the other members of the board should seek the advice and counsel of CDC staff, community leaders, and the organizations or institutions to be represented. In doing so, it is essential that no one be unilaterally selected to represent an organization or institution without the blessing of that organization or institution and its willingness to commit the individual's time and services. It is also essential that the community representatives put aside personal preferences and seek to find individuals with the desired skills and institutional contacts, rather than simply choose individuals who share the same backgrounds and experiences of the community representatives themselves.

(3) CDCs should avoid identifying by name in their by-laws the specific community institutions from which they may select representatives for their boards, since often over time community interests may change and different institutions may become preferable sources of board representatives. Where CDC by-laws already specify such institutions by name such bylaws should be periodically reviewed for change to allow for the substitution or addition of other institutions whose participation may be more relevant to the CDC's goals.

§ 1076.10-5 Compliance Procedures and Waivers.

(a) All CDCs funded by OED for the first time in Fiscal Year 1975 or in succeeding fiscal years must be in compliance with this Instruction as of the effective date of their initial OED grant, unless the conditions of their initial grant provide for a planned phase-in period for compliance during the initial grant period. All such CDCs, however, must be in complete compliance within a year of the effective date of their initial OED grant. In no case shall any such CDC be granted a waiver of any provisions of this subpart.

(b) All CDCs funded by OED for the first time in Fiscal Year 1974 or in prior fiscal years must be in compliance with this subpart within one year of the effective date of this subpart, unless granted a waiver of certain provisions of this subpart. Waivers will

normally not be granted by OED, and only upon a finding that (1) despite the noncompliance with particular provisions of this subpart the CDC's board composition and selection procedures have been demonstrated in actual practice to have substantially satisfied the intent to Title VII, and (2) the disruption and dislocation that would be caused by changing long-established CDC procedures would outweigh the advantages to be gained by such changes. In no event will OED consider requests for waivers submitted (1) after one year from the effective date of this subpart, or (2) from CDCs now in compliance with this subpart who wish to change their board composition and selection procedures in such a way as to not comply with this subpart.

(a) Business and Commercial Development Program. Any venture, organized for profit or on a cooperative basis, financed in whole or in part by a CDC out of CSA Section 712(a)(1) grant funds under budget cost category 2.5, Investment Capital.

(b) Non-Equity Business Program. A business and commercial development program which is not a venture operating on a cooperative basis and in which the CDC has no equity interest.

(c) Equity Interest. Current ownership, in whole or in part of a venture. Specifically excluded from the meaning of this term are those forms of debt financing which involve an option or right to purchase or convert to own

(a) Financial assistance for business and commercial development programs under Section 712(a)(1) shall be used predominantly for equity investment (either alone or in combination with other forms of financial assistance) and for cooperatives. This priority on equity investment and support for cooperatives derives from two factors: (1) The emphasis in Title VII on programs which will promote community-based ownership opportunities, an objective that can be best attained through either direct CDC investment in special impact area businesses or in development of cooperatives; and (2) the availability from other federal funding sources of financial assistance for technical assistance, loans, or loan guarantees, whereas Title VII is the only federal funding authority for equity capital.

(b) In addition, insofar as Section 712 funds are used for financial assistance to non-equity business programs, it is OED policy that such financial assistance be generally limited to loan guarantees, rather than be in the form of direct loans. This policy derives from three factors: (1) The availability of direct loan funds from non-Title VII funding sources, including commercial lending institutions; (2) the "leveraging" effect of loan guarantees in attracting outside debt capital into the special impact area; and (3) direct loan programs impose a significant administrative burden on the CDC and require substantial staff resources to service the loans once they are approved.

(c) Finally, since the primary thrust of Title VII is community economic development for low-income residents, rather than support to individual entrepreneurs, non-equity business programs assisted with Section 712 funds should also further the Title VII objective of promoting ownership or employment opportunities for lowincome special impact area residents.

(d) Accordingly, CDC use of financial assistance under Section 712 for non-equity business programs is subject to three basic policy limitations:

(1) Such assistance shall be accorded a lower priority than, and shall not supplant opportunities for equity investments; (2) except in unusual circumstances direct loans may not be made to non-equity business programs from CDC investment capital funds, and only then as approved by OED on a case by case basis; and (3) financial assistance to non-equity business programs, whether in the form of direct loans, loan guarantees, or some other debt captial mechanism, may not be provided from CDC investment capital funds unless such assistance will provide ownership or employment opportunities to low-income residents of the special impact area.

§ 1076.20-4 Procedures, requirements, and limitations.

(a) No CDC administrative funds under Section 712 (cost categories other than 2.5) may be used for financial assistance, whether direct loans or loan guarantees, to non-equity business programs. Note: This does not preclude the use of administrative funds for technical assistance, e.g., by CDC staff, to non-equity business programs.

(b) Except as provided in any venture autonomy agreement approved by OED, or as provided in any revolving loan guarantee funds approved by OED, no CDC investment capital funds (cost category 2.5) may be used for any individual loan or loan guarantee for any non-equity business program without prior written approval by OED.

(c) In requesting OED approval for any non-equity business program, whether it be an individual loan, individual loan guarantee, or revolving loan guarantee fund, the CDC must demonstrate how the program will directly benefit low-income residents of the special impact area, by providing either ownership or employment opportunities, or both. The CDC must also demonstrate, in requesting approval for any loan guarantee, that loans from commercial or other public sources would not be available without such guarantee. The CDC must also demonstrate, in requesting approval for any direct loan, that either loans

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from commercial or other public sources would not be available even if the CDC were to guarantee such loans, or that control rights necessary to promote the purposes of Title VII would be obtainable only through a direct loan.

(d) No loan guarantee may exceed 50% of the loan(s) to any recipient, thereby providing at a minimum twofor-one leverage. Where the CDC can devise effective relationships with the lending institution and/or SBA, guarantees of less than 50% providing much greater leverage, should be arranged.

gram may be supported by Federal Assistance. This subpart sets forth those criteria and is limited to the program costs non-Federal share requirements. (b) The second non-Federal share requirement in Section 714 states that where capital investment is required under a contract with a private organization (other than a non-profit organization) the Federal share of such capital investment shall not exceed 90 per cent. That requirement is not affected by this subpart.

§ 1076.41-5 Policy.

(a) General. Each recipient of financial assistance under Title VII is ordinarily required to provide from nonFederal sources 10% of the cost of operating its program. However, under certain circumstances this requirement may be waived. A request for waiver shall be submitted by the applicant or recipient's Chairperson of the Board or comparable official to the Associate Director of Economic Development or other officer having authority to make the grant or otherwise furnish the financial assistance in question (hereinafter referred to as the responsible officer) and a determination shall be made by such officer.

(b) Operating program. (1) The requirement for a non-Federal share of program costs shall be waived in whole or in part where it is shown to the satisfaction of the responsible officer that:

(i) The applicant for financial assistance or recipient of financial assistance has made a vigorous effort to raise the non-Federal share but has not been and will not be able to do so in whole or in part.

(ii) The per capita income in the community served by the program is less than one-half the per capita income in the U.S. as a whole. (On the basis of the 1970 Census, one-half the per capita income was $1570 and in February 1972, one-half the estimated per capita income in the U.S. as a whole was approximately $1800). For programs operating in Alaska, the figure representing the per capita income for the United States as a whole shall be adjusted upward by 25% and in Hawaii by 15% to allow for

the substantially higher cost of living in those States.

(iii) If the per capita income figures submitted in support of the request for waiver are other than direct U.S. Census data, Census data shall be shown. The Officer determining the request for a waiver may request a full description of the procedures used in developing such data.

(c) Support Programs. The requirement of non-Federal share program costs shall also be waived in whole or in part for programs funded to conduct evaluations or research or to furnish support services to other Title VII programs or to CSA, the Department of Commerce, the Department of Labor or the Department of Agriculture, provided that the applicant for financial assistance has made a vigorous effort to raise the non-Federal share but has not been and will not be able to do so in whole or in part.

(d) Procurement Contracts. No nonFederal share is required for procurement contracts. Accordingly no waiver is needed.

§ 1076.41-6 Valuation of non-Federal share.

Non-Federal contributions may be in cash or in-kind, fairly evaluated, including but not limited to plant, equipment and services. See Part 1050 of this chapter, Subpart F-Cost Sharing and Matching (CSA Instruction 68006).

Subpart 1076.50-Rural Development Loan Program

AUTHORITY: Sec. 602, 78 Stat. 530 (42 U.S.C. 2942).

SOURCE: 45 FR 62067, Sept. 18, 1980, unless otherwise noted.

§ 1076.50-1 Definitions.

For the purpose of providing assistance under this subpart:

(a) "Business facilities and community development projects" means ventures, including community development credit unions, located in rural areas. Such projects are primarily aimed at providing increased income, ownership, or employment opportunities for low-income rural area resi

dents and which either (1) are organized to earn a profit or on a cooperative basis, or (2) directed primarily to improving the physical or environmental infrastructure such as land development, community facilities and industrial and commercial projects. The term does not embrace social service projects operated on a not-for-profit basis such as job training, day-care or health services.

(b) "Community action agency" means an organization as defined in Section 210(a) of the Economic Opportunity Act of 1964, (EOA), as amended.

(c) "Community-based organization" means a cooperative or private nonprofit organization at least 50 per centum of whose governing body is composed of local area residents and which is eligible for financial assistance under Title II of the EOA. The term shall also include a national, regional or state organization at least 50 per centum of whose governing board is composed of representatives of other community-based organizations.

(d) "Community development corporation" means an organization receiving assistance from CSA under Part A of Title VII, of the EOA which includes any organization more than 50 per centum of which is owned or controlled by such a community development corporation.

(e) "Community development credit union" means a type of business facility and community development project which is a credit union participating in the Community Development Credit Union Program jointly administered by CSA and NCUA whose membership consists predominantly of rural area residents; or any Federal or state chartered credit union whose membership consists predominantly of low-income rural residents.

(f) "Cooperative” means an incorporated or unincorporated association, in existence or being organized: (1) Whose members are allowed only one vote each; (2) at least 50 per centum of which is owned or controlled by lowincome rural residents; (3) which conducts for the mutual benefit of its members such operations as producing, purchasing, marketing, processing and other activities primarily aimed at

improving its members' income as producers or their purchasing power as

consumer.

(g) "Indian groups" shall mean public and non-profit private agencies, including but not limited to, governing bodies of Indian tribes on Federal and State reservations, Alaska Native Claims Settlement Act, and such public and non-profit private agencies serving Hawaiian Natives, and Indian organizations in rural non-reservation

areas.

(h) "Director" means the Director of the Community Services Administration (CSA).

(i) "Private non-profit” means an organization which is eligible for or has received exemption from Federal income taxes under Internal Revenue Code (IRC) section 501(c)(3).

(j) "Rural" includes all territory of a state that is not within the outer boundary of any city having a population of fifty thousand or more and its immediately adjacent urban area with a population density of more than one hundred persons per square mile as determined by the Secretary of Agriculture according to the latest decennial census.

(k) "Supportive organization of cooperatives" means an organization whose purpose is to provide economic, technical, or financial assistance to cooperatives.

§ 1076.50-2 Objective of the Rural Development Loan Fund Program.

(a) The objective of the Fund is to test the premise of community economic development financing concepts in rural areas. The program emphasizes an attack on rural poverty by organizations, representative of lowincome area residents, experienced in dealing with economic development problems. It stresses group, rather than individual, efforts to provide expanded opportunities for rural residents to increase their ownership of, employment in, or income from local economic enterprise.

(b) In accomplishing this objective, the program seeks to coordinate and leverage its own resources with those of other government agencies and private sources. The Fund's monies should be complemented by provision

of ample technical assistance in order to enhance the ability of rural group ventures to grow and prosper. However, while encouraging the development of new and imaginative community development ventures, CSA will assure that the program's operations are conducted on a sound business basis.

(c) The Program's purpose is not only provision of loans and guaranties to eligible borrowers at the lowest reasonable cost, but also embraces the broader objectives of arresting tendencies toward dependency, chronic unemployment, and community deterioration in rural areas. To this end, the Program seeks to attract additional private capital into rural communities, build and expand the ability of rural institutions to better serve the economic needs of local residents, and provide new employment and ownership opportunities for low-income persons through group ventures and community development financing techniques.

§ 1076.50-3 Organizations eligible for financial assistance under this program. (a) CSA will provide financial assistance in the form of loans or guaranties under this Program to carry out eligible activities directly or indirectly through relending or guarantying to the following types of organizations.

(1) Community development corporations;

(2) Community action agencies; (3) Supportive organizations of cooperatives;

(4) Local cooperatives; (5) Public agencies;

(6) Private non-profit groups;

(7) Community-based organizations eligible for financial assistance under Title II of the EOA;

(8) Community development credit unions;

(9) Indian groups;

(b) Recipients who have received financial assistance for the purpose of re-lending or guaranteeing loans, may make loans and guaranties to:

(1) The type of organizations listed in (a) above;

(2) Low-income families; or

(3) Businesses organized for-profit which are 50% owned or controlled by