USDA is considering important changes that could significantly streamline the review process for federally guaranteed loans. Two related reforms deserve particular attention: classifying qualifying USDA guaranteed loans as “non-major federal actions” under the National Environmental Policy Act (NEPA), and modernizing the process for compliance with “Section 106 of the National Historic Preservation Act”.

Classifying Guaranteed Loans as Non-Major Federal Actions

The Fiscal Responsibility Act of 2023 amended NEPA to narrow the definition of a “major Federal action.” The statute expressly provides that the term does not include certain forms of federal financial assistance where the federal agency does not exercise sufficient control over the subsequent use of the funds or the effects of the action.

The law provides:

“The term ‘major Federal action’ does not include … loans, loan guarantees, or other forms of financial assistance where a Federal agency does not exercise sufficient control and responsibility over the subsequent use of such financial assistance or the effect of the action.”

The statute also specifically excludes certain Small Business Administration loan guarantees from the definition of a major federal action.

Consistent with these reforms, USDA recently forwarded a proposed rule that would classify guaranteed loans meeting the statutory criteria as non-major federal actions. Adoption of such a policy could materially reduce the environmental review burden associated with USDA loan guarantees and shorten approval timelines for borrowers and lenders.

The next question is how USDA intends to implement this policy in practice. If guaranteed loans are determined at the outset not to constitute major federal actions, USDA should clarify how the agency’s existing environmental review process will change and which procedural requirements will no longer apply.

Stakeholders would also benefit from knowing which USDA officials are currently responsible for developing and advancing this policy so that lenders and borrowers can provide constructive input as the Department considers implementation.

Congressional Support for Streamlining Section 106 Review

Congress has separately encouraged USDA to examine whether its historic preservation review requirements can also be streamlined.

The most recent Agriculture Appropriations Committee report states:

“Categorical Exclusions– The Committee acknowledges that the Fiscal Responsibility Act provided certain flexibilities designed to speed up the loan delivery process. The Committee urges USDA to review its current approach and consider that certain projects or loans are not subject to Section 106 review. Adopting these flexibilities, as other Federal agencies have, may assist in eliminating delays, undue burdens and costs on applicants.”

This language reflects clear congressional interest in reducing unnecessary delays associated with USDA loan programs. It also encourages the Department to consider whether certain loans or projects should proceed without the same level of Section 106 review currently required.

The broader objective is straightforward: where federal involvement is limited and the risk of harm to historic properties is minimal, the review process should be proportionate to that risk.

A Borrower- or Lender-Led Section 106 Model

One possible approach is a model previously discussed in which borrowers or lenders assume greater responsibility for conducting the initial Section 106 consultation process.

Under such a framework, the borrower or lender could contact the appropriate State Historic Preservation Officer (SHPO), Tribal Historic Preservation Officer, or other consulting parties, complete the necessary consultation, maintain the supporting documentation, and certify compliance to USDA.

USDA would retain appropriate oversight and enforcement authority, but agency personnel would no longer have to perform every administrative step themselves.

A carefully structured borrower- or lender-led process could reduce USDA staff workload while allowing projects to move more quickly through the approval process. Similar approaches used by other federal programs may provide useful models for USDA to consider.

Moving the Reforms Forward

The Fiscal Responsibility Act and recent congressional report language both demonstrate significant support for streamlining federal review of loan guarantees. USDA now has an opportunity to translate those reforms into practical changes that improve program delivery without sacrificing appropriate environmental or historic preservation protections.

We encourage USDA to continue moving forward with the non-major federal action designation for guaranteed loans and to evaluate complementary reforms to the Section 106 process.

Specifically, we ask USDA to connect stakeholders with the officials currently working on the non-major federal action designation and provide an opportunity to discuss how the agency’s procedures will change once the policy is implemented.

We also encourage USDA to consider a policy framework allowing borrowers or lenders to conduct and certify Section 106 consultations, subject to appropriate agency oversight. Together, these reforms could substantially reduce unnecessary delays, costs, and administrative burdens while allowing USDA lending programs to operate more efficiently.