA resources to those RLFs with substantial challenges. The Risk Analysis System rating will be conducted by EDA annually at the RLF Recipient’s fiscal year end and will be based on audits, RLF financial reports (Form ED–209, or a successor electronic system), and other submissions. EDA is revising Form ED– 209 to streamline reporting by seeking only information essential to oversight and to make the report more effective by better integrating the Form with other information required from RLF Recipients. This revision of the ED–209 is occurring at the same time that EDA is soliciting public comment on the Risk Analysis System performance measures through this notice, and EDA will publish a notice seeking comments on the revised Form. Because the Risk Analysis System relies heavily on audit results, all RLF Recipients will be required to submit independent audits. A single audit conducted according to 2 CFR part 200, subpart F, the ‘‘Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,’’ and the compliance supplement thereto, will satisfy this requirement. Those Recipients that are not required to arrange for a single audit because they expend less than $750,000 in Federal awards annually will be required to submit to EDA an independent audit of the RLF grant in the first year of the Risk Analysis System and as directed by EDA thereafter. RLF Income may be used to pay for such an independent audit of the RLF grant. If an RLF Recipient has insufficient RLF Income to pay for such an audit, the Recipient should seek EDA approval to use RLF Capital Base funds to cover audit costs. PO 00000 Frm 00003 Fmt 4703 Sfmt 4703 56943 III. Scoring the Metrics The Risk Analysis System adapts the CAMELS performance metrics to assess RLFs through fifteen performance measures explained in the table below. Each of the measures will be scored on a numerical scale ranging from 3 to 1, where a ‘‘3’’ indicates exceeding the measure, a ‘‘2’’ indicates an acceptable effort, and a ‘‘1’’ indicates a below par performance for the indicated measure. The aggregate score will determine the RLF’s risk rating as ‘‘A’’, ‘‘B’’, or ‘‘C’’, with each of the fifteen individual measures weighted equally. EDA will establish criteria for rating RLFs as ‘‘A’’, ‘‘B’’, or ‘‘C’’ using data from the first set of reports and audits submitted after implementation of the Risk Analysis System. EDA aims to establish fixed rating criteria such that RLFs are rated against established criteria rather than in relation to the performance of other RLFs; however, EDA may change the rating criteria from time to time. 1. Capital: The RLF Capital Base is expected to be maintained, if not increased, over time in order to sustain lending activity and to carry out the purposes of the RLF Program, to create and/or retain jobs, and stimulate private investment in regions of economic distress. In addition, sufficient capital is necessary to protect the RLF from potential loan losses. The ‘‘capital base index’’ measure is determined by dividing the current RLF Capital Base by the original RLF Capital Base at the time that the RLF was established. 2. Assets: An RLF Recipient must adhere to prudent lending standards to safeguard the quality of the loan portfolio. There are four measures within this metric: (1) The ‘‘default rate’’ measure assesses weakness in loan payments or loan servicing processes. It is measured as the RLF Principal Outstanding for Loans in Default as a percentage of the RLF Principal Outstanding for Active Loans. EDA considers a high default rate as 20% or greater. (2) EDA will also measure ‘‘default rate over time’’ by looking at how long a high default rate has persisted to identify possible weaknesses in underwriting, enforcement of loan terms, and/or working with borrowers to modify loan payment schedules with the goal of achieving full repayment. (3) The ‘‘loan write-off ratio’’ measures the number of written off loans compared to the number of inactive loans (the number of inactive loans is equal to the number of total outstanding loans minus the number of active loans). It will be used to identify weaknesses in loan underwriting and loan management. (4) E:\FR\FM\01DEN1.SGM 01DEN1 56944 Federal Register / Vol. 82, No. 230 / Friday, December 1, 2017 / Notices ‘‘Dollars written off’’ will identify the financial impact of loan losses by comparing the amount of loan losses to the amount of principal repaid. 3. Management: In order to increase the likelihood of a successful RLF, the RLF Recipient should have experience managing lending programs to be able to satisfy program, audit, RLF Plan, and reporting requirements. There are five measures to assess the Management metric: (1) The ‘‘financial control’’ measure is scored based on audit results and audit findings. RLF Recipients subject to the single audit requirement pursuant to 2 CFR part 200, subpart F, must demonstrate through an independent annual audit that financial controls are in place to operate the organization and the RLF according to Generally Accepted Accounting Principles, account for RLF assets, secure the use of funds, and value the RLF correctly in the audit’s Schedule of Expenditures of Federal Awards. As discussed in Section II, ‘‘How EDA’s Risk Analysis System Works,’’ RLF Recipients not subject to the single audit requirement must submit to EDA an independent audit of the RLF grant in the first year of the Risk Analysis System and as directed by EDA thereafter. (2) ‘‘Tenure’’ assesses the RLF Recipient’s collective experience with the EDA RLF Program. Managing an RLF requires specialized knowledge and experience. The roles critical for a successful lending program include: Executive Director, Lending Director, Finance Director, and Reporting Official. Vacancies or inexperience in any of these positions can lead to program neglect, weak loan generation, accounting problems, and late reporting. (3) The measure, ‘‘RLF Plan,’’ assesses whether the RLF Recipient is operating the RLF pursuant to a current, EDAapproved RLF Plan. (4) The ‘‘financial report’’ measure assesses the timeliness and accuracy of RLF reporting through the standard RLF Financial Report, Form ED–209. (5) ‘‘Timely reporting’’ assesses the RLF Recipient’s timeliness in submitting audits and filings, plus any additional required reporting, such as that provided pursuant to a CAP or Federal Financial Reports (Form SF– 425) for RLFs in the Disbursement Phase. Similarly, when an RLF is required to prepare and implement a CAP, the timeliness to resolve the issue(s) meriting corrective action will be assessed in this measure. 4. Earnings: An RLF Recipient is expected to manage costs and generate net income in order to maintain, if not increase, the RLF Capital Base. The ‘‘net RLF income’’ measure determines how well a Recipient is managing costs and generating net income by dividing the portion of RLF Income used for administrative expenses over the life of the RLF by total RLF Income, to determine the cumulative percentage of RLF Income used for administrative expenses. 5. Liquidity: RLF Recipients are expected to maintain a robust lending pipeline and cash available for lending within a range of the ACP. The ACP is a new feature of the RLF Program established by the newly revised regulations, and replaces the fixed capital utilization standard that ranged from 75% to 85%, according to the size of the RLF Capital Base. The ACP is a floating rate, determined annually for each EDA region. It is the region’s average RLF Cash Available for Lending as a percentage of the Capital Base calculated from the previous year’s reports for each EDA regional office portfolio. It specifies that RLF Cash Available for Lending excludes loans that have been committed or approved but have not yet been funded. Two measures are used to determine liquidity in an effort to identify weaknesses in loan generation: (1) ‘‘Cash percentage’’ assesses the Recipient’s RLF Cash Available for Lending as a percentage of its RLF Capital Base compared to the ACP for the Recipient’s region; and (2) ‘‘cash percentage over time,’’ which assesses the length of time during which the Recipient’s cash percentage exceeded the Region’s ACP. For example, where the applicable ACP is 30%, RLFs that report an RLF Cash Available for Lending from 27% to 33% of its RLF Capital Base are scored as a 2 for the Cash Percentage measure. An RLF with the same ACP that holds 22% is scored as a 3, while an RLF with 40% is scored as a 1 for this measure. 6. Strategic Results: RLFs must engage in lending designed to fulfill the goals of the RLF Program. The Strategic Results component assesses whether RLFs are meeting those goals by determining the economic impact the RLF is having in its region. It does this by looking at two measures: (1) ‘‘cost per job’’ and (2) ‘‘leverage ratio’’. ‘‘Cost per job’’ compares the RLF total portfolio performance to the target identified in its RLF Plan. It is based on the amount of dollars loaned divided by the total number of jobs created and saved. The ‘‘leverage ratio’’ compares the amount of leveraged capital across the entire RLF portfolio to the cumulative amount of RLF dollars loaned. EDA regulations require a minimum leverage ratio of two dollars of additional investment for every one dollar of RLF funds loaned. EDA regulations define leverage requirements, including investment by the borrower and other public loan programs. The following chart demonstrates the range of scores available for each metric. PERFORMANCE METRICS & MEASURES Score These metrics are calculated using information from the revised RLF Financial Report, Form ED–209. Where applicable, the measure’s formula is presented using references to lines in the revised ED–209. Note that EDA will publish a notice seeking comments on the revised Form. 3 ............................................... 2 ............................................... 1. Performance Metric: Capital sradovich on DSK3GMQ082PROD with NOTICES The RLF Capital Base is expected to increase over time in order to sustain lending activity and to carry out the purpose of the RLF Program. In addition, sufficient capital is necessary to protect the RLF from potential loan losses. Measure: Capital Base Index Determined by: RLF Capital Base divided by the original RLF Capital Base at the time the RLF was established. ED–209: II.C.6 ÷ II.A.3. VerDate Sep<11>2014 16:44 Nov 30, 2017 Jkt 244001 PO 00000 Greater than 1.5 ....................... Frm 00004 Fmt 4703 Sfmt 4703 From 1.0 to 1.5 ........................ E:\FR\FM\01DEN1.SGM 01DEN1 Less than 1.0. Federal Register / Vol. 82, No. 230 / Friday, December 1, 2017 / Notices 56945 PERFORMANCE METRICS & MEASURES—Continued Score Performance Metric: Assets An RLF Recipient must adhere to prudent lending standards to safeguard the quality of the loan portfolio. Measure: Default Rate Determined by: RLF Principal Outstanding for Loans in Default divided by RLF Principal Outstanding for Total Active Loans. ED–209: III.A.3, In Default RLF Principal Outstanding ÷ III.A.4, Active RLF Principal Outstanding. Less than 10% ......................... From 10% to 20% .................... Greater than 20%. From 12 to 24 months ............. More than 24 months. From 1 out of every 6 to 1 out of every 4. Greater than 1 out of every 4. From 10% to 20% .................... Greater than 20%. Measure: Default Rate over Time Determined by: Number of consecutive months where default rate is over 20%. Less than 12 months ............... Measure: Loan Write-Off Ratio Determined by: The ratio of the number of loans written-off to the number of ‘‘inactive loans’’ (calculated as number of total loans minus number of active loans). ED–209: III.A.5, Number ÷ (III.A.7, Number—III.A..4, Number). Less than 1 out of every 6 ....... Measure: Dollars Written-Off Determined by: Loan Losses divided by the difference between Total RLF Dollars Loaned and Total RLF Principal Outstanding. ED–209: III.A.5, Loan Losses ÷ (III.A.7, RLF $ Loaned—III.A.7, RLF Principal Outstanding). Less than 10% ......................... Performance Metric: Management It is critical to the success of the RLF that Management is experienced with the EDA RLF Program, their RLF Plan, and reporting requirements. Critical positions include: Executive Director, Lending Director, Finance Director, and Reporting Official. Vacancies in any of these positions can lead to program neglect and result in late reporting, weak loan generation, and accounting errors. Measure: Financial Control Determined by: Number and magnitude of audit findings ............ No findings ............................... Minor findings ........................... Material findings pertaining to Organization, Questioned Costs, Solvency, Interrelated party transactions. From 2 to 3 years .................... Vacancy or less than 2 years. Updated RLF Plan received more than 5 years since its last update but within 6 years. RLF Plan expired and not updated within the last 6 years. Up to 60 days late and/or returned to RLF Recipient for minor corrections. More than 60 days late; or sent back for major revision. Measure: Tenure Determined by: Shortest tenure of Executive Director, Lending Director, Finance Director, and Reporting Official. Greater than 3 years ................ Measure: RLF Plan Determined by: Updated RLF Plan where EDA has not granted a time extension. RLF Plan up to date, updates submitted at least every 5 years. Determined by: Date RLF Financial Report, ED–209 submitted to EDA. On time with no corrections needed. Measure: Financial Reporting Measure: Timely and Complete Reporting Determined by: Date audit and/or additional reports (such as SF–425 or Corrective Action Plan) submitted to EDA. On time ..................................... Up to 30 days late ................... Over 30 days late or no receipt. Performance Metric: Earnings An RLF Recipient is expected to manage costs and generate income in order to increase the RLF’s Capital Base. sradovich on DSK3GMQ082PROD with NOTICES Measure: Net RLF Income Determined by: Portion of RLF Income Used for Administrative Expenses divided by Total RLF Income. ED–209: II.B.7 ÷ II.B.6. Less than 50% ......................... From 50% to 100% .................. More than 100%. Performance Metric: Liquidity RLF Recipients are expected to keep a robust lending pipeline and maintain cash within a range of the Region’s average cash as a percentage of the Capital Base. Measure: Cash Percentage Determined by: RLF Cash Available for Lending divided by RLF Capital Base. ED–209: II.D.4 ÷ II.C.6. VerDate Sep<11>2014 18:28 Nov 30, 2017 Jkt 244001 PO 00000 Less than 90% of the ACP ...... Frm 00005 Fmt 4703 Sfmt 4703 From 90% to 110% of the ACP E:\FR\FM\01DEN1.SGM 01DEN1 More than 110% of the ACP. 56946 Federal Register / Vol. 82, No. 230 / Friday, December 1, 2017 / Notices PERFORMANCE METRICS & MEASURES—Continued Score Measure: Cash Percentage over Time Determined by: Length of time where the Cash Percentage exceeds the Region’s ACP. Less than 12 months ............... From 12 to 24 months ............. More than 24 months. Performance Metric: Strategic Results The purpose of the RLF Program is to provide regions with a flexible and continuing source of capital for creating and retaining jobs and inducing private investment that will contribute to long-term economic stability and growth. Measure: Cost per Job Determined by: RLF Dollars Loaned divided by Total Jobs compared to RLF Plan Target. ED–209: III.A.7, RLF $ Loaned ÷ IV.E.5, Total Loans as compared to IV.E.6, RLF Plan Target. Less than 90% of RLF Plan target. Determined by: Total Dollars Leveraged divided by RLF Dollars Loaned. ED–209: IV.E.1, Total Loans ÷ III.A.7, RLF $ Loaned. Meets or exceeds required leverage of 2:1. 90% to 110% of RLF Plan target. Greater than 110% of RLF Plan target. N/A ........................................... Less than 2:1. sradovich on DSK3GMQ082PROD with NOTICES Measure: Leverage Ratio IV. Ratings and Remedies for Noncompliance Following receipt of an RLF Recipient’s fiscal-year end RLF financial report, the EDA RLF Administrator will notify the RLF Recipient of the performance rating, i.e., Risk Analysis rating level (A, B, or C) for each RLF. The assigned level will be based upon the data and information provided in the most recent RLF financial report, the Recipient’s overall numeric score on the Risk Analysis System, and a determination by the Regional RLF Administrator in consultation with the Grants Officer. Risk Levels A, B, and C are defined below: 1. Level A: RLF Recipients in Level A are managing their RLF award soundly and are almost always in compliance with EDA policies and regulations. These RLF Recipients exhibit the strongest performance and management practices. Any issues that arise are addressed in a timely manner. The RLF Administrator may determine that a Level A Recipient requires less frequent monitoring. These Recipients may be allowed to administer their RLF portfolios and resolve issues without significant EDA involvement. Level A Recipients will report to EDA on an annual basis within 90 calendar days following the end of their fiscal year. 2. Level B: RLF Recipients in Level B are fundamentally sound, but some deficiencies are present and will take time to resolve. Recipients are generally in compliance with EDA regulations and policies. While these RLF Recipients exhibit generally satisfactory results, the RLF Administrator will provide additional oversight and attention to assist the RLF Recipient with improving its performance. Level B Recipients will report to EDA on a semiannual basis within 30 calendar days VerDate Sep<11>2014 18:28 Nov 30, 2017 Jkt 244001 following the end of their fiscal year and again within 30 calendar days of the end of the second quarter of their fiscal year. 3. Level C: RLF Recipients in Level C exhibit performance deficiencies requiring additional oversight and intervention by the RLF Administrator. In general, multiple measures on the Risk Analysis System measures are scored as a ‘‘1’’. Recipients may exhibit material noncompliance with EDA policies and regulations, which may result in the RLF Administrator having to propose formal enforcement actions, including suspension, corrective actions, termination, or transfer of the RLF Award. Level C Recipients will report to EDA on a semi-annual basis within 30 calendar days following the end of their fiscal year and again 6 months later. For each RLF rated at Level C, the RLF Recipient will be required to produce a CAP to address the areas of weakness, which will include, at a minimum, an annual corrective action update report to EDA. The RLF Recipient will have 60 days, running from the day that the RLF Recipient receives notification from EDA of its risk-analysis score, to propose its CAP. The RLF Recipient will have a specified timeframe to implement the CAP, not to exceed three years, which will run from the day that the RLF Recipient receives notification from EDA that EDA concurs with the RLF Recipient’s proposed CAP. (Note: The exception to the three-year limit is for an RLF Recipient that has proposed to rebuild its capital base, in which case they may have up to five years to reach the target.) The CAP must include measurable targets and dates by which improvement will be achieved. The RLF Recipient’s CAP must be approved in writing by the EDA RLF Administrator, who will monitor the PO 00000 Frm 00006 Fmt 4703 Sfmt 4703 RLF Recipient for incremental progress made. If any Recipient is unable or unwilling to develop and submit a CAP or an annual update report, the RLF Administrator will inform the noncompliant Recipient that EDA may seek to terminate or transfer the RLF award. In addition, if a CAP for a Level C Recipient does not yield the intended results, the RLF Administrator may propose termination or transfer of the RLF award in consultation with the Grants Officer. V. Public Input and Future Changes to the Risk Analysis System EDA has created this transparent and flexible approach to better evaluate and monitor the performance of RLFs. In an effort to ensure that the Risk Analysis System is as effective as possible, EDA seeks feedback from the public on the Risk Analysis System as described in this notice, on the initial measures used to implement the System, and how those measures are assessed by EDA. EDA encourages RLF Recipients and all interested members of the public to send EDA questions, suggestions, and comments on the Risk Analysis System and the measures through any of the methods discussed in the ADDRESSES section of this notice. In order to further facilitate public comment, EDA will hold a public webinar to present and explain the Risk Analysis System and the proposed measures, as well as to answer questions. EDA will post webinar details on the RLF page of the EDA Web site at www.eda.gov/rlf. EDA will thoroughly consider all public input prior to finalizing the measures and will post the final guidance on the EDA Web site. * * * * * E:\FR\FM\01DEN1.SGM 01DEN1 Federal Register / Vol. 82, No. 230 / Friday, December 1, 2017 / Notices Authority: The Public Works and Economic Development Act of 1965, as amended (PWEDA) (42 U.S.C. 3121 et seq.). Dated: November 15, 2017. Dennis Alvord, Deputy Assistant Secretary for Regional Affairs, performing the non-exclusive duties of the Assistant Secretary of Commerce for Economic Development. [FR Doc. 2017–25276 Filed 11–30–17; 8:45 am] BILLING CODE 3510–WH–P DEPARTMENT OF COMMERCE National Telecommunications and Information Administration First Responder Network Authority; First Responder Network Authority Combined Committee and Board Meeting First Responder Network Authority (‘‘FirstNet’’), U.S. Department of Commerce. ACTION: Notice of open public meetings. AGENCY: The Board of the First Responder Network Authority (‘‘FirstNet Board’’) will convene a meeting of the FirstNet Board and the Committees of the Board of the First Responder Network Authority ‘‘Board Committees’’ that will be open to the public via teleconference and WebEx on December 7, 2017. DATES: A combined meeting of the Board Committees and the FirstNet Board will be held on December 7, 2017, between 9:00 a.m. and 11:30 a.m., Eastern Standard Time (EST). The meeting of the FirstNet Board and the Governance and Personnel, Technology, Consultation and Outreach, and Finance Committees will be open to the public via teleconference and WebEx only from 9:00 a.m. to 11:30 a.m. EST. ADDRESSES: The combined meeting of the FirstNet Board and Board Committees will be conducted via teleconference and WebEx only. Members of the public may listen to the meeting by dialing toll free 1–888–566– 5786 and using passcode 5957846. To view the slide presentation, the public may visit the URL: https:// www.mymeetings.com/nc/join/ and enter Conference Number PWXW5929049 and audience passcode 5957846. Alternatively, members of the public may view the slide presentation by directly visiting the URL: https:// www.mymeetings.com/nc/join.php?i= PWXW5929049&p=5957846&t=c. FOR FURTHER INFORMATION CONTACT: Karen Miller-Kuwana, Board Secretary, FirstNet, 12201 Sunrise Valley Drive, M/S 243, Reston, VA 20192; telephone: sradovich on DSK3GMQ082PROD with NOTICES SUMMARY: VerDate Sep<11>2014 16:44 Nov 30, 2017 Jkt 244001 (571) 665–6177; email: Karen.MillerKuwana@firstnet.gov. Please direct media inquiries to Ryan Oremland at (571) 665–6186. SUPPLEMENTARY INFORMATION: This notice informs the public that the FirstNet Board and Board Committees will convene a combined meeting open to the public via teleconference and WebEx only on December 7, 2017. Background: The Middle Class Tax Relief and Job Creation Act of 2012 (47 U.S.C. 1401 et seq.)) (‘‘the Act’’) established FirstNet as an independent authority within the National Telecommunications and Information Administration that is headed by a Board. The Act directs FirstNet to ensure the building, deployment, and operation of a nationwide, interoperable public safety broadband network. The FirstNet Board is responsible for making strategic decisions regarding FirstNet’s operations. The FirstNet Board held its first public meeting on September 25, 2012. Matters To Be Considered: FirstNet will post a detailed agenda for the combined meeting of the Board Committees and FirstNet Board meeting on its Web site, https://www.firstnet.gov, prior to the meetings. The agenda topics are subject to change. Please note that the subjects that will be discussed by the Board Committees and the FirstNet Board may involve commercial or financial information that is privileged or confidential or other legal matters affecting FirstNet. As such, the Board Committee Chairs and Board Chair may call for a vote to close the meetings only for the time necessary to preserve the confidentiality of such information, pursuant to 47 U.S.C. 1424(e)(2). Times and Dates of Meeting: A combined meeting of the FirstNet Board and Board Committees will be held on December 7, 2017, between 9:00 a.m. and 11:30 a.m., Eastern Standard Time (EST). The meeting of the FirstNet Board and Board Committees will be open to the public via teleconference and WebEx from 9:00 a.m. to 11:30 a.m. EST. The times listed above are subject to change. Please refer to FirstNet’s Web site at www.firstnet.gov for the most upto-date information. Place: The combined meeting of the FirstNet Board and Board Committees will be conducted via teleconference and WebEx. Other Information: The combined meeting of the Board Committees is open to the public via teleconference and WebEx only. On the date and time of the meeting, members of the public may listen to the meeting by dialing toll free 1–888–566–5786 and using PO 00000 Frm 00007 Fmt 4703 Sfmt 4703 56947 passcode 5957846. To view the slide presentation, the public may visit the URL: https://www.mymeetings.com/nc/ join/ and enter Conference Number PWXW5929049 and audience passcode 5957846. Alternatively, members of the public may view the slide presentation by directly visiting the URL: https:// www.mymeetings.com/nc/ join.php?i=PWXW5929049&p=5957846 &t=c. If you experience technical difficulty, please contact the Conferencing Center customer service at 1–866–900–1011. Public access will be limited to listenonly. Due to the limited number of ports, attendance via teleconference will be on a first-come, first-served basis. The FirstNet Board and Combined Committee Meeting is accessible to people with disabilities. Individuals requiring accommodations are asked to notify Ms. Miller-Kuwana by telephone (571) 665–6177 or email at Karen.MillerKuwana@firstnet.gov at least five (5) business days before the applicable meeting. Records: FirstNet maintains records of all FirstNet Board proceedings. Minutes of the FirstNet Board Meeting and the Board Committee Meetings will be available at www.firstnet.gov. Dated: November 27, 2017. Karen Miller-Kuwana, Board Secretary, First Responder Network Authority. [FR Doc. 2017–25868 Filed 11–30–17; 8:45 am] BILLING CODE 3510–TL–P DEPARTMENT OF COMMERCE International Trade Administration [A–583–837] Polyethylene Terephthalate Film, Sheet, and Strip (PET Film) From Taiwan: Final Results of Antidumping Duty Administrative Review; 2015– 2016 Enforcement and Compliance, International Trade Administration, Department of Commerce. SUMMARY: On August 3, 2017, the Department of Commerce (the Department) published the preliminary results of the administrative review of the antidumping duty (AD) order on polyethylene terephthalate film, sheet, and strip (PET Film) from Taiwan. The period of review (POR) is July 1, 2015, through June 30, 2016. We received no comments or requests for a hearing. Therefore, we have made no changes for the final results and continue to find that sales of subject merchandise by Nan Ya Plastics Corporation (Nan Ya) were AGENCY: E:\FR\FM\01DEN1.SGM 01DEN1

Agencies

[Federal Register Volume 82, Number 230 (Friday, December 1, 2017)]
[Notices]
[Pages 56942-56947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25276]

=======================================================================
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DEPARTMENT OF COMMERCE

Economic Development Administration

Implementation of Revolving Loan Fund Risk Analysis System

AGENCY: Economic Development Administration, U.S. Department of
Commerce.

ACTION: Notice of proposed performance measures and request for
comments.

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

SUMMARY: This notice outlines and solicits public comments on the
performance measures that the Economic Development Administration (EDA)
has selected to implement the Risk Analysis System to monitor the
Revolving Loan Fund (RLF) Program. The Risk Analysis System, which is
being implemented by concurrent changes to EDA regulations, is designed
to lessen reporting and compliance burdens on RLF Recipients while
providing for more efficient and effective oversight of the RLF
Program. The Risk Analysis System measures are adapted from the Uniform
Financial Institutions Rating System and evaluate RLF Recipients based
on factors used by that system and data provided by RLF Recipients via
the standard RLF Financial Report, Form ED-209. This notice seeks
public comment on the measures EDA will use to assess performance under
the Risk Analysis System.

DATES: Written comments are due on or before January 2, 2018.

ADDRESSES: Comments on the notice may be submitted through any of the
following methods:
Email: regulations@eda.gov. Include ``Comments on EDA
Notice'' and ``Implementation of Revolving Loan Fund Risk Analysis
System'' in the subject line of the message.
Fax: (202) 482-5671. Please indicate ``Attention: Office
of the Chief Counsel,'' ``Comments on EDA Notice,'' and
``Implementation of Revolving Loan Fund Risk Analysis System'' on the
cover page.
Mail: Ryan Servais, Attorney Advisor, Office of the Chief
Counsel, Economic Development Administration, U.S. Department of
Commerce, 1401 Constitution Avenue NW., Suite 72023, Washington, DC
20230. Please indicate ``Comments on EDA Notice'' and ``Implementation
of Revolving Loan Fund Risk Analysis System'' on the envelope.

FOR FURTHER INFORMATION CONTACT: Mitchell Harrison, Program Analyst,
Performance and National Programs Division, Economic Development
Administration, U.S. Department of Commerce, 1401 Constitution Avenue
NW., Mail Stop 71030, Washington, DC 20230 or via email at
mharrison@eda.gov.

SUPPLEMENTARY INFORMATION:

I. Overview

Investments to capitalize or recapitalize RLFs are governed by,
inter alia, the Public Works and Economic Development Act of 1965, as
amended (PWEDA) (42 U.S.C. 3121 et seq.), the regulations outlined at
13 CFR part 307, subpart B, and the EDA RLF Standard Terms and
Conditions attached to RLF grant awards. The purpose of RLF grants is
to provide regions with a flexible and continuing source of capital, to
be used with other economic development tools, for creating and
retaining jobs and inducing private investment that will contribute to
long-term economic stability and growth. RLF grants are awarded to
States, regional development organizations, local governments, Indian
tribes, and non-profit organizations.
Currently, EDA applies a limited compliance-based approach to
determine whether RLF Recipients adhere to regulatory requirements and
fulfill the terms of RLF awards. RLF Recipients found to be non-
compliant are subject to possible corrective action plans (CAPs),
sequestration, and termination.
As part of its most recent amendment to the regulations
implementing PWEDA, which are effectuated through a Final Rule
published contemporaneously with this notice,\1\ EDA revised its RLF
regulations to reflect best practices within the financial community
and to strengthen EDA's efforts to evaluate, monitor, and improve RLF
performance by moving to a risk-based approach to assess individual
RLFs. This new approach, known as the Risk Analysis System, is modeled
on the Uniform Financial Institutions Rating System, commonly known as
the Capital, Assets, Management, Earnings, Liquidity, and Sensitivity
(CAMELS) rating system, which has been used since 1979 by a number of
Federal agencies to assess financial institutions on a uniform basis
and to identify those in need of additional oversight. The CAMELS
system produces a composite rating by examining six components: Capital
adequacy, asset quality, management capability, earnings, liquidity,
and sensitivity to market risk. The Risk Analysis System uses a set of
metrics that generally examine these same components. However, because
of the unique goal of the RLF Program as a driver of critical economic
development, particularly within distressed communities, EDA has
developed a modified approach. In addition to assessing RLF Recipients
based on metrics for capital adequacy, asset quality, management
capability, earnings, and liquidity, EDA will consider metrics
examining strategic results, rather than sensitivity to market risk.
---------------------------------------------------------------------------

\1\ The Department notes that the President's Fiscal Year 2018
Budget calls for the elimination of EDA. The Department considers
the Final Rule amending the PWEDA implementing regulations to be
important because the Department would need to continue to
administer and monitor RLF grants in perpetuity under current
statutory authorities. The regulatory changes in the Final Rule will
enable the Department to more efficiently manage the residual RLF
portfolio going forward.
---------------------------------------------------------------------------

EDA's newly revised regulations include key changes to support this
shift to the Risk Analysis System and to ease the transition for RLF
Recipients. These changes include the following:
Replacing the formerly employed Capital Utilization
Standard with the new Allowable Cash Percentage (ACP). In the current
version of the RLF regulation at 13 CFR 307.16(c), the Capital
Utilization Standard was applicable during the revolving phase of an
RLF and required RLF Recipients to ``provide that at all times at least
75 percent of the RLF Capital is loaned or

[[Page 56943]]

committed. . . .'' The new ACP standard is defined as ``the average
percentage of the RLF Capital Base maintained as RLF Cash Available for
Lending by RLF Recipients in each EDA regional office's portfolio of
RLF Grants over the previous year.'' This will be defined annually by
each EDA regional office for that region's RLF grants based on the
previous year's average percentage of RLF Cash Available for Lending
(i.e., funds not currently deployed or committed for new loans) held by
the region's portfolio of RLFs. The adoption of the ACP also removes
the requirement for automatic sequestration. Under EDA's previous
sequestration policy, EDA could require sequestration if an RLF
Recipient failed to satisfy the Capital Utilization Standard for two
consecutive Reporting Periods, and EDA generally required sequestration
after four consecutive Reporting Periods. Instead, under the revised
regulations, if an RLF's Cash Available for Lending as a percentage of
the RLF Capital Base reaches 50%, and persists for two years, the RLF
may be subject to a disallowance of the excess cash.
Changing the Reporting Period to align with each RLF
Recipient's fiscal year end in order to ensure consistency between RLF
financial reports (Form ED-209) submitted to EDA and RLF Recipient
annual audit reports. Additionally, EDA revised the regulations to
state that the reporting frequency for an RLF Recipient will be
determined by EDA. This enables EDA to base reporting frequency on the
risk assessment of the RLF Recipient. Those RLF Recipients with a high
rating through the Risk Analysis System will be placed on an annual
reporting cycle, while RLF Recipients receiving lower ratings will be
required to maintain semi-annual reporting.
Adopting a more tailored approach to remedying non-
compliance. The Risk Analysis System will enable EDA to provide
targeted assistance to RLF Recipients with identified weaknesses. By
reviewing the Recipient's score under the Risk Analysis System, EDA
will be able to select from a list of options for intervening with the
Recipient to achieve compliance, rather than applying the previous one-
size-fits-all approach through sequestration or termination.

II. How EDA's Risk Analysis System Works

The Risk Analysis System rates each RLF according to the
performance metrics of the modified CAMELS approach using the data
reported by the RLF Recipient through the standard RLF financial report
(Form ED-209), audits, and other submissions. Specifically, it uses
fifteen defined measures to evaluate a Recipient's administration of
each RLF's capital, assets, management, earnings, liquidity, and
strategic results. This approach provides EDA with an internal tool for
assessing the strengths and weaknesses of each RLF and for identifying
RLFs that require additional monitoring, technical assistance, or other
corrective action. It also provides RLF Recipients with a set of
portfolio management and operational standards to evaluate their RLFs
and improve performance. EDA believes this new Risk Analysis System
will provide greater flexibility by assessing each RLF's strengths and
weaknesses under their own specific and unique circumstances, and that
information will be used by EDA to prioritize and focus EDA resources
to those RLFs with substantial challenges.
The Risk Analysis System rating will be conducted by EDA annually
at the RLF Recipient's fiscal year end and will be based on audits, RLF
financial reports (Form ED-209, or a successor electronic system), and
other submissions. EDA is revising Form ED-209 to streamline reporting
by seeking only information essential to oversight and to make the
report more effective by better integrating the Form with other
information required from RLF Recipients. This revision of the ED-209
is occurring at the same time that EDA is soliciting public comment on
the Risk Analysis System performance measures through this notice, and
EDA will publish a notice seeking comments on the revised Form.
Because the Risk Analysis System relies heavily on audit results,
all RLF Recipients will be required to submit independent audits. A
single audit conducted according to 2 CFR part 200, subpart F, the
``Uniform Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards,'' and the compliance supplement
thereto, will satisfy this requirement. Those Recipients that are not
required to arrange for a single audit because they expend less than
$750,000 in Federal awards annually will be required to submit to EDA
an independent audit of the RLF grant in the first year of the Risk
Analysis System and as directed by EDA thereafter. RLF Income may be
used to pay for such an independent audit of the RLF grant. If an RLF
Recipient has insufficient RLF Income to pay for such an audit, the
Recipient should seek EDA approval to use RLF Capital Base funds to
cover audit costs.

III. Scoring the Metrics

The Risk Analysis System adapts the CAMELS performance metrics to
assess RLFs through fifteen performance measures explained in the table
below. Each of the measures will be scored on a numerical scale ranging
from 3 to 1, where a ``3'' indicates exceeding the measure, a ``2''
indicates an acceptable effort, and a ``1'' indicates a below par
performance for the indicated measure. The aggregate score will
determine the RLF's risk rating as ``A'', ``B'', or ``C'', with each of
the fifteen individual measures weighted equally. EDA will establish
criteria for rating RLFs as ``A'', ``B'', or ``C'' using data from the
first set of reports and audits submitted after implementation of the
Risk Analysis System. EDA aims to establish fixed rating criteria such
that RLFs are rated against established criteria rather than in
relation to the performance of other RLFs; however, EDA may change the
rating criteria from time to time.
1. Capital: The RLF Capital Base is expected to be maintained, if
not increased, over time in order to sustain lending activity and to
carry out the purposes of the RLF Program, to create and/or retain
jobs, and stimulate private investment in regions of economic distress.
In addition, sufficient capital is necessary to protect the RLF from
potential loan losses. The ``capital base index'' measure is determined
by dividing the current RLF Capital Base by the original RLF Capital
Base at the time that the RLF was established.
2. Assets: An RLF Recipient must adhere to prudent lending
standards to safeguard the quality of the loan portfolio. There are
four measures within this metric: (1) The ``default rate'' measure
assesses weakness in loan payments or loan servicing processes. It is
measured as the RLF Principal Outstanding for Loans in Default as a
percentage of the RLF Principal Outstanding for Active Loans. EDA
considers a high default rate as 20% or greater. (2) EDA will also
measure ``default rate over time'' by looking at how long a high
default rate has persisted to identify possible weaknesses in
underwriting, enforcement of loan terms, and/or working with borrowers
to modify loan payment schedules with the goal of achieving full
repayment. (3) The ``loan write-off ratio'' measures the number of
written off loans compared to the number of inactive loans (the number
of inactive loans is equal to the number of total outstanding loans
minus the number of active loans). It will be used to identify
weaknesses in loan underwriting and loan management. (4)

[[Page 56944]]

``Dollars written off'' will identify the financial impact of loan
losses by comparing the amount of loan losses to the amount of
principal repaid.
3. Management: In order to increase the likelihood of a successful
RLF, the RLF Recipient should have experience managing lending programs
to be able to satisfy program, audit, RLF Plan, and reporting
requirements. There are five measures to assess the Management metric:
(1) The ``financial control'' measure is scored based on audit results
and audit findings. RLF Recipients subject to the single audit
requirement pursuant to 2 CFR part 200, subpart F, must demonstrate
through an independent annual audit that financial controls are in
place to operate the organization and the RLF according to Generally
Accepted Accounting Principles, account for RLF assets, secure the use
of funds, and value the RLF correctly in the audit's Schedule of
Expenditures of Federal Awards. As discussed in Section II, ``How EDA's
Risk Analysis System Works,'' RLF Recipients not subject to the single
audit requirement must submit to EDA an independent audit of the RLF
grant in the first year of the Risk Analysis System and as directed by
EDA thereafter. (2) ``Tenure'' assesses the RLF Recipient's collective
experience with the EDA RLF Program. Managing an RLF requires
specialized knowledge and experience. The roles critical for a
successful lending program include: Executive Director, Lending
Director, Finance Director, and Reporting Official. Vacancies or
inexperience in any of these positions can lead to program neglect,
weak loan generation, accounting problems, and late reporting. (3) The
measure, ``RLF Plan,'' assesses whether the RLF Recipient is operating
the RLF pursuant to a current, EDA-approved RLF Plan. (4) The
``financial report'' measure assesses the timeliness and accuracy of
RLF reporting through the standard RLF Financial Report, Form ED-209.
(5) ``Timely reporting'' assesses the RLF Recipient's timeliness in
submitting audits and filings, plus any additional required reporting,
such as that provided pursuant to a CAP or Federal Financial Reports
(Form SF-425) for RLFs in the Disbursement Phase. Similarly, when an
RLF is required to prepare and implement a CAP, the timeliness to
resolve the issue(s) meriting corrective action will be assessed in
this measure.
4. Earnings: An RLF Recipient is expected to manage costs and
generate net income in order to maintain, if not increase, the RLF
Capital Base. The ``net RLF income'' measure determines how well a
Recipient is managing costs and generating net income by dividing the
portion of RLF Income used for administrative expenses over the life of
the RLF by total RLF Income, to determine the cumulative percentage of
RLF Income used for administrative expenses.
5. Liquidity: RLF Recipients are expected to maintain a robust
lending pipeline and cash available for lending within a range of the
ACP. The ACP is a new feature of the RLF Program established by the
newly revised regulations, and replaces the fixed capital utilization
standard that ranged from 75% to 85%, according to the size of the RLF
Capital Base. The ACP is a floating rate, determined annually for each
EDA region. It is the region's average RLF Cash Available for Lending
as a percentage of the Capital Base calculated from the previous year's
reports for each EDA regional office portfolio. It specifies that RLF
Cash Available for Lending excludes loans that have been committed or
approved but have not yet been funded. Two measures are used to
determine liquidity in an effort to identify weaknesses in loan
generation: (1) ``Cash percentage'' assesses the Recipient's RLF Cash
Available for Lending as a percentage of its RLF Capital Base compared
to the ACP for the Recipient's region; and (2) ``cash percentage over
time,'' which assesses the length of time during which the Recipient's
cash percentage exceeded the Region's ACP. For example, where the
applicable ACP is 30%, RLFs that report an RLF Cash Available for
Lending from 27% to 33% of its RLF Capital Base are scored as a 2 for
the Cash Percentage measure. An RLF with the same ACP that holds 22% is
scored as a 3, while an RLF with 40% is scored as a 1 for this measure.
6. Strategic Results: RLFs must engage in lending designed to
fulfill the goals of the RLF Program. The Strategic Results component
assesses whether RLFs are meeting those goals by determining the
economic impact the RLF is having in its region. It does this by
looking at two measures: (1) ``cost per job'' and (2) ``leverage
ratio''. ``Cost per job'' compares the RLF total portfolio performance
to the target identified in its RLF Plan. It is based on the amount of
dollars loaned divided by the total number of jobs created and saved.
The ``leverage ratio'' compares the amount of leveraged capital across
the entire RLF portfolio to the cumulative amount of RLF dollars
loaned. EDA regulations require a minimum leverage ratio of two dollars
of additional investment for every one dollar of RLF funds loaned. EDA
regulations define leverage requirements, including investment by the
borrower and other public loan programs.
The following chart demonstrates the range of scores available for
each metric.

Performance Metrics & Measures
----------------------------------------------------------------------------------------------------------------
Score
---------------------------------------------------------------
These metrics are calculated using 3...................... 2...................... 1.
information from the revised RLF
Financial Report, Form ED-209. Where
applicable, the measure's formula is
presented using references to lines
in the revised ED-209. Note that EDA
will publish a notice seeking
comments on the revised Form.
----------------------------------------------------------------------------------------------------------------
Performance Metric: Capital
----------------------------------------------------------------------------------------------------------------
The RLF Capital Base is expected to increase over time in order to sustain lending activity and to carry out the
purpose of the RLF Program. In addition, sufficient capital is necessary to protect the RLF from potential loan
losses.
----------------------------------------------------------------------------------------------------------------
Measure: Capital Base Index
----------------------------------------------------------------------------------------------------------------
Determined by: RLF Capital Base Greater than 1.5....... From 1.0 to 1.5........ Less than 1.0.
divided by the original RLF Capital
Base at the time the RLF was
established. ED-209: II.C.6 / II.A.3.
----------------------------------------------------------------------------------------------------------------

[[Page 56945]]

Performance Metric: Assets
----------------------------------------------------------------------------------------------------------------
An RLF Recipient must adhere to prudent lending standards to safeguard the quality of the loan portfolio.
----------------------------------------------------------------------------------------------------------------
Measure: Default Rate
----------------------------------------------------------------------------------------------------------------
Determined by: RLF Principal Less than 10%.......... From 10% to 20%........ Greater than 20%.
Outstanding for Loans in Default
divided by RLF Principal Outstanding
for Total Active Loans. ED-209:
III.A.3, In Default RLF Principal
Outstanding / III.A.4, Active RLF
Principal Outstanding.
----------------------------------------------------------------------------------------------------------------
Measure: Default Rate over Time
----------------------------------------------------------------------------------------------------------------
Determined by: Number of consecutive Less than 12 months.... From 12 to 24 months... More than 24 months.
months where default rate is over
20%.
----------------------------------------------------------------------------------------------------------------
Measure: Loan Write-Off Ratio
----------------------------------------------------------------------------------------------------------------
Determined by: The ratio of the Less than 1 out of From 1 out of every 6 Greater than 1 out of
number of loans written-off to the every 6. to 1 out of every 4. every 4.
number of ``inactive loans''
(calculated as number of total loans
minus number of active loans). ED-
209: III.A.5, Number / (III.A.7,
Number--III.A..4, Number).
----------------------------------------------------------------------------------------------------------------
Measure: Dollars Written-Off
----------------------------------------------------------------------------------------------------------------
Determined by: Loan Losses divided by Less than 10%.......... From 10% to 20%........ Greater than 20%.
the difference between Total RLF
Dollars Loaned and Total RLF
Principal Outstanding. ED-209:
III.A.5, Loan Losses / (III.A.7, RLF
$ Loaned--III.A.7, RLF Principal
Outstanding).
----------------------------------------------------------------------------------------------------------------
Performance Metric: Management
----------------------------------------------------------------------------------------------------------------
It is critical to the success of the RLF that Management is experienced with the EDA RLF Program, their RLF
Plan, and reporting requirements. Critical positions include: Executive Director, Lending Director, Finance
Director, and Reporting Official. Vacancies in any of these positions can lead to program neglect and result in
late reporting, weak loan generation, and accounting errors.
----------------------------------------------------------------------------------------------------------------
Measure: Financial Control
----------------------------------------------------------------------------------------------------------------
Determined by: Number and magnitude No findings............ Minor findings......... Material findings
of audit findings. pertaining to
Organization,
Questioned Costs,
Solvency, Interrelated
party transactions.
----------------------------------------------------------------------------------------------------------------
Measure: Tenure
----------------------------------------------------------------------------------------------------------------
Determined by: Shortest tenure of Greater than 3 years... From 2 to 3 years...... Vacancy or less than 2
Executive Director, Lending years.
Director, Finance Director, and
Reporting Official.
----------------------------------------------------------------------------------------------------------------
Measure: RLF Plan
----------------------------------------------------------------------------------------------------------------
Determined by: Updated RLF Plan where RLF Plan up to date, Updated RLF Plan RLF Plan expired and
EDA has not granted a time extension. updates submitted at received more than 5 not updated within the
least every 5 years. years since its last last 6 years.
update but within 6
years.
----------------------------------------------------------------------------------------------------------------
Measure: Financial Reporting
----------------------------------------------------------------------------------------------------------------
Determined by: Date RLF Financial On time with no Up to 60 days late and/ More than 60 days late;
Report, ED-209 submitted to EDA. corrections needed. or returned to RLF or sent back for major
Recipient for minor revision.
corrections.
----------------------------------------------------------------------------------------------------------------
Measure: Timely and Complete Reporting
----------------------------------------------------------------------------------------------------------------
Determined by: Date audit and/or On time................ Up to 30 days late..... Over 30 days late or no
additional reports (such as SF-425 receipt.
or Corrective Action Plan) submitted
to EDA.
----------------------------------------------------------------------------------------------------------------
Performance Metric: Earnings
----------------------------------------------------------------------------------------------------------------
An RLF Recipient is expected to manage costs and generate income in order to increase the RLF's Capital Base.
----------------------------------------------------------------------------------------------------------------
Measure: Net RLF Income
----------------------------------------------------------------------------------------------------------------
Determined by: Portion of RLF Income Less than 50%.......... From 50% to 100%....... More than 100%.
Used for Administrative Expenses
divided by Total RLF Income. ED-209:
II.B.7 / II.B.6.
----------------------------------------------------------------------------------------------------------------
Performance Metric: Liquidity
----------------------------------------------------------------------------------------------------------------
RLF Recipients are expected to keep a robust lending pipeline and maintain cash within a range of the Region's
average cash as a percentage of the Capital Base.
----------------------------------------------------------------------------------------------------------------
Measure: Cash Percentage
----------------------------------------------------------------------------------------------------------------
Determined by: RLF Cash Available for Less than 90% of the From 90% to 110% of the More than 110% of the
Lending divided by RLF Capital Base. ACP. ACP. ACP.
ED-209: II.D.4 / II.C.6.
----------------------------------------------------------------------------------------------------------------

[[Page 56946]]

Measure: Cash Percentage over Time
----------------------------------------------------------------------------------------------------------------
Determined by: Length of time where Less than 12 months.... From 12 to 24 months... More than 24 months.
the Cash Percentage exceeds the
Region's ACP.
----------------------------------------------------------------------------------------------------------------
Performance Metric: Strategic Results
----------------------------------------------------------------------------------------------------------------
The purpose of the RLF Program is to provide regions with a flexible and continuing source of capital for
creating and retaining jobs and inducing private investment that will contribute to long-term economic stability
and growth.
----------------------------------------------------------------------------------------------------------------
Measure: Cost per Job
----------------------------------------------------------------------------------------------------------------
Determined by: RLF Dollars Loaned Less than 90% of RLF 90% to 110% of RLF Plan Greater than 110% of
divided by Total Jobs compared to Plan target. target. RLF Plan target.
RLF Plan Target. ED-209: III.A.7,
RLF $ Loaned / IV.E.5, Total Loans
as compared to IV.E.6, RLF Plan
Target.
----------------------------------------------------------------------------------------------------------------
Measure: Leverage Ratio
----------------------------------------------------------------------------------------------------------------
Determined by: Total Dollars Meets or exceeds N/A.................... Less than 2:1.
Leveraged divided by RLF Dollars required leverage of
Loaned. ED-209: IV.E.1, Total Loans / 2:1.
III.A.7, RLF $ Loaned.
----------------------------------------------------------------------------------------------------------------

IV. Ratings and Remedies for Noncompliance

Following receipt of an RLF Recipient's fiscal-year end RLF
financial report, the EDA RLF Administrator will notify the RLF
Recipient of the performance rating, i.e., Risk Analysis rating level
(A, B, or C) for each RLF. The assigned level will be based upon the
data and information provided in the most recent RLF financial report,
the Recipient's overall numeric score on the Risk Analysis System, and
a determination by the Regional RLF Administrator in consultation with
the Grants Officer. Risk Levels A, B, and C are defined below:
1. Level A: RLF Recipients in Level A are managing their RLF award
soundly and are almost always in compliance with EDA policies and
regulations. These RLF Recipients exhibit the strongest performance and
management practices. Any issues that arise are addressed in a timely
manner. The RLF Administrator may determine that a Level A Recipient
requires less frequent monitoring. These Recipients may be allowed to
administer their RLF portfolios and resolve issues without significant
EDA involvement. Level A Recipients will report to EDA on an annual
basis within 90 calendar days following the end of their fiscal year.
2. Level B: RLF Recipients in Level B are fundamentally sound, but
some deficiencies are present and will take time to resolve. Recipients
are generally in compliance with EDA regulations and policies. While
these RLF Recipients exhibit generally satisfactory results, the RLF
Administrator will provide additional oversight and attention to assist
the RLF Recipient with improving its performance. Level B Recipients
will report to EDA on a semi-annual basis within 30 calendar days
following the end of their fiscal year and again within 30 calendar
days of the end of the second quarter of their fiscal year.
3. Level C: RLF Recipients in Level C exhibit performance
deficiencies requiring additional oversight and intervention by the RLF
Administrator. In general, multiple measures on the Risk Analysis
System measures are scored as a ``1''. Recipients may exhibit material
noncompliance with EDA policies and regulations, which may result in
the RLF Administrator having to propose formal enforcement actions,
including suspension, corrective actions, termination, or transfer of
the RLF Award. Level C Recipients will report to EDA on a semi-annual
basis within 30 calendar days following the end of their fiscal year
and again 6 months later.
For each RLF rated at Level C, the RLF Recipient will be required
to produce a CAP to address the areas of weakness, which will include,
at a minimum, an annual corrective action update report to EDA. The RLF
Recipient will have 60 days, running from the day that the RLF
Recipient receives notification from EDA of its risk-analysis score, to
propose its CAP. The RLF Recipient will have a specified timeframe to
implement the CAP, not to exceed three years, which will run from the
day that the RLF Recipient receives notification from EDA that EDA
concurs with the RLF Recipient's proposed CAP. (Note: The exception to
the three-year limit is for an RLF Recipient that has proposed to
rebuild its capital base, in which case they may have up to five years
to reach the target.) The CAP must include measurable targets and dates
by which improvement will be achieved. The RLF Recipient's CAP must be
approved in writing by the EDA RLF Administrator, who will monitor the
RLF Recipient for incremental progress made.
If any Recipient is unable or unwilling to develop and submit a CAP
or an annual update report, the RLF Administrator will inform the non-
compliant Recipient that EDA may seek to terminate or transfer the RLF
award. In addition, if a CAP for a Level C Recipient does not yield the
intended results, the RLF Administrator may propose termination or
transfer of the RLF award in consultation with the Grants Officer.

V. Public Input and Future Changes to the Risk Analysis System

EDA has created this transparent and flexible approach to better
evaluate and monitor the performance of RLFs. In an effort to ensure
that the Risk Analysis System is as effective as possible, EDA seeks
feedback from the public on the Risk Analysis System as described in
this notice, on the initial measures used to implement the System, and
how those measures are assessed by EDA. EDA encourages RLF Recipients
and all interested members of the public to send EDA questions,
suggestions, and comments on the Risk Analysis System and the measures
through any of the methods discussed in the ADDRESSES section of this
notice. In order to further facilitate public comment, EDA will hold a
public webinar to present and explain the Risk Analysis System and the
proposed measures, as well as to answer questions. EDA will post
webinar details on the RLF page of the EDA Web site at www.eda.gov/rlf.
EDA will thoroughly consider all public input prior to finalizing the
measures and will post the final guidance on the EDA Web site.
* * * * *

[[Page 56947]]

Authority: The Public Works and Economic Development Act of
1965, as amended (PWEDA) (42 U.S.C. 3121 et seq.).

Dated: November 15, 2017.
Dennis Alvord,
Deputy Assistant Secretary for Regional Affairs, performing the non-
exclusive duties of the Assistant Secretary of Commerce for Economic
Development.
[FR Doc. 2017-25276 Filed 11-30-17; 8:45 am]
BILLING CODE 3510-WH-P

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