Federal Register Vol. 81, No.188,

I. Comments

FHFA invites comments on all aspects of the proposed rule and will take all comments into consideration before issuing a final rule. All comments received will be posted without change on the FHFA Web site at http://www.fhfa.gov, and will include any personal information provided, such as name, address (mailing and email), and telephone numbers. In addition, copies of all comments received will be available without change for public inspection on business days between the hours of 10 a.m. and 3 p.m., at the Federal Housing Finance Agency, 400 Seventh Street SW., Washington, DC 20219. To make an appointment to inspect comments, please call the Office of General Counsel at (202) 649-3804.

Under the Bank Act, federally insured depository institutions, including state- and federally chartered credit unions whose member accounts are insured by the National Credit Union Share Insurance Fund (NCUSIF), have been eligible for Bank membership since 1989. Until recently, however, state-chartered credit unions without Federal share insurance were ineligible for Bank membership, except to the limited extent that a credit union certified as a “community development financial institution” (CDFI) could meet the eligibility requirements applicable to CDFIs. In December 2015, Congress amended the Bank Act to authorize the Banks to consider applications for membership from state-chartered credit unions without Federal share insurance and to approve such applicants for Bank membership (irrespective of their CDFI status), provided that certain prerequisites have been met.1 This proposed rule would implement those statutory amendments.

Section 4 of the Bank Act specifies the types of institutions that may be eligible for membership in one of the eleven district Banks and establishes requirements that each of those types of institutions must meet in order to be eligible for Bank membership.1 When enacted as part of the original Bank Act in 1932, section 4 authorized thrift institutions of various types, as well as insurance companies, to become Bank members, provided that the institution met the applicable eligibility requirements. At that time and for many decades afterward, the statute did not permit credit unions to become Bank members. This changed in 1989, when Congress amended section 4 to add “insured depository institution[s]” to the list of entities that may be eligible for Bank membership and defined that term to include any depository institution the accounts of which are insured by the Federal Deposit Insurance Corporation (FDIC) or by the NCUSIF.2 In effect, those amendments authorized federally insured commercial banks and credit unions to become Bank members for the first time. Commercial banks without Federal deposit insurance and credit unions without Federal share insurance remained ineligible for Bank membership even after the 1989 amendments.

In 2008, Congress amended the Bank Act to authorize entities certified as CDFIs by the CFDI Fund of the United States Department of the Treasury to become Bank members, provided the CDFI meets the membership eligibility requirements established for such entities. By law, credit unions—including state-chartered credit unions without Federal share insurance—may be certified as CDFIs.3 Thus, since the adoption of the 2008 statutory amendments, a credit union that would otherwise have been ineligible for Bank membership due to a lack of Federal share insurance may nonetheless be eligible for membership if it is certified as a CDFI and meets the eligibility requirements applicable to CDFIs.

To implement those statutory amendments, FHFA in January 2010 adopted amendments to part 1263 to address membership eligibility and application requirements for CDFIs and to clarify the types of entities to be treated as CDFIs for membership purposes.4 That rule defined “CDFI” to mean any entity that the CDFI Fund has certified as a community development financial institution, with the exception of federally insured banks, thrifts, and credit unions.5 As insured depository institutions under the Bank Act, the latter types of entities had already been eligible for Bank membership prior to the enactment of the statutory provisions authorizing membership for CDFIs. By excluding federally insured depositories from the definition of “CDFI,” FHFA effectively required that they continue to be treated solely as insured depository institutions under the membership regulation, even in cases where the institution has been certified as a CDFI. In explaining its decision, the Agency cited its conclusion that, while Congress adopted the 2008 amendments to provide a new avenue to membership for CDFIs that had not previously been eligible, it did not intend to provide an additional avenue to membership for federally insured depository institutions that had already been eligible under the prior law.6

While it effectively required that a federally insured credit union certified as a CDFI be treated as an insured depository institution for Bank membership purposes, the 2010 rule mandated different treatment for state-chartered credit unions without Federal share insurance that have been certified as a CDFI—a type of entity that the rule termed a “CDFI credit union.” As amended by the 2010 rule, the membership regulation treats CDFI credit unions as a type of CDFI and generally subjects them to the same standards that apply to non-depository CDFIs, with the exception of those that must be met in order for an applicant to be deemed in compliance with the statutory eligibility requirement that an institution's financial condition be “such that advances may be safely made to it.” 7 With respect to the latter requirement, the regulation requires that CDFI credit unions demonstrate compliance in a manner similar to that which had already been required of all other types of depository institution applicants prior to the 2010 rulemaking.8 For non-depository CDFIs, such as loan funds and venture capital funds, the 2010 final rule established separate financial condition requirements that were tailored to the unique structure and business of those entities.9

In December 2015, Congress again amended section 4 of the Bank Act, in this case to permit state-chartered credit unions without Federal share insurance to be approved for Bank membership (irrespective of their CDFI status) where the credit union meets the membership eligibility requirements applicable to insured depository institutions and has taken enumerated steps to demonstrate that it meets the requirements for Federal share insurance, notwithstanding that it is not actually federally insured.10 Specifically, new section 4(a)(5) states that a credit union lacking Federal share insurance that has applied to become a member of a Bank shall be treated as an insured depository institution for purposes of determining its eligibility for Bank membership, provided that its state credit union regulator has first determined that the institution met the requirements for Federal share insurance as of the date of its application for membership.11 However, the new provision also provides that if the state regulator for such an applicant fails to make a determination as to whether the applicant met the requirements for Federal share insurance before the expiration of the six-month period that begins on the date of its application for membership, then the credit union applicant shall be deemed to have met those requirements.12

Consistent with the regulatory definitions that would be in effect under the proposed rule, this Supplementary Information refers to credit unions without Federal share insurance that are not certified as CDFIs as “non-federally-insured credit unions” or “NFICUs” and to credit unions without Federal share insurance that are certified as CDFIs as “CDFI credit unions.” As discussed below, under the proposed rule, CDFI credit unions would continue to be treated as they are under the existing regulation and would not be subject to the new regulatory provisions governing NFICUs.

On April 12, 2016, in response to requests from several Banks for guidance addressing the manner in which they may accept and process membership applications from NFICUs that are newly eligible under the recent statutory amendments, FHFA sent a letter to each Bank describing how it should comply with the new statutory provisions. The guidance letters addressed the substantive requirements of the statutory amendments, the procedures each Bank should follow in processing applications, and the actions the Bank should take to document compliance with the new eligibility requirements. The letters also noted the Agency's intent to initiate a rulemaking to codify the substance of the guidance and advised each Bank to process membership applications from NFICUs in accordance with the guidance until FHFA adopts a final rule implementing the new statutory provisions.

The amended statute provides that an NFICU may be eligible for Bank membership only if its state regulator has determined that it meets all the requirements for Federal share insurance “as of the date of the application for membership.” 13 With respect to the nature of this determination, the guidance letters expressed FHFA's view that the statute requires that the state regulator of an NFICU applicant determine that the applicant actually satisfies all of the applicable eligibility requirements for NCUSIF share insurance under the Federal Credit Union Act 14 and the implementing regulations of the NCUA.15 In response to specific questions FHFA had received, the guidance clarified that a determination by a state regulator that a particular NFICU applicant is “eligible to apply” for NCUA insurance or is operating and in good standing under state law is not sufficient to satisfy the statutory requirement.

The guidance also addressed the meaning of the term “date of the application for membership,” which Congress designated as the date as of which the state regulator is to determine whether an NFICU meets the eligibility requirements for Federal share insurance and on which begins the statutory six-month period after which an NFICU shall be deemed to meet those requirements if its state regulator fails to act. Because Congress did not specify precisely what constitutes the “date of the application,” FHFA construed the term consistently with similar language in the existing membership regulation. The guidance explained that the “date of the application” should be the date on which an NFICU has provided to a Bank a “complete” membership application—i.e., an application that includes all information that is required to assess the applicant's compliance with the applicable statutory and regulatory membership eligibility requirements, as well as any other information the Bank deems necessary to act on an application. The existing membership regulation uses this concept of a “complete” application to establish the starting point of the 60-day period during which a Bank is generally required to make a determination on a membership application.16

The guidance stated that a Bank generally should process a membership application from an NFICU in the same manner it would process a membership application from a federally insured credit union, up to the point when the Bank determines that the NFICU has provided all information required to assess its compliance with the applicable membership eligibility requirements. The existing membership regulation requires that, once a Bank makes such a determination with respect to the application of a federally insured credit union (or that of any other type of applicant), it must inform the applicant that the application is “complete” and generally must act on the application within 60 days. The guidance, however, advised that, when a Bank has made such a determination with respect to the application of an NFICU, the Bank should instead inform the NFICU that its application is “provisionally complete” and that it must take further steps before the application may be deemed fully complete and ready to be acted upon. Under the guidance, a Bank is to regard an NFICU's application to be only “provisionally” complete at that point because it would not include the documentation that the NFICU's state regulator either has determined that the applicant satisfied the requirements for Federal share insurance as of the date of the application or has failed to make that determination within six months. The guidance advised that, when informing an NFICU applicant that its application is provisionally complete, a Bank should instruct it to make a written request of its state regulator for a determination that the NFICU satisfied all of the eligibility requirements for Federal share insurance as of the date of that request, and to provide a copy of that request to the Bank on the same day it transmits the request to the regulator.17

With respect to the completion of the membership application, the guidance advised that a Bank should act on an NFICU's application only after having received one of the following three items: (1) An affirmative written response from the regulator that the NFICU meets the eligibility requirements for Federal share insurance; (2) a written statement from the regulator that it cannot or will not make any determination regarding the NFICU's eligibility for Federal share insurance; or (3) a written statement from the NFICU applicant that six months have expired from the date of the membership application without the state regulator providing any response to the NFICU's request. Items (1) and (3) above closely track the statutory requirements. Regarding item (2), FHFA concluded that, although the statute does not address the possibility that a state regulator may expressly decline to make a determination (as opposed to merely failing to respond to a request), it is permissible to consider such a written statement as the substantive equivalent of a failure to respond within six months. The Agency noted that the statutory six-month review period appeared to be intended to ensure that a state credit union regulator would have a sufficient amount of time to determine whether a particular credit union satisfied the requirements for Federal share insurance. The guidance reflected FHFA's belief that, in the event that a state regulator were to conclude that it could not make such a determination for any credit union due to a lack of familiarity with the NCUA underwriting process or for other reasons, receipt of a written statement to that effect will suffice to allow a Bank to approve an NFICU's membership application without waiting for the six-month period to expire.18 The guidance advised the Banks to retain in each NFICU applicant's membership file copies of the relevant documents, including the applicant's request to its state regulator and any response from the regulator or statement from the applicant that the regulator had not responded, as part of its required records for all membership applications.

Finally, the guidance letters addressed the possibility that an existing Bank member that is a state-chartered federally insured credit union might voluntarily cancel its Federal share insurance, thus becoming an NFICU—a scenario that the new statutory provisions do not explicitly address. The guidance made clear that such a credit union may voluntarily surrender its Federal share insurance without jeopardizing its status as a Bank member and without having to request from its state regulator the type of determination that the statute requires to be made with respect to NFICU applicants. The guidance letters reasoned that NCUA's prior approval of the credit union for Federal share insurance is dispositive as to the key issue under the statutory amendments—i.e., whether the institution satisfies the eligibility requirements for Federal share insurance—thus obviating any need for the member's state regulator to make that same decision.

The proposed rule would codify into part 1263 of FHFA's regulations the core concepts of the guidance letters. The principal regulatory provisions regarding NFICUs would be located in a new § 1263.19 (a reserved section number under the existing regulation), which would set forth the prerequisites that an NFICU must meet in order to be treated as an insured depository institution for purposes of determining its eligibility for membership. As described in more detail below, the proposed rule would also make a number of conforming revisions to other sections of the regulation.

The proposed rule would define “non-federally-insured credit union” to mean a “State-chartered credit union that does not have Federal share insurance and that has not been certified as a CDFI by the CDFI Fund.” The proposed rule would not include CDFI credit unions within this definition, notwithstanding that they are also state-chartered credit unions that do not have Federal share insurance. The existing regulation generally requires CDFI credit unions to comply with the membership eligibility requirements that are applicable to CDFIs generally, rather than those applicable to depository institutions, with the exception of provisions relating to the applicant's financial condition. The proposed rule would make no substantive changes to any of the provisions that currently apply to CDFI credit unions and would treat them separately from NFICUs for membership purposes.

The definition of “insured depository institution” in the existing membership regulation follows the Bank Act definition of that term and includes any federally insured bank, savings association, or credit union. The proposed rule would revise the regulatory definition of “insured depository institution” to include, in addition to federally insured depository institutions, NFICUs meeting the prerequisites of proposed § 1263.19. As an “insured depository institution” under the revised regulation, any qualifying NFICU applying for Bank membership would be subject to all of the provisions of the membership regulation that apply to insured depository institutions generally, except where otherwise provided. Thus, a qualifying NFICU applicant would be eligible for membership only if: It is duly organized under Federal or State law; it is subject to inspection and regulation under Federal or State banking laws, or similar laws; it makes long-term home mortgage loans; its financial condition is such that advances may be safely made to it (hereinafter the “financial condition” requirement); its management and its home financing policy are both consistent with sound and economical home financing;19 and it has at least 10 percent of its assets in “residential mortgage loans” (hereinafter the “10 percent” requirement).20 With the exception of the financial condition requirement, an NFICU applicant would be required to demonstrate compliance with each of those eligibility requirements in the same manner that is required of insured depository institutions generally. As discussed below, the proposed rule would require an NFICU applicant to demonstrate compliance with the financial condition requirement in the same manner as a CDFI credit union.21

The proposed rule would add to the membership regulation a new § 1263.19, which would set forth the prerequisites that an NFICU must meet in order to be treated as an insured depository institution for purposes of determining its eligibility for membership. The substantive and procedural requirements set forth in proposed § 1263.19 are, in all material respects, identical to those set forth in the guidance letters, although the proposed rule would provide additional clarification on certain points. As described below, paragraph (a) of the new section would address the treatment of NFICUs that are applying for Bank membership, while paragraph (b) would address the status of any credit union that already is a Bank member but that opts to become an NFICU by canceling its Federal share insurance.

Section 126319(a) addresses the prerequisites that must be met before a Bank may approve an NFICU applicant for membership. In parallel with the inclusion of qualifying NFICUs within the regulatory definition of “insured depository institution,” the introductory clause to this provision provides that an NFICU applicant shall be treated as an insured depository institution for purposes of determining its eligibility for membership, provided that it complies with all of the requirements of § 1263.19(a).

The proposed rule would first require that a Bank obtain from an NFICU applicant all of the information that the Bank generally requires to process membership applications from federally insured depository institutions, including all of the information needed to demonstrate compliance with the eligibility requirements described above. Once a Bank has obtained that information, the rule would require that the Bank notify the NFICU that its application is provisionally complete and that the NFICU should request from its state regulator a determination that it satisfies the requirements for obtaining Federal share insurance as of the date of the request.22 The notice must also inform the NFICU that its application will not be deemed to be complete until the Bank has received acceptable documentation pertaining to the regulator's response to the NFICU applicant's request.

Proposed § 1263.19(a)(3) would require a Bank to deem an NFICU's application to be complete after it has received any one of the following items: (1) A written statement from the regulator confirming that the NFICU satisfies the requirements for Federal share insurance; (2) a written statement from the regulator that it is unable to make that determination; or (3) a written statement from the NFICU that it has not received a response from the state regulator within the statutory six-month period, and that the regulator has not determined that the NFICU does not meet the requirements for Federal share insurance. Once a Bank has received one of those three items and has deemed the NFICU's application to be complete, the proposed rule would require that the Bank act upon the application in accordance with § 1263.3(c). That existing provision requires that a Bank notify an applicant when it deems the application to be complete and (with certain exceptions) either approve or deny the application within 60 calendar days of the date it made that determination.23 The cross-reference to § 1263.3(c) is intended to make clear that a Bank would be permitted the same amount of time to act upon a fully complete NFICU application as it has to act upon a complete application from any other type of eligible institution. However, given that an NFICU's application should already include all of the information needed to determine whether it meets the applicable membership eligibility requirements at the time it sends the request to its regulator, FHFA anticipates that in many cases Banks would be prepared to act upon an NFICU application shortly after receiving the required documentation regarding the response of the state regulator, especially when the regulator fails to respond within six months or does not provide a response until the end of that timeframe.

While proposed § 1263.19(a) addresses the treatment of NFICUs applying to become a Bank member, § 1263.19(b) addresses the status of any existing credit union Bank member that opts to become an NFICU by canceling its Federal share insurance. The guidance letters made clear that any such credit union may voluntarily surrender its Federal share insurance without affecting its status as a Bank member. Consistent with that position, proposed § 1263.19(b) would explicitly authorize such a credit union to remain a member without requiring it to request a determination of its state regulator as to whether it meets the requirements for Federal share insurance. The proposed rule would require that the Bank determine that the member has canceled its Federal share insurance voluntarily—i.e., that NCUA has approved the credit union's request to terminate its Federal share insurance.24 The Banks could make this determination by obtaining a copy of NCUA's approval of the credit union's request to terminate its Federal insurance. Upon converting to an NFICU, the credit union would remain subject to all regulatory provisions that apply to insured depository institution members.

The recent statutory amendments focus on state-chartered credit unions that have not previously been eligible for Bank membership due to their lack of Federal share insurance; the amendments do not address whether all of the requirements that apply to NFICU applicants should also apply to existing Bank members that wish to surrender their Federal share insurance while remaining as members. As FHFA noted in the guidance letters, the key question with respect to whether any particular NFICU may be eligible for Bank membership under the statutory amendments is whether the institution actually meets all of the requirements for Federal share insurance. In the case of an existing Bank member that is a federally insured state-chartered credit union, NCUA has already definitively answered that question by having previously approved the credit union for Federal share insurance and having continued to provide that insurance up until the time the credit union voluntarily canceled it. For that reason, nothing would be gained by construing the statute as requiring existing credit union Bank members that voluntarily cancel their Federal share insurance to seek that same determination from their state regulators in order to remain a member as an NFICU.

Requiring a Bank to confirm that the cancelation of a member's Federal share insurance was voluntary would provide reasonable assurance that the member satisfies the requirements for Federal share insurance and, thus, remains eligible for membership as an NFICU despite no longer being a federally insured depository institution. As noted above, the core requirement for NFICUs under the statutory amendments is a determination that the NFICU satisfies the requirements for Federal share insurance, and the best evidence that a newly converted NFICU satisfies those requirements would be that it had remained federally insured until voluntarily relinquishing the insurance. It is also possible, however, that a federally insured credit union could lose its Federal share insurance through an involuntary termination for cause by NCUA. If NCUA were to terminate a Bank member's share insurance involuntarily, then that institution would cease to be eligible for Bank membership because NCUA's action would demonstrate that the institution could not meet the prerequisites for membership as an NFICU and, without Federal share insurance, it would no longer be eligible for membership as a federally insured depository institution. In such a case, a Bank likely would be required to terminate the credit union's membership because, unless the credit union happened to be certified as a CDFI, it would no longer satisfy any of the provisions under which credit unions may eligible for membership.

The proposed rule would also make a number of conforming revisions to part 1263, which are discussed below.

In addition to the substantive revisions to § 1263.1 that are discussed above, the proposed rule would make a number of non-substantive revisions to that section. First, the rule would add a definition of “Federal share insurance” and define that term to mean “insurance coverage of credit union member accounts provided by the National Credit Union Share Insurance Fund under title II of the Federal Credit Union Act (12 U.S.C. 1781 et seq.).”

The rule would also revise the definition of “CDFI credit union,” which is currently defined to mean “a State-chartered credit union that has been certified as a CDFI by the CDFI Fund and that does not have Federal share insurance,” to reverse the order of the two clauses so that it would instead refer to “a State-chartered credit union that does not have Federal share insurance and that has been certified as a CDFI by the CDFI Fund.” FHFA is proposing to make this minor change so that the definition of “CDFI credit union” will be structured in parallel with the definition of “non-federally-insured credit union.” The intent of this is to make clear that the amended regulation would address two types of state-chartered credit unions without Federal share insurance—those that are not certified as a CDFI (non-federally-insured credit unions) and those that are certified as a CDFI (CDFI credit unions)—and would subject them to different membership requirements.

In the definition of “community development financial institution or CDFI,” the proposed rule would revise the reference to “a credit union insured under the Federal Credit Union Act (12 U.S.C. 1751 et seq.)” to refer instead to “a credit union that has Federal share insurance.” FHFA is proposing this minor non-substantive change so that the terminology used in the definition of “CDFI” will be consistent with that in the proposed definitions of “non-federally-insured credit union” and “CDFI credit union,” both of which would employ the newly-defined term “Federal share insurance” to refer to insurance obtained under the Federal Credit Union Act.

Finally, the proposed rule would revise the definition of “regulatory financial report,” which currently refers to a financial report that an “applicant” is required to file with its regulator, to refer instead to a financial report that an “institution” is required to file with its regulator. In addition to requiring a Bank to obtain information from applicants' regulatory financial reports for many purposes, FHFA's regulations also require that a Bank obtain information from members' regulatory financial reports in some circumstances. The proposed revision would make clear that the term “regulatory financial report” refers to the reports of both applicants and members.

Section 1263.2(b) of the existing regulation requires a Bank to prepare for each applicant a written membership application digest addressing whether or not the applicant meets each of the applicable requirements for membership under the regulation. The proposed rule would revise that provision to require expressly that a Bank include in the application digest for each NFICU applicant a written summary of the manner in which the applicant has complied with the requirements of proposed § 1263.19(a). FHFA would expect a Bank to note in the digest the date on which the NFICU applicant transmitted to its state regulator the request required under proposed § 1263.19(a)(2), as well as the date on which the Bank received the written statement addressing the results of that request required under proposed § 1263.19(a)(3). The Agency would also expect the Bank to describe in the digest which of the three types of written statements that are permissible under § 1263.19(a)(3) was used to satisfy the requirement of that provision.

The proposed rule would also revise § 1263.2(c), which requires a Bank to maintain a membership file for each applicant, to make clear that a Bank should include in the file for an NFICU applicant any documents required under proposed § 1263.19.

Existing § 1263.11 governs the manner in which Banks are to determine whether depository institution applicants, including insured depository institutions and CDFI credit unions, are in compliance with the statutory “financial condition” eligibility requirement. Paragraph (a) requires that a Bank review a number of different items regarding the financial condition of depository institution applicants, including: (1) Regulatory financial reports the applicant filed with its regulator for the last six calendar quarters and three year-ends; (2) the applicant's most recent audited financial statements; (3) the applicant's most recent regulatory examination report; (4) a written description of any outstanding enforcement actions against the applicant; and (5) any other relevant document or information concerning the financial condition of the applicant that comes to the Bank's attention.

In its 2010 final rule amending part 1263 to implement the statutory amendments that authorized Bank membership for CDFIs, FHFA revised § 1263.11(a) to make clear that the review requirement applies to CDFI credit unions, in addition to other types of depository institutions. In explaining its decision to make that revision, the Agency explained that “[a]lthough CDFI credit unions do not file regulatory financial reports with the NCUA, they do file comparable reports with their appropriate state regulator, and FHFA believes that those documents may be used to assess the financial condition of the CDFI credit unions.” 25 Similarly, Banks can and should use financial reports filed by NFICU applicants with their state regulators to assess the applicants' financial condition. Although the proposed rule would not revise § 1263.11(a) to refer expressly to NFICUs, the review requirements of that provision would nonetheless apply in the case of NFICU applicants, given that NFICUs meeting the prerequisites of § 1263.19 would generally be treated as insured depository institutions for purposes of determining their eligibility for membership under the amended regulation.

Existing § 1263.11(b) establishes three standards that a depository institution applicant must meet to be deemed in compliance with the “financial condition” requirement: (1) It must have received a composite regulatory examination rating from its state regulator within the preceding two years; (2) it must meet all of its minimum statutory and regulatory capital requirements; and (3) it must meet the “minimum performance standard” described in § 1263.11(b)(3). The latter provision deems any applicant that received a composite rating of “1” on its most recent regulatory examination, except for a CDFI credit union, to be automatically in compliance with the “minimum performance standard.” 26 That provision requires that any non-CDFI depository institution with an examination rating of “2” or “3,” as well as any CDFI credit union regardless of its examination rating, satisfy performance trend criteria relating to its (A) earnings (the applicant must have positive income in four of the six most recent quarters), (B) nonperforming assets (nonperforming loans and leases plus other real estate owned must not exceed 10 percent of total loans and leases plus other real estate owned in the most recent quarter), and (C) allowance for loan and lease losses (the ratio must have been 60 percent or greater during four of the six most recent quarters) in order to meet the “minimum performance standard.” 27

In adopting its final rule on membership for CDFIs in 2010, FHFA decided to require all CDFI credit union applicants—including those with a current state examination rating of “1”—to demonstrate compliance with the performance trend criteria specified in § 1263.11(b)(3), while continuing to exempt other types of depository institutions having a “1” rating from that requirement. In the Supplemental Information to the 2010 final rule, FHFA described its decision to require that even the most highly rated CDFI credit unions satisfy the performance trend criteria as “prudent.” The Agency noted that, because such institutions are not subject to oversight by the NCUA and because they had not previously been eligible for membership, the Banks were likely to be less familiar with the state examination processes and ratings systems to which they are subject than with those that apply to federally insured depository institutions.28

For similar reasons, the proposed rule would revise § 1263.11(b)(3)(iii) to require that NFICUs meet the minimum performance standard in the same way that CDFI credit unions must under the existing provision—that is, by having received a “1,” “2,” or “3” composite rating in its most recent regulatory examination and by meeting the performance trend criteria for earnings, nonperforming assets, and allowance for loan and lease losses. FHFA believes that, given the Banks' lack of experience with non-federally-insured credit unions, it is also prudent to require all NFICUs to meet the performance trend criteria as part of satisfying the “financial condition” eligibility requirement. Despite the fact that a subset of credit unions without Federal share insurance—i.e., CDFI credit unions—have been permitted to become Bank members since 2010, it does not appear that the Banks have approved any such institutions for membership to date. Consequently, the safety and soundness concerns arising from the Banks' relative lack of familiarity with the regimes that apply to credit unions that are subject to regulation and supervision only at the state level continue to exist and apply with equal validity to both CDFI credit unions and NFICUs.29

The Bank Act requires that the primary Federal banking regulators make available to the Banks, in confidence, reports of condition and other information relating to the condition of any Bank member or other institution with which a Bank contemplates having transactions authorized by the Bank Act, such as applicants for membership.30 That provision, however, does not apply to state banking regulators and the supervisory reports that they prepare relating to depository institutions organized under state law. Although many Banks have arrangements with state banking regulators, including state credit union regulators, under which those regulators provide the Banks with access to confidential supervisory information, including reports of examination, for the institutions they regulate, that may not be the case for every state. This raises a question as to whether a Bank may approve an application for membership received from an NFICU whose state regulator declines to provide the Bank with access to the reports of examination for its regulated entities or to allow the credit unions it regulates to disclose the composite rating derived from those examinations.

Under the existing membership regulation, compliance with § 1263.11 creates a presumption that a depository institution applicant meets the statutory “financial condition” requirement. While failure to comply with § 1263.11 creates a presumption that a depository institution applicant does not meet the “financial condition” requirement, that presumption of noncompliance may be rebutted. Section 1263.17(d) provides that, if a depository institution applicant does not have a composite regulatory examination rating, does not have the minimum rating required by the regulations, or does not meet the performance trend criteria, the applicant may still meet the “financial condition” requirement if it or the Bank prepares a written justification providing substantial evidence that is acceptable to the Bank that it is in a sound financial condition, notwithstanding its failure to meet one or more of the requirements of § 1263.11.31 Although FHFA encourages all of the Banks to reach agreements with the appropriate state regulators to allow them to review the reports of examination for all state-chartered depository institutions, a Bank may rely on the alternative provisions of § 1263.17(d) to rebut any presumption of noncompliance with the “financial condition” requirement that arises from a state credit union regulator's decision not to provide a Bank with access to the reports of examination for its regulated entities.

Existing § 1263.31 sets forth a number of stipulations to which each Bank member is deemed to have agreed as a condition precedent to becoming a Bank member. Under paragraph (b) of this section, each institution admitted to Bank membership agrees that reports of examination by local, state or Federal agencies, or institutions may be furnished by those authorities to the Bank or to FHFA upon request. The proposed rule would revise § 1263.31(b) to specify that, with respect to any member that is an NFICU or CDFI credit union, the member also agrees that reports of examination by any private entity that provides it with share insurance may be furnished to the Bank or to FHFA. To the best of FHFA's knowledge, there is only one insurance company in the United States currently providing private share insurance for state-chartered credit unions.

Under existing § 1263.31(e), each institution also agrees, as a condition of Bank membership, that it will provide to the Bank, within 20 days of filing, copies of reports of condition and operations filed with its appropriate Federal banking agency. The proposed rule would revise that provision to state that each member also agrees to provide any reports of condition and operations it may be required to file with its appropriate state regulator and that each member that is an NFICU or a CDFI credit union agrees to provide any such reports it may be required to file with a private entity providing it with share insurance.

Section 1313(f) of the Safety and Soundness Act requires the Director of FHFA, when promulgating regulations relating to the Banks, to consider the differences between the Banks and the Enterprises (Fannie Mae and Freddie Mac) as they relate to: The Banks' cooperative ownership structure; the mission of providing liquidity to members; the affordable housing and community development mission; their capital structure; and their joint and several liability on consolidated obligations.32 The Director also may consider any other differences that are deemed appropriate. In preparing this proposed rule, the Director considered the differences between the Banks and the Enterprises as they relate to the above factors, and determined that the rule is appropriate. FHFA requests comments regarding whether differences related to those factors should result in any revisions to the proposed rule.

The Paperwork Reduction Act of 1995 (PRA) requires that FHFA consider the impact of paperwork and other information collection burdens imposed on the public.33 Under the PRA and the implementing regulations of the Office of Management and Budget (OMB), 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 control number assigned by OMB.34 FHFA's regulation “Members of the Federal Home Loan Banks,” located at 12 CFR part 1263, contains several collections of information that OMB has approved under control number 2590-0003, which is due to expire on December 31, 2016. The proposed rule would not make any revisions that would affect the burden estimates for those collections of information. Therefore, FHFA has not submitted any materials to OMB for review.

The Regulatory Flexibility Act 35 (RFA) requires that a regulation that has a significant economic impact on a substantial number of small entities, small businesses, or small organizations must include an initial regulatory flexibility analysis describing the regulation's impact on small entities. Such an analysis need not be undertaken if the agency has certified that the regulation will not have a significant economic impact on a substantial number of small entities.36 FHFA has considered the impact of the proposed rule under the RFA. The General Counsel of FHFA certifies that the proposed rule, if adopted as a final rule, is not likely to have a significant economic impact on a substantial number of small entities because the regulation applies only to the Banks, which are not small entities for purposes of the RFA.

For the reasons stated in the SUPPLEMENTARY INFORMATION, and under the authority of 12 U.S.C. 4511, 4513, and 4526, FHFA proposes to amend part 1263 of subchapter D of chapter XII of title 12 of the Code of Federal Regulations as follows:

The revisions and additions read as follows:

The addition reads as follows:

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-9116; Directorate Identifier 2016-NM-068-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

Fatigue damage can occur locally, in small areas or structural design details, or globally, in widespread areas. Multiple-site damage (MSD) is widespread damage that occurs in a large structural element such as a single rivet line of a lap splice joining two large skin panels. Widespread damage can also occur in multiple elements such as adjacent frames or stringers. Multiple-site damage and multiple-element damage cracks are typically too small initially to be reliably detected with normal inspection methods. Without intervention, these cracks will grow, and eventually compromise the structural integrity of the airplane. This condition is known as WFD. It is associated with general degradation of large areas of structure with similar structural details and stress levels. As an airplane ages, WFD will likely occur, and will certainly occur if the airplane is operated long enough without any intervention.

The FAA's WFD final rule (75 FR 69746, November 15, 2010) became effective on January 14, 2011. The WFD rule requires certain actions to prevent structural failure due to WFD throughout the operational life of certain existing transport category airplanes and all of these airplanes that will be certificated in the future. For existing and future airplanes subject to the WFD rule, the rule requires that DAHs establish a limit of validity (LOV) of the engineering data that support the structural maintenance program. Operators affected by the WFD rule may not fly an airplane beyond its LOV, unless an extended LOV is approved.

The WFD rule (75 FR 69746, November 15, 2010) does not require identifying and developing maintenance actions if the DAHs can show that such actions are not necessary to prevent WFD before the airplane reaches the LOV. Many LOVs, however, do depend on accomplishment of future maintenance actions. As stated in the WFD rule, any maintenance actions necessary to reach the LOV will be mandated by airworthiness directives through separate rulemaking actions.

In the context of WFD, this action is necessary to enable DAHs to propose LOVs that allow operators the longest operational lives for their airplanes, and still ensure that WFD will not occur. This approach allows for an implementation strategy that provides flexibility to DAHs in determining the timing of service information development (with FAA approval), while providing operators with certainty regarding the LOV applicable to their airplanes.

We determined that the existing Boeing 767 Maintenance Planning Document (MPD) Section 9 Airworthiness Limitation Instructions inspection program is not sufficient to preclude the occurrence of WFD in the fuselage skin lap splice as the airplane ages. The fuselage skin lap splice has multiple similar adjacent details that have the potential for MSD and the potential for WFD. 14 CFR 26.21 requires evaluation of such designs for the potential for WFD and implementation of the appropriate service actions to ensure that WFD is precluded before the airplane's LOV. We have received no reports of cracks in the fuselage skin lap splices. WFD cracking at the fuselage skin lap splice, if not corrected, could rapidly link up, possibly resulting in rapid decompression and loss of structural integrity of the airplane.

We reviewed Boeing Alert Service Bulletin 767-53A0264, Revision 1, dated April 25, 2016. The service information describes procedures for repetitive inspections and repair for any crack in the fuselage skin at the skin lap splices. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would require accomplishing the actions specified in the service information described previously. For information on the procedures and compliance times, see this service information at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9116.

Paragraph 1.B., “Concurrent Requirements,” of Boeing Alert Service Bulletin 767-53A0264, Revision 1, dated April 25, 2016, identifies Boeing Alert Service Bulletin 767-53A0260 as a concurrent service bulletin. However, this proposed AD would not require Boeing Alert Service Bulletin 767-53A0260, as a concurrent service bulletin.

We estimate that this proposed AD affects 332 airplanes of U.S. registry. We estimate the following costs to comply with this proposed AD:

The size of the area that requires repair must be determined before material and work-hour costs can be estimated. Additionally, materials for repairs are operator supplied. Therefore, we cannot provide cost estimates for the on-condition actions specified in this proposed AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect 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.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

1. Under section 215 of the Federal Power Act (FPA),1 the Commission proposes to approve Reliability Standards BAL-005-1 (Balancing Authority Control) and FAC-001-3 (Facility Interconnection Requirements), submitted by the North American Electric Reliability Corporation (NERC), and to retire Reliability Standards BAL-005-0.2b (Automatic Generation Control), FAC-001-2 (Facility Interconnection Requirements), and BAL-006-2 (Inadvertent Interchange). The Commission also proposes to approve the associated implementation plans, violation risk factors, and violation severity levels for Reliability Standards BAL-005-1 and FAC-001-3. Finally, the Commission proposes to approve three revised definitions for the glossary of terms used in NERC Reliability Standards (NERC Glossary).

2. Proposed Reliability Standards BAL-005-1 and FAC-001-3 will enhance the reliability of the Bulk-Power System, as compared to currently-effective Reliability Standards BAL-005-0.2b and FAC-001-2, by clarifying and consolidating existing requirements related to frequency control. The proposed Reliability Standards support more accurate and comprehensive calculation of Reporting Area Control Error (ACE) by requiring timely reporting of an inability to calculate Reporting ACE and by requiring balancing authorities to maintain minimum levels of annual availability of 99.5% for each balancing authority's system for calculating Reporting ACE.2

3. As discussed below, we have questions regarding the proposed retirement of Requirement R15 of Reliability Standard BAL-005-0.2b, which requires responsible entities to maintain and periodically test backup power supplies at primary control centers and other critical locations. Depending on the explanation received in comments, the Commission may issue a directive in the final rule to restore the substance of Requirement R15 in the Reliability Standards. Separately, we propose to approve NERC's request to retire Reliability Standard BAL-006-2 upon the latter of the effective date of proposed Reliability Standard BAL-005-1 and the NERC Operating Committee's approval of an Inadvertent Interchange Guideline document.

4. Section 215 of the FPA requires a Commission-certified Electric Reliability Organization (ERO) to develop mandatory and enforceable Reliability Standards that are subject to Commission review and approval. Specifically, the Commission may approve, by rule or order, a proposed Reliability Standard or modification to a Reliability Standard if it determines that the Standard is just, reasonable, not unduly discriminatory or preferential and in the public interest.3 Once approved, the Reliability Standards may be enforced by NERC, subject to Commission oversight, or by the Commission independently.4

5. Pursuant to section 215 of the FPA, the Commission established a process to select and certify an ERO,5 and subsequently certified NERC as the ERO.6 On March 16, 2007, the Commission issued Order No. 693, approving 83 of the 107 Reliability Standards filed by NERC, including Reliability Standards BAL-005-0 (Automatic Generation Control), FAC-001-0 (Facility Interconnection Requirements), and BAL-006-1 (Inadvertent Interchange).7 However, in approving Reliability Standards BAL-005-0 and BAL-006-1, the Commission directed NERC to develop modifications to those Reliability Standards through the standards development process.

6. With respect to Reliability Standard BAL-005-0, the Commission directed NERC to develop a modification that:

I. Background A. What has been FDA's position regarding the use of the term “healthy?”

Under section 403(r)(1)(A) of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 343(r)(1)(A)), a food is deemed misbranded if it bears claims, either express or implied, that characterize the level of a nutrient which is of a type required to be declared in nutrition labeling unless the claim is made in accordance with a regulatory definition established by FDA (see section 403(r)(2) of the FD&C Act). Section 201(f) of the FD&C Act (21 U.S.C. 321(f)) defines the term “food” to mean articles used for food or drink for man or other animals, chewing gum, and articles used for components of any such article. Section 201(n) of the FD&C Act (21 U.S.C. 321(n)) provides that labeling is misleading if, among other things, it fails to reveal facts that are material in light of representations made or suggested in the labeling, or material with respect to consequences that may result from the use of the food to which the labeling relates under the conditions of use prescribed in the labeling, or under such conditions of use as are customary or usual. Section 201(m) of the FD&C Act defines “labeling” as all labels and other written, printed, or graphic matter upon any article or any of its containers or wrappers or accompanying such article.

The definition in 21 CFR 101.65(d) establishes the parameters for use of the implied nutrient content claim “healthy” or related terms (such as “health”, “healthful”, “healthfully”, “healthfulness”, “healthier”, “healthiest”, “healthily”, and “healthiness”) on the label or in labeling of a food to suggest that a food, because of its nutrient content, may be useful in creating a diet that is consistent with dietary recommendations, if the food meets certain nutrient conditions, and the claim is made with an explicit or implicit claim or statement about a nutrient (e.g., “healthy, contains 3 grams of fat”). The conditions include specific criteria for nutrients to limit in the diet, such as total fat, saturated fat, cholesterol, sodium, as well as requirements for nutrients to encourage in the diet, including vitamin A, vitamin C, calcium, iron, protein, and fiber. The criteria are linked to elements in the Nutrition Facts label and serving size regulations (see 21 CFR 101.9 and 101.12). The nutrient criteria to use this nutrient content claim can vary for different food categories (e.g., fruits and vegetables, or seafood and game meat) (21 CFR 101.65(d)(2)).

In addition, under section 403(a)(1) of the FD&C Act, a food is deemed misbranded if its labeling is false or misleading in any particular.

On July 14, 2016, we released the FVM Program's Strategic Plan for fiscal years 2016-2025. The strategic plan is organized under four goals: Food safety, nutrition, animal health, and organizational excellence (The strategic plan is available on our Web site at http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofFoods/UCM507379.pdf.)

FDA's nutrition-related strategic goals include: Providing and supporting accurate and useful nutrition information to consumers so they can choose healthier diets consistent with the Dietary Guidelines for Americans and other evidence-based recommendations; and encouraging and facilitating new products and product reformulation to promote a healthier food supply. A key element in achieving these goals is the modernization of FDA's regulations for nutrition-related labeling claims to reflect current science, provide information in ways that are understandable and useful to consumers, and reduce barriers and encourage industry efforts to develop and introduce healthier food products through innovation or reformulation.

In the Federal Register of May 27, 2016, we issued final rules updating the Nutrition Facts label and serving size information for packaged foods to reflect new scientific information, including the link between diet and chronic diseases such as obesity and heart disease (see 81 FR 33742, “Food Labeling: Revision of the Nutrition and Supplement Facts Labels”; 81 FR 34000, “Food Labeling: Serving Sizes of Foods That Can Reasonably Be Consumed At One Eating Occasion; Dual-Column Labeling; Updating, Modifying, and Establishing Certain Reference Amounts Customarily Consumed; Serving Size for Breath Mints; and Technical Amendments”). Updates to the Nutrition Facts label include changes in the individual nutrients that are required to be declared and also changes to the Daily Value of other individual nutrients, reflecting changes in recommended intake levels, based on current science. Because the framework for many of FDA's nutrition labeling regulations is linked to elements in the Nutrition Facts label and serving size regulations, FDA has been planning to update these regulations to align with the updated Nutrition Facts label regulations. These regulations include those for health claims and nutrient content claims (including the implied nutrient content claim “healthy”).

The science underlying FDA's new requirements for the Nutrition Facts label and serving size information is also reflected in the recently published 2015-2020 Dietary Guidelines for Americans (2015-2020 Dietary Guidelines) (Ref. 1). The Dietary Guidelines are designed for professionals to help all individuals ages 2 years and older and their families consume a healthy, nutritionally adequate diet. The Dietary Guidelines are the foundation of federal nutrition guidance and are fundamental in shaping federal policies and programs related to food, nutrition, and health. Specific recommendations in the Dietary Guidelines have evolved over time, as nutrition science has advanced. They provide information and perspectives on consumption of foods from various food groups, as well as the intake of specific macronutrients such as fats and sugars, and micronutrients such as vitamins and minerals. The 2015-2020 Dietary Guidelines emphasize the importance of eating patterns as a whole, the combination of foods and drinks that people consume over time. The scientific evidence on which the Dietary Guidelines are based and the recommendations in the Dietary Guidelines will help inform additional updates to FDA's regulations on nutrition-related claims that are permitted on the food label.

A variety of stakeholders from academia and industry, as well as consumers, have also requested that FDA update additional nutrition labeling regulations for nutrient content and health claims, including the implied nutrient content claim “healthy”. Some stakeholders have provided specific recommendations on how they believe we should approach such an update. For example, in a citizen petition dated December 1, 2015 (Docket Number FDA-2015-P-4564) (“Kind Citizen Petition”), KIND LLC requested that we make certain changes to existing nutrition claim regulations. A number of these changes specifically related to the nutrient content claim “healthy”. With regards to “healthy”, the petition requested that we:

• Amend § 101.65(d)(2) so that the term “healthy” or related terms may be used if the food “meets the following conditions for fat, saturated fat, and cholesterol exclusive of the fat and saturated fat contributed to the food product by the following foods, provided that such foods are used in their whole form or have been processed in such a way that did not materially degrade their nutritional value: Fruits, vegetables, nuts, seeds, legumes, whole grains, and seafood; and the food meets the following conditions for other nutrients;”

• Amend § 101.65(d) (pertaining to general nutritional claims) to “clarify that a labeling claim that a food is useful in maintaining healthy dietary practices is an implied nutrient content claim only if the claim is immediately adjacent to an implicit claim or statement about a nutrient”;

• Amend § 101.65(b) (pertaining to label statements that are not implied claims) to “clarify that a statement that claims that a food is useful in maintaining healthy dietary practices and that does not appear immediately adjacent to an explicit or implicit claim or statement about a nutrient is generally not an implied nutrient content claim, but is instead a dietary guidance statement”; and

• While the rulemakings to amend § 101.65 are pending, issue a guidance document to “clarify that a statement about the usefulness of a food, or a category of foods, in maintaining healthy dietary practices is a dietary guidance statement that is not subject to the requirements in FDA's nutrient content claim regulations unless it is an implied nutrient content claim because it is immediately adjacent to an explicit or implicit claim or statement about a nutrient”.

See Kind Citizen Petition at pgs. 2-5. The petitioner stated that our existing regulatory scheme “limits the ability of food producers to tell consumers that products containing certain foods—such as nuts, whole grains, seafood, fruits, and vegetables—are healthy, even though they are currently recommended as key components of a healthful diet” (Kind Citizen Petition at pg. 5). The petitioner said that its request would “make FDA's regulatory regime consistent with current federal dietary recommendations (as is required by law), consistent with current scientific evidence about the health benefits of certain foods, and would significantly benefit the public health by ensuring that consumers fully understand the dietary value of foods available for purchase” (id.).

The petitioner asserted that current federal dietary recommendations encourage dietary patterns that are rich in nuts, whole grains, legumes, seeds, fruits, vegetables, and seafood (id. at pgs. 10-14) and that current science also recognizes the health benefits of consuming nutrient-dense foods (id. at pgs. 14-18). The petitioner also asserted that dietary recommendations and scientific evidence now focus on the quality or types of dietary fat consumed instead of reducing total fat consumption (id. at pgs. 18-19).

Thus, the petitioner described its requested changes and actions as being necessary to “ensure that FDA's requirements are consistent with current federal dietary recommendations and with the most recent scientific evidence, which is essential in providing uniform federal dietary guidance to consumers” (id. at page 20).

We invite interested persons to comment on the petitioner's requests, including the use of the term “healthy” as a nutrient content claim in the labeling of human food products; and when, if ever, the use of the term “healthy” may be false or misleading. We are particularly interested in responses to the following questions:

• Is the term “healthy” most appropriately categorized as a claim based only on nutrient content? If not, what other criteria (e.g., inclusion of foods from specific food categories) would be appropriate to consider in defining the term “healthy” for use in food labeling?

• If criteria other than nutrient content (e.g., amount of whole grain) are to be included in the definition of the term “healthy,” how might we determine whether foods labeled “healthy” comply with such other criteria for bearing the claim?

• What types of food, if any, should be allowed to bear the term “healthy?” Should all food categories be subject to the same criteria? Please provide details of your reasoning.

• Is “healthy” the best term to characterize foods that should be encouraged to build healthy dietary practices or patterns? What other words or terms might be more appropriate (e.g., “nutritious”)? We encourage submission of any studies or data related to descriptors used to communicate the overall healthfulness of a food product.

• What nutrient criteria should be considered for the definition of the term “healthy?” Should nutrients for which intake is recommended to be limited be included? Should nutrients for which intake is encouraged continue to be included?

• If nutrients for which intake is encouraged are included in the definition, should these nutrients be restricted to those nutrients whose recommended intakes are not met by the general population, or should they include those nutrients that contribute to general overall health? Should the nutrients be intrinsic to the foods, or could they be provided in part—or in total—via fortification? Please provide details of your reasoning and provide any supportive data or information.

• Are there current dietary recommendations (e.g., the Dietary Guidelines for Americans) or nutrient intake requirements, such as those described in the final rule updating the Nutrition Facts label (see 81 FR 33742; May 27, 2016) or those provided by the Institute of Medicine (IOM) in the form of Dietary Reference Intakes (DRI) (http://www.nationalacademies.org/hmd/Activities/Nutrition/SummaryDRIs/DRI-Tables.aspx), that should be reflected in criteria for use of the term “healthy?”

• What are the public health benefits, if any, of defining the term “healthy” or other similar terms in food labeling? Please include any data or research related to public health benefits in your reasoning.

• What is consumers' understanding of the meaning of the term “healthy” as it relates to food? What are consumers' expectations of foods that carry a “healthy” claim? We are especially interested in any data or other information that evaluates whether or not consumers associate, confuse, or compare the term “healthy” with other descriptive terms and claims.

• Would this change in the term “healthy” cause a shift in consumer behavior in terms of dietary choices? For example, would it cause a shift away from purchasing or consuming fruits and vegetables that do not contain a “healthy” claim and towards purchasing or consuming processed foods that bear this new “healthy” claim?

• How will the food industry and consumers regard a change in the definition of “healthy?”

• What would be the costs to industry of the change?

The following reference is on display in the Division of Dockets Management (see ADDRESSES) and is available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; it is also available electronically at http://www.regulations.gov. (FDA has verified the Web site address, as of the date this document publishes in the Federal Register, but Web sites are subject to change over time.)

I. Background A. Prior Authority—Section 234 of the National Housing Act

Prior to 2008, HUD's statutory authority to insure mortgages on condominium units came from section 234 of the National Housing Act (12 U.S.C. 1715y) (the Act). Section 234 required that: The structure is or has been covered by a mortgage insured under another section of the Act; the mortgagor is acquiring or has acquired a family unit covered by a section 234 insured mortgage for his own use and occupancy; and the mortgagor will not own more than four one-family units covered by section 234 insured mortgages (Pub. L. 87-70, June 30, 1961, 75 Stat. 161). Subsequent amendments allowed for a variety of project configurations in addition to vertical buildings (Pub. L. 97-35, August 13, 1981, 95 Stat. 416); added an 80 percent mortgagor occupancy requirement; and removed the 4-unit limitation on ownership (Pub. L. 98-181, November 30, 1983, 97 Stat. 1209).

The Housing and Economic Recovery Act of 2008, Public Law 110-289, July 30, 2008 122 Stat. 2654 (HERA) was enacted July 30, 2008 and added a requirement to section 234(c) that the project have a blanket mortgage insured by the Secretary under section 234(d). HUD does not currently insure new mortgages on condominium units in projects with blanket mortgages. Although, there are existing mortgages that were previously insured under section 234, most condominium projects are not structured in this manner.

Section 2117 of Division B, Title I, Subtitle A of HERA, the FHA Modernization Act of 2008, amended the National Housing Act to provide authority for HUD to insure condominium units under the single-family program authorized by section 203 of the National Housing Act, 12 U.S.C. 1709. Specifically, section 2117 amended the definition of “mortgage” in section 201 of the Act (12 U.S.C. 1707), which definition also applies to section 203 of the Act (12 U.S.C. 1709), to include a mortgages on a one-family unit in a multifamily project, and an undivided interest in the common areas and facilities which serve the project. The HERA changes placed all authority for mortgage insurance of projects with blanket mortgages in section 234 of the Act, and units in other condominium projects under section 203 of the Act.

Project approval for projects with FHA-insured blanket loans are governed according to the requirements of section 234 of the Act, 24 CFR part 234, and other applicable policy guidance, including the Condominium Project Approval and Processing Guide (the Guide).

This proposed rule would codify basic regulatory requirements for condominium project approval, in addition to the current requirements under 24 CFR part 203. These requirements would be more flexible, less prescriptive, and more reflective of the current market than the requirements in the current section 234 program. The intent of this rule is to regulate where necessary to ensure financial soundness and project viability, but to be flexible where possible, and retain the ability to be responsive to the market.

The rule proposes a new 24 CFR 203.8 that would codify DELRAP for condominiums. While a similar process is currently outlined in chapter 1.2 of the Guide, this rule is proposing some changes based on HUD's experience. As now proposed, in order to participate in condominium project approval, a mortgagee would have to be granted DELRAP authority, and in order to be granted DELRAP authority, a mortgagee would have to be unconditionally approved for the Direct Endorsement program as provided in § 203.3, and additionally have the following indicia of capability in underwriting condominium mortgages specifically: Staff with at least one year experience in underwriting mortgages on condominiums and/or condominium project approval; having originated not less than 10 condominium loans in HUD-approved projects; having an acceptable quality control plan that includes provisions specific to DELRAP; and ensuring that only staff members with the required experience participate in condominium project approval using DELRAP (proposed § 203.8(b)).

Under proposed § 203.8(b)(2) and (b)(3), mortgagees would initially be granted conditional DELRAP authority upon providing a notice of their intent to participate in DELRAP. While conditionally approved, a mortgagee must submit all recommended Condominium Project approvals and denials to FHA for review, and may only proceed upon notification of HUD's agreement with the recommendation. Once the mortgagee has completed at least 5 DELRAP reviews to HUD's satisfaction, the mortgagee will be granted unconditional DELRAP authority and may approve condominium projects in accordance with HUD's requirements.

Section 203.8(c) would provide for HUD's review of a DELRAP mortgagee's performance. HUD will monitor the performance on an ongoing basis, and, if there are no material deficiencies found, HUD will select a sample of project approvals, denials, or recertifications for post-action review. If the review shows deficiencies and the mortgagee has unconditional DELRAP authority, the mortgagee may be returned to conditional status. If additional reviews continue to show deficiencies, the mortgagee authority to participate in DELRAP may be terminated, or other action taken against the staff reviewer, under proposed § 203.8(d), which includes any action available under 24 CFR 203.3(d).

Sections 203.8(d) and (e) provide for termination of DELRAP authority and requests for reinstatement of terminated authority. HUD may immediately terminate DELRAP authority or take actions under § 203.3(d) if the mortgagee violates any of the requirements and procedures established by the Secretary for mortgagees approved to participate in DELRAP, the Direct Endorsement program, or the Title II Single Family mortgage insurance program; or if other good cause exists; or for unacceptable performance. Actions under 24 CFR 203.3(d) include probation of Direct Endorsement lenders subject to conditions including additional training and changes to the mortgagee's quality control plan, or termination of Direct Endorsement approval. Termination of DELRAP authority would be effective upon the mortgagee's receipt of HUD's notice advising of the termination. Any termination of DELRAP authority is a separate action from an action for withdrawal of mortgagee approval by the Mortgagee Review Board, which could also be initiated by HUD.

Under proposed § 203.8(e), a mortgagee whose DELRAP authority is terminated under this section may request reinstatement if the mortgagee's DELRAP authority has been terminated for at least 6 months. The request must address the eligibility criteria for participation in DELRAP under this rule as well as a corrective action plan, along with evidence that the mortgagee has implemented the corrective action plan. Following the request, HUD would be able to grant Conditional DELRAP authority if the mortgagee's application is complete and the Commissioner determines that the underlying causes for the termination have been satisfactorily remedied. The mortgagee would be required to complete successfully at least 5 test cases in accordance with § 203.8(b)(3) in order to receive unconditional DELRAP authority.

The rule proposes a minor change to current § 203.17(a)(1), which section defines “mortgage” in accordance with section 201 of the National Housing Act (12 U.S.C. 1707), but has not been updated to account for the addition of mortgages on one-family units in multifamily projects and an undivided interest in the common areas and facilities. Nor does the current regulatory definition include detached and semi-attached units. By revising this section to cross-reference section 201 of the National Housing Act rather than attempting to summarize it, HUD avoids the need to update this definition each time the statutory definition is revised, and eliminates confusion that may be caused by differences between the statutory language and HUD's regulation.

This rule proposes to revise currently reserved § 203.43b to include the regulations pertaining to the eligibility of projects for approval and for condominium units in approved projects for mortgage insurance.

Section 203.43b(a) would provide definitions of the terms Condominium Project, Condominium Unit, Rental for Transient or Hotel Purposes, Condominium Association, Single-Unit Approval, and Site Condominium under part 203. While Condominium Unit refers to a one-family unit in a multifamily project, including a project in which the dwelling units are attached, or are manufactured housing units, semi-detached, or detached, and an undivided interest in the common areas and facilities that serve the project, the term Condominium Project refers to the project as a whole in which such units are located. The term Rental for Transient or Hotel Purposes cross-references to section 513(e) of the Act (12 U.S.C. 1731b(e)). Single-Unit Approval means approval of a loan on a single unit in a project that is not approved as a condominium. The term Site Condominium means a single family totally detached dwelling (which does not have a shared garage or any other attached building, including such improvements as archways, or breezeways), which is encumbered by a declaration of condominium covenants or condominium form of ownership, and which consists of the entire structure as well as the site and air space and is not considered to be a common area or limited common area.

Section 203.43b(b) would state that a mortgage on a Condominium Unit shall be eligible for insurance under section 203 of the National Housing Act if it meets the requirements of 24 CFR part 203, subpart A, except as provided for in § 203.43b. Section 203.43b(c) would further specify that the unit, to be eligible for insurance under § 203.43b, must be located in a Condominium Project approved by HUD or DELRAP mortgagee approved under 24 CFR 203.8, or meet the additional requirements for approval as a Site Condominium or Single-Unit Approval.

Under this rule, HUD and DELRAP lenders will not approve proposed or under construction projects; however, HUD or DELRAP lenders may approve legal phases of projects or completed projects. The condominiums that may be approved under this rule would be those where the work on the project or legal phase, including buildings and infrastructure of the project or legal phase, is fully complete. HUD would expect that all the requirements of local law would be met, including review and approval of the project or legal phase by the local jurisdiction and recordation in the property records of the condominium plat or development plan, as applicable (see §§ 203.43b(d)(4) and (d)(5)).

Section 203.43b(d) would state the basic condominium project approval eligibility requirements. The project or legal phase must be complete as to construction of the buildings and infrastructure. In addition, any legal phases must be contiguous (in a vertical building) or must consist of adjoining or contiguous homes (in a development of detached or semi-detached homes), and the units or buildings and infrastructure in each phase must be constructed and be complete. The project or legal phase must also be primarily residential in nature (although a certain amount of floor space may be set aside for commercial activities, as stated at § 203.43b(d)(6)(vii)) and not intended for transient or hotel purposes; must consist solely of one-family units, which is a statutory requirement under 12 U.S.C. 1707(a); and must be in full compliance with all Federal, State, and local laws with respect to zoning, Fair Housing, and accessibility for persons with disabilities, including but not limited to the Fair Housing Act, 42 U.S.C. 3601 et seq., Section 504 of the Rehabilitation Act, 29 U.S.C. 794, and the Americans with Disabilities Act, 42 U.S.C. 12101 et seq., where relevant. Infrastructure includes the project's streets, storm water management, water and sewage systems, and utilities, along with the project's common elements and amenities, such as parking lots, community buildings, swimming pools, golf courses, playgrounds, and any similar items, called for in the project or legal phase.

In addition to these general requirements, condominiums must meet further approval requirements as provided by HUD. Some of these requirements are underwriting matters or existing legal requirements such as the nature of the real estate title or leasehold; unit owner control of the Condominium Association; insurance coverage; and statements regarding financial condition, special assessments, property conditions, and pending legal actions. These are the types of matters that HUD routinely considers when determining eligibility for FHA programs.

In addition, the rule would implement some regulatory standards specific to condominiums, but seeks to do so in a way that is flexible and responsive to the market while continuing to involve the public in the rulemaking process. Section 203.43b(d)(6)(vii) would provide for HUD to set a standard for the maximum commercial/nonresidential space within a range from 25 percent to 60 percent of the total floor area. Mixed-use developments are a way to integrate housing, land-use, economic and workforce development, as well as transportation and infrastructure development. However, the agency believes that allowing greater than 50 percent commercial/nonresidential space may have a negative impact on the residential character of the project; therefore, HUD would not expect in the near future to allow greater than 50 percent commercial/nonresidential space. HUD may want to allow less based on the experience it gains with this program.

Under 12 U.S.C. 1709(y)(2),1 either HUD or the DELRAP lender, at the option of the requester, may grant an exception to the standard regarding the maximum percentage of commercial/nonresidential space set by HUD. In determining whether to grant such an exception, factors relating to the economy for the locality in which the condominium project is located, or specific to the project, including the total number of family units in the project, shall be considered. A DELRAP lender, in determining whether to grant a requested exception, shall follow any procedures that HUD may establish.

Within this range, in order to remain flexible and responsive to the market, HUD would be able to vary by notice the percentage of commercial/nonresidential space allowed or required. If HUD decides to vary the upper and lower limits of the range itself, the rule provides a procedure that includes notice and an opportunity for public comment. This notice and comment procedure is stated at § 203.43b(e) of this proposed rule.

Sections 203.43b(d)(6)(viii) and (d)(6)(ix) would treat acceptable maximum percentages of units with FHA-insured mortgages and acceptable minimum levels of owner occupancy, respectively, in a similar manner, with overall ranges between 25 and 75 percent, within which HUD would be able to vary the amount by notice. The owner occupancy percentage includes both principal and secondary residences (or units that have been sold to purchasers who intend to occupy them as primary or secondary residences). Secondary residences are defined at § 203.18(f)(2), mean dwellings (i) Where the mortgagor maintains or will maintain a part-time place of abode and typically spends (or will spend) less than a majority of the calendar year; (ii) which is not a vacation home; and (iii) which the Commissioner has determined to be eligible for insurance in order to avoid undue hardship to the mortgagor. A person may have only one secondary residence at a time.

While having too few owner occupants can detract from the viability of a project, requiring too many can harm its marketability. HUD's current standard of 50 percent has worked in the recent market; however, HUD specifically invites comment on this issue. For these elements as well, the procedure to change the upper and lower limits of the range itself by notice with an opportunity to comment would apply.

Section 203.43b(d)(6)(x) addresses phasing of a project. While HUD understands that developing projects in phases as funding is secured may be necessary in some cases, HUD is concerned about the risk of approving phases in cases where failure to complete a phase could result in the failure of the project as a whole. Therefore, only legal phasing will be allowed. All phases must be contiguous and constructed so that they are separately sustainable, meet the requirements of § 203.43b(d), and be capable of being occupied even if a subsequent phase were to be delayed or even fail to be completed.

Section 203.43b(d)(6)(xi) addresses reserve accounts. Per HUD's usual practice, this rule would require that the reserve account is funded with at least 10 percent of the monthly unit assessments, unless a lower amount is deemed acceptable by HUD based on a reserve study completed not more than 24 months before a request for a lower amount is received.

Section 203.43b(d)(6)(xii) permits HUD to set requirements regarding such other matters that may affect the viability or marketability of the project or its units. Additionally, under proposed § 203.43b(f), the Secretary may grant case by case exceptions to the regulatory requirements under § 203.43b(d)(6). This is in accordance with the discretionary nature of the Secretary's authority to insure mortgages under 12 U.S.C. 1709(a).

Proposed 203.43b(g) provides the basic mechanism for condominium approval. Condominiums would be submitted to either HUD or a DELRAP lender, and, if all eligibility criteria are met, would be approved and placed on the list of HUD-approved condominium projects. Under § 203.43b(g)(3), unless otherwise specified in writing by HUD, approval would be for a period of 3 years from the date of placement on the approved list; HUD may rescind approval at any time if the project fails to comply with any requirement for approval.

Proposed 203.43b(g)(4) provides for renewal of a project approval. The condominium could request renewal, by submitting a request for recertification no earlier than 6 months before, and no later than 6 months after, expiration of the approval. As long as the request is timely, it may be supported by updating previously submitted information, rather than by resubmitting new information. However, if the request is not submitted by the end of 6 months after the expiration of approval, a complete, new approval application would be required. HUD will specify the format for the request.

Proposed 203.43b(h) would provide overall parameters for Single-Unit Approval, that is, approvals of individual units in projects that are not otherwise approved to participate. A mortgage secured by a Single-Unit Approval may be acceptable if the percentage of such mortgages insured in a project is within an amount determined by the Secretary to be necessary for the viability and marketability of the project, which percentage, within the range established in this rule, will be specified by HUD by notice. In addition, the unit may only be eligible for approval on a Single-Unit Approval basis if it is not located in a Condominium Project that is approved under this section or has been subject to a negative determination for significant issues that affect the viability of the project. The project must be complete (i.e., not proposed, under construction, or subject to further phasing or annexation), including all common elements and those of the master association. The project must have a percentage of units sold within a range stated in the rule, with the specific percentage to be established by HUD through notice. Finally, the Single-Unit Approval must be in a project in which no single entity owns more than the percentage of units in the project that is within the range stated in rule, with the specific percentage to be established by HUD through notice. If HUD determines it is necessary to change the upper and lower limits of the ranges, it will issue a notice for comment.

Proposed § 203.43b(i) would govern site condominiums. Insurance and maintenance costs must be the sole responsibility of the owner, and any common assessments collected must be restricted to use solely for amenities outside of the footprint of the individual site.

Condominium units that meet the statutory requirements of section 203(k) of the Act, 12 U.S.C. 1709(k), are eligible for rehabilitation loans. Section 203(k) and the implementing HUD regulation at 24 CFR 203.50(a)(1)(i) provides for rehabilitation loans for 1-4 unit structures that are primarily residential. A rehabilitation loan for an individual condominium unit under 203(k) necessarily excludes the building exterior and common elements, which are the responsibility of the Association, so that the 203(k) loan would be for the portion of the structure that is inside the unit including the installation of firewalls in the attic of a unit (proposed 24 CFR 203.50(a)(1)(iv)).

In accordance with HUD's longstanding policy for 203(k) rehabilitation loans secured by condominium units, this proposed rule would add a provision stating that the maximum loan amount is 100 percent of the after-improvement value of the unit for any Condominium Unit. (proposed 24 CFR 203.50(f)(3)).

Finally, the proposed rule would address the continued applicability of 24 CFR part 234, which now applies, along with section 234 of the Act (12 U.S.C. 1715y) and other HUD issuances specific to part 234, only in cases where projects have blanket mortgages insured by HUD. This proposed rule adds a new § 234.2, entitled “Savings clause,” which clarifies that part 203 and this section apply in all cases except where the project has a blanket mortgage insured under section 234(d) of the Act, in which case section 234 of the Act, 24 CFR part 234, and other HUD issuances (including HUD Handbook 4265.1, Home Mortgage Insurance Condominiums; Chapter 11 of HUD Handbook 4150.1, Valuation Analysis for Home Mortgage Insurance and any Mortgagee Letters that discuss section 234 requirements) apply.

(1) HUD seeks public comment specifically on the proposed requirement in § 203.43b(d)(4) that the project or legal phase be “complete and ready for occupancy, including completion of the infrastructure of the project or legal phase, and not subject to further rehabilitation, construction, phasing, or annexation, except to the extent that approval is sought for legal phasing in compliance with the requirements of paragraph (d)(6)(x) of this section.” Given that HUD approval of a fully completed project would not require an environmental review, while continuing the current practice of approving proposed or under construction projects could require environmental review, HUD seeks comments on how this rule would affect industry participation in the program.

(2) HUD seeks public comment specifically on whether there is some other indicia of appropriate experience that could be used rather than, or in addition to, experience in underwriting condominium mortgages and/or condominium approval, or the number of loans originated; for instance, is there another type of experience that could provide an indication of competency in condominium project approval, and how would it provide such indication?

(3) HUD seeks public comment specifically on the ranges this rule proposes to establish, within which HUD may set the specific requirements for percentages of Single-Unit Approvals, commercial space, FHA insured units, and owner-occupied units. HUD seeks comment on whether this range approach is the best approach, and whether the ranges proposed are appropriate. The agency would be interested in any data or evidence that could be provided either that the ranges, as proposed, are appropriate, or that a different set of ranges would be more appropriate or would yield additional benefits.

(4) HUD seeks public comment specifically on the proposed revision of the period of project approval from 2 to 3 years, including whether there are any costs and benefits that would be associated with a shorter or longer timeframe.

The information collection requirements contained in this rule have been submitted to the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In accordance with the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB control number.

The burden of the information collections in this rule is estimated as follows:

In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments from members of the public and affected agencies concerning this collection of information to:

(1) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information;

(3) Enhance the quality, utility, and clarity of the information to be collected; and

(4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.

Interested persons are invited to submit comments regarding the information collection requirements in this rule. Comments must refer to the proposal by name and docket number (FR-5563) and must be sent to:

OMB reviewed this proposed rule under Executive Order 12866 (entitled “Regulatory Planning and Review”). This rule was determined to be a “significant regulatory action,” as defined in 3(f) of the order (although not an economically significant regulatory action, as provided under section 3(f)(1) of the order). The docket file is available for public inspection between the hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410-0500.

The proposed rule establishes regulations concerning three aspects of the Direct Endorsement Lender Review and Approval Process (DELRAP) for single family condominiums. First, the rule establishes parameters regarding which kind of condominium projects are eligible for approval for the purpose of single unit mortgage insurance through the Department of Housing and Urban Development. Flexible approval standard requirements, will allow for projects to efficiently meet market needs. Second, the rule changes the frequency with which approved projects need to be reapproved from two years to three years. Third, the rule changes the standards for condominium DELRAP mortgagees in order to require minimum experience and quality control levels.

The rule could result in multiple transfers: Among lenders, among condominium projects; and to FHA. The benefit of the proposed rule is to provide flexibility in implementation providing competent lenders a role in project approval. Costs arise from any administrative burden imposed upon the private sector or lost opportunities resulting from condominium project requirements. Many provisions of the rule (Single-Unit Approval, flexible standards, a longer interval for condo approvals, and exceptions for environmental review) will reduce or eliminate the compliance costs of the rule. The Regulatory Impact Analysis discusses but does not monetize many of the difficult to evaluate impacts. Monetized annual impacts of the rule include the estimated paperwork burden of $2.1 million. HUD finds that increasing the periodicity of approval from 2 to 3 years reduces the costs of approval by $1 million annually.

Greater detail and analysis than this brief summary can provide is available in the full initial Regulatory Impact Analysis (RIA) prepared for this rule, which is available for public inspection in the Regulations Division and may be viewed online at www.regulations.gov, under the docket number above. Due to security measures at the HUD Headquarters building, an advance appointment to review the public comments must be scheduled by calling the Regulations Division at (202) 708-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at (800) 877-8339.

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments and the private sector. This rule does not impose any Federal mandate on any state, local, or tribal government or the private sector within the meaning of UMRA.

A Finding of No Significant Impact with respect to the environment has been made in accordance with HUD regulations in 24 CFR part 50 that implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding is available for public inspection during regular business hours in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410-0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the Finding by calling the Regulations Division at (202) 402-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at (800) 877-8339.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This proposed rule establishes regulations for single-family mortgage insurance of condominium units pursuant to 12 U.S.C. 1707 and 1709. However, HUD has been providing mortgage insurance for this purpose pursuant to statute and the Condominium Approval and Processing Guide published in 2011. While this rule makes some adjustments to the provisions on eligibility for DELRAP participation, and many DELRAP lenders are small entities, this rule is not so different as to create a significant economic impact.

Industries involved in mortgage origination and lending. Mortgage originators (reverse, purchase, refinance) include both brokers and lenders. The firms that participate in lending are divided among five primary groups: Banks, thrifts, mortgage banks, credit unions, and mortgage brokers. A precise description of these individual industries is as follows:

Entities primarily engaged in accepting demand and other deposits and making commercial, industrial, and consumer loans. Commercial banks and branches of foreign banks are included.

Entities primarily engaged in accepting time deposits, making mortgage and real estate loans, and investing in high-grade securities. Savings and loan associations and savings banks are included in this industry.

Entities primarily engaged in accepting members' share deposits in cooperatives that are organized to offer consumer loans to their members.

Entities primarily engaged in lending funds with real estate as collateral. This includes: Construction lending, farm mortgage lending, Federal Land Banks, home equity credit lending, loan correspondents (i.e., lending funds with real estate as collateral), mortgage banking (i.e., nondepository mortgage lending), and mortgage companies.

Entities primarily engaged in arranging loans by bringing borrowers and lenders together on a commission or fee basis.

During the 1980s and 1990s, mortgage lending evolved from the traditional portfolio lender model where single companies (bank and thrift depositories) performed all steps in the mortgage process—making, closing, funding, servicing, and holding the loan—to a more specialized industry of originators, funding lenders, warehouse lenders, separate secondary market buyers of loans, and servicers.2 A major driving force behind the unbundling of the mortgage functions, as well as the rise of mortgage brokers, has been the rise and eventual dominance of mortgage securitization, which separated the provision of capital from loan origination and servicing. Brokers originate loans mainly for wholesale lenders.

Studies of the mortgage brokerage industry do not find there to be high fixed costs for firms. There is little evidence of economies of scale in mortgage origination but there is some evidence that brokers are more efficient originators than mid-size and large lenders. Olson (2002) reports that his surveys find no economies of scale in mortgage production—a one-person firm produced as many loans per employee as a larger firm. Olson regards brokers as low-cost, highly-competitive firms, vigorously competing with one another and with little opportunity to earn above-normal profits.3

In 2014, 7,062 institutions reported data on nearly 10 million home mortgage applications, resulted in 6 million originations. This is down from 8.7 million originations in 2013. There was an historically high share of loans originated outside the federally insured banking system by institutions such as independent mortgage companies and credit unions, not subject to Community Reinvestment Act (Federal Reserve, 2015).4

The share of mortgages originated by non-depository, independent mortgage companies has increased sharply in recent years. Small banks and credit unions have also increased market shares over the past decade. The fraction of originations attributable to large banks and their nonbank subsidiaries diminished. Banks and thrifts accounted for 45 percent of all reported mortgage originations; independent mortgage companies 40 percent, credit unions over 9 percent, affiliates, remainder (Federal Reserve, 2015).

In 2014, 7,062 reporting institutions, 4,118 banks and thrifts, 3,367 were small (assets less than $1 billion), 1,984 credit unions, 139 mortgage companies affiliated with depositories (banks and credit unions), 821 independent mortgage companies. In 2014, small banks and credit unions were much more likely to originate conventional higher-priced loans than large banks and mortgage companies. Small banks and credit unions originated about 18 percent of conventional home-purchase loans, but accounted for 59 percent of higher-priced conventional home-purchase loans (Federal Reserve, 2015).

SBA's size standards (2016) define whether a business entity is small and, thus, eligible for Government programs and preferences reserved for “small business” concerns. Size standards have been established for types of economic activity, or industry, generally under the North American Industry Classification System (NAICS). For most industries considered, a “small” business is defined by revenue. Size standards are based on another criterion if revenue is not suitable, either because prices are volatile or there are more appropriate measures.

According to the U.S. Census Bureau, revenue for Finance, Insurance and Real Estate includes commissions and fees from all sources, rents, net investment income, interest, dividends, royalties, and net insurance premiums earned. SBA considers a real estate credit small if its annual revenue is no greater than $38.5 million. A mortgage broker is defined as small if its revenue is no greater than $7.5 million.

For three of the industries considered in this analysis (Commercial Banks, Savings Institutions, and Credit Unions), the SBA definition of small is by the dollar amount of assets ($550 million). Assets include: Cash, interest-earning loans, leases, securities, real estate, letters of credit, loans to other banks, any other financial assets, and intangible assets.

The diversity of size standards makes it difficult to perform a precise analysis of the ubiquity small firms. This difficulty is compounded when sources of business statistics do not report their data by SBA's size standards and that industry definition may not be equivalent. When an exact correspondence is not possible, HUD will, by necessity, use an alternative size standard. For example, asset data is collected by the Federal Deposit Insurance Corporation (FDIC) for Commercial Banks and Savings Institutions. FDIC uses $1 billion as a means to categorize banks and thrifts, which is more inclusive than SBA's definition.

Estimating the prevalence of small firms in making FHA-insured condominium loans requires combining statistics from different sources.

The table provides us with some insight concerning the types of firms that are involved in making FHA-condo loans. The predominant originators by any measure are mortgage companies. Independent mortgage companies make 79 percent of the loans and 93 percent of the dollar volume. The largest independent mortgage company, Quicken Loans, accounts for over 5.5 percent of all condo loans. In this table, “banks” are equivalent to commercial banks and savings institutions. Small banks (assets of no greater than $1 billion) represent a small proportion of firms (13 percent) and an even smaller percentage of condo loans (3 percent).

Given the dominance of mortgage companies, an estimate of the small companies originating mortgage loans is essential to a good economic analysis. HUD has data concerning the total FHA-insured loans made by the firms also involved in the condo business. An estimate of the total loans can be arrived at by dividing FHA loans by FHA's market share. Doing so will lead to estimates that are inaccurately high for some and too low for others. On average the estimate will be correct. In the last three years (2013-2015), FHA's share of the dollar value of home purchases as varied around 15 percent.

The estimated value of loans can be converted to an estimated revenue by multiplying by an appropriate percentage. Estimates of broker income vary between 1 and 3 percent. We use the lower to arrive for a more expansive count of small business. Of all condo lenders, 31 percent of the firms are small mortgage companies (earning less than $7.5 million). These small mortgage companies make 5 percent of all condo loans and 2 percent of the dollar volume.

We counted a total of only 39 credit unions over a two-year period. Credit Unions are not active in making condo loans. The proportion of loans and dollar value made by credit unions is very close to 0 percent. Thus, accuracy in estimating the small/large percentage is not as important as for other types of lenders. We will assume that all credit unions are small because the average asset amount is significantly below $1 billion (Monthly Credit Union Estimates, May 2016).

Small firms constitute 47 percent of originators of FHA-insured condo loans, 9 percent of all condo loans, and 3 percent of the dollar volume.

Approximately half of the firms engaged in making FHA-insured condominium loans are estimated to be small. This share of small firms could change depending upon the regulatory impact of the rule and whether that impact is disproportionate. Although small business constitutes 47 percent of all firms, they originate only 9 percent of all loans, making it more difficult to pass on any costs of origination to borrowers. Reducing (raising) fixed costs benefits (harms) small firms disproportionately more than large ones.

One aspect of the rule that could have a negative and disproportionate impact on small firms are any requirements to participate in the DELRAP program. While many of the requirements will be met with little difficulty by already-approved lenders, requirements that are related to the level of business activity would place a relatively higher burden on small firms. To be qualified for Direct Endorsement authority, a mortgagee must satisfy the following characteristics: Possess at least one of year experience in condo loans; have made at least 10 FHA approved condo loans; possess a quality control plan; and participating staff is limited to those with prior experience. All of these requirements would be easier to meet by larger firms with greater capacity. Nonetheless, small firms that have at least occasional experience should be able to satisfy the requirements without undue burden.

Other elements of the rule lift regulatory burdens. First, allowing Single-Unit Approval enables small lenders business opportunities without the cost of seeking approval for an entire condominium project.5 Second, by providing that only completed projects may be approved, this rule eliminates the need for HUD to require an environmental review from lenders as a condition of approval. This change will benefit small firms that are less likely to retain specialists. Although some components of the rule raise the cost of compliance for small firms, other elements will expand their opportunities and allow them to spread the compliance costs over a greater number of loans. Also, participation in condominium insurance, like HUD's other mortgage insurance programs, is purely voluntary.

Therefore, the undersigned certifies that this rule will not have a significant impact on a substantial number of small entities.

Notwithstanding HUD's view that this rule will not have a significant effect on a substantial number of small entities, HUD specifically invites comments regarding any less burdensome alternatives to this rule that will meet HUD's objectives as described in this preamble.

Executive Order 13132 (entitled “Federalism”) prohibits, to the extent practicable and permitted by law, an agency from promulgating a regulation that has federalism implications and either imposes substantial direct compliance costs on state and local governments and is not required by statute or preempts state law, unless the relevant requirements of section 6 of the Executive Order are met. This rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

The Catalog of Federal Domestic Assistance number for 24 CFR parts 203 and 234 is 14.117.

For the reasons stated in the foregoing preamble, HUD proposes to amend 24 CFR parts 203 and 234 as follows:

Background and Explanation of Provisions

This document contains amendments to the Income Tax Regulations (26 CFR part 1) relating to RICs. Section 851 of the Internal Revenue Code (Code) sets forth requirements for qualifying as a RIC.

Section 851(a) provides that a RIC is any domestic corporation that (1) at all times during the taxable year is registered under the Investment Company Act of 1940, Public Law 76-768, 54 Stat. 789 (codified as amended at 15 U.S.C. 80a-1—80a-64 (2016)) (the 1940 Act), as a management company or unit investment trust or has in effect an election under the 1940 Act to be treated as a business development company; or (2) is a common trust fund or other similar fund excluded by section 3(c)(3) of the 1940 Act from the definition of “investment company” and is not included in the definition of “common trust fund” by section 584(a).

To be treated as a RIC for a taxable year, a corporation must satisfy the income test set forth in section 851(b). The income test under section 851(b)(2) requires that at least 90 percent of the corporation's gross income for the taxable year be derived from:

Section 851(b)(3) provides that to be treated as a RIC a corporation also must satisfy the following asset diversification requirements at the close of each quarter of the corporation's taxable year:

These proposed regulations relate to the RIC income test and asset diversification requirements. Section A. of this preamble concerns the meaning of security. Section B. of this preamble addresses inclusions under sections 951(a)(1)(A)(i) and 1293(a). These proposed regulations also revise § 1.851-2(b)(1) of the existing final regulations to merely incorporate changes to section 851(b)(2) since the existing final regulations were published in the Federal Register on November 26, 1960, in TD 6500 (25 FR 11910).

The income test and asset diversification requirements both use the term “securities.” For purposes of the income test, a security is defined by reference to section 2(a)(36) of the 1940 Act, while section 851(c) provides rules and definitions that apply for purposes of the asset diversification requirements of section 851(b)(3) but does not specifically define “security.” Section 851(c)(6), however, provides that the terms used in section 851(b)(3) and (c) have the same meaning as when used in the 1940 Act. An asset is therefore a security for purposes of the income test and the asset diversification requirements if it is a security under the 1940 Act.

The Treasury Department and the IRS have in the past addressed whether certain instruments or positions are securities for purposes of section 851. In particular, Rev. Rul. 2006-1 (2006-1 CB 261) concludes that a derivative contract with respect to a commodity index is not a security for purposes of section 851(b)(2). The ruling also holds that income from such a contract is not qualifying other income for purposes of section 851(b)(2) because that income is not derived with respect to the RIC's business of investing in stocks, securities, or currencies. Rev. Rul. 2006-1 was modified and clarified by Rev. Rul. 2006-31 (2006-1 CB 1133), which states that Rev. Rul. 2006-1 was not intended to preclude a conclusion that income from certain instruments (such as certain structured notes) that create commodity exposure for the holder is qualifying income under section 851(b)(2).

After the issuance of Rev. Rul. 2006-31, the IRS received a number of private letter ruling requests concerning whether certain instruments that provide RICs with commodity exposure were securities for purposes of the income test and the asset diversification requirements. By 2010, the IRS was devoting substantial resources to these private letter ruling requests. Moreover, it is not clear whether Congress intended to allow RICs to invest in securities that provided commodity exposure. Consequently, in July 2011, the IRS notified taxpayers that the IRS would not issue further private letter rulings addressing specific proposed RIC commodity-related investments while the IRS reviewed the issues and considered guidance of broader applicability.

Finally, determining whether certain investments that provide RICs with commodity exposure are securities for purposes of the income test and the asset diversification requirements requires the IRS implicitly to determine what is a security within the meaning of section 2(a)(36) of the 1940 Act. Section 38 of the 1940 Act, however, grants exclusive rulemaking authority under the 1940 Act to the Securities and Exchange Commission (SEC), including “defining accounting, technical, and trade terms” used in the 1940 Act. Any future guidance regarding whether particular financial instruments, including investments that provide RICs with commodity exposure, are securities for purposes of the 1940 Act is therefore within the jurisdiction of the SEC.

Section 2.01 of Rev. Proc. 2016-3 (2016-1 IRB 126) provides that the IRS may decline to issue a letter ruling or a determination letter when appropriate in the interest of sound tax administration (including due to resource constraints) or on other grounds whenever warranted by the facts or circumstances of a particular case. If the IRS determines that it is not in the interest of sound tax administration to issue a letter ruling or determination letter due to resource constraints, the IRS will adopt a consistent approach with respect to taxpayers that request a ruling on the same issue. The IRS will also consider adding the issue to the no rule list at the first opportunity.

The Treasury Department and the IRS have reviewed the issues, considered the concerns expressed, considered resource constraints, and determined that the IRS should no longer issue letter rulings on questions relating to the treatment of a corporation as a RIC that require a determination of whether a financial instrument or position is a security under the 1940 Act. Contemporaneously with the publication of these proposed regulations, the Treasury Department and the IRS are issuing Rev. Proc. 2016-50 (2016-43 IRB __), which provides that the IRS ordinarily will not issue rulings or determination letters on any issue relating to the treatment of a corporation as a RIC that requires a determination of whether a financial instrument or position is a security under the 1940 Act. Thus, for example, the IRS ordinarily will not issue a ruling on whether income is of a type described in the income test of section 851(b)(2) if that ruling depends on whether an instrument is a security under the 1940 Act.

The Treasury Department and the IRS request comments as to whether Rev. Rul. 2006-1, Rev. Rul. 2006-31, and other previously issued guidance that involves determinations of whether a financial instrument or position held by a RIC is a security under the 1940 Act should be withdrawn effective as of the date of publication in the Federal Register of a Treasury decision adopting these proposed regulations as final regulations.

In certain circumstances, a U.S. person may be required under section 951(a)(1)(A)(i) or 1293(a) to include in taxable income certain earnings of a foreign corporation in which the U.S. person holds an interest, without regard to whether the foreign corporation makes a corresponding distribution of cash or property to the U.S. person. Section 851(b) was amended by the Tax Reduction Act of 1975, Public Law 94-12, section 602, 89 Stat. 26, 58 (the “1975 Act”) (for inclusions under section 951(a)(1)(A)(i)), and by the Tax Reform Act of 1986, Public Law 99-514, section 1235, 100 Stat. 2085, 2575 (the “1986 Act”) (for inclusions under section 1293(a)), to specify how a RIC treats amounts included in income under section 951(a)(1)(A)(i) or 1293(a) for purposes of the income test of section 851(b)(2). The language added in those amendments provides:

Notwithstanding the distribution required by section 851(b), in certain circumstances the IRS has previously issued letter rulings under section 851(b)(2) that permit an inclusion under section 951(a)(1)(A)(i) or 1293(a) to qualify as “other income” derived with respect to a RIC's business of investing in currencies or 1940 Act stock or securities even in the absence of a distribution. Reading section 851(b)(2) in this manner ignores the requirement in section 851(b) that amounts be distributed in order to treat these inclusions as dividends. This distribution requirement is a more specific provision than the other income clause. In addition, it cannot be suggested that the distribution requirement was superseded by the other income clause because the other income clause and the distribution requirement for inclusions under section 1293(a) were both added by the 1986 Act. Therefore, these proposed regulations specify that an inclusion under section 951(a)(1)(A)(i) or 1293(a) is treated as a dividend for purposes of section 851(b)(2) only to the extent that the distribution requirement in section 851(b) is met. These proposed regulations further provide that, for purposes of section 851(b)(2), an inclusion under section 951(a)(1) or 1293(a) does not qualify as other income derived with respect to a RIC's business of investing in stock, securities, or currencies.

The rule in § 1.851-2(b)(2)(iii) of the proposed regulations applies to taxable years that begin on or after the date that is 90 days after the date of publication in the Federal Register of a Treasury decision adopting these proposed regulations as final regulations.

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 also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the “Addresses” heading. The Treasury Department and the IRS specifically request comments on the clarity of the proposed regulations and how they can be made easier to understand. All comments will be made available for public inspection at www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

The principal author of these proposed regulations is Matthew Howard, Office of Associate Chief Council (Financial Institutions and Products). However, other personnel from the Treasury Department and the IRS participated in their development.

The IRS revenue rulings and revenue procedure cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS Web site at www.irs.gov.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

The addition and revisions read as follows:

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

EPA is proposing to take several related actions. EPA is proposing to determine that the Columbus nonattainment area is attaining the 2008 ozone standard, based on quality-assured and certified monitoring data for 2013-2015 and that this area has met the requirements for redesignation under section 107(d)(3)(E) of the CAA. EPA is thus proposing to approve Ohio EPA's request to change the legal designation of the Columbus area from nonattainment to attainment for the 2008 ozone standard. EPA is also proposing to approve, as a revision to the Ohio SIP, the state's maintenance plan (such approval being one of the CAA criteria for redesignation to attainment status) for the area. The maintenance plan is designed to keep the Columbus area in attainment of the 2008 ozone NAAQS through 2030. Finally, EPA finds adequate and is proposing to approve the newly-established 2020 and 2030 MVEBs for the Columbus area. The adequacy comment period for the MVEBs began on July 22, 2016, with EPA's posting of the availability of the submittal on EPA's Adequacy Web site (at http://www.epa.gov/otaq/stateresources/transconf/adequacy.htm). The adequacy comment period for these MVEBs ended on August 22, 2016. EPA did not receive any requests for this submittal, or adverse comments on this submittal during the adequacy comment period. In a letter dated August 23, 2016, EPA informed Ohio EPA that we found the 2020 and 2030 MVEBs to be adequate for use in transportation conformity analyses. Please see section V.B. of this rulemaking, “What is the status of EPA's adequacy determination for the proposed VOC and NOX MVEBs for the Columbus area,” for further explanation of this process. Therefore, we find adequate, and are proposing to approve, the State's 2020 and 2030 MVEBs for transportation conformity purposes.

EPA has determined that ground-level ozone is detrimental to human health. On March 12, 2008, EPA promulgated a revised 8-hour ozone NAAQS of 0.075 parts per million (ppm). See 73 FR 16436 (March 27, 2008). Under EPA's regulations at 40 CFR part 50, the 2008 8-hour ozone NAAQS is attained in an area when the 3-year average of the annual fourth highest daily maximum 8-hour average concentration is equal to or less than 0.075 ppm, when truncated after the thousandth decimal place, at all of the ozone monitoring sites in the area. See 40 CFR 50.15 and appendix P to 40 CFR part 50.

Upon promulgation of a new or revised NAAQS, section 107(d)(1)(B) of the CAA requires EPA to designate as nonattainment any areas that are violating the NAAQS, based on the most recent three years of quality assured ozone monitoring data. The Columbus area was designated as a marginal nonattainment area for the 2008 ozone NAAQS on May 21, 2012 (77 FR 30088) (effective July 20, 2012).

In a final implementation rule for the 2008 ozone NAAQS (SIP Requirements Rule),1 EPA established ozone standard attainment dates based on table 1 of section 181(a) of the CAA. This established an attainment date three years after the July 20, 2012, effective designation date for areas classified as marginal nonattainment for the 2008 ozone NAAQS. Therefore, the attainment date for the Columbus area was July 20, 2015. On May 4, 2016 (81 FR 26697), in accordance with section 181(b)(2)(A) of the CAA and the provisions of the SIP Requirements Rule (40 CFR 51.1103), EPA made a determination that the Columbus area attained the standard by its July 20, 2015, attainment date for the 2008 ozone NAAQS. EPA's determination was based upon 3 years of complete, quality-assured and certified data for the 2012-2014 time period.

Section 107(d)(3)(E) of the CAA allows redesignation of an area to attainment of the NAAQS provided that: (1) The Administrator (EPA) determines that the area has attained the NAAQS; (2) the Administrator has fully approved the applicable implementation plan for the area under section 110(k) of the CAA; (3) the Administrator determines that the improvement in air quality is due to permanent and enforceable reductions in emissions resulting from implementation of the applicable SIP, applicable Federal air pollutant control regulations, and other permanent and enforceable emission reductions; (4) the Administrator has fully approved a maintenance plan for the area as meeting the requirements of section 175A of the CAA; and (5) the state containing the area has met all requirements applicable to the area for the purposes of redesignation under section 110 and part D of the CAA.

On April 16, 1992, EPA provided guidance on redesignations in the General Preamble for the Implementation of Title I of the CAA Amendments of 1990 (57 FR 13498) and supplemented this guidance on April 28, 1992 (57 FR 18070). EPA has provided further guidance on processing redesignation requests in the following documents:

1. “Ozone and Carbon Monoxide Design Value Calculations,” Memorandum from Bill Laxton. Director, Technical Support Division, June 18, 1990;

2. “Maintenance Plans for Redesignation of Ozone and Carbon Monoxide Nonattainment Areas,” Memorandum from G.T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, April 30, 1992;

3. “Contingency Measures for Ozone and Carbon Monoxide (CO) Redesignations,” Memorandum from G.T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, June 1, 1992;

4. “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992 (the “Calcagni Memorandum”);

5. “State Implementation Plan (SIP) Actions Submitted in Response to Clean Air Act (CAA) Deadlines,” Memorandum from John Calcagni, Director, Air Quality Management Division, October 28, 1992;

6. “Technical Support Documents (TSDs) for Redesignation of Ozone and Carbon Monoxide (CO) Nonattainment Areas,” Memorandum from G.T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, August 17, 1993;

7. “State Implementation Plan (SIP) Requirements for Areas Submitting Requests for Redesignation to Attainment of the Ozone and Carbon Monoxide (CO) National Ambient Air Quality Standards (NAAQS) On or After November 15, 1992,” Memorandum from Michael H. Shapiro, Acting Assistant Administrator for Air and Radiation, September 17, 1993;

8. “Use of Actual Emissions in Maintenance Demonstrations for Ozone and CO Nonattainment Areas,” Memorandum from D. Kent Berry, Acting Director, Air Quality Management Division, November 30, 1993;

9. “Part D New Source Review (Part D NSR) Requirements for Areas Requesting Redesignation to Attainment,” Memorandum from Mary D. Nichols, Assistant Administrator for Air and Radiation, October 14, 1994; and

10. “Reasonable Further Progress, Attainment Demonstration, and Related Requirements for Ozone Nonattainment Areas Meeting the Ozone National Ambient Air Quality Standard,” Memorandum from John S. Seitz, Director, Office of Air Quality Planning and Standards, May 10, 1995.

For redesignation of a nonattainment area to attainment, the CAA requires EPA to determine that the area has attained the applicable NAAQS (CAA section 107(d)(3)(E)(i)). An area is attaining the 2008 ozone NAAQS if it meets the 2008 ozone NAAQS, as determined in accordance with 40 CFR 50.15 and appendix P of part 50, based on three complete, consecutive calendar years of quality-assured air quality data for all monitoring sites in the area. To attain the NAAQS, the three-year average of the annual fourth-highest daily maximum 8-hour average ozone concentrations (ozone design values) at each monitor must not exceed 0.075 ppm. The air quality data must be collected and quality-assured in accordance with 40 CFR part 58 and recorded in EPA's Air Quality System (AQS). Ambient air quality monitoring data for the 3-year period must also meet data completeness requirements. An ozone design value is valid if daily maximum 8-hour average concentrations are available for at least 90 percent of the days within the ozone monitoring seasons,2 on average, for the three-year period, with a minimum data completeness of 75 percent during the ozone monitoring season of any year during the three-year period. See section 2.3 of appendix P to 40 CFR part 50.

On May 4, 2016, in accordance with section 181(b)(2)(A) of the CAA and the provisions of the SIP Requirements Rule (40 CFR 51.1103), EPA made a determination that the Columbus area attained the standard by its July 20, 2015 attainment date for the 2008 ozone NAAQS. This determination was based upon 3 years of complete, quality-assured and certified data for the 2012-2014 time period. In addition, EPA has reviewed the available ozone monitoring data from monitoring sites in the Columbus area for the 2013-2015 time period. These data have been quality assured, are recorded in the AQS, and have been certified. These data demonstrate that the Columbus area is attaining the 2008 ozone NAAQS. The annual fourth-highest 8-hour ozone concentrations and the 3-year average of these concentrations (monitoring site ozone design values) for each monitoring site are summarized in Table 1.

The 3-year ozone design value for 2013-2015 is 0.071 ppm,3 which meets the 2008 ozone NAAQS. Therefore, in today's action, EPA proposes to determine that the Columbus area is attaining the 2008 ozone NAAQS.

EPA will not take final action to determine that the Columbus area is attaining the NAAQS nor to approve the redesignation of this area if the design value of a monitoring site in the area exceeds the NAAQS after proposal but prior to final approval of the redesignation. Preliminary 2016 data indicate that this area continues to attain the 2008 ozone NAAQS. As discussed in section IV.D.3. below, Ohio EPA has committed to continue monitoring ozone in this area to verify maintenance of the ozone standard.

As criteria for redesignation of an area from nonattainment to attainment of a NAAQS, the CAA requires EPA to determine that the state has met all applicable requirements under section 110 and part D of title I of the CAA (see section 107(d)(3)(E)(v) of the CAA) and that the state has a fully approved SIP under section 110(k) of the CAA (see section 107(d)(3)(E)(ii) of the CAA). EPA proposes to find that Ohio has a fully approved SIP under section 110(k) of the CAA. Additionally, EPA proposes to find that the Ohio SIP satisfies the criterion that it meet applicable SIP requirements, for purposes of redesignation, under section 110 and part D of title I of the CAA (requirements specific to nonattainment areas for the 2008 ozone NAAQS). In making these proposed determinations, EPA ascertained which CAA requirements are applicable to the Columbus area and the Ohio SIP and, if applicable, whether the required Ohio SIP elements are fully approved under section 110(k) and part D of the CAA. As discussed more fully below, SIPs must be fully approved only with respect to currently applicable requirements of the CAA.

The September 4, 1992 Calcagni memorandum (see “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992) describes EPA's interpretation of section 107(d)(3)(E) of the CAA. Under this interpretation, a state and the area it wishes to redesignate must meet the relevant CAA requirements that are due prior to the state's submittal of a complete redesignation request for the area. See also the September 17, 1993, Michael Shapiro memorandum and 60 FR 12459, 12465-66 (March 7, 1995) (redesignation of Detroit-Ann Arbor, Michigan to attainment of the 1-hour ozone NAAQS). Applicable requirements of the CAA that come due subsequent to the state's submittal of a complete request remain applicable until a redesignation to attainment is approved, but are not required as a prerequisite to redesignation. See section 175A(c) of the CAA. Sierra Club v. EPA, 375 F.3d 537 (7th Cir. 2004). See also 68 FR 25424, 25427 (May 12, 2003) (redesignation of the St. Louis/East St. Louis area to attainment of the 1-hour ozone NAAQS).

Section 110(a)(2) of the CAA delineates the general requirements for a SIP. Section 110(a)(2) provides that the SIP must have been adopted by the state after reasonable public notice and hearing, and that, among other things, it must: (1) Include enforceable emission limitations and other control measures, means or techniques necessary to meet the requirements of the CAA; (2) provide for establishment and operation of appropriate devices, methods, systems and procedures necessary to monitor ambient air quality; (3) provide for implementation of a source permit program to regulate the modification and construction of stationary sources within the areas covered by the plan; (4) include provisions for the implementation of part C prevention of significant deterioration (PSD) and part D new source review (NSR) permit programs; (5) include provisions for stationary source emission control measures, monitoring, and reporting; (6) include provisions for air quality modeling; and, (7) provide for public and local agency participation in planning and emission control rule development.

Section 110(a)(2)(D) of the CAA requires SIPs to contain measures to prevent sources in a state from significantly contributing to air quality problems in another state. To implement this provision, EPA has required certain states to establish programs to address transport of certain air pollutants, e.g., NOX SIP call.4 However, like many of the 110(a)(2) requirements, the section 110(a)(2)(D) SIP requirements are not linked with a particular area's ozone designation and classification. EPA concludes that the SIP requirements linked with the area's ozone designation and classification are the relevant measures to evaluate when reviewing a redesignation request for the area. The section 110(a)(2)(D) requirements, where applicable, continue to apply to a state regardless of the designation of any one particular area within the state. Thus, we believe these requirements are not applicable requirements for purposes of redesignation. See 65 FR 37890 (June 15, 2000), 66 FR 50399 (October 19, 2001), 68 FR 25418, 25426-27 (May 13, 2003).

In addition, EPA believes that other section 110 elements that are neither connected with nonattainment plan submissions nor linked with an area's ozone attainment status are not applicable requirements for purposes of redesignation. The area will still be subject to these requirements after the area is redesignated to attainment of the 2008 ozone NAAQS. The section 110 and part D requirements which are linked with a particular area's designation and classification are the relevant measures to evaluate in reviewing a redesignation request. This approach is consistent with EPA's existing policy on applicability (i.e., for redesignations) of conformity and oxygenated fuels requirements, as well as with section 184 ozone transport requirements. See Reading, Pennsylvania proposed and final rulemakings, 61 FR 53174-53176 (October 10, 1996) and 62 FR 24826 (May 7, 1997); Cleveland-Akron-Loraine, Ohio final rulemaking, 61 FR 20458 (May 7, 1996); and Tampa, Florida final rulemaking, 60 FR 62748 (December 7, 1995). See also the discussion of this issue in the Cincinnati, Ohio ozone redesignation (65 FR 37890, June 19, 2000), and the Pittsburgh, Pennsylvania ozone redesignation (66 FR 50399, October 19, 2001).

We have reviewed Ohio's SIP and have concluded that it meets the general SIP requirements under section 110 of the CAA, to the extent those requirements are applicable for purposes of redesignation. On October 16, 2014 (79 FR 62019), EPA approved elements of the SIP submitted by Ohio to meet the requirements of section 110 for the 2008 ozone standard. The requirements of section 110(a)(2), however, are statewide requirements that are not linked to the 8-hour ozone nonattainment status of the Columbus area. Therefore, EPA concludes that these infrastructure requirements are not applicable requirements for purposes of review of the state's 8-hour ozone redesignation request.

Section 172(c) of the CAA sets forth the basic requirements of air quality plans for states with nonattainment areas that are required to submit them pursuant to section 172(b). Subpart 2 of part D, which includes section 182 of the CAA, establishes specific requirements for ozone nonattainment areas depending on the areas' nonattainment classifications.

The Columbus area was classified as marginal under subpart 2 for the 2008 ozone NAAQS. As such, the area is subject to the subpart 1 requirements contained in section 172(c) and section 176. Similarly, the area is subject to the subpart 2 requirements contained in section 182(a) (marginal nonattainment area requirements). A thorough discussion of the requirements contained in section 172(c) and 182 can be found in the General Preamble for Implementation of Title I (57 FR 13498).

As provided in subpart 2, for marginal ozone nonattainment areas such as the Columbus area, the specific requirements of section 182(a) apply in lieu of the attainment planning requirements that would otherwise apply under section 172(c), including the attainment demonstration and reasonably available control measures (RACM) under section 172(c)(1), reasonable further progress (RFP) under section 172(c)(2), and contingency measures under section 172(c)(9). 42 U.S.C. 7511a(a).

Section 172(c)(3) requires submission and approval of a comprehensive, accurate and current inventory of actual emissions. This requirement is superseded by the inventory requirement in section 182(a)(1) discussed below.

Section 172(c)(4) requires the identification and quantification of allowable emissions for major new and modified stationary sources in an area, and section 172(c)(5) requires source permits for the construction and operation of new and modified major stationary sources anywhere in the nonattainment area. EPA approved Ohio's NSR program on January 10, 2003 (68 FR 1366) and February 25, 2010 (75 FR 8496). Nonetheless, EPA has determined that, since PSD requirements will apply after redesignation, areas being redesignated need not comply with the requirement that a NSR program be approved prior to redesignation, provided that the area demonstrates maintenance of the NAAQS without part D NSR. A more detailed rationale for this view is described in a memorandum from Mary Nichols, Assistant Administrator for Air and Radiation, dated October 14, 1994, entitled, “Part D New Source Review Requirements for Areas Requesting Redesignation to Attainment.” Ohio has demonstrated that the Columbus area will be able to maintain the standard without part D NSR in effect; therefore, EPA concludes that the state need not have a fully approved part D NSR program prior to approval of the redesignation request. See rulemakings for Detroit, Michigan (60 FR 12467-12468, March 7, 1995); Cleveland-Akron-Lorain, Ohio (61 FR 20458, 20469-20470, May 7, 1996); Louisville, Kentucky (66 FR 53665, October 23, 2001); and Grand Rapids, Michigan (61 FR 31834-31837, June 21, 1996). Ohio's PSD program will become effective in the Columbus area upon redesignation to attainment. EPA approved Ohio's PSD program on January 22, 2003 (68 FR 2909) and February 25, 2010 (75 FR 8496).

Section 172(c)(6) requires the SIP to contain control measures necessary to provide for attainment of the NAAQS. Because attainment has been reached, no additional measures are needed to provide for attainment.

Section 172(c)(7) requires the SIP to meet the applicable provisions of section 110(a)(2). As noted above, we believe the Ohio SIP meets the requirements of section 110(a)(2) for purposes of redesignation.

Section 176(c) of the CAA requires states to establish criteria and procedures to ensure that Federally supported or funded projects conform to the air quality planning goals in the applicable SIP. The requirement to determine conformity applies to transportation plans, programs and projects that are developed, funded or approved under title 23 of the United States Code (U.S.C.) and the Federal Transit Act (transportation conformity) as well as to all other Federally supported or funded projects (general conformity). State transportation conformity SIP revisions must be consistent with Federal conformity regulations relating to consultation, enforcement and enforceability that EPA promulgated pursuant to its authority under the CAA.

EPA interprets the conformity SIP requirements 5 as not applying for purposes of evaluating a redesignation request under section 107(d) because state conformity rules are still required after redesignation and Federal conformity rules apply where state conformity rules have not been approved. See Wall v. EPA, 265 F.3d 426 (6th Cir. 2001) (upholding this interpretation); see also 60 FR 62748 (December 7, 1995) (redesignation of Tampa, Florida). Nonetheless, Ohio has an approved conformity SIP for the Columbus area. See 80 FR 11133 (March 2, 2015).

Section 182(a)(1) requires states to submit a comprehensive, accurate, and current inventory of actual emissions from sources of VOC and NOX emitted within the boundaries of the ozone nonattainment area. Ohio EPA submitted a 2008 base year emissions inventory for the Columbus area on July 18, 2014. EPA approved this emissions inventory as a revision to the Ohio SIP on March 10, 2016 (81 FR 12591).

Under section 182(a)(2)(A), states with ozone nonattainment areas that were designated prior to the enactment of the 1990 CAA amendments were required to submit, within six months of classification, all rules and corrections to existing VOC reasonably available control technology (RACT) rules that were required under section 172(b)(3) prior to the 1990 CAA amendments. The Columbus area is not subject to the section 182(a)(2) RACT “fix up” requirement for the 2008 ozone NAAQS because it was designated as nonattainment for this standard after the enactment of the 1990 CAA amendments and because Ohio complied with this requirement for the Columbus area under the prior 1-hour ozone NAAQS. See 59 FR 23796 (May 9, 1994) and 60 FR 15235 (March 23, 1995).

Section 182(a)(2)(B) requires each state with a marginal ozone nonattainment area that implemented or was required to implement a vehicle inspection and maintenance (I/M) program prior to the 1990 CAA amendments to submit a SIP revision for an I/M program no less stringent than that required prior to the 1990 CAA amendments or already in the SIP at the time of the CAA amendments, whichever is more stringent. For the purposes of the 2008 ozone standard and the consideration of Ohio's redesignation request for this standard, the Columbus area is not subject to the section 182(a)(2)(B) requirement because the Columbus area was designated as nonattainment for the 2008 ozone standard after the enactment of the 1990 CAA amendments.

Regarding the source permitting and offset requirements of section 182(a)(2)(C) and section 182(a)(4), Ohio currently has a fully-approved part D NSR program in place. EPA approved Ohio's PSD program on January 22, 2003 (68 FR 2909) and February 25, 2010 (75 FR 8496). As discussed above, Ohio has demonstrated that the Columbus area will be able to maintain the standard without part D NSR in effect; therefore, EPA concludes that the state need not have a fully approved part D NSR program prior to approval of the redesignation request. The state's PSD program will become effective in the Columbus area upon redesignation to attainment.

Section 182(a)(3) requires states to submit periodic emission inventories and a revision to the SIP to require the owners or operators of stationary sources to annually submit emission statements documenting actual VOC and NOX emissions. As discussed below in section IV.D.4. of this proposed rule, Ohio will continue to update its emissions inventory at least once every three years. With regard to stationary source emission statements, EPA approved Ohio's emission statement rule on September 27, 2007 (72 FR 54844). On July 18, 2014, Ohio certified that this approved SIP regulation remains in place and remains enforceable for the 2008 ozone standard. EPA approved Ohio's certification on March 10, 2016 (81 FR 12591).

The Columbus area has satisfied all applicable requirements for purposes of redesignation under section 110 and part D of title I of the CAA.

Ohio has adopted and submitted and EPA has approved at various times, provisions addressing the various SIP elements applicable for the ozone NAAQS. As discussed above, EPA has fully approved the Ohio SIP for the Columbus area under section 110(k) for all requirements applicable for purposes of redesignation under the 2008 ozone NAAQS. EPA may rely on prior SIP approvals in approving a redesignation request (see the Calcagni memorandum at page 3; Southwestern Pennsylvania Growth Alliance v. Browner, 144 F.3d 984, 989-990 (6th Cir. 1998); Wall v. EPA, 265 F.3d 426), plus any additional measures it may approve in conjunction with a redesignation action (see 68 FR 25426 (May 12, 2003) and citations therein).

To support the redesignation of an area from nonattainment to attainment, section 107(d)(3)(E)(iii) of the CAA requires EPA to determine that the air quality improvement in the area is due to permanent and enforceable reductions in emissions resulting from the implementation of the SIP and applicable Federal air pollution control regulations and other permanent and other permanent and enforceable emission reductions. EPA has determined that Ohio has demonstrated that that the observed ozone air quality improvement in the Columbus area is due to permanent and enforceable reductions in VOC and NOX emissions resulting from state measures adopted into the SIP and Federal measures.

In making this demonstration, the state has calculated the change in emissions between 2011 and 2014. The reduction in emissions and the corresponding improvement in air quality over this time period can be attributed to a number of regulatory control measures that the Columbus area and upwind areas have implemented in recent years. In addition, Ohio EPA provided an analysis to demonstrate the improvement in air quality was not due to unusually favorable meteorology. Based on the information summarized below, Ohio has adequately demonstrated that the improvement in air quality is due to permanent and enforceable emissions reductions.

Clean Air Interstate Rule (CAIR)/Cross State Air Pollution Rule (CSAPR). CAIR created regional cap-and-trade programs to reduce sulfur dioxide (SO2) and NOX emissions in 27 eastern states, including Ohio, that contributed to downwind nonattainment and maintenance of the 1997 8-hour ozone NAAQS and the 1997 fine particulate matter (PM2.5) NAAQS. See 70 FR 25162 (May 12, 2005). EPA approved Ohio's CAIR regulations into the Ohio SIP on February 1, 2008 (73 FR 6034), and September 25, 2009 (74 FR 48857). In 2008, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) initially vacated CAIR, North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), but ultimately remanded the rule to EPA without vacatur to preserve the environmental benefits provided by CAIR, North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008). On August 8, 2011 (76 FR 48208), acting on the D.C. Circuit's remand, EPA promulgated CSAPR to replace CAIR and thus to address the interstate transport of emissions contributing to nonattainment and interfering with maintenance of the two air quality standards covered by CAIR as well as the 2006 PM2.5 NAAQS. CSAPR requires substantial reductions of SO2 and NOX emissions from electric generating units (EGUs) in 28 states in the Eastern United States.

The D.C. Circuit's initial vacatur of CSAPR 6 was reversed by the United States Supreme Court on April 29, 2014, and the case was remanded to the D.C. Circuit to resolve remaining issues in accordance with the high court's ruling. EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014). On remand, the D.C. Circuit affirmed CSAPR in most respects, but invalidated without vacating some of the CSAPR budgets as to a number of states. EME Homer City Generation, L.P. v. EPA, 795 F.3d 118 (D.C. Cir. 2015). The remanded budgets include the Phase 2 NOX ozone season emissions budgets for Ohio. This litigation ultimately delayed implementation of CSAPR for three years, from January 1, 2012, when CSAPR's cap-and-trade programs were originally scheduled to replace the CAIR cap-and-trade programs, to January 1, 2015. Thus, the rule's Phase 2 budgets were originally promulgated to begin on January 1, 2014, and are now scheduled to begin on January 1, 2017. CSAPR will continue to operate under the existing emissions budgets until EPA addresses the D.C. Circuit's remand.

While the reduction in NOX emissions from the implementation of CSAPR will result in lower concentrations of transported ozone entering the Columbus area throughout the maintenance period, EPA is proposing to approve the redesignation of the Columbus area without relying on those measures within Ohio as having led to attainment of the 2008 ozone NAAQS or contributing to maintenance of that standard. In so doing, we are proposing to determine that the D.C. Circuit's invalidation of the Ohio CSAPR Phase 2 ozone season NOX emissions budget does not bar today's proposed redesignation.

The improvement in ozone air quality in the Columbus area from 2011 (a year when the design value for the area was above the NAAQS) to 2014 (a year when the design value was below the NAAQS) is not due to CSAPR emissions reductions because, as noted above, CSAPR did not go into effect until January 1, 2015, after the area was already attaining the standard. As a general matter, because CSAPR is CAIR's replacement, emissions reductions associated with CAIR will for most areas be made permanent and enforceable through implementation of CSAPR. In addition, there are no EGU sources in the Columbus area. Furthermore, as laid out in the State's maintenance demonstration, no EGUs are expected to locate in the area throughout the maintenance period.

Given the particular facts and circumstances associated with the Columbus area, EPA does not believe that the D.C. Circuit's invalidation of Ohio's CSAPR Phase 2 NOX ozone season budget, which replaced CAIR's NOX ozone season budget, is a bar to EPA's redesignation of the Columbus area for the 2008 ozone NAAQS.

Reductions in VOC and NOX emissions have occurred statewide and in upwind areas as a result of Federal emission control measures, with additional emission reductions expected to occur in the future. Federal emission control measures include the following.

Tier 2 Emission Standards for Vehicles and Gasoline Sulfur Standards. On February 10, 2000 (65 FR 6698), EPA promulgated Tier 2 motor vehicle emission standards and gasoline sulfur control requirements. These emission control requirements result in lower VOC and NOX emissions from new cars and light duty trucks, including sport utility vehicles. With respect to fuels, this rule required refiners and importers of gasoline to meet lower standards for sulfur in gasoline, which were phased in between 2004 and 2006. By 2006, refiners were required to meet a 30 ppm average sulfur level, with a maximum cap of 80 ppm. This reduction in fuel sulfur content ensures the effectiveness of low emission-control technologies. The Tier 2 tailpipe standards established in this rule were phased in for new vehicles between 2004 and 2009. EPA estimates that, when fully implemented, this rule will cut NOX and VOC emissions from light-duty vehicles and light-duty trucks by approximately 76 and 28 percent, respectively. NOX and VOC reductions from medium-duty passenger vehicles included as part of the Tier 2 vehicle program are estimated to be approximately 37,000 and 9,500 tons per year, respectively, when fully implemented. In addition, EPA estimates that beginning in 2007, a reduction of 30,000 tons per year of NOX will result from the benefits of sulfur control on heavy-duty gasoline vehicles. Some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period, as older vehicles are replaced with newer, compliant model years.

Tier 3 Emission Standards for Vehicles and Gasoline Sulfur Standards. On April 28, 2014 (79 FR 23414), EPA promulgated Tier 3 motor vehicle emission and fuel standards to reduces both tailpipe and evaporative emissions and to further reduce the sulfur content in fuels. The rule will be phased in between 2017 and 2025. Tier 3 sets new tailpipe standards for the sum of VOC and NOX and for particulate matter. The VOC and NOX tailpipe standards for light-duty vehicles represent approximately an 80% reduction from today's fleet average and a 70% reduction in per-vehicle particulate matter (PM) standards. Heavy-duty tailpipe standards represent about a 60% reduction in both fleet average VOC and NOX and per-vehicle PM standards. The evaporative emissions requirements in the rule will result in approximately a 50 percent reduction from current standards and apply to all light-duty and onroad gasoline-powered heavy-duty vehicles. Finally, the rule lowers the sulfur content of gasoline to an annual average of 10 ppm by January 2017. While these reductions did not aid the area in attaining the standard, emission reductions will occur during the maintenance period.

Heavy-Duty Diesel Engine Rules. In July 2000, EPA issued a rule for on-highway heavy-duty diesel engines that includes standards limiting the sulfur content of diesel fuel. Emissions standards for NOX, VOC and PM were phased in between model years 2007 and 2010. In addition, the rule reduced the highway diesel fuel sulfur content to 15 parts per million by 2007, leading to additional reductions in combustion NOX and VOC emissions. EPA has estimated future year emission reductions due to implementation of this rule. Nationally, EPA estimated that 2015 NOX and VOC emissions would decrease by 1,260,000 tons and 54,000 tons, respectively. Nationally, EPA estimated that 2030 NOX and VOC emissions will decrease by 2,570,000 tons and 115,000 tons, respectively. As projected by these estimates and demonstrated in the on-road emission modeling for the Columbus area, some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period, as older vehicles are replaced with newer, compliant model years.

Nonroad Diesel Rule. On June 29, 2004 (69 FR 38958), EPA issued a rule adopting emissions standards for nonroad diesel engines and sulfur reductions in nonroad diesel fuel. This rule applies to diesel engines used primarily in construction, agricultural, and industrial applications. Emission standards are phased in for 2008 through 2015 model years based on engine size. The SO2 limits for nonroad diesel fuels were phased in from 2007 through 2012. EPA estimates that when fully implemented, compliance with this rule will cut NOX emissions from these nonroad diesel engines by approximately 90 percent. Some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period.

Nonroad Spark-Ignition Engines and Recreational Engine Standards. On November 8, 2002 (67 FR 68242), EPA adopted emission standards for large spark-ignition engines such as those used in forklifts and airport ground-service equipment; recreational vehicles such as off-highway motorcycles, all-terrain vehicles, and snowmobiles; and recreational marine diesel engines. These emission standards are phased in from model year 2004 through 2012. When fully implemented, EPA estimates an overall 72 percent reduction in VOC emissions from these engines and an 80 percent reduction in NOX emissions. Some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period.

National Emission Standards for Hazardous Air Pollutants (NESHAP) for Reciprocating Internal Combustion Engines. On March 3, 2010 (75 FR 9648), EPA issued a rule to reduce hazardous air pollutants from existing diesel powered stationary reciprocating internal combustion engines, also known as compression ignition engines. Amendments to this rule were finalized on January 14, 2013 (78 FR 6674). EPA estimated that when this rule is fully implemented in 2013, NOX and VOC emissions from these engines will be reduced by approximately 9,600 and 36,000 tons per year, respectively.

Category 3 Marine Diesel Engine Standards. On April 30, 2010 (75 FR 22896) EPA issued emission standards for marine compression-ignition engines at or above 30 liters per cylinder. Tier 2 emission standards apply beginning in 2011, and are expected to result in a 15 to 25 percent reduction in NOX emissions from these engines. Final Tier 3 emission standards apply beginning in 2016 and are expected to result in approximately an 80 percent reduction in NOX from these engines. Some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period.

Oil and Natural Gas Industry Standards. On August 16, 2012 (77 FR 49490) EPA finalized several rules that apply to the oil and natural gas sector. These rule set standards for natural gas wells that are hydraulically fractured along with several other sources in the oil and natural gas sector. When these rules are fully implemented in 2015, EPA estimates nationally that VOC emissions will be reduced by 190,000 to 290,000 tons annually.

While there are no EGUs in the Columbus area, the Picway Power Plant is located in Pickaway County, approximately 1.25 kilometers from the southern border of Franklin County. This plant permanently shut down in May of 2015. The coal-fired boiler did not operate in 2014 and between 2011 and 2013 NOX emissions dropped from 0.57 tons per summer day (TPSD) in 2011 to 0.45 TPSD in 2013.

Ohio is using a 2011 inventory as the nonattainment base year. Area, nonroad mobile, airport related emissions (AIR), and point source emissions (EGUs and non-EGUs) were collected from the Ozone NAAQS Implementation Modeling platform (2011v6.1). For 2011, this represents actual data Ohio reported to EPA for the 2011 National Emissions inventory (NEI). Because emissions from state inventory databases, the NEI, and the Ozone NAAQS Emissions Modeling platform are annual totals, tons per summer day were derived according to EPA's guidance document “Temporal Allocation of Annual Emissions Using EMCH Temporal Profiles” dated April 29 2002, using the temporal allocation references accompanying the 2011v6.1 modeling inventory files. Onroad mobile source emissions were developed in conjunction with the Ohio EPA, the Ohio Department of Transportation, the Mid-Ohio Regional Planning Commission (MORPC), and the Licking County Area Transportation (LCAT) and were calculated from emission factors produced by EPA's Motor Vehicle Emission Simulator (MOVES) model and data extracted from the region's travel-demand model.

For the attainment inventory, Ohio is using 2014, one of the years the Columbus area monitored attainment of the 2008 ozone standard. Because the 2014 NEI inventory was not available at the time Ohio EPA was compiling the redesignation request, the state was unable to use the 2014 NEI inventory directly. For area, nonroad mobile, and AIR, 2014 emissions were derived by interpolating between 2011 and 2018 Ozone NAAQS Emissions Modeling platform inventories. The point source sector for the 2014 inventory was developed using actual 2014 point source emissions reported to the state database, which serve as the basis for the point source emissions reported to EPA for the NEI. Summer day inventories were derived for these sectors using the methodology described above. Finally, onroad mobile source emissions were developed using the same methodology described above for the 2011 inventory.

Using the inventories described above, Ohio's submittal documents changes in VOC and NOX emissions from 2011 to 2014 for the Columbus area. Emissions data are shown in Tables 2 through 6.