
[Federal Register: April 3, 2009 (Volume 74, Number 63)]
[Proposed Rules]               
[Page 15228-15236]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap09-9]                         


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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

[Docket ID FEMA-2005-0051]

44 CFR Part 206

RIN 1660-AA44

 
Special Community Disaster Loans Program

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Emergency Management Agency (FEMA) proposes to 
amend its regulations regarding the Special Community Disaster Loans 
Program to implement loan cancellation provisions for Special Community 
Disaster Loans provided by FEMA to local governments in the Gulf region 
following Hurricanes Katrina and Rita. This rule does not propose the 
automatic cancellation of all Special Community Disaster Loans. This 
rule proposes procedures and requirements for governments who received 
Special Community Disaster Loans to apply for cancellation of loan 
obligations as authorized by the U.S. Troop Readiness, Veterans' Care, 
Katrina Recovery, and Iraq Accountability Appropriations Act, 2007. The 
proposed procedures are intended to provide sufficient information to 
FEMA to determine when cancellation of a Special Community Disaster 
Loan, in whole or in part, is warranted. This proposed rule would not 
apply to any loans made under FEMA's traditional Community Disaster 
Loan program which is governed under separate regulations.

DATES: Comments on the proposed rule, including the Paperwork Reduction 
Act information collection, are due on or before June 2, 2009.

ADDRESSES: You may submit comments, identified by Docket ID FEMA-2005-
0051, by one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    E-mail: FEMA-RULES@dhs.gov. Include Docket ID FEMA-2005-0051 in the 
subject line of the message.
    Fax: 703-483-2999.
    Mail/Hand Delivery/Courier: Office of Chief Counsel, Federal 
Emergency Management Agency, Room 835, 500 C Street, SW., Washington, 
DC 20472-3100.

FOR FURTHER INFORMATION CONTACT: James A. Walke, Disaster Assistance 
Directorate, Federal Emergency Management Agency, 500 C Street, SW., 
Washington, DC 20472-3300, or call (202) 646-2751, or e-mail 
james.walke@dhs.gov.
    Requests for additional information regarding FEMA's Paperwork 
Reduction Act information collection requirements or copies of the 
information collection should be made to Director, Records Management 
and Privacy, FEMA, 1800 Bell Street, Arlington, VA 20598-3005, 
facsimile number (202) 646-3347, or e-mail address FEMA-Information-
Collections@dhs.gov.

SUPPLEMENTARY INFORMATION:

Request for Comments on the Rulemaking

    FEMA encourages public participation in this rulemaking. All 
submissions received must include the agency name and docket ID (FEMA-
2005-0051). Regardless of the method used for submitting comments or 
material, all submissions will be posted, without change, to the 
Federal eRulemaking Portal at http://www.regulations.gov, and will 
include any personal information you provide. Therefore, submitting 
this information makes it public. You may wish to read the Privacy Act 
notice that is available on the Privacy and Use Notice link on the 
Administration Navigation Bar of http://www.regulations.gov.
    All comments received, as well as this document, are available on 
the public docket for this rulemaking. For access to the docket, go to 
the Federal eRulemaking Portal at http://www.regulations.gov. Submitted 
comments may also be inspected at FEMA, Office of Chief Counsel, Room 
835, 500 C Street, SW., Washington, DC 20472-3100.
    At this time, FEMA does not anticipate it will hold a public 
meeting for this rulemaking project.

I. Background and Purpose

    The Federal Emergency Management Agency's (FEMA's) Community 
Disaster Loan (CDL) Program provides funding to help local governments 
that have incurred significant loss in revenue due to a presidentially 
declared disaster, revenue that is necessary for local governments to 
provide essential municipal services, such as public schools, fire and 
police services, and sanitation services. The CDL Program for local 
governments began in 1970 as a program of community disaster grants. In 
1974, Congress replaced the grant program with a program of community 
disaster loans. Since 1976, FEMA has issued 55 Community Disaster Loans 
under this program, totaling approximately $233.5 million. FEMA's 
traditional CDL Program is governed under 44 CFR part 206 subpart K. 
See 44 CFR 206.360.
    On August 29, 2005, Hurricane Katrina hit Louisiana, Mississippi, 
Florida, and Alabama and emergencies were declared in each of the 4 
States--the most for any single disaster in FEMA history. Hurricane 
Rita soon followed on September 21, 2005, in an area that had already 
been affected by Hurricane Katrina. Federal disaster declarations for 
the storms covered 90,000 square miles of the United States, an area 
roughly the size of the State of Oregon. The hurricanes directly 
affected over 1.5 million people, displaced approximately 771,000 
people, and resulted in a peak shelter population of over 267,000 
people.
    Hurricanes Katrina and Rita devastated communities in Louisiana, 
Texas, Mississippi, and Alabama. Tax revenue was lost because people no 
longer lived in the area. Residents who remained were unable to pay 
taxes due to unemployment. Mass evacuations and limited sheltering 
options in the region resulted in fewer households purchasing goods and 
services and, in turn, paying sales tax. Although the tax base was 
severely depleted, communities still had to provide essential services 
such as police, medical personnel, teachers, and firefighters. Those 
costs are not eligible for Stafford Act funding from FEMA under the 
Public Assistance Program or under any other FEMA grant program. 
Further, the traditional CDL program cap of $5 million per individual 
loan was too small for the catastrophic and long term nature of these 
disasters.
    Realizing the catastrophic nature of Hurricanes Katrina and Rita, 
the unusual circumstances facing these local communities, and the lack 
of pre-existing sources of Federal funding, Congress passed the 
Community Disaster Loan Act of 2005, Public Law 109-88 (Oct. 7, 2005) 
(2005 Act). The 2005 Act authorized FEMA to transfer funds appropriated 
in the Second Emergency Supplemental Appropriations Act To Meet 
Immediate Needs Arising From The Consequences Of Hurricane Katrina, 
2005, Public Law 109-62 (Sept. 8, 2005), to support up to $1 billion in 
loan authority to assist communities impacted by Hurricanes Katrina and 
Rita. Loans issued by FEMA under the 2005 Act are referred to as 
``Special Community Disaster Loans.'' For these Special Community 
Disaster Loans (Special CDLs), the 2005 Act added three elements to the 
traditional CDL program under section 417 of the Robert T. Stafford 
Disaster Relief and

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Emergency Assistance Act (Stafford Act), 42 U.S.C. 5184: (1) It removed 
the $5 million limit on individual loans; (2) it restricted the loans 
``to assist local governments in providing essential service;'' and (3) 
it made the loan cancellation provision of section 417(c)(1) of the 
Stafford Act inapplicable.
    FEMA published an interim rule on October 18, 2005, to implement 
the provisions of the 2005 Act. See at 70 FR 60443; also 44 CFR 
206.370-206.377. The interim rule took effect immediately to allow FEMA 
to provide these loans as soon as possible to the local governments 
already impacted by Hurricanes Katrina and Rita. Special CDLs, and 
their accompanying regulations, only apply to communities affected by 
Katrina and Rita. Further, FEMA was only authorized to approve loans in 
either the fiscal year in which the disaster occurred (FY 2005) or the 
fiscal year immediately following that year (FY 2006). Although FEMA is 
no longer authorized to grant new applications for Special CDLs, FEMA 
has chosen not to remove the Special CDL regulations at this time, as 
the conditions such as loan administration, repayment, terms, and 
restrictions on the use of loan funds may still be applicable.
    After FEMA published its interim rule, Congress passed the 
Emergency Supplemental Appropriations Act for Defense, the Global War 
on Terror, and Hurricane Recovery, 2006, Public Law 109-234 (June 15, 
2006) (2006 Act), which appropriated funds to support $371,733,000 in 
loan authority in addition to the loans authorized under the 2005 Act. 
However, certain eligibility criteria for the 2006 Act program were 
different from those in the 2005 Act program. The 2006 Act included 
three changes: (1) The maximum loan amount was increased to 50 percent 
of the applicant's operating budget the fiscal year of the disaster; 
(2) the loan analysis could only consider ``tax revenue'' loss and not 
``other revenues'' as allowed for in the 2005 Act; and (3) applicants 
were required to demonstrate actual loss in tax revenues of 25 percent 
or greater. The 2006 Act, like the 2005 Act, made the loan cancellation 
provision of section 417(c)(1) of the Stafford Act inapplicable.
    As a result of the 2005 and 2006 Acts, FEMA made 152 loans totaling 
$1,270,501,241 to 109 eligible applicants in Mississippi and Louisiana. 
Under the 2005 Act, FEMA made 52 loans totaling $261,135,806 in 
Mississippi and 84 loans totaling $738,864,194 in Louisiana. In total, 
$1 billion of the $1 billion loan level authorized in the 2005 Act was 
provided to eligible applicants devastated by Hurricanes Katrina and 
Rita. Under the 2006 Act, FEMA made four additional loans totaling 
$9,485,908 in Mississippi and twelve additional loans totaling 
$261,015,333 in Louisiana. In total, $270,501,241 of the $371,733,000 
loan level authorized in the 2006 Act was provided to eligible 
applicants devastated by Hurricanes Katrina and Rita. No additional 
eligible applicants were identified prior to the September 30, 2006 
deadline for the remaining $101,231,759 of the loan authority.
    The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and 
Iraq Accountability Appropriations Act, 2007, Public Law 110-28, 
section 4502(a), 119 Stat. 2061 (May 25, 2007) (2007 Act), removed the 
loan cancellation prohibitions contained in the 2005 and 2006 Acts. 
This amendment retroactively applies to the dates of enactment of both 
Acts. This statutory change now gives FEMA discretionary authority, 
limited by the language in section 417(c)(1) of the Stafford Act (42 
U.S.C. 5184), to cancel Special CDLs.
    With this new authority, FEMA shall cancel a loan if ``the revenues 
of the local government during the full three fiscal year period 
following the disaster are insufficient to meet the operating budget 
for the local government, including additional unreimbursed disaster-
related expenses for a municipal operating character.'' This authority 
is the same as FEMA's authority to cancel loans issued under its 
traditional CDL program, which have implementing regulations at 44 CFR 
206.366. This rulemaking proposes procedures and requirements for local 
governments to apply for cancellation of Special CDLs, that are the 
same as those established for the traditional CDL program. FEMA expects 
to determine whether a local government's revenues are insufficient 
using the same method FEMA currently uses to determine loan 
cancellations under the traditional CDL program. Currently, if an 
applicant has a three year cumulative operating deficit, FEMA analyzes 
the applicant's revenue during that time to determine if the deficit 
was caused by insufficient revenues. FEMA determines this by 
subtracting the applicant's actual post-disaster revenues from the 
revenue the applicant expected to obtain had the disaster not occurred. 
This net difference is the estimated revenue loss. If revenue loss does 
not account for the entire deficit, FEMA examines the applicant's 
disaster-related expenditures to determine if an increase in 
expenditures contributed to the deficit. Based on the results of this 
analysis, FEMA may cancel all or a part of the loan.

II. This Proposed Rule

    With the passage of the 2007 Act, FEMA has been given the 
discretionary ability to cancel Special CDLs issued under the 2005 and 
2006 Acts subject to the limitations of section 417(c) of the Stafford 
Act. Accordingly, FEMA proposes to amend its Special CDL regulations to 
include loan cancellation procedures and requirements.
    Removing the prohibition against cancellation is consistent with 
FEMA's handling of loans provided to communities affected under all 
other disasters. For example, communities who receive traditional CDLs 
may be eligible for loan cancellation. Other communities who have met 
the cancellation requirements of section 417(c)(1) of the Stafford Act 
also have had loans cancelled.
    Furthermore, FEMA believes the sustained financial long-term 
recovery of the communities affected by Hurricanes Katrina and Rita may 
continue to be at risk. For those communities that have not exhibited 
reasonable financial recovery after three years, cancellation may be 
appropriate, subject to the limitations of section 417(c) of the 
Stafford Act. A number of the Gulf Coast communities that carry Special 
Community Disaster Loans have argued that if they do not have the 
financial strength to repay these loans on a timely basis, going into 
default may further impede their ability to recover, affecting among 
other things, a municipality's ability to issue bonds.
    This rule does not propose the automatic cancellation of all 
Special Community Disaster Loans. FEMA's authority to provide 
cancellation is limited to those communities whose revenues during the 
three full fiscal year period following the major disaster are 
insufficient to meet its operating budget, including additional 
disaster-related expenses of a municipal operation character. The 
proposed procedures are intended to provide sufficient information to 
FEMA to determine when cancellation of a Special Community Disaster 
Loan, in whole or in part, is warranted.
    FEMA proposes to treat those affected by Hurricanes Katrina and 
Rita under the same terms as traditional CDL recipients. Section 417 of 
the Stafford Act provides FEMA with the cancellation authority for both 
the Special CDL Program and the traditional CDL Program. FEMA 
implemented

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cancellation provisions for the traditional CDL Program regulations at 
44 CFR 206.366. FEMA has been applying these provisions to the 
traditional CDL Program since 1990 and has found them to be successful 
in providing the information necessary to determine whether 
cancellation is appropriate. Since the statutory authority to cancel 
the loans, as provided for in section 417(c)(1) of the Stafford Act, is 
now the same for both loan programs, FEMA proposes to use the same 
cancellation requirements and procedures for both loan programs to 
reduce confusion for the regulated public and reviewing officials.
    FEMA may cancel ``* * * all or any part of Special Community 
Disaster Loans to the extent that revenues of the local government 
during the three full fiscal year period following the major disaster 
are insufficient to meet the operating budget of the local government, 
including additional disaster-related expenses of a municipal operation 
character.'' 42 U.S.C. 5184(c). For loan cancellation purposes, FEMA 
interprets the term ``operating budget'' to mean actual revenues and 
expenditures of the local government as published in the official 
financial statements of the local government. Under the proposed 
cancellation procedures, the FEMA Assistant Administrator for the 
Disaster Assistance Directorate (Assistant Administrator) would review 
the Application for Loan Cancellation and a financial evaluation of the 
applicant to evaluate the local government's revenues and determine 
whether FEMA should cancel, in whole or in part, a Special CDL issued 
under the 2005 or 2006 Acts. FEMA would cancel a part of a loan, as 
opposed to the whole, in situations where the community's application 
for cancellation reflects that the community's revenues are not 
sufficient to repay the entire loan, but are sufficient to repay a 
portion thereof.
    As limited by the Stafford Act, a community's eligibility for 
cancellation is based on a fixed period of time. The Assistant 
Administrator's decision must be based on the revenues of the local 
government during the three full fiscal year period following the major 
disaster. This means that since Hurricane Katrina occurred in August 
2005, eligibility for cancellation can only be based on the revenues of 
the local government during the following three full fiscal years. The 
typical ``fiscal year,'' as used by the Federal government, runs from 
October 1 to September 30. Under this model, the three full fiscal year 
period after Hurricanes Rita and Katrina ended on September 30, 2008. 
For governments that operate under a different fiscal year, however, 
FEMA would modify the three-year period to reflect the 36 calendar 
months following the disaster.
    All of the Special CDLs are three-year loans that may be drawn upon 
by the local community at its discretion. Once an amount is drawn down, 
interest begins to accrue on the loan from the date it is dispersed. 
Although communities may voluntarily make payments on the loan at any 
time, communities are not required to repay the loan or any related 
interest until five years after the date of the promissory note, unless 
otherwise extended by the Assistant Administrator. None of the loans 
referenced above will come due until October 2010 at the earliest. As 
of January 2009, two communities have voluntarily paid their loans in 
full, including accrued interest.
    Communities applying for cancellation would be required to submit 
their Application for Loan Cancellation before the expiration date of 
their loan. This would allow FEMA the opportunity to cancel all or a 
part of the loan and forgive all related interest before the loan must 
be repaid. As long as the community applies for and is granted 
cancellation before the date its loan expires, then all interest on the 
amount of the loan that is cancelled would be forgiven regardless of 
the date that the amount was dispersed or the date that cancellation is 
granted.
    If the Assistant Administrator determines that all or part of a 
community's Special CDL should be cancelled, the amount of principal 
would be cancelled, and the related interest would be forgiven. The 
Assistant Administrator's determination concerning loan cancellation 
would specify that any uncancelled principal and related interest must 
be repaid in accordance with the terms and conditions of the promissory 
note; and that, if repayment will constitute a financial hardship, the 
local government must submit for FEMA review and approval, a repayment 
schedule for settling the indebtedness on timely basis. Such repayments 
would be required to be made to the Treasurer of the United States and 
be sent to FEMA, Attention: Office of the Chief Financial Officer. A 
loan or cancellation of a loan would not reduce or affect other 
disaster-related grants or other disaster assistance. However, FEMA 
will not make any cancellation that would result in a duplication of 
benefits to the applicant.
    If the tax and other revenue rates or the tax assessment valuation 
of property which was not damaged or destroyed by the disaster are 
reduced in the three fiscal years subsequent to the major disaster, the 
tax and other revenue rates and tax assessment valuation factors 
applicable to such property in effect at the time of the major disaster 
would be used without reduction for purposes of computing revenues 
received. This may result in decreasing the potential for loan 
cancellations.
    If the local government transfers funds from its operating funds 
accounts to its capital funds account, utilizes operating funds for 
other than routine maintenance purposes, or significantly increases 
expenditures which are not disaster related, except increases due to 
inflation, the annual operating budget or operating statement 
expenditures would be reduced accordingly for purposes of evaluating 
any request for loan cancellation.
    It is not the purpose of these loan programs to underwrite pre-
disaster budget or actual deficits of the local government. 
Consequently, such deficits carried forward would reduce any amounts 
otherwise eligible for loan cancellation.
    If FEMA disapproves an Application for Loan Cancellation, in whole 
or in part, the local government would be allowed to appeal and submit 
any additional information in support of the application within 60 days 
of the date of disapproval. The decision of the Assistant Administrator 
or designee would be final on the appeal of any disapproval of an 
application for cancellation.
    The cancellation provisions would retroactively apply to the dates 
of enactment of the 2005 and 2006 Acts, so these proposed regulations 
would apply to all of the Special CDLs awarded by FEMA.

III. Regulatory Requirements

A. Executive Order 12866, Regulatory Planning and Review
    Under Executive Order 12866, ``Regulatory Planning and Review,'' 58 
FR 51735 (Oct. 4, 1993), a ``significant regulatory action'' is subject 
to Office of Management and Budget (OMB) review and the requirements of 
Executive Order 12866. Section 3(f) of the Executive Order defines 
``significant regulatory action'' as one that is likely to result in a 
rule that may:
    (1) Have an annual effect on the economy of $100 million or more, 
or may adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities;

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    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs, or the rights and obligations of 
recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    This rule is an economically significant regulatory action under 
section 3(f) of Executive Order 12866 because it is expected to have an 
annual effect on the economy of more than $100 million, and materially 
alter the budgetary impact of the Special Community Disaster Loans 
Program. Accordingly, OMB has reviewed this rule.
    As previously stated, the 2005 Act authorized FEMA to transfer 
funds appropriated in the Second Emergency Supplemental Appropriations 
Act To Meet Immediate Needs Arising From The Consequences Of Hurricane 
Katrina, 2005, (Pub. L. 109-62), to support up to $1 billion in loan 
authority to assist communities impacted by Hurricanes Katrina and 
Rita. Loans issued under the 2005 Act are referred to as Special 
Community Disaster Loans. The next year, the 2006 Act appropriated 
funds to support an additional $371,733,000 in loan authority in 
addition to loans authorized under the 2005 Act. Both the 2005 and 2006 
Acts made the loan cancellation provision of section 417(c)(1) of the 
Stafford Act inapplicable, meaning FEMA had no authority to cancel 
these loans.
    The 2007 Act removes the loan cancellation prohibitions contained 
in the 2005 and 2006 Acts. The amendment retroactively applies to the 
date of enactment of both the 2005 and 2006 Acts. This statutory change 
now gives FEMA discretionary authority, limited by the language in 
section 417(c)(1) of the Stafford Act, to cancel Special Community 
Disaster Loans issued pursuant to either the 2005 or 2006 Acts.
    Under the 2005 Act, FEMA made 52 loans totaling $261,135,806 in 
Mississippi and 84 loans totaling $738,864,194 in Louisiana. In total, 
$1 billion of the $1 billion loan level authorized in the 2005 Act was 
provided to eligible applicants devastated by Hurricanes Katrina and 
Rita. Under the 2006 Act, FEMA made four additional loans totaling 
$9,485,908 in Mississippi and twelve additional loans totaling 
$261,015,333 in Louisiana. In total, $270,501,241 of the $371,733,000 
loan level authorized in the 2006 Act was provided to eligible 
applicants devastated by Hurricanes Katrina and Rita. No additional 
eligible applicants were identified prior to the September 30, 2006 
deadline for the remaining $101,231,759 of the loan authority.
    As a result of the 2005 and 2006 Acts, FEMA made 152 Special 
Community Disaster Loans totaling $1,270,501,241 to 109 eligible 
applicants in Mississippi and Louisiana. The application period for 
these loans has closed, so no additional local governments can be 
granted loans under these programs. If all 152 loan recipients applied 
for and were found eligible for full cancellation under these proposed 
procedures, up to $1,270,501,241, plus any applicable interest and 
costs, could be cancelled. However, because the Special Community 
Disaster Loans operate as lines of credit from which applicants 
justifying need draw down, not all of the loan funds obligated have 
been distributed. As of March 16, 2009, only $831 million 
(approximately 65% of the total amount awarded) has been drawn down by 
applicants. FEMA expects that all communities with Special Community 
Disaster Loans will apply for cancellation because of the benefits 
cancellation could have assisting in the recovery of communities. 
Because FEMA cannot evaluate the individual financial situations of the 
communities without reviewing the data that would be submitted in the 
applications for cancellation, FEMA cannot predict at this time how 
many of those communities will be eligible for cancellation. FEMA 
solicits public input on this issue.
    The purpose of this rule is to implement the cancellation 
provisions outlined in the 2007 Act which allow for the cancellation of 
Special Community Disaster Loans for those communities whose revenues 
during the full three-fiscal-year period following the major disaster 
are insufficient to meet the operating budget of the local government. 
The cancellation provisions apply only to Special Community Disaster 
Loans issued under the 2005 and 2006 Acts. Community Disaster Loans 
issued prior to the enactment of the 2005 or 2006 Acts, or other loans 
not issued under the authority of those Acts, are not affected by this 
rule. Consequently, this rule will have no impact on local governments 
that do not have a Special Community Disaster Loan.
    FEMA proposes to use the cancellation procedures already familiar 
to communities who received traditional Community Disaster Loans. These 
procedures are located at 44 CFR 206.366 and have been used by loan 
recipients since 1990. In assessing the budgetary impact of using an 
alternative procedure, FEMA considered the effect of possible changes 
to these well-established cancellation procedures.
    In considering alternatives, FEMA first considered the automatic 
cancellation of all Special Community Disaster Loans. However, the text 
of the statute and the legislative history show that Congress did not 
automatically forgive these loans, but allows for partial or full 
forgiveness of community disaster loan repayments if, after three 
years, local revenue remains insufficient to meet operating expenses. 
Next, FEMA considered revising the documents submitted by the local 
communities to prove that local revenue is insufficient to meet 
operating expenses. FEMA opted to retain the requirements used for the 
traditional Community Disaster Loan program that have proven accurate 
and efficient in determining whether local communities meet the 
requirements for cancellation of traditional Community Disaster Loans. 
Furthermore, the alternatives considered did not have a measurable 
effect on Federal costs and did not simplify program administration or 
consolidate or clarify existing definitions, procedures, or processes. 
Finally, the creation of additional or revised regulatory requirements 
would not be in concert with the intention of providing forgiveness 
consistent with previous disasters.
    FEMA has found during the past 19 years that the cancellation 
provisions for the traditional Community Disaster Loan program work--
they provide sufficient and accurate information on which FEMA can base 
its decision to cancel loans--and compliance on the part of the 
borrower is relatively easy. There are no significant issues with these 
existing procedures that require revision; however, those affected by 
these regulations are encouraged to identify problems and suggest 
solutions to those problems during the public comment period for this 
rule.
    Communities affected by these regulations have already received the 
Special Community Disaster Loans. Therefore, these communities already 
have established systems and procedures in place to meet the loan 
maintenance and servicing requirements in 44 CFR 206.375(c). The 
documents already required under that paragraph meet some of the 
proposed financial information submission requirements for 
cancellation. The proposed administrative requirements for loan 
cancellation should not be too burdensome for either the loan

[[Page 15232]]

applicant or FEMA. The documents that must be provided in an 
Application for Loan Cancellation would include: (1) Annual operating 
budgets for the fiscal year of the disaster and the three subsequent 
fiscal years (States and local governments should already have annual 
operating budgets as a matter of practice; therefore, this element 
should create no new burden on the applicants); (2) annual financial 
reports for the fiscal year of the disaster and the three subsequent 
fiscal years (these annual financial reports are already required to be 
submitted by 44 CFR 206.375(c), and should create no new burden on the 
applicants); (3) the following information concerning annual real 
estate property taxes pertaining to the community for the fiscal year 
of the disaster and the three subsequent fiscal years: the market value 
of the tax base, the assessment ratio, the assessed valuation, the tax 
levy rate and the taxes levied and collected (pursuant to pertinent 
State statutes, ordinances, regulations which prescribe the local 
government's system of budgeting, accounting and financial reporting in 
44 CFR 206.374(b)(1)(ii)(B), and revised OMB Circular A-133, ``Audits 
of States, Local Governments, and Non-Profit Organizations,'' 44 CFR 
13.26, local governments receiving loans must be audited annually; the 
information required to be submitted with the Application for Loan 
Cancellation is standard information contained in the annual financial 
reports resulting from these annual audits); (4) audit reports for the 
fiscal year of the disaster and the 3 subsequent fiscal years 
certifying to the validity of the operating statements (this is a 
standard element of the annual audit report and the requirement to 
provide this information should create no new burden on the applicant); 
and (5) other financial information specified in the Application for 
Loan Cancellation, which includes information such as unreimbursed 
disaster-related expenses.
    The burden on the public is low with respect to new administrative 
requirements associated with submitting the Application for Loan 
Cancellation. FEMA estimates that the annual estimated cost to submit 
the Application for Loan Cancellation to be $4,850.32. FEMA made 152 
Special Community Disaster Loans to 109 eligible applicants in 
Mississippi and Louisiana. Because the documents required to be 
submitted with an Application for Loan Cancellation are documents that 
each local government should already possess, FEMA estimates that it 
would take an average of 1 hour for local governments to prepare the 
Application for Loan Cancellation. Using wage rates from the U.S. 
Department of Labor, Bureau of Labor Statistics (BLS), Standard 
Occupation Classification (SOC) System, the median hourly wage for 
Emergency Management Specialists in Business and Financial Operations 
(SOC Code Number 13.1061) is $22.79 per hour. Adding 40 percent to the 
BLS figure to account for benefits, FEMA has calculated the burden 
using a wage rate of $31.91 per hour. Since there are a total of 152 
Special Community Disaster Loans, it is estimated that the one time 
cost of compliance to submit the Application for Loan Cancellation for 
all loans is $4,850.32. This figure is calculated as follows: ((152 x 
1) x $31.91).
    If all 152 loan recipients applied, and were found eligible, for 
full cancellation under these proposed procedures, up to 
$1,270,501,241, plus any applicable interest and costs, could be 
cancelled, although as of March 16, 2009 only $831 million of that 
amount had been drawn down. Any funds cancelled will have a positive 
effect on the State and local economy by reducing on-going operating 
expenses related to the loan, as well as the debt for the loan. 
Although not a grant, the cancellation of these loans would affect the 
Federal government's budget much like a grant. The loans were 
originally provided out of the Federal Treasury. If the local 
governments' revenues are found to be insufficient to meet its 
operating budget, the principal amount of the loan and the related 
interest would be forgiven. The economic impact would be a transfer 
payment from the Federal government to the local government whose loan 
was cancelled.
    The overall impact of this rule is, therefore, the cost to the 
applicant to apply for the cancellation, as well as the impact on the 
economy of potentially forgiving all Special Community Disaster Loans 
and any related interest and costs. The maximum total economic impact 
of this rule is approximately $1.3 billion (conservatively assuming 
that all funds awarded will be drawn down, and exclusive of any 
interest that may also be forgiven). However, without knowing the 
dollar amounts or even the number of loans that will be cancelled, it 
is impossible to predict the amount of the economic impact of this rule 
with any precision. Although the impact of the rule could be spread 
over multiple years as applications are received, processed, and loans 
cancelled, the total economic effect of a specific loan cancellation 
would only occur once, rather than annually.
B. Regulatory Flexibility Act
    Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have 
considered whether this proposed rule would have a significant economic 
impact on a substantial number of small entities. The term ``small 
entities'' comprises small businesses, not-for-profit organizations 
that are independently owned and operated and are not dominant in their 
fields, and governmental jurisdictions with populations of less than 
50,000.
    FEMA certifies under 5 U.S.C. 605(b) that this proposed rule would 
not have a significant economic impact on a substantial number of small 
entities. Section 601(5) defines small governmental jurisdictions as 
governments of cities, counties, towns, townships, villages, school 
districts, or special districts with a population of less than 50,000. 
This proposed rule would affect the following entities, some of which 
might be small entities: The 109 eligible applicants devastated by 
Hurricanes Katrina and Rita located in Mississippi and Louisiana that 
received Special Community Disaster Loans authorized in the 2005 and 
2006 Acts. This proposed rule will not impose any additional 
requirements on local governments that do not have a Special Community 
Disaster Loan.
    As stated previously, the potential for loan cancellation under the 
proposed procedures would not have a negative impact on any loan 
applicant as any funds cancelled will have a positive beneficial effect 
on the State and local governments by reducing on-going operating 
expenses and debt related to the loan. We have previously explained 
that State and local governments that choose to seek loan cancellation 
consideration will need to spend a minimal amount of staff time 
preparing the required application. Such a minimal staffing burden is 
not considered to be a significant economic impact. Consequently, this 
proposed rule would not have a significant economic impact on a 
substantial number of small entities.
    If you think that your business, organization, or governmental 
jurisdiction qualifies as a small entity and that this rule would have 
a significant economic impact on it, please submit a comment (See 
ADDRESSES) explaining why you think it qualifies and how and to what 
degree this rule would economically affect it.
C. Unfunded Mandates Reform Act of 1995
    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
requires

[[Page 15233]]

Federal agencies to assess the effects of their discretionary 
regulatory actions. In particular, the Unfunded Mandates Reform Act 
addresses actions that may result in the expenditure by a State, local, 
or tribal government, in the aggregate, or by the private sector, of 
$100,000,000 or more in any one year. FEMA does not expect this rule to 
result in such expenditure since loan recipients applying for potential 
cancellation of a Special Community Disaster Loan will not result in 
any expenditure not already assumed. Additionally, this rule is 
expected to provide a benefit to the local governments by allowing for 
the cancellation of Special Community Disaster Loans for those 
communities whose revenues during the full three-fiscal-year period 
following the major disaster are insufficient to meet the operating 
budget of the local government. FEMA discusses this rule's effects 
elsewhere in this preamble.
D. Executive Order 13132, Federalism
    This rule will not have substantial direct effects on the States, 
on the relationship between the National Government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. It will not preempt any State laws. Eligible 
applicants who may apply for loan cancellation under these proposed 
procedures do so voluntarily and State policy making discretion is not 
affected. In accordance with section 6 of Executive Order 13132, FEMA 
determines that this rule will not have Federalism implications 
sufficient to warrant the preparation of a Federalism impact statement.
E. National Environmental Policy Act
    FEMA's regulations implementing the National Environmental Policy 
Act of 1969 (42 U.S.C. 4321 et seq.) at 44 CFR 10.8(d)(2)(ii) 
categorically exclude the preparation, revision, adoption of 
regulations, directives, manuals, and other guidance documents related 
to actions that qualify for categorical exclusions. Moreover, the 
changes being proposed in this rule constitute actions that enforce 
existing Federal regulations, (44 CFR 10.8(d)(2)(iv)), and involve 
emergency and disaster response and recovery activities under section 
417 of the Stafford Act (44 CFR 10.8(d)(2)(xix)(K)). This rulemaking 
will not have a significant effect on the human environment and, 
therefore, neither an environmental assessment nor an environmental 
impact statement is required.
F. Paperwork Reduction Act of 1995
    In the October 19, 2005 interim rule (at 70 FR 60442; also 44 CFR 
206.370-206.377), FEMA determined that implementation of the interim 
rule would be subject to the Paperwork Reduction Act of 1995 (PRA) (44 
U.S.C. 3501-3520). With the interim rule, FEMA submitted two 
information collection requests to OMB for review and clearance in 
accordance with the review procedures of the PRA. OMB approved the 
requested revision of the collection entitled ``Application for 
Community Disaster Loan (CDL) Program and the Special Community 
Disaster Loan (SCDL) Program,'' which was assigned OMB Control Number 
1660-0083 and expires on June 30, 2009. This proposed rule does not 
contain any changes that would affect that currently approved 
collection.
    OMB also approved the collection entitled ``Application for 
Community Disaster Loan Cancellation'' which was assigned OMB Control 
Number 1660-0082 and expires on January 31, 2010. That collection uses 
FEMA Form 90-5, Application for Loan Cancellation, which has an annual 
number of respondents of 1 (the number of communities who apply for 
cancellation of a Community Disaster Loan under the existing procedures 
in 44 CFR 206.366). It is intended that applicants seeking cancellation 
of a Special Community Disaster Loan will use the same form submitted 
for Community Disaster Loans. Because FEMA proposes to implement the 
same cancellation procedures for Special Community Disaster Loans as 
already exist for the Community Disaster Loan program, FEMA proposes to 
amend that existing collection to increase the number of respondents to 
153. This number reflects the 1 Community Disaster Loan cancellation 
application already received annually under the Community Disaster Loan 
program, and the potential 152 applications for cancellation of Special 
Community Disaster Loans as proposed in this rule.
    Accordingly, in this proposed rule, FEMA is seeking a revision to 
the already existing collection of information OMB Control Number 1660-
0082, to include the cancellation of Special Community Disaster Loans. 
This proposed rule serves as the 60 day comment period for this 
proposed change pursuant to 5 CFR 1320.12. FEMA invites the general 
public to comment on the proposed collection of information.
Collection of Information
    Title: Application for Community Disaster Loan Cancellation.
    Type of Information Collection: Revision of a currently approved 
collection.
    OMB Number: 1660-0082.
    Form Numbers: FEMA Form 90-5.
    Abstract: Local governments may submit an Application for Loan 
Cancellation through the Governor's Authorized Representative to the 
FEMA Regional Administrator prior to the expiration date of the loan. 
FEMA has the authority to cancel repayment of all or part of a 
Community Disaster Loan or a Special Community Disaster Loan to the 
extent that a determination is made that revenues of the local 
government during the three fiscal years following the disaster are 
insufficient to meet the operating budget of that local government 
because of disaster-related revenue losses and additional unreimbursed 
disaster-related municipal operating expenses. Operating budget means 
actual revenues and expenditures of the local government as published 
in the official financial statements of the local government.
    Affected Public: State, local or tribal governments.
    Number of Respondents: 153.
    Frequency of Response: 1 per year.
    Hour Burden per Response: 1 hour.
    Estimated Total Annual Burden Hours: 153 hours.

                                                 Table A.12--Estimated Annualized Burden Hours and Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Number of      Avg. burden    Total annual                    Total annual
        Type of respondent             Form name/form        Number of     responses per   per response     burden  (in     Avg. hourly     respondent
                                           number           respondents     respondent      (in hours)        hours)         wage rate         cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
State, local and Tribal Government   Application for                   1               1               1               1          $31.91          $31.91
                                     Loan Cancellation/
                                     FEMA Form 90-5
                                     (under 44 CFR
                                     206.366 as
                                     currently approved
                                     by OMB).

[[Page 15234]]


State, local and Tribal Government   Application for                 152               1               1             152          $31.91       $4,850.32
                                     Loan Cancellation/
                                     FEMA Form 90-5
                                     (under 44 CFR
                                     206.376 the change
                                     associated with
                                     this rule).
                                                         -----------------------------------------------------------------------------------------------
Total.............................  ....................             153  ..............  ..............             153  ..............       $4,882.23
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated Cost: $0. There are no start-up, operational or other 
costs associated with this information collection in addition to the 
burden hour cost noted in the table above.
    Comments: Written comments are solicited to (a) evaluate whether 
the proposed data collection is necessary for the proper performance of 
the agency, including whether the information shall have practical 
utility; (b) evaluate the accuracy of the agency's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used; (c) enhance the 
quality, utility, and clarity of the information to be collected; and 
(d) minimize the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g., permitting electronic 
submission of responses.
    Interested persons are invited to submit written comments on the 
information collection through one of the methods listed in ADDRESSES 
above on or before June 2, 2009.

FOR FURTHER INFORMATION CONTACT: Contact Gerald Connelly, (202) 646-
3638 for additional information regarding this information collection. 
You may contact the Records Management Branch for copies of the 
proposed collection of information at facsimile number (202) 646-3347 
or e-mail address: FEMAInformation-Collections@dhs.gov.
G. Executive Order 12630, Taking of Private Property
    This rule will not affect a taking of private property or otherwise 
have taking implications under Executive Order 12630, Governmental 
Actions and Interference with Constitutionally Protected Property 
Rights.
H. Executive Order 12988, Civil Justice Reform
    This rule meets applicable standards in sections 3(a) and 3(b)(2) 
of Executive Order 12988, Civil Justice Reform, to minimize litigation, 
eliminate ambiguity, and reduce burden.
I. Executive Order 13175, Consultation and Coordination With Indian 
Tribal Governments
    Because no Special Community Disaster Loans were made to Indian 
Tribal Governments, this rule does not have tribal implications under 
Executive Order 13175, Consultation and Coordination with Indian Tribal 
Governments. This rule would not have a substantial direct effect on 
one or more Indian tribes, on the relationship between the Federal 
Government and Indian tribes, or on the distribution of power and 
responsibilities between the Federal Government and Indian tribes.

List of Subjects in 44 CFR Part 206

    Administrative practice and procedure, Coastal zone, Community 
facilities, Disaster assistance, Fire prevention, Grant programs--
housing and community development, Housing, Insurance, 
Intergovernmental relations, Loan programs--housing and community 
development, Natural resources, Penalties, Reporting and recordkeeping 
requirements.

    For the reasons discussed in the preamble, FEMA proposes to amend 
44 CFR part 206 as follows:

PART 206--FEDERAL DISASTER ASSISTANCE

    1. The authority citation for part 206 continues to read as 
follows:

    Authority: Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, 42 U.S.C. 5121 through 5207; 119 Stat. 2061; 
Reorganization Plan No. 3 of 1978, 43 FR 41943, 3 CFR, 1978 Comp., 
p. 329; Homeland Security Act of 2002, 6 U.S.C. 101; E.O. 12127, 44 
FR 19367, 3 CFR, 1979 Comp., p. 376; E.O. 12148, 44 FR 43239, 3 CFR, 
1979 Comp., p. 412; and E.O. 13286, 68 FR 10619, 3 CFR, 2003 Comp., 
p. 166.

    2. Revise Sec.  206.370 to read as follows:


Sec.  206.370  Purpose and scope.

    (a) Purpose. Sections 206.370 through 206.377 provide procedures 
for local governments and State and Federal officials concerning the 
Special Community Disaster Loans program under section 417 of the 
Stafford Act (42 U.S.C. 5184), the Community Disaster Loan Act of 2005, 
Public Law 109-88, and the Emergency Supplemental Appropriations Act 
for Defense, the Global War on Terror, and Hurricane Recovery, 2006, 
Public Law 109-234.
    (b) Scope. Sections 206.370 through 206.377 apply only to Special 
Community Disaster Loans issued under the Community Disaster Loan Act 
of 2005, Public Law 109-88, and the Emergency Supplemental 
Appropriations Act for Defense, the Global War on Terror, and Hurricane 
Recovery, 2006, Public Law 109-234.
    3. In Sec.  206.371, revise the last sentence of paragraph (f), 
paragraph (g) and add new paragraph (h) to read as follows:


Sec.  206.371  Loan program.

* * * * *
    (f) * * * Neither the loan nor any cancelled portion of the loans 
may be used as the non-Federal share of any Federal program, including 
those under the Stafford Act.
    (g) Relation to other assistance. Any Special Community Disaster 
Loans including cancellations of loans made under this subpart shall 
not reduce or otherwise affect any commitments, grants, or other 
assistance provided under the authority of the Stafford Act or this 
part.
    (h) Cancellation. The Assistant Administrator for the Disaster 
Assistance Directorate shall cancel repayment of all or part of a 
Special Community Disaster Loan to the extent that he/she determines 
that revenues of the local government during the 3 fiscal years 
following the disaster are insufficient to meet the operating budget of 
that local government because of

[[Page 15235]]

disaster-related revenue losses and additional unreimbursed disaster-
related municipal operating expenses.
    4. In Sec.  206.372 revise paragraphs (a), (c), (d) and (e) to read 
as follows:


Sec.  206.372  Responsibilities.

    (a) The local government shall submit the financial information 
required by FEMA in the application for a Community Disaster Loan or 
other format specified by FEMA and comply with the assurances on the 
application, the terms and conditions of the Promissory Note in the 
application for loan cancellation, if submitted, and Sec. Sec.  206.370 
through 206.377. The local government shall send all loan application, 
loan administration, loan cancellation, and loan settlement 
correspondence through the Governor's Authorized Representative (GAR) 
and the FEMA Regional Office to the FEMA Assistant Administrator for 
the Disaster Assistance Directorate.
* * * * *
    (c) The Regional Administrator or designee shall review each loan 
application or loan cancellation request received from a local 
government to ensure that it contains the required documents and 
transmit the application to the Assistant Administrator for the 
Disaster Assistance Directorate. He/she may submit appropriate 
recommendations to the Assistant Administrator for the Disaster 
Assistance Directorate.
    (d) The Assistant Administrator for the Disaster Assistance 
Directorate or a designee, shall execute a Promissory Note with the 
local government and shall administer the loan until repayment or 
cancellation is completed and the Promissory Note is discharged.
    (e) The Assistant Administrator for the Disaster Assistance 
Directorate or designee shall approve or disapprove each loan request, 
taking into consideration the information provided in the local 
government's request and the recommendations of the GAR and the 
Assistant Administrator for the Disaster Assistance Directorate. The 
Assistant Administrator for the Disaster Assistance Directorate or 
designee shall approve or disapprove a request for loan cancellation in 
accordance with the criteria for cancellation in these regulations.
* * * * *
    5. In Sec.  206.374, add a sentence at the end of paragraph (b)(2) 
to read as follows:


Sec.  206.374  Loan application.

* * * * *
    (b) * * *
    (2) * * * For loan cancellation purposes, FEMA interprets the term 
``operating budget'' to mean actual revenues and expenditures of the 
local government as published in the official financial statements of 
the local government.
* * * * *
    6. Add Sec.  206.376 to read as follows:


Sec.  206.376  Loan cancellation.

    (a) General. (1) FEMA shall cancel repayment of all or part of a 
Special Community Disaster Loan to the extent that the Assistant 
Administrator for the Disaster Assistance Directorate determines that 
revenues of the local government during the full three fiscal year 
period following the disaster are insufficient, as a result of the 
disaster, to meet the operating budget for the local government, 
including additional unreimbursed disaster-related expenses for a 
municipal operating character. For loan cancellation purposes, FEMA 
interprets the term operating budget to mean actual revenues and 
expenditures of the local government as published in the official 
financial statements of the local government.
    (2) If the tax and other revenues rates or the tax assessment 
valuation of property which was not damaged or destroyed by the 
disaster are reduced during the 3 fiscal years subsequent to the major 
disaster, the tax and other revenue rates and tax assessment valuation 
factors applicable to such property in effect at the time of the major 
disaster shall be used without reduction for purposes of computing 
revenues received.
    (3) If the local government's fiscal year is changed during the 
``full 3 year period following the disaster'' the actual period will be 
modified so that the required financial data submitted covers an 
inclusive 36-month period.
    (4) If the local government transfers funds from its operating 
funds accounts to its capital funds account, utilizes operating funds 
for other than routine maintenance purposes, or significantly increases 
expenditures which are not disaster related, except increases due to 
inflation, the annual operating budget or operating statement 
expenditures will be reduced accordingly for purposes of evaluating any 
request for loan cancellation.
    (5) It is not the purpose of this loan program to underwrite 
predisaster budget or actual deficits of the local government. 
Consequently, such deficits carried forward will reduce any amounts 
otherwise eligible for loan cancellation.
    (6) The provisions of this section apply to all Special Community 
Disaster loans issued from the dates of enactment of Public Law 109-88 
and Public Law 109-234.
    (b) Disaster-related expenses of a municipal operation character. 
(1) For purposes of this loan, unreimbursed expenses of a municipal 
operating character are those incurred for general government purposes, 
including but not limited to police and fire protection, trash 
collection, collection of revenues, maintenance of public facilities, 
flood and other hazard insurance.
    (2) Disaster-related expenses do not include expenditures 
associated with debt service, any major repairs, rebuilding, 
replacement or reconstruction of public facilities or other capital 
projects, intragovernmental services, special assessments, and trust 
and agency fund operations. Disaster expenses which are eligible for 
reimbursement under project applications or other Federal programs are 
not eligible for loan cancellation.
    (3) Each applicant shall maintain records including documentation 
necessary to identify expenditures for unreimbursable disaster-related 
expenses. Examples of such expenses include but are not limited to:
    (i) Interest paid on money borrowed to pay amounts FEMA does not 
advance toward completion of approved Project Applications.
    (ii) Unreimbursed costs to local governments for providing usable 
sites with utilities for mobile homes used to meet disaster temporary 
housing requirements.
    (iii) Unreimbursed costs required for police and fire protection 
and other community services for mobile home parks established as the 
result of or for use following a disaster.
    (iv) The cost to the applicant of flood insurance required under 
Public Law 93-234, as amended, and other hazard insurance required 
under section 311, Public Law 93-288, as amended, as a condition of 
Federal disaster assistance for the disaster under which the loan is 
authorized.
    (4) The following expenses are not considered to be disaster-
related for Special Community Disaster Loan purposes:
    (i) The local government's share for assistance provided under the 
Stafford Act including flexible funding under section 406(c)(1) of the 
Act (42 U.S.C. 5172).
    (ii) Improvements related to the repair or restoration of disaster 
public facilities approved on Project Applications.
    (iii) Otherwise eligible costs for which no Federal reimbursement 
is requested as a part of the applicant's disaster response commitment, 
or cost sharing as

[[Page 15236]]

specified in the FEMA-State Agreement for the disaster.
    (iv) Expenses incurred by the local government which are reimbursed 
on the applicant's project application.
    (c) Cancellation application. A local government which has drawn 
loan funds from the U.S. Treasury may request cancellation of the 
principal and related interest by submitting an Application for Loan 
Cancellation through the Governor's Authorized Representative to the 
Regional Administrator prior to the expiration date of the loan.
    (1) Financial information submitted with the application shall 
include the following:
    (i) Annual Operating Budgets for the fiscal year of the disaster 
and the 3 subsequent fiscal years;
    (ii) Annual Financial Reports (Revenue and Expense and Balance 
Sheet) for each of the above fiscal years. Such financial records must 
include copies of the local government's annual financial reports, 
including operating statements balance sheets and related consolidated 
and individual presentations for each fund account. In addition, the 
local government must include an explanatory statement when figures in 
the Application for Loan Cancellation form differ from those in the 
supporting financial reports.
    (iii) The following additional information concerning annual real 
estate property taxes pertaining to the community for each of the above 
fiscal years:
    (A) The market value of the tax base (dollars);
    (B) The assessment ratio (percent);
    (C) The assessed valuation (dollars);
    (D) The tax levy rate (mils);
    (E) Taxes levied and collected (dollars).
    (iv) Audit reports for each of the above fiscal years certifying to 
the validity of the Operating Statements. The financial statements of 
the local government shall be examined in accordance with generally 
accepted auditing standards by independent certified public 
accountants. The report should not include recommendations concerning 
loan cancellation or repayment.
    (v) Other financial information specified in the Application for 
Loan Cancellation.
    (2) Narrative justification. The application may include a 
narrative presentation to supplement the financial material 
accompanying the application and to present any extenuating 
circumstances which the local government wants the Assistant 
Administrator for the Disaster Assistance Directorate to consider in 
rendering a decision on the cancellation request.
    (d) Determination. (1) If, based on a review of the Application for 
Loan Cancellation and FEMA audit, the Assistant Administrator for the 
Disaster Assistance Directorate or a designee determines that all or 
part of the Special Community Disaster Loan funds should be canceled, 
the amount of principal canceled and the related interest will be 
forgiven. The Assistant Administrator for the Disaster Assistance 
Directorate, or a designee's determination concerning loan cancellation 
will specify that any uncancelled principal and related interest must 
be repaid in accordance with the terms and conditions of the Promissory 
Note, and that, if repayment will constitute a financial hardship, the 
local government must submit for FEMA review and approval, a repayment 
schedule for settling the indebtedness on timely basis. Such repayments 
must be made to the Treasurer of the United States and be sent to FEMA, 
Attention: Office of the Chief Financial Officer.
    (2) A loan or cancellation of a loan does not reduce or affect 
other disaster-related grants or other disaster assistance. However, no 
cancellation may be made that would result in a duplication of benefits 
to the applicant.
    (3) The uncancelled portion of the loan must be repaid in 
accordance with Sec.  206.377.
    (4) Appeals. If an Application for Loan Cancellation is 
disapproved, in whole or in part, by the Assistant Administrator for 
the Disaster Assistance Directorate or designee, the local government 
may submit any additional information in support of the application 
within 60 days of the date of disapproval. The decision by the 
Assistant Administrator for the Disaster Assistance Directorate or 
designee on the additional information is final.
    7. Amend Sec.  206.377 by revising the first sentence of paragraph 
(b) introductory text, the last sentence of paragraph (b)(2), paragraph 
(b)(4) and (c)(2) to read as follows:


Sec.  206.377  Loan repayment.

* * * * *
    (b) Repayment. To the extent not otherwise cancelled, loan funds 
become due and payable in accordance with the terms and conditions of 
the Promissory Note. * * *
* * * * *
    (2) * * * If any portion of the loan is cancelled, the interest 
amount due will be computed on the remaining principal with the 
shortest outstanding term.
* * * * *
    (4) The Assistant Administrator for the Disaster Assistance 
Directorate may defer payments of principal and interest until FEMA 
makes its final determination with respect to any Application for Loan 
Cancellation which the borrower may submit.* * *
* * * * *
    (c) * * *
* * * * *
    (2) The principal amount shall be the original uncancelled 
principal plus related interest less any payments made.
* * * * *

    Dated: March 26, 2009.
Nancy Ward,
Acting Administrator, Federal Emergency Management Agency.
[FR Doc. E9-7286 Filed 4-2-09; 8:45 am]

BILLING CODE 9110-23-P
