Federal Register Vol. 81, No.137,

This rule is issued under Marketing Agreement 148 and Order No. 932, both as amended (7 CFR part 932), regulating the handling of olives grown in California, hereinafter referred to as the “order.” The agreement and order are effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this interim rule in conformance with Executive Orders 12866, 13563, and 13175.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This rule suspends the incoming size-grade authority of the marketing order and revises the corresponding size-grade requirements in the order's rules and regulations. The current authority establishes a range of size designations and average count ranges per pound into which the varieties of olives must fall in order to be size-certified by the Federal or Federal-State Inspection Service. The incoming size-grade regulations do not reflect the size-grading capabilities of newer technology available to California olive handlers. Currently, the order mandates that sizing of olives be based on count ranges and average counts per pound, while the new technology sizes olives using their associated mass and volume. Thus, the current size-grade requirements and the sizing capabilities of the new technology are incompatible. This recommendation was passed unanimously by the Committee at a meeting on February 17, 2016.

The incoming regulations include a requirement for olives to be weighed upon receipt. This regulation is not being suspended, since handlers need to weigh the bins of incoming olives so that each producer has a record of their total deliveries to handlers. Thus, this relaxation will require continued weighing of olives but will suspend the requirement that olives be size-graded upon receipt.

By relaxing the sizing requirement, handlers will be able to voluntarily size olives to make accurate payments to their producers on their total deliveries, ensure that the olives they place into their storage tanks are uniform in size for efficient processing, and utilize any olive size for limited-use styles.

Even though there will be no incoming size requirements, handlers will continue to be bound by mandatory inspection and certification of outgoing size requirements listed in the U.S. Standards for Grade of Canned Ripe Olives (7 CFR part 52). Outgoing inspection, based on weight and count, will continue to be used to verify compliance with the U.S. Standards of the previously sorted olives.

Limited-use styles include olives that are no longer in whole form and are sliced, segmented (wedged), chopped, halved, and broken pitted styles. When incoming regulation is in effect, the Committee has authority to identify size-grade categories of olives that are eligible to be used in limited-use styles. With the suspension of the incoming size-grade requirement, handlers will be able to use any size olive for limited-use styles. Therefore, the suspension of incoming size-grade regulation relaxes the requirements for limited-use.

This suspension is necessary in order to provide the industry, and their USDA partners, the opportunity to work on new size-grading requirements that will address and work in tandem with new sizing technology.

This rule suspends language in § 932.51 related to size-grade requirements. In addition, this rule revises language in § 932.151, where “weight” is used to replace “size-grading,” and removes certain references to the “inspection service” or replaces the term with “Committee.” With this change, while incoming regulation is suspended, the Committee will receive information directly from handlers on incoming olive receipts from growers, rather than through the Inspection Service.

Section 932.51 of the order specifies that incoming olives be weighed and size-graded under the supervision of the Federal or Federal-State Inspection Service. The size designations set forth are those found in the U.S. Standards for Grade of Canned Ripe Olives (7 CFR part 52) and include additional size designations specified in § 932.51.

Section 932.51 also establishes authority for handlers to use limited-use olives. As previously stated, once the suspension is in effect, handlers will be able to use any olives in the production of limited-use styles.

As noted above, weight certification will still be required under § 932.51 for all olives received by handlers, so that producers will be able to confirm their total deliveries to handlers.

Section 932.151 of the order's rules and regulations specifies the requirements for incoming olives, which are—weighing, size-grading, and certifying of canning olives and non-canning olives (culls).

The olive industry has been involved in a technological shift since 2012. In addition to electronic reporting technology, which eliminates burdensome paper reports, the industry has begun moving toward more cost-effective and accurate sizing technology. New technology sorts olives by measuring the volume and mass of each olive directly, rather than by count per pound and approximate count per pound. As technology changes and improves, better methods of classifying olives by size need to be in place. With the technology now available, handlers report a 30-percent reduction in labor costs. Those reduced costs contribute to making California olive handlers more competitive with other olive-processing countries.

Since new technology represents a significant departure from existing size-grading techniques, the Committee believes, with industry support, that the correct course of action is to suspend the incoming size-grade requirements. This will give the industry, working with their USDA partners, the time to develop size-grade requirements that reflect changes in technology.

This suspension requires a modification of two Committee forms, Weight and Grade Report (COC-3c) and the Report of Limited and Undersize and Cull Olives Inspection and Disposition (COC-5). Both are approved for use under OMB No. 0581-0178, Generic Vegetables and Specialty Crops, and used by the Federal or Federal-State Inspection Service to certify sizes of incoming olives and limited-use style sizes. In addition, the COC-3c is specified as being an inspection certificate. Since this rule suspends the incoming size-grading requirements, there is no need for the inspection service to certify sizes of olives or issue an inspection certificate.

Following the publication of this rule, the COC-3c will be used by handlers to report to the Committee the incoming weights and volume size distribution of the sample. The COC-5 will be used by handlers to certify limited, undersize, and cull olive disposition.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.

There are two handlers subject to regulation under the marketing order and approximately 1,000 olive producers in the production area. Small agricultural service firms are defined by the Small Business Administration (SBA) as those having annual receipts of less than $7,500,000, and small agricultural producers are defined as those having annual receipts of less than $750,000 (13 CFR 121.201).

Based upon information from the Committee and the National Agricultural Statistics Service (NASS), the average producer price for the 2013-14 crop year (the last year information was available) was $1,150 per ton of canning-size olives and $385 per ton for limited-use size olives. The total assessable volume was 85,668 tons. Canning sizes represented 88 percent of the assessable olive volume, while limited-use sizes represented 12 percent of the assessable olive volume.

Based on production, producer prices, and the total number of California olive producers, the average annual producer revenue is less than $750,000. Thus, the majority of olive producers may be classified as small entities. Both of the handlers may be classified as large entities.

This relaxation is expected to positively impact both handlers and producers. Handlers will be able to use new technology as it becomes available to voluntarily size-grade incoming fruit more accurately, helping them be more competitive. Producers will benefit from more-accurate sizing, potentially resulting in higher handler payments to producers. This relaxation will also provide the industry with the opportunity to develop new mandatory sizing requirements conducive to alternative sizing capabilities.

The Committee's Incoming Inspection Workgroup initially discussed this recommendation and its alternatives on January 25, 2016, as did the Inspection Subcommittee prior to the Committee meeting on February 17, 2016. The Committee also considered alternatives to this action, but concluded that the correct course of action would be to recommend suspension. For all the reasons cited herein, the alternative to continue mandatory size-grading was not considered viable, would not give handlers the flexibility they need, and was rejected.

This rule suspends the size-grade requirements of the incoming regulations in § 932.51, beginning with the 2016-2017 crop year. It also revises the rules and regulations in § 932.151 allowing for the continued certification of olives by weight and replaces references to the inspection service with the Committee. In addition, minor modifications are being made to the COC 3 and COC 5 forms.

The suspension and revisions are intended to allow the Committee time to develop new requirements that address advancing technology and equipment; help reduce handling costs, keeping the California industry competitive with other olive-processing countries; and increase handler efficiency.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the order's information collection requirements are approved by the Office of Management and Budget (OMB) under OMB No. 0581-0178 (Generic Vegetables and Specialty Crops). Minor changes to those requirements are necessary as a result of this action.

AMS has submitted a request to the Office of Management and Budget (OMB) to make minor changes to forms COC-3c and COC-5. The four changes to form COC-3c include removing the block entitled “Cert No.”; deleting the words “inspection certificate” from the block entitled “California Olive Committee”; deleting the statement “This lot was weighed, sampled, and size graded under the direct supervision of the Federal-State Inspection Program” and deleting the signature and date lines associated with that statement; and lastly, removing the words “OFFICIAL INSPECTION CERTIFICATE” and adding the words “Handler Use Only”.

The changes to form COC-5 include changing the words “(5) REQUEST FOR INSPECTION” to “(5) DISPOSITION” and removing the words “(7) INSPECTION CERTIFICATION: The olives inspected conform to the information listed above” and deleting the space for the inspector's signature and the date. Additionally, changes to the form's instructions include removing the words “to be inspected” from the GENERAL instruction, and deleting the instruction for ITEM (7).

AMS is 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.

In addition, USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this rule. Furthermore, the Committee's meeting was widely publicized throughout the California olive industry, and all interested persons were invited to attend the meeting and encouraged to participate in Committee deliberations. Like all Committee and subcommittee meetings, the January 25, 2016, and February 17, 2016, meetings were public meetings, and all entities, both large and small, were able to express their views on this issue.

Also, the Committee has a number of appointed subcommittees that review specific issues and make recommendations to the Committee. The Committee's Inspection Subcommittee met on February 17, 2016, prior to the full Committee meeting on that same day, and discussed this issue in detail. That meeting was the result of a special working group meeting on January 25, 2016. The working group was tasked with reviewing the inspection protocol and related issues, and reporting their findings and recommendations to the Inspection Subcommittee. All three meetings were public meetings, and both large and small entities were encouraged to participate and express their views. Finally, interested persons are invited to submit comments on this interim rule, including the regulatory and informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/rules-regulations/moa/small-businesses. Any questions about the compliance guide should be sent to Antoinette Carter at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

This rule invites comments on the suspension and revision of incoming size-grade requirements under the California olive marketing order. Any comments received will be considered prior to the finalization of this rule.

After consideration of all relevant material presented, including the Committee's recommendation, and other information, it is found that this interim rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect and that good cause exists for not postponing the effective date of this rule until 60 days after publication in the Federal Register because: the Committee unanimously recommended these changes at a public meeting; this is a relaxation of the marketing order requirements; and this rule provides a 30-day comment period. Any comments received will be considered prior to finalization of this rule.

For the reasons set forth in the preamble, 7 CFR part 932 is amended as follows:

Background

Under 9 CFR 309.3(e), non-ambulatory disabled cattle that are offered for slaughter, including those that have become non-ambulatory disabled after passing ante-mortem inspection, must be condemned and disposed of properly. However, under 9 CFR 309.13(b), non-ambulatory disabled veal calves that are able to rise from a recumbent position and walk after they have been set aside and warmed or rested, and that are found to be otherwise free from disease, may be slaughtered for human consumption under appropriate FSIS supervision.

On May 13, 2015, FSIS published the proposed rule “Requirements for the Disposition of Non-Ambulatory Disabled Veal Calves” (80 FR 27269). FSIS proposed to amend 9 CFR 309.13(b) to remove the set-aside provision. FSIS also proposed to amend 9 CFR 309.3(e) to require all condemned cattle to be promptly disposed of in accordance with 9 CFR 309.13. Under the proposed rule, all non-ambulatory disabled cattle would be condemned and promptly euthanized.

As FSIS explained in the proposed rule, in November 2009, the Humane Society of the United States (HSUS) filed a petition requesting that FSIS amend 9 CFR 309.13(b) to remove the provision that allows veal calves that are non-ambulatory disabled because they are tired or cold to be set aside for treatment and re-inspected at a later time (the set-aside provision).1 The petition stated that the set-aside provision is inconsistent with the language and intent of the HMSA because it fails to ensure that the handling of livestock in connection with slaughter be carried out only by humane methods (see 7 U.S.C. 1902). The petition asserted that the set-aside provision creates an incentive for establishments to use inhumane methods to get non-ambulatory disabled veal calves to rise for re-inspection. Furthermore, the petition stated that removing the set-aside provision would eliminate the uncertainty of determining whether veal calves are non-ambulatory disabled because they are tired or cold or because they are injured or sick, thereby ensuring the appropriate disposition of these calves. Finally, the petition stated that eliminating the time that FSIS inspectors spend re-inspecting calves would improve inspection efficiency (80 FR 27269).

The petition referred to video footage from an HSUS undercover investigation at an official veal slaughter establishment conducted in August and September 2009. The video footage documented incidents in which establishment personnel attempted to force non-ambulatory disabled veal calves to rise by kicking, prodding, and dragging the calves to their feet. After release of this video footage, FSIS conducted its own investigation that found the establishment repeatedly failed to handle non-ambulatory disabled veal calves in a humane manner. FSIS immediately shut down the establishment, and it was only allowed to re-open under a new name and different ownership after reaching an agreement with FSIS that its facilities would be audited by an outside firm on a regular basis, and that employees would receive special training on humane handling of animals. In addition, Secretary of Agriculture Thomas Vilsack requested that the USDA's Office of Inspector General conduct a criminal investigation. While no Federal charges were filed, two establishment officials were criminally prosecuted by the State of Vermont.

After reviewing the findings of the FSIS investigation and the issues raised in the petition, the Agency tentatively granted the HSUS petition but determined it would be useful to solicit public input on the issues raised in the petition before making a final decision. On February 7, 2011, FSIS published a document in the Federal Register requesting public comments on the HSUS petition (76 FR 6572). FSIS received approximately 74,200 comments in response to the Federal Register document (see 80 FR 27269 for a more detailed discussion of the comments and FSIS's responses). On March 13, 2013, FSIS granted the HSUS petition and announced that the Agency would begin rulemaking when resources allowed.

In January 2014, FSIS conducted another investigation based on video footage captured by an HSUS undercover investigation at a second veal slaughter establishment. This video footage showed two humane handling violations committed by the establishment, including an employee dragging and rolling a non-ambulatory disabled veal calf into a holding pen. The subsequent FSIS investigation found that, while the establishment had a comprehensive systematic approach to its humane handling program, the establishment failed to implement effective humane handling methods, resulting in egregious violations (see 80 FR 27270 for more details on the investigation).

As explained in the proposed rule, published May 13, 2015, prohibiting the slaughter of all non-ambulatory veal calves will improve compliance with the HMSA and the humane slaughter implementing regulations (80 FR 27269). FSIS's 2009 and 2014 investigations of incidents of inhumane handling at official veal slaughter establishments demonstrate that the set-aside provision may create an incentive for establishments to inhumanely force non-ambulatory disabled veal calves to rise. The set-aside provision may also provide an incentive for livestock producers and establishments to send weakened veal calves to slaughter in the hope that the veal calves are able to sufficiently recover in time to pass ante-mortem inspection. Sending such weakened veal calves to slaughter increases the chances that they will go down and be subjected to conditions that are inhumane (80 FR 27271). In addition, FSIS inspectors may not always be able to distinguish between a veal calf that is non-ambulatory disabled because it is tired or cold from a veal calf that is injured or sick. Thus, allowing re-inspection may encourage establishments to hold ill or injured veal calves in an attempt to allow them to recover and pass re-inspection before collapsing.

FSIS is also concerned about the treatment of veal calves during extended hold times. For example, non-compliance records (NRs) from 2012 to 2015 included 33 instances of failing to provide veal calves with access to water.

Finally, removing the set-aside provision will also improve the Agency's inspection efficiency by eliminating the time that FSIS inspectors spend re-inspecting non-ambulatory disabled veal calves.

After consideration of all of the comments, FSIS is finalizing the provisions of the May 13, 2015 proposed rule with one change. The final rule removes a provision in the Federal meat inspection regulations that requires all ante-mortem inspections to be conducted in pens (9 CFR 309.1(b)).

Comments discussed below submitted in response to the proposed rule showed confusion about exactly when animals are “offered for slaughter,” and when inspectors may conduct ante-mortem inspection. Some commenters stated that establishments could exploit a loophole in the regulations by setting aside non-ambulatory disabled veal calves to rest and recover, and offer the calves for ante-mortem inspection at a later time.

Currently, FSIS inspectors are instructed to conduct ante-mortem inspection on transportation vehicles if the animals cannot be unloaded for any reason (see FSIS Directive 6,900.2, Humane Handling and Slaughter of Livestock). To harmonize the regulations with this established policy, FSIS is amending the regulations by removing a provision in 9 CFR 309.1(b) that requires ante-mortem inspection to be performed “in pens”.

FSIS is amending these regulations under 21 U.S.C. 621, which gives FSIS the authority to adopt regulations for the efficient administration of the Federal Meat Inspection Act (FMIA). The amendments in this rule are intended to facilitate more effective implementation of ante-mortem inspection pursuant to 21 U.S.C. 603(a) and of the humane handling requirements established pursuant to 21 U.S.C. 603(b).

FSIS received approximately 42,054 comments from animal welfare write-in campaigns that supported the proposed rule. FSIS also received 35 comments from animal welfare organizations, members of Congress, and private citizens that also supported the proposed rule. FSIS received approximately 20 comments from organizations representing meat processors, cattle producers, dairy producers, farm bureaus, and private citizens that opposed the proposed rule.

Comment: Several farm bureaus stated that the current regulations adequately protect non-ambulatory disabled veal calves from inhumane treatment. These commenters noted that FSIS has trained personnel in establishments at all times to ensure that calves are humanely handled, and veal producers have too big of a financial incentive to violate the HMSA.

Response: FSIS is amending the regulations to improve compliance with the HMSA and improve the Agency's inspection efficiency by eliminating the time that FSIS inspectors spend re-inspecting non-ambulatory disabled veal calves.

As explained in the Background section, FSIS conducted investigations in 2009 and 2014 in response to undercover videos taken by HSUS that showed establishments using force to get non-ambulatory disabled veal calves to rise for inspection. Based on the findings of these investigations, FSIS concluded that the set-aside provision may create an incentive for establishments to inhumanely force non-ambulatory disabled veal calves to rise.

Furthermore, the 2014 HSUS video showed that humane handling violations can occur outside the view of FSIS inspectors. FSIS inspectors are unable to continuously monitor non-ambulatory veal calves that have been set apart to warm and rest because they must perform other food safety inspection-related activities between the time that the calves are set apart and the time of inspection after the resting period.

Comment: An industry trade association and veal processor stated that condemnation and prompt disposal of non-ambulatory disabled veal calves would waste potentially healthy animals that can go into the food supply.

Response: The carcasses, parts thereof, meat, or meat food products of non-ambulatory disabled veal calves will be considered unfit for human food and thus adulterated pursuant to 21 U.S.C. 601(m)(3). However, the carcasses of condemned veal calves may have other, inedible-product, uses (e.g., through rendering).

In addition, the estimated cost of the final rule will have a minimal financial impact on the veal industry. Market value estimates for slaughtered veal calves based on CY2015 data reported by the U.S. Department of Agriculture, Agricultural Marketing Service (AMS), were between $264.0 million and $435.8 million. The expected first-year total cost estimate to the U.S. veal industry that would be associated with this rule ranges between $0.374 million and $1.206 million. Thus, the value lost to the U.S. veal industry ranges between 0.14% and 0.28% of the total veal value in a year.

The minimal financial impact to the U.S. veal industry is outweighed by the benefits cited in this rule, including increased compliance with the HMSA and improved inspection efficiency. FSIS predicts that this rule will save the Agency between 180 inspection hours (minimum) and 297 inspection hours (maximum) in total each year. The saved inspection time will allow FSIS personnel to conduct other inspection activities.

Comment: One veal processor stated that the formula fed veal industry has voluntarily undertaken measures in the past eight years to improve conditions for the production and care of veal calves, rendering moot some of the reasons cited for the rule.

Response: FSIS's investigations in 2009 and 2014 and non-compliance records from 2012 to 2015 demonstrate that voluntary measures undertaken by the industry have not adequately prevented the inhumane treatment of non-ambulatory disabled veal calves. Specifically, FSIS has determined that establishments may have an incentive to force non-ambulatory disabled veal calves that have been set aside pursuant to 9 CFR 309.13(b) to rise. Therefore, the Agency has determined that a change in the regulations is needed to remove the set-aside provision and ensure compliance with humane handling requirements at official establishments.

Comment: Several industry trade associations stated that FSIS's 2009 and 2014 investigations in response to HSUS' undercover video footage did not present evidence of a systemic problem of inhumane handling of non-ambulatory disabled veal calves. These commenters stated that FSIS has identified only two incidents of inhumane handling of non-ambulatory disabled veal calves in the 37 years it has enforced the HMSA. In addition, the commenters stated that only two out of 364 suspension actions taken by the Agency in the six-year window involve establishment employees forcing non-ambulatory disabled veal calves to rise.

The same commenters also stated that the lack of non-compliance records (NRs) citing non-ambulatory disabled veal calves suggests the calves are treated with care. These commenters noted that the NRs cited in the proposed rule do not record establishment personnel forcing non-ambulatory disabled veal calves to rise.

A beef producer advocacy group questioned whether FSIS has sufficient scientific evidence or expert testimony to support the Agency's claim that setting aside downed veal calves results in inhumane treatment. The comment also stated that FSIS failed to perform a comprehensive review of the peer-reviewed scientific literature or research regarding factors that lead to downed veal calves.

Response: FSIS disagrees that the number of suspension actions and NRs indicates that a change in the regulations is unnecessary. FSIS proceeded with this rulemaking after conducting a thorough review of the 2009 and 2014 investigations, NRs, peer-reviewed scientific literature, and public comments, as well as consulting with Agency subject-matter experts and staff in the field. FSIS concluded that the totality of evidence showed that, under current regulations, establishments may have a financial incentive to force non-ambulatory disabled calves to rise from a recumbent position and send weakened veal calves to slaughter. Thus, a change in the regulations is necessary to comply with the HMSA and its implementing regulations.

FSIS convened an intra-agency workgroup composed of subject-matter experts to assist with this rulemaking. In addition, the Agency consulted with the FSIS Office of Field Operations to collect data for establishments that slaughter veal calves in order to accurately determine the number of non-ambulatory disabled veal calves that were inspected after the recovery time and then sent for slaughter.

In the proposed rule, FSIS cited 33 NRs between 2012 and 2014 to support these conclusions. In addition, the Agency has conducted a review of NRs issued in 2015. In 2015, the Agency found one instance of excessive use of an electric prod in an attempt to force a non-ambulatory disabled veal calf to rise, one instance of ambulatory veal calves walking over a non-ambulatory veal calf, three instances of veal calves in holding pens without water, and one instance of veal calves in a holding pen for longer than 24 hours without feed. These findings reinforce the Agency's conclusions that establishments may have an incentive to force veal calves to rise and send weakened calves to slaughter. In addition, as was demonstrated in the 2014 HSUS video, FSIS believes that many of these occurrences happen outside the view of inspection personnel.

FSIS also conducted a thorough review of relevant peer-reviewed scientific literature, including peer-reviewed literature cited in the petition submitted by HSUS, regarding factors that can lead to non-ambulatory disabled veal calves. Based on its findings, the Agency concluded that there is a direct correlation between the growing and transport conditions of veal calves, and whether these calves arrive at an establishment non-ambulatory disabled.2 Thus, the Agency estimates that by incentivizing growers and transporters to improve animal welfare conditions, this final rule will lead to stronger, healthier calves being offered for slaughter.3

Comment: Several farm bureaus stated that complete elimination of non-ambulatory disabled veal calves from animals intended for slaughter for human food is an unrealistic goal. These commenters, along with industry trade groups and a veal processor, noted that otherwise healthy calves could be non-ambulatory disabled for a myriad of reasons, including the age and size of calves, adverse weather conditions, transportation time, calf hydration status, and length of time between unloading and stunning process.

Response: The Agency acknowledges that many circumstances may contribute to calves arriving at establishments in a non-ambulatory disabled condition. However, FSIS's current regulations may provide an incentive for livestock producers and establishments to send weakened veal calves to slaughter in the hope that the veal calves are able to sufficiently recover to pass ante-mortem inspection. Sending such weakened veal calves to slaughter increases the chances that they will go down and be subjected to conditions that are inhumane. In addition, a study conducted by researchers from the University of Manitoba Department of Animal Science, and Agriculture and Agri-Food Canada's Lethbridge Research Centre indicated that there is a direct correlation between calves that arrive at an establishment non-ambulatory disabled and poor animal welfare conditions before and during transport.4 The study indicated that animal condition upon loading is an important risk factor in the outcome of the journey.

This final rule will not lead to a complete elimination of non-ambulatory disabled veal calves that arrive at slaughter establishments; however, it will likely create an incentive for growers and transporters to improve animal welfare conditions and send healthier and stronger animals that can handle the stress and other risk factors associated with transportation to slaughter establishments. This will, in turn, reduce the number of non-ambulatory disabled veal calves that arrive at establishments.

Comment: One veal processor stated that the proposed rule should apply only to bob veal calves and should exclude formula fed and non-formula fed veal calves. The same commenter stated that the growing conditions of formula fed veal calves, including vaccinations, iron rich diets, and group loose-housing pens, make formula fed veal calves less susceptible to diseases than bob veal calves.

Response: The final rule will apply to all non-ambulatory disabled veal calves and does not distinguish bob veal calves from formula and non-formula fed veal calves. Although the Agency acknowledges that formula fed veal calves are typically stronger and less susceptible to disease than bob veal calves, and the Agency's regulatory impact analysis reveals that a higher percentage of bob veal calves will most likely be affected by this final rule, FSIS's 2014 investigation showed that humane handling violations do occur at formula fed veal calf slaughter establishments.

Comment: A private citizen recommended that the rule distinguish between fatigued versus diseased animals to prevent the waste of otherwise healthy animals. An industry trade association, a veal processor, and a doctor of veterinary medicine questioned FSIS's assertion that prohibiting the slaughter of all non-ambulatory disabled veal calves will eliminate uncertainty in determining the disposition of these calves. These commenters stated that inspectors are capable of determining whether a calf is diseased or injured rather than tired or cold.

Response: In 2009, FSIS amended 9 CFR 309.3(e) to remove the case-by-case disposition determination of cattle that became non-ambulatory disabled after ante-mortem inspection in order to reduce the uncertainty in determining the proper disposition of these cattle and increase FSIS inspector efficiency (74 FR 11463). FSIS has used the same rationale here.

This final rule eliminates the time that FSIS inspectors spend determining whether veal calves are non-ambulatory disabled because they are tired or cold or because they have diseases, such as enteritis (80 FR 27270). This final rule also eliminates the time that FSIS inspectors spend inspecting the veal calves that were set apart.

Comment: Two animal welfare groups and an individual noted that FSIS requires non-ambulatory disabled adult cattle to be condemned and disposed of, and requested that FSIS extend the same requirement to non-ambulatory disabled veal calves. In contrast, two farm bureau organizations stated that non-ambulatory disabled veal calves should not be treated the same as adult cattle, noting that veal calves are not a risk for bovine spongiform encephalopathy (BSE), and do not pose the same food safety concerns as adult cattle.

Response: FSIS issued a final rule in 2007 that prohibited the slaughter of non-ambulatory disabled cattle because of the threat of BSE, but created an exception for non-ambulatory disabled veal calves to be set apart and re-inspected. As explained in the proposed rule, while cattle younger than 30 months do not present a serious risk of BSE, they are susceptible to other systemic and metabolic diseases,5 and injury because of inadequate immunoglobulin transfer, nutritional inadequacies of an all-liquid iron deficient diet, activity restriction, and stress (80 FR 27270). As is discussed above, the Agency has also concluded that the set-aside provision implemented in 2007 should nonetheless be removed because it may have created an incentive for establishments to inhumanely force non-ambulatory disabled veal calves to rise from a recumbent position. In addition, this final rule will increase inspection efficiency by eliminating the time that FSIS inspectors spend re-inspecting non-ambulatory disabled veal calves if they are again offered for slaughter.

Comment: Several animal welfare groups requested that FSIS clarify when livestock are “offered” for slaughter. These commenters stated that establishments could exploit a loophole by setting aside non-ambulatory disabled veal calves to rest and recover, and “offer” the calves for ante-mortem inspection at a later time. One animal welfare group stated that animals should be considered “offered” for slaughter upon delivery at the slaughter establishment, following the same interpretation as when humane regulations apply per FSIS Directive 6900.2, Ch. II(I) (rev. August 15, 2011).

Response: FSIS has already explained to inspectors when animals destined for slaughter are subject to humane handling regulations and FSIS inspections in FSIS Directive 6,900.2, Humane Handling and Slaughter of Livestock. The Directive states that once a vehicle carrying livestock enters, or is in line to enter, an official establishment's premises, the vehicle is considered to be a part of the establishment's premises, and the animals within the vehicle are to be handled in accordance with humane handling regulations. The Directive states that FSIS inspectors can conduct ante-mortem inspections at the vehicle. This Directive is in accord with the final rule that implements the HMSA (44 FR 68809; November 30, 1979), which states in the preamble that “the Department intends to enforce the Act with regard to any inhumane activity occurring on the premises of an official establishment.”

In addition, in the final rule FSIS is removing a provision in 9 CFR 309.1(b) that requires ante-mortem inspection to be made “in pens.” This amendment harmonizes the regulations with current practice, and closes the potential loophole that may have allowed establishments to set aside non-ambulatory disabled veal calves to rest and recover, and “offer” them for slaughter at a later time. It also prevents establishments and transporters from diverting non-ambulatory disabled animals to other establishments. FSIS will update FSIS Directive 6,100.1, Ante-Mortem Livestock Inspection, to reflect this change. Inspectors have the option to perform the humane handling portion of ante-mortem inspection directly on the truck, and wait to complete ante-mortem inspection once the animals are in holding pens.

FSIS inspectors may not be present in the early morning hours when animals typically arrive and are offloaded. FSIS may assign additional personnel to the establishment during off-hours to monitor the arrival of the animals if FSIS identifies the need to do so.

Comment: Two animal welfare organizations and a food safety organization stated that the definition given for “promptly” in the preamble to the proposed rule is too vague and gives too much discretion to establishments. One animal welfare organization asked FSIS to explain the “facts and circumstances” to be taken into account by inspectors and establishment employees when an animal is found to be non-ambulatory disabled.

Response: The Agency disagrees that it gave too much discretion to establishments. As FSIS explained in the proposed rule, all condemned non-ambulatory disabled cattle must be euthanized within a reasonable time in view of all of the facts and circumstances (80 FR 27271). The facts and circumstances that FSIS inspectors will take into account when assessing compliance with the “promptly” requirement include whether the animal is suffering (e.g., injured, dehydrated, or vulnerable to being stepped on by ambulatory cattle), and extenuating circumstances such as weather conditions and emergencies.

Comment: One food safety organization requested that FSIS consider prohibiting the slaughter of other farm animals that can be susceptible to “downer” illnesses, including swine, sheep, and goats.

Response: The proposed rule and request for comments addressed the disposition of non-ambulatory disabled veal calves only. In 2013, FSIS denied a petition submitted on behalf of Farm Sanctuary that requested the Agency to amend its ante-mortem inspection regulations to require non-ambulatory disabled pigs, sheep, goats, and other amenable livestock species to be condemned. In 2014, FSIS received another petition on behalf of Farm Sanctuary and various other animal advocacy organizations that requested the Agency to amend its ante-mortem inspection regulations to prohibit the slaughter of non-ambulatory disabled pigs. FSIS will conduct a full independent review and analysis of this petition to determine the validity of the requested rulemaking.

Comment: Several industry members stated that the annual economic impact of the proposed regulatory changes will be significantly higher on the veal industry than portrayed in the proposed rule. These commenters stated that the veal industry had much higher production costs in 2015 than in previous years.

An industry trade association and veal processor also questioned FSIS's use of deleted records in the Agency's Public Health Information System (PHIS) to determine the number of non-ambulatory disabled veal calves that are currently re-inspected and released for slaughter. These commenters stated that the use of deleted records in PHIS is not a close approximation of the actual number of non-ambulatory disabled veal calves released for slaughter in veal establishments.

Response: FSIS updated its cost estimate to reflect 2015 prices. The estimated market value of bob veal increased to $20.00-$560.00 per head in 2015, while the market value of formula and non-formula fed veal increased to $1,000.00-$1,300.00 per head in 2015.6

FSIS also changed its methodology for determining the number of non-ambulatory disabled veal calves that were inspected after the recovery time and then sent for slaughter. FSIS collected additional data via the FSIS Office of Field Operations for the establishments that slaughter veal calves, and estimated the number of non-ambulatory disabled veal calves based on this data. As a result, FSIS adjusted its estimated number of non-ambulatory disabled veal calves for all three veal categories.

On the basis of these updated numbers, FSIS adjusted its estimated annual cost for the final rule. The new estimated annual cost to the U.S. veal industry ranges between $0.374 million and $1.206 million compared to $0.002 million and $0.161 million in the proposed rule.

Comment: Several farm bureaus asked if the proposed rule will improve the efficiency of the inspection process. These commenters stated that calves are often rested in the same unloading area where the inspectors work, and inspection of recovered calves only amounts to a minor inconvenience and takes up little of the inspectors' time.

Response: FSIS has conducted an analysis of PHIS data, and has determined that it takes an inspector approximately 15 minutes to inspect a calf after recovery. Because FSIS will no longer have to inspect non-ambulatory disabled veal calves to determine their disposition, the Agency will save between 180 hours (minimum) and 297 hours (maximum) in total. This time will allow inspectors the ability to engage in other inspection activities.

Executive Orders 12866 and 13563 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. This final rule has been designated a “non-significant” regulatory action under section 3(f) of Executive Order (E.O.) 12866. Accordingly, the rule has not been reviewed by the Office of Management and Budget under E.O. 12866.

FSIS has updated the baseline for the final regulatory impact analysis (FRIA) to reflect the most recent available data. Table 1 compares the total veal calves slaughtered in calendar year (CY) 2015 (FRIA), CY2014, and CY2013 (preliminary regulatory impact analysis (PRIA)).

In CY2015, federally-inspected veal calf establishments slaughtered a total of 434,051 veal calves (Table 2). Market value estimates for slaughtered veal calves based on CY2015 data reported by the U.S. Department of Agriculture, Agricultural Marketing Service (AMS), were between $264.0 million and $435.9 million.7 FSIS used the minimum and maximum veal calf prices reported by USDA/AMS. These prices were $20.00-$560.00 for bob veal and $1,000.00-$1,300.00 for formula fed and non-formula fed veal calves.

The U.S. veal industry is made up of establishments in the small and very small Hazard Analysis and Critical Control Point (HACCP)-size categories.8 In CY 2015, there were 118 federally inspected and nine state inspected establishments that slaughtered veal calves. Of the 118 federally inspected establishments, 90 (76%) were very small, and 28 (24%) were small HACCP size establishments.

The expected costs of the final rule for the veal establishments are a result of the lost market value of the non-ambulatory disabled veal calves that the affected establishments will no longer be able to slaughter for human food. The addition of the word “promptly” to 9 CFR 309.3(e) does not have any expected costs, nor does the removal of the requirement that ante-mortem inspection be conducted “in pens” (9 CFR 309.1(b)).

FSIS collected additional data via the FSIS Office of Field Operations for the establishments that slaughter veal calves. As a result, FSIS adjusted its estimated annual cost for the FRIA based on new calculated non-ambulatory disabled veal ratios and the 2015 prices.

In CY 2015, there were eight establishments that accounted for 99.96% of the formula fed veal calves slaughtered in the U.S. Taking into account that extreme weather conditions and transit fatigue during the winter and summer months can affect the number of non-ambulatory disabled veal calves, FSIS recalculated its cost estimates, using the 2015 prices.

Based on the new data, FSIS adjusted the maximum number of formula fed veal calves that might be condemned due to this rule upward to 713 (253,837 * 0.00281), with an estimated maximum cost of $0.927 million. The minimum number of formula fed veal calves that might be condemned due to this rule is 358 (253,837 * 0.00141), with an estimated minimum cost of $0.358 million.

FSIS also adjusted the maximum number of bob veal and non-formula fed veal calves. For the bob veal, five establishments accounted for 83% of the total bob veal calves slaughtered in the United States. The maximum number of bob veal calves affected by the final rule was adjusted to 455 (173,556 * 0.00262), with an estimated maximum cost of $0.255 million. The minimum number of bob veal calves that might be condemned due to this rule is 352 (173,556 * 0.00203), with an estimated minimum cost of $0.358 million.

For non-formula fed veal calves, FSIS assumed the same non-ambulatory disabled rates as for the formula fed veal calves. The maximum number of non-formula fed veal calves affected by the final rule was adjusted to 19 (6,658 * 0.00281), with an estimated maximum cost of $0.025 million. The minimum number of non-formula fed veal calves that might be condemned due to this rule is 9 (6,658 * 0.00141), with an estimated minimum cost of $0.009 million.

As illustrated in table 2, the expected first year total costs to the U.S. veal industry due to the final rule ranges between $0.374 million and $1.026 million. The estimated costs have a minimal impact on the veal industry. The value lost to the U.S. veal industry ranges between 0.14% and 0.28% of the total veal value in a year.

FSIS predicts that this rule would provide Agency personnel with savings in terms of inspection time. According to PHIS data, it takes an inspector approximately 15 minutes to re-inspect a calf. Because FSIS will not have to re-inspect the veal calves that are non-ambulatory disabled, the Agency will save anywhere from 180 hours (minimum) to 297 hours (maximum) in total (table 4). The saved inspection time will allow the inspector the ability to engage in other inspection activities.

The final rule will ensure the humane disposition of the non-ambulatory disabled veal calves. The rule will also increase the efficiency and effective implementation of inspection and humane handling requirements at official establishments. In addition, the rule will incentivize growers and transporters of cattle to improve animal welfare, both before and during transport.

A recent study conducted by researchers from the University of Manitoba Department of Animal Science's Agriculture and Agri-Food Canada, Lethbridge Research Centre, shows that there is a correlation between transport and transport conditions such as temperature, length of the trip, and space allowance (density of animals to size), and cattle arriving at the establishment dead, lame, or non-ambulatory disabled. The study notes that, out of all classes of cattle, calves and cull cattle are “more likely to be dead and non-ambulatory during the journey.” The authors indicate that animal condition upon loading plays an important risk factor in the outcome of the journey. The study concludes that cattle arriving at an establishment dead, lame, or non-ambulatory disabled is an indication of extremely poor welfare conditions.9 The final rule will therefore reduce the number of calves that arrive at establishments non-ambulatory disabled by incentivizing growers and transporters to improve animal welfare conditions and send healthier and stronger animals to slaughter establishments.

The FSIS Administrator certifies that, for the purpose of the Regulatory Flexibility Act (5 U.S.C. 601-602), the final rule will not have a significant economic impact on a substantial number of small entities in the United States. The Agency estimates that this rule would possibly affect 127 (118 federally inspected) small and very small HACCP size veal slaughter establishments. Although many small and very small establishments are affected by this rule, the volume of veal that will not be eligible for slaughter is very low. Further, the estimated total annual cost per establishment is between $2,945 (total minimum cost/number of establishments = $374,000/127) and $8,087 (total maximum cost/number of establishments = $1,027,000/127).

There are no paperwork or recordkeeping requirements associated with this final rule under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

FSIS and USDA are committed to achieving the purposes of the E-Government Act (44 U.S.C. 3601, et seq.) by, among other things, promoting the use of the Internet and other information technologies and providing increased opportunities for citizen access to Government information and services, and for other purposes.

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under this rule: (1) All State and local laws and regulations that are inconsistent with this rule will be preempted; (2) no retroactive effect will be given to this rule; and (3) no administrative proceedings will be required before parties may file suit in court challenging this rule.

This rule has been reviewed in accordance with the requirements of Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” E.O. 13175 requires Federal agencies to consult and coordinate with tribes on a government-to-government basis on policies that have tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

FSIS has assessed the impact of this rule on Indian tribes and determined that this rule does not, to our knowledge, have tribal implications that require tribal consultation under E.O. 13175. If a Tribe requests consultation, the Food Safety and Inspection Service will work with the Office of Tribal Relations to ensure meaningful consultation is provided where changes, additions and modifications identified herein are not expressly mandated by Congress.

No agency, officer, or employee of the USDA shall, on the grounds of race, color, national origin, religion, sex, gender identity, sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, or political beliefs, exclude from participation in, deny the benefits of, or subject to discrimination any person in the United States under any program or activity conducted by the USDA.

To file a complaint of discrimination, complete the USDA Program Discrimination Complaint Form, which may be accessed online at http://www.ocio.usda.gov/sites/default/files/docs/2012/Complain_combined_6_8_12.pdf, or write a letter signed by you or your authorized representative.

Send your completed complaint form or letter to USDA by mail, fax, or email:

Mail: U.S. Department of Agriculture, Director, Office of Adjudication, 1400 Independence Avenue SW., Washington, DC 20250-9410, Fax: (202) 690-7442, Email: [email protected].

Persons with disabilities who require alternative means for communication (Braille, large print, audiotape, etc.), should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

Public awareness of all segments of rulemaking and policy development is important. Consequently, FSIS will announce this Federal Register publication on-line through the FSIS Web page located at: http://www.fsis.usda.gov/federal-register.

FSIS also will make copies of this publication available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, regulations, Federal Register notices, FSIS public meetings, and other types of information that could affect or would be of interest to our constituents and stakeholders. The Update is available on the FSIS Web page. Through the Web page, FSIS is able to provide information to a much broader, more diverse audience. In addition, FSIS offers an email subscription service which provides automatic and customized access to selected food safety news and information. This service is available at: http://www.fsis.usda.gov/subscribe. Options range from recalls to export information, regulations, directives, and notices. Customers can add or delete subscriptions themselves, and have the option to password protect their accounts.

For the reasons set forth in the preamble, FSIS amends 9 CFR part 309 as follows:

I. Background

In a document published in the Federal Register of August 16, 2013 (78 FR 49990), FDA announced that Dean Foods Company (Dean Foods) and WhiteWave Foods Company (WhiteWave), c/o Hogan Lovells US LLP, Columbia Square, 555 13th Street NW., Washington, DC 20004, had jointly filed a food additive petition (FAP 3A4801). The petition proposed to amend 21 CFR 172.379 to provide for the safe use of vitamin D2 as a nutrient supplement in edible plant-based food products intended for use as alternatives to milk and milk products and to amend 21 CFR 172.380 to provide for the safe use of vitamin D3 as a nutrient supplement in milk at levels higher than those currently permitted. After the notice of filing published, the petitioners amended the petition to limit the proposed use of vitamin D2 to only edible plant-based beverages intended as alternatives to milk (e.g., soy-, rice-, almond-, coconut-based beverages) and edible plant-based yogurt alternatives. This final rule is a complete response to the petition.

Dean Foods/WhiteWave have requested that we amend § 172.379 to authorize the use of vitamin D2 as a nutrient supplement at levels not to exceed 84 International Units (IU) per 100 grams (g) in edible plant-based beverages intended for use as milk alternatives and not to exceed 89 IU per 100 g in edible plant-based yogurt alternatives. Dean Foods/WhiteWave requested that the proposed use of 84 IU vitamin D2 per 100 g in edible plant-based beverages replace the current allowable maximum use of 50 IU per 100 g in soy beverages authorized under § 172.379(c). Specifically, Dean Foods/WhiteWave requested that we amend § 172.379(c) to eliminate the “soy beverages” category, and instead create a new category of food that may be supplemented with vitamin D2. This category, “edible plant-based beverages intended for use as milk alternatives”, would include soy beverages intended as milk alternatives, and would have a maximum allowable use of 84 IU vitamin D2 per 100 g. This category would also include other edible plant-based beverages made from rice, almond, and coconut, among other foods, that are intended as milk alternatives. Dean Foods/WhiteWave also requested that we amend § 172.380 to allow for the addition of vitamin D3 as a nutrient supplement in milk at levels not to exceed 84 IU per 100 g milk. For milk with more than the amount of vitamin D provided for in the milk standard of identity in 21 CFR 131.110(b)(2), the milk would be required to be named by use of a nutrient content claim and a standardized term in accordance with 21 CFR 130.10.

Vitamin D comprises a group of fat-soluble seco-sterols and comes in many forms. The two major physiologically relevant forms are vitamin D2 and vitamin D3. Vitamin D without a subscript represents either vitamin D2 or vitamin D3 or both. Vitamin D is affirmed as generally recognized as safe (GRAS) for use in food as a nutrient supplement in accordance with 21 CFR 184.1950(c)(1) and 21 CFR 184.1(b)(2), with the following specific limitations:

Additionally, under § 184.1950(c)(2) and (3), vitamin D is affirmed as GRAS for use in infant formulas and margarine, respectively. Under § 172.380, vitamin D3 is approved for use as a food additive as a nutrient supplement in calcium-fortified fruit juices and fruit juice drinks, meal replacement and other type bars, soy protein-based meal replacement beverages represented for special dietary use in reducing or maintaining body weight, certain cheese and cheese products, meal replacement beverages that are not intended for special dietary use in reducing or maintaining body weight, and foods represented for use as a sole source of nutrition for enteral feeding.

Under § 172.379, vitamin D2 is approved for use as a food additive as a nutrient supplement in soy beverages, soy beverage products, soy-based butter substitute spreads, and soy-based cheese substitutes, and soy-based cheese substitute products.

Under § 172.381, vitamin D2 bakers yeast is approved for use as a food additive as a source of vitamin D2 and as a leavening agent in yeast-leavened baked goods and baking mixes and yeast-leavened baked snack foods.

Vitamin D is essential for human health. The major function of vitamin D is the maintenance of blood serum concentrations of calcium and phosphorus by enhancing the absorption of these minerals in the small intestine. Vitamin D deficiency can lead to abnormalities in calcium and bone metabolism, such as rickets in children or osteomalacia in adults. Excessive intake of vitamin D elevates blood plasma calcium levels (hypercalcemia) by increased intestinal absorption and/or mobilization from the bone.

To ensure that vitamin D is not added to the U.S. food supply at levels that could raise safety concerns, FDA affirmed vitamin D as GRAS with specific limitations as listed in § 184.1950. Under § 184.1(b)(2), an ingredient affirmed as GRAS with specific limitations may be used in food only within such limitations, including the category of food, functional use of the ingredient, and level of use. Any addition of vitamin D to food beyond those limitations set out in § 184.1950 requires either a food additive regulation or an amendment of § 184.1950.

To support their petition, Dean Foods/WhiteWave submitted dietary exposure estimates of vitamin D from the proposed uses of vitamin D2 and vitamin D3, as well as all dietary sources from naturally occurring sources of vitamin D and uses in accordance with our approved food additive regulations (§§ 172.379, 172.380, and 172.381) and our GRAS affirmation regulation (§ 184.1950). They also included dietary supplements in their estimates and compared these intake estimates to the Tolerable Upper Intake Level (UL) for vitamin D established by the Institute of Medicine (IOM) of the National Academies. Dean Foods/WhiteWave also submitted a number of publications pertaining to human clinical studies on vitamin D. Based on this information, Dean Foods/WhiteWave concluded that the proposed uses of vitamin D2 in edible plant-based beverages intended as alternatives to milk, edible plant-based yogurt alternatives, and vitamin D3 in milk are safe.

To establish with reasonable certainty that a food additive is not harmful under its intended conditions of use, we consider the projected human dietary exposure to the additive, the additive's toxicological data, and other relevant information (such as published literature) available to us. We compare the estimated daily intake (EDI) of the additive from all food sources to an acceptable daily intake level established by toxicological data. The EDI is determined by projections based on the amount of the additive proposed for use in particular foods and on data regarding the amount consumed from all food sources of the additive. We commonly use the EDI for the 90th percentile consumer of a food additive as a measure of high chronic dietary intake.

In 2011, the Standing Committee on the Scientific Evaluation of Dietary Reference Intakes of the Food and Nutrition Board at the IOM conducted an extensive review of relevant published scientific literature on vitamin D to update current dietary reference intakes and ULs for vitamin D. Based on this information, the IOM revised the ULs for vitamin D and developed a report on their findings (Ref. 1). In their 2011 assessment of vitamin D, the IOM established a UL of 1,000 IU per day (IU/p/d) for infants 0 months to 6 months of age and a UL of 1,500 IU/p/d for infants 6 months to 12 months of age. For children 1 year to 3 years of age, the IOM established a UL of 2,500 IU/p/d; for children 4 years to 8 years of age, the IOM established a UL of 3,000 IU/p/d. For children 9 years to 18 years of age and adults, the IOM established a UL of 4,000 IU/p/d.

The IOM considers the UL as the highest average daily intake level of a nutrient that poses no risk of adverse effects when the nutrient is consumed over long periods of time. The UL is determined using a risk assessment model developed specifically for nutrients. The dose-response assessment, which concludes with an estimate of the UL, is built upon three toxicological concepts commonly used in assessing the risk of exposures to chemical substances: No-observed-adverse-effect level, lowest-observed-effect level, and application of an uncertainty factor. We considered the ULs established by the IOM relative to the intake estimates as the primary basis for assessing the safety of the petitioned uses of vitamin D2 and vitamin D3. We also reviewed scientific articles on the safety of vitamin D submitted in the petition, as well as other relevant published studies available to FDA.

For the proposed uses of vitamin D2 and vitamin D3, Dean Foods/WhiteWave provided dietary intake estimates of vitamin D for 11 population groups, assuming maximum levels of vitamin D in all foods that could be fortified (except for one scenario where typical fortification levels in infant formula were used), as well as in the petitioned foods. They also included exposure from dietary supplements as reported in the 2003-2008 National Health and Nutrition Survey (NHANES) 30-day dietary supplement use data (http://wwwn.cdc.gov/nchs/nhanes/search/datapage.aspx?Component=dietary) and from naturally occurring food sources.

The exposure estimates performed by Dean Foods/WhiteWave are appropriate. However, there are some exposure parameters that have changed since the estimates were completed in 2013. In particular, Dean Foods/WhiteWave provided estimates that included vitamin D exposure from fortification of edible plant-based dairy analogs other than edible plant-based yogurt alternatives, which they are no longer seeking to fortify. Dean Food/WhiteWave also included fortification of meal replacement bars at a level of 500 IU/40 g in anticipation of the approval of FAP 2A4788 (Abbott Laboratories); however, this use was subsequently withdrawn from the petition before the final rule issued (see 79 FR 46993, August 12, 2014). In addition, more recent 24-hour recall dietary supplement data from the 2009-2012 NHANES (http://wwwn.cdc.gov/nchs/nhanes/search/datapage.aspx?Component=dietary) have become available that may better represent current vitamin D exposure from dietary supplements than the 30-day dietary supplement use data from the 2003-2008 NHANES used by Dean Foods/WhiteWave. Moreover, a recent published study suggests that it may be appropriate to include dietary sources of the vitamin D metabolite, 25-hydroxyvitamin D (25(OH)D), in vitamin D exposure estimates to take into account discrepancies seen between dietary intake and blood serum levels of vitamin D (Ref. 2). The foods that were identified in the study as sources of 25(OH)D were beef, pork, chicken, turkey, and eggs. The study also indicated that 25(OH)D may have a potency five times that of vitamin D. For these reasons, we have used the 2009-2012 NHANES data to estimate dietary exposure to vitamin D from: (1) The petitioned uses in milk, edible plant-based beverages intended as milk alternatives, and edible plant-based yogurt alternatives; and (2) cumulative exposure from all current sources of vitamin D (i.e., naturally occurring sources, approved fortified sources, and dietary supplements), the petitioned uses of vitamin D in milk, edible plant-based beverages intended as milk alternatives, and edible plant-based yogurt, and exposure from sources of 25(OH)D, which have been adjusted to account for the difference in potency between 25(OH)D and vitamin D.

For the overall U.S. population 1 year of age and older, the cumulative exposure at the 90th percentile from all food sources of vitamin D, including the proposed uses, dietary supplements, and 25(OH)D, was estimated to be 2,000 IU/p/d. The cumulative exposure for infants 0 to 6 months of age and infants 6 to 12 months of age from all food sources of vitamin D, including the proposed uses, dietary supplements, and 25(OH)D, was estimated to be 948 IU/p/d and 988 IU/p/d, respectively, for the 90th percentile consumer (Ref. 3).

We reviewed and evaluated the information submitted by Dean Foods/WhiteWave regarding the safety of the dietary intake of vitamin D from the proposed uses in milk, edible plant-based beverages intended as milk alternatives, and edible plant-based yogurt alternatives. Dean Food/WhiteWave submitted reports of scientific studies published subsequent to the 1997 IOM report and issuance of the final rule (79 FR 46993) authorizing the use of vitamin D3 in meal replacement beverages that are not intended for special dietary use in reducing or maintaining body weight and in foods represented for use as a sole source of nutrition for enteral feeding. Dean Food/WhiteWave concluded that these publications support a conclusion that the proposed use of vitamin D is safe.

We reviewed the published reports of scientific studies on vitamin D submitted by Dean Food/WhiteWave, as well as other relevant published studies available to us since our previous evaluations of six food additive petitions for fortifying a variety of foods with vitamin D (77 FR 52228, August 29, 2012; 74 FR 11019, March 16, 2009; 70 FR 69435, November 16, 2005; 70 FR 37255, June 29, 2005; 70 FR 36021, June 22, 2005; 68 FR 9000, February 27, 2003). These studies did not raise any new safety concerns regarding the current or proposed uses of vitamin D. The most recent food additive petition resulted in our amendment of the food additive regulations in § 172.380 to allow for the safe use of vitamin D3 in meal replacement beverages that are not intended for special dietary use in reducing or maintaining body weight and in foods represented for use as a sole source of nutrition for enteral feeding (79 FR 46993). The six earlier food additive petitions also resulted in amendments of the food additive regulations to allow for the safe use of vitamin D as a nutrient supplement in certain foods.

We considered the ULs established by the IOM relative to the intake estimates as the primary basis for assessing the safety of the petitioned uses of vitamin D. Depending on the age group, the IOM UL for vitamin D for the U.S. population 1 year of age and older ranges from 2,500 IU/p/d to 4,000 IU/p/d. The estimated dietary exposure to vitamin D from all food sources, including the proposed uses, at the 90th percentile for the U.S. population (1 years of age and older) is estimated to be 2,000 IU/p/d, which is below the lowest IOM UL of 2,500 IU/p/d in the range of ULs for the overall U.S. population (1 year of age and older). Estimated exposure to vitamin D from all food sources, including the proposed uses, for infants 0 months to 6 months of age at the 90th percentile is 948 IU/p/d; for infants 6 months to 12 months of age, estimated exposure to vitamin D is 988 IU/p/d. Both of these estimates are below the IOM UL of 1,000 IU/p/d for infants 0 months to 6 months of age and 1,500 IU/p/d for infants 6 months to 12 months of age. Because the 90th percentile EDI of vitamin D from all current and proposed food sources for each population group is less than the corresponding IOM UL for that population group, we conclude that dietary intake of vitamin D2 from the proposed use as a nutrient supplement in edible plant-based beverages intended as milk alternatives and edible plant-based yogurt alternatives and the proposed increased maximum permitted level of vitamin D3 in milk are safe (Ref. 4).

FDA is incorporating by reference two monographs from the Food Chemicals Codex 9th Edition (FCC 9), which was approved by the Office of the Federal Register. You may purchase a copy of the material from the United States Pharmacopeial Convention, 12601 Twinbrook Pkwy., Rockville, MD 20852, 1-800-227-8772, http://www.usp.org/.

The current regulation for the use of vitamin D3 in food (§ 172.380) indicates that the additive must meet the specifications in the FCC 8. The more current FCC is the 9th Edition. The current regulation for vitamin D2 (§ 172.379) indicates the additive must meet the specifications in the 7th edition of the FCC (FCC 7). Because the specifications for vitamin D2 and vitamin D3 in FCC 9 are identical to those in FCC 7 and FCC 8, respectively, Dean Foods/WhiteWave requested that the respective regulations be updated to reference the specifications in FCC 9. Therefore, we are amending §§ 172.379 and 172.380 by adopting the specifications for vitamin D2 and vitamin D3 in FCC 9 in place of FCC 7 and FCC 8, respectively.

Based on all data relevant to vitamin D that we reviewed, we conclude that the petitioned uses of vitamin D in milk and edible plant-based beverages intended as milk alternatives and edible plant-based yogurt alternatives within the limits proposed by Dean Food/WhiteWave are safe. Consequently, we are amending the food additive regulations as set forth in this document.

In accordance with § 171.1(h) (21 CFR 171.1(h)), the petition and the documents that we considered and relied upon in reaching our decision to approve the petition will be made available for public disclosure (see FOR FURTHER INFORMATION CONTACT). As provided in § 171.1(h), we will delete from the documents any materials that are not available for public disclosure.

We previously considered the environmental effects of this rule, as stated in the August 16, 2013, Federal Register document of petition for FAP 3A4801. We stated that we had determined, under 21 CFR 25.32(k), that this action “is of a type that does not individually or cumulatively have a significant effect on the human environment” such that neither an environmental assessment nor an environmental impact statement is required. We have not received any new information or comments that would affect our previous determination.

This final rule contains no collection of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.

If you will be adversely affected by one or more provisions of this regulation, you may file with the Division of Dockets Management (see ADDRESSES) either electronic or written objections. You must separately number each objection, and within each numbered objection you must specify with particularity the provision(s) to which you object, and the grounds for your objection. Within each numbered objection, you must specifically state whether you are requesting a hearing on the particular provision that you specify in that numbered objection. If you do not request a hearing for any particular objection, you waive the right to a hearing on that objection. If you request a hearing, your objection must include a detailed description and analysis of the specific factual information you intend to present in support of the objection in the event that a hearing is held. If you do not include such a description and analysis for any particular objection, you waive the right to a hearing on the objection.

Any objections received in response to the regulation may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday, and will be posted to the docket at http://www.regulations.gov.

Our review of this petition was limited to section 409 of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 348). This final rule is not a statement regarding compliance with other sections of the FD&C Act. For example, section 301(ll) of the FD&C Act (21 U.S.C. 331(ll)) prohibits the introduction or delivery for introduction into interstate commerce of any food that contains a drug approved under section 505 of the FD&C Act (21 U.S.C. 355), a biological product licensed under section 351 of the Public Health Service Act (42 U.S.C. 262), or a drug or biological product for which substantial clinical investigations have been instituted and their existence has been made public, unless one of the exemptions in section 301(ll)(1) to (4) of the FD&C Act applies. In our review of this petition, FDA did not consider whether section 301(ll) of the FD&C Act or any of its exemptions apply to food containing this additive. Accordingly, this final rule should not be construed to be a statement that a food containing this additive, if introduced or delivered for introduction into interstate commerce, would not violate section 301(ll) of the FD&C Act. Furthermore, this language is included in all food additive final rules and therefore should not be construed to be a statement of the likelihood that section 301(ll) of the FD&C Act applies.

References marked with an asterisk (*) are on display at the Division of Dockets Management (see ADDRESSES), under Docket No. FDA-2013-N-0888, and are available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; they are also available electronically at http://www.regulations.gov. References without asterisks are not on display; they are available as published articles and books.

Food additives, Incorporation by reference, Reporting and recordkeeping requirements.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs and redelegated to the Director, Center for Food Safety and Applied Nutrition, 21 CFR part 172 is amended as follows:

Paperwork Reduction Act

The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-1347. The collection of information in these final regulations is in § 1.148-4(h)(2)(viii), which contains a requirement that the issuer maintain in its records a certificate from the hedge provider. For a hedge to be a qualified hedge, existing regulations require, among other items, that the actual issuer identify the hedge on its books and records. The identification must specify the hedge provider, the terms of the contract, and the hedged bonds. These final regulations require that the identification also include a certificate from the hedge provider specifying certain information regarding the hedge.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number.

Books and records relating to a collection of information must be retained as long as their contents might become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

This document contains amendments to the Income Tax Regulations (26 CFR part 1) on the arbitrage investment restrictions under section 148 of the Code and related provisions. On June 18, 1993, the Department of the Treasury (the Treasury Department) and the IRS published comprehensive final regulations in the Federal Register (TD 8476, 58 FR 33510) on the arbitrage investment restrictions and related provisions for tax-exempt bonds under sections 103, 148, 149, and 150, and, since that time, those final regulations have been amended in certain limited respects (the regulations issued in 1993 and the amendments thereto collectively are referred to as the Existing Regulations).

A notice of proposed rulemaking was published in the Federal Register (72 FR 54606; REG-106143-07) on September 26, 2007 (the 2007 Proposed Regulations). The 2007 Proposed Regulations proposed amendments to the Existing Regulations. Comments on the 2007 Proposed Regulations were received and a public hearing was held on January 30, 2008.

Another notice of proposed rulemaking was published in the Federal Register (78 FR 56842; REG-148659-07) on September 16, 2013 (the 2013 Proposed Regulations). The 2013 Proposed Regulations proposed additional amendments to the Existing Regulations (the 2007 Proposed Regulations and the 2013 Proposed Regulations collectively are referred to as the Proposed Regulations). Comments on the 2013 Proposed Regulations were received and a public hearing was held on February 5, 2014. The 2013 Proposed Regulations addressed the definition of issue price, among other topics.

A partial withdrawal of notice of proposed rulemaking and notice of proposed rulemaking was published in the Federal Register (80 FR 36301; REG-138526-14) on June 24, 2015, re-proposing amendments to the definition of issue price. After consideration of all the comments, the remaining portions of the Proposed Regulations are adopted as amended by this Treasury decision (the Final Regulations).

This section discusses significant aspects of the comments received from the public regarding the Proposed Regulations. It also explains the revisions made in the Final Regulations.

The Existing Regulations impose various restrictions on the use of tax-exempt bond financing for working capital expenditures. One way the Existing Regulations limit working capital financings is through the concept of replacement proceeds, a special category of funds included within the broad definition of gross proceeds to which the arbitrage investment restrictions under section 148 apply. Under the Existing Regulations, replacement proceeds arise if an issuer reasonably expects as of the issue date that: (1) The term of an issue will be longer than reasonably necessary for the governmental purposes of the issue; and (2) there will be available amounts (as defined in the Existing Regulations) for expenditures of the type being financed during the period the issue remains outstanding longer than necessary. The Existing Regulations provide certain safe harbors that prevent the creation of replacement proceeds.

The 2013 Proposed Regulations proposed to shorten the bond maturity necessary to satisfy the safe harbor for most short-term working capital financings from two years to 13 months to conform with the permitted temporary investment period for working capital expenditures under § 1.148-2(e)(3) and the administrative standard in Rev. Proc. 2002-31, 2002-1 CB 916. One commenter suggested extending this safe harbor to all working capital expenditure financings, rather than just those for restricted working capital expenditures (as defined in the Existing Regulations). This change, which would be implemented by deleting the word “restricted” from the safe harbor, would conform the safe harbor to the proposed extension of the temporary investment period for working capital expenditure financings in the 2013 Proposed Regulations (see section 2 of this preamble). The change also would benefit issuers by expanding the eligible purposes for short-term working capital financings to include extraordinary working capital expenditures. The Final Regulations adopt this comment.

The 2013 Proposed Regulations proposed to add a new safe harbor that would prevent the creation of replacement proceeds for longer-term working capital financings to enhance certainty for issuers experiencing financial distress. This new safe harbor would require an issuer to: (1) Determine the first year in which it expects to have available amounts for working capital expenditures; (2) monitor for actual available amounts in each year beginning with the year it first expects to have such amounts; and (3) apply such available amounts in each year either to redeem or to invest in (or some combination of redeeming and investing in) certain tax-exempt bonds (eligible tax-exempt bonds). The safe harbor would require any amounts invested in eligible tax-exempt bonds to be invested (or reinvested) continuously, so long as the bonds using the safe harbor remain outstanding. In a narrow exception to this requirement, the safe harbor would permit such amounts not to be invested during a period of no more than 30 days per fiscal year in which such amounts are pending reinvestment. These requirements aimed to minimize the burden on the tax-exempt bond market.

The 2013 Proposed Regulations proposed to require an issuer to test for available amounts on the first day of its fiscal year and to apply such amounts to redeem or invest in eligible tax-exempt bonds within 90 days. Commenters sought greater flexibility with respect to the timing of testing the yearly available amounts and the use of such available amounts, based on considerations associated with potential unrepresentative cash positions on particular dates and potential expected short-term cash needs to finance governmental purposes.

To promote administrability and consistency, the Final Regulations retain the first day of the fiscal year as the required annual testing date for available amounts. The Treasury Department and the IRS have concluded that commenters' suggested solutions were complex in application and could produce a result that is unrepresentative of available amounts throughout the rest of the year. By requiring testing on the first day of the fiscal year, the Final Regulations provide an administrable testing date that mirrors the general rule for other replacement proceeds, under which an issuer also must determine its available amounts on the first day of every fiscal year during the period when its bonds are outstanding longer than reasonably necessary. To address commenters' concerns about the need for greater flexibility to address short-term cash flow deficits, the Final Regulations include several other revisions to this safe harbor for longer-term working capital financings. The Final Regulations reduce the total amount the issuer must apply to redeem or invest in eligible tax-exempt bonds to take into account the expenditure of available amounts during the first 90 days of the fiscal year and amounts held in bona fide debt service funds to the extent that those amounts are included in available amounts. Further, the Final Regulations allow an issuer to sell eligible tax-exempt bonds acquired pursuant to the safe harbor, provided that the proceeds of that sale are used within 30 days for a governmental purpose (working capital or otherwise) and the issuer has no other available amounts that it could use for that purpose. Alternatively, an issuer may sell such investments and use those amounts to redeem eligible tax-exempt bonds. Together, these amendments to the Proposed Regulations aim to address issuers' concerns about cash flows in a manner consistent with the existing restrictions on financing working capital expenditures with bonds outstanding longer than reasonably necessary.

Commenters also urged a small, but significant, change to the definition of “available amount” to address situations in which an issuer has proceeds of more than one bond issue that finance working capital expenditures. The definition of available amount in the Existing Regulations specifically excludes proceeds of “the” issue, but not proceeds of other issues. The use of this existing definition for the new safe harbor would have the effect of requiring an issuer to apply proceeds of other issues to redeem or invest in eligible tax-exempt bonds to meet the safe harbor rather than using such proceeds for the intended governmental purpose. The Final Regulations adopt this comment and revise the definition of available amount to exclude proceeds of “any” issue.

Commenters also recommended that the maximum amount required to be applied under the safe harbor to redeem or invest in eligible tax-exempt bonds be reduced from that proposed under the Proposed Regulations, which would set that maximum amount at an amount equal to the outstanding principal of the bonds subject to the safe harbor. The commenters' suggestion would reduce the maximum amount in the Proposed Regulations by the amount of certain other eligible tax-exempt bonds redeemed by the issuer. The Final Regulations do not adopt this recommendation. The Final Regulations retain the measure of the maximum amount required to be applied to redeem or invest in eligible tax-exempt bonds under this safe harbor at the outstanding principal amount of the relevant bonds to ensure that issuers redeem the bonds that are the subject of the safe harbor whenever possible.

The 2013 Proposed Regulations proposed to define eligible tax-exempt bonds for purposes of the new safe harbor to mean those tax-exempt bonds that are not subject to the alternative minimum tax (non-AMT tax-exempt bonds). Commenters requested clarification that eligible tax-exempt bonds for these investments also include certain State and Local Government Series securities (SLGS or, individually, a SLGS security), specifically Demand Deposit SLGS, and certain interests in regulated investment companies that invest in tax-exempt bonds and pass through to their owners income at least 95 percent of which is tax-exempt under section 103. The commenters noted that these two types of investments are included in the existing definition of tax-exempt bonds for purposes of the arbitrage investment restrictions. Commenters noted particularly that Demand Deposit SLGS are much easier to acquire than tax-exempt bonds and also have limited arbitrage potential. The purpose of the requirement to redeem or invest available amounts in certain tax-exempt bonds is to reduce the burden on the tax-exempt bond market of longer-term tax-exempt bonds issued for working capital expenditure financings. Although Demand Deposit SLGS are taxable obligations that do not reduce the burden on the tax-exempt bond market, the Treasury Department and the IRS recognize that including these as eligible tax-exempt bonds provides issuers a simple method of investing with little possibility of earning arbitrage. An interest in a regulated investment company that invests in non-AMT tax-exempt bonds is easier to buy and sell than a bond, and purchasing such an interest reduces the burden on the tax-exempt bond market. Thus, paralleling the existing definition of “tax-exempt bonds” applicable for purposes of the arbitrage investment restrictions, the Final Regulations clarify that eligible tax-exempt bonds include both Demand Deposit SLGS and an interest in a regulated investment company if at least 95% of the income to the holder is from non-AMT tax-exempt bonds.

Commenters also recommended that the Final Regulations expressly address the treatment of refunding bonds issued to refinance working capital expenditures for purposes of the new safe harbor. The Final Regulations provide that this safe harbor applies to refunding bonds in the same way that it applies to other bonds.

The 2013 Proposed Regulations proposed to remove a restriction against financing a working capital reserve, a complex restriction that penalized those State and local governments that previously have maintained the least amount of reserves. Commenters supported this change. The Final Regulations adopt this change as proposed.

The 2013 Proposed Regulations proposed to expand the factors listed in an anti-abuse rule that may justify a bond maturity in excess of those in the safe harbors that prevent the creation of replacement proceeds to include extraordinary working capital items. The Treasury Department and the IRS received no unfavorable comments on this change. The Final Regulations adopt this change as proposed.

Commenters also raised several issues with respect to the working capital rules that the Treasury Department and the IRS have concluded are beyond the scope of this project and, therefore, did not address in the Final Regulations (see section 12 of this preamble).

The Existing Regulations provide various temporary periods for investment of proceeds of tax-exempt bonds without yield restriction. No express temporary period covers proceeds used for working capital expenditures that are not restricted working capital expenditures, such as extraordinary working capital items. The 2013 Proposed Regulations proposed to broaden the existing 13 month temporary period for restricted working capital expenditures to include all working capital expenditures. One commenter supported and none opposed this proposed change. The Final Regulations adopt this change as proposed.

The Existing Regulations allow an issuer to take a credit against payment of arbitrage rebate to help offset the cost of computing rebate. The 2007 Proposed Regulations proposed to increase the credit and proposed to add an inflation adjustment to this credit, based on changes in the Consumer Price Index. The Treasury Department and the IRS received no comments on this change. The Final Regulations adopt this change as proposed.

Generally, under the Existing Regulations, an issuer computes the amount of arbitrage rebate that it owes under a method that future values payments and receipts on investments using the yield on the bond issue. Under this method, an arbitrage payment made on one computation date is future valued to the next computation date to determine the amount of arbitrage rebate owed on that subsequent computation date. The Existing Regulations provide that an issuer may recover an overpayment of arbitrage rebate with respect to an issue of tax-exempt bonds if the issuer establishes to the satisfaction of the Commissioner that an overpayment occurred. The Existing Regulations further define an overpayment as the excess of “the amount paid” to the United States for an issue under section 148 over the sum of the rebate amount for that issue as of the most recent computation date and all amounts that are otherwise required to be paid under section 148 as of the date the recovery is requested. Thus, even if the future value of the issuer's arbitrage rebate payment on a computation date, computed under the method for determining arbitrage rebate, is greater than the issuer's rebate amount on that date, an issuer is only entitled to a refund to the extent that the amount actually paid exceeds that rebate amount. The Existing Regulations limit the amount of the refund in this manner because the Treasury Department and the IRS were concerned about whether the IRS had statutory authority to pay interest on arbitrage rebate payments. To permit a refund in an amount calculated in whole or in part based upon a future value of the amount actually paid would effectively result in an interest payment on that payment.

An example in the Existing Regulations has caused confusion because it could be interpreted to mean that an issuer can receive a refund of a rebate payment when the future value of such rebate payment exceeds the rebate amount on the next computation date, even though the actual amount of the previous rebate payment does not exceed the rebate amount on that next computation date. The Proposed Regulations proposed to make a technical amendment to this example to conform this example to the intended scope of recovery of an overpayment of arbitrage rebate.

Commenters recommended broadening the scope of recovery of overpayments of arbitrage rebate to permit future valuing of the amount actually paid in computing the amount of the overpayment. Because the Treasury Department and the IRS have concluded that they lack the statutory authority to pay interest on overpayments of arbitrage rebate, the Final Regulations adopt this change as proposed.

The 2007 Proposed Regulations proposed to eliminate a provision in the Existing Regulations that permits computation of a single joint bond yield for two or more issues of qualified mortgage bonds or qualified student loan bonds. The 2007 Proposed Regulations solicited public comments on the feasibility of establishing generally applicable, objective standards for joint bond yield computations. Two commenters representing student loan lenders sought to retain this provision and described certain facts on which they believed that the joint computation of yield on student loan bonds might be based. However, in 2010, Congress terminated the Federal Family Education Loan Program (FFELP), effectively eliminating the program for which most student loan bonds were issued yet not affecting State supplemental student loan bond programs. Health Care and Education Reconciliation Act of 2010, Public Law 111-152, section 2201, 124 Stat 1029, 1074 (2010). Given the elimination of the FFELP and the highly factual nature of the requests for joint bond yield computations, the Final Regulations adopt the proposed elimination of the joint bond yield authority provision. In addition, however, in recognition of the administrative challenges for loan yield calculations in these portfolio loan programs, the Final Regulations extend the availability of yield reduction payments to include qualified student loans and qualified mortgage loans generally (see section 5.A. of this preamble).

The 2007 Proposed Regulations proposed to simplify the yield calculations for certain callable bonds issued with significant amounts of bond premium (sometimes called yield-to-call bonds) to focus on the redemption date that results in the lowest yield on the particular premium bond (rather than the more complex existing focus on the lowest yield on the issue). The Treasury Department and the IRS did not receive any adverse comments regarding this proposed change, received one question that raised issues beyond the scope of this project (see section 12 of this preamble), and received a favorable comment regarding this proposed change. The Final Regulations adopt this change as proposed.

The Existing Regulations permit issuers to compute the yield on an issue by taking into account payments under “qualified hedges.” Generally, under the Existing Regulations, to be a qualified hedge, the hedge must be interest based, the terms of the hedge must correspond closely with the terms of the hedged bonds, the issuer must duly identify the hedge, and the hedge must contain no significant investment element. The Existing Regulations provide two ways in which a qualified hedge may be taken into account in computing yield on the issue, known commonly as “simple integration” and “super integration.” In the case of simple integration all net payments and receipts on the qualified hedge and the hedged bonds are taken into account in determining the yield on the bonds, such that generally these hedged bonds are treated as variable yield bonds for arbitrage purposes. In the case of super integration, certain hedged bonds are treated as fixed yield bonds, and the qualified hedge must meet additional eligibility requirements beyond those for simple integration. These additional eligibility requirements focus on assuring that the terms of the hedge and the hedged bonds sufficiently correspond so as to warrant treating the hedged bonds as fixed yield bonds for arbitrage purposes.

The 2007 Proposed Regulations proposed to clarify that for purposes of applying the definition of periodic payment to determine whether a hedge has a significant investment element, a “specified index” (upon which periodic payments are based) is deemed to include payments under a cost-of-funds swap, thereby eliminating any doubt that cost-of-funds swaps can be qualified hedges. One commenter supported this clarification and none opposed it. One commenter proposed an amendment that is beyond the scope of this project (see section 12 of this preamble). The Final Regulations adopt this clarification as proposed.

One of the eligibility requirements for a qualified hedge under the Existing Regulations is that the hedge be interest based. For simple integration, one of the factors used in determining whether a variable-to-fixed interest rate hedge is interest based focuses on whether the variable interest rate on the hedged bonds and the floating interest rate on the hedge are “substantially the same, but not identical to” one another. For super integration purposes, such rates must be “reasonably expected to be substantially the same throughout the term of the hedge.” Issuers have raised interpretative questions about how to apply these rules to hedges based on taxable interest rate indices (taxable indices) because interest rates on taxable indices generally do not correspond as closely as interest rates on tax-exempt market indices to actual market interest rates on tax-exempt, variable-rate bonds. These interpretative questions are particularly important for hedges based on taxable indices (taxable index hedges) used with advance refunding bond issues because issuers generally need to use the qualified hedge rules or some other regime to determine with certainty the yield on the tax-exempt advance refunding bonds to comply with the applicable arbitrage yield restrictions on investments in defeasance escrows.

The 2007 Proposed Regulations proposed to clarify that taxable index hedges are eligible for simple integration but also included detailed provisions that prescribed the correlation of interest rates needed for taxable index hedges to qualify for simple integration. Commenters generally criticized the proposed interest rate correlation test for simple integration of taxable index hedges as excessively complex or unworkable in various respects. One commenter urged elimination of this rate correlation test as unnecessary on the grounds that other proposed changes in the 2007 Proposed Regulations, including particularly the provision limiting the size and scope of hedges (described in section 4.C.iii of this preamble), were sufficient to control the parameters of taxable index hedges for purposes of simple integration. The Final Regulations clarify that a taxable index hedge is an interest based contract and adopt the comment to eliminate the interest rate correlation test for taxable index hedges. The Final Regulations also clarify that the difference between the interest rate used on the hedged bonds and that used to compute payments on the hedge will not prevent the hedge from being an interest based contract if the two interest rates are substantially similar.

The 2007 Proposed Regulations proposed to treat taxable index hedges as ineligible for super integration (except in the case of certain anticipatory hedges). Commenters requested an exception to this general prohibition on super integration for instances in which the variable rate on hedged bonds and the variable rate used to determine the hedge provider's payments to the issuer under the hedge are both based on a taxable index and are identical (or nearly so) to one another. The Final Regulations generally adopt the proposed rule that taxable index hedges are ineligible for super integration but, in response to the comments, add an exception for hedges in which the hedge provider's payments are based on an interest rate identical to that on the hedged bonds, because these hedges are perfect hedges that clearly result in a fixed yield. The Treasury Department and the IRS do not adopt commenters' request to permit super integration when the taxable-index-based interest rates for both the hedge and the hedged bonds are nearly identical but not perfectly so. The Treasury Department and the IRS have concluded that such a rule would add unnecessary complexity to the Final Regulations and that commenters' concerns are largely resolved by the extension in the Final Regulations of yield reduction payments to address basis differences between indexes used in hedges and underlying interest rates on hedged bonds in advance refundings (discussed elsewhere in this section of the preamble). The Final Regulations remove references to the particular taxable index called “LIBOR,” without inference.

Commenters also sought other specific exceptions to the prohibition on super integration. One commenter noted that taxable index hedges cost less than hedges based on a tax-exempt index and recommended allowing super integration of taxable index hedges with mortgage revenue bonds to facilitate compliance with arbitrage restrictions on the yield of the financed mortgages. The Treasury Department and the IRS have concluded that the Final Regulations adequately address the commenter's concerns by permitting simple integration of taxable index hedges and by allowing yield reduction payments for qualified mortgage loans to facilitate compliance with the arbitrage investment restrictions (see section 5.A. of this preamble).

Other commenters suggested that the proposed prohibition on super integration of taxable index hedges should be prospective. This provision in the Final Regulations applies to bonds sold on or after the date that is 90 days after publication of the Final Regulations in the Federal Register, and does not apply to bonds sold prior to that date or to hedges on those bonds, regardless of when the issuer enters into such a hedge, unless the issuer avails itself of permissive application under § 1.148-11(l)(1) of these Final Regulations.

The 2007 Proposed Regulations also proposed to modify the yield reduction payment rules to permit issuers to make yield reduction payments on certain hedged advance refunding issues. This proposed provision effectively would allow yield reduction payments to cover the basis differences between the hedge and the hedged bonds in certain circumstances in which super integration was unavailable to address those basis differences, such as when taxable index swaps hedge the interest rate on advance refunding bonds. Commenters requested clarification of which bonds in the issue must be hedged for the issuer to be eligible to make yield reduction payments under the proposed provision. The Final Regulations eliminate the term “hedged bond issue” to clarify that the yield reduction payment is narrowly targeted to the portion of the issue that funds the defeasance escrow and otherwise adopt this change as proposed.

The 2007 Proposed Regulations proposed to add an express requirement that limits the size and scope of a qualified hedge to a level that is reasonably necessary to hedge the issuer's risk with respect to interest rate changes on the hedged bonds. Generally, the purpose of this proposed limitation is to clarify that certain leveraged hedges are not qualified hedges.

The 2007 Proposed Regulations proposed an example of a hedge of the appropriate size and scope, based on the principal amount and the reasonably expected interest requirements of the hedged bonds. One commenter suggested clarifying this size and scope limitation to provide more flexibility for anticipatory hedges that are entered into before the issuance of the hedged bonds. The Final Regulations adopt the size and scope limitation as proposed and clarify that this limitation applies to anticipatory hedges based on the reasonably expected terms of the hedged bonds to be issued.

The Existing Regulations require that, for a hedge to be a qualified hedge, the payments received by the issuer from the hedge provider under the contract correspond closely in time to either the specific payments being hedged on the hedged bonds or specific payments required to be made pursuant to the bond documents, regardless of the hedge, to a sinking fund, debt service fund, or similar fund maintained for the issue of which the hedged bond is a part. The 2007 Proposed Regulations proposed to treat payments as corresponding closely in time for this purpose if the payments were made within 60 calendar days of each other.

One commenter recommended increasing the permitted period for corresponding payments from 60 days to 90 days to accommodate a range of conventions used in the swap market. The Final Regulations adopt this comment.

The 2007 Proposed Regulations proposed to extend the time for an issuer to identify a qualified hedge from three days to 15 days and to clarify that these are calendar days. The 2013 Proposed Regulations proposed to add a requirement that the identification of a qualified hedge include a certificate from the hedge provider containing certain information. Under the 2013 Proposed Regulations, one element required to be certified by the hedge provider is that the rate being paid by the bonds' issuer on the hedge is comparable to the rate that would be paid by a similarly situated issuer of taxable debt.

Several commenters recommended clarifying the date on which the 15-day period for identification of a hedge commences. The Final Regulations clarify that the date on which the 15-day period begins is the date on which the parties enter into a binding agreement to enter into the hedge (as distinguished from the closing date of the hedge or start date for payments on the hedge, if different).

Several commenters suggested permitting a party other than the issuer to identify the hedge on its books and records, but such changes are beyond the scope of this project (see section 12 of this preamble).

One commenter supported the requirement of a hedge provider's certificate. Two other commenters recommended eliminating this requirement as both unnecessary and burdensome in that it exceeds the requirements for other financial contracts related to tax-exempt bond yield. These commenters recommended that, if the pricing of the hedge is a concern, the regulations should provide other methods for establishing fair pricing. These commenters, however, acknowledged that many issuers already use some form of hedge provider's certificate and that the provisions in the Proposed Regulations reflect to some degree the standard provisions of such certificates. In the alternative, these commenters recommended that the hedge provider's certificate should focus on factual aspects of establishing a qualified hedge, rather than on legal conclusions, and offered specific suggestions to that effect. For example, these commenters suggested that issuers also should be required to demonstrate their efforts to establish that the hedge pricing does not include compensation for underwriting or other services, rather than to obtain a certification to that effect. These commenters further suggested that the representation in the Proposed Regulations that the terms of the hedge were agreed to between a willing buyer and a willing seller in a bona fide, arm's length transaction was unnecessary and required a legal conclusion outside the hedge provider's knowledge. Further, the commenters noted that comparable hedges on taxable debt with counterparties similar to State and local government issuers may be rare and recommended that issuers be required to establish that the rate on the hedge is comparable to the rate that the hedge provider would charge for a similar hedge with a counterparty similar to the issuer, but without a reference to debt obligations other than tax-exempt bonds.

The Final Regulations retain the requirement for a hedge provider's certificate because the hedge provider is uniquely positioned to validate pricing information needed to determine whether a hedge meets the requirements for being a qualified hedge. The Final Regulations retain the certification regarding an arm's length transaction between a willing buyer and a willing seller as one primarily based on fact and commonly obtained by issuers under current practices. In response to public comments, the Final Regulations amend the other required certifications to focus on factual aspects of the hedging transaction. In light of the evolving regulatory environment for swaps, however, the Final Regulations omit the certification that the issuer's rate on the hedge is comparable to the rate that would be paid by a similarly situated issuer of taxable debt. The Final Regulations reserve the authority for the Commissioner to add additional certifications in guidance published in the Internal Revenue Bulletin. In developing any future guidance, the Treasury Department and the IRS may look to the market for swaps on taxable debt and consider the availability of appropriate comparable rates.

The Existing Regulations provide that a termination of a qualified hedge includes any sale or other disposition of the hedge by the issuer or the acquisition by the issuer of an offsetting hedge. The Existing Regulations further provide that a deemed termination of a qualified hedge occurs when the hedged bonds are redeemed, when the hedge ceases to be a qualified hedge, or when the modification or assignment of the hedge results in a deemed exchange under section 1001. The issuer takes termination payments resulting from a deemed or actual termination of an integrated hedge into account in computing yield on the bonds.

The 2013 Proposed Regulations proposed guidance on the treatment of modifications and terminations of qualified hedges. The 2013 Proposed Regulations also proposed to eliminate the ambiguous existing standard that triggered terminations for offsetting hedges. The 2013 Proposed Regulations proposed that a modification, including an actual modification, an acquisition of another hedge, or an assignment, results in a deemed termination of a hedge if the modification is material and results in a deemed disposition under section 1001.

The 2013 Proposed Regulations proposed to simplify the treatment of deemed terminations to provide that a material modification of a qualified hedge (that otherwise would result in a deemed termination) does not result in such a termination if the modified hedge is a qualified hedge. For this purpose, the 2013 Proposed Regulations proposed to require re-testing of the modified hedge for compliance with the requirements for a qualified hedge at the time of the modification, with adjustments. In doing this re-testing, the 2013 Proposed Regulations proposed to disregard any off-market value of the existing hedge at the time of modification. In addition, the 2013 Proposed Regulations proposed to measure the time period for identification of the modified hedge from the date of the modification. Finally, the 2013 Proposed Regulations proposed to omit the requirement for a hedge provider's certificate for the modified hedge. Commenters supported these changes. The Final Regulations adopt these proposed changes with one modification: Assignment of a hedge is no longer given as an example of a modification. The Final Regulations remove this example not because an assignment is not a modification, but because under the regulations under section 1001 an assignment generally does not result in a deemed exchange.

Commenters sought confirmation that the proposed rules for modifications of qualified hedges in the 2013 Proposed Regulations would replace an existing rule regarding such modifications that is set forth in the first sentence of section 5.1 of Notice 2008-41, 2008-1 CB 742. That sentence generally provides that a modification of a qualified hedge does not result in a deemed termination if the issuer does not expect the modification to change the yield on the hedged bonds over their remaining term by more than 0.25% and the modified hedge is integrated with the bonds. The Final Regulations provide comprehensive rules for determining when a modification of a qualified hedge results in a termination and, therefore, supersede the first sentence of section 5.1 of Notice 2008-41. The Final Regulations have no effect on the remainder of Notice 2008-41. See the section in this preamble entitled “Effect on Other Documents.”

The 2013 Proposed Regulations similarly proposed to simplify the treatment of a qualified hedge upon a refunding of the hedged bonds when no actual termination of the associated hedge occurs. If the hedge meets the requirements for a qualified hedge of the refunding bonds as of the issue date of the refunding bonds, with certain exceptions, the 2013 Proposed Regulations proposed to treat the hedge as continuing as a qualified hedge of the refunding bonds instead of being terminated. The Treasury Department and the IRS received favorable comments regarding this proposed change and one comment beyond the scope of this project (see section 12 of this preamble). The Final Regulations adopt this change as proposed.

The Existing Regulations provide special rules for terminations of super-integrated qualified hedges. A termination is disregarded and these special rules do not apply if, based on the facts and circumstances, the yield will not change. The 2013 Proposed Regulations proposed to apply these special rules to a modified super-integrated qualified hedge that is eligible for continued simple integration. Commenters sought clarification of the effect of this rule on super integration treatment. The purpose of this rule is to determine whether a modified super-integrated qualified hedge that continues to qualify for simple integration also would continue to qualify for super integration. The Final Regulations clarify that the applicable test is the test under the Existing Regulations for determining when to disregard terminations of super-integrated qualified hedges.

The Proposed Regulations proposed to modify the amounts taken into account for a deemed termination or actual termination of a qualified hedge. For an actual termination of a qualified hedge, the 2013 Proposed Regulations proposed to limit the amount of the hedge termination payment treated as made or received on the hedged bonds to an amount that is (i) no greater than the fair market value of the qualified hedge if paid by the issuer, and (ii) no less than the fair market value of the qualified hedge if received by the issuer. For a deemed termination of a qualified hedge, the 2013 Proposed Regulations proposed that the amount of the deemed termination payment is equal to the fair market value of the qualified hedge on the termination date.

Commenters recommended that, for an actual termination, the amount actually paid or received by the issuer in connection with the termination should be considered the fair market value of the qualified hedge. The commenters further recommended that, for a deemed termination, the issuer should be able to rely on bid-side quotations from the hedge provider and other providers for purposes of determining the fair market value of the qualified hedge on the termination date. The commenters indicated that, in all cases, the termination amounts, whether actual or deemed, reflect the “bid side” of the hedge market. Because of concerns about the pricing of a hedge in determining the amount to be paid as a termination payment, the Final Regulations retain the rule that the amount of a termination payment that may be taken into account for arbitrage purposes is the fair market value of the qualified hedge on the termination date. The Final Regulations simplify the Proposed Regulations by providing a uniform fair market value standard for both actual and deemed terminations. Although the Treasury Department and the IRS have concluded that bona fide market quotations may be used to support fair market value determinations, the Treasury Department and the IRS have concerns about further specification of particular types of market quotations for purposes of proper reflection of fair market value in various circumstances. Accordingly, the Final Regulations provide that the fair market value of a qualified hedge upon termination is based on all of the facts and circumstances.

For certain limited situations, the Existing Regulations permit payment of yield reduction payments to the United States to satisfy yield restriction requirements on certain investments. The 2007 Proposed Regulations proposed to expand these situations to permit issuers to make yield reduction payments to cover nonpurpose investments that an issuer purchases on a date when the issuer is unable to purchase SLGS because the Treasury Department has suspended sales of SLGS.

Three commenters favored the proposed expansion of the availability of yield reduction payments when SLGS are unavailable. One commenter expressed concern that the proposed provision may not address the circumstance in which a SLGS sale suspension is in effect when an issuer commits to purchase investments, but SLGS sales resume before settlement on that purchase. The Final Regulations clarify that an issuer is permitted to make yield reduction payments if it enters into an agreement to purchase investments on a date when SLGS sales are suspended.

The commenter also recommended extending the availability of yield reduction payments to cover the circumstance in which an issuer is uncertain whether the Treasury Department may suspend SLGS sales in the future after an issuer has subscribed to purchase SLGS and before the issuance of those SLGS. Although the Treasury Department reserves full discretion to manage its borrowings, including SLGS, it has been the Treasury Department's practice to honor all outstanding SLGS subscriptions received before it suspends SLGS sales. Accordingly, the Treasury Department and the IRS have concluded that yield reduction payments are not needed in this circumstance, and the Final Regulations do not adopt this comment.

In addition, in comments regarding the proposed elimination of the Commissioner's authority to compute a joint yield for two or more issues of qualified mortgage bonds or qualified student loan bonds, one commenter requested that issuers of qualified student loan bonds be permitted to make yield reduction payments for all qualified student loans, not just those under the FFELP. The Treasury Department and the IRS recognize that the ability to make yield reduction payments for qualified student loans and qualified mortgage loans would provide issuers an administrable alternative to the rarely used authority to compute a joint bond yield on issues of such bonds. The Treasury Department and the IRS also recognize that these portfolio loan programs have particular administrative challenges with loan yield compliance due to the large number of loans. Accordingly, in connection with the elimination of that joint bond yield authority under the Final Regulations, the Treasury Department and the IRS adopt this comment and expand the availability of yield reduction payments to include qualified student loans and qualified mortgage loans generally.

Commenters requested permission to make yield reduction payments in several other situations not provided in the Proposed Regulations. The Treasury Department and the IRS have concluded these amendments are beyond the scope of this project and, therefore, did not address them in the Final Regulations (see section 12 of this preamble).

The Existing Regulations provide guidance on how to value investments allocated to an issue but leave some ambiguity about when the present value and the fair market value methods of valuation are permitted or required. The 2013 Proposed Regulations proposed to clarify that the fair market value method of valuation generally is required for any investment on the date the investment is first allocated to an issue or first ceases to be allocated to an issue as a consequence of a deemed acquisition or a deemed disposition.

The 2013 Proposed Regulations did not propose to distinguish between purpose investments and nonpurpose investments. One commenter urged clarification that purpose investments must be valued at present value at all times. This commenter further suggested that the rules clearly distinguish between purpose and nonpurpose investments. The Treasury Department and the IRS recognize that purpose investments are special investments that are intended to pass on the benefits of the lower borrowing costs of tax-exempt bond financings to eligible beneficiaries of the particular authorized tax-exempt bond program (for example, eligible first-time low and moderate income homebuyers who receive qualified mortgage loans financed with qualified mortgage bonds). Accordingly, the Final Regulations adopt these comments.

The Existing Regulations include an exception to the mandatory fair market value rule for reallocations of investments between tax-exempt bond issues as a result of the transferred proceeds rule under § 1.148-9(b) or the universal cap rule under § 1.148-6(b)(2). To remove a disincentive against retiring tax-exempt bonds with taxable bonds when the fair market value of the investments allocable to the tax-exempt bonds would cause investment yield to exceed the tax-exempt bond yield, the 2013 Proposed Regulations proposed to change this exception to the fair market value rule to require that only the issue from which the investment is allocated consist of tax-exempt bonds.

Commenters generally viewed this change favorably. One commenter suggested clarifying an ambiguity in the Existing Regulations regarding when a reallocation from one issue to another occurs “as a result of” the universal cap rule. The Final Regulations clarify that the exception to fair market valuation for investments reallocated as a result of the universal cap rule applies narrowly to circumstances in which investments are deallocated from an issue as a result of the universal cap rule and are reallocated to another issue without further action as a result of an existing pledge of the investment to the other issue (for example, a pledge of investments to multiple bond issues secured by common security under a master indenture). In these circumstances, the issuer has not structured the transaction to benefit from the market valuation of the nonpurpose investments.

This commenter also suggested providing a safe harbor for when an issuer may liquidate escrow investments after a taxable refunding without concern that the Commissioner would exercise his anti-abuse authority to value the investment at fair market value. This comment is beyond the scope of this project (see section 12 of this preamble).

Commenters also recommended broad interpretations or expansions of the exception to fair market valuation for investments reallocated as a result of the universal cap rule to cover various types of transactions involving investments that secure a tax-exempt bond issue and that are liquidated at a profit so long as the investment proceeds of the liquidated investments are used to retire tax-exempt bonds early. In one representative scenario, an issuer using funds other than tax-exempt bond proceeds created a yield-restricted escrow fund to defease tax-exempt bonds for which it retained the call rights. If the fair market value of investments in the escrow appreciated, the issuer would issue taxable bonds and use a portion of the proceeds of the taxable bonds to redeem the tax-exempt bonds. Applying universal cap principles, the investments would cease to be allocated to the tax-exempt bonds when the tax-exempt bonds were redeemed and the investments would be allocated to the taxable refunding bonds not as a result of a pre-existing pledge but as replacement proceeds. If the investments were valued at fair market value, the yield on the escrow would exceed the yield on the tax-exempt bonds resulting in arbitrage bonds. The bonds would not be arbitrage bonds if the regulations permitted these escrow investments to be valued at present value at the time of the refunding. Another scenario for which the commenters requested using the present value of investments rather than fair market value involves liquidating the appreciated investments in a defeasance escrow to redeem the tax-exempt issue rather than issuing taxable refunding bonds.

The Treasury Department and the IRS have concerns about potential unintended consequences and circumvention of arbitrage investment restrictions in these and other similar transactions. In the first scenario, the issuer has structured the transaction specifically to benefit from an appreciation of the escrow investments in a manner inconsistent with the arbitrage restrictions. In the second scenario, the use of present value would allow the issuer to realize the investment return in contravention of the statutory requirements to take into account any gain or loss on the disposition of a nonpurpose investment. Accordingly, except for the technical clarification of the limited application of universal cap deallocations under this rule, the Final Regulations adopt as proposed the revised exception to fair market valuation for investments reallocated as a result of the transferred proceeds rule or the universal cap rule.

The Existing Regulations provide a general rule that the fair market value of an investment is the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction. For United States Treasury obligations that are traded on the open market, trading values at the time of trades are used to establish fair market values. The Existing Regulations further provide a special rule, aimed primarily at non-transferrable, non-tradable SLGS, that the fair market value of a United States Treasury obligation that is purchased directly from the United States Treasury is its purchase price. This special rule properly indicates that the fair market value of a United States Treasury obligation that is purchased directly from the United States is its purchase price on the original purchase date, but this provision is ambiguous regarding how to determine the fair market value of such an obligation on dates after the original purchase date.

The 2013 Proposed Regulations proposed to clarify that, on the original purchase date only, the fair market value of such an obligation, including a SLGS security, is its purchase price. The 2013 Proposed Regulations further proposed that, on any date other than the original purchase date, the fair market value of a SLGS security is its redemption price. One commenter objected to the valuation of a SLGS security at other than its purchase price upon a deemed acquisition or deemed disposition. United States Treasury obligations other than SLGS may be purchased and sold on the open market. SLGS, however, are nontransferable obligations that may be purchased or redeemed only from the United States Treasury. For this reason, the 2013 Proposed Regulations proposed that the fair market value of a SLGS security on any date other than its purchase date is the redemption price determined by the United States Treasury under applicable regulations for the SLGS program. The Final Regulations adopt this change as proposed.

The Existing Regulations provide a safe harbor for establishing the fair market value of a guaranteed investment contract. This safe harbor generally relies on a prescribed bidding procedure, including requirements that all bidders be given an equal opportunity to bid with no opportunity to review other bids before providing a bid (that is, the “no last look” rule) and that the bid specifications be provided to prospective bidders “in writing.” The 2007 Proposed Regulations proposed to amend this safe harbor to accommodate electronic bidding procedures by: (1) Permitting bid specifications to be sent electronically over the Internet or by fax; and (2) providing that no impermissible last look occurs if in effect all bidders have an equal opportunity for a last look. One commenter noted an ambiguity in this proposed change. In response to this comment, the Final Regulations clarify that bids must be in writing and timely disseminated and that a writing may be in electronic form and may be disseminated by fax, email, an Internet-based Web site, or other electronic medium that is similar to an Internet-based Web site and regularly used to post bid specifications. The Final Regulations otherwise adopt this change as proposed.

The Existing Regulations provide certain preferential rules for the treatment of administrative costs of certain widely held external commingled funds. Under the Existing Regulations, a fund is treated as widely held if the fund, on average, has more than 15 unrelated investors and each investor maintains a prescribed minimum average investment in the fund. The 2007 Proposed Regulations proposed to allow additional smaller investors to invest in an external commingled fund without disqualifying the fund so long as at least 16 unrelated investors each maintain the required minimum average investment in the fund.

One commenter suggested that the regulations should require that a specified percentage of the unrelated investors hold a specified percentage of the daily average value of the fund's assets. The Final Regulations do not adopt this comment, because it is inconsistent with the purpose of the proposed change to enable a fund to become even more widely held by accommodating an unlimited number of small investors without restriction so long as at least 16 unrelated investors each maintain the required minimum average investment in the fund. The commenter also suggested other amendments beyond the scope of this project (see section 12 of this preamble). The Final Regulations adopt this change as proposed.

The 2007 Proposed Regulations proposed to amend the Existing Regulations to conform to changes made to section 148(f)(4)(D) by section 508 of the Tax Increase Prevention and Reconciliation Act of 2005, Public Law 109-222, 120 Stat. 345, which eliminated a rule that permitted a pool bond issuer to ignore its pool bond issue in computing whether it had exceeded its $5 million limit for purposes of the small issuer rebate exception. The Treasury Department and the IRS received no comments regarding this proposed change. The Final Regulations adopt this change as proposed.

The 2013 Proposed Regulations proposed to amend the Commissioner's authority to depart from the arbitrage regulations when an issuer enters into a transaction for a principal purpose of obtaining a material financial advantage based on the difference between tax-exempt and taxable interest rates in a manner inconsistent with the purposes of section 148, from that “necessary to clearly reflect the economic substance of the transaction” to that “necessary to prevent such financial advantage.” The 2013 Proposed Regulations proposed to remove the references to “economic substance” to prevent confusion of the Commissioner's authority under this arbitrage anti-abuse rule with the economic substance doctrine under general federal tax principles. No substantive change was intended.

Commenters suggested that this proposed change would give unduly broad discretion to the Commissioner and would reduce certainty of the applicability of published guidance. These commenters recommended limiting the Commissioner's authority to that necessary “to reflect the economics of the transaction to prevent such financial advantage.” The Final Regulations adopt this comment.

The Existing Regulations include a transition rule that allows certain State perpetual trust funds (for example, certain State permanent school funds) to pledge funds to guarantee tax-exempt bonds without resulting in arbitrage-restricted replacement proceeds. The 2013 Proposed Regulations proposed to include changes proposed in Notice 2010-5, 2010-2 IRB 256, to increase the amount of tax-exempt bonds that such funds could guarantee under this special rule. Further, in response to comments received on Notice 2010-5, the 2013 Proposed Regulations proposed to extend this special rule to cover certain tax-exempt bonds issued to finance public charter schools, which may be 501(c)(3) organizations. The Treasury Department and the IRS received no comments on these proposed changes. The Final Regulations adopt these changes as proposed.

The 2013 Proposed Regulations proposed a new definition of tax-advantaged bonds. The Treasury Department and the IRS received no comments regarding this new definition. The Final Regulations substitute “tax benefit” for “subsidy” in describing tax-advantaged bonds but otherwise adopt the definition as proposed.

The Existing Regulations provide that tax-exempt bonds and taxable bonds are not part of the same issue. The 2013 Proposed Regulations proposed to clarify that taxable tax-advantaged bonds and other taxable bonds are part of different issues and that different types of tax-advantaged bonds are parts of different issues. The Treasury Department and IRS received one comment supporting this proposed change and no opposing comments. The Final Regulations adopt this change as proposed.

The 2013 Proposed Regulations proposed that the existing definition of grant for arbitrage purposes applies for purposes of other tax-exempt bond provisions. The 2013 Proposed Regulations also proposed to clarify that the character and nature of a grantee's use of proceeds generally is taken into account in determining whether arbitrage and other applicable requirements of the issue are met.

Commenters requested confirmation that the proposed rule preserves the existing rule that an issuer spends proceeds used for grants for purposes of the arbitrage investment restrictions when the issuer makes the grant to an unrelated third-party. Thus, for example, if the grantee uses the grant to reimburse its expenditures, the reimbursement allocation rules do not apply. The 2013 Proposed Regulations expressly proposed the special grant expenditure rule for arbitrage purposes as an example of a specific exception to the proposed general rule. Commenters also suggested other amendments to the rules for grants that are beyond the scope of this project (see section 12 of this preamble). The Final Regulations adopt these changes as proposed.

The Final Regulations include certain technical amendments to final regulations (TD 9741) that were published in the Federal Register on Tuesday, October 27, 2015 (80 FR 65637). Those final regulations provide guidance on allocation and accounting rules and certain remedial actions for purposes of the private activity bond restrictions under section 141 of the Internal Revenue Code that apply to tax-exempt bonds issued by State and local governments.

The technical amendments amend the applicability dates to include a transition rule for refunding bonds, provided that the weighted average maturity of the refunding bonds is no longer than that of the refunded bonds or, in the case of certain short-term obligations, no longer than 120 percent of the weighted average reasonably expected economic life of the facilities financed. The technical amendments also clarify permissive application of certain provisions to outstanding bonds.

Revenue Procedure 97-15, 1997-1 CB 635, provides a program under which an issuer of tax-exempt bonds may request a closing agreement with respect to outstanding bonds to prevent the interest on those bonds from being includible in gross income of the bondholders or being treated as an item of tax preference for purposes of the alternative minimum tax as a result of an action subsequent to the issue date of the bonds that causes the bonds to fail to meet certain requirements relating to the use of proceeds. Notice 2008-31, 2008-1 CB 592, also provides a voluntary closing agreement program for tax-exempt bonds and tax credit bonds. The scope of the violations that can be remedied under Notice 2008-31 is broader than that under Rev. Proc. 97-15. As a result, this Treasury Decision obsoletes Rev. Proc. 97-15.

Commenters submitted additional suggestions for revisions to the Existing Regulations. These suggestions include: (1) Adding a new safe harbor to prevent the creation of replacement proceeds specifically for grants and extraordinary working capital financings (and redefining “extraordinary working capital”); (2) adding new rules for using proceeds to fund working capital reserves; (3) providing how an issuer should allocate certain expenses related to yield-to-call premium bonds for computing yield on the issue; (4) revising the rules for determining if an interest rate cap contains a significant investment element; (5) permitting a conduit borrower to identify a qualified hedge on its books and records; (6) providing a safe harbor for when an issuer may liquidate escrow investments for purposes of valuation of investments; (7) revising the proceeds-spent-last expenditure rule to permit financing of certain payments on hedges; (8) permitting yield reduction payments on investments purchased to defease zero-coupon bonds; (9) providing yield reduction payments for a basis difference under circumstances other than those in the Proposed Regulations; (10) exempting external comingled funds that are operated by a government on a not-for-profit basis from the requirements for administrative costs of such funds to be included in qualified administrative costs of investments; (11) establishing an economic life for grants based on the benefit of the grant to the grantor; (12) providing rules for grant repayments; and (13) explaining how certain rules in the Proposed Regulations would apply to very specific facts. These comments identify issues that are beyond the scope of the Proposed Regulations and thus are not addressed in the Final Regulations.

The Final Regulations generally apply to bonds that are sold on or after October 17, 2016. Certain provisions related to hedges on bonds apply to hedges that are entered into or modified on or after October 17, 2016. The Final Regulations also permit issuers to apply certain of the amended provisions to bonds sold before October 17, 2016. For specific dates of applicability, see §§ 1.141-15, 1.148-11, 1.150-1, and 1.150-2.

As of July 18, 2016, Revenue Procedures 95-47 and 97-15 are obsoleted and Notice 2008-41 is modified.

Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the collection of information in these regulations is required for hedging transactions entered into primarily between larger State and local governments and large counterparties. It is also based on the fact that the estimated recordkeeping burden for all issuers and counterparties is relatively small and the reasonable costs of that burden do not constitute a significant economic impact. Accordingly, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. No comments were received.

The principal authors of these regulations are Johanna Som de Cerff, Spence Hanemann, and Lewis Bell of the Office of Associate Chief Counsel (Financial Institutions and Products), IRS. However, other personnel from the Treasury Department and the IRS participated in their development.

IRS revenue procedures and notices cited in these final regulations are made available by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

Accordingly, 26 CFR part 1 is amended as follows:

The Bureau of Ocean Energy Management (BOEM) issues Notices to Lessees (NTL) as guidance documents in accordance with 30 CFR 550.103 to clarify and provide more detail about certain BOEM regulatory requirements, and to outline the information to be provided in various submittals. Under that authority, NTL No. 2016-N01, Requiring Additional Security, sets forth a policy on, and an interpretation of, regulatory requirements to provide a clear and consistent approach for complying with those requirements.

BOEM is issuing this NTL to clarify the procedures and criteria that BOEM Regional Directors use to determine if and when additional security, pursuant to 30 CFR 556.901(d)-(f), may be required for Outer Continental Shelf (OCS) leases, pipeline rights-of-way (ROW), and rights-of-use and easement (RUE). The guidance and clarification of requirements described in this NTL apply to all BOEM regions. This NTL has also been reformatted, revised, and updated to include correct Bureau names, citations, and web addresses. This NTL supersedes and replaces NTL No. 2008-N07, Supplemental Bond Procedures.

This NTL details several changes in policy that are within the scope of the existing regulations and the discretion vested in the BOEM Regional Directors. First, BOEM has determined that its previously utilized formulas for determining financial strength and reliability are outdated and no longer provide sufficient protection for liabilities incurred during OCS operations. Therefore, this NTL describes new criteria that will be used to determine the financial ability of a lessee, ROW holder, or RUE holder to carry out its obligations, and addresses the possibility of individually tailoring a plan to enable the lessee, ROW holder, or RUE holder to use one or more forms of security other than surety bonds and pledges of Treasury securities and/or to phase-in compliance with the additional security requirement pursuant to such a plan. In addition, the current self-insurance upper limit of 50% of a lessee's net worth is being reduced and will range from 0% to no more than 10% of a lessee's “tangible net worth” as defined in the NTL.

Second, this NTL discontinues two policies under NTL No. 2008-N07: (1) If BOEM determined that one or more co-lessees or co-owners had sufficient financial strength and reliability, it was not necessary to provide additional security; and (2) for the purpose of determining the requirement for additional security, BOEM excluded from its decommissioning liability calculation the full amount of the decommissioning liability on leases, ROWs, and RUEs for which there was at least one financially strong co-lessee or co-owner. Thus lessees will no longer be granted waivers from the additional security obligations, and BOEM is discontinuing the policy of considering the combined strength and reliability of co-lessees when determining a lessee's additional security requirements. Now, when determining the amount of additional security that may be required, the Regional Director will consider whether each lessee, ROW holder, or RUE holder is capable of addressing the responsibility for 100 percent of the cost of decommissioning and other liability for every lease, ROW, and RUE in which the lessee, ROW holder, or RUE holder holds an ownership interest or for which they provide a guarantee. In order to meet all or a portion of the additional security required for any one lease, ROW, or RUE, BOEM will take into account enforceable agreements that lessees, ROW holders or RUE holders have made with their co-lessees or co-owners regarding the allocation of security obligations to such lease, ROW, or RUE.

NTL No. 2016-N01 is available on BOEM's Web site at: http://www.boem.gov/Notices-to-Lessees-and-Operators/.

The Norfolk Southern Corporation requested a temporary deviation in order to perform maintenance on the Norfolk Southern Railroad vertical lift span bridge across the Black Warrior River, mile 267.8, at Eutaw, Greene County, Alabama. This deviation allows the bridge owner to install drive motors necessary to improve reliability and safe operation of the movable bridge. This temporary deviation allows the bridge to remain closed to navigation from 8 a.m. until 11 a.m. and from 1 p.m. until 4 p.m. daily, Monday through Thursday, August 1, 2016 through August 18, 2016.

The Norfolk Southern Railroad vertical lift span drawbridge currently operates in accordance with 33 CFR 117.5, which states the general requirement that the drawbridge shall open on signal. The bridge has a vertical clearance of 18.3 feet above Bridge Reference Elevation for Navigation Clearance (BRENC), elevation 99.2 feet, in the closed-to-navigation position and 72 feet above BRENC in the open-to-navigation position. Navigation on the waterway consists primarily of tugs with tows and occasional recreational craft. The Coast Guard has coordinated this temporary deviation with the Warrior-Tombigbee Waterway Association (WTWA). The WTWA representative indicated that the vessel operators will be able to schedule transits through the bridge such that operations will not significantly be hindered. Thus, it has been determined that this temporary deviation will not have a significant effect on these vessels.

Vessels able to pass through the bridge in the closed position may do so at any time and should pass at the slowest safe speed. The bridge will be able to open for emergencies and there are no immediate alternate routes for vessels to pass.

The Coast Guard will also inform the users of the waterways through our Local and Broadcast Notices to Mariners of the change in operating schedule for the bridge.

In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the effective period of this temporary deviation. This deviation from the operating regulations is authorized under 33 CFR 117.35.

The Coast Guard will enforce the security zones for Seattle's Seafair Fleet Week Moving Vessels in 33 CFR 165.1333 from 10 a.m. on August 2, 2016, through 6 p.m. on August 8, 2016.

In accordance with the general regulations in 33 CFR part 165, subpart D, no person or vessel may enter or remain in the security zones without the permission of the Captain of the Port, Puget Sound or his designated representative. For the purposes of this rule, the following areas are security zones: All navigable waters within 500 yards of HMCS SASKATOON (MM 709) and USCGC ACTIVE (WMEC 618) while each such vessel is in the Sector Puget Sound COTP Zone.

The COTP has granted general permission for vessels to enter the outer 400 yards of the security zones as long as those vessels within the outer 400 yards of the security zones operate at the minimum speed necessary to maintain course unless required to maintain speed by the navigation rules. The COTP may be assisted by other federal, state or local agencies with the enforcement of the security zones.

All vessel operators who desire to enter the inner 100 yards of the security zones or transit the outer 400 yards at greater than minimum speed necessary to maintain course must obtain permission from the COTP or his designated representative by contacting the on-scene patrol craft on VHF 13 or Ch 16. Requests must include the reason why movement within this area is necessary. Vessel operators granted permission to enter the security zones will be escorted by the on-scene patrol craft until they are outside of the security zones.

This notice is issued under authority of 33 CFR 165.1333 and 5 U.S.C. 552(a). In addition to this notice of enforcement, the Coast Guard will provide the maritime community with advanced notification of the security zones via the Local Notice to Mariners and marine information broadcasts on the day of the event.

The Coast Guard will enforce the Seafair Air Show Performance safety zone in 33 CFR 165.1319 daily, from 8 a.m. until 4 p.m., from August 4, 2016, through August 7, 2016 unless canceled sooner by the Captain of the Port.

Under the provisions of 33 CFR 165.1319, the following area is designated as a safety zone: All waters of Lake Washington, Washington State, south of the Interstate 90 bridge, west of Mercer Island, and north of Seward Park. The specific boundaries of the safety zone are listed in 33 CFR 165.1319(b).

In accordance with the general regulations in 33 CFR part 165, subpart C, no person or vessel may enter or remain in the zone except for support vessels and support personnel, vessels registered with the event organizer, or other vessels authorized by the Captain of the Port or Designated Representatives. Vessels and persons granted authorization to enter the safety zone must obey all lawful orders or directions made by the Captain of the Port or his designated representative.

The Captain of the Port may be assisted by other federal, state and local law enforcement agencies in enforcing this regulation.

This document is issued under authority of 33 CFR 165.1319 and 5 U.S.C. 552(a). In addition to this notice of enforcement in the Federal Register, the Coast Guard will provide the maritime community with advanced notification of the safety zone via the Local Notice to Mariners and marine information broadcasts on the day of the event. If the COTP determines that the safety zone need not be enforced for the full duration stated in this notice of enforcement, he may use a Broadcast Notice to Mariners to grant general permission to enter the regulated area.

In a document published in the Federal Register on February 8, 2016 (81 FR 6479), VA proposed to amend part 17 of 38 CFR by amending the regulations that govern medication provided in Alaska and territories and possessions of the United States. We provided a 60-day comment period, which ended on April 8, 2016. We received no comments on the proposed rule. Under section 1712(d) of title 38 United States Code (U.S.C.), VA must furnish medications to veterans who receive increased compensation or pension benefits by reason of being permanently housebound or in need of regular aid and attendance, if such medications are prescribed for the treatment of any injury or illness suffered by such veteran. VA originally promulgated two regulations on October 4, 1967, to implement section 1712(d), in title 38 Code of Federal Regulations (CFR) 17.60d and 17.60e. See 32 FR 13816. Section 1712(d) does not require these certain veterans to be receiving VA hospital care or medical services as a condition of receiving medications from VA and § 17.60d provided that VA pharmacies would fill prescriptions for these veterans when they were receiving care from a non-VA provider to treat any of the veteran's illnesses or injuries. See 32 FR 13816 (October 4, 1967). Section 17.60e, in turn, addressed geographic areas that, at the time, did not have VA pharmacies—§ 17.60e provided that in those areas without VA pharmacies, VA may reimburse the cost of prescriptions that otherwise would have been filled under § 17.60d. See 32 CFR 13816 (October 4, 1967).

Sections 17.60d and 17.60e were renumbered as §§ 17.96 and 17.97, respectively, and relate to the same cohort of veterans for whom VA is authorized to provide prescription medication under section 1712(d). Because the same cohort of veterans is at issue in §§ 17.96 and 17.97, and because § 17.96 already provides for the filling of prescriptions in non-VA pharmacies, a separate § 17.97 to address prescriptions in non-VA pharmacies (pharmacies in areas without VA pharmacies) is no longer necessary. We are, therefore, removing § 17.97 and marking it as reserved for future use, and are also revising § 17.96 to clarify that any non-VA pharmacy under contract with VA may be used, not just those non-VA pharmacies in a state home under contract with VA for filling prescriptions for patients in state homes.

We are making one edit to the proposed revision of the introductory paragraph in § 17.96 for grammatical accuracy. No change to the meaning of the proposed regulation text is intended by this edit.

Based on the rationale set forth in the Supplementary Information to the proposed rule and in this final rule, VA is adopting the proposed rule as a final rule with the edit discussed in this final rule.

Title 38 of the Code of Federal Regulations, as revised by this final rulemaking, represents VA's implementation of its legal authority on this subject. Other than future amendments to this regulation or governing statutes, no contrary guidance or procedures are authorized. All existing or subsequent VA guidance must be read to conform with this rulemaking if possible or, if not possible, such guidance is superseded by this rulemaking.

This final rule contains no provisions constituting a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521).

The Secretary hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This final rule directly affects only individuals and would not directly affect small entities. Therefore, pursuant to 5 U.S.C. 605(b), this amendment is exempt from the initial and final regulatory flexibility analysis requirements of 5 U.S.C. 603 and 604.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 12866 (Regulatory Planning and Review) defines a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB), unless OMB waives such review, as “any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive Order.”

The economic, interagency, budgetary, legal, and policy implications of this regulatory action have been examined, and it has been determined not to be a significant regulatory action under Executive Order 12866. VA's impact analysis can be found as a supporting document at http://www.regulations.gov, usually within 48 hours after the rulemaking document is published. Additionally, a copy of the rulemaking and its impact analysis are available on VA's Web site at http://www.va.gov/orpm/, by following the link for “VA Regulations Published From FY 2004 Through Fiscal Year to Date.”

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This final rule will have no such effect on State, local, and tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this document are 64.007, Blind Rehabilitation Centers; 64.008, Veterans Domiciliary Care; 64.009, Veterans Medical Care Benefits; 64.010, Veterans Nursing Home Care; 64.011, Veterans Dental Care; 64.012, Veterans Prescription Service; 64.014, Veterans State Domiciliary Care; 64.015, Veterans State Nursing Home Care; 64.018, Sharing Specialized Medical Resources; 64.019, Veterans Rehabilitation Alcohol and Drug Dependence; 64.022, Veterans Home Based Primary Care; and 64.024, VA Homeless Providers Grant and Per Diem Program.

The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Gina S. Farrisee, Deputy Chief of Staff, Department of Veterans Affairs, approved this document on June 30, 2016, for publication.

For the reasons set forth in the preamble, we amend 38 CFR part 17 as follows:

On August 6, 2012, the President signed into law the Honoring America's Veterans and Caring for Camp Lejeune Families Act of 2012, Public Law 112-154 (“the Act”). Among other things, section 102 of the Act amended section 1710 of title 38, United States Code (U.S.C.), to require VA to provide hospital care and medical services, for certain specified illnesses and conditions, to veterans who served at the Marine Corps base at Camp Lejeune, North Carolina (hereinafter referred to as Camp Lejeune), while on active duty in the Armed Forces for at least 30 days during the period beginning on January 1, 1957, and ending on December 31, 1987.

On September 11, 2013, VA published a notice of proposed rulemaking setting forth proposed regulations to provide hospital care and medical services to certain veterans who served at Camp Lejeune for at least 30 days from January 1, 1957, to December 31, 1987 (“the 1957 cohort”). 78 FR 55671-55675, Sept. 11, 2013. A final rule issuing those regulations was published on September 24, 2014, at 79 FR 57409-57415. In addition to various other provisions, the rule promulgated 38 CFR 17.400, Hospital care and medical services for Camp Lejeune veterans.

Subsequently, Congress passed the Consolidated and Further Continuing Appropriations Act, 2015, Public Law 113-235 (“the Consolidated Act”), which President Obama signed into law on December 16, 2014. Division I, Title II, § 243 of the law amended 38 U.S.C. 1710(e)(1)(F) by striking “January 1, 1957,” and inserting “August 1, 1953.” This added a new cohort of veterans to the group who are eligible for care pursuant to 38 U.S.C. 1710(e)(1)(F), namely, veterans who served on active duty in the Armed Forces at Camp Lejeune, North Carolina, for not fewer than 30 days during the period from August 1, 1953, to December 31, 1956 (the “1953 cohort”). Although this rulemaking revises regulations to reflect this statutory amendment, we note that VA is currently providing health care to veterans in the 1953 cohort under section 1710(e)(1)(F), as amended.

Pursuant to the Consolidated Act, VA amends § 17.400 to account for the change in the date that begins the period of eligibility for Camp Lejeune veterans to receive VA hospital care and medical services. Specifically, we amend the definition of “Camp Lejeune veteran” in § 17.400(b) by deleting “January 1, 1957” and adding in its place “August 1, 1953.”

Currently, § 17.400(d)(2) establishes a right to retroactive reimbursement for the 1957 cohort for any copayments paid to VA for VA care provided to the veteran on and after August 6, 2012, so long as the veteran requests Camp Lejeune status no later than September 24, 2016. We previously noted in a Notice of Proposed Rulemaking that the basis for limiting beginning of this retroactivity period to August 6, 2012, was that the law authorizing Camp Lejeune benefits became effective on that date. We also explained in the proposed and final rules that the basis for the end date of September 24, 2016, was that it provided veterans with sufficient time (ultimately two years from the date that the regulation took effect) to file for retroactive benefits. 79 FR 57410. In this rulemaking, we are providing a similar retroactivity provision in § 17.400(d)(2) for the new 1953 cohort.

We further amend § 17.400(b) by adding a definition for “covered illness or condition.” This definition is comprised of the 15 illnesses and conditions for which VA is required to provide hospital care and medical services to veterans under 38 U.S.C. 1710(e)(1)(F). These illnesses and conditions are currently listed in § 17.400(d)(1), which addresses exemptions from copayments. We remove the list of these illnesses and conditions from § 17.400(d)(1) and add it as part of the newly-added definition of “covered illness or condition” in § 17.400(b) for the purpose of improving the overall clarity of § 17.400. This is not a substantive change. We also amend § 17.400(b) to correct the spelling of the condition “Myelodysplastic syndromes,” which is misspelled in current § 17.400. Similarly, we amend § 17.400(b) to make the word “lymphoma” lower case.

We make one technical change to § 17.400(c) to remove the reference to “illnesses or conditions listed in paragraph (d)(1)(i) through (xv) of this section,” and add in its place a reference to “covered illness or condition,” because this term is now defined in § 17.400(b), as explained above. We make one clarifying change to § 17.400(c). Current § 17.400(c) refers to “the veteran's active duty in the Armed Forces” and “the veteran's service,” but does not specifically reference the veteran's active duty service at Camp Lejeune. We revise § 17.400(c) to state “VA will assume that a covered illness or condition is attributable to the veteran's active duty service at Camp Lejeune unless it is clinically determined, under VA clinical practice guidelines, that such an illness or condition resulted from a cause other than such service.” This is not a substantive change. As we stated in the preamble to the proposed rule, “[i]n § 17.400(c), we would explain that VA would assume that a veteran who has been diagnosed with one of the 15 illnesses or conditions listed in § 17.400(d)(1)(A)-(O) has that specific condition or illness due to his or her exposure to contaminated water during service at Camp Lejeune.” 78 FR 55671, 55673.

We make several amendments to § 17.400(d). First, we amend paragraph (d)(1) by removing the current list of covered illnesses and conditions and adding them to the definitions in § 17.400(b), as noted above.

We further amend § 17.400(d)(1) to specify the dates for each cohort for the exemption from copayments for hospital care and medical services provided for a covered illness or condition. Specifically, paragraph (d)(1)(i) provides that members of the 1957 cohort are not subject to such copayments for hospital care and medical services provided on or after August 6, 2012, the date that the Act was signed by the President and became effective. This provision is unchanged from the exemption provision for these veterans in former § 17.400(d)(1). Paragraph (d)(1)(ii) provides that members of the 1953 cohort are not subject to such copayments for hospital care and medical services provided on or after December 16, 2014, the date that the Consolidated Act was signed by the President and became effective. This distinction is required because the Consolidated Act's amendment to 38 U.S.C. 1710(e)(1)(F) changed the date of active duty service at Camp Lejeune that would qualify a veteran for hospital care and medical services based on such service; but it did not make such eligibility retroactive to the date on which the Act became effective. Accordingly, VA must limit the 1953 cohort's eligibility for exemption from copayments to the effective date of the Consolidated Act.

We also revise § 17.400(d)(2) to provide the criteria for eligibility for the 1953 and 1957 cohorts' retroactive exemption from copayments, i.e., reimbursement of copayments previously paid to VA for hospital care and medical services for a covered illness or condition. Under paragraph (d)(2)(i), a Camp Lejeune veteran in the 1957 cohort will be reimbursed for copayments if VA provided the hospital care or medical services to the veteran on or after August 6, 2012, the date the veteran became eligible for hospital care and medical services under the Act, and the veteran requested Camp Lejeune veteran status no later than September 24, 2016, two years after the date on which § 17.400 was initially promulgated. This is not a substantive change from the retroactive exemption for these veterans in former § 17.400(d)(2).

Under paragraph (d)(2)(ii), a Camp Lejeune veteran in the 1953 cohort will be reimbursed for copayments if VA provided the hospital care or medical services to the veteran on or after December 16, 2014, the date the veteran became eligible for hospital care and medical services by virtue of the Consolidated Act, and the veteran requested Camp Lejeune veteran status no later than July 18, 2018, two years after the effective date of this rule. We believe that two years will provide veterans sufficient time to learn about their new status and notify VA that they meet the requirements to be a Camp Lejeune veteran; this is the same look-back period provided to veterans in the 1957 cohort in paragraph (d)(2)(i). As in the case of exemptions from copayments, discussed above, we note that veterans in the 1953 cohort are not eligible for reimbursement for copayments made before December 16, 2014, because the Consolidated Act's amendment to 38 U.S.C. 1710(e)(1)(F) changed only the date of active duty service at Camp Lejeune that would qualify a veteran for Camp Lejeune status; it did not make such eligibility retroactive to the date of the Act. Accordingly, VA must limit the 1953 cohort's eligibility for reimbursement of copayments to the effective date of the Consolidated Act.

Title 38 of the Code of Federal Regulations, as revised by this final rulemaking, represents VA's implementation of its legal authority on this subject. Other than future amendments to this regulation or governing statutes, no contrary guidance or procedures are authorized. All existing or subsequent VA guidance must be read to conform with this rulemaking if possible or, if not possible, such guidance is superseded by this rulemaking.

The Secretary of Veterans Affairs finds under 5 U.S.C. 553(b)(B) that there is good cause to publish this rule without prior opportunity for public comment, and under 5 U.S.C. 553(d)(3) that there is good cause to publish this rule with an immediate effective date. This rulemaking makes clarifying, non-substantive changes to § 17.400 in addition to amending that regulation to incorporate a provision mandated by Congress. See Public Law 113-235. Notice and public comment is unnecessary because it could not result in any change to this provision. Further, since the public law became effective on its date of enactment, VA believes it is impracticable and contrary to law and the public interest to delay this rule for the purpose of soliciting advance public comment or to have a delayed effective date.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This final rule will have no such effect on State, local, and tribal governments, or on the private sector.

The Paperwork Reduction Act of 1995 (at 44 U.S.C. 3501-3507) requires that VA consider the impact of paperwork and other information collection burdens imposed on the public. Under 44 U.S.C. 3507(a), an agency may not collect or sponsor the collection of information, nor may it impose an information collection requirement unless it displays a currently valid Office of Management and Budget (OMB) control number. See also 5 CFR 1320.8(b)(3)(vi).

This final rule will impose the following amended information collection requirements. Veterans will apply for hospital care and medical services as a Camp Lejeune veteran under § 17.400 by completing VA Form 10-10EZ, “Application for Health Benefits,” which is required under 38 CFR 17.36(d) for all hospital care and medical services. OMB previously approved the collection of information for VA Form 10-10EZ and an amendment to that information collection, inclusion of a specific checkbox for individuals to identify themselves as meeting the requirements of being a Camp Lejeune veteran based on the required service at Camp Lejeune between 1957 and 1987, and assigned OMB control number 2900-0091. An amendment to the checkbox is needed so that veterans can identify themselves as meeting the requirements for being a Camp Lejeune veteran based on the required service at Camp Lejeune between August 1, 1953, and December 31, 1987. As required by the Paperwork Reduction Act of 1995 (at 44 U.S.C. 3507(d)), VA submitted this information collection amendment to OMB for its review. OMB approved the amended information collection requirements under existing control number 2900-0091.

The Secretary hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act (5 U.S.C. 601-12). This final rule will directly affect only individuals and will not affect any small entities. Therefore, pursuant to 5 U.S.C. 605(b), this rulemaking is exempt from the initial and final flexibility analysis requirements of sections 603 and 604.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health, and safety effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 12866 (Regulatory Planning and Review) defines a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB), unless OMB waives such review, as “any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive Order.”

The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined, and it has been determined not to be a significant regulatory action under Executive Order 12866. VA's impact analysis can be found as a supporting document at http://www.regulations.gov, usually within 48 hours after the rulemaking document is published. Additionally, a copy of the rulemaking and its impact analysis are available on VA's Web site at http://www.va.gov/orpm/, by following the link for “VA Regulations Published From FY 2004 Through Fiscal Year to Date.”

The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this rule are 64.007, Blind Rehabilitation Centers; 64.008, Veterans Domiciliary Care; 64.009, Veterans Medical Care Benefits; 64.010, Veterans Nursing Home Care; 64.012, Veterans Prescription Service; 64.013, Veterans Prosthetic Appliances; 64.014, Veterans State Domiciliary Care; 64.015, Veterans State Nursing Home Care; and 64.022, Veterans Home Based Primary Care.

The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Gina S. Farrisee, Deputy Chief of Staff, Department of Veterans Affairs, approved this document on June 30, 2016, for publication.

For the reasons set forth in the supplementary information of this rulemaking, the Department of Veterans Affairs amends 38 CFR part 17 as follows:

Throughout this document “we,” “us,” and “our” means the EPA.

The background for this action is discussed in detail in our May 6, 2016 proposal. See 81 FR 27382. In that document we proposed to approve as revisions to the Louisiana SIP, the revisions to the Louisiana PSD permitting program submitted on December 21, 2011, that provide the State the authority to regulate and permit emissions of GHGs from Step 1 sources in the Louisiana PSD program. We also proposed to disapprove the provisions submitted on December 21, 2011, that would enable the State of Louisiana to regulate and permit Step 2 sources under the Louisiana PSD program because the submitted provisions were no longer consistent with federal laws.

Our proposed action also corrected an omission in the EPA's August 19, 2015, proposed approval of the Louisiana Major New Source Review program, where we did not explicitly propose approval of a portion of the definition of “major stationary source.” To correct this omission, we provided an additional opportunity for the public to comment on the revisions to the definition of “major stationary source” at LAC 33:III.509(B) submitted on December 20, 2005 as subparagraph (e), but was moved to subparagraph (f) in the December 21, 2011 submittal.

We received comments from the Louisiana Department of Environmental Quality (LDEQ). Our responses are provided below.

Comment 1: The LDEQ commented that the State initiated rulemaking AQ358 on January 20, 2016, to remove the PSD GHG Step 2 permitting provisions. The rulemaking was promulgated on April 20, 2016, after no comments were received during the public comment period. Therefore, LDEQ's PSD program no longer contains permitting requirements for Step 2 sources. The LDEQ also submitted copies of the AQ358 rulemaking for reference.

Response 1: We recognize that the LDEQ has completed a rulemaking to remove the Step 2 GHG permitting provisions from the LDEQ PSD program consistent with our proposed partial disapproval. Today's final action disapproves the Step 2 provisions that were submitted for the EPA's consideration as a revision to the Louisiana SIP. No further actions are necessary on the part of the LDEQ to remove the Step 2 provisions adopted by the LDEQ on April 20, 2011 and submitted December 21, 2011, from our consideration. Further, today's final action also removes the portion of the Louisiana SIP at 40 CFR 52.986(c) where the EPA narrowed our approval of the Louisiana PSD SIP to apply to Step 2 permitting. See 75 FR 82536, December 30, 2010.

Comment 2: The LDEQ provided comment on the EPA's interpretation of the “automatic rescission provisions” under LAC 33:III.501(C)(14). Specifically, the LDEQ commented that “In the event of a “change in federal law” or a Supreme Court or D.C. Circuit “order which limits or renders ineffective the regulation” of GHGs under Part C of Title I of the Clean Air Act, LDEQ will provide notice to the general public and regulated community if such law or order will impact how LDEQ's [sic] administers its PSD program under LAC 33:III.509. In addition, LDEQ will ensure that any such changes are consistent with EPA's interpretation of the law or order.”

Response 2: The EPA appreciates the comment from the LDEQ and the affirmation that the LDEQ will provide notice to the general public and community in the event of a change in federal law or a court decision that limits or renders ineffective the regulation of GHGs under the PSD program. We note that the LDEQ stated public notice would likely be through the LDEQ Web site; we find this method to be sufficient to satisfy the requirements of section 110(l) of the CAA.

We are approving the following revisions to the Louisiana SIP submitted on December 21, 2011. The revisions were adopted and submitted in accordance with the CAA and are consistent with the laws and regulations for PSD permitting of GHGs; therefore we are taking final action to approve these revisions under section 110 and part C of the Act.

• New provisions as LAC 33:III.501(C)(14) adopted on April 20, 2011 and submitted December 21, 2011;

• New definitions of “carbon dioxide equivalent” and “greenhouse gases” at LAC 33:III.509(B) adopted on April 20, 2011 and submitted December 21, 2011;

• Revisions to the definitions of “major stationary source” paragraphs (a) and (b) and “significant” at LAC 33:III.509(B) adopted on April 20, 2011 and submitted on December 21, 2011; and

• Revisions to the definition of “major stationary source” paragraph (e) as submitted on December 20, 2005, and renumbered to paragraph (f) in the April 20, 2011 adoption submitted on December 21, 2011.

As a result of our final approval of the above revisions, the EPA is also removing the existing provisions at 40 CFR 52.986(c) under which the EPA narrowed the applicability of the Louisiana PSD program to regulate sources consistent with federal PSD permitting requirements.

We are disapproving the following severable portions of the December 21, 2011 Louisiana SIP submittal that establish GHG permitting requirements for Step 2 sources:

• Revisions to the definitions of “major stationary source” paragraph (c) and “significant” as it pertains to Step 2 sources, adopted on April 20, 2011 and submitted on December 21, 2011.

As a result of our final disapproval of the above revisions, the EPA is adding a new entry at 40 CFR 52.986(c) to reflect the disapproval of the PSD GHG Step 2 provisions. We are taking this final action under section 110 and part C of the Act; as such, we are not imposing sanctions as a result of this final disapproval. This final disapproval does not require the EPA to promulgate a Federal Implementation Plan because we are finding that the submitted provisions are inconsistent with federal laws for the regulation and permitting of GHG emissions.

In this rule, we are finalizing regulatory text that includes incorporation by reference. In accordance with the requirements of 1 CFR 51.5, we are finalizing the incorporation by reference of the revisions to the Louisiana regulations as described in the Final Action section above. We have made, and will continue to make, these documents generally available electronically through www.regulations.gov and/or in hard copy at the EPA Region 6 office.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action proposes approval of the portions of the submitted revisions to State law for the regulation and permitting of GHG emissions consistent with federal requirements and proposes disapproval of the portions of the state laws that do not meet Federal requirements for the regulation and permitting of GHG emissions.

This action is not a significant regulatory action and was therefore not submitted to the Office of Management and Budget (OMB) for review.

This action does not impose an information collection burden under the PRA. There is no burden imposed under the PRA because this action proposes to disapprove submitted revisions that are no longer consistent with federal laws for the regulation and permitting of GHG emissions.

I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This action will not impose any requirements on small entities. This action proposes to disapprove submitted revisions that are no longer consistent with federal laws for the regulation and permitting of GHG emissions, and therefore will have no impact on small entities.

This action does not contain any unfunded mandate as described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. The action imposes no enforceable duty on any state, local or tribal governments or the private sector. This action proposes to disapprove submitted revisions that are no longer consistent with federal laws for the regulation and permitting of GHG emissions, and therefore will have no impact on small governments.

This action does not have federalism implications. It will not have substantial direct effects on the 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.

This action does not have tribal implications as specified in Executive Order 13175. This action proposes to disapprove provisions of state law that are no longer consistent with federal laws for the regulation and permitting of GHG emissions; there are no requirements or responsibilities added or removed from Indian Tribal Governments. Thus, Executive Order 13175 does not apply to this action.

The EPA interprets Executive Order 13045 as applying only to those regulatory actions that concern environmental health or safety risks that the EPA has reason to believe may disproportionately affect children, per the definition of “covered regulatory action” in section 2-202 of the Executive Order. This action is not subject to Executive Order 13045 because it disapproves state permitting provisions that are inconsistent with federal laws for the regulation and permitting of GHG emissions.

This action is not subject to Executive Order 13211, because it is not a significant regulatory action under Executive Order 12866.

This rulemaking does not involve technical standards.

The EPA believes the human health or environmental risk addressed by this action will not have potential disproportionately high and adverse human health or environmental effects on minority, low-income or indigenous populations. This action is not subject to Executive Order 12898 because it disapproves state permitting provisions that are inconsistent with federal laws for the regulation and permitting of GHG emissions.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 16, 2016. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

40 CFR part 52 is amended as follows:

Throughout this document whenever “we,” “us,” or “our” is used, we mean the EPA.

On May 18, 2016, the EPA proposed to determine that the San Joaquin Valley (“Valley”) 1-hour ozone nonattainment area had attained the 1-hour ozone National Ambient Air Quality Standard (NAAQS or “standard”) based on sufficient, quality-assured, and certified data from the most recent three-year period (2012-2014).1 We noted that preliminary data for 2015 were consistent with continued attainment in the San Joaquin Valley. The Valley covers approximately 23,000 square miles and includes all of Fresno, Kings, Madera, Merced, San Joaquin, Stanislaus, and Tulare counties, as well as the western half of Kern County.2

In our proposed rule, we provided background information on the 1-hour ozone standard, the designations and classifications of the San Joaquin Valley under the Clean Air Act (CAA or “Act”) for the 1-hour ozone standard, and the EPA's prior actions related to the 1-hour ozone standard in the Valley.3 We also described how we determine whether an area's air quality meets the 1-hour ozone standard, and identified the relevant air monitoring agencies in the San Joaquin Valley and their respective ozone monitoring networks, network plans, and annual certifications of ambient air monitoring data.4 In our proposed rule, we also discussed the requests, and associated analyses, submitted by the California Air Resources Board (CARB) and the San Joaquin Valley Air Pollution Control District (“District”), that the EPA find that the Valley has attained the 1-hour ozone standard.5

As discussed in our proposed rule, an area attains the 1-hour ozone standard if the highest three-year average of expected exceedances is less than or equal to 1 expected exceedance. Table 1 in our proposed rule summarized the expected 1-hour ozone exceedances, per year and as an average over the 2012-2014 period, at the regulatory monitoring sites in the San Joaquin Valley. During the 2012-2014 period, the highest three-year average of expected exceedances at any site in the Valley was 0.7 expected exceedances at Fresno—Sierra Skypark in Fresno County. At the time of our proposed determination, preliminary data for 2015 was available but not yet certified. We provided preliminary data for 2015 that showed continued attainment of the 1-hour ozone standard.6 All three agencies operating regulatory monitoring sites in the San Joaquin Valley submitted their 2015 data certifications to the EPA by May 10, 2016, shortly following the release of our proposed rule.7

For this final action, we have repeated our review of the 2015 data now that the data have been certified to confirm that the data are consistent with continued attainment of the 1-hour ozone standard in the San Joaquin Valley. In Table 1 below, we supplement the corresponding table from our proposed rule with 2015 data. As shown in Table 1 below, the highest three-year average of expected exceedances at any site in the Valley for 2013-2015 was 0.4, at Fresno—Sierra Skypark in Fresno County. Based on complete, quality-assured, and certified data, the expected exceedances in Table 1 indicate continued attainment of the 1-hour ozone standard in the SJV over 2013-2015.8

We proposed to determine that the San Joaquin Valley has attained the 1-hour ozone standard based on our analysis of the ambient air quality data, as well as our review of 1-hour ozone trends in the Valley, data completeness, and the adequacy of the ozone monitoring network.9 We noted that if we finalize the proposed determination, to the extent not already fulfilled, the requirements for the state to submit attainment demonstrations and associated reasonably available control measures, reasonable further progress plans, contingency measures for failure to attain or make reasonable progress and other plans related to attainment of the 1-hour ozone standard for San Joaquin Valley shall be suspended until such time as the area is redesignated as attainment for the current ozone NAAQS or a redesignation substitute for the 1-hour ozone standard is approved, at which time the requirements no longer apply.10 If, however, prior to such redesignation or approval of such redesignation substitute, the EPA determines that San Joaquin Valley has violated the 1-hour ozone NAAQS, then the area is again required to submit such attainment-related plans.11

We solicited comment on the proposed determination of attainment and opened a 30-day public comment period. The comment period closed on June 17, 2016. During the comment period, we received a comment from a member of the public in support of the proposal, and a comment letter from the Western States Petroleum Association (WSPA). WSPA also expressed support for the proposed attainment determination but recommended concurrent revocation of the District's penalty fee rule based on the District's demonstration that the attainment of the 1-hour ozone standard is due to permanent and enforceable emissions reductions and based on the sunset clause in the penalty fee rule itself. We respond to WSPA's comment in the following section of this document.

In our proposed rule, we noted that in addition to the request for a clean data determination, the District provided documentation in its staff report intending to support a finding that attainment of the 1-hour ozone standard is due to permanent and enforceable emission reductions. As discussed in our proposed rule, the EPA's final implementation rule for the 2008 ozone standard established a mechanism, referred to as a “redesignation substitute,” through which an area may shift to contingency status those requirements, such as penalty fee program requirements under CAA section 185, to which an area had remained subject under the EPA's anti-backsliding regulations governing the transition from revoked ozone standards (such as the 1-hour ozone standard) to current ozone standards.

To invoke the redesignation substitute, a state must submit two things: (1) A demonstration that the area has attained the revoked ozone NAAQS due to permanent and enforceable emission reductions, and (2) a demonstration that the area will maintain the revoked NAAQS for 10 years from the date of the EPA's approval of this showing.12 The District submitted the first required demonstration to the EPA but did not submit the second required component of the redesignation substitute mechanism, i.e., the demonstration that the area will maintain the 1-hour ozone standard for 10 years. Because neither the state nor the District has submitted a complete demonstration required to invoke the redesignation substitute mechanism, we stated in our proposed rule that action on a single element (i.e., the demonstration of attainment due to permanent and enforceable emissions reductions) was not appropriate without the second required element (i.e., the 10-year maintenance demonstration). When the state submits a demonstration that the San Joaquin Valley will maintain the 1-hour ozone standard for 10 years, we will review and consider whether both demonstrations together meet the requirements of the redesignation substitute mechanism for the 1-hour ozone standard.

Moreover, we note that the District's penalty fee rule does not automatically sunset upon the EPA's final determination of attainment for the 1-hour ozone standard. The penalty fee rule (i.e., District Rule 3170 (“Federally Mandated Ozone Nonattainment Fee”) provides, in relevant part:

Thus, under the terms of the penalty fee rule, the fee provisions do not sunset simply upon the EPA's determination of attainment of the 1-hour ozone standard. The EPA's concurrence on the demonstration that attainment of the standard is due to permanent and enforceable emissions reductions is also a prerequisite to triggering the sunset clause. While the District has submitted such a demonstration, we indicated in our proposed rule and reiterate above that we are taking no action on the District's demonstration at this time. We will consider the District's demonstration in a separate rulemaking if and when it is supplemented with the 10-year maintenance demonstration element also needed to invoke the redesignation substitute mechanism in 40 CFR 51.1105(b).

Based on the analyses in our proposed rule of ambient air quality data, 1-hour ozone trends in the Valley, and the adequacy of the monitoring network in the Valley, as well as our review of 2015 data in this final rule indicating continued attainment of the standard, we are taking final action to determine that the San Joaquin Valley nonattainment area has attained the 1-hour ozone standard. This determination is based on sufficient, quality-assured, and certified data for the period 2012-2014.

This action finalizes a determination based on air quality data and does not impose additional requirements beyond those imposed by state law. For that reason, this final action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.);

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and,

• Does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this final clean data determination does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000) because the SIP obligations discussed herein do not apply to Indian Tribes, and thus will not impose substantial direct costs on tribal governments or preempt tribal law.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 16, 2016. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements (see section 307(b)(2)).

Chapter I, title 40 of the Code of Federal Regulations is amended as follows:

Table of Contents I. Background Information II. Final Action III. Statutory and Executive Orders Review I. Background Information

On May 18, 2016, the EPA proposed to grant a 1-year extension of the attainment date for the Oakridge, Oregon nonattainment area to meet the 2006 24-hour PM2.5 NAAQS from December 31, 2015 to December 31, 2016, on the basis that the State has met the criteria for such an extension under the CAA (81 FR 31202). An explanation of the CAA requirements, a detailed analysis of the submittal, and the EPA's reasons for proposing approval were provided in the notice of proposed rulemaking, and will not be restated here. The public comment period for this proposed rule ended on June 17, 2016. The EPA received no comments on the proposal.

The EPA finds that the State has met the criteria for receiving a 1-year extension to the Moderate area attainment date for the 2006 PM2.5 NAAQS for the Oakridge NAA as provided in section 188(d) of the Act. The State is implementing the requirements and commitments in the applicable attainment plan for the PM2.5 NAAQS in the area, and the 98th percentile 24-hour PM2.5 air quality value for 2015 is below 35 μg/m3. Accordingly, the State has established that it meets the criteria of section 188(d) as the EPA interprets those requirements for purposes of the 2006 PM2.5 NAAQS. The EPA therefore exercises the discretion granted to the Administrator by section 188(d) of the CAA to extend the Moderate area attainment date for the Oakridge NAA from December 31, 2015 to December 31, 2016.

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);

• is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.);

• does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 16, 2016. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2)).

I. Background

In FR Doc. 2016-11458 of May 18, 2016 (81 FR 31375) (hereinafter referred to as the Section 1557 final rule) there is a typographical error that is discussed in the “Summary of Error,” and further identified and corrected in the “Correction of Error” section below. The provision in this correction document is effective as if it had been included in the Section 1557 final rule published in the Federal Register on May 18, 2016.

On page 31473, in Appendix A to Part 92—Sample Notice Informing Individuals About Nondiscrimination and Accessibility Requirements and Sample Nondiscrimination Statement: Discrimination is Against the Law, the telephone number provided for assistance with filing a civil rights complaint with the U.S. Department of Health and Human Services, Office for Civil Rights was incorrect. The correct telephone number is 800-368-1019.

In FR Doc. 2016-11458 of May 18, 2016 (81 FR 31375), make the following correction:

1. On page 31473, first column, first full paragraph, line 22, “1-800-868-1019” is corrected to read “1-800-368-1019”.

The United States is a member of the IATTC, which was established under the Convention for the Establishment of an Inter-American Tropical Tuna Commission signed in 1949 (Convention). The Convention provides an international agreement to ensure the effective international conservation and management of highly migratory species of fish in the IATTC Convention Area. The IATTC Convention Area, as amended by the Antigua Convention, includes the waters of the EPO bounded by the coast of the Americas, the 50° N. and 50° S. parallels, and the 150° W. meridian.

Pelagic longline fishing in the EPO is managed, in part, under the Tuna Conventions Act as amended (Act), 16 U.S.C. 951-962. Under the Act, NMFS must publish regulations to carry out recommendations of the IATTC that have been approved by the Department of State (DOS). Regulations governing fishing by U.S. vessels in accordance with the Act appear at 50 CFR part 300, subpart C. These regulations implement IATTC recommendations for the conservation and management of highly migratory fish resources in the EPO.

In 2013, the IATTC adopted Resolution C-13-01, which establishes an annual catch limit of bigeye tuna for longline vessels over 24 meters. For calendar years 2014, 2015, and 2016, the catch of bigeye tuna by longline gear in the IATTC Convention Area by fishing vessels of the United States that are over 24 meters in overall length is limited to 500 metric tons per year. With the approval of the DOS, NMFS implemented this catch limit by notice-and-comment rulemaking under the Act (79 FR 19487, April 9, 2014, and codified at 50 CFR 300.25).

NMFS, through monitoring the retained catches of bigeye tuna using logbook data submitted by vessel captains and other available information from the longline fisheries in the IATTC Convention Area, has determined that the 2016 catch limit is expected to be reached by July 25, 2016. In accordance with 50 CFR 300.25(b), this Federal Register notice announces that the U.S. longline fishery for bigeye tuna in the IATTC Convention Area will be closed for vessels over 24 meters in overall length starting on July 25, 2016, through the end of the 2016 calendar year. The 2017 fishing year is scheduled to open on January 1, 2017; the bigeye tuna catch limit for longline vessels over 24 meters in overall length has yet to be determined for 2017. The IATTC will meet in October 2016 and is scheduled to address tropical tuna conservation and management, including the catch limit for large longline vessels. Any measures adopted by the IATTC in October 2016 would subsequently be implemented by NMFS via rulemaking.

During the closure, a U.S. fishing vessel over 24 meters in overall length may not be used to retain on board, transship, or land bigeye tuna captured by longline gear in the IATTC Convention Area, except as follows:

• Any bigeye tuna already on board a fishing vessel on July 25, 2016, may be retained on board, transshipped, and/or landed, to the extent authorized by applicable laws and regulations, provided all bigeye tuna are landed within 14 days after the effective date of this rule, that is, no later than August 8, 2016.

• In the case of a vessel that has declared to NMFS that the current trip type is shallow-set longlining, the 14-day limit to land all bigeye in the previous paragraph is waived. However, the prohibition on any additional retention of bigeye tuna still applies as of July 25, 2016.

Other prohibitions during the closure include the following:

• Bigeye tuna caught by a United States vessel over 24 meters in overall length with longline gear in the IATTC Convention Area may not be transshipped to a fishing vessel unless that fishing vessel is operated in compliance with a valid permit issued under 50 CFR 660.707 or 665.801.1

• A U.S. fishing vessel over 24 meters in overall length that is not on a declared shallow-set longline trip may not be used to fish in the Pacific Ocean using longline gear both inside and outside the IATTC Convention Area during the same fishing trip, with the exception of a fishing trip that was already in progress when the prohibitions were put into effect.

• If a vessel over 24 meters in overall length not on a declared shallow-set longline trip is used to fish in the Pacific Ocean using longline gear outside the IATTC Convention Area, and the vessel enters the IATTC Convention Area at any time during the same fishing trip, the longline gear on the fishing vessel must be stowed in a manner so as not to be readily available for fishing. Specifically, the hooks, branch lines, and floats must be stowed and not available for immediate use, and any power-operated mainline hauler on deck must be covered in such a manner that it is not readily available for use.

NMFS has determined there is good cause to waive prior notice and opportunity for public comment pursuant to 5 U.S.C. 553(b)(B). This action is based on the best available information and is necessary for the conservation and management of bigeye tuna. Compliance with the notice and comment requirement would be impracticable and contrary to the public interest because NMFS would be unable to ensure that the 2016 bigeye tuna catch limit applicable to longline vessels over 24 meters is not exceeded. The annual catch limit is an important mechanism to ensure that the United States complies with its international obligations in preventing overfishing and managing the fishery at optimum yield. Moreover, NMFS previously solicited, and considered, public comments on the rule that established the catch limit (79 FR 19487, April 9, 2014), including a provision for issuing a notice to close the fishery, if necessary, to prevent exceeding the catch limit. For the same reasons, NMFS has also determined there is good cause to waive the requirement for a 30-day delay in effectiveness under 5 U.S.C. 553(d)(3).

This action is required by § 300.25(b) and is exempt from review under Executive Order 12866.

Federal regulations at § 648.82(n)(2)(ii) require the Regional Administrator to close a common pool Trimester Total Allowable Catch (TAC) Area for a stock when 90 percent of the Trimester TAC is projected to be caught. The closure applies to all common pool vessels fishing with gear capable of catching that stock for the remainder of the trimester.

As of July 11, 2016, the common pool fishery caught between 79 and 89 percent of the Trimester 1 TAC (3.3 mt) for Georges Bank (GB) cod. We project that 90 percent of the Trimester 1 TAC will be caught within a few days. The fishing year 2016 common pool sub-annual catch limit (sub-ACL) for GB cod is 13.2 mt.

Effective July 13, 2016, the GB Cod Trimester TAC Area is closed for the remainder of Trimester 1, through August 31, 2016, to all common pool vessels fishing with trawl gear, sink gillnet gear, and longline/hook gear. The GB Cod Trimester TAC Area consists of statistical areas 521, 522, 525, and 561. The area reopens at the beginning of Trimester 2 on September 1, 2016.

If a vessel declared its trip through the Vessel Monitoring System (VMS) or the interactive voice response system, and crossed the VMS demarcation line prior to July 13, 2016, it may complete its trip within the Trimester TAC Area.

Any overage of the Trimester 1 or 2 TACs must be deducted from the Trimester 3 TAC. If the common pool fishery exceeds its sub-ACL for the 2016 fishing year, the overage must be deducted from the common pool's sub-ACL for fishing year 2017. Any uncaught portion of the Trimester 1 and Trimester 2 TACs is carried over into the next trimester. However, any uncaught portion of the common pool's sub-ACL may not be carried over into the following fishing year.

Weekly quota monitoring reports for the common pool fishery are on our Web site at: http://www.greateratlantic.fisheries.noaa.gov/ro/fso/MultiMonReports.htm. We will continue to monitor common pool catch through vessel trip reports, dealer-reported landings, VMS catch reports, and other available information, and, if necessary, we will make additional adjustments to common pool management measures.

This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866.

The Assistant Administrator for Fisheries, NOAA, finds good cause pursuant to 5 U.S.C. 553(b)(B) and 5 U.S.C. 553(d)(3) to waive prior notice and the opportunity for public comment and the 30-day delayed effectiveness period because it would be impracticable and contrary to the public interest.

Regulations require the Regional Administrator to close a trimester TAC area to the common pool fishery when 90 percent of the Trimester TAC for a stock has been caught. Updated catch information only recently became available indicating that the common pool fishery will catch 90 percent of its Trimester 1 TAC for GB cod in the week of July 11, 2016. The time necessary to provide for prior notice and comment, and a 30-day delay in effectiveness, prevents the immediate closure of the GB Cod Trimester 1 TAC Area. Delaying the effective date of a closure increases the likelihood that the common pool fishery will exceed its quota of GB cod to the detriment of this stock, which could undermine management objectives of the Northeast Multispecies Fishery Management Plan. Additionally, an overage of the common pool quota could cause negative economic impacts to the common pool fishery as a result of overage paybacks in a future trimester or fishing year.