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CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
IN THE CASE OF  


SUBJECT: Development Bank of American Samoa

DATE: September 24, 2003
         

 


 

Docket No. A-03-54
Decision No. 1895
DECISION
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DECISION

The Development Bank of American Samoa (DBAS) appealed the February 19, 2003 determination of the Administration for Native Americans (ANA) that DBAS's proposal for a social and economic development strategy grant was not eligible for funding under the Native American Programs Act. DBAS proposed to establish a revolving loan fund to be used to diversify employment opportunities in American Samoa. ANA determined that the proposal was ineligible because ANA does not fund revolving loan funds.

Under 45 C.F.R. § 1336.35, the Board hears appeals from unsuccessful applicants for grants under the Native American Programs Act whose applications have been rejected on the grounds that the applicants or the activities they propose are ineligible for funding. For the reasons explained below, we reverse ANA's determination. We find that the statute and applicable regulations contain no limitation barring ANA from funding the proposed project. Although ANA argued that it had a policy that precluded funding for revolving loan funds, ANA did not demonstrate that such a policy was actually in effect or that it had been established in accordance with applicable requirements of the law. Our decision is based on a record consisting of the parties' briefs and their responses to questions from the Board.

Applicable legal background

The purpose of the Native American Programs Act (Act), 42 U.S.C. § 2991 et seq., Public Law No. 93-644, § 11; 88 Stat. 2323 (Jan. 4, 1975), as amended, is "to promote the goal of economic and social self-sufficiency for American Indians, Native Hawaiians, other Native American Pacific Islanders (including American Samoan Natives), and Alaska Natives." Section 802 of the Act, 42 U.S.C. § 2991a. The Act established ANA within the Department of Health and Human Services, and authorizes ANA to provide grants of financial assistance to specified Native American organizations for activities including economic development, improvement of tribal regulation of environmental quality, and ensuring the survival and continuing vitality of Native American languages. As relevant here, the Act authorizes the Commissioner of ANA "to provide financial assistance to public and nonprofit private agencies serving other Native American Pacific Islanders (including American Samoan Natives) for projects pertaining to the purposes of this Act." 42 U.S.C. § 2991b(a).

Pursuant to the Act, ANA has published, in regulations and in notices announcing the availability of grant funds for projects under the Act (program announcements), lists and descriptions of activities that are eligible and ineligible for funding, as well as the types of Native American organizations eligible to receive grant funding for those activities. 45 C.F.R. § 1336.33; see, e.g., 67 Fed. Reg. 59,735 (Sept. 23, 2002). The Commissioner of ANA selects applications for funding based on a review of eligible applications by a panel, composed of persons outside ANA appointed by the Commissioner, that ranks them according to their relative merit, applying criteria that ANA publishes in its program announcements. 42 U.S.C. § 2991d-1; see, e.g., 67 Fed. Reg. 59,735 (Sept. 23, 2002). The number of projects that receive funding is subject to the availability of appropriations.

An applicant whose application has been rejected by ANA either because the applicant or the activities it proposes have been found ineligible for funding may appeal ANA's ruling to the Board. 42 U.S.C. § 2991h(b); 45 C.F.R. § 1336.35(a). However, the decision not to fund an application based on the review panel process that evaluates eligible applications is not appealable. 61 Fed. Reg. 42,817, 42,818 (Aug. 19, 1996). A Board decision reversing an ANA determination that an applicant or its proposed activities are ineligible for funding results in consideration of the application in the next cycle of grant proposals, and does not guarantee ANA approval for grant funding. 45 C.F.R. § 1336.35(h); 61 Fed. Reg. 42,817, 42,818 (Aug. 19, 1996).

Background of the appeal

DBAS was established by the government of American Samoa in 1981 to "serve the economic and social development needs of the community of American Samoa through affordable financial services." ANA Tab 1, Project Narrative at 5. On January 17, 2003, DBAS applied for a grant pursuant to an ANA program announcement, dated September 23, 2002, of funding for Social and Economic Development Strategy (SEDS) projects. (1) 67 Fed. Reg. 59,735 (Sept. 23, 2002). DBAS sought a three-year, $750,000 SEDS grant to establish a revolving loan fund that would be used to diversify employment opportunities in American Samoa to lessen the impact of the possible closure of canneries, which provide approximately one-third of the total employment opportunities in American Samoa. ANA Tab 1, Project Narrative at 1-2. DBAS proposed to make loans of up to $25,000 primarily to service-oriented businesses not reliant on canneries or the fishing industry. Id. at 1-2, 8, 14. DBAS's stated objectives for the proposed project were to fund sound business ventures, to help diversify and stabilize employment in private-sector, non-cannery business, to promote small business opportunities for women, and to serve as a liaison between the business community and the agencies available to educate new and existing business owners to better business management. Id. at 2, 7-8.

ANA denied the application on the grounds that DBAS's proposed activity was ineligible for funding because ANA does not fund revolving loan funds. (2) During the appeal, ANA described this position as its "longstanding policy." ANA Supplemental Response at 1.

On appeal, DBAS argued that the establishment of revolving loan funds is consistent with the purposes of the Act and is not on the lists of activities deemed ineligible for funding that ANA published in Part 1336 and in the program announcement for the grant in question. DBAS also argued that Congress's creation of a demonstration project involving a grant to the Office of Hawaiian Affairs of the State of Hawaii to establish a revolving loan fund indicates that revolving loan funds are acceptable mechanisms for carrying out the purposes of the Act, and that funding revolving loan funds for Native Hawaiians but not other Native peoples is arguably unconstitutional discrimination.

In response, ANA argued that Congress's authorization of a revolving loan fund demonstration project for Native Hawaiians but not other Native groups eligible for assistance indicates that Congress did not generally consider revolving loan funds to be legitimate social and economic development strategies under the Act. ANA reported that it has declined several other applications for grants to establish revolving loan funds as ineligible activities, apart from the demonstration project that Congress authorized. ANA argued that it has great discretion in determining what projects to fund, and that the non-exclusive and illustrative lists of ineligible activities in the regulations and program announcement should not obligate ANA to fund activities not specifically listed as ineligible. ANA also cited characteristics of the proposed project that ANA said rendered it ineligible under standards in the program announcement.

ANALYSIS
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We reverse ANA's determination that the proposed project was ineligible for funding. As explained below, we find that the applicable regulations and program announcement contain no limitation on funding projects involving revolving loan funds. Thus, ANA had discretion to fund it. Moreover, although ANA may have discretion to establish policies concerning what activities are ineligible for funding under the Act, including the discretion to develop a policy against funding projects that involve revolving loan funds, the Act specifically requires ANA to publish any such policy pursuant to notice and comment rule making, which ANA did not do here.

1. The proposed project was not ineligible for funding under the applicable regulations and the program announcement.

The Act authorizes ANA to provide financial assistance to public and nonprofit private agencies serving American Pacific Islanders, including American Samoan Natives, for projects pertaining to the purposes of this Act; as noted above, those purposes include promoting the goal of economic and social self-sufficiency for Native American peoples, including American Samoan Natives. 42 U.S.C. §§ 2991a, 2991b.

Although ANA argued that it has a longstanding policy against funding projects involving revolving loan funds, and that it has found several other proposals to establish revolving loan funds ineligible on the basis of this policy, ANA did not cite any provision of the Act, the regulations at Part 1336, or the program announcement under which DBAS submitted its proposal that specifically forbids grants to an eligible organization to establish a revolving loan fund.

ANA did not dispute DBAS's assertion that the proposed project is not listed as an ineligible activity in the regulations. The regulations contain the following "nonexclusive list of activities that are ineligible for funding under programs authorized by the Native American Programs Act of 1974:"

(1) Projects in which a grantee would provide training and/or technical assistance (T/TA) to other tribes or Native American organizations ("third party T/TA"). However, the purchase of T/TA by a grantee for its own use or for its members' use (as in the case of a consortium), where T/TA is necessary to carry out project objectives, is acceptable;

(2) Projects that request funds for feasibility studies, business plans, marketing plans or written materials, such as manuals, that are not an essential part of the applicant's SEDS long-range development plan;

(3) The support of on-going social service delivery programs or the expansion, or continuation, of existing social service delivery programs;

(4) Core administration functions, or other activities, that essentially support only the applicant's on-going administrative functions; however, for Competitive Area 2, Alaska-Specific SEDS Projects, ANA will consider funding core administrative capacity building projects at the village government level if the village does not have governing systems in place;

(5) The conduct of activities which are not responsive to one or more of the three interrelated ANA goals (Governance Development, Economic Development, and Social Development);

(6) Proposals from consortia of tribes that are not specific with regard to support from, and roles of member tribes. An application from a consortium must have goals and objectives that will create positive impacts and outcomes in the communities of its members. ANA will not fund activities by a consortium of tribes which duplicates activities for which member tribes also receive funding from ANA; and

(7) The purchase of real estate.

45 C.F.R. § 1336.33(b).

ANA did not argue that the above list forbids grants that will be used to make loans or establish revolving loan funds to carry out otherwise eligible projects, or that the purposes for which DBAS proposed to make loans from the revolving loan fund were among the ineligible projects on the list.

Similarly, ANA did not demonstrate that it was forbidden by the applicable program announcement to make grants to establish revolving loan funds. The program announcement made fiscal year 2003 funds available in competitive areas including, as relevant here, social and economic development. 67 Fed. Reg. 59,735, 59,736 (Sept. 23, 2002). ANA stated in the program announcement that it anticipated that approximately $20 million of financial assistance would be available, to be awarded in approximately 150 competitive grants ranging from $50,000 to $1,000,000. Id. at 59,738. Under the category "Economic Development," ANA stated that the types of SEDS projects that it may fund included, but were not limited to:

  • Development of a community economic infrastructure that will result in businesses, jobs, and an economic support structure;
  • Establishment or expansion of businesses and jobs in areas such as tourism, specialty agriculture, energy development, light and/or heavy manufacturing, technology and Internet activities, fabrication and construction companies, housing and fisheries or aqua-culture


  • Stabilizing and diversifying a Native community's economic base through business development and enterprise zone ventures.

Id.

ANA did not argue that the goals of DBAS's proposed project -- the diversification of employment opportunities in American Samoa -- were inconsistent with the above examples of the types of SEDS projects eligible for funding. ANA's sole basis for finding the proposed project ineligible was that it employed a revolving loan fund as the mechanism for achieving its goals. However, as with the regulations, we find nothing in the program announcement that addresses whether grantees may use revolving loan funds to accomplish otherwise permissible program objectives. The program announcement does not discuss loans or revolving loan funds, and, as we discuss below, we disagree with ANA's argument that alleged characteristics of the revolving loan fund that DBAS proposed to establish rendered it ineligible under the program announcement.

The program announcement language that ANA cited bars funding for projects that operate indefinitely or require ANA funding on a recurring basis, and describes as generally not meeting the purposes of the announcement "projects that will not be completed, self-sustaining, or supported by other than ANA funds, at the end of the project period." 67 Fed. Reg. 59,743, 59,745 (Sept. 23, 2002). As to the latter statement, the announcement explains that--

All projects funded by ANA must be completed, or self-sustaining or supported with other than ANA funds at the end of the project period. Completed means that the project ANA funded is finished, and the desired outcome(s) have been attained. Self-sustaining means that a project will continue without outside resources. Supported by other than ANA funds means that the project will continue beyond the ANA project period, but will be supported by funds other than ANA's.

Id. at 59,745. ANA argued that the revolving loan fund proposed by DBAS would not be self-sustaining "because of the low interest rate likely charged," and, it "would either be uncompleted within the project period or completed in such a short time frame that it would be unlikely to have a significant impact on economic development." ANA Supplemental Response at 3-4. ANA offered no evidence to support this position, which appears speculative and is moreover inconsistent with the record. In its grant application DBAS represented that it had established a revolving loan fund with $843,000 in grants from the Department of Commerce that has made loans totaling $2.8 million, indicating that the proposed project could become self-sustaining. ANA Tab 1, Project Narrative at 6. ANA provided no basis to conclude that the proposed revolving loan fund would not become self-sustaining, or would require recurring or indefinite ANA funding beyond the project period.

ANA's claim that the project might be completed in such a short time frame that it would be unlikely to have a significant impact on economic development addresses the merits of the project, rather than its eligibility, and is thus more suited for consideration by the panel that reviews eligible applications, rather than the Board. As noted above, a panel appointed by the Commissioner of ANA ranks eligible proposed projects according to merit, assigning numerical points based on criteria that ANA publishes in its program announcements. Among the criteria in the program announcement at issue here is the requirement that the project application demonstrates that each of the project's objectives "[c]an be accomplished with the available or expected resources during the proposed project period." 67 Fed. Reg. 59,745, 59740 (Sept. 23, 2002). This and other criteria in the announcement appear to address ANA's concern that DBAS's proposed project would be unlikely to have a significant impact on economic development. If the panel agreed with ANA's concern, it could presumably assign the proposed project a lower ranking relative to other projects. The review panel's rankings are not subject to appeal or review by the Board. ANA's concern has no bearing, however, on whether the project is eligible to be submitted for panel review in the first place.

ANA also argued that Congress's establishment of a revolving loan fund demonstration project for Native Hawaiians shows that Congress intended to limit funding for revolving loan funds to Native Hawaiians, and not fund them for other tribal groups. The provision of the Act that ANA cited directs ANA to award a grant to the Office of Hawaiian Affairs of the State of Hawaii for a demonstration project involving the establishment of a revolving loan fund "to make loans or loan guarantees to Native Hawaiian organizations and to individual Native Hawaiians for the purpose of promoting economic development in the State of Hawaii." 42 U.S.C. § 2991b-1(a). ANA argued that there would have been no need for Congress to enact the demonstration project if the Act already permitted the establishment of revolving loan funds. ANA cited the legislative history of this provision in support of its argument that Congress intended to limit the use of revolving loan funds to Native Hawaiians.

However, the legislative history that ANA cited does not support ANA's interpretation with respect to revolving loan funds. It states that the purpose of the demonstration project was "to determine whether Native Americans can benefit from additional community based assistance," and describes why Native Hawaiians were targeted for assistance. S. Rep. No. 140, 100th Cong., 1st Sess. 21 (Aug. 3, 1987), 1987 U.S.C.C.A.N. 894, 908-09. The history simply does not address whether ANA may or may not make grants to projects that utilize revolving loan funds to accomplish otherwise permissible program goals. In response to ANA's argument, DBAS countered that Congress's establishment of a revolving loan fund means that Congress considers them acceptable mechanisms to carry out the Act's purposes. Indeed, the demonstration project evinces Congress's desire to ensure that at least one such grant is made under the Act. (3)

ANA argued that it has great discretion in determining what projects to fund, that the list in Part 1336 of activities ineligible for funding is specifically labeled non-exclusive, and that the list of ineligible activities in the program announcement is only illustrative and should not obligate ANA to fund activities not specifically listed as ineligible. However, to the extent that ANA determines that a proposal is ineligible based on a purported policy, such a policy must be duly promulgated in accordance with applicable law. Indeed, as we discuss in the next section, the Act explicitly requires that ANA publish its policies in the Federal Register through notice and comment rule making, which ANA did not do here.

Finally, our review of cost principles discloses no prohibition on the use of grant funds to make loans or establish revolving loan funds. While both 45 C.F.R. Part 74, and the Federal Grant and Cooperative Agreement Act (31 U.S.C. § 6301-6308 et seq.) define "award" (Part 74) and "grant agreement" (statute) as excluding (among other things) assistance in the form of loans and loan guarantees, they do not prohibit grants or awards for a grantee to establish a loan fund. In addition, the laws administered by this Department at several places establish grant programs that permit grantees to accomplish grant purposes through loans and revolving loan funds. See, e.g., 42 U.S.C. §§ 2991b-1; 3149(a); 4852(f); 5304(h). Moreover, Part 74 contains language that recognizes an association between federal awards and "revolving funds." Specifically, 45 C.F.R. § 74.22, "Payment," states:

(g) Unless inconsistent with statutory program purposes, to the extent available, recipients shall disburse funds available from repayments to and interest earned on a revolving fund, program income, rebates, refunds, contract settlements, audit recoveries and interest earned on such funds before requesting additional cash payments.

Although not addressing loans specifically, Part 74 recognizes that grant funds may be placed into revolving funds. Thus, we conclude that ANA was not prohibited from determining that DBAS's proposal was eligible under the Act.

2. ANA could not apply its policy against revolving loan funds to DBAS's proposed project because it did not publish that policy as the Act required.

The Act and its legislative history make clear that ANA is required to publish its policies in the Federal Register through notice and comment rule making, even those policies that it would otherwise not be required to publish by the Administrative Procedure Act (APA).

The APA requires that a federal agency publish a notice of a proposed rule in the Federal Register and give interested persons "an opportunity to participate in the rule making through the submission of written data, views, or arguments" (notice and comment rule making). 5 U.S.C. § 553(b),(c). The APA provides an exception to that requirement for "interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice." 5 U.S.C. § 553(b). (4) However, the Native American Programs Act, at 42 U.S.C. § 2992b-1, "Additional requirements applicable to rule making," removes that exception for interpretative rules and general statements of policy that ANA issues "applicable exclusively to any program, project, or activity authorized by, or carried out under, this subchapter" of the Act, and requires that they be published through notice and comment rule making in the Federal Register, at least 30 days prior to taking effect. 42 U.S.C. § 2992b-1(b)(1),(c). ANA's purported policy that projects involving revolving loan funds are ineligible for funding would be a general statement of policy or an interpretative rule applicable to a program or activity carried out under the Act. Thus, it appears that ANA would be required to publish the policy pursuant to notice and comment rule making in the Federal Register, unless ANA issued, in its policy, a good cause finding that "notice and public procedure thereon are contrary to the public interest or would impair the effective administration of any program, project, or activity with respect to which such rule is issued." 42 U.S.C. § 2992b-1(b)(3).

The legislative history of this provision (section 503 of the Native American Programs Amendments of 1987, Public Law No. 100-175, 101 Stat 926 (Nov. 29, 1987)), emphasizes ANA's special obligation to publish its policies:

Section 503 amends the Act by establishing a new section 814 with new rule making provisions. The first provision makes the Native American Programs Act subject to the Administrative Procedure Act, with the exception of one provision--when the Commissioner of the ANA for good cause finds that notice and public procedure are not practical, unnecessary, or contrary to the public interest. Other than this one exception, the ANA must publish in the Federal Register, as a notice of proposed rule making, all changes in general statements of policy, application requirements of priorities, other grantee or program requirements, as well as any changes in ANA organization, procedure, or practice. ANA must also afford interested parties at least thirty days to comment on the proposed rule before it can be published in final form. This is intended to curtail the ANA practice of simply announcing changes in policy or specific requirements without public comment. An example of this was contained in the August 12, 1985 program announcement (50 Federal Register 32542)--'The following activities are inconsistent with the policies of ANA: . . . ('third party Training & Technical Assistance').' Although not prohibited by section 805 of the Act, ANA nonetheless decided, without soliciting Indian, Alaskan, and Hawaiian input that they would not support this method of providing training and technical assistance. This type of policymaking is clearly not consistent with the Federal policy of Indian Self-Determination.

S. Rep. No. 140, 100th Cong., 1st Sess. 20 (Aug. 3, 1987), 1987 U.S.C.C.A.N. 894, 907-08.

As the parties did not cite section 2992b-1 in their briefs, the Board asked them to comment on how this provision would affect an ANA policy that revolving loan fund projects are always ineligible under the Act. The Board asked whether it should find any such policy inapplicable here because it was not published in accordance with 42 U.S.C. § 2992b-1. The Board asked the parties to address the legislative history of 2992b-1.

In its response, ANA did not address the language of section 2992b-1 or the legislative history. ANA provided no basis to conclude that any purported policy that projects involving revolving loan funds must be ineligible for funding was not a general statement of policy or an interpretative rule subject to the publication requirements of section 2992b-1.

Instead, ANA argued that publishing an "exhaustive list of ineligible activities" would be impractical, unnecessary and contrary to the public interest because there are thousands, "limited only by the imagination of the drafter." ANA Supplemental Response at 3. ANA also argued that the expense of publishing such a list would divert limited resources from Native American needs, and that the list would be so long as to confuse and discourage potential applicants for grants. However, these practical considerations would not appear to excuse ANA from complying with the Act's requirement, as bolstered by Congress's clear statement of intent in the legislative history, that ANA's policies be subject to notice and comment rule making. (5)

Moreover, ANA did not address the legislative history of section 2992b-1, quoted above, but rather cited other legislative statements indicating that ANA has discretion in the selection of projects to fund. However, any discretion that ANA has must be exercised consistent with the terms of the Act, which require ANA to publish its policies in the Federal Register through notice and comment rule making. The portion of the legislative history that ANA cited indicates that in selecting projects for funding, the Commissioner of ANA is not bound by the merit rankings of the review panel and may select an application for funding ahead of another application that the review panel identified as superior in merit, although the Commissioner must make a record explaining the reasons for his decision. S. Rep. No. 140, 100th Cong., 1st Sess. at 19 (Aug. 3, 1987); 1987 U.S.C.C.A.N. 894, 907. That history does not address the notice and comment rule making requirement of section 2992b-1, or provide any basis to conclude that it does not apply here.

Accordingly, we conclude that ANA failed to provide any support for finding the proposed project ineligible, since any policy against revolving loan funds must first be promulgated in a manner consistent with applicable law. As discussed above, our determination does not mean that DBAS will in fact be awarded a grant or that its proposed project will be funded. At most, our decision means that the proposal may be considered for funding during the next review cycle. 45 C.F.R. § 1336.35(h).

Conclusion

Based on the forgoing analysis, we reverse ANA's determination that the proposed project was not eligible for funding under the Native American Programs Act.

JUDGE
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Judith A. Ballard

Cecilia Sparks Ford

Donald F. Garrett
Presiding Board Member

FOOTNOTES
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1. The SEDS initiative encourages tribes and Native organizations to develop projects that promote social and economic development based upon the needs of the various groups. ANA began implementation of the SEDS initiative in 1980. S. Rep. No. 100-140, 100th Cong., 1st Sess. 8 (Aug. 3, 1987), 1987 U.S.C.C.A.N. 894, 896.

2. ANA also determined that DBAS was not an eligible organization because it had not demonstrated its non-profit status, but withdrew that determination during the appeal. ANA Brief at 2.

3. Because we are reversing ANA's determination that the proposed project was ineligible for funding, we do not address DBAS's argument that limiting projects involving revolving loan funds to Native Hawaiians may constitute unconstitutional discrimination.

4. At section 553(a)(2) the APA also provides an exception for matters relating to grants. However, the Department has chosen to abide generally by the provisions of section 553, notwithstanding this exception. 36 Fed. Reg. 2532 (Feb. 5, 1971).

5. The Act does permit ANA to waive the requirement of notice and comment rule where it finds, for good cause, that publication pursuant to notice and comment rule making would be "impracticable, unnecessary, or contrary to the public interest." In such a case, ANA must include the good-cause finding and a brief statement of the reasons therefor in the rule for which ANA waives notice and comment rule making. 42 U.S.C. § 2992b-1(b)(3); see S. Rep. No. 140, 100th Cong., 1st Sess. 20 (Aug. 3, 1987), 1987 U.S.C.C.A.N. 894, 907-08. ANA's argument that publishing an exhaustive list of ineligible activities would be impractical, unnecessary and contrary to the public interest employs language from the waiver standard. Supplemental Response at 3. However, ANA did not show that it has ever made or issued the required good-cause finding, and, in any event, did not argue that it had waived the rule making requirement of section 2992b-1(b). Additionally, the requirement that the good-cause finding be included in the rule indicates that the rule must be published or otherwise memorialized, albeit not through notice and comment rule making. Here, there is no indication that ANA has ever issued or memorialized its policy against revolving loan funds, outside of its ineligibility determinations and its briefs in this proceeding. Thus, we have no basis to find that ANA waived the requirement of notice and comment rule making for its policy against revolving loan funds. We also do not agree with ANA that compliance with section 2992b-1 would be as burdensome as claimed. ACF characterized the purported policy as longstanding, and thus it is not merely one of thousands that might be imagined by a drafter, for which publication might be impractical as ANA argued. Moreover, that policy does not relate to one individual type of activity, but rather to a general method of promoting economic development, for which there have been proposals in the past, and are likely to be in the future.

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