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C-Suite Wednesday — Environmental Requirements for Concentrated Animal Feeding Operation SBA Loans

January 25, 2017

By Janet Annan
Guest Contributor
Partner Engineering

C-Suite Wednesday — Environmental Requirements for Concentrated Animal Feeding Operation SBA Loans

In response to a recent lawsuit that was filed against SBA with regard to a feedlot loan, SBA is currently requiring additional environmental review for loans involving concentrated animal feedlots, including dairy, cattle, hog and poultry. Environmental reviews under the National Environmental Policy Act (NEPA) are not specified in SOP 50 10 5(H), however, the results of the recent lawsuit made it clear that SBA is required to consider the potential for future environmental impacts associated with feedlot loans. So what does this mean for due diligence on loans involving concentrated animal feeding operations (CAFOs)?

Well, two things are clear: In addition to the already required SBA Environmental Questionnaire and Records Search Risk Assessment (RSRA), the SBA is asking for two additional completed forms as the first step in the process: 1) Farm Loan Checklist and 2) Environmental Worksheet.

But the following questions remain unclear as the SBA continues to consider how best to assess environmental impact: Will the level of environmental due diligence increase? Will the SBA begin to consider CAFO’s as a sensitive industry (currently it is not) which would require the environmental due diligence begin with a Phase I ESA? What level of a NEPA will be required to understand other potential impacts?

The NEPA process requires Federal agencies to consider environmental effects that include, but are not limited to, impacts on social, cultural, economic and natural resources. There are different levels of NEPA review that can be done. Will the SBA require a NEPA with 1) Categorical Exclusion Determination (CATEX), 2) Environmental Assessment/Finding of No Significant Impact (EA/FONSI), and/or 3) Environmental Impact Statement (EIS)?

Per the EPA, the brief summary of the difference between each is as follows:

  • CATEX is a federal action may be “categorically excluded” from a detailed environmental analysis if the federal action does not, “individually or cumulatively have a significant effect on the human environment”;
  • EA/FONSI is A federal agency can determine that a Categorical Exclusion (CATEX) does not apply to a proposed action. The federal agency may then prepare an Environmental Assessment (EA). The EA determines whether or not a federal action has the potential to cause significant environmental effects. FONSI means “finding of no significant impact.” Each federal agency has adopted its own NEPA procedures for the preparation of EAs; and,
  • EIS is a proposed major federal action determined to significantly affect the quality of the human environment. The regulatory requirements for an EIS are more detailed and rigorous than the requirements for an EA. The EIS Process includes an agency published Notice of Intent; a draft available for public review with comment period; final EIS with a 30-day minimum wait period; issuance of a record of decision (ROD).

A full description and explanation is available here on the EPA website.

Currently, the SBA is not necessarily requiring the consultant to prepare a comprehensive NEPA EA/EIS, but prepare a document describing the items in the checklist and how the property complies. The checklist/worksheet mentions endangered species, flood plain, and wetlands (items that a NEPA EA/EIS would cover), and a question on whether or not an ESA has ever been conducted, but otherwise the other items are all about what kind of permits the facility has, how they dispose of waste, etc. (items that are not covered in a standard ESA or any three options for a NEPA). Undertaking the environmental assessment of a CAFO, is not going to be a simple task and standard turn times will need to be extended. A standard ESA template will need to be modified in order to accommodate the additional information required. All while keeping in mind a NEPA EA/EIS, will likely need to accompany the ESA in order to provide the information necessary for the loan to be considered by the SBA.

Here is a NEPA EIS document on a hog farm prepared by the USDA, you can see that it would be beyond the scope of what they are asking for. However, the facility/lawsuit that brought this into fruition conducted an EA that resulted in a FONSI twice, which is still highly opposed by certain interest groups. To date, a ROD has not been reached.
Until the SBA makes a final decision on how what will be required for CAFO loans, the current stance at the SBA is that for all Farm Loans involving feedlots (chickens, hogs, cattle, dairy, etc.) an EQ/RSRA, the Farm Loan Checklist, and Environmental Worksheet is the required first step.

After review of the Checklist, Worksheet and related documents, the SBA will make a determination regarding what level of NEPA will be required.

Janet Annan may be contacted at jannan@partneresi.com

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