FR Doc 04-6934

[Federal Register: March 29, 2004 (Volume 69, Number 60)]
[Rules and Regulations]
[Page 16391-16399]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29mr04-10]

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Part V

Department of Agriculture

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Commodity Credit Corporation

National Resources Conservation Service

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7 CFR Part 1466

Conservation Innovation Grants; Interim Final Rule and Notice

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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1466

Conservation Innovation Grants

AGENCY: Natural Resources Conservation Service and Commodity Credit
Corporation, USDA.

ACTION: Interim final rule with request for comments.

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SUMMARY: This interim final rule amends the Environmental Quality
Incentives Program (EQIP) final rule, published in the Federal Register
on May 30, 2003, to describe how the Natural Resources Conservation
Service (NRCS) intends to implement Conservation Innovation Grants
(CIG) for eligible governmental or non-governmental organizations or
individuals on a competitive basis as authorized by the Farm Security
and Rural Investment Act of 2002. CIG will be available to applicants
who submit proposals for projects that involve EQIP-eligible farmers
and ranchers. This interim final rule also solicits public comments for
consideration in developing a final rule.

DATES: Effective date: March 29, 2004. Comments must be received by May
28, 2004.

ADDRESSES: NRCS invites interested persons to submit comments on this
interim final rule. Comments may be submitted by any of the following
methods:
Mail: Send comments to: Carl Lucero, Natural
Resources Conservation Service, 5601 Sunnyside Avenue, Mail Stop 5473,
Beltsville, MD 20705.
E-Mail: Send comments to cig@usda.gov.
Fax: Submit comments by facsimile transmission
to: (301) 504-2264.
Federal eRulemaking Portal: Go to http://www.regulations.gov.
Follow the online instructions for submitting

comments.
You may access this interim final rule via the Internet through the
NRCS home page at http://www.nrcs.gov. Select ``Farm Bill.''

FOR FURTHER INFORMATION CONTACT: Carl Lucero, Natural Resources
Conservation Service, 5601 Sunnyside Avenue, Mail Stop 5473,
Beltsville, MD 20705. Phone: (301) 504-2222; facsimile: (301) 504-2264.
Send e-mail to: cig@usda.gov. Persons with disabilities who require
alternative means for communication (Braille, large print, audio tape,
etc.) should contact the USDA TARGET Center at (202) 720-2600.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

The CIG program was authorized as part of EQIP, with an unspecified
annual funding level from FY2003 through FY2007. This interim final
rule has been reviewed under USDA procedures and Executive Order 12866
on Regulatory Planning and Review. The Office of Management and Budget
(OMB) has determined that this interim final rule is not a significant
rule making action. Therefore, completion of a benefit-cost assessment
of potential impacts is not necessary. An economic evaluation was
completed, however, because of the aid that such an evaluation provides
to the rulemaking process. A copy of this document is available upon
request from: Carl Lucero, Natural Resources Conservation Service, 5601
Sunnyside Avenue, Mail Stop 5473, Beltsville, MD 20705. Phone: (301)
504-2222; facsimile: (301) 504-2264; or on the Internet at http://www.nrcs.usda.gov/programs/cig
.

Regulatory Flexibility Act

The Regulatory Flexibility Act is not applicable to this rule
because NRCS is not required by 5 U.S.C. 533, or any other provision of
law, to publish a notice of proposed rulemaking with respect to the
subject matter of this rule. The 2002 Farm Bill states that a
regulation may be promulgated as an interim final rule effective on
publication with an opportunity for notice and comment if determined to
be appropriate by the Secretary of Agriculture or the Commodity Credit
Corporation. Since its inclusion as a discretionary provision under
EQIP in the 2002 Farm Bill, CIG has generated a great deal of interest
from both the agricultural and environmental communities.
Implementation of CIG was delayed, however, while regulations for
mandatory NRCS conservation programs were promulgated. With funds
available for CIG in FY 2004, a determination was made to issue this
interim final rule with request for public comments in order to
implement CIG without further delay. The public comments, together with
the experience gained from implementing CIG in this fiscal year, will
be considered during the drafting of the final rule, which NRCS intends
to issue prior to publication of a CIG request for proposals in FY
2005.

Environmental Evaluation

Promulgation of this rule does not authorize any activities that
will affect the human environment. This rule establishes the policies
and procedures that will be used to award Conservation Innovation
Grants. The grants awarded under this regulation are for innovative
projects; therefore, NRCS has a limited ability to predict the types of
actions that may be carried out during a CIG project. Any attempt to
analyze the effects of proposed actions would be speculative.
Accordingly, neither an Environmental Assessment (EA) nor an
Environmental Impact Statement (EIS) has been prepared at this time.
Instead, the environmental effects of each CIG proposal will be
evaluated on a case-by-case. As a part of the evaluation, CIG
applicants are required to submit an environmental profile as part of
their application. These profiles will be used to determine whether an
EA or EIS is needed for any given project, prior to the awarding of
grant funds.

Paperwork Reduction Act

Section 2702(b)(1)(A) of the 2002 Act provides that the
promulgation of regulations and the administration of title II of the
Act shall be made without regard to chapter 35 of title 44 of the
United States Code, the Paperwork Reduction Act. Accordingly, these
regulations and the forms, and other information collection activities
needed to administer the program authorized by these regulations, are
not subject to provisions of the Paperwork Reduction Act, including
review by the Office of Management and Budget.

Government Paperwork Elimination Act

NRCS is committed to compliance with the Government Paperwork
Elimination Act (GPEA) and with the Freedom to E-File Act, which
require Government agencies in general and NRCS in particular to
provide the public the option of submitting information or transacting
business electronically to the maximum extent possible.

Executive Order 12998

This interim final rule has been reviewed in accordance with
Executive Order 12988, Civil Justice Reform. The provisions of this
interim final rule are not retroactive. The provisions of this interim
final rule preempt State and local laws to the extent that such laws
are inconsistent with this interim final rule. Before an action may be
brought in a Federal court of competent jurisdiction, the
administrative appeal rights afforded persons at 7 CFR parts 614, 780,
and 11 must be exhausted.

Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994

Pursuant to Section 304 of the Federal Crop Insurance Reform and
Department

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of Agriculture Reorganization Act of 1994 (Pub. L. 104-354), NRCS did
not classify this interim final rule as major and, therefore, NRCS did
not conduct a risk analysis. A risk analysis was completed on the EQIP
program, establishing that EQIP will produce benefits and reduce risks
to human health, human safety, and the environment in a cost-effective
manner. A copy of the EQIP risk analysis is available on request from
Jose Acevedo, Deputy Chief for Programs, Natural Resources Conservation
Service, 14th and Independence Ave., SW., Room 5109-S, Washington, DC
20250, and electronically at http://www.nrcs.usda.gov/programs/Env_Assess/EQIP/EQIP_RA_121002.pdf
.

Unfunded Mandates Reform Act of 1995

NRCS assessed the effects of this rulemaking action on local,
State, and Tribal governments, and the public. This action does not
compel the expenditure of $100 million or more by any local, State, or
tribal governments, or anyone in the private sector; therefore, a
statement under section 202 of the Unfunded Mandates Reform Act of 1995
is not required.

Summary of Conservation Innovation Grants

Of the nearly 1.4 billion acres of private land in the United
States, 931 million acres, or roughly 70 percent, are in agricultural
use. The activities on these lands have a direct effect on soil, water,
air, plant, and animal resources, as well as the social, cultural, and
economic condition of U.S. communities, towns, and counties. Regional
and local differences in farm structure, farm practices, and farm
products make delivering innovative agricultural conservation technical
assistance a challenge. National agricultural research and development
may not always have the capacity to develop, test, and transfer new or
innovative conservation technologies and approaches rapidly or
effectively to account for regional variances in the agricultural
industry. Consequently, there is a need to expediently develop, test,
implement, and transfer innovative farm and ranch conservation
technologies and approaches for adoption in the largest applicable
market available.
To address this need, Section 1240H of the Food Security Act of
1985 was added by section 2301 of the Farm Security and Rural
Investment Act of 2002 (Pub. L. 107-171), and established CIG as part
of the Environmental Quality Incentives Program (EQIP) [16 U.S.C.
3839aa-8]. Through CIG, the Secretary of Agriculture may pay the costs
of competitive grants to carry out projects that stimulate innovative
approaches to leveraging the Federal investment in environmental
enhancement and protection in conjunction with agricultural production.
The Secretary of Agriculture delegated the authority for the
administration of EQIP, including CIG, to the Chief of NRCS, who is a
vice president of the Commodity Credit Corporation (CCC). EQIP is
administered under the authorities of the CCC.
The Chief may designate an amount of funds available for CIG. NRCS
is proposing to award these funds on a competitive basis through a two-
tiered process. A nationwide grants competition will be announced in
the Federal Register through a Request for Proposals (RFP). In
addition, the Chief may provide each State Conservationist with the
discretion to implement a separate State-level component of CIG.
Funding availability for these distinct State-level competitions will
be announced through public notices, separately from the national
program.
CIG funds for the national component will be designated from the
national EQIP allocation. Applications will be requested from eligible
governmental or non-governmental organizations or individuals for
competitive consideration of grant awards for single or multi-year
projects.
Selection will be based on the proposal evaluation criteria
published in the RFP. Selected applicants may receive grants of up to
50 percent of the total project cost. Applicants must provide non-
Federal funding for at least 50 percent of the project cost, of which
up to one-half (25 percent of total project cost) may be from in-kind
contributions. An exception allows grantees who are either a Beginning
or Limited Resource Farmer or Rancher, or Indian Tribe, or a community-
based organization comprised of or representing these entities, to
derive up to 75 percent of their matching funds from in-kind
contributions.

Summary of Provisions and Request for Comments

The following discussion summarizes the provisions in each
paragraph of the interim final rule, explains the alternatives that
NRCS considered, describes NRCS's preferred approach, and requests
public comment on specific issues. In addition, NRCS welcomes comments
on all aspects of this interim final rule and the following broad
issues:
What type of innovative approaches and
technologies should CIG address?
What should the geographic scope be for
innovative approaches and technologies addressed through CIG?
What level of funding is appropriate to meet the
objectives of CIG?
Should NRCS provide special consideration for
under-represented individuals or entities through CIG?
Should CIG be driven by natural resource
conservation concerns?
What natural resource conservation concerns
should CIG address, both initially and in future years?
What criteria should be used to evaluate CIG
proposals?
(a) Definitions. This paragraph sets forth definitions for terms
used throughout the CIG interim final rule that are additions to the
EQIP rule. Most definitions are derived from the statute, NRCS
technical guidance documents, or regulations for other programs
administered by NRCS.
(b) Purpose and Scope.
(1) Purpose. This paragraph states the purpose of CIG.
(2) Geographic scope. Listed in this paragraph are the locations
from which NRCS will accept applications for CIG.
(3) Program Scope. NRCS welcomes comments on the scope and program
design of CIG. NRCS determined that CIG will be implemented using a
two-tiered approach. A nationwide grants competition will be announced
in the Federal Register. The national grants competition will emphasize
projects that have a goal of providing benefits over a large geographic
area. These projects may be watershed-based, regional, multi-State, or
nationwide in scope.
In addition, the Chief may provide each State Conservationist with
the discretion to implement a separate State component of CIG. The
Chief may decide, in any given year, to implement the national
component only. The size of the EQIP application backlog and State
staff workload are two examples of factors that may influence the
Chief's decision.
(4) Program Focus. Applications for CIG should demonstrate the use
of innovative approaches to leverage Federal investment in
environmental enhancement and protection, in conjunction with
agricultural production. NRCS deliberated on two critical issues
related to this statutory charge and program implementation. NRCS
welcomes comments on both issues.
First, NRCS considered what types of projects should be allowed
under CIG. The statute provides the examples of ``market systems for
pollution

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reduction'' and ``innovative conservation practices, including the
storing of carbon in the soil.'' Further, the Conference Report for
Public Law 107-171 encourages awarding CIG grants ``* * * for practices
that foster markets for nutrient trading and for the continued
implementation and acceleration of programs for demonstrating
innovative nutrient management technology systems for animal feeding
operations'' (House Report 107-424, page 496). Thus, NRCS has
interpreted the statute as allowing two broad types of projects to be
funded under CIG--approaches and technologies (either individually or
used in combination). Following are two general examples of projects
that would be eligible for funding under CIG. These examples do not
represent any bias on the part of NRCS in soliciting for, or making
awards to, any particular type of project:
Market-based environmental credit trading
projects addressing one or more natural resource concern; and,
Community-based solutions to watershed-based or
regional natural resource concerns that cannot be addressed by a single
producer, or by a group of producers taking individual on-farm actions.
Second, it was determined that CIG is not a research program.
Instead, it is a vehicle to stimulate the adoption of conservation
approaches or technologies that have been studied sufficiently to
indicate a likelihood of success and to be candidates for eventual
technology transfer. The statute indicates that the innovative
approaches funded under CIG should be developed in conjunction with
agricultural production. Thus, CIG will fund projects targeting
innovative on-the-ground conservation, including pilot projects and
field demonstrations. NRCS recognizes, however, that by targeting on-
the-ground conservation, there is a risk of attracting applications for
projects that are not truly innovative or that qualify for funding
through EQIP. Therefore, technologies and approaches that are eligible
for funding in the project geographic area through EQIP are ineligible
for CIG funding. Applicants should reference each State's EQIP Eligible
Practices List by contacting the NRCS State office, or by visiting the
EQIP web site: http://www.nrcs.usda.gov/programs/eqip/EQIP_signup/2004_EQIP/2004_EQIP.html
.

NRCS believes that the prospect for transfer of approaches or
technologies developed under the program is a critical component of any
CIG project; its importance is reflected in the proposal evaluation
criteria described in paragraph (g) of this preamble. NRCS anticipates
that, when appropriate, innovative approaches or technologies validated
through the use of CIG funds will be incorporated into NRCS
conservation practice standards, technical notes, field handbooks, or
other references.
(5) Innovative Conservation Projects and Activities. NRCS developed
the description of innovative conservation projects and activities for
use in CIG. Proposed CIG projects must adhere to this description, as
it is a critical component of the proposal evaluation criteria. NRCS
welcomes comments on this description.
(c) Availability of Funding.
(1) CIG funding will be available for single- or multi-year
projects. Availability of CIG funds will be announced through a RFP.
The CIG statute provides no guidance as to the level of funding that
should be provided. NRCS has deliberated on the issue of setting the
funding levels for CIG. NRCS considered three options:
Have the Chief determine funding for CIG
annually;
Establish a permanent percentage of the total
EQIP funding that would be made available for grants at the National or
State level; and,
Establish a minimum threshold for CIG funding
(minimum for CIG to be a viable program).
The first option (Chief determination) was chosen. A number of
factors may influence the annual funding level of CIG. For example, in
Fiscal Year 2003, CIG was not implemented because of the late passage
of appropriations, an existing backlog in applications to the EQIP
program, and the statutory direction to use EQIP dollars to fund the
technical assistance for certain other Farm Bill conservation programs.
Similar factors may influence CIG in any given future year. Determining
the CIG funding level annually provides the Chief with maximum
flexibility to adjust to changing levels of available funds and program
conditions. Funds for CIG are designated by the Chief from funds made
available for EQIP.
NRCS welcomes comments on the issue of funding levels for CIG.
NRCS is proposing to establish funding limits and ranges for CIG
projects, to be published in the RFP. The Chief may revisit these
funding limits and ranges and adjust them annually. A maximum funding
limit for individual projects would ensure that a greater number of
projects receive funding. Establishing anticipated funding ranges would
provide potential applicants with reasonable funding expectations. NRCS
is proposing to establish a maximum funding limit of $1 million per
project for the national component. The anticipated range for most
national awards is $75,000 to $500,000.
(2) According to the statute, the cost-share rate for CIG shall not
exceed 50 percent of the cost of the proposed project. Based on an
informal survey of comparable federal grant programs, NRCS decided that
in-kind contributions should be allowed to comprise a portion of the
applicant's matching funds. Up to 50 percent of the applicant's match
(up to 25 percent of the total project cost) may derive from in-kind
contributions. NRCS established an exception regarding matching funds
for grants that are awarded to either a Beginning or Limited Resource
Farmer or Rancher, or Indian tribe, or a community-based organization
comprised of or representing these entities. Up to 75 percent of the
required matching funds for such projects may derive from in-kind
contributions. This exception is intended to help these under-
represented groups meet the CIG statutory requirement of a minimum 50
percent non-federal contribution. NRCS welcomes comments on this
exception.
(3) This paragraph describes the technical assistance and oversight
responsibilities of NRCS and the grantee. While the grantee is
responsible for the technical assistance for CIG projects, NRCS retains
responsibility for technical oversight of grant projects, and will
designate a Federal Grant Representative for each grant award. This
NRCS employee will provide technical oversight to grantees. Technical
oversight may include review of project designs or approaches,
technical review, and on-site visits.
(4) This paragraph describes CIG funding restrictions. NRCS
established funding restrictions to ensure that CIG funds are used
solely to advance program objectives. A detailed list of unallowable
costs will be published in the RFP. NRCS welcomes comments on this
issue.
(d) Natural Resource Conservation Concerns.
NRCS determined that grants should be awarded based on a set of
natural resource conservation concerns. These natural resource concerns
will be identified in the RFP that solicits grant applications, and
applicants will be evaluated on how well their proposed projects
address one or more of the concerns. The other alternative considered
by NRCS was to solicit for grant applications based on specific
technologies or approaches (e.g., market-based approaches, animal waste
management technologies). This option

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was rejected for two primary reasons: (1) Soliciting for specific
technologies or approaches would not provide enough flexibility to
applicants, and would likely result in certain technologies or
approaches being overlooked; and (2) soliciting through natural
resource concerns is consistent with the approach used for EQIP, under
which CIG was authorized. It is USDA's intention to provide flexibility
to applicants in order to obtain the greatest degree of creativity and
innovation possible in addressing natural resource concerns, consistent
with the overall program objective. NRCS welcomes comments on this
approach of using natural resource concerns to drive the CIG program.
NRCS considered using EQIP national priorities to guide CIG (EQIP
national priorities are listed in the EQIP rule, 7 CFR part 1466).
Instead, NRCS designed a protocol for soliciting input on natural
resource concerns. State Conservationists were asked to identify the
top three natural resource concerns in their States. Briefings also
were held in Washington, DC with other Federal agencies, conservation
organizations, environmental stakeholder groups, and agricultural
stakeholder groups. Each group was asked to submit its top three
natural resource conservation concerns. This input from States, Federal
agencies, and stakeholder groups was compiled and analyzed to identify
the natural resource concerns that should appear in the CIG RFP. NRCS
anticipates using this protocol, or a similar protocol, to identify
natural resource concerns each year before developing the RFP. NRCS
welcomes comments on this solicitation protocol.
NRCS considered whether the concerns should be narrowly drawn into
priorities or described more broadly. It was decided that the
descriptions of the concerns in the RFP initially should be broad and
inclusive, with potential for prioritizing a narrower set of natural
resource concerns in future years. NRCS decided to group the natural
resource concerns under five topic headings, with subtopics that
provide more detailed guidance to applicants.
Following are the five initial natural resource conservation
concerns for CIG. The natural resource concerns may be reviewed and
updated each year to ensure that CIG continues to address critical
resource conservation needs. NRCS intends to receive input from State
Conservationists, the Agricultural Research Service, the Cooperative
State Research, Extension, and Education Service, and other federal
agencies when reviewing and updating the natural resource concerns.
NRCS welcomes comments on these natural resource concerns.
(1) Water Resources. The objective of this natural resource concern
is to implement new technologies and approaches to maintain, restore,
or enhance water quality or quantity in watersheds with predominantly
agricultural land uses while sustaining productivity. Subtopics
include:
(i) Nutrient, pesticide, and pathogen transport to surface water
and groundwater;
(ii) Sediment transport to surface water;
(iii) Irrigation management for water conservation;
(iv) Aquifer recharge/maintenance of groundwater supplies; and
(v) Increased water supplies/availability through alternative
treatment or reuse strategies.
(2) Soil Resources. The objective of this natural resource concern
is to implement new technologies or approaches to maintain, restore, or
enhance soil resources associated with agricultural and forest land
uses while sustaining productivity. Subtopics include:
(i) Erosion reduction;
(ii) Accumulation of harmful constituents in soils, including
nutrients, metals, salts; and
(iii) Overall soil quality and productivity.
(3) Atmospheric Resources. The objective of this natural resource
concern is to implement new technologies or approaches to maintain,
restore, or enhance air quality and atmospheric resources through
agricultural and forest practices while sustaining productivity.
Subtopics include:
(i) Agricultural emissions of particulates, odors, volatile organic
compounds, and greenhouse gases;
(ii) Carbon sequestration in soil and through other mechanisms; and
(iii) Bio-based energy opportunities.
(4) Grazing Land and Forest Health. The objective of this natural
resource concern is to implement new technologies or approaches to
maintain, restore, or enhance grazing land and forest health while
sustaining productivity. Subtopics include:
(i) Invasive species management on grazing and forest land;
(ii) Effects of pests, diseases, and fragmentation on forest and
grazing land quality/health; and
(iii) Systems or practices to minimize overgrazing and restore
lands suffering effects of overgrazing.
(5) Wildlife Habitat. The objective of this natural resource
concern is to implement new technologies or approaches for
environmentally sound wildlife habitat management while sustaining
agricultural productivity. Subtopics include:
(i) Riparian area management and restoration;
(ii) Invasive species management;
(iii) Biodiversity; and
(iv) Wetland function and health.
(e) Eligibility Information.
(1) Organization or Individual Eligibility. This paragraph
describes the requirements for CIG eligibility. The CIG provision of
the EQIP statute authorizes the Secretary to provide grants to
governmental and nongovernmental organizations and persons, on a
competitive basis, to carry out projects that involve producers that
are eligible for payments or technical assistance under EQIP. NRCS has
determined that the CIG statutory language warrants the exclusion of
Federal agencies as grant recipients. This is because the statutory
language calls for leveraging of the Federal investment, requiring that
matching funds come from non-Federal sources. Note that while Federal
agencies may not be a grant recipient, they are not barred from
participating in a CIG project as a partner or cooperator, as long as
their contribution is not counted as part of the CIG non-Federal match
requirement.
USDA wishes to inform potential applicants about the applicability
of EQIP payment limitations to CIG grant funds. Section 1240G of the
Food Security Act of 1985 (as amended by the Farm Security and Rural
Investment Act of 2002), 16 U.S.C. 3839aa-7, imposes a $450,000
limitation for all cost-share or incentive payments disbursed to
individuals or entities under an EQIP contract between 2002 and 2007.
Because CIG is a provision under EQIP, NRCS deliberated on whether the
payment limitation also applies to CIG. NRCS determined that the
limitation applies in the following manner:
CIG funds are awarded through grant agreements
and it was determined that these grant agreements are not EQIP
contracts; thus, CIG awards are not limited by the payment limitation;
and,
Grant funds that are provided to a producer or
entity to carry out structural, vegetative, or management practices
count toward each producer's or entity's EQIP payment limitation. The
procedures and policies of this part will be followed to implement this
payment limitation for CIG. NRCS will work with CIG grantees to ensure
that the payment limitation is followed for all CIG projects.
Following are three examples of how the $450,000 EQIP payment
limitation applies to CIG projects:

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A $500,000 CIG grant is awarded to a State
environmental agency to demonstrate an innovative, market-based, water
quality trading program. The money is used to finance the development
of the market infrastructure, and none of the funds are used to
implement structural, vegetative, or management practices. Producers in
the trading market demonstration area may indirectly benefit from their
eventual participation in the market, but there is no direct or
indirect transfer of CIG dollars. If, on the other hand, part of the
CIG award were used to provide funds to producers who implement a
conservation practice on their land as part of a trading program, those
funds would count towards each producer's $450,000 EQIP payment
limitation.
A $1,000,000 CIG grant is awarded to a
Conservation District to pilot a community-based animal waste treatment
technology innovation. EQIP-eligible producers in the area transport
their animal waste to a central treatment location. Because producers
are not directly or indirectly receiving CIG funds, the payment
limitation does not apply. If, however, the technology were to be
installed on five producers' property for demonstration purposes, the
CIG funds would count toward each producer's $450,000 EQIP payment
limitation. Similarly, if the producers were paid for their waste, or
for transporting their waste to the central treatment location, out of
CIG funds, the payments would be subject to each producer's EQIP
payment limitation.
An individual producer applying for a $500,000
CIG grant already has an EQIP contract for $100,000. The producer is
awarded a grant to implement an innovative management practice, but the
amount would be reduced to $350,000 in order to comply with the EQIP
payment limitation.
(2) Project Eligibility. The CIG statute mandates that projects
involve producers eligible for payments or technical assistance under
EQIP. While the statute does not elaborate on the nature or extent of
EQIP eligible producer involvement, NRCS has determined that because
CIG was authorized under EQIP, projects must substantially involve and
benefit EQIP eligible producers. Applicants must describe how the
proposed project will substantially involve and benefit EQIP eligible
producers. Further, NRCS has determined that all producers involved in
a CIG project must be EQIP eligible. This determination was based on
the fact that CIG is a component of EQIP. To be EQIP eligible, an
individual must meet the eligibility requirements of Sec.
1466.8(b)(1)-(3) of the EQIP rule (7 CFR 1466). Producers participating
in a CIG project are not required to have an EQIP contract. NRCS
welcomes comments on these determinations.
(3) Beginning and Limited Resource Farmers and Ranchers, and Indian
Tribes. NRCS recognizes the need to provide special consideration to
underrepresented or historically underserved producers or groups of
producers. This interim final rule includes two programmatic exceptions
for Beginning and Limited Resource Farmers and Ranchers, and Indian
Tribes. These exceptions are designed to encourage the participation of
Limited Resource and Beginning Farmers and Ranchers, and Indian Tribes
in CIG.
The first exception regarding matching funds and in-kind
contributions is described in section (c) of this notice and applies to
both the national and the State component of CIG. The second exception
applies to the national component only. Two options were considered for
this exception: (1) Set-aside up to 10 percent of the total funds
available for CIG for applicants who are Beginning or Limited Resource
Farmers or Ranchers, or Indian Tribes, or community-based organizations
comprised of or representing these entities. Funds not used in the set-
aside pool would revert back into the general CIG funding pool; and,
(2) include special consideration for these under-represented groups in
the proposal evaluation criteria. NRCS chose the first option. A set-
aside sends a clear, explicit signal that NRCS supports the equitable
distribution of grants. Moreover, a set-aside provides strong incentive
for the inclusion of under-represented groups in CIG projects.
NRCS welcomes comments on the special consideration provided to
Beginning and Limited Resource Farmers and Ranchers, and Indian Tribes.
(f) Application and Submission Information. This paragraph
describes the application and submission procedures for CIG. Detailed
instructions will be published in the RFP.
NRCS will accept only paper application submissions for CIG until
such time that NRCS elects to receive grant applications electronically
through the Federal e-grants portal, grants.gov. When this internet
portal becomes operational for CIG, information on submitting grant
applications electronically will be provided in the RFP. This is
consistent with the Grants.gov Initiative of the President's Management
Agenda.
(g) Application Review and Grant Awards. This paragraph describes
the application review and grant award process for CIG. The statute
explicitly states that CIG is a competitive grants program. NRCS
analyzed comparable Federal grants programs to help identify an
effective and objective process for awarding grants. The proposal
review and award process for CIG consists of three steps:
Peer Review Panels--groups of Federal and non-
Federal subject matter experts will evaluate proposals against the
evaluation criteria described below. Proposals will be ranked and
forwarded to a Grant Review Board.
Grant Review Board--a five-member NRCS board
consisting of the Deputy Chief for Programs, Deputy Chief for Science
and Technology, Deputy Chief for Soil Survey and Resource Assessment,
one Regional Assistant Chief, and one State Conservationist. The Grant
Review Board will certify the rankings from the peer review panels, and
ensure that the proposal evaluations are consistent with program
objectives. The Board then makes recommendations for awards to the
Chief.
Chief--Final award selections will be made by
the Chief.
NRCS welcomes comments on this proposal review and award process.
NRCS has developed proposal evaluation criteria for use by CIG peer
review panels. Applications will be evaluated and ranked according to
how well they adhere to the following four evaluation criteria:
(1) Purpose and goals.
(i) The purpose and goals of the project are clearly stated;
(ii) The project adheres to the CIG natural resource conservation
concerns identified in the RFP; and,
(iii) There is clear and significant potential for a positive and
measurable outcome.
(2) Soundness of approach or design.
(i) The project adheres to the description of innovative projects
or activities found in paragraph (b)(5) of this section;
(ii) Technical design and implementation strategy are based on
sound science;
(iii) There is a strong likelihood of project success;
(iv) The project involves EQIP eligible producers in a substantive
way; and,
(v) The project promotes environmental enhancement and protection
in conjunction with agricultural production.
(3) Project management.
(i) The proposal has clear milestones and timelines, designated
staff as

[[Page 16397]]

applicable, and demonstrates collaboration;
(ii) The project staff has the technical expertise needed to do the
work;
(iii) The budget is reasonable and adequately justified; and,
(iv) The project leverages non-federal matching funds of at least
50 percent of the total project cost, of which up to one-half (25
percent of total project cost) may be in-kind contributions (except in
the case of Beginning and Limited Resource Farmers and Ranchers, and
Indian Tribes).
(4) Transferability.
(i) There is strong potential to transfer the approach or
technology to others or to other geographical areas; and,
(ii) The project will result in the development of technical or
related materials(e.g., technical standards, technical notes, manuals,
handbooks, software, etc.) that will help foster adoption of the
innovative technology or approach by other producers, and in other
geographic areas.
Each of the four criterion carries an equal weight of 25 percent.
In addition, NRCS considered increasing the score of projects that:
Have a broader geographic scope;
Address more than one natural resource concern;
Include larger numbers of partners; or,
Provide more than a 50 percent funding match,
further leveraging Federal funds.
NRCS rejected the first three additional criteria because the
quality of a project may not necessarily be improved by meeting one or
more of these criteria. For example, applicants should not be
encouraged to recruit extraneous project partners for the sole purpose
of trying to improve a proposal's evaluation. Likewise, a high-quality
proposal should not be penalized because it is focused on only a single
watershed. NRCS rejected the fourth additional criterion because it
would run counter to our effort to promote an equitable distribution of
grant awards. NRCS welcomes comments on these issues.
(h) State Component. This paragraph describes the CIG State
component. In addition to the national component, the Chief may provide
discretion to each State Conservationist to implement a State component
of CIG. For the most part, the State component will use the
requirements and procedures established for the national component,
except as noted in this paragraph. Funding availability and detailed
application and submission information for these distinct State-level
competitions will be announced through public notices, separately from
the national program. The intent of the State component is to provide
flexibility to State Conservationists to target CIG funds to individual
producers and smaller organizations that may possess promising
innovations, but could not compete well on the larger scale of the
national grants competition. The State component will emphasize
projects that have a goal of providing benefits within a limited
geographic area. Projects may be farm-based, multi-county, small
watershed, or State-wide in scope. For the purposes of soliciting
applications, the State Conservationist may choose to adhere to the CIG
national natural resource concerns, or may select a subset of those
concerns that more closely match the natural resource concerns in his
or her State.
For the State component, grant awards must be less than $75,000.
This limit is established to allow for streamlining of grants
administration. It is anticipated that the range of funding for the
State component will be between $5,000 and $50,000, largely because of
the difficulty that producers and smaller organizations, who are most
likely to apply for a State-level grant, may have in providing the 50
percent cost-share match.
Members of the State Technical Committee (or a subcommittee
thereof) in each participating State will evaluate the proposals based
on the Criteria for Proposal Evaluation identified in section g of this
preamble. Proposal rankings will be forwarded to the State
Conservationist, who will make the final award decisions.
In addition to abiding by the in-kind contribution exception for
Limited Resource and Beginning Farmers and Ranchers, and Indian Tribes,
the State Conservationist in each participating State will determine if
and how to provide additional special consideration to these
underserved groups.
NRCS intends to limit the opportunity for duplication of efforts
between State competitions, or between the State and the national
components. To do this, prior to making the final award decisions the
State Conservationist in each participating State will submit a project
description of the intended awards to the NRCS National Office for
review. If this national review identifies a potential for a
duplication of efforts, the respective State Conservationist will be
informed.
NRCS welcomes comments on the design of the CIG State component.
(i) Grant Agreement. This paragraph describes the legal instrument
that reflects the relationship between NRCS and the CIG grantee.
(j) Patents and Inventions. This paragraph describes the allocation
of rights to any patents and inventions developed using CIG funds.
(k) Violations. This paragraph describes the result when a CIG
grantee violates the terms of the grant agreement. For this paragraph,
CIG follows the provisions contained in 7 CFR 3015 and related
Departmental regulations.

List of Subjects in 7 CFR Part 1466

Conservation, Grant Review Board, Grants, Innovation, Natural
Resources, Peer Review Panel.

0
For the reasons stated in the preamble, the Commodity Credit
Corporation amends part 1466 as set forth below:

PART 1466--ENVIRONMENTAL QUALITY INCENTIVES PROGRAM

0
1. The authority citation for Part 1466 continues to read as follows:

Authority: 15 U.S.C. 714b and 714c; 16 U.S.C. 3839aa-3839aa-8.

0
2. A new Sec. 1466.27 is added to read as follows:

Sec. 1466.27 Conservation Innovation Grants (CIG).

(a) Definitions. In addition to the terms defined in Sec. 1466.3
of this part, the following definitions shall be applicable to this
section:
(1) EQIP eligible means any farming entity, land, and practice that
meets the definitions of EQIP as defined in 7 CFR 1466.
(2) Grant agreement means a document describing a relationship
between NRCS and a State or local government, or other recipient
whenever the principal purpose of the relationship is the transfer of a
thing of value to a recipient in order to accomplish a public purpose
of support or stimulation authorized by Federal law, and substantial
Federal involvement is not anticipated.
(3) Grant Review Board consists of the NRCS Deputy Chief for
Programs, Deputy Chief for Science and Technology, Deputy Chief for
Soil Survey and Resource Assessment, one Regional Assistant Chief, and
one State Conservationist. The Review Board makes recommendations for
grant awards to the Chief.
(4) Peer Review Panel means a panel consisting of Federal and non-
Federal technical advisors who possess expertise in a discipline or
disciplines deemed important to provide a technical evaluation of
project proposals submitted under this notice.

[[Page 16398]]

(5) Project means the activities as defined within the scope of the
grant agreement.
(6) Project Director means the individual responsible for the
technical direction and management of the project as designated in the
application.
(b) Purpose and scope. (1) Purpose. The purpose of CIG is to
stimulate the development and adoption of innovative conservation
approaches and technologies while leveraging Federal investment in
environmental enhancement and protection, in conjunction with
agricultural production. Notwithstanding any limitation of this part,
NRCS will administer CIG in accordance with this section. Unless
otherwise provided for in this section, the provisions of 7 CFR 3015
and related Departmental regulations will be used to administer grants
under CIG.
(2) Geographic scope. Applications for CIG are accepted from the
fifty States, the District of Columbia, the Commonwealth of Puerto
Rico, Guam, the Virgin Islands of the United States, American Samoa,
and the Commonwealth of the Northern Mariana Islands.
(3) Program scope. Grants will be awarded using a two-tiered
process. A nationwide grants competition will be announced in the
Federal Register. In addition, at the Chief's discretion, each State
Conservationist may implement a separate State-level component of CIG.
(4) Program focus. Applications for CIG should demonstrate the use
of innovative approaches to leverage Federal investment in
environmental enhancement and protection, in conjunction with
agricultural production. CIG will fund projects that promote innovative
on-the-ground conservation, including pilot projects and field
demonstrations of promising approaches or technologies. CIG projects
are expected to lead to the transfer of conservation technologies,
management systems, and innovative approaches (such as market-based
systems) into NRCS technical manuals and guides, or to the private
sector. Technologies and approaches that are eligible for funding in
the project's geographic area through EQIP are not eligible for CIG
funding.
(5) Innovative conservation projects or activities. For the
purposes of CIG, the proposed innovative project or activity must
encompass the development and field testing, evaluation, and
implementation of:
(i) Conservation adoption incentive systems, including market-based
systems; or,
(ii) Promising conservation technologies, practices, systems,
procedures, and approaches.
To be given priority consideration, the innovative project or
activity:
(iii) Will have been studied sufficiently to indicate a good
probability for success;
(iv) Demonstrates, tests, evaluates, or verifies environmental
(soil, water, air, plants, and animal) effectiveness, utility,
affordability, and usability in the field;
(v) Adapts conservation technologies, practices, systems,
procedures, approaches, and incentive systems to improve performance,
and encourage adoption;
(vi) Introduces conservation systems, approaches, and procedures
from another geographic area or agricultural sector; and
(vii) Adapts conservation technology, management, or incentive
systems to improve performance.
(c) Availability of funding. (1) CIG funding will be available for
single-or multi-year projects. Funding for CIG will be announced in the
Federal Register through a Request for Proposals (RFP). The Chief will
determine the funding level for CIG on an annual basis. Funds for CIG
are derived from funds made available for EQIP. The Chief may establish
funding limits for individual grants.
(2) Selected applicants may receive grants of up to 50 percent of
the total project cost. Applicants must provide non-Federal funding for
at least 50 percent of the project cost, of which up to one-half (25
percent of total project cost) may be from in-kind contributions. An
exception regarding matching funds may be made for grants that are
awarded to either a Beginning or Limited Resource Farmer or Rancher, or
Indian Tribe, or a community-based organization comprised of or
representing these entities. Up to 75 percent of the required matching
funds for these projects may derive from in-kind contributions.
(3) CIG is designed to provide financial assistance to grantees.
Procurement of any technical assistance required to carry out a project
is the responsibility of the grantee. Technical oversight for grant
projects will be provided by a Federal grant representative, who will
be designated by NRCS.
(4) There are some costs that grantees may not cover using CIG
funds, such as costs incurred prior to the effective date of the grant,
entertainment costs, or renovation or refurbishment of buildings or
facilities. A detailed list of costs not allowed will be published in
the RFP.
(d) Natural resource conservation concerns. CIG applications must
describe the use of innovative approaches or technologies to address a
natural resource conservation concern or concerns. The natural resource
concerns for CIG will be identified by the Chief, and may change each
year. The natural resource concerns will be published in the RFP.
(e) Eligibility information. (1) Organization or individual
eligibility. To be eligible, CIG applicants must be an Indian Tribe;
State or local unit of government; non-governmental organization; or
individual.
(2) Project eligibility. To be eligible, projects must involve
landowners who meet the eligibility requirements of Sec. 1466.8(b)(1)
through (3) of this part. Further, all agricultural producers
participating in a CIG project must meet those eligibility
requirements.
(3) Beginning and Limited Resource Farmers and Ranchers, and Indian
Tribes. Up to 10 percent of the total funds available for CIG may be
set-aside for applications from either a Beginning or Limited Resource
Farmer or Rancher, or Indian Tribe, or a community-based organization
comprised of or representing these entities. Funds not awarded from the
set-aside pool will revert back into the general CIG funding pool.
(f) Application and submission information. The CIG RFP will
contain guidance on how to apply for the grants competition. CIG will
be advertised through the Federal Register, the NRCS Web site, and
grants.gov. Grant applications will be available on the NRCS Web site,
or by contacting NRCS at the address provided in the RFP. CIG grant
applications will consist of standard cover sheet and budget forms, in
addition to a narrative project description and required legal
declarations and certifications.
(g) Application review and grant awards. Complete applications will
be evaluated by a peer review panel and scored based on the Criteria
for Proposal Evaluation identified in the RFP. Scored applications will
be forwarded to a Grant Review Board. The Grant Review Board will make
recommendations for awards to the Chief. Final award selections will be
made by the Chief. Grant awards will be made by the NRCS National
Office after selection of the grantees is made and after the grantee
agrees to the terms and conditions of the NRCS Grant document.
(h) State component. (1) At the discretion of the Chief, each State
Conservationist has the option of

[[Page 16399]]

implementing a State-level CIG component. A State program will follow
the requirements of this section, except for those features described
in this paragraph (h).
(2) Funding availability, application, and submission information
for State competitions will be announced through public notices (and on
the State NRCS Web site), separately from the national program. The
State component will emphasize projects that cover limited geographic
areas, including individual farms, multi-county areas, or small
watersheds.
(3) The State Conservationist will determine the funding level for
the grants competition, with individual grants not to exceed $75,000.
(4) The State Conservationist may choose to adhere to the CIG
national natural resource concerns, or may select a subset of those
concerns that more closely match the natural resource concerns in his
or her State.
(5) Applications will be scored by the State Technical Committee,
or a sub-committee thereof, based on the national Criteria for Proposal
Evaluation published in the CIG RFP. Scored applications will be
forwarded to the State Conservationist, who will make the award
selections.
(6) In addition to abiding by the in-kind contribution exception
for Limited Resource and Beginning Farmers and Ranchers, and Indian
Tribes in paragraph (c)(2) of this section, the State Conservationist
in each participating State will determine if and how to provide
additional special consideration to underserved groups.
(i) Grant agreement. The CCC, through NRCS, will use a grant
agreement with selected grantees to document participation in CIG.
(j) Patents and inventions. Allocation of rights to patents and
inventions shall be in accordance with USDA regulation 7 CFR 3019.36.
This regulation provides that small businesses normally may retain the
principal worldwide patent rights to any invention developed with USDA
support. In accordance with 7 CFR 3019.2, this provision will also
apply to commercial organizations for the purposes of CIG. USDA
receives a royalty-free license for Federal Government use, reserves
the right to require the patentee to license others in certain
circumstances, and requires that anyone exclusively licensed to sell
the invention in the United States must normally manufacture it
domestically.
(k) Violations. A person found in violation of this section is
subject to the provisions contained in 7 CFR part 3015 and related
Departmental regulations.

Signed in Washington, DC, on March 19, 2004.
Bruce I. Knight,
Vice President, Commodity Credit Corporation, Chief, Natural Resources
Conservation Service.
[FR Doc. 04-6934 Filed 3-26-04; 8:45 am]

BILLING CODE 3410-16-P