Federal Register Vol. 81, No.242,

I. Background

Section 10(d) of the Federal Deposit Insurance Act (FDI Act) 1 generally requires the appropriate Federal banking agency for an insured depository institution (IDI) to conduct a full-scope, on-site examination of the institution at least once during each 12-month period. Prior to enactment of section 83001 of the FAST Act,2 section 10(d)(4) of the FDI Act authorized the appropriate Federal banking agency to extend the on-site examination cycle for an IDI to at least once during an 18-month period if the IDI (1) had total assets of less than $500 million; (2) was well capitalized (as defined in 12 U.S.C. 1831o); (3) was found, at its most recent examination, to be well managed 3 and to have a composite condition of “outstanding” or, in the case of an institution that has total assets of not more than $100 million, “outstanding” or “good;” (4) was not subject to a formal enforcement proceeding or order by the FDIC or its appropriate Federal banking agency; and (5) had not undergone a change in control during the previous 12-month period in which a full-scope, on-site examination otherwise would have been required. Section 10(d)(10) of the FDI Act, prior to the enactment of section 83001 of the FAST Act, also gave the agencies discretionary authority to raise the eligibility size limit for the 18-month examination cycle for otherwise qualifying IDIs with an “outstanding” or “good” composite rating from $100 million to an amount not to exceed $500 million in total assets if the agencies determined that the higher limit would be consistent with the principles of safety and soundness.4 Under section 10(d)(3), the Board and the FDIC, as the appropriate Federal banking agencies for State-chartered insured banks and savings associations, are permitted to conduct on-site examinations of such IDIs on alternating 12-month or 18-month periods with the institution's State supervisor, if the Board or FDIC, as appropriate, determines that the alternating examination conducted by the State carries out the purposes of section 10(d) of the FDI Act.5

Section 7(c)(1)(C) of the International Banking Act (IBA) provides that a Federal or a State branch or agency of a foreign bank shall be subject to on-site examination by its appropriate Federal banking agency or State bank supervisor as frequently as a national or State bank would be subject to such an examination by the agency.6 The agencies previously adopted regulations to implement the examination cycle requirements of section 10(d) of the FDI Act and section 7(c)(1)(C) of the IBA, including the extended 18-month examination cycle available to qualifying small institutions and U.S. branches and agencies of foreign banks.7 The agencies have also exercised their discretion, under section 10(d)(10) of the FDI Act, to extend the 18-month examination cycle for otherwise qualifying institutions with “good” composite ratings,8 first, in 1997, for such institutions with total assets of $250 million or less, and, again, in 2007, for such institutions with total assets of $500 million or less.9

Section 83001 of the FAST Act, effective on December 4, 2015, amended section 10(d) of the FDI Act to raise, from $500 million to $1 billion, the total asset threshold below which an agency may apply an 18-month (rather than a 12-month) on-site examination cycle for IDIs with “outstanding” composite ratings, and to raise, from not more than $100 million to not more than $200 million, the total asset threshold below which an agency may apply an 18-month examination cycle to an institution with an “outstanding” or “good” composite rating.10 Section 83001 also amended section 10(d)(10) of the FDI Act to authorize the appropriate Federal banking agency to increase, by regulation, the maximum amount limitation for IDIs with “outstanding” or “good” composite ratings from not more than $200 million to not more than $1 billion if the appropriate Federal banking agency determines that the higher amount would be consistent with the principles of safety and soundness for IDIs.11

These FAST Act amendments reduce regulatory burdens on small, well capitalized, and well managed institutions and allow the agencies to better focus their supervisory resources on those IDIs and U.S. branches and agencies of foreign banks that may present capital, managerial, or other issues of supervisory concern.

On February 29, 2016, the agencies published and requested comment on interim final rules to implement the amendments to section 10(d) made by section 83001 of the FAST Act.12 The agencies are adopting the interim final rules as final without change. In particular, the agencies are adopting as final the increase, from $500 million to $1 billion, in the total asset threshold below which an IDI that meets the criteria in section 10(d) and the agencies' rules may qualify for an 18-month, full-scope, on-site examination cycle. In addition, as authorized by section 83001 of the FAST Act, the agencies have determined that it is consistent with principles of safety and soundness to permit institutions with total assets of $200 million or greater and not exceeding $1 billion that received a composite CAMELS rating of “1” or “2,” and that meet other qualifying criteria set forth in section 10(d) and the agencies' rules, to qualify for an 18-month examination cycle. Consistent with section 7(c)(1)(C) of the IBA, the agencies also are adopting as final conforming changes to the regulations that govern the on-site examination cycle of a U.S. branch or agency of a foreign bank. These changes permit a U.S. branch or agency of a foreign bank with total assets of less than $1 billion to qualify for an 18-month examination cycle if the U.S. branch or agency of a foreign bank received a composite ROCA rating of “1” or “2” at its most recent examination and meets the other applicable criteria.

The FDIC analyzed the frequency with which institutions rated a composite CAMELS rating of “1” or “2” failed within five years, versus the frequency with which institutions rated a composite CAMELS rating of “3,” “4,” or “5” failed within five years. FDIC analysis indicates that between 1985 and 2011,13 FDIC-insured depository institutions with assets less than $1 billion and a composite CAMELS rating of “1” or “2” had a five-year failure rate that was one-seventh as high as institutions with a CAMELS rating of “3,” “4,” or “5.” Moreover, the relationship between failure rates in the two ratings groups did not meaningfully change when the analysis was restricted to institutions with assets between $200 million and $500 million compared to institutions with assets between $500 million to $1 billion. This analysis suggests that extending the examination cycle for well-rated institutions with $500 million to $1 billion in assets by an additional six months, combined with the agencies' off-site monitoring activities and ability to examine an institution more frequently as necessary or appropriate, is unlikely to negatively affect the safe and sound operations of qualifying institutions or the ability of the agencies to effectively supervise and protect the safety and soundness of institutions with total assets of less than $1 billion.14 Furthermore, the agencies note that, in order to qualify for an 18-month examination cycle, any institution with total assets of less than $1 billion—including one with a CAMELS composite rating of “2”—must meet the other capital, managerial, and supervisory criteria set forth in section 10(d). The agencies estimate that the changes adopted by the final rules will increase the number of institutions that may qualify for an extended 18-month examination cycle by approximately 611 institutions (372 of which are supervised by the FDIC, 142 by the OCC, and 97 by the Board), bringing the total number of institutions that may qualify for an extended 18-month examination cycle to 4,793 IDIs.15 Approximately 89 U.S. branches and agencies of foreign banks would be eligible for the extended examination cycle based on the final rules, an increase of 30 (one of which is supervised by the FDIC, four by the OCC, and 25 by the Board).16

Finally, the FDIC is adopting as final changes made in the interim final rules to integrate its regulations regarding the frequency of safety and soundness examinations for State nonmember banks and State savings associations. Twelve CFR 390.351 was rescinded and removed because it was substantively identical to 12 CFR 337.12 and, therefore, redundant to section 12 CFR 337.12. Twelve CFR 337.12 was amended to reflect the authority of the FDIC under section 4(a) of the Home Owners' Loan Act to provide for the examination and safe and sound operation of State savings associations. State savings associations now are within the scope of 12 CFR 337.12, and, all FDIC-supervised institutions, including State savings associations, are subject to the requirements of 12 CFR 337.12.

The agencies received three comment letters in response to the interim final rules. Two commenters, both industry trade groups, supported the interim final rules. Both commenters agreed that extending the examination cycle for IDIs that meet the interim final rules' criteria would not negatively affect the safe and sound operations of the institutions or the ability of the agencies to supervise them. The third commenter, an individual, did not support the interim final rules, but offered no specific reasons for that opposition.

For the reasons described in this section, the agencies are adopting these rules as final without change.

The Administrative Procedure Act (APA) generally requires that a final rule be published in the Federal Register no less than 30 days before its effective date.17 Therefore, the final rules will become effective on January 17, 2017. The interim final rules will continue to be in effect until the final rules become effective.

Section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994 (RCDRIA) requires that each Federal banking agency, in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosures, or other requirements on IDIs, consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations.18 Further, new regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form.19 The final rules adopt the interim final rules without change. The RCDRIA does not apply to the final rules because the rules do not impose any additional reporting, disclosures, or other new requirements on IDIs.

Section 722 of the Gramm-Leach-Bliley Act 20 requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The agencies' staff believe the final rules are presented in a clear and straightforward manner and having received no comments on how to make the interim final rules easier to understand, the agencies adopt the final rules without change.

Board: Regulatory Flexibility Act 21 (RFA) requires an agency to prepare a final regulatory flexibility analysis (FRFA) when an agency promulgates a final rule, unless pursuant to section 605(b) of the RFA, the agency certifies that the final rule will not, if promulgated, have a significant economic impact on a substantial number of small entities. In this context, small entities include banking entities with total assets less than or equal to $550 million.

The final rules do not have a significant impact on a substantial number of small entities. Like the interim final rules, the final rules expand the number of institutions eligible for an extended examination cycle, thus reducing the regulatory burden associated with on-site examinations for these institutions. Further, only 22 of the 122 Board-regulated institutions affected by the final rules have assets between $500 million and $550 million and thus would be considered small entities. These 22 institutions represent a small percentage (3.3 percent) of the 657 Board-supervised institutions with total assets less than $550 million.22 For these reasons, the Board certifies that the final rules will not have a significant impact on a substantial number of small entities as defined in the RFA,23 and therefore, a regulatory flexibility analysis is not required.

FDIC: The RFA24 requires an agency, in connection with a notice of final rulemaking, to prepare a FRFA analysis describing the impact of the rule on small entities (defined by the Small Business Administration for the purposes of the RFA to include banking entities with total assets of $550 million or less) or to certify that the final rule will not have a significant economic impact on a substantial number of small entities.

The final rule does not impose any significant economic impact on a substantial number of small entities. The final rule raises the asset eligibility threshold for extended examination cycles from $500 million to $1 billion, expanding the number of qualifying institutions and U.S. branches and agencies of foreign banks, and reduces the regulatory burden associated with on-site examinations. Of the 372 FDIC-supervised institutions that could be impacted by the rule, only 71 of the FDIC-supervised institutions have total assets between $500 million and $550 million which is a very small share (2.5 percent) of the 2,817 FDIC-supervised institutions with total assets less than $550 million.25 For this reason, the FDIC certifies that the final rule will not have a significant economic impact on a substantial number of small entities as defined in the RFA, and therefore, a regulatory flexibility analysis is not required.

OCC: The RFA applies only to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b). Consistent with section 553(b)(B) of the APA, the agencies determined for good cause that general notice and opportunity for public comment were not necessary and issued an interim final rule rather than a proposed rule. Accordingly, the RFA's requirements relating to initial and final regulatory flexibility analyses do not apply.

The Paperwork Reduction Act of 1995 26 states that no agency may conduct or sponsor, nor is the respondent required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. Because the final rules do not create a new, or revise an existing collection of information, no information collection submission needs to be made to OMB.

Under section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA),27 the agencies are required to conduct a review at least once every 10 years to identify any outdated or otherwise unnecessary regulations. The agencies completed the last comprehensive review of their regulations under EGRPRA in 2006 and are currently conducting the next decennial review. The burden reduction evidenced in these final rules is consistent with the objectives of the EGRPRA review process.

Table of Contents I. Introduction II. Background III. Description of the Final Rule A. Revisions Related to FR Y-15 Reporting Frequency B. Revision To Clarify the Method 2 Score Calculation C. Comment Received on the Proposed Rule V. Regulatory Analysis A. Paperwork Reduction Act B. Regulatory Flexibility Analysis C. Riegle Community Development and Regulatory Improvement Act of 1994 D. Plain Language I. Introduction

Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) authorizes the Board of Governors of the Federal Reserve System (Board) to establish enhanced prudential standards for bank holding companies with $50 billion or more in total consolidated assets and for nonbank financial companies that the Financial Stability Oversight Council has designated for supervision by the Board.1 These standards must include risk-based capital requirements as well as other enumerated standards. Pursuant to section 165 of the Dodd-Frank Act, the Board adopted a rule regarding risk-based capital surcharges for U.S.-based global systemically important bank holding companies (GSIB surcharge rule) in July 2015 to impose a risk-based-capital surcharge on bank holding companies identified under the rule as global systemically important bank holding companies (GSIBs).2 In April 2016, the Board invited public comment on a notice of proposed rulemaking (proposal or proposed rule) to make clarifying revisions to the Board's GSIB surcharge rule.3 The Board now is issuing a final rule implementing the proposal without change (final rule).

The GSIB surcharge rule works to mitigate the potential risk that the material financial distress or failure of a GSIB could pose to U.S. financial stability by increasing the stringency of capital standards for GSIBs, thereby increasing the resiliency of these firms. The GSIB surcharge rule establishes a methodology to identify whether a U.S. top-tier bank holding company is a GSIB and imposes a risk-based capital surcharge on such an institution. The GSIB surcharge rule takes into consideration the nature, scope, size, scale, concentration, interconnectedness, and mix of activities of each company subject to the rule in its methodology for determining whether the company is a GSIB and the size of the surcharge. These factors are captured in the GSIB surcharge rule's method 1 and method 2 scores, which use quantitative metrics reported on the FR Y-15 reporting form to measure a firm's systemic footprint.

Specifically, the GSIB surcharge rule requires each U.S. bank holding company that qualifies as an advanced approaches institution under the Board's capital rules to calculate an aggregate systemic indicator score based on five indicators of systemic importance (method 1 score).4 A bank holding company whose method 1 score exceeds a defined threshold is identified as a GSIB. Advanced approaches institutions must calculate their method 1 scores on an annual basis using data reported on the FR Y-15 reporting form as of December 31 of the prior year.5

A bank holding company identified as a GSIB must also calculate a score under method 2. Such a firm must calculate a method 2 score each year using data reported on the firm's FR Y-15 as of December 31 of the prior year. GSIB surcharges are established using the method 1 and method 2 scores, and GSIBs with higher scores are subject to higher GSIB surcharges.

Method 1 uses five equally-weighted categories that are correlated with systemic importance—size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity—as measured by twelve systemic indicators.6 For each systemic indicator, a firm divides its own measure of the systemic indicator by an aggregate global indicator amount. Each resulting value is then weighted and put onto a standard scale. The firm's method 1 score is the sum of its weighted systemic indicator scores. Method 2 uses similar inputs to those used in method 1, but replaces the substitutability category with a measure of short-term wholesale funding.7 The GSIB surcharge for the firm is the higher of the two surcharges determined under method 1 and method 2.8 Method 2 is calibrated differently from method 1 and generally results in a higher GSIB surcharge.

The FR Y-15 reporting form collects systemic risk data from U.S. bank holding companies and covered savings and loan holding companies 9 with total consolidated assets of $50 billion or more. The information reported on the FR Y-15 is used in part in the calculation of a bank holding company's method 1 and method 2 scores under the GSIB surcharge rule.10

In April 2016, the Board invited comment on a proposed rule to clarify certain aspects of the GSIB surcharge rule.11 Because the FR Y-15 had become a quarterly, rather than an annual report, the proposed rule would have clarified that a bank holding company subject to the rule should continue to use the systemic indicator amount from the FR Y-15 regulatory report as of December 31 of the prior calendar year to calculate its method 1 and method 2 scores. The proposal also would have clarified the units used for purposes of the method 2 score calculation under the capital surcharge rule. In connection with these proposed changes, the preamble to the proposal provided clarifying information on how a firm identified as a GSIB should calculate its short-term wholesale funding score for purposes of calculating its method 2 score.

The FR Y-15, as implemented on December 31, 2012, was an annual report.12 The Board recently revised the FR Y-15 to require that the FR Y-15 to be filed on a quarterly basis, beginning with the report as of June 30, 2016.13 Under the GSIB surcharge rule, bank holding companies calculate their method 1 and method 2 scores using data from their most recent FR Y-15.14 These calculations were intended to be conducted annually using data as of December 31 of the prior calendar year, consistent with the frequency of the FR Y-15 at the time.

The proposed rule sought comment on revising the GSIB surcharge rule to require continued use of a December 31 as-of date for purposes of a bank holding company's calculation of its method 1 and method 2 scores. The proposed revisions to sections 217.404 and 217.405 of the GSIB surcharge rule would provide that the systemic indicator amount used in the calculations would be drawn from a firm's FR Y-15 as of December 31 of the previous calendar year even after the FR Y-15 becomes a quarterly report.

The Board received no comments on this aspect of the proposal and is finalizing this portion of the rule as proposed.

The proposed rule also sought to revise section 217.405 of the Board's Regulation Q to clarify that, for purposes of calculating its method 2 score, a GSIB should convert its systemic indicator amounts as reported on the FR Y-15 to billions of dollars. The FR Y-15 requires these data to be reported in thousands of dollars, while the fixed coefficients used in the calculation of a firm's method 2 score are determined using aggregate data expressed in billions of dollars.15 Therefore, to properly use the fixed coefficients in the method 2 score methodology, a firm should reflect its systemic indicator amounts used in the method 2 score calculation in billions of dollars.

The Board received no comments on this aspect of the proposal and is finalizing this portion of the rule as proposed.

The Board received one public comment on the proposed rule. The commenter generally expressed support for the proposed rule, but expressed concerns regarding the interaction of the timing of the FR Y-15 and the Federal Reserve's complex institution liquidity monitoring report, the FR 2052a. The FR Y-15, as noted above, collects data regarding a firm's systemic risk, while the FR 2052a collects data on an institution's overall liquidity profile.16 The commenter expressed concern that if the initial effective date of Schedule G of the FR Y-15 preceded the initial effective date of the FR 2052a this difference would reduce the time that certain firms have to fully implement the FR 2052a. Specifically, the commenter observed that, because data from the FR 2052a will be used to complete Schedule G of the FR Y-15, it was inconsistent to require firms with total assets of $50 billion or more to file Schedule G of the FR Y-15 as of December 31, 2016, but provide firms with total assets equal to or greater than $50 billion, but less than $250 billion until July 31, 2017 to file the FR 2052a. The commenter therefore argued that firms should be given additional time to complete Schedule G of the FR Y-15 in order to allow them to make use of the full implementation period for the FR 2052a.

In response to the comment, the Board is issuing an interim final rule concurrently with this final rule to provide additional time for certain smaller firms to complete Schedule G of the FR Y-15 for the first time.

There is no new collection of information pursuant to the PRA (44 U.S.C. 3501 et seq.) contained in this final rule.

The Board is providing a final regulatory flexibility analysis with respect to this final rule. The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), generally requires that an agency provide a regulatory flexibility analysis in connection with a final rulemaking. This final rule amends the Board's GSIB surcharge rule, which only applies to bank holding companies that are advanced approaches Board-regulated institutions for purposes of the Board's Regulation Q (advanced approaches bank holding companies). Generally, advanced approaches bank holding companies are those that: Have total consolidated assets of $250 billion or more; have total consolidated on-balance sheet foreign exposures of $10 billion or more; have subsidiary depository institutions that are advanced approaches institutions; or elect to use the advanced approaches framework.17 Under regulations issued by the Small Business Administration, a small entity includes a depository institution, bank holding company, or savings and loan holding company with assets of $550 million or less (small banking organizations).18 As of June 30, 2016, there were approximately 3,203 top-tier small bank holding companies. Bank holding companies that are subject to the final rule therefore are expected to substantially exceed the $550 million asset threshold at which a banking entity would qualify as a small bank holding company. As a result, the final rule is not expected to apply to any small bank holding company for purposes of the RFA.

Therefore, there are no significant alternatives to the final rule that would have less economic impact on small bank holding companies. As discussed above, there are no projected reporting, recordkeeping, and other compliance requirements of the final rule. The Board does not believe that the final rule duplicates, overlaps, or conflicts with any other Federal rules. In light of the foregoing, the Board does not believe that the final rule would have a significant economic impact on a substantial number of small entities.

The Board sought comment on whether the proposed rule would impose undue burdens on, or have unintended consequences for, small organizations, and received no comments on this aspect of the proposal. In light of the foregoing, the Board does not believe that the final rule will have a significant impact on small entities.

In determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on state member banks, the Board is required to consider, consistent with the principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, and the benefits of such regulations.19 In addition, new regulations that impose additional reporting disclosures or other new requirements on insured depository institutions generally must take effect on the first day of a calendar quarter which begins on or after the date on which the regulations are published in final form.20

The final rule is only applicable to advanced approaches bank holding companies. Therefore, the requirements of the Riegle Community Development and Regulatory Improvement Act of 1994 are not applicable to this final rule.

Section 722 of the Gramm-Leach-Bliley Act requires the Board to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present the final rule in a simple straightforward manner. The Board did not receive any comment on its use of plain language.

For the reasons set forth in the preamble, the Board amends chapter II of title 12 of the Code of Federal Regulations as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to certain The Boeing Company Model 787-8 airplanes. The NPRM published in the Federal Register on August 19, 2015 (80 FR 50233) (“the NPRM”). The NPRM was prompted by reports of the accumulation of very fine particle deposits in the PCU EHSVs used in the flight control system; this accumulation caused degraded performance due to reduced EHSV internal hydraulic supply pressures, resulting in the display of PCU fault status messages from the EICAS. The NPRM proposed to require installing markers to limit the hydraulic system fluid used to a specific brand, doing hydraulic fluid tests of the hydraulic systems, replacing hydraulic system fluid if necessary, and doing all applicable related investigative and corrective actions. We are issuing this AD to prevent the failure of flight control hydraulic PCUs, which could lead to reduced controllability of the airplane.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the NPRM and the FAA's response to each comment.

United Airlines (UAL) stated that there are many errors, omissions, and inconsistencies in Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 001, dated November 25, 2014, and provided examples of those mistakes. UAL asked that this service information be revised to correct these problems.

Boeing has issued Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 002, dated June 13, 2016. The revised service information corrects typographical errors and makes clarifications to the Accomplishment Instructions in Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 001, dated November 25, 2014. We have included Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 002, dated June 13, 2016, in paragraphs (c) and (h) of this AD. We have also included a new paragraph (i) in this AD to provide credit for actions done prior to the effective date of this AD using Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 001, dated November 25, 2014. The subsequent paragraphs have been redesignated accordingly.

Boeing asked that we remove all references to hydraulic fluid contamination causing EHSV restriction, in the SUMMARY, the Discussion section of the NPRM, and paragraph (e) of the proposed AD. Boeing stated that the issue is not hydraulic fluid contamination causing EHSV restriction, but the accumulation of very fine particle deposits within the EHSV causing degraded performance due to reduced EHSV internal hydraulic supply pressures. Boeing added that the solution is to change the hydraulic fluid to a specific brand, considering that it has been verified to significantly reduce the rate of accumulation of particles in the EHSVs. Boeing concluded that this would clarify the cause of the EICAS messages.

We agree that the reason for the unsafe condition should be clarified, for the reasons provided. Therefore, we have removed the references to hydraulic fluid contamination causing EHSV restriction and replaced that language with a more accurate reason for the unsafe condition in the SUMMARY, the Discussion section of the final rule, and paragraph (e) of this AD.

UAL asked that a fleet-wide AMOC be issued for Boeing Service Bulletin B787-81205-SB290022-00, Issue 001, dated September 4, 2014, to correct a part number (P/N) reference. Task 1, Figure 1, and Task 2, Figure 1, of Boeing Service Bulletin B787-81205-SB290022-00, Issue 001, dated September 4, 2014, identify P/N 710Z7290-9##ALT1 for the left and right engine diagonal braces; however, the correct P/N is 710Z7290-9 with no ##ALT suffix. UAL stated that the correct part number is identified in the Illustrated Parts Catalog (IPC).

We acknowledge the commenter's concern that an incorrect part number for the left and right engine diagonal braces is identified in Boeing Service Bulletin B787-81205-SB290022-00, Issue 001, dated September 4, 2014. We have discussed this error with Boeing, and it was confirmed that the part number in the IPC (as noted by UAL) is correct and should be used. In light of this information, we do not agree that a global AMOC should be issued. However, we have added a new Note 2 to paragraph (g) of this AD to clarify the correct part number.

UAL stated that Boeing Service Bulletin B787-81205-SB290022-00, Issue 001, dated September 4, 2014, includes procedures for the HyJet V marker installation, which is a “Required for Compliance (RC)” item in Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 001, dated November 25, 2014, and must be done before or concurrently with that service information. UAL noted that there is no RC language in Boeing Service Bulletin B787-81205-SB290022-00, Issue 001, dated September 4, 2014, which makes the entire service bulletin “RC.” UAL asked that the steps that specify access and close be marked as non-RC steps.

We do not agree to change Boeing Service Bulletin B787-81205-SB290022-00, Issue 001, dated September 4, 2014, to mark the steps RC and non-RC. However, we do agree to clarify the steps that are required to accomplish the marker installation. Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 001, dated November 25, 2014, has an RC step that specifies to install markers. That RC step does not specify to perform access and close steps for the marker installation; therefore those access and close steps are not required by this AD. We have not changed this AD in this regard.

UAL also asked we change the procedures in Part 4 of Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 001, dated November 25, 2014, which specify options for either replacing the hydraulic fluid again, or draining and filling the hydraulic reservoir. UAL stated that if either option is used, then Part 2 of the service information titled “Cycle Hydraulic Fluid” must again be done, or the airplane must be flown at least one flight cycle, and then a sample drawn for testing. UAL added that this procedure, done in accordance with the instructions in the referenced service information, results in excessive cycling if the operator needs to only replace a small amount of fluid and chooses the reservoir drain-and-fill option. UAL asked to use a procedure that would specify draining and filling the reservoir, flight control cycling, and taking a fresh sample for testing, all at the same time. UAL noted that Option 10 specifies “Drain and Fill Hydraulic Reservoir” and is acceptable to operate the flight controls six to eight times to let the fluid flow through all the systems. UAL stated that this is the procedure used by Boeing before taking fluid samples per the Boeing 787 Airplane Maintenance Manual.

We do not agree to change the procedure for servicing the hydraulic fluid. Although UAL's proposal is an accepted procedure in the Boeing 787 Airplane Maintenance Manual, this procedure does not include operating the other hydraulic-powered subsystems, such as the landing gear, thrust reverser, and brakes. Subsequently, it could result in stagnant fluid measurements not intermixing with other hydraulic system fluid following replacement of the hydraulic system fluid, and could generate fluid test samples that do not include the entire system. In light of these factors, we have not changed this AD in this regard.

We have added a new Note 1 to paragraph (g) of this AD to refer to Boeing Service Bulletin B787-81205-SB290022-00, Issue 001, dated September 4, 2014, as an additional source of guidance for installing markers to allow servicing of hydraulic systems with only HyJet V hydraulic fluid.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting this AD with the changes described previously and minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We also determined that these changes will not increase the economic burden on any operator or increase the scope of this AD.

We have reviewed Boeing Alert Service Bulletin B787-81205-SB270026-00, Issue 002, dated June 13, 2016. This service information describes procedures for installing markers to limit the hydraulic system fluid used to a specific brand; doing hydraulic fluid tests of the hydraulic systems, replacing the hydraulic system fluid if necessary, and related investigative and corrective actions. 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 estimate that this AD affects 11 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2016-0204, dated October 13, 2016; corrected October 19, 2016 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”); to correct an unsafe condition for certain Airbus Model A319, A320, and A321 series airplanes. The MCAI states:

You may examine the MCAI on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9509.

Airbus has issued Alert Operators Transmission (AOT) A92N001-16, Rev 01, dated October 10, 2016. The service information describes procedures for general visual inspections to look for broken battery retaining rods. 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.

The MCAI specifies to replace broken rods in accordance with Airbus AOT A92N001-16, Rev 01, dated October 10, 2016. However, Airbus AOT A92N001-16, Rev 01, dated October 10, 2016, does not include procedures to replace broken rods. This AD requires that broken rods be replaced using a method approved by the Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA; or EASA; or Airbus's EASA Design Organization Approval (DOA).

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all pertinent information and determined the unsafe condition exists and is likely to exist or develop on other products of these same type designs.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because the detachment of a battery from the housing and damage to other electrical equipment and surrounding structure could lead to loss of normal electrical power generation and recovery of essential network and consequential control of the airplane. Therefore, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in fewer than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-9509; Directorate Identifier 2016-NM-177-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD based on 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 AD.

We estimate that this AD affects 330 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

We estimate the following costs to do any necessary replacements that would be required based on the results of the inspection. We have no way of determining the number of aircraft that might need this replacement.

Discussion

Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian AD CF-2016-23, dated July 28, 2016 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Bombardier, Inc. Model BD-700-1A10 and BD-700-1A11 airplanes. The MCAI states:

You may examine the MCAI on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9503.

We reviewed the following service information:

• Bombardier Service Bulletin 700-71-002, Revision 01, dated June 30, 2016.

• Bombardier Service Bulletin 700-71-6002, Revision 01, dated June 30, 2016.

• Bombardier Service Bulletin 700-71-5002, Revision 01, dated June 30, 2016.

• Bombardier Service Bulletin 700-1A11-71-002, Revision 01, dated June 30, 2016.

The service information describes procedures for an inspection for discrepancies of the attachment points of the links between the engine rear mount assemblies, and corrective actions. These documents are distinct since they apply to different airplane models and serial numbers. 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.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all pertinent information and determined the unsafe condition exists and is likely to exist or develop on other products of these same type designs.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because broken engine attachment hardware could result in separation of an engine from the airplane. Therefore, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in fewer than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-9503; Directorate Identifier 2016-NM-179-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD based on 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 AD.

We estimate that this AD affects 97 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

We estimate the following costs to do any necessary corrective actions that would be required based on the results of the inspection. We have no way of determining the number of aircraft that might need these corrective actions:

We have received no definitive data that would enable us to provide cost estimates for other on-condition actions specified in this AD.

According to the manufacturer, some of the costs of this AD may be covered under warranty, thereby reducing the cost impact on affected individuals. We do not control warranty coverage for affected individuals. As a result, we have included all available costs in our cost estimate.

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 AD will not have federalism implications under Executive Order 13132. This AD will 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 that this AD:

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 amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede AD 2014-13-12, Amendment 39-17888 (79 FR 45317, August 5, 2014) (“AD 2014-13-12”). AD 2014-13-12 applied to all Airbus Model A318, A319, A320, and A321 series airplanes. The NPRM published in the Federal Register on March 21, 2016 (81 FR 14990). The NPRM was prompted by reports of silicon particles inside the oxygen generator manifolds, which had chafed from the mask hoses during installation onto the generator outlets. The NPRM proposed to continue to require identifying the part number and serial number of each passenger oxygen container, replacing the oxygen generator manifold of any affected oxygen container with a serviceable manifold, and performing an operational check of the manual mask release, and doing corrective actions if necessary. The NPRM also proposed to require replacing the oxygen generator manifold of any affected DAe oxygen container with a serviceable manifold. We are issuing this AD to detect and correct nonserviceable oxygen generator manifolds, which could reduce or block the oxygen supply and result in injury to passengers when oxygen supply is needed.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Airworthiness Directive 2014-0208, dated September 16, 2014 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition. The MCAI states:

You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-4228.

We gave the public the opportunity to participate in developing this AD. The following presents the comment received on the NPRM and the FAA's response to the comment.

United Airlines (UAL) requested that we revise the compliance time for DAe Systems units from within “2,500 flight cycles, or 3,750 flight hours, or 12 months, whichever occurs first, after the effective date of this AD,” to within “5,000 flight cycles, or 7,500 flight hours, or 24 months, whichever occurs first after the effective date of this AD.” UAL stated that this would make both units have the same compliance time. UAL explained that it has inspected 97 out of 152 airplanes in compliance with AD 2014-13-12, and due to the new requirements in the NPRM, it will have to re-start the inspection for the entire UAL Model A319/A320 fleet.

We do not agree with UAL's request. As allowed by the phrase “unless already done” in paragraph (f) of this AD, if the inspection required by this AD has already been accomplished, this AD does not require that action to be repeated. The EASA, as the State of Design Authority for Airbus products, has determined this AD's compliance times based on the overall risk to the fleet, including the severity of the failure and the likelihood of the failure's occurrence. We are unaware of any information or data that would substantiate the compliance time change that UAL has requested. UAL did not provide any substantiation to support its request. The EASA works closely with Airbus to ensure that all appropriate actions are taken at the appropriate times to mitigate risk to the fleet to meet our collective safety goals. Under the provisions of paragraph (q)(1) of this AD, we will consider requests for approval of an extension of the compliance time if sufficient data are submitted to substantiate that the change would provide an acceptable level of safety. We have not changed this AD in this regard.

We reviewed the available data, including the comment received, and determined that air safety and the public interest require adopting this AD as proposed except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

B/E AEROSPACE has issued Service Bulletins 1XCXX-0100-35-005 and 22CXX-0100-35-003, both Revision 2, both dated July 10, 2014. The service information describes procedures for replacement of the oxygen generator manifold. These service bulletins are distinct since they apply to different products.

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 estimate that this AD affects 22 airplanes of U.S. registry.

The actions required by AD 2014-13-12, and retained in this AD take about 6 work-hours per product, at an average labor rate of $85 per work-hour. Based on these figures, the estimated cost of the actions that were required by AD 2014-13-12 is $510 per product.

We also estimate that it takes about 6 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this AD on U.S. operators to be $11,220, or $510 per product.

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 AD will not have federalism implications under Executive Order 13132. This AD will 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 that this AD:

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 amends 14 CFR part 39 as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to certain IAE V2522-A5, V2524-A5, V2527-A5, V2527E-A5, V2527M-A5, V2530-A5, V2533-A5, V2525-D5, V2528-D5, and V2531-E5 turbofan engines. The NPRM published in the Federal Register on July 21, 2016 (81 FR 47313). The NPRM was prompted by nine IFSDs resulting from premature failure of the No. 3 bearing. This condition, if not corrected, could result in failure of the No. 3 bearing, failure of one or more engines, loss of thrust control, and loss of the airplane. The NPRM proposed to require removal of the No. 3 bearing from service at the next engine shop visit. We are issuing this AD to prevent failure of the No. 3 bearing, failure of one or more engines, loss of thrust control, and loss of the airplane.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the NPRM and the FAA's response to each comment. Boeing supported the NPRM.

MTU Maintenance Hanover GmbH (MTU) requested that IAE Non Modification Service Bulletin (NMSB) V2500-ENG-72-0673, dated June 3, 2016, be added as a terminating action in this AD. MTU also requested IAE NMSB V2500-ENG-72-0673 be included in credit for previous action. They reason that following the issue of IAE NMSB V2500-ENG-72-0671, dated March 22, 2016, IAE released IAE NMSB V2500-ENG-72-0673, which recommends removal of No. 3 bearing serial numbers (S/Ns) identical to those listed in IAE NMSB V2500-ENG-72-0671.

We partially agree. We agree that the removal of the suspect bearing in accordance with IAE NMSB V2500-ENG-72-0673, dated June 3, 2016 would accomplish both the (e)(3) compliance and (f) terminating action requirements of this AD because both IAE service documents reference identical bearing S/Ns.

We disagree that including IAE NMSB V2500-ENG-72-0673 as a terminating action or listing as credit for previous action is necessary since replacement of a bearing S/N per IAE NMSB V2500-ENG-72-0673, dated June 3, 2016, makes the engine no longer applicable to the AD. We did not change this AD.

IAE and MTU request engine models V2525-D5, V2528-D5, and V2531-E5 be removed from the applicability section of this AD. IAE states that the suspect No. 3 bearings referenced by this AD have all been installed in A5 series engines as specified in IAE NMSB V2500-ENG-72-0671, dated March 22, 2016 and requests alignment with the service instructions in order to provide consistency between the IAE NMSB V2500-ENG-72-0671 and this AD. MTU reasons that the IAE NMSBs V2500-ENG-72-0671 and V2500-ENG-72-0673 do not list V2525-D5, V2528-D5, and V2531-E5 engine models, therefore, this AD should not be applicable to these models.

We disagree. The applicability section of this AD identifies all V2500 engine models of the same type design where the suspect bearing could be installed. This AD further refines the applicability section with identification of specific No. 3 bearing S/Ns listed in IAE NMSB V2500-ENG-72-0671, Appendix 1, dated March 22, 2016. We did not change this AD.

Cathay Pacific Airways (CPA) requests the applicability section be revised to identify either the engine S/N or the No. 3 bearing S/N listed in IAE NMSB V2500-ENG-72-0671, dated March 22, 2016. CPA suggests that operators might identify engine applicability based on the No. 3 bearing S/N or the engine S/N, as both are listed in IAE NMSB V2500-ENG-72-0671, Appendix 1, dated March 22, 2016.

We disagree. Determining applicability by engine S/N in lieu of the No. 3 bearing S/N is not adequate, as the suspect bearing may have been reinstalled in another engine. We did not change this AD.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting this AD as proposed.

We reviewed IAE NMSB V2500-ENG-72-0671, dated March 22, 2016. The NMSB describes procedures for inspecting the MMCD and further actions if metallic debris is found. 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 reviewed IAE NMSB V2500-ENG-72-0673, dated June 3, 2016. The NMSB describes procedures for removal and replacement of the No. 3 bearing.

We estimate that this AD affects 11 engines installed on airplanes of U.S. registry. We estimate that it would take about 1 hour to perform the inspection. The average labor rate is $85 per hour. We estimate the cost to replace a No. 3 bearing to be $54,510. Based on these figures, we estimate the cost of this AD on U.S. operators to be $600,545.

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.

This AD will not have federalism implications under Executive Order 13132. This AD will 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 that this AD:

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

(2) Is not a “significant rule” under 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 amends 14 CFR part 39 as follows:

Discussion

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2016-0205, dated October 13, 2016 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Airbus Model A319-115 and -132 airplanes, and Model A320-214, -232, and -233 airplanes. The MCAI states:

You may examine the MCAI on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9515.

Airbus has issued the following service information.

• Airbus A318/A319/A320/A321 Temporary Revision TR695, Issue 1.0, dated August 1, 2016; and Airbus A318/A319/A320/A321 Temporary Revision TR699, Issue 1.0, dated August 1, 2016. This service information describes revising the Limitations section of the AFM to include a fuel limitation that removes JET B and JP4 fuels from the list of usable fuels for airplanes equipped with jet pumps. These documents are distinct since they apply to different airplane configurations.

• Airbus A318/A319/A320/A321 Temporary Revision TR700, Issue 1.0, dated August 1, 2016. This service information describes revising the Abnormal Procedures section of the AFM to include information to modify the fuel gravity feed ceiling procedure for airplanes equipped with jet pumps.

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.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all pertinent information and determined the unsafe condition exists and is likely to exist or develop on other products of these same type designs.

We consider this AD interim action. If final action is later identified, we might consider further rulemaking at that time.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because the current AFM procedure may lead to reduced fuel pressure at the engine inlet, possibly resulting in an uncommanded in-flight shutdown when flying at the fuel gravity feed ceiling levels. Therefore, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in fewer than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-9515; Directorate Identifier 2016-NM-181-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD based on 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 AD.

We estimate that this AD affects 58 airplanes of U.S. registry.

We also estimate that it will take about 1 work-hour per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this AD on U.S. operators to be $4,930, or $85 per product.

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 AD will not have federalism implications under Executive Order 13132. This AD will 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 that this AD:

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 amends 14 CFR part 39 as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to the specified products. The NPRM was published in the Federal Register on July 26, 2016 (81 FR 48724). The NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

You may obtain further information by examining the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-6744.

We gave the public the opportunity to participate in developing this AD. We considered the comments received.

American Airlines, Inc., (AAL) requested that the requirement in paragraph (e)(1)(i) of this AD be revised to allow the standards in the RR Trent 800 Engine Manual (EM) to be used in the assessment for wear and cracks. AAL indicated that RR Trent 800 EM task 72-41-31-200-801 addresses the conditions of wear and cracking and provides limits and rejection criteria. AAL commented that RR has noted that the types of damage described in RR Standard Practices Manual 70-01-02-200-000 including the terms “burned/charred” and “eroded” provide an adequate description of flame erosion.

AAL further indicated that if, based on the proposed requirement in paragraph (e)(1)(ii) of this AD, any wear is found on the forward stage 3-4 seal fin, then the HPC 1-4 rotor would have to be replaced. AAL noted, however, that EM task 72-41-31-200-801 allows the seal fin to exhibit wear within the diametral limits of 23.665 to 23.722 inches.

RR indicated that the requirement in this AD to reject the part for evidence of wear should be eliminated. RR noted that the EM for the affected engines already includes inspections for wear and other damage.

We partially agree. We agree with AAL's assessment that the EM task would allow wear as defined above while paragraph (e)(1)(i) in this AD, as proposed, would not have allowed any wear. We also agree with RR that it is not necessary to specify an inspection for wear.

We disagree that it is necessary to refer to the EM task in the requirements of this AD. We have revised the requirements of this AD to remove the requirement to inspect for “wear.” We are removing this requirement because seal tooth wear serviceability limits are already defined in the RR Trent 800 EM.

RR and AAL requested that the requirement in paragraph (e)(1)(ii) of this AD to machine the HPC stage 3 inner shroud be revised. AAL noted that the HPC 1-4 disks shaft is a life-limited part; therefore, AAL tracks its cycle use, both total part cycles and cycles since last piece-part inspection. There is, however, no mandatory tracking requirement for the HPC stage 3 inner shroud. AAL, therefore, cannot ensure that it can comply with RR Service Bulletin (SB) RB211.72-J195, dated February 26, 2016, before exceeding 5,000 duty cycles since new or since last piece-part inspection of the HPC stage 1-4 rotor disks shaft, as proposed in this AD. AAL and RR suggested that the requirement in paragraph (e)(1)(ii) of this AD become an optional terminating action.

We partially agree. We disagree with revising the requirement in paragraph (e)(1)(ii) in this AD to machine the HPC stage 1-3 shroud because that addresses the unsafe seal clearance condition. We agree, however, that the proposed language in paragraph (e)(1) may be misinterpreted to refer to tracking the cycles on the HPC stage 3 inner shroud. Therefore, we clarified paragraph (e)(1) of this AD to read: “(1) Before the HPC stage 1-4 rotor disks shaft cyclic life exceeds 5,000 duty cycles since new, or 5,000 duty cycles since last HPC stage 1-4 rotor disks shaft piece-part inspection, whichever occurs later, do the following: . . . .” This change clarifies that the 5,000 duty cycles since new criterion in this AD applies only to the HPC stage 1-4 rotor disks and not the HPC stage 3 inner shroud.

The Boeing Company, Inc., commented that it supported the proposed rule as written.

We reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting this AD with the changes described previously. We determined that these changes will not increase the economic burden on any operator or increase the scope of this AD.

RR has issued SB RB.211-72-J195, dated February 26, 2016. The SB describes procedures to machine the HPC stage 3 inner shroud and to inspect the HPC stage 1-4 rotor disks shaft. 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 estimate that this AD affects 125 engines installed on airplanes of U.S. registry. We did not estimate any time to machine the HPC stage 3 inner shroud because this is accomplished during routine overhaul. We estimate the following costs to comply with this 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 AD will not have federalism implications under Executive Order 13132. This AD will 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 AD:

(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 to the extent that it justifies making a regulatory distinction, 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 amends 14 CFR part 39 as follows:

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. 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. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends Class D airspace at St. Petersburg-Clearwater International Airport, St. Petersburg, FL.

In a review of the airspace, the FAA found the Class D airspace description for St. Petersburg-Clearwater International Airport, St. Petersburg, FL, published in FAA Order 7400.11A, describes the ceiling as extending upward from the surface to and including 2,500 feet MSL. The Tampa International Airport Class B airspace area has control of aircraft operating at and above 1,800 feet MSL in the St. Petersburg, FL, Class D airspace area.

The FAA is lowering the Class D airspace area to 1,600 feet MSL to avoid the overlap of controlled airspace between the two airports. To avoid confusion on the part of pilots overflying the St. Petersburg, FL, area, the FAA finds that notice and public procedure under 5 U.S.C. 553(b) are impracticable and contrary to the public interest. To be consistent with the FAA's safety mandate when an unsafe condition exists, the FAA finds good cause pursuant to 5 U.S.C. 553(d) for making this amendment effective in less than 30 days to promote the safe and efficient handling of air traffic in the area.

Class D airspace designations are published in paragraphs 5000 of FAA Order 7400.11A dated August 3, 2016, and effective September 15, 2016, which is incorporated by reference in 14 CFR part 71.1. The Class D airspace designations listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11A, Airspace Designations and Reporting Points, dated August 3, 2016, and effective September 15, 2016. FAA Order 7400.11A is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11A lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by lowering the ceiling of the Class D airspace area from 2,500 feet MSL to upward from the surface to and including 1,600 feet MSL at St. Petersburg-Clearwater International Airport, St. Petersburg, FL. The Letter of Agreement between Tampa TRACON and St. Petersburg-Clearwater International Airport ATCT, established February 13, 2015, states that Tampa TRACON shall control aircraft operating at or above 1,800 feet MSL in the St. Petersburg-Clearwater International Airport Class D airspace area. This airspace change eliminates confusion on the part of pilots operating aircraft at or above 1,600 feet MSL in the St. Petersburg-Clearwater International Airport Class D airspace area. Also, an adjustment to the geographic coordinates of St. Petersburg-Clearwater International Airport is made to be in concert with the FAA's aeronautical database.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

This amendment to part 95 of the Federal Aviation Regulations (14 CFR part 95) amends, suspends, or revokes IFR altitudes governing the operation of all aircraft in flight over a specified route or any portion of that route, as well as the changeover points (COPs) for Federal airways, jet routes, or direct routes as prescribed in part 95.

The specified IFR altitudes, when used in conjunction with the prescribed changeover points for those routes, ensure navigation aid coverage that is adequate for safe flight operations and free of frequency interference. The reasons and circumstances that create the need for this amendment involve matters of flight safety and operational efficiency in the National Airspace System, are related to published aeronautical charts that are essential to the user, and provide for the safe and efficient use of the navigable airspace. In addition, those various reasons or circumstances require making this amendment effective before the next scheduled charting and publication date of the flight information to assure its timely availability to the user. The effective date of this amendment reflects those considerations. In view of the close and immediate relationship between these regulatory changes and safety in air commerce, I find that notice and public procedure before adopting this amendment are impracticable and contrary to the public interest and that good cause exists for making the amendment effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, pursuant to the authority delegated to me by the Administrator, part 95 of the Federal Aviation Regulations (14 CFR part 95) is amended as follows effective at 0901 UTC, January 5, 2017.

This rule will allow air carriers to seek a deviation from the FSTD requirements for related aircraft proficiency checks based on a related aircraft designation and determination of an equivalent level of safety. As a result, this rule will eliminate an inconsistency that currently permits carriers that have obtained FAA approval to modify the FSTD requirements for related aircraft differences training, but not for corresponding proficiency checks.

Section 553(b)(3)(B) of the Administrative Procedure Act (APA) (5 U.S.C. 553) authorizes agencies to dispense with notice and comment procedures for rules when the agency for “good cause” finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under this section, an agency, upon finding good cause, may issue a final rule without seeking comment prior to the rulemaking.

The FAA finds that notice and public comment to this final rule are unnecessary. This final rule corrects an inadvertent omission from the Qualification, Service, and Use of Crewmembers and Aircraft Dispatchers (Crewmembers and Aircraft Dispatchers Training) final rule by providing certificate holders additional flexibility in the selection of an FSTD for related aircraft proficiency check maneuvers and procedures based on a determination of an equivalent level of safety. As a result, this rule is relieving for certificate holders. In addition, in the process of drafting and implementing the suite of rules culminating in the Crewmembers and Aircraft Dispatchers Training final rule, the FAA sought comment on, and thoroughly considered, comments regarding related aircraft proficiency checks. The updates to § 121.441(f) contained in this final rule offer additional flexibility; in that, air carrier certificate holders can request permission to deviate from related aircraft proficiency check requirements when the proficiency check is conducted in full, or in part, in an FSTD. Therefore, the FAA has determined that notice and public comment are unnecessary prior to the adoption of this amendment.

The FAA is adopting this final rule without prior notice and public comment because it corrects an inadvertent omission from the Crewmembers and Aircraft Dispatchers Training final rule and the FAA previously sought comment on and considered comments regarding related aircraft proficiency checks. The Regulatory Policies and Procedures of the Department of Transportation (DOT) (44 FR 1134; February 26, 1979), provide that to the maximum extent possible, operating administrations for the DOT should provide an opportunity for public comment on regulations issued without prior notice. Accordingly, consistent with DOT Regulatory Policies and Procedures and 14 CFR 11.11, the FAA seeks comment on this Final Rule.

The FAA's authority to issue rules on aviation safety is found in Title 49 of the United States Code. This rulemaking is promulgated under the authority described in 49 U.S.C. 106(f), which vests final authority in the Administrator for carrying out all functions, powers, and duties of the administration relating to the promulgation of regulations and rules, and 49 U.S.C. 44701(a)(5), which requires the Administrator to promulgate regulations and minimum standards for other practices, methods, and procedures necessary for safety in air commerce and national security.

On November 12, 2013, the FAA published the Qualification, Service, and Use of Crewmembers and Aircraft Dispatchers final rule (78 FR 67800). In that final rule, effective March 12, 2014, the FAA included opportunities for air carriers to modify training program requirements for flightcrew members when the air carrier operates multiple aircraft types with similar design and flight handling characteristics. The final rule also included opportunities for air carriers to seek a deviation to allow credit for flightcrew member qualification requirements, including proficiency checks, when the air carrier operates multiple aircraft types with similar design and flight handling characteristics.1

The final rule explained that due to differences in instrumentation and installed equipment, crewmembers trained on one variation of aircraft type may require additional training to safely and efficiently operate another variation of the same aircraft type. This additional training is identified in regulations as differences training.2 The final rule further explained that the FAA, through the Flight Standardization Board (FSB), provides an analysis of the differences between variations of an aircraft type, which the FSB documents in an FSB report for a specific aircraft type. This report may include recommendations on reduced training frequency, reduced training elements or events, or use of a lower level FSTD than required by part 121 appendix E (Flight Training Requirements) for a specific maneuver or procedure.

Additionally, the final rule explained the rapid advancement in modern technologies, both in manufacturing techniques and systems design and application, can produce aircraft types of differing models and aerodynamic airframes, with similar handling or flight characteristics. These modern aircraft systems and displays may allow different type certificated aircraft to have common flight deck and systems designs, such that minimal differences training may be warranted. The FAA, through the FSB, can analyze these aircraft with different type certificates which may result in recommendations for training reductions.

In the Crewmembers and Aircraft Dispatchers Training final rule, the FAA intended to extend fully the differences training concept to aircraft with different type certificates within the new provisions for related aircraft differences training. In addition, an air carrier may seek deviations for related aircraft proficiency checks, operating experience, operating cycles, line operating flight time for consolidation of knowledge and skills, and recency of experience.

In the Crewmembers and Aircraft Dispatchers Training final rule, the FAA added paragraph (f) to § 121.441, to allow the Administrator to approve a deviation to the proficiency check requirements based on a designation of related aircraft and after the Administrator determines the certificate holder can demonstrate an equivalent level of safety. Specifically, paragraph (f) allows a deviation from the frequency of proficiency checks and from certain procedures and maneuvers required by appendix F (Proficiency Check Requirements). Paragraph (f) did not, however, include an allowance to obtain a deviation from the FSTD requirements specified in appendix F. As currently written, § 121.441(f) does not allow deviation if the FSB determines that the use of a lower level FSTD for a specific maneuver or procedure may be acceptable on a related aircraft proficiency check. Such a determination by the FSB would foreseeably be based on similarities in design and flight characteristics between the base aircraft and the related aircraft.

This final rule will correct an inadvertent omission from the Qualification, Service, and Use of Crewmembers and Aircraft Dispatchers final rule by eliminating an inconsistency that currently permits air carriers (with FAA approval) to modify the FSTD requirements for related aircraft differences training, but not for related aircraft proficiency checks. Because the FAA intended to extend fully the differences training concept to related aircraft differences training and deviations, the FAA is revising § 121.441(f)(2) to allow a certificate holder to request a deviation from the FSTD requirements in paragraph (c) of § 121.441. To receive a deviation, the certificate holder must provide a designation of related aircraft and demonstrate an equivalent level of safety exists to justify the deviation. By this update, the request for deviation must include the level of FSTD to be used for each maneuver and procedure.

Requests for deviation remain voluntary. The FAA has determined this change would not adversely affect safety of aircraft operations. A deviation from any proficiency check requirement under § 121.441(f) is only available if the certificate holder has a designation of related aircraft. Such a designation indicates the base aircraft and designated related aircraft have been demonstrated and determined by the Administrator to have commonality; the certificate holder must be able to demonstrate that it can maintain the equivalent level of safety in obtaining the designation.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impacts of this final rule.

Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits that a statement to that effect and the basis for it to be included in the preamble if a full regulatory evaluation of the cost and benefits is not prepared. Such a determination has been made for this rule. This rule would remove additional requirements with respect to proficiency checks for aircraft of a related type, as long as FAA has made a determination that an equivalent level of safety is maintained. Given the relieving nature of this rule, the economic impact of this rule would be minimal cost.

The FAA has, therefore, determined that this rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not “significant” as defined in DOT's Regulatory Policies and Procedures.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA.

However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

This rule would correct an inadvertent omission from the Crewmembers and Aircraft Dispatchers Training final rule and would eliminate an inconsistency that currently permits air carriers (with FAA approval) to modify the FSTD requirements for related aircraft differences training, but not for related aircraft proficiency checks. This action would result in increased flexibility for certificate holders. While the rule would likely impact a substantial number of small entities,3 given the relieving nature of this rule, it would have a minimal positive economic impact.

Therefore, as provided in section 605(b), the head of the FAA certifies that this rulemaking will not result in a significant economic impact on a substantial number of small entities.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. The FAA has assessed the potential effect of this rule and determined that the rule will have the same impact on international and domestic flights and is a safety rule thus is consistent with the Trade Agreements Act.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $155 million in lieu of $100 million. This rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. According to the 1995 amendments to the Paperwork Reduction Act (5 CFR 1320.8(b)(1)), an agency may not collect or sponsor the collection of information, nor may it impose an information collection requirement unless it displays a currently valid Office of Management and Budget (OMB) control number.

The FAA has determined that there is no new information collection associated with this cost relieving amendment to related aircraft proficiency check requirements. The OMB previously approved the collection of such information under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) and it was assigned OMB Control Number 2120-0739.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. The FAA has determined that there are no ICAO Standards and Recommended Practices that correspond to these regulations.

FAA Order 1050.1F identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this rulemaking action qualifies for the categorical exclusion identified in paragraph 5-6.6 and involves no extraordinary circumstances.

The FAA has analyzed this final rule under the principles and criteria of Executive Order 13132, Federalism. The agency determined that this action will not have a substantial direct effect on the States, or the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government, and, therefore, does not have Federalism implications.

The FAA analyzed this final rule under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). The agency has determined that it is not a “significant energy action” under the executive order and it is not likely to have a significant adverse effect on the supply, distribution, or use of energy.

Executive Order 13609, Promoting International Regulatory Cooperation, promotes international regulatory cooperation to meet shared challenges involving health, safety, labor, security, environmental, and other issues and to reduce, eliminate, or prevent unnecessary differences in regulatory requirements. The FAA has analyzed this action under the policies and agency responsibilities of Executive Order 13609, and has determined that this action would have no effect on international regulatory cooperation.

An electronic copy of a rulemaking document may be obtained by using the Internet—

1. Search the Federal eRulemaking Portal (http://www.regulations.gov);

2. Visit the FAA's Regulations and Policies Web page at http://www.faa.gov/regulations_policies/ or

3. Access the Government Printing Office's Web page at: http://www.thefederalregister.org/fdsys/.

Copies may also be obtained by sending a request (identified by notice, amendment, or docket number of this rulemaking) to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue SW., Washington, DC 20591, or by calling (202) 267-9677.

Comments received may be viewed by going to http://www.regulations.gov and following the online instructions to search the docket number for this action. Anyone is able to search the electronic form of all comments received into any of the FAA's dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.).

The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 requires FAA to comply with small entity requests for information or advice about compliance with statutes and regulations within its jurisdiction. A small entity with questions regarding this document may contact its local FAA official, or the person listed under the FOR FURTHER INFORMATION CONTACT heading at the beginning of the preamble. To find out more about SBREFA on the Internet, visit http://www.faa.gov/regulations_policies/rulemaking/sbre_act/.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 121 as follows:

The Bureau of Industry and Security (BIS) is amending the Export Administration Regulations (EAR) to implement the recommendations presented at the Australia Group (AG) Intersessional Implementation Meeting held in Brussels, Belgium, on February 2, 2016, and adopted pursuant to the AG silent approval procedure in April 2016, and the understandings reached at the Implementation Meeting of the 2016 AG Plenary held in Paris, France, from June 6-10, 2016. The AG is a multilateral forum consisting of 41 participating countries that maintain export controls on a list of chemicals, biological agents, and related equipment and technology that could be used in a chemical or biological weapons program. The AG periodically reviews items on its control list to enhance the effectiveness of participating governments' national controls and to achieve greater harmonization among these controls.

This final rule amends Export Control Classification Number (ECCN) 1C351 on the CCL to update the nomenclature for two bacteria and five toxins, consistent with the AG Intersessional Implementation Meeting updates to the AG “List of Human and Animal Pathogens and Toxins for Export Control.” Specifically, this rule updates the nomenclature for the bacteria “Chlamydia pscittaci” and “Salmonella typhi” and the toxin “Viscum Album Lectin 1” to reflect current scientific usage. This rule also removes the word “toxin” from the listings for “Diacetoxyscirpenol toxin,” “Modeccin toxin,” and “Volkensin toxin,” because it was deemed to be redundant (i.e., the abbreviated nomenclature, absent the word “toxin,” adequately identifies these particular toxins). In addition, this rule revises the description for “Microcystin” by making it plural, thereby clarifying that ECCN 1C351.d.9 controls all variants of this toxin. Finally, this rule renumbers the listings for “Viscumin” and “Volkensin” to control these toxins under ECCN 1C351.d.17 and .d.18, respectively, to conform with the June 2016 AG Plenary Implementation Meeting change in which the Shiga toxin and Verotoxin listings (ECCN 1C351.d.13 and .d.17, respectively) were merged into a single listing (ECCN 1C351.d.13). These amendments to ECCN 1C351 are summarized in the following table.

The license requirements applicable to the bacteria and toxins affected by these amendments to ECCN 1C351 remain unchanged. Specifically, all of these items continue to require a license for chemical/biological (CB) reasons to destinations indicated under CB Column 1 on the Commerce Country Chart and for anti-terrorism (AT) reasons to destinations indicated in AT Column 1 on the Commerce Country Chart.

This final rule amends ECCN 2B352 on the CCL to reflect changes to the AG “Control List of Dual-Use Biological Equipment and Related Technology and Software” based on the February 2016 Intersessional Implementation Meeting recommendations that were adopted by the AG pursuant to its silent approval procedure. Specifically, this rule amends the controls on cross (tangential) flow filtration equipment described in 2B352.d.1 by removing the word “pathogenic” from the description of this equipment. This change is made because there is no distinction, with respect to either the technical characteristics or the use of this equipment, between pathogenic and non-pathogenic micro-organisms.

This rule also amends ECCN 2B352, consistent with the AG intersessional recommendations, by revising the Nota Bene to 2B352.d.1 to clarify that the exclusion from the controls on cross (tangential) flow filtration equipment listed in 2B352.d.1 applies to hemodialysis equipment, as specified by the manufacturer, as well as reverse osmosis equipment (i.e., both hemodialysis equipment and reverse osmosis equipment, as specified by the manufacturer, are excluded from control under ECCN 2B252.d.1).

All items controlled under ECCN 2B352 require a license for CB reasons to destinations indicated under CB Column 2 on the Commerce Country Chart and for AT reasons to destinations indicated in AT Column 1 on the Commerce Country Chart.

This final rule amends ECCN 1C351 on the CCL to remove the listing for “dengue fever virus,” revise the listing for “Conotoxin,” and merge the listings for “Shiga toxin” and Verotoxin” consistent with the AG Plenary Implementation Meeting updates to the AG “List of Human and Animal Pathogens and Toxins for Export Control.”

The removal of “dengue fever virus” from control under ECCN 1C351 is designed to reduce barriers to the export of clinical samples, materials, and “technology” required for vaccine development, production, and distribution. To reflect the removal of the ECCN 1C351 controls on “dengue fever virus,” which was controlled under ECCN 1C351.a.11 prior to the publication of this final rule, this rule also makes conforming changes to ECCN 1C351.a by renumbering those items previously designated as 1C351.a.12 through .a.58 as 1C351.a.11 through .a 57. Consistent with this renumbering, this rule revises the Technical Note to newly redesignated ECCN 1C351.a.40 (“reconstructed 1918 influenza virus”) to reference the new designation for this listing. In addition, the listing for “tick-borne encephalitis virus (Siberian subtype)” in ECCN 1C351.b.3 is amended by revising the parenthetical reference therein to “tick-borne encephalitis virus (Far Eastern subtype)” to reflect the new designation for the latter (i.e., ECCN 1C351.a.52).

This rule also revises the description for “Conotoxin” by making it plural to clarify that ECCN 1C351.d.6 controls all variants of this toxin.

In addition, the listings for “Shiga toxin” and “Verotoxin” which, prior to the publication of this final rule, were controlled under ECCN 1C351.d.13 and d.17, respectively, are merged into a single listing under ECCN 1C351.d.13 that also includes some changes in nomenclature to clarify the scope of these controls. The revised listing reads as follows: “Shiga toxins (shiga-like toxins, verotoxins, and verocytotoxins).”

This rule also makes certain conforming changes to other listings in ECCN 1C351 to reflect the merger of the “Shiga toxin” and “Verotoxin” listings and the related nomenclature changes described above. First, the Note to ECCN 1C351.c.19 (Shiga-toxin producing Escherichia coli) is revised to read: “Shiga toxin producing Escherichia coli (STEC) includes, inter alia, enterohaemorrhagic E. coli (EHEC), verotoxin producing E. coli (VTEC) or verocytotoxin producing E. coli (VTEC).” Specifically, this Note is revised by adding the “Verotoxin” nomenclature and by replacing the phrase “also known as” with the phrase “inter alia,” thereby clarifying that this Note does not exclude other relevant shiga-toxin producing strains from the scope of ECCN 1C351.c.19. Second (as referenced in the description of the AG intersessional changes, above), this rule renumbers the listings for “Viscumin” and “Volkensin” to control these toxins under ECCN 1C351.d.17 and .d.18, respectively, to reflect the merger of the Shiga toxin and Verotoxin listings (which were previously designated as ECCN 1C351.d.13 and .d.17, respectively) into a single listing (ECCN 1C351.d.13).

Except for the dengue fever virus, the license requirements applicable to the viruses, bacteria and toxins affected by these amendments to ECCN 1C351 remain unchanged. Specifically, all of these items, except the dengue fever virus, continue to require a license for CB reasons to destinations indicated under CB Column 1 on the Commerce Country Chart and for AT reasons to destinations indicated in AT Column 1 on the Commerce Country Chart. The dengue fever virus is now designated as EAR99 and, as such, no longer requires a license for CB or AT reasons. However, any item that is subject to the EAR, whether or not it is listed on the CCL, may require a license for reasons described elsewhere in the EAR (e.g., the end-user/end-use controls described in part 744 of the EAR or the embargoes and other special controls described in part 746 of the EAR).

This final rule also amends ECCN 2B352 on the CCL to reflect changes to the AG “Control List of Dual-Use Biological Equipment and Related Technology and Software” based on the understandings reached at the June 2016 AG Plenary Implementation Meeting. Specifically, this rule amends ECCN 2B352.a by expanding the controls on biological containment facilities and related equipment to include the following equipment designed for fixed installation in complete containment facilities at the P3 or P4 containment level: (1) Double-door pass-through decontamination autoclaves; (2) breathing air suit decontamination showers; and (3) mechanical-seal or inflatable-seal walkthrough doors. This change is made in recognition of the fact that such equipment could be acquired, individually, and subsequently assembled into a functional containment facility that would be subject to the controls described in ECCN 2B352.a.

In addition, this rule amends ECCN 2B352.b.1 (fermenters) by removing the word “pathogenic” from the description of this equipment. This change is made, because there is no distinction, with respect to either the technical characteristics or the use of this equipment, between pathogenic and non-pathogenic micro-organisms. As revised, ECCN 2B352.b.1 reads: “Fermenters capable of cultivation of micro-organisms or of live cells for the production of viruses or toxins, without the propagation of aerosols, having a capacity of 20 liters or greater.” This clarification to ECCN 2B352.b.1 was adopted by the AG, subsequent to the June 2016 AG Plenary Implementation Meeting, pursuant to their silent approval procedure.

All items controlled under ECCN 2B352 require a license for CB reasons to destinations indicated under CB Column 2 on the Commerce Country Chart and for AT reasons to destinations indicated in AT Column 1 on the Commerce Country Chart.

The changes made by this rule only marginally affect the scope of the EAR controls on human and animal pathogens/toxins and equipment capable of use in handling biological materials.

The scope of the CCL-based CB controls on human and animal pathogens and toxins was not affected by the nomenclature changes involving the following items in ECCN 1C351: the bacteria listed under ECCN 1C351.c.7 (Chlamydia psittaci) or .c.18 (Salmonella); the toxins listed under ECCN 1C351.d.6 (Conotoxins), .d.7 (Diacetoxyscirpenol), .d.9 (Microcystins), or .d.10 (Modeccin); and the toxins Viscumin and Volkensin (renumbered as ECCN 1C351.d.17 and .d.18, respectively). In addition, the merger of the listings for Shiga toxin and Verotoxin (previously controlled under ECCN 1C351.d.13 and .d.17, respectively) under a single listing (ECCN 1C351.d.13), and the related nomenclature changes involving these toxins, clarified the controls applicable to these toxins, but did not affect the scope of these controls. Furthermore, the removal of the dengue fever virus from ECCN 1C351 is not expected to significantly reduce the number of license applications that will have to be submitted for items controlled under this ECCN. Consequently, none of the changes made by this rule to ECCN 1C351 are expected to have a significant impact on the number of license applications that will have to be submitted for the items controlled under this ECCN.

The updates in this rule to the ECCN 2B352.a controls on biological containment facilities represent an expansion in the number of items that require a license under this ECCN. However, the expanded controls apply to only a relatively small percentage of these types of items that were not controlled under ECCN 2B352 prior to the publication of this rule (i.e., only those double-door pass-through decontamination autoclaves, breathing air suit decontamination showers, and mechanical-seal or inflatable-seal walkthrough doors that are designed for fixed installation in P3 or P4 biological containment facilities). Consequently, any increase in the number of license applications resulting from this change is not expected to be significant, when considered as a percentage of these types of items.

The scope of the CCL-based CB controls on equipment capable of use in handling biological materials was not affected by the clarifications involving fermenters controlled under ECCN 2B352.b or cross (tangential) flow filtration equipment controlled under ECCN 2B352.d. Consequently, none of these changes to ECCN 2B352 are expected to have a significant impact on the number of license applications that will have to be submitted for the items controlled under this ECCN.

Although the Export Administration Act expired on August 20, 2001, the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 8, 2013, 78 FR 16129 (March 13, 2013), and as extended by the Notice of August 4, 2016 (81 FR 52587 (August 8, 2016)), has continued the Export Administration Regulations in effect under the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.). BIS continues to carry out the provisions of the Export Administration Act, as appropriate and to the extent permitted by law, pursuant to Executive Order 13222 as amended by Executive Order 13637.

1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget.

2. Notwithstanding any other provision of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This rule contains a collection of information subject to the requirements of the PRA. This collection has been approved by OMB under Control Number 0694-0088 (Multi-Purpose Application), which carries a burden hour estimate of 58 minutes to prepare and submit form BIS-748. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing the burden, to Jasmeet Seehra, Office of Management and Budget, by email to [email protected] or by fax to (202) 395-7285; and to the Regulatory Policy Division, Bureau of Industry and Security, Department of Commerce, 14th Street & Pennsylvania Avenue NW., Room 2705, Washington, DC 20230 or by email to [email protected].

3. This rule does not contain policies with Federalism implications as that term is defined in Executive Order 13132.

4. The provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, the opportunity for public participation, and a delay in effective date, are inapplicable because this regulation involves a military and foreign affairs function of the United States (see 5 U.S.C. 553(a)(1)). Immediate implementation of these amendments is non-discretionary and fulfills the United States' international obligation to the Australia Group (AG). The AG contributes to international security and regional stability through the harmonization of export controls and seeks to ensure that exports do not contribute to the development of chemical and biological weapons. The AG consists of 41 member countries that act on a consensus basis and the amendments set forth in this rule implement changes made to the AG common control lists (as a result of the adoption of the recommendations made at the February 2016 AG Intersessional Implementation Meeting and the understandings reached at the June 2016 AG Plenary Implementation Meeting) and other changes that are necessary to ensure consistency with the controls maintained by the AG. Because the United States is a significant exporter of the items in this rule, immediate implementation of this provision is necessary for the AG to achieve its purpose. Any delay in implementation will create a disruption in the movement of affected items globally because of disharmony between export control measures implemented by AG members, resulting in tension between member countries. Export controls work best when all countries implement the same export controls in a timely manner.

Further, no other law requires that a notice of proposed rulemaking and an opportunity for public comment be given for this final rule. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule under the Administrative Procedure Act or by any other law, the analytical requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) are not applicable. Therefore, this regulation is issued in final form.

For the reasons stated in the preamble, part 774 of the Export Administration Regulations (15 CFR parts 730-774) is amended as follows:

We are revising and making final the rules for creating nationally uniform hearing and Appeals Council procedures, which we proposed in a notice of proposed rulemaking (NPRM) published in the Federal Register on July 12, 2016 (81 FR 45079). In the preamble to the NPRM, we discussed the changes we proposed from our current rules and our reasons for proposing those changes. In the NPRM, we proposed revisions to: (1) The time frame for notifying claimants of a hearing date; (2) the information in our hearing notices; (3) the period when we require claimants to inform us about or submit written evidence, written statements, objections to the issues, and subpoena requests; (4) what constitutes the official record; and (5) the manner in which the Appeals Council would consider additional evidence.

As we explained in the preamble to our NPRM, we proposed these changes to ensure national consistency in our policy and procedures and improve accuracy and efficiency in our administrative review process. We expect this final rule will positively affect our ability to manage our workloads and lead to better public service. Interested readers may refer to the preamble to the NPRM, available at http://www.regulations.gov under docket number SSA-2014-0052.

We are making several changes in this final rule from the NPRM based on some of the public comments we received. We briefly outline those changes here and provide additional detail on the changes in the comment and response section that follows. We are also making minor editorial changes throughout this final rule. For the reader's ease of review, we refer to the general requirement that all evidence, objections, or written statements be submitted at least 5 business days before the date of the hearing as the “5-day requirement.” We adopted the following changes from our NPRM in this final rule:

• We lengthened the time frame for notifying claimants of a hearing date in 20 CFR 404.938 and 416.1438 from at least 60 days to at least 75 days;

• In 20 CFR 404.935(b)(3)(iv) and 416.1435(b)(3)(iv), we removed the phrase “through no fault of your own” to reduce the evidentiary burden on claimants who are unable to provide evidence;

• We clarified that the circumstances set forth in 20 CFR 404.935(b)(3)(i) to (b)(3)(iv) and 416.1435(b)(3)(i) to (b)(3)(iv) are merely examples and do not constitute an exhaustive list;

• We added the same exceptions to the 5-day requirement that we proposed for the submission of evidence in 20 CFR 404.935 and 416.1435 to the deadlines related to objecting to the issues (20 CFR 404.939 and 416.1439), presenting written statements (20 CFR 404.949 and 416.1449), and submitting subpoenas (20 CFR 404.950(d)(2) and 416.1450(d)(2));

• We added language to 20 CFR 404.949 and 416.1449 to clarify that the 5-day requirement applies only to pre-hearing written statements, not to post-hearing written statements;

• We added an example of an exception for submitting additional evidence to the Appeals Council in 20 CFR 404.970(b)(3)(v) and 416.1470(b)(3)(v);

• We reorganized paragraphs (a)(5) and (b) of 20 CFR 404.970 and 416.1470;

• We removed proposed subsection 20 CFR 404.970(d) and 416.1470(d);

• We added clarifying cross-references to 20 CFR 404.900 and 416.1400 and 20 CFR 404.929 and 416.1429 to place the 5-day requirement in 20 CFR 404.935 and 416.1435 in context; and,

• We broadened the existing cross-reference in 20 CFR 404.968 and 416.1468 and 20 CFR 404.979 and 416.1479 to reference the entire section of 20 CFR 404.970 and 416.1470, and we removed the cross reference to 20 CFR 404.976 and 416.1476 in 20 CFR 404.979 and 416.1479.

We initially provided a 30-day comment period that would have ended on August 11, 2016. We subsequently extended the comment period for an additional 15 days, until August 26, 2016 (81 FR 51412). We received 154 comments on our proposed rule from the public, interested advocacy groups, and several members of Congress. We did not consider six comments because they either came from employees who commented in their official employment capacity, which is a violation of our policy, or they were outside the scope of this rulemaking. We published and carefully considered the remaining 148 comments and, where appropriate, made changes in response to these comments.

Below, we summarize and respond to the comments submitted on the proposed rule, and respond to the significant issues relevant to this rulemaking. We do not respond to comments that are outside the scope of this rulemaking proceeding.

Comment: Several commenters supported our proposal to provide more advance notice of a hearing, but asked that we adopt the 75-day advance notice requirement currently in place in the Boston region, rather than the 60-day advance notice we proposed in the NPRM. Several of the commenters stated that earlier notice would allow claimants to: (1) Obtain and submit the information and evidence, especially when a medical provider is uncooperative; (2) make arrangements for transportation to the hearing; (3) take into account time frames under the regulations implementing the Health Insurance Portability and Accountability Act (HIPAA) that provide an entity up to 60 days before it must produce records (45 CFR 164.524(b)); and (4) avoid a postponement of hearing due to non-receipt of medical records. Several other commenters said that even a 75-day notice requirement is insufficient, and that we should provide notice 90 to 120 days in advance of a hearing.

Response: We recognize that claimants and representatives may sometimes face challenges in acquiring medical records. In response to multiple advocate comments indicating a preference for 75 days' advance notice of a hearing instead of 60 days, we are revising the final rule to provide 75 days' advance notice. Since we already have approximately a decade of experience in using the 75-day advance notice period in the Boston Region, we believe its expansion nationwide is justified.

We proposed a 60-day period in our NPRM because we believed it would promote the efficiency of our hearing process (81 FR at 45081). However, we recognize the concerns that that commenters raised, including stated concerns about the adequacy of a 60-day advance notice requirement in light of the timeframe an entity has to provide evidence to an individual under the HIPAA regulations. In order to minimize the burden on claimants, we have decided to adopt the commenters' suggestion that we continue to provide at least 75-day advance notice of a hearing, as we have done under the rules we have been applying in the Boston region since 2006.

Some commenters requested that we extend the advance notice period to 90 or 120 days instead of the proposed 60-days advance notice. We have decided not to extend the advance notice period to 90 or 120 days, because providing a hearing date this far in advance would increase the likelihood that an adjudicator's schedule will change by the scheduled hearing date. Moreover, in contrast to the 75-day period, we have no current model to support the use of a longer time period.

Comment: Several commenters asked that we retain the exception in 20 CFR 404.935(b)(3)(iv) in the final rule because it recognized the difficulties of obtaining medical evidence, while another commenter suggested we eliminate this exception because it was vague and contrary to the intent and purpose of the proposed rule. Several commenters expressed concerns about our exceptions to the 5-day requirement because they were too narrowly defined, too subjective, and would increase our workloads. Other commenters suggested that we add additional exceptions, such as when the claimant is homeless or lacks representation. One commenter requested that the Appeals Council also find good cause for submitting evidence after the 5-day requirement if the claimant was unrepresented or homeless at the hearing level.

Response: We provide examples of exceptions to the 5-day requirement in final 20 CFR 404.935(b)(3) and 416.1435(b)(3) and have clarified that we did not intend for them to be all-inclusive or to exclude other extenuating circumstances that may result in a claimant being unable to meet the 5-day requirement. To clarify this point, we changed the regulatory text to state that “[e]xamples include, but are not limited to” the outlined exceptions. Because circumstances vary, we determine whether a claimant qualifies for an exception on a case-by-case basis.

We do not anticipate that evaluating requests for exceptions to the 5-day requirement will increase our workloads. We recognize that compliance with the 5-day requirement will not be possible in all situations; however, based on our experience in the Boston region, we expect that providing at least 75 days' advance notice of a hearing will significantly increase the number of times evidence is obtained and submitted at least 5 business days before the hearing. We also note that in our experience the need to evaluate requests to submit evidence pursuant to one of the exceptions has not caused workload spikes in our Boston region, where a 5-day requirement has been in place for more than a decade. When a claimant or appointed representative is aware that he or she will need more time to submit evidence in accordance with one of the exceptions, we expect that he or she will provide us with the necessary information in advance. To do so, the claimant or representative should notify the administrative law judge (ALJ) of what the evidence generally consists of and the expected volume of evidence (e.g., one visit to a treating physician or a one-week hospital stay). When the claimant or his or her representative timely provides this information to the ALJ, we expect that evaluating the request for an exception will likely be very simple.

The fact that a claimant is homeless or lacks representation does not automatically excuse him or her from complying with our rules. However, situations such as these may result in circumstances that warrant an exception to the 5-day requirement. We will evaluate these circumstances carefully on a case-by-case basis under the exceptions described in the final rule.

Comment: Commenters who represented advocacy groups noted that our proposed rule did not include exceptions to deadline requirements for objecting to the issues (20 CFR 404.939 and 416.1439), presenting written statements (20 CFR 404.949 and 416.1449), and submitting subpoenas (20 CFR 404.950(d)(2) and 416.950(d)(2)). Some commenters had concerns that the 5-day requirement, as applied to objections to the issues, could force representatives to develop boilerplate notices that list all possible objections in every case.

Response: We agree with the commenters' concerns, and we have added exceptions for the deadlines related to objecting to the issues (20 CFR 404.939 and 416.1439), presenting written statements (20 CFR 404.949 and 416.1449), and submitting subpoenas (20 CFR 404.950(d)(2) and 416.1450(d)(2)). The exceptions in 20 CFR 404.939 and 416.1439 should eliminate the need for representatives to develop boilerplate notices.

Comment: While one commenter supported the proposal in subsections 20 CFR 404.970(d) and 416.1470(d) that the Appeals Council conduct hearings to develop evidence, other commenters expressed concern about the proposal. A few of these commenters stated it was an expansion of the Appeals Council's authority and was inconsistent with the Administrative Procedure Act. Other commenters stated that we did not provide an adequate explanation of the authority for such hearings.

Response: Since the beginning of our hearing process in 1940, our regulations (currently found in sections 20 CFR 404.956 and 416.1456) have authorized the Appeals Council to remove a hearing request from an ALJ and conduct the hearing proceedings, using the rules that ALJs apply. We proposed to revise sections 20 CFR 404.970 and 416.1470 to clarify the Appeals Council's authority in this area. Although we disagree with some of the comments, including concerns that the proposal lacked legal support, we understand the concerns the commenters raised regarding this proposal. As a result, we have decided to remove the rule we proposed in subsections 404.970(d) and 416.1470(d). The Appeals Council will continue to exercise its authority to develop evidence in accordance with 20 CFR 404.976(b) and 416.1446(b).

Comment: Several commenters stated the proposed rule may have unintended consequences because appointed representatives may rely on the “inform” option in 20 CFR 404.935 and 416.1435 and in 20 CFR 404.1512 and 416.912 to avoid developing evidence. A few commenters stated if we retain the “inform” option, we should require the claimant to inform the hearing office earlier so there would be time to develop the evidence and avoid unnecessary supplemental hearings.

Response: On April 20, 2015, we implemented a final rule that requires a claimant to “inform us about or submit all evidence known to you that relates to whether you are blind or disabled.” 81 FR 14828. As we stated in the preamble to that proposed rule, we specifically added this option because we did not intend to shift our burden to develop the record to claimants. In the proposed rule, as in this final rule, we recognize that some individuals, many of whom do not have appointed representatives, require our assistance in obtaining medical evidence needed to adjudicate their claims. Claimants who are unable to obtain evidence necessary to adjudicate their claims may inform us of this difficulty and we will continue to seek out evidence on their behalf to develop the record for their hearing. By adopting this final rule, we have not changed our longstanding policy of assisting claimants in developing the record. At the hearing level, this policy has been explicitly set forth in our sub-regulatory instructions.

Because most claimants are represented at the hearing level, and because we are providing more advance notice of a hearing than we have in the past, we expect to significantly reduce the number of postponed hearings or supplemental hearings needed based on evidence that was available at least 5 business days before the hearing.

In our experience, the vast majority of representatives act ethically in regard to evidence development and make good faith efforts to assist claimants in obtaining and submitting the required evidence before a hearing, as required under 20 CFR 404.1740(b)(2) and 416.1540(b)(2). Therefore, we do not expect the “inform” option to significantly affect our administrative processes.

In those circumstances in which hearing offices assist unrepresented claimants in developing evidence, our sub-regulatory instructions will clarify that employees in our hearing offices should undertake development as early as possible to reduce the number of continuances or postponed hearings.

Comment: Some commenters thought the 5-day requirement in the proposed rules was inconsistent with our duty to make eligibility decisions based on the evidence presented at the hearing.

Response: In developing these rules, we were guided by the two principles that we have always applied when we make decisions regarding our programs: As the Supreme Court has observed, the Social Security system “must be fair—and it must work.” 1 These final rules appropriately balance these two guiding principles. These rules are fair because they provide the claimant with more advance notice of his or her hearing, and they provide appropriate exceptions to the 5-day requirement. At the same time, the 5-day requirement promotes the efficiency of our hearings process and allows it to work more effectively by ensuring that ALJs have a more complete evidentiary record when they hold hearings. Striking such a balance in our rules is of paramount importance to us. That balance would not be present if, as some commenters suggested, we merely gave claimants more advance notice of a hearing, without the 5-day requirement. Conversely, that balance would not be present if we simply imposed a 5-day requirement, without giving a claimant more advance notice of a hearing. Given the size of our hearings workloads,2 where the need for efficiency is “self-evident,” 3 these final rules appropriately balance the twin concerns of fairness and efficiency that always guide us.

In publishing this final rule, we do not intend to change the purpose of a hearing, where an ALJ looks fully into the issues and obtains oral testimony from the claimant and witnesses, if any. Additionally, our final rule contemplates that some circumstances may warrant the introduction of new evidence at or after the hearing, and includes appropriate exceptions to accommodate these circumstances. Thus, under our final rule, adjudicators will continue to make decisions based on the evidence of record, including the evidence adduced at the hearing. However, we expect that our final rule will help to ensure that evidentiary records are more complete at the time of the administrative hearing, which should reduce the need for post-hearing proceedings and help us provide better, more timely service to all claimants.

Comment: Some commenters stated that the philosophical underpinnings of the rule in 20 CFR 404.1512 is that ALJs must have all evidence that is available at the time of the hearing so they can reach the correct decision. The commenters thought that the proposed rule conflicted with our rule requiring claimants to submit all evidence. The commenters noted that it would not make sense to place a duty on the claimant to submit evidence when at the same time, rules are created that would allow an ALJ not to consider that evidence.

Response: Our approach with this rule is tied to the “philosophical underpinnings” of 20 CFR 404.1512 and 416.912, which describe a claimant's ongoing duty to “inform us about or submit all evidence known to you that relates to whether or not you are blind or disabled.” This rule will ensure claimants have the benefit of a fully developed record at the time our ALJs conduct their hearings. We recognize that there will be circumstances in which claimants cannot produce evidence at least 5 business days before the hearing. As stated above, we have included appropriate exceptions to the 5-day requirement to ensure fairness when a claimant or his or her representative actively and diligently seeks evidence but is unable to obtain it. To bolster this point, in 20 CFR 404.935(b)(3)(iv) and 416.1435(b)(3)(iv), we removed the phrase “through no fault of your own” to ensure that our adjudicators interpret this exception consistent with our intent. We intend the words “actively” and “diligently” to be interpreted using their ordinary English usage. When a claimant or representative shows that he or she made a good faith effort to timely request, obtain, and submit evidence, but he or she did not receive the evidence in time to submit it at least 5 business days before the hearing because of circumstances outside his or her control, we expect that our adjudicators would find that this standard is met.

Some commenters perceived this rule as an exclusionary procedure designed to prevent the introduction of medical records at the expense of the claimant's case. Our experience is more consistent with one of the commenters from the Boston region who noted that most ALJs “effectively draw the line between evidence which had been available but was not submitted, and previously unavailable evidence” and “do not use the 5-day rule as a punitive device against claimants or their representatives.” Further, in those situations in which an ALJ in the Boston region did not correctly find reason to accept evidence outside the 5-day time frame, the Appeals Council granted review in order to consider the information on appeal where the evidence raised a reasonable probability of changing the outcome of the case. This important practice will continue in our final rule.

Comment: Some commenters pointed out that the 5-day requirement would preclude a claimant from submitting evidence at the hearing or Appeals Council level of the administrative process, particularly if a claimant is illiterate or does not speak English, or is without an appointed representative or obtained a representative shortly before the hearing date, and this exclusion was an undue burden, fundamentally unfair, and disadvantaged claimants in favor of adjudicators.

Response: We expect that this final rule will enhance our decision-making process and allow us to provide more timely decisions to claimants. We do not intend to unduly burden claimants with this rule. By asking claimants to inform us about or submit evidence at least 5 business days before the hearing date, we expect that evidentiary records will be more complete and comprehensive at the time of the scheduled hearing. In turn, this should facilitate the ALJ's ability to look fully into the issues at the hearing and produce a timely, accurate decision. As stated above, we will continue our longstanding practice of assisting those individuals who, for various reasons, are unable to develop the record themselves. This rule also incorporates appropriate exceptions to take into account for the needs of individuals who, due to unique circumstances, do not fully understand or are not capable of adhering to our requirements or requests.

Comment: Some commenters said that the proposed rule makes the administrative review process more formal and adversarial. Commenters also asked the agency to clarify that if a claimant informs an ALJ about evidence at least 5 business days before the hearing, the ALJ must consider the evidence regardless of whether an exception exists. Commenters said that the proposed rule overlooked that an ALJ adjudicates a case through the date of his or her decision, and that he or she needs evidence of ongoing treatment to adjudicate the case. Commenters also said the proposed rule did not provide the claimant with an opportunity to submit evidence to rebut other evidence produced at or after the hearing or permit an ALJ to hold the record open when a new issue arises during the hearing.

Response: From our experience, similar rules that applied in the Boston region for approximately a decade have not resulted in a more adversarial process or misunderstandings from the public. Moreover, many of our other rules that apply nationwide impose deadlines or other requirements on the public, such as the deadline to appeal a determination or decision. While processing a case, we frequently request that individuals submit a response or provide us with information within certain timeframes. We have not found that these provisions make our process more adversarial. Rather, like this final rule, they are necessary for efficient administration of our programs.

If a claimant informs an ALJ about evidence 5 or more days before the hearing, there would be no need for the ALJ to find that an exception applies, because the claimant notified us prior to the deadline.

While it is true that, in many cases, an ALJ adjudicates the case through the date of the hearing decision, our rule is not intended to prevent a claimant from submitting evidence related to ongoing treatment. Rather, we expect that evidence of ongoing treatment, which was unavailable at least 5 business days before the hearing, would qualify under the exception in 20 CFR 404.935(b)(3) and 416.1435(b)(3).

Similarly, if an ALJ introduces new evidence at or after a hearing, the claimant could use the exception in 20 CFR 404.935(b)(3) and 416.1435(b)(3) to submit rebuttal evidence. The claimant could also rebut evidence introduced at or after the hearing by submitting a written statement to the ALJ. As previously mentioned, we added language to 20 CFR 404.949 and 416.1449 to clarify that the 5-day requirement applies only to pre-hearing written statements, not to post-hearing written statements.

Comment: Some commenters stated that the 5-day requirement could affect a representative's ability to prepare useful and persuasive pre-hearing statements, given that the Office of Disability Adjudication and Review (ODAR) frequently exhibits files very close to the hearing date.

Response: For the same reasons we are adopting a 5-day requirement for available evidence, we are adopting this requirement for pre-hearing written statements to ensure that an ALJ has the benefit of reviewing arguments before the hearing. This will allow the ALJ to be fully aware of any unresolved issue(s) that a claimant is raising and which the ALJ may need to address at the hearing. While we are sympathetic to the commenters who noted exhibit numbers were unlikely to be available at least 5 business days before the hearing, we note that this issue existed under our prior rules as well and therefore, this convenience does not outweigh our need for a complete case file before the hearing.

Comment: Some commenters stated that the 5-day requirement could disadvantage claimants who hire representatives shortly before the hearing date.

Response: We reiterate that we expect all appointed representatives to make good faith efforts to assist claimants in obtaining and submitting the required evidence before a hearing, as required under 20 CFR 404.1740(b)(2) and 416.1540(b)(2). However, we have included appropriate exceptions to the 5-day requirement to ensure fairness when a claimant or his or her representative actively and diligently seeks evidence but is unable to obtain it. The appointment of a representative shortly before a hearing may be such an exception, depending on the circumstances surrounding the late appointment. In addition, we note that if a claimant informs an ALJ about evidence 5 or more days before the hearing, there would be no need for the ALJ to find that an exception applies, because the claimant notified us prior to the deadline.

Comment: A few commenters argued that when taking a new case, representatives often find that prior counsel was incompetent in obtaining evidence, and this rule, as applied at both the hearing and Appeals Council levels, unjustly harms claimants represented by such individuals.

Response: We reiterate that we expect all appointed representatives to make good faith efforts to assist claimants in obtaining and submitting the required evidence before a hearing, as required under 20 CFR 404.1740(b)(2) and 416.1540(b)(2). Additionally, if a new representative can show that a prior representative did not adequately uphold his or her duty to the claimant, we expect that our adjudicators would find that this would warrant an exception to the 5-day requirement.

Comment: Several commenters stated the new standard at the Appeals Council level would force claimants to choose between filing a new claim and appealing an ALJ's decision to the Appeals Council, which could result in the loss of significant benefits. Another commenter stated it would result in filing more new applications overall or the reopening of prior applications so that a claimant could submit previously excluded evidence.

Response: It bears reiterating that we expect the final rule will help to ensure that evidentiary records are more complete at the time of the scheduled hearing. However, our final rule contemplates that some circumstances may warrant the introduction of new evidence at or after the hearing, and includes an “inform” option and broad exceptions to accommodate these circumstances. With the “inform” option and the broad exceptions to the 5-day requirement, we do not expect to see a spike in new applications or reopenings.

Moreover, it is already our policy that if a claimant wants to file a new disability application under the same title and for the same benefit type as a disability claim pending at the Appeals Council level, and the claimant does not have evidence of a new critical or disabling condition, the claimant must choose to continue the appeal of the prior claim or file a new application. Nothing in the proposed or final rule substantively changes this policy.

Under our current rules in 20 CFR 404.970 and 416.1470, the Appeals Council considers additional evidence only if it is new, material, and related to the period on or before the date of the ALJ's decision. This does not mean, however, that the Appeals Council grants a claimant's request for review of an ALJ's decision whenever additional evidence meets this criteria. In many cases, the Appeals Council adds evidence that meets the criteria to the record, but denies the request for review of the case. Under our current rules, the Appeals Council will review a case in this situation only if it finds that the ALJ's action, findings, or conclusion is contrary to the weight of the evidence currently of record. This final rule provides more clarity to this procedure. Under this final rule, the Appeals Council will grant review of a case based on the receipt of additional evidence if the evidence is new, material, and related to the period on or before the date of the hearing decision and if there is a reasonable probability that the additional evidence would change the outcome of the decision.

If a claimant submits evidence that the Appeals Council does not consider, the Appeals Council will notify the claimant that if he or she files a new application for disability insurance benefits within 6 months or a new application for Supplemental Security Income within 60 days of the Appeals Council notice, the date of the request for review will constitute a protective filing for a new application.

Comment: One commenter expressed concerns about the proposed language in 20 CFR 404.951(b) and 416.1451(b) because adding the phrase “appropriate reference” was insufficient to describe what evidence an ALJ must include in the record.

Response: During the time that substantially the same rule was in place in the Boston region, we did not experience any confusion as to the meaning of the phrase “appropriate reference.” Further, this language is consistent with our longstanding sub-regulatory policies and practices nationwide, and adoption of this language does not change our policies regarding what constitutes the official record.

Comment: Many commenters submitted a broad statement that there have been “serious problems” and inconsistencies with implementation of the 5-day requirement in the Boston region. The commenters generally presented two main points: (1) There was variance in applying the 5-day requirement between ALJs; and (2) ALJs who did apply the rule varied in when the 5-day requirement ended and in evaluating whether an exception to the 5-day requirement applied.

Response: We acknowledge that in a report issued by the Administrative Conference of the United States (ACUS) 4 on December 13, 2013, ACUS noted several variances in applying similar rules in the Boston region. However, in response to the ACUS report, we provided additional training to adjudicators and staff regarding application of our Part 405 rules. We also incorporated instructions for processing cases originating in the Boston region into our training materials for all staff, including addressing Part 405 issues in several of our quarterly Videos-On-Demand series that focus on new or problematic areas of adjudication. We updated our sub-regulatory guidance to include references and instructions on how to process cases under Part 405. We will provide the training and instruction necessary to ensure consistent application of our rules nationwide.

Comment: One commenter asked that if we retain the 5-day requirement, we amend the language to require that each party make every reasonable effort to ensure the ALJ receives all the evidence. The commenter noted that proposed 20 CFR 404.935(a) and 416.1435(a) require “every effort,” which the commenter believed is an impossible standard to meet.

Response: While our final rule requires a claimant to “make every effort to ensure that the administrative law judge receives all of the evidence,” we do not believe the rule creates an “impossible standard” because it also includes appropriate exceptions to accommodate circumstances when, despite good faith efforts, the claimant cannot satisfy the 5-day requirement.

Comment: Some commenters stated that 20 CFR 404.944(a)(1) and 416.1444(a)(1) conflict with 20 CFR 404.1512 and 416.912 because one regulation requires an ALJ to “accept[] as evidence any documents that are material to the issues” while the other regulation requires a claimant to submit evidence that “relates to whether or not you are blind or disabled.”

Response: A claimant continues to have a duty to submit all evidence that relates to whether or not he or she is blind or disabled, subject to our other requirements, at the hearing and Appeals Council levels of the administrative process. Whereas 20 CFR 404.1512 and 416.912 explain a claimant's responsibility, 20 CFR 404.944(a)(1) and 416.1444(a)(1) address actions an administrative law judge will take. We expect claimants to submit evidence that relates to whether they are blind or disabled, but our administrative law judges are responsible for making the legal judgment determination whether evidence is “material to the issues.”

We consulted with the Office of Management and Budget (OMB) and determined that this final rule meets the criteria for a significant regulatory action under Executive Order 12866, as supplemented by Executive Order 13563. Therefore, OMB reviewed it.

We certify that this final rule would not have a significant economic impact on a substantial number of small entities because it affects individuals only. Therefore, a regulatory flexibility analysis is not required under the Regulatory Flexibility Act, as amended.

These final rules contain reporting requirements in regulation sections §§ 404.968, 404.976, 416.1468, and 416.1476 that require OMB clearance under the Paperwork Reduction Act of 1995 (PRA). SSA will submit separate information collection requests to OMB in the future for these regulations sections. We will not collect the information referenced in these burden sections until we receive OMB approval.

For the reasons set out in the preamble, we amend 20 CFR chapter III, parts 404, 405, and 416 as set forth below:

The purpose of this rule is to require States and local governments to evaluate the availability of broadband access and the vulnerability of housing occupied by low- and moderate income households to natural hazard risks, many of which may be increasing due to climate change, in their Consolidated Planning efforts. These evaluations are to be conducted using readily available data sources developed by Federal government agencies, other available data and analyses (including State, Tribal, and local hazard mitigation plans that have been approved by the Federal Emergency Management Agency (FEMA)), and data that State and local government grantees may have available to them. Where access to broadband Internet service is not currently available or is minimally available (such as in certain rural areas), States and local governments must consider ways to bring broadband Internet access to low- and moderate-income residents, including how HUD funds could be used to narrow the digital divide for these residents. Further, where low- and moderate-income communities are at risk of natural hazards, including those that are expected to increase due to climate change, States and local governments must consider ways to incorporate appropriate hazard mitigation and resilience into their community planning and development goals, codes, and standards, including the use of HUD funds to accomplish these objectives. These two planning considerations reflect emerging needs of communities in this changing world. Broadband provides access to a wide range of resources, services, and products, which assist not only individuals and, but also communities, in their efforts to improve their economic outlooks. Analysis of natural hazards, including the anticipated effects of climate change on those hazards, is important to help ensure that jurisdictions are aware of existing and developing vulnerabilities in the geographic areas that they serve that can threaten the health and safety of the populations they serve.

HUD's currently codified Consolidated Plan regulations require that local governments and States consult public and private agencies that provide assisted housing, health services, and social and fair housing services during preparation of the Consolidated Plan. Under these regulations, local governments and States are also required in their citizen participation plan to encourage the participation of local and regional institutions and businesses in the process of developing and implementing their Consolidated Plans. This rule requires States and local governments, in preparing their Consolidated Plan, to add to the list of public and private agencies and entities that they now must consult with for preparation of their plans, to consult with public and private organizations, including broadband internet service providers, organizations engaged in narrowing the digital divide (e.g., schools, digital literacy organizations), and agencies whose primary responsibilities include the management of flood prone areas, public land or water resources, and emergency management agencies (see §§ 91.100 and 91.110). Jurisdictions must also encourage the participation of these entities in implementing relevant components of the plan (see §§ 91.105 and 91.115).

The rule also requires each jurisdiction to describe broadband needs in housing occupied by low- and moderate-income households based on an analysis of data for its low- and moderate-income neighborhoods for which the source is cited in the jurisdiction's Consolidated Plan. These needs include the need for broadband wiring and for connection to the broadband service in the household units, and the need for increased competition by having more than one broadband Internet service provider serve the jurisdiction (see §§ 91.210 and 91.310). Possible sources of such data include the National Broadband Mapcreated by the National Telecommunications and Information Administration (NTIA) of the Department of Commerce. Grantees may also find broadband availability data in Federal Communications Commission (FCC) Form 477. As discussed later in this preamble, the regulatory text does not include recommended sources of data to avoid any confusion that these are not required sources, only recommended sources.

The rule also requires that jurisdictions provide, as part of their required housing market analysis, an assessment of natural hazard risks to low- and moderate-income residents, including risks expected to increase due to climate change, based on an analysis of data, findings, and methods identified by the jurisdiction, for which a reputable source is cited in the jurisdiction's Consolidated Plan. Possible sources of such data include: (1) The most recent National Climate Assessment, (2) the Climate Resilience Toolkit, (3) the Community Resilience Planning Guide for Buildings and Infrastructure Systems prepared by the National Institute of Standards and Technology (NIST), and, (4) other climate risk-related data published by the Federal government or other State or local government climate risk related data, including FEMA-approved hazard mitigation plans which incorporate climate change data or analysis. For the same reasons discussed above, the regulatory text related to natural hazard risk analysis does not include the recommended sources of data. Prior to implementation of the new requirements established by this rule, HUD will provide additional resources to support grantees in the form of guides and trainings. Grantees may also request Technical Assistance through their HUD Field Office or directly at www.HUDExchange.info/get-assistance.

HUD's Consolidated Plan process, established by regulation in 1995, provides a comprehensive planning process for HUD programs administered by HUD's Office of Community Planning and Development, specifically the Community Development Block Grant (CDBG) program, the HOME Investment Partnerships (HOME) program, the Emergency Solutions Grants (ESG) program and the Housing with Opportunities for Persons With AIDS (HOPWA) program. Comprehensive community planning provides officials with an informative profile of their communities in terms of population, housing, economic base, community facilities, and transportation systems, and such information aids officials in their investment decisions. HUD's Consolidated Planning process assists State and local officials that are recipients of HUD funds under the above-listed programs in determining the housing and community development needs of their respective communities. Requiring Consolidated Plan jurisdictions to consider the broadband and natural hazard resilience needs of their communities helps to ensure a more complete profile of the needs of their communities. As discussed in this preamble, the importance of providing broadband access to all cannot be overstated. Broadband access is not only important for increasing opportunities for individuals' success, but also for the success of a community. Consideration of the impact of natural hazard risks, many of which are anticipated to increase due to climate change, in one's community, and how communities can help mitigate any such adverse impacts, is equally important as it will help to guide the best use of land and orderly and sustainable growth. In brief, the benefits of this rule are to promote a balanced planning process that more fully considers the housing, environmental, and economic needs of communities.

The costs of the revised consultation and reporting requirements are not significant since the regulatory changes proposed by this rule merely build upon similar existing requirements for other elements covered by the Consolidated Planning process rather than mandating completely new procedures. Further, the required assessments are based on data readily available on the Internet, or which the Consolidated Plan jurisdiction may already have available to it, such as its own local data. Therefore, jurisdictions will not have to incur the expense and administrative burdens associated with collecting data. HUD anticipates providing grantees with data early in Federal Fiscal Year 2018. HUD will not require grantees to incorporate these new requirements into their Consolidated Plan process until HUD is able to make the data available to all grantees. To provide such time, the regulatory text provides that the new requirements apply to Consolidated Plans submitted on or after January 1, 2018.

Moreover, this rule does not mandate that actions be taken to address broadband needs or climate change adaptation needs. HUD's Consolidated Plan process has long provided that jurisdictions are in the best position to decide how to expend their HUD funds. The additional analyses required by this rule may highlight areas where expenditure of funds would assist in opening up economic opportunities through increased broadband access or mitigate the impact of possible natural hazards, including those that may be exacerbated due to climate change. But HUD leaves it to jurisdictions to consider any appropriate methods to promote broadband access or protect against the adverse impacts of climate change, taking into account the other needs of their communities, and available funding, as identified through the Consolidated Planning process.

On March 23, 2015, President Obama issued a Presidential Memorandum on “Expanding Broadband Deployment and Adoption by Addressing Regulatory Barriers and Encouraging Investment and Training.” In this memorandum, the President noted that access to high-speed broadband is no longer a luxury, but a necessity for American families, businesses, and consumers. The President further noted that the Federal government has an important role to play in developing coordinated policies to promote broadband deployment and adoption, including promoting best practices, breaking down regulatory barriers, and encouraging further investment.

On July 15, 2015, HUD launched its Digital Opportunity Demonstration, known as “ConnectHome,” in which HUD provided a platform for collaboration among local governments, public housing agencies, Internet service providers, philanthropic foundations, nonprofit organizations and other relevant stakeholders to work together to produce local solutions for narrowing the digital divide in communities across the nation served by HUD. The demonstration, or pilot as it is also called, commenced with the participation of 28 communities. Through contributions made by the Internet service providers and other organizations participating in the pilot, these 28 communities will benefit from the ConnectHome collaboration by receiving, for the residents living in HUD public and assisted housing in these communities, broadband infrastructure, technical assistance, literacy training, and electronic devices that provide for accessing high-speed Internet.

The importance of all Americans having access to the Internet cannot be overstated. As HUD stated in its announcement of the Digital Opportunity Demonstration, published in the Federal Register on April 3, 2015, at 80 FR 18248, “[k]nowledge is a pillar to achieving the American Dream—a catalyst for upward mobility as well as an investment that ensures each generation is as successful as the last.” 1 Many low-income Americans do not have broadband Internet at home, contributing to the estimated 66 million Americans who are without the most basic digital literacy skills. Without broadband access and connectivity and the skills to use Internet technology at home, children will miss out on the high-value educational, economic, and social impact that high-speed Internet provides. It is for these reasons that HUD is exploring ways, beyond ConnectHome, to narrow the digital divide for the low-income individuals and families served by HUD multifamily rental housing programs. This rule presents one such additional effort.

On November 1, 2013, President Obama signed Executive Order 13653, on “Preparing the United States for the Impacts of Climate Change.” Executive Order 13653 was subsequently published in the Federal Register on November 6, 2013 (78 FR 66819). The Executive Order recognizes that the potential impacts of climate change—including an increase in prolonged periods of excessively high temperatures, more heavy precipitation, an increase in wildfires, more severe droughts, permafrost thawing, ocean acidification, and sea-level rise—are often most significant for communities that already face economic or health-related challenges. Research has bolstered the understanding of the concept of social vulnerability, which describes characteristics (age, gender, socioeconomic status, special needs, race, and ethnicity) of populations that influence their capacity to prepare for, respond to, and recover from hazards and disasters, including the sensitivity of a population to climate change impacts and how different people or groups are more or less vulnerable to those impacts. Social vulnerability and equity in the context of climate change are important because some populations may have less capacity to prepare for, respond to, and recover from climate-related hazards and effects. Executive Order 13653 asserts that managing these risks requires deliberate preparation, close cooperation, and coordinated planning by the Federal government, State, Tribal, and local governments, and stakeholders. Further, the Executive Order calls upon Federal agencies to identify opportunities to support and encourage smarter, more climate-resilient investments by States, local communities, and tribes, through grants and other programs, in the context of infrastructure development.

Section 7 of Executive Order 13653 established the President's State, Local, and Tribal Leaders Task Force on Climate Change Resilience and Preparedness (Task Force). Co-chaired by the Chair of the White House Council on Environmental Quality and the Director of the White House Office of Intergovernmental Affairs, the Task Force consisted of 26 governors, mayors, county officials, and Tribal leaders from across the United States. Members brought first-hand experiences in building climate preparedness and resilience in their communities and conducted broad outreach to thousands of government agencies, trade associations, planning agencies, academic institutions, and other stakeholders, to inform their recommendations to the Administration.

The President charged the Task Force with providing recommendations on how the Federal government can respond to the needs of communities nationwide that are dealing with the impacts of climate change by removing barriers to resilient investments, modernizing Federal grant and loan programs to better support local efforts, and developing the information and tools they need to prepare, among other measures. In November 2014, Task Force members presented their recommendations for the President at a White House meeting with Vice President Biden and other senior Administration officials. Among other actions, the Task Force called on HUD to consider strategies within existing grant programs to facilitate and encourage integrated hazard mitigation approaches that address climate-change related risks, land use, development codes and standards, and capital improvement planning. This final rule represents one step that HUD is taking to implement these recommendations.

On May 18, 2016, at 81 FR 31192, HUD published a proposed rule that would require Consolidated Plan jurisdictions to consider broadband Internet access and the natural hazard resilience needs of their communities and to consider whether they should and can take actions to address these needs.

HUD's Consolidated Planning process serves as the framework for a community-wide dialogue to identify housing and community development priorities that align and focus funding from the HUD formula block grant programs: The CDBG program, the HOME program, the ESG program, and the HOPWA program. HUD's regulations for the Consolidated Plan are codified at 24 CFR part 91 (entitled “Consolidated Submissions for Community Planning and Development Programs”). A Consolidated Plan, which may have a planning duration of between 3 and 5 years, is designed to help States and local governments to assess their affordable housing and community development needs, in the context of market conditions at the time of their planning, and to make data-driven, place-based decisions on how to expend HUD funds in their jurisdictions.

In developing their Consolidated Plans, States and local governments are required to engage their communities, both in the process of developing and reviewing the proposed plan, and as partners and stakeholders in the implementation of the plan. By consulting and collaborating with other public and private entities, States and local governments can better align and coordinate community development programs with a range of other plans, programs, and resources to achieve greater impact. A jurisdiction's Consolidated Plan is carried out through annual Action Plans, which provide a concise summary of the actions, activities, and the specific Federal and non-federal resources that will be used each year to address the priority needs and specific goals identified by the Consolidated Plan. States and local governments report on accomplishments and progress toward Consolidated Plan goals in the Consolidated Annual Performance and Evaluation Report (CAPER).

The regulatory amendments proposed by HUD's May 2016 rule would require States and local governments to consider broadband access and natural hazard resilience as part of their Consolidated Planning efforts. Where the required analysis demonstrates that broadband Internet support is not currently available or is minimally available, or the jurisdiction's community is at risk of natural hazards, the jurisdiction should consider ways of addressing those needs.

The public comment period for HUD's May 18, 2016, proposed rule closed on July 18, 2016. HUD received 37 public comments on the proposed rule. The commenters included State and local governments, climate adaptation and environment organizations, public housing agencies (PHAs) and nonprofit organizations. The following Section III discusses the significant comments raised by the commenters and HUD's responses to the comments.

This section of the preamble presents a summary of the significant issues and questions raised by the commenters and HUD's responses to these comments. The majority of the commenters supported the inclusion of both assessments in the Consolidated Planning process, but as shown below in the discussion of public comments were concerned about administrative burden. In responding to the comments, HUD has strived to highlight that the burden is minimal. The only change that HUD makes in responses to public comments, as is more fully discussed below, is to remove from the regulatory text specific recommended broadband and risk hazard sources to consult in making the required assessments. There was confusion about whether or when consultation with these sources was required. They are recommended, not required sources. Removing these references from the regulatory text eliminates this confusion.

Comment: Support for the rule. The majority of commenters supported the proposed rule. These commenters commended HUD on recognizing the importance of requiring jurisdictions to assess broadband access for low-and moderate-income households and to consider how to incorporate resilience to natural hazard risks in their planning efforts.

HUD Response. HUD appreciates the support of the commenters and agrees that these changes to the Consolidated Planning process should aid jurisdictions in addressing two emerging needs of communities in this changing world.

Comment: The rule is an unfunded mandate. Several commenters stated that the proposed rule represented an overreach of HUD's authority and that the changes were an unfunded mandate.

HUD Response. The commenters are not correct that the two new assessments impose an unfunded mandate. As an initial matter, HUD notes that the rule's scope is limited to requiring consideration of the broadband and natural hazards resilience needs of low-income communities. The rule does not mandate that any actions be taken in response to the required assessments. Jurisdictions retain the discretion to consider the most appropriate methods to address their assessments, taking into account other needs identified as part of the Consolidated Planning process as well as financial and other resource constraints. Further, HUD notes that the Consolidated Planning process is required only to the extent jurisdictions voluntarily seek to participate in HUD's community planning and development programs. Accordingly, there is no mandate for jurisdictions choosing not to receive such funding. The concept of unfunded mandates excludes voluntarily-assumed requirements imposed as a condition for receipt of Federal assistance.

Comment: The proposed regulatory changes are administratively and economically burdensome. Several commenters wrote that the proposed rule imposes an administrative burden, especially on smaller communities. The commenters wrote that the financial burden would unduly stretch already limited CDBG and HOME program funding. The commenters also objected that HUD underestimated the administrative burden of complying with the new requirements. Some of these commenters focused on the administrative burden associated with the expanded consultation requirements, which now include broadband internet service providers, organizations engaged in narrowing the digital divide, and agencies engaged in resilience planning. These commenters stated that HUD's estimates of the administrative burden failed to account for the person-hours required to locate, engage, evaluate, and compile recommendations from qualified public and private entities within either content area. The commenters wrote that HUD should refrain from pursuing the changes or make the two new assessments optional.

HUD Response. As noted in the proposed rule, HUD has sought to minimize the costs and burdens imposed on communities by allowing the assessments to be completed using readily available online data sources. HUD further minimizes the burden imposed on jurisdictions by providing an electronic template for completing the Consolidated Plan. This template, first used in 2012, provides a uniform and flexible template that helps ensure the Consolidated Plan is complete per the regulations found in 24 CFR part 91. Many of the data tables within the Consolidated Plan template are pre-populated with the most up-to-date housing and economic data available, and HUD plans to input data for both broadband and resilience assessment requirements. While grantees will need to provide explanations relating their funding priorities to the pre-populated data, they do not need to incur the costs or time of searching for, entering, and compiling the data. HUD also notes that the rule does not require jurisdictions to use the pre-populated data; jurisdictions may opt to use other data of their choice.

HUD anticipates providing grantees with data early in Federal Fiscal Year 2018. HUD will not require grantees to incorporate these new requirements into their Consolidated Plan process until HUD is able to make the data available to all grantees. To provide such time, the regulatory text provides that the new requirements apply to Consolidated Plans submitted on or after January 1, 2018.

With respect to the consultation requirements, HUD notes the Consolidated Plan has always served as a planning document for the jurisdiction as a whole. Jurisdictions are already required to consult with public and private agencies, business and civic leaders, and units of local government. The inclusion of the newly specified entities does not substantively alter the cost or administration of the already required participatory process.

Comment: The new proposed rule lacks necessary specificity of how the two new assessments are to be conducted. Several commenters wrote that the proposed rule lacked sufficient specificity regarding the required contents of the new assessments and the criteria HUD will use to evaluate the adequacy of the assessment. The commenters wrote that this lack of details would make it difficult for jurisdictions to comply with the new requirements. One of the commenters asked whether the data sources cited by the community would be subject to review by HUD. The commenters urged HUD to provide additional guidance to communities on how it plans to measure compliance with the rule.

HUD Response: As it does on other components of the Consolidated Plan, HUD will provide technical assistance and training materials to assist jurisdictions in meeting the new requirements. However, HUD notes that the requirements of the new rule are not entirely unfamiliar, as the Consolidated Planning process already requires jurisdictions to identify non-housing community development needs that would aid communities in developing viable urban communities, providing a suitable living environment and expanding economic opportunities principally for low-income and moderate-income persons. (See 24 CFR 91.215(f).) With respect to data, as noted in response to an earlier comment, HUD plans to pre-populate data in the electronic Consolidated Plan template. Through the standardized template with prepopulated data tables at the jurisdictional level and providing the ability to map community needs, jurisdictions will be able to ascertain and satisfy HUD's needs assessment expectations. To ensure that jurisdictions have engaged in analysis regarding community broadband and natural hazard resilience needs, plans will be reviewed for compliance with the new requirements. Guidance will be developed for the field staff to support consistent implementation of this policy. In order to aid grantees, HUD will provide in its guidance best practices and examples for incorporating broadband and natural hazards into the Consolidated Plan.

Comment: HUD should first establish eligible activities for the two new assessments, before requiring that such assessments be undertaken. A commenter wrote that the two new assessments do not directly address CDBG's objectives. The commenter stated that before any changes are made to the consultation and citizen participation regulations, HUD should update the eligible activities and guidance regarding these kinds of activities. The commenter stated that, for instance, income payments, including payments for utilities such as Internet, are not considered an eligible CDBG activity. The commenter stated that CDBG funding could be used to make utility payments, including Internet payments, to ensure low- and moderate-income families have access to the Internet. Another commenter asked whether CDBG funds can be used to assist in broadband infrastructure or otherwise connect housing assisted by HUD to broadband.

HUD Response: One of the statutory objectives of the CDBG program is to “provid[e] . . . [a] suitable living environment,” which encompasses a range of related goals and activities such as improving the safety and livability of neighborhoods; increasing access to quality public and private facilities and services; and reducing the isolation of income groups within a community or geographical area through the spatial deconcentration of housing opportunities for persons of lower income, the revitalization of deteriorating or deteriorated neighborhoods, and the conservation of energy resources. The two new assessments required under this rule align with this objective. With respect to eligible activities, while HUD does not have regulatory authority to add new eligible activities to the CDBG program beyond those authorized in statute, the CDBG program already includes numerous eligible activities, such as rehabilitation, through which grantees can assist broadband connectivity and natural hazard resilience efforts directly. When determining their public facility, housing rehabilitation, economic development, and infrastructure needs, grantees may wish to consider high performing infrastructure to ameliorate/withstand natural hazards, as well as ways to use eligible activities to meet community broadband needs. HUD has provided guidance on using existing eligible activities for these purposes,2 and will also be providing additional technical assistance and guidance on how CDBG funds may be used to address both broadband and resilience needs in the community.

Comment: HUD's regulations should be generally stated and guidance should provide the necessary specificity. A commenter wrote that as proposed, HUD requires very specific data sources to be included in the Consolidated Plan. The commenter stated that this is problematic because data sources often change or are renamed. The commenter stated that HUD's regulations should list general information that is required in the Consolidated Plan while HUD guidance and other materials that are regularly updated, such as the “Consolidated Plan in IDIS Desk Guide,” should provide recommended data sources. The commenter stated that this will allow HUD to update data sources easily in circumstances where sources change or new sources become available.

HUD Response: HUD appreciates the suggestion made by the commenter, and has revised the rule accordingly. As recommended, the regulation no longer identifies specific recommended sources. These suggested sources of data will now be listed in guidance to facilitate updating as new data becomes available or data sources are re-named. Jurisdictions will still be able to use either the data identified by HUD and pre-populated in the electronic Consolidated Plan template or other data sources of the jurisdiction's choice, for which the source is cited in the jurisdiction's Consolidated Plan.

Comment: The rule includes no mandate thereby providing no assurance goals will be met. A commenter wrote that despite HUD's recognition of the importance of access to broadband and the increasing risk of natural hazards, the proposed rule does not mandate jurisdictions take any action, or even formulate actions steps, to address these needs. The commenter wrote that while is it is often true that “jurisdictions are in the best position to decide how to expend their HUD funds,” requiring concrete plans of action instead of just data collection is the only real way to ensure HUD's stated goals are met.

HUD Response: A fundamental principle of the Consolidated Planning process, as well as of HUD's community development formula programs (for which the Consolidated Plan is the submission vehicle) is that grantees have the flexibility and responsibility for developing their own programs and funding priorities, based on their own assessment of their needs. HUD does not mandate what objectives grantees should achieve or what activities grantees are to undertake with their formula funding. It will be up to the jurisdiction through its needs assessment process to determine whether to select activities related to these issues as a priority need. The grantee would identify the financial and organizational resources available to address its priority needs. In the Consolidated Planning process, the level of resources available will play a key role in determining strategies and goals. Once broadband or increasing resilience have been selected as a priority need, grantees would then develop a set of goals based on the availability of resources, and local organizational capacity.

Comment: The new assessments are already made by agencies within each State tasked with such assessments. A commenter stated that new assessments should not be required of State housing agencies. The commenter stated that these assessments are already made by those State agencies charged with technology authority or charged with emergency management. The commenter stated that generally, for each State, these assessments are made through programs that are not part of the Consolidated Planning process.

HUD Response: HUD agrees that jurisdictions often already have assessments undertaken by other agencies regarding both broadband access and natural hazard resiliency. HUD is encouraging through its Consolidated Planning process a collaborative consultation process. HUD also encourages jurisdictions to use these plans developed by other agencies in identifying community needs and priorities. The Consolidated Planning process provides the opportunity for jurisdictions to reference existing plans and HUD is not requiring a separate, distinct study to be undertaken. It is up to each jurisdiction to determine which agencies or departments will be responsible for developing its Consolidated Plan and for administering the HUD community development formula funding received through each block grant program. All other jurisdictions (including States) are encouraged to ensure collaboration among internal and external agencies and staff to take full advantage of relevant expertise. Ideally, State agencies would develop these plans in alignment with each other, not only to reduce duplication of work but also to ensure that Federal investments are more aligned throughout the State and in their communities.

Comment: Consider requiring assessments for broadband adoption and increasing resilience to natural hazards beyond the context of housing needs. Several commenters wrote that HUD should consider requiring assessments in Consolidated Plans beyond just housing needs. The commenter stated that even though Consolidated Plans are focused on housing needs, communities would benefit if jurisdictions are required to at least analyze how funds could be used for broadband adoption and enhancing resilience to natural hazard risks for communities as a whole.

HUD Response: The Consolidated Plan is not exclusively concerned with housing needs. HUD's Consolidated Plan regulations include both a housing needs assessment and a non-housing community development plan. Specifically, under 24 CFR 91.215 (for local governments) and 24 CFR 92.315 (for States), jurisdictions must provide a description of priority non-housing community development needs eligible for assistance under HUD's community development programs. In line with the goals of this rulemaking, HUD strongly encourages jurisdictions to consider implementing actions to support broadband access and adoption and increase resilience in their non-housing community development efforts, but such decisions on priorities are determined by grantees.

Comment: These two new Consolidated Plan assessments require input by the residents of the community. A commenter stated that assessing broadband and natural hazards concerns of the community beyond the data points and institutional input required in the proposed rule is essential for local governments and States in assessing the true needs of the community. The commenter stated that without direct communication with the households that are affected by these issues, States and localities cannot properly assess the full needs of the communities they serve. The commenter urged HUD to require jurisdictions to create a public process where members of the community have opportunity to comment on Consolidated Plans, and that HUD should consider a community participation structure similar to the requirement under HUD's Affirmatively Furthering Fair Housing (AFFH) regulation.

HUD Response: HUD's Consolidated Plan regulations already require jurisdictions to undertake a citizen participation and consultation process (see, subpart B of the Consolidated Plan regulations at 24 CFR part 91, entitled “Citizen Participation and Consultation”). The AFFH citizen participation process was modeled on the citizen participation and consultation process required by HUD's Consolidated Plan regulations. HUD does not believe that a separate citizen participation and consultation process is required for the two new assessments established by this rule, as was established under the AFFH rule. HUD's AFFH rule implemented a requirement, affirmatively furthering fair housing, under a separate statute, the Fair Housing Act. That is not the case here.

Comment: Broadband access and natural hazard risk resilience should be included in the jurisdictions' Assessment of Fair Housing required by HUD's Affirmatively Furthering Fair Housing regulation. A commenter wrote that in addition to addressing concerns about broadband access and resilience to natural hazard risks in their Consolidated Plans, HUD should require jurisdictions to incorporate these assessments into their Assessment of Fair Housing required under HUD's AFFH rule. The commenter stated that HUD's AFFH rule aims to aide States and local governments “in taking a meaningful actions, in addition to combating discrimination, that overcome patterns of segregation and foster inclusive communities free from barriers that restrict access to opportunity based on protected characteristics.” The commenter stated that under the AFFH rule, jurisdictions are charged with taking meaningful actions that “transform racially and ethnically concentrated areas of poverty into areas of opportunity.”

HUD Response: While HUD, in this rule, is not mandating inclusion of the broadband access and resilience assessments in the Assessment of Fair Housing required under HUD's AFFH rule, jurisdictions may voluntarily elect to include them in their assessment required under the AFFH rule. As noted, HUD encourages jurisdictions to ensure collaboration among State and local agencies and staff to take full advantage of relevant expertise among all agencies and employees, be they internal or external to the jurisdiction. The suggestion made by the commenter may be one possible way of achieving that goal.

Comment: The National Broadband Map and Form 477 do not provide current data and HUD should therefore allow use of State and local data. Several commenters objected to use of National Broadband Map and Form 477 data to determine broadband availability. A commenter questioned the accuracy of data quality and accuracy within the broadband services sector. Another commenter wrote that Federally collected data on broadband access and adoption is often of inconsistent quality, unverified, not released in a timely manner, and insufficient for the planning needs of many communities. Commenters stated that the National Broadband Map has not been updated or maintained and currently shows data from the fall of 2014, and this outdated resource could lead to confusion and inaccurate information. A commenter requested that HUD, in partnership with the Department of Commerce's National Telecommunications and Information Administration (NITA), pre-certify broadband coverage data and maps that communities could use.

With respect to the Form 477, commenters wrote that the data has not been mapped and is difficult to access. To address these concerns, the commenters suggested that HUD allow Consolidated Plans to include data on broadband access collected directly through State and local broadband efforts. A commenter wrote that currently 37 States still have active broadband planning teams with data and resources that are likely more up-to-date than current federal data. Another commenter wrote that few communities have the ability and knowledge base to “consult with . . . broadband internet service providers” as would be required in proposed revisions to the consultation and citizen participation requirements. The commenter stated that HUD would need to provide substantial levels of policy and practical guidance to enable local staff to determine broadband “needs” for a specific subset of the overall population within each community.

HUD Response: While HUD does not agree with the commenters' objections to use of the National Broadband Map and Form 477, it is sympathetic to the general concerns expressed regarding the need to ensure that data sources are accurate and up-to-date. As noted in response to an earlier comment, this final rule does not codify specific recommended data sources. These will now be listed in guidance to facilitate updating as new data becomes available or data sources are re-named. It was not HUD's intent to mandate use of the National Broadband Map or Form 477. While HUD plans to provide pre-populated data in the electronic Consolidated Plan template, jurisdictions are not required to use such data and may use alternative data. The template's default data can be replaced or complemented by other data identified by the jurisdiction, for which the source is cited in the jurisdiction's Consolidated Plan. Further, HUD is committed to aiding jurisdictions with meeting the new requirements contained in this rule, and will supplement the rule with guidance as may be needed. As it does on other components of the Consolidated Plan, HUD will provide technical assistance and training materials to assist jurisdictions in meeting these new requirements.

Comment: The rule offers no suggested sources for States and communities to assess the extent to which the need for connection to the broadband service in the household units is being met. A commenter wrote that the data sources identified in the rule are not adequate to permit jurisdictions to assess the extent to which broadband services have actually penetrated the market of low-to-moderate income households in a given community. This commenter suggested two readily available federal sources for actual household connection data which should be suggested, but not required, by the rule. In contrast to commenters that submitted concerns about the data in the immediately preceding comment, the first source recommended by the commenter is FCC's Form 477 Census Tract Data on Internet Access Services, which the commenter stated provides a summary of reported connections for each tract and compares the total to the tract's total Census households. The commenter stated that this form, along with the FCC's national interactive color-coded map, make it reasonably easy to rank or map a state or community's Census tracts by household broadband penetration and have an easy first look at their tracts' penetration levels. The second source recommended by the commenter is the American Community Survey (ACS) data on household computer ownership and Internet access.

HUD Response: HUD appreciates the suggestions of additional data sources that may be useful to jurisdictions in preparing the required broadband assessment. HUD notes that the Form 477 is already included as a suggested data source. As previously addressed in this preamble, jurisdictions may either use the data sources suggested by HUD or other data identified by the jurisdiction, for which the source is cited in the jurisdiction's Consolidated Plan.

Comment: Do not ignore other causes of digital exclusion other than availability in the housing market analysis. A commenter stated that in creating a framework through its Consolidated Plan process for community dialogue leading to possible action toward greater digital access and inclusion, HUD should recognize that low rates of household Internet access among low- and moderate-income residents can be the result of many causes other than physical availability of service, including the following: Unaffordability of available Internet services to low-income residents; a lack of convenient opportunities for residents to gain digital literacy skills; a failure to communicate the value of available Internet services and tools; and other factors specific to communities, such as language, cultural barriers, etc.

HUD Response: HUD appreciates the concerns raised by the commenter. The Consolidated Plan contains both a housing need assessment and a non-housing community plan development component. HUD encourages jurisdictions to look at their broadband and resiliency needs across all components of the Consolidated Planning process. The jurisdiction has the ability to include an infrastructure assessment as well as public services assessment as part of its non-housing community development plan. HUD is cognizant that the adoption of broadband internet is an equally critical component of closing the digital divide and is contingent on many factors other than the availability of internet service. This rule, however, is but one part of HUD's broader efforts to expand the access and use of broadband internet. HUD also notes that the jurisdictions are free to expand their broadband assessment to include the types of issues listed by the commenter, based on their identification of local needs and circumstances.

Comment: Consultation requirements should include other identified stakeholders. Several commenters expressed support for the proposed rule requiring the consultation of broadband stakeholders in preparation for creating Consolidated Plans. The commenters suggested additional stakeholders that should be included in the consultation process. One commenter specifically recommended that State planning programs be identified as possible partners in the locations they are available. Another commenter suggested that HUD clarify that public-private initiatives or partnerships (like a local community technology planning team or task force, which might not have a formal legal identity or corporate status) will qualify as an “organization engaged in narrowing the digital divide.” The commenter stated that the needs of often-voiceless, low-income communities with low adoption rates will not always register with broadband providers, but allowing these public-private organizations to voice the needs of low-income communities can help establish a business case for improved service offerings and options. Yet another commenter suggested adding language to include “local social service and public agencies providing digital literacy, public internet access, or other broadband adoption programs.” The commenter stated that these may include, but are not limited to: Adult literacy and education providers; K-20 schools; youth program providers; libraries; and small business and workforce training program providers.

HUD Response: The purpose of the Consolidated Planning process is to aid jurisdictions, as a whole, in identifying their housing and community development needs and funding priorities. The Consolidated Plan builds on a participatory process that includes citizens, organizations, businesses, and other stakeholders. In carrying out these already required consultations, HUD encourages jurisdictions to conduct the broadest possible outreach, including State and local agencies and other entities identified by the commenters.

Comment: Require grantees to submit progress reports in closing the digital divide. A commenter recommended that HUD revise the language at the final rule stage to state that after submission and acceptance of the Consolidated Plan, communities are expected to develop a reasonable and achievable strategy for closing the digital divide. The commenter stated that this language should leave no doubt as to the expectation that progress will begin immediately. The commenter stated that HUD should mandate that communities provide regular progress reports as they take their first steps into closing the digital divide.

HUD Response: Grantees are currently required to submit progress reports on the priority needs and goals they select during the Consolidated Planning process. Under HUD's Consolidated Plan regulations, within 90 days after the end of its program year, a grantee must submit a Consolidated Annual Performance and Evaluation Report (CAPER) to HUD. The primary purpose of the CAPER is to report on accomplishments of funded activities within the program year and to evaluate the grantee's progress in meeting one-year goals it has described in the Annual Action Plan and long-term goals it has described in the Consolidated Plan.

Comment: Encourage jurisdictions to partner with successful ConnectHome communities. A commenter stated that to ease and facilitate the assessment of broadband needs as part of the Consolidated Planning process, HUD should recommend and/or establish connections between applicants and successful ConnectHome communities that have developed and implemented their own connection plans. The commenter stated that this additional resource would dramatically increase the information available to each community while further reducing administrative and financial costs as communities share best practices. Another commenter suggested that HUD document and widely share data and promising practices from the 28 ConnectHome pilot communities, and assess what strategies have been most (and least) successful in supporting broadband access and adoption. The commenter encouraged HUD to regularly undertake and make public an analysis of findings from broadband access and adoption strategies jurisdictions reported in their Consolidated Annual Performance and Evaluation Report or other relevant reporting processes. The commenter also requested that HUD establish a single-stop data center that contains links to all relevant resources.

HUD Response: HUD agrees that ConnectHome communities could be a valuable resource for other jurisdictions. HUD encourages collaboration, where possible, between jurisdictions in developing and implementing their plans to expand access to broadband internet. As the commenter notes, such collaboration can be a cost-effective way to share successful strategies and best practices. HUD will seek ways to facilitate sharing of best practices of the ConnectHome communities. For example, HUD is developing playbook that provides suggestions and best practices for communities seeking to expand digital inclusion. The suggestions identified in the playbook are based on HUD's experience and expertise developed during implementation of the ConnectHome initiative.

Comment: Examine how HUD programs may limit the ability of grantees to invest funds in broadband access and adoption. A commenter suggested that HUD assess how existing rules and legislation governing HUD programs may limit the ability of grantee governments to invest funds in broadband access and adoption. The commenter offered as an example of such limitation the “public services cap” on grantees' permissible use of CDGB grant funds. The commenter stated that any local investment of CDBG funds in digital literacy training, technical assistance or even consumer premises equipment to support household internet adoption is currently classified as a public service expenditure and limited by the cap, which means it competes for a fixed pool of dollars with all kinds of ongoing community needs such as emergency homeless shelters.

HUD Response: As with all its programs and initiatives, HUD will, on an ongoing basis, review and assess the impact of legislative and regulatory requirements on program participants. Where appropriate or necessary to policy goals, HUD will seek changes through the appropriate vehicle, rulemaking, legislation or other policy action that may facilitate a change. However, HUD does not agree with the commenter that the CDBG program unduly limits activities to expand access and adoption of broadband internet. The CDBG regulations allow the use of grant funds for a wide range of eligible activities including public services, which is not the only activity a community can use to address its broadband needs. Grantees have the flexibility and responsibility for developing their own programs and funding priorities, based on their own assessment of their needs. Additionally, other funding associated with the Consolidated Plan, such as HOME and Housing Trust Fund funds, may be used for the actual costs of constructing or rehabilitating single family or multifamily housing, including the costs to wire the property for broadband internet, which could help address a community's broadband needs.

Comment: Include a definition of resilience. A commenter stated that resilience is a term that means many things to many people. The commenter recommended that a definition of resiliency be included in HUD's regulations in 24 CFR part 91.

HUD Response: HUD will provide technical assistance and training materials to assist jurisdictions in meeting the new requirements. This will include guidance to communities on how to assess their resilience to natural hazard risk. As a guide, HUD points to the definition of the term “resilience” used by HUD for the National Disaster Resilience Competition, which is already familiar to HUD grantees and communities participating in HUD programs. Specifically, in that notice of funding availability, HUD defined resilience to mean “the ability to anticipate, prepare for, and adapt to changing conditions and withstand, respond to, and recover rapidly from disruptions.”

Comment: For consistent evaluation of resilience, HUD should work with other Federal agencies to develop guidance and tools that support communities and practitioners. A commenter encouraged HUD to work with other Federal agencies to develop guidance and tools that support communities and practitioners, and noted that several tools already exist and were identified in the proposed rule. The commenter specifically noted as helpful tools the Integrated Rapid Visual Screening (IRVS) Tool, the Community Resilience Planning Guide, and Hazus MH FEMA. The commenter stated that to the extent practical, the resilience evaluations required within the Consolidated Plan should mirror requirements contained in other hazard identification and mitigation plans conducted at the State and local level. The commenter stated that this should include at a minimum the State Hazard Mitigation Plan required to receive certain funding from the Federal Emergency Management Agency (FEMA), the Threat and Hazard Identification and Risk Assessment (THIRA) process, and planning and assessment requirements associated with Department of Transportation, Economic Development Administration and other Federal programs. The commenter also stated that the rule should require consultation with additional community resources such as geological and meteorological agencies, energy and sustainability offices, and building code departments. Another commenter urged HUD to include academic institutions as resources that should be consulted. Yet another commenter stated that in addition to supporting communities' access to critical governmental resources for assessing resilience to natural hazards, HUD should convene a group of expert stakeholders from the non-governmental organization community to strategize how to implement effective resilience tactics, as well as hosting a broader clearinghouse of readily available online data sources—including those available in the private sector and nongovernmental organizations—to achieve resilience solutions.

HUD Response: HUD notes that the final rule already provides jurisdictions with the flexibility to consult with community resources such as those identified by the commenter. HUD also strongly encourages jurisdictions to leverage and integrate existing assessments of climate and hazard related risks into their Consolidated Plan analysis where the jurisdiction deems appropriate. With regard to the suggestion that HUD work with other Federal agencies, HUD notes that it currently works with other agencies to develop guidance and tools that support communities and practitioners. For example, HUD conferred with various Federal agencies in the development of this rule. More recently, HUD has worked collaboratively with a group of expert stakeholders from non-governmental organizations to strategize about the implementation of effective resilience tactics to achieve resilience solutions through its National Disaster Resilience Competition (NDRC).

Comment: Establish minimum investment requirements. A commenter stated that while the identification of hazards and opportunities to mitigate them is an important step to making communities more resilient, once such efforts are institutionalized, the commenter expressed hope that HUD will establish requirements that communities invest in a minimum level of mitigation before Federal investments are made within the community. The commenter stated that such requirements will enhance the community and assure limited federal funds are used responsibly.

HUD Response: HUD agrees with the commenter that identification of hazards and opportunities to mitigate them is an important first step, and appreciates the suggestion for establishing minimum investment requirements. However, such a mandate runs contrary to the approach HUD has taken with its Consolidated Planning regulations.

Comment: Expand the organizations with which jurisdictions should consult. A commenter stated that the proposed rule is a step in the right direction, but that to further this important work, jurisdictions should be required to consult not only with the list of proposed agencies, but also with a wide range of organizations working on adaption to the decline of cheap fossil fuel energy, the depletion of fresh water, access to fresh food, complex environmental crises like climate change and biodiversity loss, and the issues of social, economic and health equity. The commenter stated that such information is consistent with HUD's new AFFH Data and Mapping Tool and could be included as part of the assessment of fair housing. The commenter stated that limiting mandatory consultation to “agencies whose primary responsibilities include the management of flood prone areas, public land or water resources, and emergency management agencies” is too narrow for a full evaluation of vulnerability to natural hazards and ensuring resilience of low- and moderate-income households.

The commenter stated that a number of public and private organizations not listed in the proposed rule are immersed in activities that enhance community resilience. For example, organizations promoting home weatherization engage in energy conservation, help prepare communities for a decline in cheap energy, and contribute to efforts to improve neighborhood conditions; organizations that focus on public health are able to provide local data and findings on health inequity, such as asthma rates and food deserts; and community organizations, colleges/universities, and other non-profits are currently looking at and responding to the climate crisis. The commenter stated that without casting a broad net, planning efforts will be incomplete and continue the ill-suited forms of planning for the new realities our communities face. Another commenter stated that it was important for HUD grantees to consult with agencies responsible for economic development and housing in the private sector. The commenter stated that it is important to add this additional category because the current HUD proposal seems to only cover agencies responsible for “public land and water resources,” which would exclude the many low- and moderate-income facilities regulated and affected by local agencies responsible for economic development and housing in the private sector.

HUD Response: The commenters offer very good suggestions on agencies with whom to consult with respect to resilience. However, HUD does not mandate consultation with these entities. As already noted in this preamble, the approach taken in the Consolidated Plan is for jurisdictions to determine their needs, decide which needs to fund, conduct outreach to residents in their communities, and consult with individuals and agencies that will aid them in good community planning. The citizen participation and consultation process provides the opportunity for a wide variety of stakeholders to participate the in the Consolidated Planning process. As mentioned previously, the Consolidated Plan includes a non-housing community development plan that provides opportunity for a jurisdiction to assess its neighborhood conditions, including economic needs, in its efforts to develop viable communities.

Comment: Natural hazard risks should be assessed by the appropriate government agency, not the government's housing and/or economic development agency, and be done on a project-level basis. A commenter that is a government economic development agency stated that it is not the appropriate agency to assess natural hazard risks for low- and moderate-income households, and that there are other governmental organizations charged with assessing mitigating these risks. The commenter stated that it can consult with the governmental agency charged with assessing and mitigating risks and seek their input on Consolidated Planning, but that it would not be appropriate for the economic development agency to have a directive or management role in this effort. The commenter also stated it is more impactful for this type of review to take place at the project level. Once funded, each project goes through an environmental review process. Many hazards are assessed, ranging from hazardous waste and radiation to floodplain analysis. The commenter stated that if a project site is in the floodplain, it must go through a potentially lengthy and burdensome process to determine if they can move the project or mitigate the impact.

HUD Response: HUD addressed a similar comment early on in this Section of the preamble that requested that HUD not mandate broadband or natural hazards risk resilience assessments by a housing and/or economic development agency when a State or local government has other agencies charged to address these matters. As noted by HUD in response to that earlier comment, HUD agrees that jurisdictions often already have assessments undertaken by other agencies regarding both broadband and resiliency. This final rule directs agencies to existing resources to guide them in these two areas. Through its Consolidated Planning process, HUD encourages a collaborative consultation process instead of duplication of efforts. Given that HUD also encourages jurisdictions to use other plans that identify community needs and priorities, the Consolidated Planning process provides the opportunity for jurisdictions to reference existing plans and is not requiring a separate, distinct study to be undertaken. It is up to each State or local government to determine which agencies or departments will be responsible for developing its Consolidated Plan and for administering the different HUD funding covered by HUD's Consolidated Plan regulations. All jurisdictions (including States) are certainly encouraged to ensure collaboration among internal and external agencies and staff to take full advantage of all relevant expertise.

Comment: The National Climate Assessment and the Climate Resilience Toolkit are confusing. A commenter stated that the National Climate Assessment and the Climate Resilience Toolkit are very confusing. The commenter stated that it was hard to understand how a State could use this toolkit in a meaningful way in developing its Consolidated Plan. The commenter stated that it shares data from its State's Homeland Security and Emergency Management Department in its plans and then relies on site-specific environmental reviews once projects are funded. The commenter stated that these would seem to be better approaches to assessing natural hazard risks to low-and moderate households for States. In contrast to this comment, another commenter stated that the Climate Resilience Toolkit is useful for screening and planning purposes. This commenter also stated that while GIS tools that integrate topography, hydrology, and social science are readily available on the Internet, these tools are not likely to be commonly used by housing programs. The commenter suggested that HUD provide technical assistance in the form of webinars and workshops to train housing staff on the use of these tools, and stated that training programs are readily available through NOAA and EPA.

Another commenter stated that many of the natural hazard resources named in HUD's proposed rule are not data sources, but instead are plans and toolkits with already-made strategies [§ 91.210(a)(5)(i), § 91.210(a)(5)(ii), and § 91.210(a)(5)(iii)]. The commenter stated that the housing market analysis section of the Consolidated Plan is intended to contain data with analysis that will inform the later sections which include strategies and goals. The commenter stated that because HUD is regulating the use of plans and strategies in this data section of the Consolidated Plan, HUD is taking away the grantee's efforts to create place-based strategies based on current data.

HUD Response: By referring to resources, plans, and toolkits, HUD is encouraging jurisdictions to review what's been proposed and discussed, and see whether it fits into the Consolidated Planning efforts. HUD is developing guidance, resources, and tools to help grantees work with these sources. Further, as already noted in this section, HUD plans to provide pre-populated data in both CPD Maps and the eCon Planning Suite template. Jurisdictions may use alternative data in the Consolidated Planning process and are not required to use the default data provided by the system. Default data can be replaced or complemented by specifying a survey or administrative data source. If an alternative source is specified, the jurisdiction will be required to identify the source and provide basic information on how the data was collected. The jurisdiction also has the option of providing notes under each table in which alternate data is used to indicate what was changed or why the change was necessary. Because the public can view much of the default data in CPD Maps, these notes may be useful to avoid confusion during the citizen participation process.

Comment: Expand approved sources of data to be made available to jurisdictions for use, and require use of local data. A commenter stated that jurisdictions should be required to both identify and include local data when describing vulnerabilities of housing occupied by low- and moderate-income households due to increased natural hazards. The commenter stated that, for example, local data regarding the quality of a jurisdiction's housing stock should be considered in the planning process, and similarly, geographic location of the low- and moderate-income households (which is available through HUD's AFFH Assessment Tool Map) should be addressed in planning with regard to vulnerabilities of housing.

HUD Response: As noted earlier, jurisdictions are already able to use alternative data. While HUD plans to prepopulate data in both CPD Maps and the eCon Planning Suite template, jurisdictions may use alternative data in the Consolidated Planning process and are not required to use the default data provided by the system. If an alternative source is specified, the jurisdiction will be asked to identify the source and provide basic information on how the data was collected.

Comment: Issue guidance on how to undertake the required analysis. A commenter strongly encouraged HUD to establish more specific guidance for jurisdictions on how to complete the required analysis. The commenter stated that such guidance should not only include a step-by-step process for assessing community vulnerability to climate change and natural hazard risks but also should facilitate the identification and incorporation of actions that build resilience to these risks in the Consolidated Planning process. The commenter stated that developing more detailed guidance also would reduce the burden placed on jurisdictions by providing greater clarity on how to conduct a robust resiliency analysis, and would enhance consistency among and improve confidence in resiliency analyses as well as facilitate the review and approval of Consolidated Plans by HUD.

HUD Response: HUD plans to provide further guidance once the rule is implemented, but since the Consolidated Plan is completed through the e-Con Planning Suite template, the template provides a uniform and flexible template that helps ensure the Consolidated Plan is complete per the regulations found in 24 CFR part 91. Each screen in the template cites the specific section(s) of the regulations that the screen is designed to capture. Each screen includes a combination of prepopulated data tables and narrative sections that set a baseline for HUD's expectations for the amount of information required. HUD anticipates providing this same format for both broadband and resilience assessment requirements.

Comment: Ensure that grantees take steps to reduce the risks of natural hazards. A commenter stated that HUD's proposed rule does not ensure that grantees will take steps to reduce these risks or disparities. The commenter stated that, as written, the proposed rule explicitly, “does not mandate that actions be taken to address . . . climate change adaptation needs” and requires nothing of grantees beyond gaining knowledge of climate change risks. The commenter stated that HUD's rule should ensure that grantees take reasonable and adequate steps to both assess climate change risks and develop and incorporate reasonable and effective climate change risk mitigation strategies into their Consolidated Plans and project designs. The commenter stated that without such strategies, the rule would continue to allow HUD to invest in community development projects that may not be resilient to the effects of climate change and could put communities at risk. This commenter also stated that to ensure some level of accountability HUD's final rule should state that if grantees invest HUD funds in community development projects that do not include designs and/or strategies to reduce identified climate risks, HUD could reduce funding to that grantee in the future.

HUD Response: Through the Consolidated Planning process, jurisdictions will continue to have the flexibility to determine their own needs and priorities for distributing HUD funds. The rule provides for the incorporation of broadband and resilience to natural hazard risks into the existing needs assessment and market analysis required under the Consolidated Planning process. However, it is up to the jurisdiction through its needs assessment process to determine whether to select either of these issues as a priority need. The grantee would identify the financial and organizational resources available to address its priority needs. In the Consolidated Planning process, the level of resources available will play a key role in determining strategies and goals. Once broadband access or increasing resilience have been selected as a priority need, grantees would then develop a set of goals based on the availability of resources, and local organizational capacity. However, the statutory authority for the Consolidated Plan process and the formula funding programs remain the same. HUD has no authority to require that grantees carry out certain types of activities or to achieve specific objectives.

Comment: Look at climate risk between disasters, not just risk post-disaster. A commenter stated that it is essential that jurisdictions look at climate risk between disasters, not just in a post-disaster context. The commenter stated that identifying vulnerabilities during calmer times gives the jurisdiction the opportunity to address those challenges before the next disaster. The commenter stated that HUD should be mindful that pre-disaster planning is a preferable process, as post-disaster—when communities are in crisis—is an incredibly difficult time to be strategic. In response to HUD's specific inquiry regarding post-disaster reviews, another commenter stated that it strongly believes that jurisdictions should be required to conduct reviews and revisions of their resilience analysis following any major disaster. The commenter stated that this post-disaster review would not only enable jurisdictions to determine if the disaster introduced new hazard risks, but would also serve an important function in forcing jurisdictions to face and reconcile weaknesses and oversights within their previous plans.

HUD Response: HUD agrees that it is important to review needs not only in a post-disaster context but also between disasters. The inclusion of an assessment of resilience in the Consolidated Plan is not intended to apply to the post-disaster context, but rather is designed to help all grantees be better prepared if a disaster were to occur in the future. The Consolidated Plan is based on a community's strategic plan over the next 3-5 years. The use of climate resilience data will help a community identify its vulnerabilities and determine whether there are priorities that the jurisdiction can address, as well as develop preventive measures to address known issues in advance of a disaster occurring. HUD appreciates the commenter responding to its specific inquiry about post-disaster reviews. HUD is not mandating such review in this final rule but encourages jurisdictions to undertake these types of assessments.

Comment: Ensure communities are aware of local hazard mitigation plans. A commenter stated that guiding communities to consider and integrate this information into their Consolidated Plans is an excellent move by HUD, assuring that risk reduction dovetails with a community's economic and social development goals. The commenter stated that its concern is that communities may not be aware of the existence of local hazard mitigation plans, and may unfortunately duplicate efforts that have already been expended on their behalf. The commenter stated that its hope is that in the guidance for the rule, HUD would direct communities to explore with local emergency managers and planners the existence of current local hard mitigation plans, consider the content of those plans (which often includes information about low-income areas and vulnerability), and then use the information to inform decisions made in the Consolidated Plans, referring to the mitigation plan documents for justification or further data. The commenter stated that in this way, there will be no duplication of effort, no confusion as to valid risk assessment data, and the integration of mitigation measures, policies and programs will be a seamless practice across a community's planning portfolio.

HUD Response: HUD's rule addresses the commenter's concern by requiring jurisdictions to consult with State and local emergency managers (who are responsible for developing the State and local hazard mitigation plans).

Comment: Coordinate and align with existing Federal, State and local natural hazard risk management plans. A commenter stated that while it understands HUD's intent to ensure that communities consider resilience to natural hazard risks as a part of the Consolidated Plan, the proposal goes about it in the wrong way. The commenter stated that instead of asking communities to undertake potentially new, unnecessary, and duplicative analysis, HUD should focus on encouraging coordination and alignment with the pre-existing Federal, State, and local plans that they already follow to comply with the various programs that focus on resilience and natural hazard planning. The commenter stated that it is concerned by the list of resources in the rule and cites to the “Impact of Climate Change and Population Growth on the National Flood Insurance Program Through 2100” as an example of such concern. The commenter expressed concerns that the implication that this study could be included as the basis of specific management decisions at a community level, since it would seem to run counter to the scope and objectives of the study. The commenter stated that the uncertainty that remains in accounting for mapping future conditions, such as risks due to changes caused by climate change, is the very reason that multiple segments of the National Flood Insurance Program (NFIP) continue to examine the issue and how it might best be addressed. The commenter stated that given that it is an ongoing topic currently being studied by issue area experts such as the Technical Mapping Advisory Council (TMAC), this is not something that individual communities should be expected to get out in front of. The commenter further stated that as the NFIP falls completely outside the jurisdiction and expertise of HUD, the potential unintended consequences may not be fully understood. The commenter stated that if HUD chooses to move forward with promulgation of this rulemaking and provide communities with a list of suggested resources for them to consider, HUD should concentrate on more practical planning resources which will still provide communities flexibility such as the Community Resilience Planning Guide for Buildings and Infrastructure Systems prepared by the National Institute of Standards and Technology (NIST)

HUD Response: HUD agrees that it will continue to encourage coordination and alignment with the pre-existing Federal, State, and local plans that focus on resilience and natural hazard planning is a benefit to the jurisdiction.

Comment: Require States and local jurisdictions to take action to improve natural hazard resilience to protect Federal taxpayer investments. A commenter expressed strong support for the rule but expressed disappointment that the rule does not require actions to be taken. The commenter stated that it believes that there should be a much stronger attempt to compel States and communities to take action to improve natural hazard resilience to protect federal taxpayer investments—not merely just require an assessment of it.

HUD Response: HUD reiterates that the Consolidated Planning process provides States and local government the flexibility and responsibility to determine where HUD funding should be expended. Through the Consolidated Planning process, jurisdictions will continue to have the flexibility to determine their own needs and priorities for distributing funds covered by the Consolidated Plan process. It will be up to a jurisdiction through its needs assessment process to determine whether to select either of these issues as a priority need. HUD has no authority to require that grantees carry out certain types of activities or to achieve specific objectives.

Comment: Ensure that jurisdictions comply with the Federal Flood Risk Management Standard (FFRMS). A commenter stated that HUD must ensure that jurisdictions funded by HUD comply with the FFRMS, established by Executive Order 13690 (E.O. 13690) and Executive Order 11988 (E.O. 11988). The commenter stated that the FFRMS not only reinforces the original intent of E.O. 11988—“to avoid to the extent possible the long and short-term adverse impacts associated with the occupancy and modification of floodplains and to avoid direct or indirect support of floodplain development wherever there is a practicable alternative,” but expands upon it by requiring the federal government to “take action, informed by the best-available and actionable [climate] science,” to improve the nation's resilience to flooding.

The commenter stated that the importance of transitioning from an emphasis on flood protection to a broader focus on flood risk management cannot be overstated because floodwaters can never be completely controlled, nor the risks associated with flooding completely eliminated. This is especially true when the impacts of climate change are considered.

HUD Response: HUD is addressing this issue through separate rulemaking.

As noted in Section III of this preamble, this final rule makes one change from the proposed rule. In response to public comment, HUD no longer identifies in the regulatory text specific recommended sources for Consolidated Plan jurisdictions to consult for both assessments. When included in the regulatory text, commenters thought these were required sources to consult, rather than recommended sources. HUD agrees with the commenters that such sources may change over time or their names may change, or new sources will be introduced. HUD agreed with the commenters that the better approach is to list these sources outside of the regulation, in guidance.

Consultation and citizen participation requirements (§§  91.100, 91.105, 91.110, 91.115). HUD's currently codified Consolidated Plan regulations require that local governments and States consult public and private agencies that provide assisted housing, health services, and social and fair housing services during preparation of the Consolidated Plan. Under the currently codified regulations, local governments and States are also required, in their citizen participation plan, to encourage the participation of local and regional institutions and businesses in the process of developing and implementing their Consolidated Plans. This rule amends these requirements to specify that local governments and States must consult with public and private organizations, including broadband internet service providers, and other organizations engaged in narrowing the digital divide. Further, the citizen participation plan must encourage their participation in implementing any components of the plan designed to narrow the digital divide for low-income residents. The rule also requires local governments and States to consult with agencies whose primary responsibilities include the management of flood prone areas, public land, or water resources, and emergency management agencies in the process of developing the Consolidated Plan.

Contents of Consolidated Plan (§§  91.5, 91.200, 9.200, 91.210, 91.300, 91.310). The rule makes several changes to these sections in subparts C and D of HUD's regulations 24 CFR part 91, which establish the required contents of the Consolidated Plan.

First, the rule requires that, in describing their consultation efforts, local governments and States describe their consultations with public and private organizations, including broadband internet service providers, other organizations engaged in narrowing the digital divide, agencies whose primary responsibilities include the management of flood prone areas, public land or water resources, and emergency management agencies.

Second, the jurisdiction must also describe broadband needs in housing occupied by low- and moderate-income households based on an analysis of data, identified by the jurisdiction, for its low- and moderate-income neighborhoods.

Third, the rule requires the jurisdiction to provide an assessment of natural hazard risk to low- and moderate-income residents based on an analysis of data identified by the jurisdiction. Possible sources of such data include (1) the most recent National Climate Assessment, (2) the Climate Resilience Toolkit, (3) the Community Resilience Planning Guide for Buildings and Infrastructure Systems prepared by the National Institute of Standards and Technology (NIST), or (4) other climate risk-related data published by the Federal government or other State or local government climate risk related data, including FEMA-approved hazard mitigation plans which incorporate climate change. HUD encourages the use of other plans, including a jurisdiction's hazard mitigation plan, in identifying community needs and priorities.

By undertaking these two analyses as part of their Consolidated Planning, HUD believes that jurisdictions become better informed of two emerging community needs in the world today: (1) The importance of broadband access, which opens up opportunity to a wide range of services, markets, jobs, educational, cultural and recreational opportunities; and (2) the importance of being cognizant and prepared for environmental and geographical conditions that may threaten the health and safety of communities. As noted earlier in this preamble, HUD is not mandating that jurisdictions take actions in either of these areas, but HUD believes that these are two areas that must be taken into consideration in a jurisdiction's planning for its expenditure of HUD funds.

Under Executive Order 12866 (Regulatory Planning and Review), a determination must be made whether a regulatory action is significant and therefore, subject to review by the Office of Management and Budget (OMB) in accordance with the requirements of the order. Executive Order 13563 (Improving Regulations and Regulatory Review) directs executive agencies to analyze regulations that are “outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned. Executive Order 13563 also directs that, where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, agencies are to identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. This rule was determined to be a “significant regulatory action” as defined in section 3(f) of the Executive Order (although not an economically significant regulatory action, as provided under section 3(f)(1) of the Executive Order).

As noted, the regulatory amendments are designed to assist Consolidated Plan jurisdictions in assessing two emerging needs of communities in this changing world. Specifically, the final rule directs States and local governments to consider broadband access and natural hazard resilience in their consolidated planning efforts by using readily available data sources. Where access to broadband Internet service is either not currently available or only minimally available, jurisdictions will be required to consider ways to bring broadband Internet access to low- and moderate-income residents, including how HUD funds could be used to narrow the digital divide for these residents. Further, where low- and moderate-income communities are at risk of natural hazards, including those that may be exacerbated due to climate change, States and local governments must consider ways to incorporate hazard mitigation and resilience into their community planning and development goals, including the use of HUD funds.

The Consolidated Planning process benefits jurisdictions by establishing the framework for a community-wide dialogue to identify housing and community development needs for 1,255 jurisdictions, including 1,205 localities and all 50 States. Rather than a piecemeal approach to planning based on differing program requirements, the Consolidated Plan enables a holistic approach to the assessment of affordable housing and community development needs and market conditions. HUD established the Consolidated Plan, through a 1994 final rule, for the explicit purpose of linking disparate program planning requirements, thereby ensuring “that the needs and resources of . . . [jurisdictions] are included in a comprehensive planning effort to revitalize distressed neighborhoods and help low-income residents locally.” 3 The Consolidated Plan replaced a dozen separate planning mechanisms with a unified approach enabling communities to make data-driven, place-based investment decisions.

New housing and community development needs have arisen in the 21 years since the Consolidated Plan was created. Two of the most pressing emerging needs facing communities in the twenty-first century are the digital divide and climate change. Despite the benefits described above of a comprehensive approach to planning and the allocation of scarce Federal dollars, jurisdictions are not currently required to consider either the digital divide or climate change resilience in development of their Consolidated Plans. Jurisdictions may therefore place a low priority on assessing, and using Federal dollars to address, these critical issues relative to other needs included in the Consolidated Plan. As a worst-case scenario, omitting these needs from the consolidated planning process could mean that communities elect to defer considering these needs.

The direct benefits provided by the final rule are, therefore, to help ensure that Consolidated Plan jurisdictions consider broadband access and natural hazard resilience as part of their comprehensive assessment and planning efforts, including their determination of the most effective use of HUD grant funds.

The costs of the revised consultation and reporting requirements will not be substantial since the regulatory changes made by this final rule build upon similar existing requirements for other elements covered by the consolidated planning process rather than mandating completely new procedures.

A complete Consolidated Plan that contains both a Strategic Plan and Annual Action Plan is submitted once every 3 to 5 years. An Annual Action Plan is submitted once a year. HUD data indicate that the cost of preparing the Strategic Plan for a locality is $5,236, and for a State is $14,382. The cost of preparing the Annual Action Plan is $1,904 for a locality and $6,392 for each State. HUD estimates that the increase in costs resulting from addressing the new elements under the new rule will be minimal. Specifically, HUD estimates that cost to a locality of preparing the Strategic Plan will increase to $5,406, while the cost to a State will increase to $14,552. This represents an increase of $170 per locality as well as per State. The cost of preparing the Annual Action Plan will also increase by the same amount, to $2,074 for a locality and $6,562 for a State. While these are not trivial amounts, they are not substantial when considered in proportion to HUD grant funding (for example, the average CDBG grant to entitlement communities in FY 2012 was approximately $1.7 million).4

The amounts of the increased costs are based on HUD's estimate of the increased number of hours it will take jurisdiction to complete the new assessments. The table below summarizes the cost of the increased burden hours across all jurisdiction that submit a Consolidated Plan.

Further, and as noted elsewhere in this preamble, HUD has taken several actions to further mitigate the cost of the regulatory changes. Jurisdictions will be able to base the required assessments on data that are already readily available on the Internet, and provided to grantees via the eCon Planning Suite. Therefore, jurisdictions will not have to incur the expense and administrative burdens associated with collecting data. Moreover, the proposed rule does not mandate that actions be taken to address broadband needs or climate change needs. Consolidated plan jurisdictions are in the best position to decide how to expend their HUD funds. However, HUD believes that the additional analyses required by this proposed rule may highlight areas where expenditure of funds would assist in opening up economic opportunities through increased broadband access or mitigate the impact of possible natural hazard risks and climate change impacts. HUD leaves it to jurisdictions to consider any appropriate methods to promote broadband access or protect against the adverse impacts of climate change, taking into account the other needs of their communities, and available funding, as identified through the consolidated planning process.

The docket file is available for public inspection 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 docket file by calling the Regulation 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 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), and assigned an OMB control number 2506-0117.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 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.

The rule will amend the Consolidated Plan regulations to require that States and local governments consider (1) broadband Internet service access for low- and moderate-income households to; and (2) the risk of potential natural hazards, including those that may be exacerbated due to climate change, to low- and moderate-income residents in their jurisdictions. As noted above under the heading “Regulatory Review” in the “Findings and Certifications” section of this preamble, HUD's analysis of the economic costs associated with the new regulatory requirements indicate that the final rule will not impose significant economic burdens on HUD grantees, irrespective of their size.

The RFA defines small governmental jurisdictions as those with a population of less than 50,000 persons.6 As discussed above, the Consolidated Planning process establishes the framework for identifying housing and community development needs for 1,255 jurisdictions, including 1,205 localities and all 50 States. Although HUD does not have precise data indicating the number of small Consolidated Plan localities as defined by the RFA, data from the Decennial census indicates that there are 758 large incorporated places.7 This leaves an estimated 447 small Consolidated Planning jurisdictions. This number represents a minority of 37 percent of all jurisdictions. As noted above, HUD estimates that cost to a locality of preparing the Strategic Plan (which is submitted once every 3 to 5 years) will increase by $170 per locality. The cost of preparing the Annual Action Plan will also increase by the same amount. Assuming submission of the Strategic Plan on 3-year cycle, the total annual costs directly attributable to this rule is $270 per locality.8 The increased costs are minimal when considered in proportion to HUD grant funding. For example, and as noted above, the average CDBG grant to entitlement communities in FY 2012 was approximately $1.7 million).

Moreover, HUD has taken several measures to even further minimize the costs associated with complying with the rule. As discussed above, jurisdictions will have the option to complete the required assessments using data that has already been compiled and readily available on the Internet. Jurisdictions will, therefore, not have to incur the expense and administrative burdens associated with collecting and analyzing data. Further, the rule does not mandate that any actions be taken in response to the required assessments. Jurisdictions retain the discretion to consider the most appropriate methods to address their assessments, taking into account other needs identified as part of the Consolidated Planning process as well as financial and other resource constraints.

This rule therefore, which only requires consideration of the broadband and natural hazards resilience needs of low-income communities, has a minimal cost impact on all grantees subject to the Consolidated Planning process, whether large or small, and will not have a significant economic impact on substantial number of small entities.

This final rule does not direct, provide for assistance or loan and mortgage insurance for, or otherwise govern, or regulate, real property acquisition, disposition, leasing, rehabilitation, alteration, demolition, or new construction, or establish, revise or provide for standards for construction or construction materials, manufactured housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this final rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule imposes either substantial direct compliance costs on state and local governments and is not required by statute, or the rule preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This rule would not have federalism implications and would not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive Order.

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 on the private sector. This rule would not impose any federal mandates on any State, local, or tribal governments, or on the private sector, within the meaning of the UMRA.

For the reasons discussed in the preamble, HUD amends 24 CFR part 91 as follows:

Paperwork Reduction Act

The collections of information contained in the regulations have been submitted for review and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-0026.

The collections of information are in § 1.6038B-1(c)(4) and (d)(1). The collections of information are mandatory. The likely respondents are domestic corporations. Burdens associated with these requirements will be reflected in the burden for Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Estimates for completing the Form 926 can be located in the form instructions.

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

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

This document contains final regulations issued under sections 367 and 6038B of the Code. Temporary regulations were published on May 16, 1986 (TD 8087, 51 FR 17936) (the 1986 temporary regulations). Proposed regulations under these sections were published on September 16, 2015 (80 FR 55568) (the proposed regulations). Written comments to the proposed regulations were received, and a public hearing was held on February 8, 2016. All comments are available at www.regulations.gov or upon request.

The proposed regulations generally provided five substantive changes from the 1986 temporary regulations: (1) Eliminating the favorable treatment for foreign goodwill and going concern value by narrowing the scope of the active trade or business exception under section 367(a)(3) (ATB exception) and eliminating the exception under § 1.367(d)-1T(b) that provides that foreign goodwill and going concern value is not subject to section 367(d); (2) allowing taxpayers to apply section 367(d) to certain property that otherwise would be subject to section 367(a); (3) removing the twenty-year limitation on useful life for purposes of section 367(d) under § 1.367(d)-1T(c)(3); (4) removing the exception under § 1.367(a)-5T(d)(2) that permits certain property denominated in foreign currency to qualify for the ATB exception; and (5) changing the valuation rules under § 1.367(a)-1T to better coordinate the regulations under sections 367 and 482 (including temporary regulations under section 482 issued with the proposed regulations (see § 1.482-1T(f)(2)(i), TD 9738, 80 FR 55538).

Specifically with regard to the ATB exception, the proposed regulations revised the categories of property that are eligible for the ATB exception so that foreign goodwill and going concern value cannot qualify for the exception. Under the 1986 temporary regulations, all property was eligible for the ATB exception, subject only to five narrowly tailored exceptions. In addition to limiting the scope of the ATB exception, the proposed regulations also implemented changes to the ATB exception that were intended to consolidate various provisions and update the 1986 temporary regulations in response to subsequent changes to the Code.

The proposed regulations did not resolve the extent to which property, including foreign goodwill and going concern value, that is not explicitly enumerated in section 936(h)(3)(B)(i) through (v) (enumerated section 936 intangibles) is described in section 936(h)(3)(B) and therefore subject to section 367(d) or instead is subject to section 367(a) and not eligible for the ATB exception. All property that is described in section 936(h)(3)(B) is referred to at times in this preamble as “section 936 intangibles.” Nonetheless, the proposed regulations permitted taxpayers to apply section 367(d) to such property. Under this rule, a taxpayer that has historically taken the position that goodwill and going concern value is not described in section 936(h)(3)(B) could apply section 367(d) to such property.

These regulations generally finalize the proposed regulations, as well as portions of the 1986 temporary regulations, as amended by this Treasury decision. Although minor wording changes have been made to certain aspects of those portions of the 1986 temporary regulations, the final regulations are not intended to be interpreted as making substantive changes to those regulations. Further explanation of the proposed regulations can be found in the Explanation of Provisions section of the preamble to the proposed regulations. That Explanation of Provisions section is hereby incorporated as appropriate into this preamble.

Nineteen sets of comments were received in response to the proposed regulations, and three speakers presented at the public hearing. In drafting the final regulations, the Treasury Department and the IRS carefully considered all of the comments received.

This section of the preamble is comprised of five parts that discuss, in turn, the comments received with respect to (i) the elimination of the favorable treatment of transfers of foreign goodwill and going concern value, (ii) the useful life of property for purposes of applying section 367(d), (iii) the applicability date of the final regulations, (iv) the qualification of property denominated in foreign currency for the ATB exception, and (v) other issues.

The Treasury Department and the IRS received a variety of comments in response to the proposed elimination of the favorable treatment of transfers of foreign goodwill and going concern value provided by the 1986 temporary regulations. Two comments supported the treatment of foreign goodwill and going concern value under the proposed regulations. One comment asserted that allowing intangible property to be transferred outbound in a tax-free manner is inconsistent with the policies of section 367. Other comments acknowledged the concerns about tax avoidance described in the preamble to the proposed regulations, but requested specific exceptions for transfers of foreign goodwill and going concern value in situations that the comments asserted were not abusive. Other comments disagreed more fundamentally with the approach taken and stated that the Treasury Department and the IRS should withdraw the proposed regulations entirely. Many of these comments asserted that eliminating the favorable treatment of transfers of foreign goodwill and going concern value would be an invalid exercise of regulatory authority under section 367.

Overall, the comments indicated widely divergent understandings of the nature of foreign goodwill and going concern value. Accordingly, the comments also widely differed in their proffered justifications for an exception for foreign goodwill and going concern value and in the recommended contours of an appropriate exception. The variance in the comments regarding these fundamental issues highlights the difficulty of permitting some form of favorable treatment for foreign goodwill and going concern value while preventing tax avoidance.

As described in greater detail in Part I.B of this Summary of Comments and Explanation of Revisions, and consistent with the proposed regulations, the final regulations eliminate the favorable treatment of foreign goodwill and going concern value contained in the 1986 temporary regulations. The Treasury Department and the IRS have determined that this change is necessary to carry out the tax policy embodied in section 367 in a fair, impartial, and reasonable manner, taking into account the intent of Congress, the realities of relevant transactions, the need for the IRS to administer the rules and monitor compliance, and the overall integrity of the federal tax system. In particular, the final regulations are consistent with the policy and intent of the statute, which does not reference foreign goodwill or going concern value, and with Congress' expectation that the Secretary would exercise the regulatory authority under section 367 to require gain recognition when property is transferred offshore under circumstances that present a potential for tax avoidance.

The Treasury Department and the IRS received numerous comments addressing the proposed regulations' treatment of foreign goodwill and going concern value. One comment asserted that the ATB exception must apply to transfers of foreign goodwill and going concern value, because (i) foreign goodwill and going concern value is not a section 936(h)(3)(B) intangible, and so is subject to section 367(a) rather than section 367(d), and (ii) the legislative history indicates that Congress expected that the transfer of such value should be tax-free. The comment further asserted that, because goodwill and going concern value is inextricably linked to the conduct of an active trade or business, the ATB exception necessarily encompasses such transfers. Other comments asserted that finalizing the proposed regulations would represent an unreasonable exercise of regulatory authority because the proposed regulations eliminated the favorable treatment of all transfers of purported foreign goodwill and going concern value, rather than just those transfers that the Treasury Department and the IRS determine are abusive.

Several comments asserted that the proposed regulations are inconsistent with Congressional intent and cited statements from the legislative history to section 367, such as the following:

Comments also asserted that it is inappropriate to use regulatory authority under section 367 to address transfer pricing concerns under section 482.

The Treasury Department and the IRS do not agree with the foregoing comments. Section 367 generally provides for income recognition on transfers of property to a foreign corporation in certain transactions that otherwise would qualify for nonrecognition. While section 367(a)(3)(A) includes a broad exception to this general rule for property used in the active conduct of a trade or business outside of the United States, grants of rulemaking authority in section 367(a)(3)(A) and (B) authorize the Secretary to exercise administrative discretion in determining the property to which nonrecognition treatment applies under the ATB exception. Moreover, section 367(d) reflects a clear policy that income generally should be recognized with respect to transfers of section 936 intangibles. The 1984 legislative history to section 367 explains that Congress intended for the Secretary to use his “regulatory authority to provide for recognition in cases of transfers involving the potential of tax avoidance.” S. Rep. No. 98-169, at 364 (1984) (emphasis added). The Treasury Department and the IRS have determined that the proposed regulations and these final regulations are consistent with that intention and the authority granted to the Secretary under section 367, based on the fact that the statute does not refer to foreign goodwill and going concern value and the determination that, as described in the preamble to the proposed regulations, the favorable treatment of foreign goodwill and going concern value contravenes the policy that income generally should be recognized with respect to transfers of section 936 intangibles. The remainder of this section discusses subsequent changes to the regulatory, statutory, and market context in which the 1984 legislative history was drafted, in order to reconcile the statements in the 1984 legislative history expressing the expectation that an exception for foreign goodwill and going concern value would not result in abuse with the IRS's contrary experience administering the statute during the intervening years.

The Treasury Department and the IRS considered the 1984 legislative history to section 367 in issuing the 1986 temporary regulations. The 1986 temporary regulations gave effect to the statements in the legislative history indicating that Congress anticipated that the transfer of goodwill and going concern value developed by a foreign branch to a newly organized foreign corporation generally would not result in abuse of the U.S. tax system, and, on that basis, that such transfers would benefit from nonrecognition treatment. As a result, the 1986 temporary regulations provide nonrecognition treatment for foreign goodwill and concern value. The 1986 temporary regulations did not provide a conceptual definition of foreign goodwill and going concern value but, in effect, provided a rule for valuing it by describing foreign goodwill and going concern value as the residual value of a business operation conducted outside of the United States after all other tangible and intangible assets have been identified and valued. § 1.367(a)-1T(d)(5)(iii).

The Treasury Department and the IRS also took into account the 1984 legislative history in issuing the proposed regulations and these final regulations. In doing so, the Treasury Department and the IRS also considered that, in amending section 367 in 1984, Congress did not choose to statutorily mandate any particular treatment of foreign goodwill and going concern value and instead delegated broad authority to the Secretary to promulgate regulations under section 367 to carry out its purposes in this complex area. The Treasury Department and the IRS further considered that the legal and factual context in which the 1984 legislative history was drafted has changed significantly over the last 32 years.

Before 1993, goodwill and going concern value was not amortizable. As a result, in 1984, much of the case law and policy debate regarding goodwill and going concern value involved sales of business operations at arm's length between unrelated parties, where the taxpayer attempted to minimize the value of goodwill in order to maximize the value of amortizable intangibles. See, for example, Newark Morning Ledger Co. v. United States, 507 U.S. 546 (1993). In 1989, the General Accounting Office analyzed data with respect to unresolved tax cases involving purchased intangibles and found that, presumably in order to minimize the amount of unamortizable goodwill, taxpayers had identified 175 different types of customer-based intangibles that were distinct from goodwill. See General Accounting Office, Report to the Joint Committee on Taxation: Issues and Policy Proposals Regarding Tax Treatment of Intangible Assets, at 3 (Aug. 1991).

In 1993, Congress addressed these valuation disputes between taxpayers and the IRS by enacting section 197, which, similar to the approach taken by the proposed regulations, did not directly address the underlying disagreement about the relative size of goodwill but substantially reduced the stakes of the disagreement. That is, by generally providing for the amortization of goodwill over 15 years, the enactment of section 197 generally eliminated the incentive that existed in 1984, when Congress enacted section 367(d) in its present form, for taxpayers to argue that goodwill has relatively minor value.

Other law changes since 1984 have increased the relevance of section 367(d) and the incentive for taxpayers to overstate the value attributable to goodwill and going concern value. Before 1997, amounts received under section 367(d) were treated as ordinary income from U.S. sources. In 1997, Congress amended section 367(d)(2)(C) to provide that amounts received under section 367(d) are treated as ordinary income that is sourced in the same manner as a royalty, and thus potentially as from sources outside the United States. Taxpayer Relief Act of 1997, Public Law 105-34, 111 Stat. 788. The 1997 amendments increased the relevance of section 367(d) and the exception for foreign goodwill and going concern value because, before 1997, the consequences under the foreign tax credit limitation of the treatment of section 367(d) deemed royalties as U.S. source income represented a substantial disincentive for taxpayers to structure transactions in a way that would be subject to section 367(d).

Additionally, the so-called “check-the-box” regulations of § 301.7701-3, published December 18, 1996 (TD 8697, 61 FR 66584), and Congress's enactment in 2006 of the subpart F “look-thru” rule in section 954(c)(6) (Tax Increase Prevention and Reconciliation Act of 2005, Public Law 109-222, 120 Stat. 345), increased the potential benefit to taxpayers from transferring high-value intangibles offshore by reducing obstacles to redeploying cash earned in overseas operations among foreign affiliates without incurring U.S. tax. Both of these changes also facilitate, in certain circumstances, the ability of foreign subsidiaries to license transferred intangibles to affiliates without incurring subpart F income.

Finally, on January 5, 2009, the Treasury Department and the IRS issued temporary regulations under section 482 (TD 9441, 74 FR 340) related to cost sharing arrangements (subsequently finalized at TD 9568, 76 FR 80082 (Dec. 22, 2011)). The 2009 cost sharing regulations, in particular the supplemental guidance in § 1.482-7T(g) on transfer pricing methods applicable in determining the arm's length price for a platform contribution transaction or PCT (so-called “buy-in payments”), were intended, in part, to address inappropriate income shifting from intangible transfers under the prior cost sharing regulations. Although the prior cost sharing regulations did not provide any favorable treatment for foreign goodwill and going concern value, in the experience of the IRS, taxpayers took positions under those regulations that allowed a domestic cost sharing participant to transfer intangibles to a foreign cost sharing participant for development under a cost sharing arrangement without fully compensating the domestic cost sharing participant for the value of the transferred intangibles. It is also the experience of the IRS that the 2009 cost sharing regulations limited taxpayers' ability to use PCTs in cost sharing arrangements to shift high value intangibles offshore without appropriate compensation, thereby increasing the relative appeal of transferring intangibles in a transaction subject to section 367. Thus, taxpayers began using transactions subject to section 367 to transfer intangibles intended for development under a cost sharing arrangement rather than as part of a PCT.

Moreover, since Congress enacted section 367(d) in its current form in 1984, the relative importance of intangibles in the economy and in the profitability of business has increased greatly. According to a joint report issued by the Economic and Statistics Administration and the U.S. Patent and Trademark Office, “IP use permeates all aspects of the economy with increasing intensity and extends to all parts of the U.S.” Justin Antonipillai, Economics and Statistics Administration, & Michelle K. Lee, U.S. Patent and Trademark Office, Intellectual Property and the U.S. Economy, at p.30 (2016). This growing importance is reflected in the significant increase in the portion of business values attributable to intangible assets in the years since 1984, with one study indicating that intangibles accounted for only 32 percent of the market value of the S&P 500 in 1985, but accounted for 84 percent by 2015. Annual Study of Intangible Asset Market Value from Ocean Tomo, LLC (Mar. 4, 2015, 12:00 a.m.), http://www.oceantomo.com/2015/03/04/2015-intangible-asset-market-value-study/. Growth in the share of business values attributable to section 936 intangibles during this period, together with the statutory and regulatory changes discussed in the preceding paragraphs, have increased the incentives for taxpayers to transfer such valuable intangibles to related offshore affiliates in transactions subject to section 367(d) and to misattribute intangible value from enumerated section 936 intangibles to foreign goodwill and going concern value in the context of such transactions.

Since 1984, taxpayers have reversed their positions regarding the significance of goodwill and going concern value in response to the enactment of sections 197 and 367(d), and now commonly assert that such value constitutes a large percentage—even the vast majority—of an enterprise's value. The IRS's experience administering section 367(d) has, once again, highlighted the abuse potential that arises from the need to distinguish value attributable to nominally distinct intangibles that are used together in a single trade or business. Specifically, the uncertainty inherent in distinguishing between value attributable to goodwill and going concern value and value attributable to other intangible property makes any exception to income recognition for the outbound transfer of goodwill and going concern value unduly difficult to administer and prone to tax avoidance. Of course, any rule that provides for the tax-free transfer of one type of property, while the transfer of other types of property remains taxable, provides an incentive to improperly allocate value away from the taxable property and onto the tax-free property. This problem is acute, however, in cases involving the offshore reorganization of entire business divisions that include high-value, interrelated intangibles, because goodwill and going concern value are particularly difficult to distinguish (perhaps are even indistinguishable) from the enumerated section 936 intangibles. See, for example, International Multifoods Corp. v. Commissioner, 108 T.C. 25, 42 (1997) (noting that it “is well established that trademarks embody goodwill”). See also Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing, (JCX-37-10) July 20, 2010, at 110 (noting that unique intangible property is difficult to value because it is rarely, if ever, transferred to third parties).

These statutory, regulatory, and market developments since Congress amended section 367(d) in 1984, as well as the experience of the IRS in administering section 367 over that period, inform the manner in which the Treasury Department and the IRS seek to give effect to the intent of Congress in this complex area of law. As a starting point, the Treasury Department and the IRS observe that the statutory grants of authority in section 367(a) and (d), coupled with the absence of any specific statutory protection for transfers of goodwill and going concern value, form the basis for the broad authority of the Treasury Department and the IRS to design the appropriate parameters for the taxation of outbound transfers. The 1984 legislative history expressed an expectation that outbound transfers of foreign goodwill and going concern value would not lead to abuse of the U.S. tax system and, on the basis of that expectation, anticipated that the Secretary would exercise the regulatory authority under section 367 in a manner that would allow taxpayers to transfer foreign goodwill and going concern value outbound without current U.S. tax. The legislative history also explains that Congress expected the Secretary to use the “regulatory authority to provide for recognition in cases of transfers involving the potential of tax avoidance.” Accordingly, the administrative discretion to determine the contours of nonrecognition treatment must be exercised in light of the income recognition objectives of the statute and informed by the IRS's experience in administering the exception.

The Treasury Department and the IRS have determined that the premise of the expectation noted in the legislative history that an exception to recognition treatment would apply to foreign goodwill and going concern value—namely, that outbound transfers of foreign goodwill and going concern value would not lead to abuse—is inconsistent with the experience of the IRS in administering section 367(d), and consequently no longer supports such an exception. Rather, based on the IRS's experience over the past three decades, the Treasury Department and the IRS have determined that the favorable treatment of foreign goodwill and going concern value has interfered with the application of the general rule in section 367(d) that requires income recognition upon the outbound transfer of section 936 intangibles due to the inherent difficulty of distinguishing value attributable to goodwill and going concern value from value attributable to enumerated section 936 intangibles, coupled with taxpayer efforts to maximize the value allocated to goodwill and going concern value.

The Treasury Department and the IRS also observe that the 1984 legislative history explains that the 1984 amendments to section 367(d) were made in response to challenges the IRS faced in administering the prior regime. That regime required a taxpayer to clear its purpose for transferring property offshore with the IRS. See H.R. Rep. 98-432, pt. 2, at 1315. The 1984 reworking of section 367 was intended to promote administrability by making the analysis of outbound transfers more objective. Other passages from the legislative history show that the general purpose of the amendments to section 367 was to close “serious loopholes,” and that the 1984 revisions were intended to strengthen the application of that section. Id.

Accordingly, the Treasury Department and the IRS do not view the legislative history as mandating an exception for transfers of goodwill and going concern value developed by a foreign branch, or as indicating that Congress anticipated, or would have condoned, the extent of the claims regarding foreign goodwill and going concern value that the IRS has in fact encountered. To the contrary, the Treasury Department and the IRS have concluded that the statutory purpose of the income recognition provisions in section 367(d) is incompatible with the favorable treatment of foreign goodwill and going concern value reflected in the 1986 temporary regulations. In particular, taking into account the statutory, regulatory, and market developments since 1984 and the experience of the IRS in administering section 367(d) under the 1986 temporary regulations, the Treasury Department and the IRS have determined that, at this juncture, the approach most consistent with the intent of Congress in 1984, including the directive to use regulatory authority “to provide for recognition in cases of transfers involving the potential of tax avoidance,” is to remove the favorable treatment for foreign goodwill and going concern value in the 1986 temporary regulations.

The Treasury Department and the IRS also disagree with the notion expressed in comments that the proposed regulations inappropriately attempt to solve section 482 transfer pricing problems under the authority of section 367. Congress made clear in adding the commensurate with income language to both sections 367(d) and 482 in 1986 that the provisions are closely related, and it is within the authority of the Treasury Department and the IRS to consider valuation concerns in administering section 367. Section 1231(e)(1) and (2) of the Tax Reform Act of 1986, Public Law 99-514, 100 Stat. 2085, 2562-3.

For these reasons, the Treasury Department and the IRS disagree with comments asserting that the Treasury Department and the IRS lack the authority to eliminate the favorable treatment that applied to foreign goodwill and going concern value under the 1986 temporary regulations.

Several comments generally favored retaining both the nonrecognition treatment for foreign goodwill and going concern value and its current measurement as the residual value of a foreign business operation. Other comments, however, acknowledged the problems associated with the residual valuation approach but supported an exception determined on some other basis. Some of these comments included suggestions for other ways to define goodwill and going concern value and for determining the amount that should qualify for nonrecognition. The Treasury Department and the IRS have determined that none of the comments provided a sufficiently administrable approach that would reliably ensure that section 367 applies with respect to the full value of all section 936 intangibles.

The proposed regulations specifically requested comments on a potential exception that would apply to situations where there is limited potential for abuse. As an example, the comment solicitation posited the incorporation, in response to regulatory pressure or compulsion, of a financial services business that previously had operated as a branch in another country. The Treasury Department and the IRS received several comments in response to this solicitation.

Several comments suggested that the final regulations provide an exception that would continue to permit favorable treatment of transfers of foreign goodwill and going concern value that occur as a result of the incorporation of a branch in a country that exerts regulatory pressure (either implicit or explicit) upon the U.S. transferor to conduct its operations in that country in corporate form. According to these comments, the incorporation of a branch in these circumstances is not motivated by tax considerations but rather occurs in order to comply with local law or regulations.

The regulations under section 367 provide that certain property is deemed to be transferred for use in the active conduct of a trade or business outside of the United States when the transfer is either legally required by the local foreign government as a necessary condition of doing business or is compelled by a genuine threat of immediate expropriation by the local foreign government. Section 367 and the regulations thereunder do not, however, provide exceptions to the requirement to recognize income or gain when assets that are not eligible for the ATB exception, such as section 936 intangibles and assets described in section 367(a)(3)(B), are transferred in this circumstance. Accordingly, the policy of section 367 and the regulations thereunder is not to expand on the types of assets that are eligible for the ATB exception in this circumstance. Moreover, the mere fact that a taxpayer is compelled or pressured to incorporate its branch does not mean that the taxpayer has any less incentive to reduce the tax consequences of such incorporation by adopting the aggressive valuation positions that the proposed regulations were intended to prevent. Therefore, the final regulations do not provide a special exception to continue the favorable treatment of foreign goodwill and going concern value in this circumstance. Notably, some taxpayers that are pressured to incorporate branch operations in these circumstances can avoid being subject to section 367 by incorporating the branch using an eligible entity described in § 301.7701-2 that could elect to be treated as a disregarded entity for U.S. federal income tax purposes.

Several comments recommended an exception for transfers of foreign goodwill and going concern value by taxpayers in certain industries, such as banking and finance, life insurance, and industries that primarily provide services to third parties, asserting that such businesses do not possess the types of highly valuable intangibles about which they believe the Treasury Department and the IRS are concerned. The comments did not provide any basis, however, for the Treasury Department and the IRS to conclude that taxpayers in particular industries consistently lack valuable intangibles of the kind listed in section 936(h)(3)(B), even though the prevalence of specific types of intangibles may differ across industries. Additionally, the ability and incentive to allocate value away from other intangibles, such as trademarks, and toward goodwill or going concern value is not limited to particular industries. As a general matter, the Treasury Department and the IRS attempt, to the extent possible, to avoid issuing guidance based on industry classifications that are not clearly and closely tied to specific tax policy concerns. Accordingly, the final regulations do not provide any industry-specific exceptions.

Based on these comments, the Treasury Department and the IRS considered whether it would be possible to provide an exception for tax-free transfers of foreign goodwill and going concern value developed by a foreign branch that did not possess or otherwise benefit from the use of any highly valuable enumerated section 936 intangibles. If the absence of such highly valuable intangibles could be reliably determined, the concerns regarding the potential to attribute value away from such intangibles and toward goodwill and going concern value would be mitigated. However, such an exception would require the development and administration of standards to determine whether any enumerated section 936 intangible was highly valuable, an exercise that would be as difficult (and in many circumstance would be no different) than the exercise of distinguishing value attributable to foreign goodwill and going concern value from value attributable to other intangibles transferred together with it. Such an exception also would require a careful examination of the particular facts of a transferor's assets and business as a threshold matter to confirm that valuable enumerated section 936 intangibles are not made available for the benefit of the transferee foreign corporation, either through a separate but related transfer to the foreign corporation or through a service provided to the foreign corporation using such intangibles. Accordingly, the Treasury Department and the IRS did not adopt this potential exception in these final regulations.

Several comments suggested maintaining the favorable treatment of foreign goodwill and going concern value in situations in which section 367 applies to the incorporation of a long-standing foreign branch or a branch that conducts an active foreign business operation. The Treasury Department and the IRS acknowledge that conditioning favorable treatment for foreign goodwill and going concern value on the presence of a robust foreign branch would increase the likelihood that the business at issue has substantive foreign operations. However, in situations where the exception would continue to apply, the requirement of a robust foreign branch would not address the potential for tax avoidance that motivated the proposed regulations when value must be allocated between foreign goodwill and going concern value, on the one hand, and enumerated section 936 intangibles, on the other hand. Thus, the final regulations do not adopt the comments suggesting an exception for goodwill and going concern value developed by a foreign branch that is subsequently incorporated because, when applicable, such an exception would not address the administrative difficulties in identifying and separately valuing the property that is and is not eligible for the exception, and therefore would be insufficient to prevent the potential for tax avoidance.

Other comments suggested that the regulations provide new rules for determining foreign goodwill and going concern value, such that an exception for such transfers could be provided that would be less susceptible to the abuses described in the preamble to the proposed regulations. That is, the comments suggested determining goodwill and going concern value using an approach that differs from that in existing § 1.367(a)-1T(d)(5)(iii), which treats it as the residual after other intangibles are valued.

Several of these comments suggested determining foreign goodwill and going concern value by classifying intangibles as routine and non-routine and permitting value attributable to routine intangibles to be transferred tax-free under an exception. One comment asserted that goodwill is relatively easy to value as compared to certain enumerated section 936 intangibles but did not explain why or how goodwill is more easily valued or how to reliably allocate value between goodwill and enumerated section 936 intangibles. Another comment asserted that goodwill can be valued based on the premise that it is the kind of asset that enables an existing business to produce “routine” or “normal” operating profits or cash flow during the period that a new business would be assembling its assets and workforce and attracting a customer base, but the comment did not explain how to determine “routine” or “normal” operating profits.

Another comment recommended determining foreign goodwill and going concern value using a formulaic approach based on sales and general and administrative expenses, asserting that routine expenses for operational costs and compensation are closely associated with the business activities that give rise to goodwill and going concern value. The comment did not provide any support for this premise. As a general matter, cost-based methods (in comparison with market-based and income-based methods) are not a reliable means of valuing intangible property because the value of intangible property does not necessarily bear any predictable relationship to the costs of developing the property. The comment suggesting a cost-based approach did not demonstrate that determining goodwill and going concern value in the section 367(d) context is a situation where costs are a reliable measure of value (regardless of whether goodwill and going concern value are section 936(h)(3)(B) intangibles). Accordingly, the Treasury Department and the IRS have determined that a rule that determined foreign goodwill and going concern value based on certain expenses would be inappropriate.

Another comment proposed, for branches incorporated in a jurisdiction with which the United States has an income tax treaty in effect, using the earnings before interest, taxes, depreciation, and amortization of the branch as reported to foreign tax authorities as reliable data on which to base a valuation. An exception based on information reported to a foreign country's tax authority, which may be based on that jurisdiction's generally accepted accounting standards, does not address the concerns expressed by the Treasury Department and the IRS in the preamble to the proposed regulations. Most significantly, the comment does not explain how this information would be useful in determining the value of foreign goodwill and going concern value or distinguishing value attributable to enumerated section 936 intangibles from that of other property, nor have the Treasury Department and the IRS been able to identify how it would be useful. Accordingly, this recommendation has not been adopted.

In summary, none of the proposed approaches for more directly valuing foreign goodwill and going concern value offer a principled and administrable basis for allocating value between foreign goodwill and going concern value that would be subject to an exception and other intangibles that would not. The Treasury Department and the IRS therefore concluded that the proposed approaches would not provide a meaningful improvement over the residual value approach in the 1986 temporary regulations as a conceptual or administrative matter.

Several comments suggested that the favorable treatment for transfers of foreign goodwill and going concern value could be maintained while addressing the concerns that prompted the issuance of the proposed regulations by capping the amount that can qualify for the exception, either on a non-rebuttable basis or in the absence of a ruling. For example, one comment suggested that the excepted amount should not exceed 25 percent of the branch's net enterprise value, unless a ruling is obtained from the IRS. The comment asserted that 25 percent represents a modest portion of a branch's value that is likely to be attributable to branch goodwill and going concern value. Another comment suggested that the excepted amount should not exceed 50 percent of the total value of the assets transferred to the foreign corporation. Although such formulaic caps would limit the potential tax avoidance from improperly attributing value from enumerated section 936 intangibles to foreign goodwill and going concern value that is eligible for an exception, the amount excepted under such an approach would still potentially reflect value properly attributable to enumerated section 936 intangibles. That is, with respect to amounts claimed below the cap, a formulaic cap would not relieve the IRS of the need to distinguish foreign goodwill and going concern value from enumerated section 936 intangibles, a key challenge that motivated the approach of the proposed regulations. Moreover, the Treasury Department and the IRS have determined that the discretionary ruling practice proposed by one comment would require an onerous commitment of IRS resources (which the comment acknowledged are constrained), and, without detailed procedures for both identifying and valuing foreign goodwill and going concern value, would simply accelerate the disputes that occur under the 1986 temporary regulations. As a result, the final regulations do not adopt the recommendations to use a formulaic cap to limit the amount of foreign goodwill and going concern value.

One comment stated that U.S. citizens may conduct professional services outside the United States as sole practitioners, or in partnership with other practitioners, and observed that the incorporation of such a business would entail a section 351 contribution subject to section 367 (assuming the transferee entity was classified as a corporation for U.S. federal income tax purposes). According to the comment, because any goodwill in such a scenario would relate to foreign customers and a foreign business or professional license, there could be no abuse warranting taxation under section 367.

The Treasury Department and the IRS do not agree that the outbound transfer of value developed in such cases will necessarily not result in abuse of the U.S. tax system. The potential for abuse in a transfer subject to section 367 arises not just from the possibility that value associated with U.S. customers would be denominated as foreign goodwill, but also from the fundamental difficulty in reliably distinguishing value attributable to enumerated section 936 intangibles from value attributable to other intangibles, an issue that is no different in the professional services context. Therefore, the final regulations do not adopt this comment.

One comment proposed maintaining the favorable treatment of foreign goodwill and going concern value for transfers to joint venture companies, particularly cases in which the U.S. transferor is going into business with one or more unrelated foreign parties (third parties) and in which the U.S. transferor's interest in the joint venture is equal to or less than 50 percent. According to the comment, the U.S. transferor in this situation has a financial incentive to segregate its intangibles contributed to the joint venture from its other property. The presence of a third party, however, would not necessarily reduce the U.S. transferor's incentive to attribute value to foreign goodwill and going concern value, rather than to enumerated section 936 intangibles, in order to minimize the tax consequences of the transfer, since such a distinction may be irrelevant to the third party. Accordingly, the final regulations do not adopt this proposal.

Several comments requested that the Treasury Department and the IRS address whether goodwill and going concern value should be characterized as a section 936(h)(3)(B) intangible, and thus subject to section 367(d), or instead as property subject to section 367(a). Comments also requested that the regulations provide certainty to taxpayers that have taken the position that goodwill and going concern value is not described in section 936(h)(3)(B) by providing that such taxpayers will be permitted to treat goodwill and going concern value as property subject to section 367(a) rather than section 367(d).

As discussed in the preamble to the proposed regulations, the Treasury Department and the IRS acknowledge that taxpayers have taken different positions regarding the scope of section 936(h)(3)(B) and that the issue is more significant following the elimination of the favorable treatment for foreign goodwill and going concern value. Any enumerated section 936 intangible, and any item similar to such specifically enumerated intangibles, is subject to the regime provided by section 367(d). The Treasury Department and the IRS have determined that it would be inconsistent with the policy underlying section 367(d) to permit intangible property that is described in section 936(h)(3)(B) to be subject to section 367(a). Accordingly, the Treasury Department and the IRS have determined that it is appropriate to retain the approach provided in the proposed regulations, which allows taxpayers to apply section 367(d) to certain property that otherwise would be taxed under section 367(a) but which continues to require taxpayers to apply section 367(d) to all property described in section 936(h)(3)(B). Because the identification of items that are neither explicitly listed in section 936(h)(3)(B)(i) through (v) nor explicitly listed as potentially qualifying for the ATB exception generally will require a case-by-case functional and factual analysis, the final regulations do not address the characterization of such items as similar items (within the meaning of section 936(h)(3)(B)(vi)) or as something else. In general, potential rules under section 367 for identifying and valuing transferred property are beyond the scope of these final regulations.

The proposed regulations eliminated the 20-year limitation on useful life for intangible property subject to section 367(d) that was included in § 1.367(d)-1T(c)(3), because of concerns that the limitation results in less than all of the income attributable to transferred intangible property being taken into account by the U.S. transferor. In the preamble to the proposed regulations, the Treasury Department and the IRS solicited comments on how to simplify the administration of section 367(d) inclusions for property with a very long useful life in the absence of the 20-year limitation. In response to this comment solicitation, several comments requested that the final regulations restore the 20-year limitation on useful life because it promotes administrability for both taxpayers and the IRS.

After considering the comments received, the Treasury Department and the IRS agree that a 20-year limitation on inclusions may promote administrability for both taxpayers and the IRS in cases where the useful life of the transferred property is indefinite or is reasonably anticipated to exceed twenty years. Accordingly, in such cases, the final regulations provide that taxpayers may, in the year of transfer, choose to take into account section 367(d) inclusions only during the 20-year period beginning with the first year in which the U.S. transferor takes into account income pursuant to section 367(d). However, the Treasury Department and the IRS have determined that this optional limitation should not affect the present value of all amounts included by the taxpayer under section 367(d). Accordingly, the final regulations specifically require a taxpayer that chooses to limit section 367(d) inclusions to a 20-year period to include, during that period, amounts that reasonably reflect amounts that, in the absence of the limitation, would be required to be included over the useful life of the transferred property following the end of the 20-year period. This requirement is consistent with the requirement in section 367(d) to include amounts that are commensurate with the income attributable to the transferred intangible during its full useful life, without limitation. The requirement of the final regulations that inclusions during the limited 20-year period begin in the first year in which in which the U.S. transferor takes into account income pursuant to section 367(d) reflects the possibility of delays between the year the intangible property is transferred and the first year in which exploitation of the transferred property results in taxable income being earned by the transferee and included under section 367(d) by the transferor.

One comment also suggested that the IRS be precluded from making commensurate-with-income adjustments for taxable years beginning more than 20 years after the outbound transfer. In response to this comment, the final regulations provide that, if a taxpayer chooses to limit inclusions under section 367(d) to a 20-year period, no adjustments will be made for taxable years beginning after the conclusion of the 20-year period. Thus, after the statute of limitations expires for taxable years during the 20-year period, a taxpayer will have no further section 367(d) inclusions as a result of the Commissioner's examination of taxable years that begin after the end of the 20-year period. However, consistent with the commensurate-with-income principle, for purposes of determining whether income inclusions during the 20-year period are commensurate with the income attributable to the transferred property, and whether adjustments should be made for taxable years during that period while the statute of limitations for such taxable years is open, the Commissioner may take into account information with respect to taxable years after that period, such as the income attributable to the transferred property during those later years.

The final regulations revise the definition of useful life to provide that useful life includes the entire period during which exploitation of the transferred intangible property is reasonably anticipated to affect the determination of taxable income, in order to appropriately account for the fact that exploitation of intangible property can result in both revenue increases and cost decreases. A comment asserted that including use in subsequently developed intangibles within the useful life of the transferred intangible property would be too difficult to administer and was not consistent with the arm's length standard. The Treasury Department and the IRS disagree with this comment. The value of many types of intangible property is derived not only from use of the intangible property in its present form, but also from its use in further development of the next generation of that intangible and other property. For example, if a software developer were to sell all of its copyright rights in its software to an unrelated party, and the copyright rights are expected to derive value both from the exclusive right to use the current generation computer code to make and sell current generation software products and from the exclusive right to use the current generation code in the development of other versions of the software, which will then be used to make and sell future generation software products, the software developer would expect to be compensated for the latter right. That is, if the software has value in developing a future generation of products, the software developer would not ignore the value of the use of the software in future research and development and hand over those rights free of charge, and an uncontrolled purchaser would be willing to compensate the developer to obtain such rights.

Several comments requested that the final regulations apply to transfers occurring after their date of publication, and not relate back to the date the proposed regulations were issued. These comments asserted that the proposed regulations change long-standing law in a way that would prejudice taxpayers that had arranged their business operations based on the 1986 temporary regulations. Others speculated that the final regulations might deviate from the proposed regulations to such an extent that substantial confusion would result for taxpayers attempting to determine their tax results in the interim period before the final regulations were published. Finally, one comment asserted that an applicability date relating back to the proposed regulations would violate the Administrative Procedure Act (APA), specifically 5 U.S.C. 553, which provides that the effective date of certain final regulations must be at least 30 days after their date of publication.

After considering these comments, the Treasury Department and the IRS have determined that the proposed applicability date, under which the final regulations would apply to transfers occurring on or after September 14, 2015, should be retained. The proposed regulations were issued to curtail the potential for abuse that exists under the 1986 temporary regulations from treating value that should be attributed to enumerated section 936 intangibles instead as exempt foreign goodwill or going concern value. The proposed effective date was intended to prevent taxpayers from using the time while the proposed regulations were pending to accelerate transfers subject to section 367 in order to take abusive positions under the 1986 temporary regulations before the finalization of the proposed regulations.

The Treasury Department and the IRS have statutory authority to issue regulations applicable at least as of the date the proposed regulations were filed with the Federal Register. The pre-1996 version of section 7805(b)—which governs regulations related to statutory provisions enacted before July 30, 1996, such as section 367—provides express retroactive rulemaking authority by stating that the Secretary may prescribe the extent, if any, to which any ruling or regulation shall be applied without retroactive effect. Section 7805(b) (1995). Because section 7805(b) is the more specific statute, it controls over the general notice requirements of 5 U.S.C. 553. See, for example, Redhouse v. Commissioner, 728 F.2d 1249, 1253 (9th Cir. 1984); Wing v. Commissioner, 81 T.C. 17, 28-30 & n.17 (1983).

Finally, the Treasury Department and the IRS disagree with the comment that differences between the proposed and final regulations may create confusion. The final regulations are a logical outgrowth of the proposed regulations in light of the comments received and their consideration by the Treasury Department and the IRS. In particular, the final regulations do not differ from the proposed regulations with respect to the elimination of the favorable treatment for transfers of foreign goodwill and going concern value. Furthermore, a transfer of property that is subject to recognition treatment under section 367 under the final regulations would also have been subject to such treatment under section 367 under the proposed regulations.

For these reasons, the final regulations generally apply to transfers occurring on or after September 14, 2015, the date the proposed regulations were filed with the Federal Register, and to transfers occurring before September 14, 2015, resulting from entity classification elections made under § 301.7701-2 that are filed on or after September 14, 2015.

Although section 367(a)(3)(B)(iii) provides that the ATB exception does not apply, and therefore that section 367(a)(1) applies, to foreign currency or other property denominated in foreign currency, current § 1.367(a)-5T(d)(2) generally provides that section 367(a)(1) nonetheless does not apply to certain transfers of property denominated in the currency of the country in which the transferee foreign corporation is organized. The proposed regulations eliminated this regulatory exception from the general rule in section 367(a)(3)(B)(iii) that turns off the ATB exception for such property. One comment recommended clarifying the regulations under section 367(a) by adopting the language and concepts reflected in the changes to the foreign currency rules in subpart J that were made after the publication of the 1986 temporary regulations. In response to this comment, § 1.367(a)-2(c)(3) of the final regulations, which corresponds to existing § 1.367(a)-5T(d)(2), reflects amendments that increase consistency with the rules in sections 987 and 988. In particular, the terms “foreign currency” and “property denominated in foreign currency” are no longer used. Rather, proposed § 1.367(a)-2(c)(3) is revised to refer to nonfunctional currency and other property that gives rise to a section 988 transaction of the taxpayer described in section 988(c)(1)(B), or that would give rise to such a section 988 transaction if it were acquired, accrued, or entered into directly by the taxpayer. The Treasury Department and the IRS consider that these modifications do not substantially change the scope of property subject to the rule at § 1.367(a)-5T(d)(2).

Other comments suggested that regulations address many outstanding issues in the context of section 367 that were not addressed in the proposed regulations. These suggestions include guidance to address the following topics: (i) The valuation of intangibles subject to section 367(d) and the forms that deemed payments should take, including guidance providing parity with the section 482 form-of-payment rules; (ii) whether a receivable is created upon an audit-related adjustment; (iii) the tax basis consequences under section 367(d), including how section 367(d) applies to intangibles subject to the section 197 anti-churning rules; (iv) coordination of the general rules and disposition rules in section 367(d); (v) issues raised in connection with Notice 2012-39 (2012-31 IRB 95); (vi) the definition of “property” for purposes of section 367; and (vii) the subsequent transfer rules under the ATB exception.

The Treasury Department and the IRS generally agree that additional guidance under section 367(a) and (d) is desirable and would benefit both taxpayers and the government. However, these issues are beyond the scope of this project. For example, while the Treasury Department and the IRS are aware that there is uncertainty regarding the application of the subsequent transfer rules to transactions involving hybrid partnerships, the Treasury Department and the IRS have determined that transactions involving partnerships merit a more holistic consideration and that this regulation package is not the appropriate vehicle to address the issue. Consequently, the regulations finalize the subsequent transfer rules in § 1.367(a)-2T(c) (located in § 1.367(a)-2(g) of these final regulations), but the Treasury Department and the IRS expect those rules will be amended after a more detailed consideration of transactions involving partnerships.

Certain IRS regulations, including these, 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 is hereby certified that the collection of information contained in these regulations will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. This certification is based on the fact that the regulations under section 367(a) and (d) simplify existing regulations, and the regulations under section 6038B make relatively minor changes to existing information reporting requirements. Moreover, these regulations primarily will affect large domestic corporations filing consolidated returns. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking that preceded this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. No comments were received.

The principal author of these regulations is Ryan Bowen, Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR part 1 is amended as follows:

PBGC's regulation on Benefits Payable in Terminated Single-Employer Plans (29 CFR part 4022) prescribes actuarial assumptions—including interest assumptions—for paying plan benefits under terminating single-employer plans covered by title IV of the Employee Retirement Income Security Act of 1974. The interest assumptions in the regulation are also published on PBGC's Web site (http://www.pbgc.gov).

PBGC uses the interest assumptions in Appendix B to Part 4022 to determine whether a benefit is payable as a lump sum and to determine the amount to pay. Appendix C to Part 4022 contains interest assumptions for private-sector pension practitioners to refer to if they wish to use lump-sum interest rates determined using PBGC's historical methodology. Currently, the rates in Appendices B and C of the benefit payment regulation are the same.

The interest assumptions are intended to reflect current conditions in the financial and annuity markets. Assumptions under the benefit payments regulation are updated monthly. This final rule updates the benefit payments interest assumptions for January 2017.1

PBGC normally updates the assumptions under the benefit payments regulation for January at the same time as PBGC updates assumptions for the first quarter of the year under its regulation on Allocation of Assets in Single-Employer Plans (29 CFR part 4044) in a single rulemaking document. Because of delays in obtaining data used in setting assumptions under Part 4044 for the first quarter of 2017, PBGC is publishing two separate rulemaking documents to update the benefit payments regulation for January 2017 and the allocation regulation for the first quarter of 2017.

The January 2017 interest assumptions under the benefit payments regulation will be 1.25 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. In comparison with the interest assumptions in effect for December 2016, these interest assumptions represent an increase in the immediate rate of 0.50 percent and are otherwise unchanged.

PBGC has determined that notice and public comment on this amendment are impracticable and contrary to the public interest. This finding is based on the need to determine and issue new interest assumptions promptly so that the assumptions can reflect current market conditions as accurately as possible.

Because of the need to provide immediate guidance for the payment of benefits under plans with valuation dates during January 2017, PBGC finds that good cause exists for making the assumptions set forth in this amendment effective less than 30 days after publication.

PBGC has determined that this action is not a “significant regulatory action” under the criteria set forth in Executive Order 12866.

Because no general notice of proposed rulemaking is required for this amendment, the Regulatory Flexibility Act of 1980 does not apply. See 5 U.S.C. 601(2).

In consideration of the foregoing, 29 CFR part 4022 is amended as follows:

I. Background

On May 22, 2015, EPA finalized an action (hereafter referred to as the “SSM SIP Action”) 1 that responded to a Sierra Club petition for rulemaking concerning state rule treatment of excess emissions by sources during periods of SSM and called for 36 states to submit corrective SIP revisions to EPA by November 22, 2016. As discussed in that action, EPA determined that Knox County Regulation 32.1(C) 2 is inconsistent with the fundamental requirements of CAA sections 113(e)(1), 114(c) and 304 and the credible evidence rule 3 and thus issued a SIP call requiring the State to submit a corrective SIP revision addressing this provision. See 80 FR 33965.

On January 11, 2016, the State of Tennessee submitted a SIP revision, pursuant to a request by the Knox County Department of Air Quality Management, to address the SSM SIP Action with respect to Knox County. The revision removes the language from Knox County Regulation 32.1(C) that EPA found to be unlawful in the SSM SIP Action and replaces it with “(Reserved).” In a proposed rulemaking published on September 22, 2016 (81 FR 65313), EPA proposed to approve that SIP revision. The details of Tennessee's SIP revision and the rationale for EPA's action are explained in the proposed rulemaking. Comments on the proposed rulemaking were due on or before October 24, 2016. EPA did not receive any comments on the proposed action.

In this rule, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is finalizing the incorporation by reference of Knox County Regulation Section 32.0 entitled “Use of Evidence,” effective November 12, 2015, which replaces the language previously included in Section 32.1(C) with “(Reserved).” Therefore, these materials have been approved by EPA for inclusion in the SIP, have been incorporated by reference by EPA into that plan, are fully federally enforceable under sections 110 and 113 of the CAA as of the effective date of the final rulemaking of EPA's approval, and will be incorporated by reference by the Director of the Federal Register in the next update to the SIP compilation.4 EPA has made, and will continue to make, these materials generally available through www.regulations.gov and/or at the EPA Region 4 Office (please contact the person identified in the “For Further Information Contact” section of this preamble for more information).

EPA is approving the Tennessee SIP revision consisting of replacing the language in Section 32.1(C) currently in the EPA-approved SIP for Knox County with “(Reserved).” EPA is approving the January 11, 2016 SIP revision because the Agency has determined that it is in accordance with the requirements for SIP provisions under the CAA, is otherwise consistent with the CAA, and adequately addresses the SSM SIP call with respect to the Knox County portion of the Tennessee SIP.

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

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

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

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

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

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

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

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

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

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

The SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it impose substantial direct costs on tribal governments or preempt tribal law.

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 14, 2017. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. See section 307(b)(2).

40 CFR part 52 is amended as follows:

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

This rule takes action on the submission from Ohio EPA, dated April 21, 2016, requesting redesignation of the Ohio portion of the Cincinnati area to attainment for the 2008 ozone standard. The background for today's action is discussed in detail in EPA's proposal, dated September 28, 2016 (81 FR 66602). In that rulemaking, we noted that, under EPA regulations at 40 CFR part 50, the 2008 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.) Under the CAA, EPA may redesignate nonattainment areas to attainment if sufficient complete, quality-assured data are available to determine that the area has attained the standard and if it meets the other CAA redesignation requirements in section 107(d)(3)(E). The proposed rule, dated September 28, 2016, provides a detailed discussion of how Ohio has met these CAA requirements.

As discussed in the September 28, 2016, proposal, quality-assured and certified monitoring data for 2013-2015 and preliminary data for 2016 show that the Cincinnati area has attained and continues to attain the 2008 ozone standard. In the maintenance plan submitted for the area, Ohio has demonstrated that the ozone standard will be maintained in the area through 2030. Finally, Ohio and Indiana have adopted 2020 and 2030 VOC and NOX MVEBs for the Ohio and Indiana portion of the Cincinnati area that are supported by Ohio's maintenance demonstration.

EPA provided a 30-day review and comment period for the September 28, 2016, proposed rule. The comment period ended on October 28, 2016. During the comment period, comments in support of the action were submitted on behalf of the Ohio Utility Group and its member companies. We received no adverse comments on the proposed rule.

EPA is determining that the Cincinnati nonattainment is attaining the 2008 ozone standard, based on quality-assured and certified monitoring data for 2013-2015 and that the Ohio portion of this area has met the requirements for redesignation under section 107(d)(3)(E) of the CAA. EPA is thus changing the legal designation of the Ohio portion of the Cincinnati area from nonattainment to attainment for the 2008 ozone standard. EPA is also approving, as a revision to the Ohio SIP, the state's maintenance plan for the area. The maintenance plan is designed to keep the Cincinnati area in attainment of the 2008 ozone NAAQS through 2030. Finally, EPA finds adequate and is approving the newly-established 2020 and 2030 MVEBs for the Indiana and Ohio portion of the Cincinnati area.

In accordance with 5 U.S.C. 553(d), EPA finds there is good cause for these actions to become effective immediately upon publication. This is because a delayed effective date is unnecessary due to the nature of a redesignation to attainment, which relieves the area from certain CAA requirements that would otherwise apply to it. The immediate effective date for this action is authorized under both 5 U.S.C. 553(d)(1), which provides that rulemaking actions may become effective less than 30 days after publication if the rule “grants or recognizes an exemption or relieves a restriction,” and section 553(d)(3), which allows an effective date less than 30 days after publication “as otherwise provided by the agency for good cause found and published with the rule.” The purpose of the 30-day waiting period prescribed in section 553(d) is to give affected parties a reasonable time to adjust their behavior and prepare before the final rule takes effect. Today's rule, however, does not create any new regulatory requirements such that affected parties would need time to prepare before the rule takes effect. Rather, today's rule relieves the state of planning requirements for this ozone nonattainment area. For these reasons, EPA finds good cause under 5 U.S.C. 553(d)(3) for these actions to become effective on the date of publication of these actions.

Under the CAA, redesignation of an area to attainment and the accompanying approval of a maintenance plan under section 107(d)(3)(E) are actions that affect the status of a geographical area and do not impose any additional regulatory requirements on sources beyond those imposed by state law. A redesignation to attainment does not in and of itself create any new requirements, but rather results in the applicability of requirements contained in the CAA for areas that have been redesignated to attainment. Moreover, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

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

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

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

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

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

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

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

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

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

In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because redesignation is an action that affects the status of a geographical area and does not impose any new regulatory requirements on tribes, impact any existing sources of air pollution on tribal lands, nor impair the maintenance of ozone national ambient air quality standards in tribal lands.

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 14, 2017. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

Parts 52 and 81, chapter I, title 40 of the Code of Federal Regulations is amended as follows:

I. Background

LSC is subject to the FOIA by the terms of the Legal Services Corporation Act. 42 U.S.C. 2996d(g). LSC has implemented FOIA by adopting regulations that contain the rules and procedures LSC will follow in making its records available to the public. LSC last amended its FOIA regulations in 2008. 73 FR 67791, Dec. 31, 2008.

On June 30, 2016, President Obama signed into law the FOIA Improvement Act of 2016 (“2016 Amendments” or the “Act”). The Act codifies a number of transparency and openness principles and enacts housekeeping measures designed to facilitate FOIA requests and production. The revised regulations described in this final rule reflect the required changes prescribed by the Act. LSC also clarified the language and updated the structure of its FOIA regulations.

In light of the deadline established by Congress, LSC management requested that the Operations and Regulations Committee (Committee) recommend that the Board authorize expedited rulemaking and publication of this final rule. On October 16, 2016, the Committee considered the request and voted to make the recommendation to the Board. On October 18, 2016, the Board voted to authorize expedited rulemaking and the publication of the final rule and request for comments. LSC published the final rule and request for comments on October 31, 2016, 81 FR 75330, and the comment period closed on November 30, 2016. LSC received no substantive adverse comments. LSC received comments from two parties recommending technical changes, which LSC has incorporated into this final rule where noted.

There are no proposed changes to this section.

LSC modified several existing definitions, deleted one definition, and added five new definitions to make its regulations clearer. LSC amended the Definitions section as follows:

Duplication. LSC modified this definition to require the release of records “in a form appropriate for release.” This change complies with FOIA guidance that records be released in the format requested, where possible.

LSC. LSC replaced all references to “the Corporation” with “LSC” for simplicity. LSC introduced this definition to make clear that, unless otherwise specified, references to LSC in this rule include both the Corporation and LSC's Office of Inspector General.

Office. LSC added this definition in order to simplify references to the Office of Inspector General and/or the Office of Legal Affairs, where appropriate.

Office of Inspector General records. LSC deleted this definition because the general definition of records includes the Office of Inspector General records, making this definition redundant.

Person. LSC's prior regulations did not define person. To address this gap, LSC added a definition modeled after the definition of person contained in the FOIA, 5 U.S.C. 551(2). In response to the rule published in the Federal Register on October 31, 2016, 81 FR 75330, LSC received a comment recommending that it add “or a Federal agency” to the definition of person to clarify that a Federal agency is not a person. LSC is adopting that recommendation.

Records. LSC modified the definition of this term to comport with the definition of records in LSC's Records Management Policy, which was updated in September 2015. It also incorporates Office of Inspector General records, which were previously defined separately.

Rule. LSC's FOIA regulations cite to personnel rules, rules of procedure, and substantive rules, but do not define the term rule. To address this gap, LSC added a definition of rule modeled on the definition contained in the FOIA, 5 U.S.C. 551(4).

Submitter. On February 14, 2003, LSC published in the Federal Register a final rule adding provisions for a submitter's rights process to its FOIA regulations. 68 FR 7433, Feb. 14, 2003. These provisions were modeled after the process outlined in Executive Order No. 12,600 (June 23, 1987). The 2003 final rule limited submitter solely to any person or entity from whom LSC receives grant application records. LSC is expanding the definition of submitter to include “any person or applicant for funds who provides confidential commercial information to LSC.” This definition more closely conforms with the spirit of E.O. 12,600 and ensures that submitters who may have an interest in the protection of their confidential commercial information are properly notified.

Confidential Commercial Information. LSC added a definition of confidential commercial information modeled on the definition in E.O. 12,600 to comport with the new definition of submitter described above. LSC received a comment recommending that the phrase “because disclosure could reasonably be expected to cause substantial competitive harm” be deleted from the definition of confidential commercial information because substantial competitive harm is not the only reason that information could be withheld under Exemption 4. LSC is adopting that recommendation.

LSC made minor technical edits to clarify this section, including clarifying the foreseeability definition as recommended by one commenter.

LSC made minor technical edits to clarify this section.

This section sets out the process by which LSC makes available for public inspection the records described in the FOIA, 5 U.S.C. 552(a)(2). In the prior version of its FOIA regulations, LSC set out the specific categories of records that must be publicly disclosed. LSC deleted those specific provisions and replaced them with a broader reference to 552(a)(2) generally in anticipation of implementing the “Release to One, Release to All” policy. One commenter recommended that LSC implement “Release to One, Release to All” as a policy and delete the reference to the policy from its regulations. LSC also received a comment recommending that it delete reference to § 1602.10 as authority for LSC to withhold records from the public reading room because the FOIA itself provides sufficient authority. LSC is adopting these recommendations.

LSC also made minor technical revisions to clarify this section.

LSC added a provision to this section that will provide requesters with onsite computer and printer access to electronic reading room records. This provision is consistent with Federal agency practice and provides greater access to LSC's records to the public at large.

LSC updated this section to reflect its current practice of maintaining its index of records electronically.

The prior version of § 1602.8 included provisions relating to the format of requests for records, the timing of responses, and the format of responses to requests. There were no subheadings to distinguish these provisions within the section, making it difficult to follow. To improve readability, LSC restructured § 1602.8 by limiting the section solely to provisions related to the format of FOIA requests. LSC also added a provision that informs requesters of their right to specify the preferred form or format for the records sought and that requires requesters to provide their contact information to assist LSC in communicating with them about their request. One commenter recommended that LSC delete the phrase “LSC shall respond to such a request as promptly as possible”, referring to requests for fee waivers or reductions, because LSC would not adjudicate a fee waiver until fees are at issue. The proposed language suggested that all fee waivers would be adjudicated promptly, when this may not always occur. LSC is adopting this recommendation.

This is a new section. As described in the discussion of § 1602.8, LSC determined that it would be clearer if the provisions for timing and responses to requests were contained in a separate section. LSC also made technical changes to the language and structure to improve clarity. In addition, LSC added provisions describing the dispute resolution processes available to the public as required by the 2016 Amendments. These provisions describe when a requester may seek assistance, including dispute resolution services, from an LSC FOIA Public Liaison or the U.S. National Archives and Record Administration's Office of Government Information Services. In response to the final rule published on October 31, 2016, 81 FR 75330, LSC received a comment recommending that it articulate the procedures for consultations and referrals when it processes a request that contains within the records information of interest to another Office or Federal agency. LSC also received a comment recommending that it remove § 1602.9(b)(3)'s reference to “two or more components of LSC” because LSC has only two components, LSC and the Office of Inspector General. LSC is adopting both recommendations.

LSC amended this section to incorporate the 2016 Amendments' codification of the Department of Justice's foreseeable harm standard, which requires LSC to withhold information only if disclosure would harm an interest protected by an exemption or prohibited by law. It further obligates LSC to consider whether partial disclosure of information is possible when full disclosure is not and to take reasonable steps to segregate and release nonexempt information. One commenter recommended that LSC clarify the foreseeable harm standard. LSC is adopting this recommendation.

In addition, LSC modified its rule regarding the applicability of the deliberative process privilege, as required by the 2016 Amendments. The privilege now applies only to records created within 25 years of the date on which the records were requested.

Finally, LSC added exemptions 1, 8, and 9 from 5 U.S.C. 552(8)(B)(b) to its regulations. While these exemptions, which deal with national security, financial institutions, and geological information, generally do not apply to the work of LSC, their absence caused confusion because LSC's exemption numbers did not track the commonly used exemption numbers found in both the FOIA and case law. This change will eliminate any confusion.

LSC deleted paragraph (a) of this section, which describes the role of the General Counsel in adequately and consistently applying the provisions of this part within LSC. The 2016 Amendments establish the role of the Chief FOIA Officer in ensuring compliance with FOIA, thereby superseding LSC's prior regulations.

LSC added a provision to this section requiring it to include a provision in its denial decisions notifying the requester of his or her right to seek dispute resolution services from LSC's FOIA Public Liaison or the Office of Government Information Services.

LSC made minor technical edits to clarify this section. LSC also added a provision that requires LSC to notify a requester of the dispute resolution services offered by the Office of Government Information Services as a non-exclusive alternative to litigation. LSC received a comment recommending that it include contact information for the Office of Government Information Services' voluntary dispute resolution services. LSC is adopting this recommendation.

LSC added a provision to this section that prohibits LSC from assessing fees if its response time is delayed, subject to limited exceptions described in the 2016 Amendments. One commenter recommended that LSC add a provision excusing a failure to comply with the time limits set forth in the regulation when a court determines that exceptional circumstances exist. The commenter also recommended that LSC detail its fee structure and provide requesters an opportunity to reformulate their request at a lower cost. LSC is adopting both recommendations.

As previously described in the discussion of § 1602.2's definition of the term submitter, LSC expanded the submitter's rights process to include “any person or applicant for funds who provides confidential commercial information to LSC.” This definition more closely conforms with the spirit of E.O. 12600 and ensures that submitters who may have an interest in the protection of their confidential information are properly notified.

Finally, LSC clarified an ambiguous provision that requires a submitter to provide to LSC within seven days his or her statement objecting to disclosure of his information. One commenter recommended that LSC delete the seven-day response period and instead specify in its notice to the requester a reasonable time period within which the submitter must respond. LSC also received a comment recommending that LSC's regulations comport with agency practice that makes the notice of proposed release the final administrative action by LSC. LSC is adopting these recommendations.

I. Background

NASA published a proposed rule in the Federal Register at 81 FR 48726 on July 26, 2016, to amend the NFS to add a monthly reporting requirement at 1852.245-73 for contracts in which the contractor has custody of NASA-owned PP&E valued at $10 million or more to ensure contractor-held PP&E are more accurately represented in NASA financial statements. Two respondents provided comments in response to the proposed rule.

NASA reviewed the public comments in the development of the final rule. A discussion of the comments and any changes made to the rule as a result of these comments is provided, as follows:

A. Changes. No changes are being made to the final rule as a result of the public comments received with the exception of minor editorial changes.

B. Analysis of Public Comments.

1. Recommend use of different approach to asset management.

Comment: One respondent agreed with the overall objective of the rule, but disagreed with NASA's proposed approach and changes in the rule. The respondent commented that the NFS clause is fundamentally flawed, is non-GAAP accounting, and it does not in of itself create adequate infrastructure to provide reliable accounting data and financial reporting. The respondent commented that the clause inappropriately combines and transforms property management accountability data under a contract based upon FAR 45 Government Property, into Financial Accounting Standards Board (FASB) accounting data. The respondent commented that NASA-owned and contractor-furnished internal use property, acquired under a contract that is accountable to a contract is generally not subject to NASA's capitalization threshold of $500,000; however, what is acquired and furnished includes property transactions for research and development, period cost, program cost . . ., probably very little individual capital items, per FASAB No. 6—Accounting for property, plant, and equipment. The respondent commented that using property accountability data subject to FAR 45, for financial accounting data is wrong, as it does not provide faithful representation of NASA's PP&E as well as external reporting of property accountability in all other Government agencies is not on a monthly basis. The respondent commented that reporting this information will not result in improved decision making. The respondent also stated that reporting unreliable financial data on a yearly basis or monthly basis is a waste of NASA resources, the cost to increase the reporting cycle from annual to monthly is not inconsequential, and NASA should expect their contractors to ask for a contract modification with due consideration. The respondent recommended that NASA not proceed with the proposed rule, rather NASA should migrate to the new ISO 55000 Asset Management standard.

Response: NASA does not concur with the respondent's stance on the proposed rule. The objective of the rule is to clarify and emphasize the supplemental instructions in paragraph (a) of NFS clause 1852.245-73 that all contractors having custody of NASA Property, Plant, and Equipment (PP&E) with a value of $10 million or more are required to report this information on a monthly basis to NASA. The property reporting requirement is to help assess the efficiency and effectiveness of asset management consistent with the Statement of Federal Financial Accounting Standard (SFFAS) No. 6, Accounting for Property, Plant, and Equipment, and NASA Procedural Requirement (NPR) 9250.1, Property, Plant, and Equipment and Operating Materials and Supplies, which implements SFFAS No. 6. The respondent failed to provide data to support their comments concerning the NFS clause or the recommendation to migrate to a new standard. Thus, no changes were made in response to this comment.

2. Difference between monthly and annual reporting.

Comment: One respondent submitted the following questions on the proposed rule:

• If a contractor has $10M worth of property, is reporting is required?

• If the value drops below $10M, does the contractor stop reporting on a monthly basis?

• Is the $10M per contract or the sum of NASA property accountable to the contractor?

• Is the NASA Form 1018 required for the monthly reporting or is another format/system used?

• If NASA is going to require monthly financial reporting, are they referring to how the contractor reports monthly financials on the CHATS report or how the contractor reports on the NASA Form 1018?

• Will NASA require the contractor to submit a NASA Form 1018 monthly or a CHATS monthly?

• Currently in the month of September an annual and a monthly financial report is due. Will NASA eliminate one of these if they are going to require 1018s on a monthly basis?

Response: If at any time during performance of the contract, NASA-owned property in the custody of the contractor has a value of $10 million or more for the contract, the contractor shall submit a report no later than the 21st of each month. At any time during performance of the contract if the value of property for the contract drops below $10M, the contractor does not have to submit the monthly report. A contractor having NASA-owned property in their custody of $10 million or more will be required to report both the monthly and yearly reporting in accordance with the requirements of paragraph (c)(1) and paragraph (c)(2) of the clause utilizing the NASA Form 1018, the NASA Form 1018 Electronic Submission System (NESS), NASA Form 533 Contractor Financial Management Report, and any supplemental instructions issued by the contracting officer. Accordingly, no changes were made in response to this respondent's questions.

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

A final regulatory flexibility analysis has been prepared consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., and is summarized as follows:

The objective of this rule is to add a monthly reporting requirement for contractors having custody of NASA-owned PP&E valued at $10 million or greater to ensure that contractor-held PP&E are more accurately represented in NASA financial statements consistent with the Statement of Federal Financial Accounting Standard (SFFAS) No. 6, Accounting for Property, Plant, and Equipment and NASA Procedural Requirement (NPR) 9250.1, Property, Plant, and Equipment and Operating Materials and Supplies.

Two respondents provided comments in response to the proposed rule, but none of the comments were submitted in response to the Initial Regulatory Flexibility Act request in the proposed rule. Thus, no changes were made to the final rule.

NASA does not expect this final rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., because the affected NASA contractors with custody of NASA-owned Property, Plant, and Equipment (PP&E) valued at $10 million or greater are primarily large businesses.

The requirements under this rule apply to any contract award (including contracts for supplies, services, construction, and major systems) that requires contractors to use Government property. According to NASA Property Records in Fiscal Year (FY) 2015 there were 643 contracts that required reporting NASA contractors with custody of Government property to report that property. Of the 643 contracts, approximately 20% or 129 contracts were with small business contractors. Of the 643 contracts, 32 contracts had NASA-owned and contractor-held PP&E with a value of $10 million or more and required monthly reporting. Of those 32 contracts, only three were awarded to small business contractors.

Each NASA contractor is required to submit annually the NASA Form 1018, NASA Property in the Custody of Contractors. This rule will add a new reporting requirement requiring contractors to submit a report if at any time during performance of the contract NASA-owned property in the custody of the contractor has a value of $10 million or more. However, the impact of this reporting requirement is minimal on small entities based on FY 2015 NASA property records that show only three small business contractors with custody of NASA PP&E valued at $10 million or more. There are no additional professional skills necessary in this area on the part of small businesses.

There are no significant alternatives that could further minimize the already minimal impact on businesses, small or large. New PP&E reporting requirements are the same for both large and small businesses once the NASA-owned PP&E threshold of $10 million is reached.

The rule contains information collection requirements that require the approval of the Office of Management and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C chapter 35); however, these changes to the NFS do not impose additional information collection requirements to the paperwork burden previously approved under OMB Control Number 2700-0017, titled NASA Property in the Custody of Contractors and OMB Control No. 9000-0075, titled Government Furnished Property Requirements.

Accordingly, 48 CFR parts 1845 and 1852 are amended as follows: