[Federal Register Volume 63, Number 73 (Thursday, April 16, 1998)]
[Rules and Regulations]
[Pages 19151-19161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10130]



  Federal Register / Vol. 63, No. 73 / Thursday, April 16, 1998 / Rules 
and Regulations  

[[Page 19151]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 598

[Docket No. FR-4281-I-04]
RIN 2506-AB97


Empowerment Zones: Rule for Second Round Designations

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: This interim rule adds new regulations to govern the 
designation of fifteen urban areas as Empowerment Zones. This new rule 
is being published to implement the changes made by sections 952-954 of 
the Taxpayer Relief Act of 1997. That statute authorized designation of 
a second round of Empowerment Zones, which receive special tax benefits 
for area businesses. (The Act also authorized HUD to designate two 
additional EZs under the criteria specified for the first round, for 
which a separate final rule has been issued.) By specifying the new 
eligibility criteria to be used in designating a second round of EZs, 
this rule lays the foundation for designations to be made in response 
to applications submitted in response to the Notice Inviting 
Applications published elsewhere in this issue of the Federal Register.

DATES: Effective date: May 18, 1998.
    Comment due date: Comments must be submitted by June 15, 1998.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Office of the General Counsel, Regulations Division, 
room 10276, Department of Housing and Urban Development, 451 Seventh 
Street, SW, Washington, DC 20410-0500. Comments should refer to the 
above docket number and title of the rule. Facsimile (FAX) comments are 
not acceptable. A copy of each communication submitted will be 
available for public inspection and copying during regular business 
hours (weekdays 7:30 a.m. to 5:30 p.m. Eastern time) at the above 
address. (In addition, see the Paperwork Reduction Act heading under 
the Findings and Certifications section of this preamble regarding 
submission of comments on the information collection burden.)

FOR FURTHER INFORMATION CONTACT: Elaine Braverman, Empowerment Zone/
Enterprise Community Initiative, Department of Housing and Urban 
Development, Room 7130, 451 Seventh Street, SW, Washington, DC 20410, 
telephone (202) 708-6339. (This telephone number is not toll-free.) For 
hearing-and speech-impaired persons, this telephone number may be 
accessed via TTY (text telephone) by calling the Federal Information 
Relay Service at 1-800-877-8339 (toll-free).

SUPPLEMENTARY INFORMATION:

I. Background

    Section 13301 of the Omnibus Budget Reconciliation Act of 1993 
created a new Subchapter U of the Internal Revenue Code, which 
authorized the Secretary of Housing and Urban Development (HUD) to 
designate not more than six urban Empowerment Zones and not more than 
65 urban Enterprise Communities. It also authorized the Secretary of 
Agriculture to designate not more than three Empowerment Zones. The two 
Departments issued separate but parallel interim rules, following a 
standard format, on January 18, 1994 (59 FR 2700). Notices Inviting 
Applications were published, and the agencies designated the maximum 
number of EZs and ECs authorized. HUD issued a final rule, making only 
technical changes to the interim rule, on January 12, 1995 (60 FR 
3034). At that time, HUD responded to comments received on the interim 
rule. With respect to comments made concerning the designation process, 
HUD generally responded that, because the designations had already been 
made under the interim rule, changes to those provisions would not have 
any effect, but the suggested changes would be considered in any future 
rulemaking to implement any additional Congressional authorization for 
new designations. HUD has reconsidered the changes requested, as 
discussed in the preamble to that final rule, and has decided that they 
are inappropriate or unnecessary.
    Section 952 of the Taxpayer Relief Act of 1997 (Pub. L. 105-34, 111 
Stat. 788, enacted on August 5, 1997) (the 1997 Act) amended section 
1391 of the Internal Revenue Code (26 U.S.C. 1391) to add a new 
paragraph (g), that changed the eligibility criteria for the 20 
additional Empowerment Zones, 15 of which are to be in urban areas, 
designated by the Secretary of HUD and 5 of which are to be in rural 
areas, designated by the Secretary of Agriculture. The Act expanded the 
eligibility criteria slightly, provided different tax incentives 
applicable to the new EZs, and made other changes affecting EZs, thus 
necessitating changes to the implementing regulations. Section 954 of 
the 1997 Act amended section 1392 to revise eligibility criteria with 
respect to Alaska and Hawaii, which changes are also reflected in this 
interim rule, and section 701 expressly designated a special 
Empowerment Zone in the District of Columbia, to last five years 
instead of the usual ten.
    Two specific changes in the eligibility criteria in the 1997 Act 
for new EZs were an increase in the size of zones and elimination of 
the requirement that at least half of the nominated area consist of 
census tracts with poverty rates of 35 percent. The requirements for at 
least a 25 percent poverty rate for 90 percent of the area's census 
tracts and at least a 20 percent poverty rate for the remainder 
continue to apply, but census tracts with populations under 2,000 get 
special consideration for satisfying the 25 percent rate. The 
requirement that an urban EZ must be located entirely within no more 
than two contiguous States remains unchanged.
    The tax benefits that apply to the Round II EZs are the following: 
tax-exempt bond financing, welfare-to-work tax credit, work opportunity 
tax credit, environmental cleanup cost deduction (``brownfields'' tax 
incentive), and up to $20,000 of additional section 179 (accelerated 
depreciation) expensing. The Round II EZs are not eligible for the 
present-law wage credit enjoyed by the Round I EZs.
    The strategic plan submitted by an applicant must describe its 
plans for using these tax benefits, in accordance with 
Sec. 598.215(b)(4)(ii). (For a full description of the tax benefits, 
see IRS Publication 954, ``Tax Incentives for Empowerment Zones and 
Other Distressed Communities.'')
    When the first round of designations was being made, there was 
funding authorized and appropriated for the U.S. Department of Health 
and Human Services to award EZ/EC SSBG grants for the Empowerment Zones 
and Enterprise Communities. It is anticipated that such funding may 
become available for Round II designees in Fiscal Year 1999. See the 
Appendix, ``Eligible Uses of EZ/EC SSBG Funds,'' for guidance on uses 
of these funds.
    For the current fiscal year, however, there is $1.5 million in HUD 
funding for planning grants and approximately $502 million in tax 
benefits. Each of the 15 areas that receives designation under this 
rule as an EZ will be awarded a $100,000 planning grant.

II. New Rule

A. Statutory Changes

    The principal change that affects all areas to be nominated for the 
second round of designations is the replacement of the existing 
criteria

[[Page 19152]]

concerning poverty rate. For the first round of designations, there 
were three elements of the poverty rate criterion of eligibility for 
Empowerment Zone designation: (1) The poverty rate for each census 
tract must be at least 20 percent; (2) the poverty rate for at least 90 
percent of the census tracts must be at least 25 percent; and (3) the 
poverty rate for at least 50 percent of the census tracts must be at 
least 35 percent. The areas designated under the revised authority are 
subject to only the first two of these poverty rate criteria. (See 
Sec. 598.115(a).)
    A new provision excepts up to three ``developable sites''--parcels 
that may be developed for commercial or industrial purposes--from 
satisfying the two poverty rate criteria that otherwise would be 
applicable, but restricts the size of the area given this special 
poverty rate treatment to a total of 2,000 acres. There may be up to 
three noncontiguous developable sites within a nominated area, which 
themselves may be noncontiguous with the parcels that do meet the 
poverty criteria.
    Treatment of census tracts with small populations has been changed. 
Now they must satisfy an additional condition to be treated as if they 
have a poverty rate of at least 25 percent (the second criterion 
described above): The census tract must be contiguous to one or more 
other census tracts that have a poverty rate of at least 25 percent, 
determined without regard to this exception. (See Sec. 598.115(b)(2).)
    For the first round of designations, the statute (at section 
1391(e)(5)) required that States and local governments certify that no 
portion of the area nominated is already included in an EZ or in an EC 
or in an area otherwise nominated for designation. For this round, the 
statute was amended. We interpret the amendment to permit nomination of 
areas that were contained in areas nominated for EZ or EC status that 
were not granted such status. In other words, the certification for 
Round II requires that the nominated area contain no portion of an area 
that is part of either an EZ or an area currently being nominated for 
EZ designation. (See Sec. 598.210(c).)
    In the first round, Indian reservations were not permitted to be 
included in an Empowerment Zone. The statute has been changed to permit 
them to be included, and to be treated as nominated by both a State and 
a local government if it is nominated by the reservation governing 
body. Section 598.500 implements this change, permitting the nomination 
of the tribal governing body to be treated as a nomination by both a 
State and a local government where the area included in the nomination 
is entirely within the reservation. If part of the area nominated is 
outside the Indian reservation, the State would be required to 
participate in the nomination. The statute references a determination 
by the Secretary of the Interior with respect to the Indian 
reservation's governing body. HUD interprets this to mean that the 
Indian organizations from whom HUD should accept nominations are those 
that constitute Federally recognized tribes, those specified by the 
Department of the Interior. This interpretation is reflected in the new 
section.
    The States of Alaska and Hawaii are given special treatment with 
respect to satisfying the distress, size, and poverty rate criteria in 
the revised statute for Round II designations. A nominated area is 
treated as satisfying those requirements if 20 percent or more of the 
families of each census tract have incomes that are no more than 50 
percent of the statewide median family income. (See Sec. 598.515.)
    The District of Columbia also is singled out in the statute for 
separate designation. Section 701 of the Act designates the existing 
Empowerment Zone in DC as the DC special Empowerment Zone, with the 
addition of all other census tracts for which the poverty rate is at 
least 20 percent. It has special provisions concerning the issuance of 
bonds during the period of January 1, 1998 through December 31, 2002, 
and concerning treatment of capital gains on DC Zone assets. These 
special provisions for the District of Columbia are not included in 
this rule, since they are unique to DC. They are being implemented 
directly, as specified in the statute. This special EZ status does not 
disqualify the District of Columbia from seeking designation as a 
standard EZ, which provides benefits over a ten year period.

B. Policy Changes

    The language of the rule is being revised to link the EZs to moving 
people from welfare to work, since that has become a high priority 
after the enactment of welfare reform legislation. See Sec. 598.2.

C. Clarifying Changes

    Some terminology used in part 597, the current rule, such as 
``population census tract'' seems confusing, and so is modified when it 
is replicated in this proposed rule. This rule applies only to Round II 
designations, which do not include Enterprise Communities designations. 
Consequently, the references to Enterprise Communities do not appear in 
this new part.
    The section on evaluating the strategic plan that was contained in 
the rule for Round I has been removed. That level of detail will be 
provided in the Notice Inviting Applications for Round II. The 
selection criteria used in making the designations, however, remain in 
the rule, in Sec. 598.305. The heading has been changed to 
``Designation factors.'' That section echoes the statute in providing 
that HUD will choose among applicants that satisfy the eligibility 
criteria by evaluating the quality of the strategic plan and other 
factors to be specified in the Notice Inviting Applications.

D. Funding Differences

    In Round I, the U.S. Department of Health and Human Services (HHS) 
awarded EZ/EC SSBG funds to States for each designated Round I EZ and 
EC. The HUD rule for Round I included guidance about use of those grant 
funds. Similar grant funding has not been authorized for Round II. If 
grants are authorized for Round II, HHS will issue guidance about those 
funds.

E. Corresponding Sections Between New Rule and Old Rule

    The following chart shows the sections of this new part 598 that 
correspond to the sections of part 597:

------------------------------------------------------------------------
                Part 598                             Part 597           
------------------------------------------------------------------------
598.1  Applicability and scope.........  597.1  Applicability and scope 
598.2  Objective and purpose...........  597.2  Objective and purpose   
598.3  Definitions.....................  597.3  Definitions             
598.4  Secretarial review * * *........  597.4  Secretarial review * * *
598.100  Eligibility requirements......  597.100  Eligibility           
                                          requirements * * *            
598.105  Data used for elig * * *......  597.101  Data utilized for     
                                          eligibility &                 
                                         597.503  Use of census data    
598.110  Tests of pervasive pov * * *..  597.102  Tests of pervasive    
                                          poverty, * * *                
598.115  Poverty rate..................  597.103  Poverty rate          

[[Page 19153]]

                                                                        
598.200  Who nominates an area * * *...  597.200(a)&(b)  Nominations by 
                                          State and * * *               
598.205  What are the requirements * *   597.202  Submission of         
 *.                                       nominations for * * *         
598.210  What certifications must the *  597.200(a)(4), 597.202(b)      
 * *.                                     Submission of nom * * *       
598.215  What are the purpose and        597.200(c)&(d)  Nominations by 
 content * * *.                           State and * * *               
598.300  Procedure for submitting * * *  597.300  HUD action and review 
                                          of nomin * * *                
598.305  Designation factors * * *.....  597.301  Selection factors for 
                                          designation * * *             
598.400  HUD  grants for planning * * *  NEW                            
598.405  Environmental review..........  NEW                            
598.410  Public access to materials * *  NEW                            
 *.                                                                     
598.415  Reporting.....................  597.400  Reporting             
598.420  Periodic progress               597.401  Periodic performance  
 determinations.                          reviews                       
598.425  Validation of designation.....  597.402  Validation of         
                                          designation                   
598.430  Revocation of designation.....  597.403  Revocation of         
                                          designation                   
598.500  Indian Reservations...........  597.500  Indian Reservations   
598.505  Governments...................  597.501  Governments           
598.510  Nominations by EDCs or DC.....  597.502  Nominations by EDCs or
                                          DC                            
598.515  Alaska and Hawaii.............  NEW                            
------------------------------------------------------------------------

III. Findings and Certifications

Justification for Interim Rule

    In general, HUD publishes a rule for public comment before issuing 
a rule for effect, in accordance with its own regulations on rulemaking 
at 24 CFR part 10. However, part 10 does provide for exceptions from 
that general rule where the agency finds good cause to omit advance 
notice and public participation. The good cause requirement is 
satisfied when prior public procedure is ``impracticable, unnecessary, 
or contrary to the public interest.'' (24 CFR 10.1.)
    HUD finds that good cause exists to publish this rule for effect 
without first soliciting public comment, because advance solicitation 
of comment is both unnecessary and contrary to the public interest.
    The Department has already published a rule for notice and comment 
on the subject of designation of Empowerment Zones, which was codified 
at 24 CFR part 597. This new rule to implement a second round of 
designation of Empowerment Zones is patterned on the prior rule. The 
major differences between this rule and the earlier rule are based on 
statutory changes, which leave virtually no room for exercise of 
discretion. Other additions to the rule reflect HUD's experience with 
the first round, clarifying the expectations of the parties to reflect 
actual experience. These changes are not controversial and, therefore, 
do not signal a necessity for advance public comment.
    HUD's finding that it would be contrary to the public interest to 
delay the effectiveness of the rule is based on the practical necessity 
of preparing an application for designation as an empowerment zone 
within the timeframe set by the authorizing statute. The designations 
are required by the statute (section 1391(g)(2)) to be made before 
January 1, 1999. The governmental entities and other entities that may 
work with them in partnership to develop an application for designation 
need to know the requirements of the program in time to develop their 
strategic plans and apply for designation. Delay in prescribing the 
criteria for designating new empowerment zones would delay the 
development of these cooperative efforts and make it extremely 
difficult for applicants to develop their strategic plans in a timely 
fashion.
    For these reasons, HUD believes that an interim rulemaking is 
justified. HUD is soliciting public comments on this rule and will 
consider these comments in the development of a final rule.

Paperwork Reduction Act

    The information collection requirements contained in this rule, as 
described in Secs. 598.200, 598.205, 598.210, 598.215, 598.415, and 
598.430, and the implementing application forms, have been approved by 
the Office of Management and Budget under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3520) and assigned OMB control number 2506-
0148. This approval has been granted on an emergency basis through 
August 31, 1998. In accordance with the Paperwork Reduction Act, HUD 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless the collection displays a currently 
valid OMB control number.
    In addition, HUD will seek an extension of this approval for these 
information collections. Therefore, HUD asks for comments regarding the 
information collections contained in the sections of this rule stated 
above. At the end of the comment period, HUD will submit the proposed 
information collections to OMB for approval.
    Comments regarding the information collections contained in the 
rule must be submitted by June 15, 1998. Comments on these information 
collections should refer to the proposal by name and/or OMB control 
number and must be sent to: Reports Liaison Officer, Shelia E. Jones, 
Department of Housing and Urban Development, 451 Seventh Street, SW, 
Room 7230, Washington, DC 20410.
    Specifically, comments are solicited from members of the public and 
affected agencies concerning the proposed collection of information to: 
(1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility; (2) 
Evaluate the accuracy of the agency's estimate of the burden of the 
proposed collection of information; (3) Enhance the quality, utility, 
and clarity of the information to be collected; and (4) Minimize the 
burden of the collection of information on those who are to respond, 
including through the use of appropriate automated collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    The following table identifies the components of the information 
collection:

[[Page 19154]]



----------------------------------------------------------------------------------------------------------------
                                                                                     Est. ave.                  
       Type of collection          Section of 24     Number of     Frequency of    response time   Annual burden
                                   CFR affected     respondents      response         (hrs.)           hrs.     
----------------------------------------------------------------------------------------------------------------
Application.....................         598.200                                                                
                                         598.205                                                                
                                         598.210                                                                
                                         598.215             225               1              50          11,250
Periodic Reporting..............         597.400                                                                
                                         598.415              87               1              15           1,305
Response to Warning Letter......         597.403                                                                
                                         598.430               5               1              20             100
----------------------------------------------------------------------------------------------------------------

    Total Burden--12,655 hours per year.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
for this rule has been made in accordance with HUD regulations at 24 
CFR part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969. The Finding of No Significant Impact 
is available for public inspection between 7:30 a.m. and 5:30 p.m. 
weekdays in the Office of the Rules Docket Clerk, Office of the General 
Counsel, Department of Housing and Urban Development, Room 10276, 451 
Seventh Street, S.W., Washington, DC 20410.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule will not have a significant 
economic impact on a substantial number of small entities as 
distinguished from large entities. The rule does not place any mandates 
on small entities. It merely authorizes them to seek designation as 
Empowerment Zones, as authorized by statute.
    The burdens placed on applicants derive from the statute, and 
primary among them is the requirement for a strategic plan. The entity 
responsible for preparing a strategic plan for HUD funds for a 
metropolitan area is the local government that generally would be 
seeking the nomination of an area, not the small businesses that are 
located or could be located within the area. A small government is 
defined by the Small Business Administration as one that has a 
population of less than 50,000. It is possible that a government of 
that size will seek designation for an area within its boundaries, if 
it is part of a Metropolitan Statistical Area, as required by the 
statute. The contents of such an entity's strategic plan would be 
expected to reflect its size, not the size of a larger applicant.
    HUD is sensitive to the fact, however, that the uniform application 
of requirements on entities of differing sizes may place a 
disproportionate burden on small entities. Therefore, HUD is soliciting 
recommendations for how these small entities might fulfill the purposes 
of the rule in a way less burdensome to them.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that, although 
this rule may have a substantial direct effect on the States or their 
political subdivisions that are designated as Empowerment Zones, this 
effect is intended by the legislation authorizing the program. The 
purpose of the rule is to provide a cooperative atmosphere between the 
Federal government and States, local, and Tribal governments, and to 
reduce any regulatory burden imposed by the Federal government that 
impedes the ability of States and local governments to solve pressing 
economic, social, and physical problems in their communities.

Unfunded Mandates

    Executive Order 12875 calls for Federal agencies to refrain, to the 
extent feasible and permitted by law, from promulgating any regulation 
that is not required by statute that would create a mandate on a State, 
local, or Tribal government, unless the agency provides funds for 
complying with the mandate or the agency first consults with affected 
State, local, and Tribal governments. Title II of the Unfunded Mandates 
Reform Act of 1995 (12 U.S.C. 1501) established requirements for 
Federal agencies to assess the effects of their regulatory actions on 
State, local, and tribal governments and the private sector.
    This rule does not impose any Federal mandates on any State, local, 
or tribal governments or the private sector within the meaning of the 
Unfunded Mandates Reform Act of 1995, because it does not mandate any 
particular action. The rule just authorizes States, localities, and 
tribes to apply for designation of areas within their jurisdiction as 
Empowerment Zones, which permits special tax treatment of business 
activities within the areas and may make the areas eligible for other 
government benefits.
    HUD has, nonetheless, had regular contact with the representatives 
of the already designated EZs and ECs concerning the effect of the 
statutory changes and on possible means for implementation. In 
addition, individual citizens, academicians, and members of Congress 
have inquired about the possible resolution of issues they identified 
with respect to implementing the statutory changes. All of the 
information and views provided have been considered in the development 
of this rule.

Regulatory Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action,'' as defined in 
section 3(f) of the Order (although not economically significant, as 
provided in section 3(f)(1) of the Order). Any changes made to the 
interim rule after its submission to OMB are identified in the docket 
file, which is available for public inspection in the Regulations 
Division of the Office of General Counsel, Room 10276, 451 Seventh 
Street, SW, Washington, DC 20410-0500.

Catalog of Federal Domestic Assistance.

    The Catalog of Federal Domestic Assistance Program number assigned 
to this program is 14.244.

List of Subjects in 24 CFR Part 598

    Community development, Economic development, Empowerment zones, 
Housing, Indians, Intergovernmental relations, Reporting and record 
keeping requirements, Urban renewal.

    Accordingly, for the reasons set forth in the preamble, a new part 
598 is added to title 24 of the Code of Federal Regulations, to read as 
follows:

[[Page 19155]]

PART 598--URBAN EMPOWERMENT ZONES: ROUND TWO DESIGNATIONS

Subpart A--General Provisions

Sec.
598.1  Applicability and scope.
598.2  Objective and purpose.
598.3  Definitions.
598.4  Period of designation.

Subpart B--Eligibility Requirements

598.100  Eligibility requirements.
598.105  Data used for eligibility determinations.
598.110  Tests of pervasive poverty, unemployment and general 
distress.
598.115  Poverty rate.

Subpart C--Nomination Procedure

598.200  Who nominates an area for designation?
598.205  What are the requirements for nomination?
598.210  What certifications must governments make?
598.215  What are the purpose and content of the strategic plan?

Subpart D--Designation Process

598.300  Procedure for submitting a nomination.
598.305  Selection factors for designation of urban empowerment 
zones.

Subpart E--Post-Designation Requirements

598.400  HUD grants for planning activities.
598.405  Environmental review.
598.410  Public access to materials and proceedings.
598.415  Reporting.
598.420  Periodic progress determinations.
598.425  Validation of designation.
598.430  Revocation of designation.

Subpart F--Special Rules

598.500  Indian Reservations.
598.505  Governments.
598.510  Nominations by Economic Development Corporations or the 
District of Columbia.
598.515  Alaska and Hawaii.

    Authority: 26 U.S.C. 1391; 42 U.S.C. 3535(d).

Subpart A--General Provisions


Sec. 598.1  Applicability and scope.

    (a) This part establishes policies and procedures applicable to the 
second round of designations of urban Empowerment Zones, authorized 
under Subchapter U of the Internal Revenue Code of 1986 (26 U.S.C. 
1391, et seq.), as amended by sections 952 and 954 of the Taxpayer 
Relief Act of 1997.
    (b) This part contains provisions relating to area requirements, 
the nomination process for urban Empowerment Zones, and the designation 
and evaluation of these Zones by HUD. Provisions dealing with the 
nomination and designation of rural Empowerment Zones are issued by the 
Department of Agriculture.


Sec. 598.2  Objective and purpose.

    The purpose of this part is to provide for the establishment of 
Empowerment Zones in urban areas, to stimulate the creation of new 
jobs--empowering low-income persons and families receiving public 
assistance to become economically self-sufficient--and to promote 
revitalization of economically distressed areas.


Sec. 598.3  Definitions.

    In addition to the definitions of ``HUD'' and ``Secretary'' found 
in 24 CFR 5.100, the following definitions apply to this part.
    Census tract means a census tract, as the term is used by the 
Bureau of the Census, or, if census tracts are not defined for the 
area, a block numbering area.
    Designation means the process by which the Secretary designates 
urban areas as Empowerment Zones eligible for tax incentives and 
credits established by Subchapter U of the Internal Revenue Code of 
1986, as amended (26 U.S.C. 1391, et seq.) and for special 
consideration for programs of Federal assistance.
    Developable site means a parcel of land in a nominated area that 
may be developed for commercial or industrial purposes.
    Empowerment Zone means an urban area so designated by the Secretary 
in accordance with this part.
    EZ/EC SSBG funds means any funds that may be provided to States or 
Tribes by HHS in accordance with section 2007(a) of the Social Security 
Act (42 U.S.C. 1397f), for use by the designated Round II Empowerment 
Zone.
    HHS means the U.S. Department of Health and Human Services.
    Local government means any county, city, town, township, parish, 
village, or other general purpose political subdivision of a State, and 
any combination of these political subdivisions that is recognized by 
the Secretary.
    Nominated area means an area nominated by one or more local 
governments and the State or States in which it is located for 
designation in accordance with this part.
    Revocation of designation means the process by which the Secretary 
may revoke the designation of an urban area as an Empowerment Zone . 
(See subpart E of this part.)
    State means any State of the United States.
    Urban area means:
    (1) An area that lies inside a Metropolitan Statistical Area (MSA), 
as designated by the Office of Management and Budget; or
    (2) An area outside an MSA if the jurisdiction of the nominating 
local government documents:
    (i) The urban character of the area, or
    (ii) The link between the area and the proposed area in the MSA.


Sec. 598.4  Period of designation.

    The designation of an urban area as an Empowerment Zone will remain 
in full effect during the period beginning on the date of designation 
and ending on the earliest of:
    (a) The close of the tenth calendar year beginning on the date of 
designation;
    (b) The termination date designated by the State and local 
Governments in their application for nomination; or
    (c) The date the Secretary modifies or revokes the designation.

Subpart B--Eligibility Requirements


Sec. 598.100  Eligibility requirements.

    A nominated urban area is eligible for designation in accordance 
with this part only if the area:
    (a) Has a maximum population that is the lesser of:
    (1) 200,000; or
    (2) The greater of 50,000 or ten percent of the population of the 
most populous city located within the nominated area;
    (b) Is one of pervasive poverty, unemployment and general distress, 
as described in Sec. 598.110;
    (c) Does not exceed twenty square miles in total land area, 
excluding up to three noncontiguous developable sites that are exempt 
from the poverty criteria;
    (d) Has a continuous boundary, or consists of not more than three 
non-contiguous parcels meeting the poverty criteria, and not more than 
three noncontiguous developable sites exempt under Sec. 598.115(c)(1) 
from the poverty rate criteria;
    (e) Is located entirely within the jurisdiction of the unit or 
units of general local government making the nomination, and is located 
in no more than two contiguous States; and
    (f) Does not include any portion of a central business district, as 
this term is used in the most recent Census of Retail Trade, unless the 
poverty rate for each census tract in the district is not less than 35 
percent.


Sec. 598.105  Data used for eligibility determinations.

    (a) Source of data. The data to be used in determining the 
eligibility of an area is from the 1990 Decennial Census, and from 
information published by the Bureau of the Census and the Bureau of 
Labor Statistics. Specific information on

[[Page 19156]]

appropriate data to be submitted will be provided in the application.
    (b) Use of statistics on boundaries. The boundary of an urban area 
nominated for designation as an Empowerment Zone must coincide with the 
boundaries of census tracts, as defined in Sec. 598.3.


Sec. 598.110  Tests of pervasive poverty, unemployment and general 
distress.

    (a) Pervasive poverty. Pervasive poverty is demonstrated by 
evidence that:
    (1) Poverty, as indicated by the number of persons listed as being 
in poverty in the 1990 Decennial Census, is widespread throughout the 
nominated area; or
    (2) Poverty, as described above, has become entrenched or 
intractable over time (through comparison of 1980 and 1990 census data 
or other relevant evidence).
    (b) Unemployment. Unemployment is demonstrated by:
    (1) The most recent data available indicating that the annual rate 
of unemployment for the nominated area is not less than the national 
annual average rate of unemployment; or
    (2) Evidence of especially severe economic conditions, such as 
military base or plant closings or other conditions that have brought 
about significant job dislocation within the nominated area.
    (c) General distress. General distress is evidenced by describing 
adverse conditions within the nominated urban area other than those of 
pervasive poverty and unemployment. Below average or decline in per 
capita income, earnings per worker, number of persons on welfare, per 
capita property tax base, average years of school completed, 
substantial population decline, and a high or rising incidence of 
crime, narcotics use, homelessness, high incidence of AIDS, abandoned 
housing, deteriorated infrastructure, school dropouts, teen pregnancy, 
incidence of domestic violence, incidence of certain health conditions 
and illiteracy are examples of appropriate indicators of general 
distress.


Sec. 598.115  Poverty rate.

    (a) General. In order to be eligible for designation, an area's 
poverty rate must satisfy the following criteria:
    (1) In each census tract within a nominated urban area, the poverty 
rate must be not less than 20 percent; and
    (2) For at least 90 percent of the census tracts within the 
nominated urban area, the poverty rate must be not less than 25 
percent.
    (b) Special rules relating to the determination of poverty rate--
(1) Census tracts with populations of less than 2,000. A census tract 
that has a population of less than 2,000 is treated as having a poverty 
rate that meets the requirements of paragraphs (a)(1) and (a)(2) of 
this section if more than 75 percent of the tract is zoned for 
commercial or industrial use, and the tract is contiguous to one or 
more other census tracts that have an actual poverty rate of not less 
than 25 percent.
    (2) Rounding up of percentages. In making the calculations required 
by this section, the Secretary will round all fractional percentages of 
one-half percent or more up to the next highest whole percentage 
figure.
    (c) Noncontiguous parcels. (1) Noncontiguous parcels that are 
developable sites are exempt from the poverty rate criteria of 
paragraph (a) of this section, for up to three developable sites.
    (2) The total area of the noncontiguous parcels that are 
developable sites exempt from the poverty rate criteria of paragraph 
(a) of this section must not exceed 2,000 acres.
    (3) A nominated urban area must not contain a noncontiguous parcel 
unless such parcel separately meets the criteria set forth at 
paragraphs (a)(1) and (2) of this section, except for up to three 
developable sites.
    (4) There must not be more than three noncontiguous parcels, except 
that up to three developable sites are not included in this limit.

Subpart C--Nomination Procedure


Sec. 598.200  Who nominates an area for designation?

    Applicants for empowerment zone designation must be nominated by 
the State or States and one or more local government(s) in which the 
area is located, except as provided in Secs. 598.500, 598.510, and 
598.515. The nomination must be submitted in a form to be prescribed by 
HUD in the application and in the document announcing the initiation of 
the designation process, and must contain complete and accurate 
information.


Sec. 598.205  What are the requirements for nomination?

    (a) General. No urban area may be considered for designation in 
accordance with subpart D of this part unless:
    (1) The urban area is within the jurisdiction of a State or States 
and local government(s) that have the authority to nominate the urban 
area for designation and that provide written assurances satisfactory 
to the Secretary that the strategic plan described in Sec. 598.215 will 
be implemented, and these governments submit its nomination;
    (2) All information furnished by the nominating State(s) and local 
government(s) is determined by the Secretary to be reasonably accurate; 
and
    (3) The application for designation is complete, as described in 
paragraph (b) of this section.
    (b) Contents of application for designation. The application for 
designation of an urban area as an Empowerment Zone must do the 
following:
    (1) Demonstrate that the nominated urban area satisfies the 
eligibility criteria set forth in subpart B of this part;
    (2) Include a strategic plan, as described in Sec. 598.215;
    (3) Include the certifications described in Sec. 598.210;
    (4) Include the 1990 census maps showing the following:
    (i) The boundaries of the local government(s): and
    (ii) The boundaries of the nominated area, including any 
developable sites; and
    (5) Include such other information as may be required by HUD in the 
application or in the document announcing the initiation of the 
designation process.


Sec. 598.210  What certifications must governments make?

    Certifications must be submitted by the State(s) and local 
government(s) requesting designation stating that:
    (a) The nominated urban area satisfies the boundary tests of 
Sec. 598.100(d);
    (b) The nominated urban area is one of pervasive poverty, 
unemployment and general distress, as prescribed by Sec. 598.110;
    (c) The nominated urban area contains no portion of an area that is 
included in an Empowerment Zone or any other area currently nominated 
for designation as an Empowerment Zone (but it may include an 
Enterprise Community);
    (d) Each nominating governmental entity has the authority to:
    (1) Nominate the urban area for designation as an Empowerment Zone;
    (2) Make the commitments required of nominating entities by 
Sec. 598.215(b); and
    (3) Provide written assurances satisfactory to the Secretary that 
the strategic plan will be implemented.
    (e) Provide assurances that any Round II EZ/EC SSBG funds that may 
be provided to the State for the area will not be used to supplant 
Federal or non-Federal funds for services and activities that promote 
the purposes of section 2007 of the Social Security Act;

[[Page 19157]]

    (f) Provide that the nominating governments or corporations agree 
to make available all information requested by HUD to aid in the 
evaluation of progress in implementing the strategic plan and reporting 
on the use of EZ/EC SSBG funds; and
    (g) Provide assurances that the nominating State(s) agrees to 
distribute any EZ/EC SSBG funds that may be awarded to it for use by a 
designated Empowerment Zone for programs, services, and activities 
included in the Empowerment Zone's strategic plan to the extent they 
are consistent with section 2007(a) of the Social Security Act as well 
as other applicable Federal, State, and local laws and regulations.
    (h) Provide assurances that the nominating governments will 
administer the Empowerment Zone program in a manner which affirmatively 
furthers fair housing on the bases of race, color, national origin, 
religion, sex, disability, and familial status (presence of children).


Sec. 598.215  What are the purpose and content of the strategic plan?

    (a) Principles of strategic plan. The strategic plan, which 
accompanies the application for designation, must be developed in 
accordance with four key principles:
    (1) Strategic Vision for Change, which identifies what the 
community will become and a strategic map for revitalization. The 
vision should build on assets and coordinate a response to community 
needs in a comprehensive fashion. It also should set goals and 
performance benchmarks for measuring progress and establish a framework 
for evaluating and adjusting the revitalization plan;
    (2) Community-Based Partnerships, involving the participation of 
all segments of the community, including the political and governmental 
leadership, community groups, local public health and social service 
departments and nonprofit groups providing similar services, 
environmental groups, local transportation planning entities, public 
and private schools, religious organizations, the private and nonprofit 
sectors, centers of learning, and other community institutions and 
individual citizens;
    (3) Economic Opportunity, including job creation within the 
community and throughout the region, entrepreneurial initiatives, small 
business expansion, job training and other important job readiness and 
job support services, such as affordable child care and transportation 
services, that may enable residents to be employed in jobs that offer 
upward mobility;
    (4) Sustainable Community Development, to advance the creation of 
livable and vibrant communities through comprehensive approaches that 
coordinate economic, physical, environmental, community and human 
development. These approaches should preserve the environment and 
historic landmarks, address ``brownfields'' clean-up and redevelopment, 
explore the economic development advantages of energy efficiency and 
use of renewable energy resources, and improve transportation, 
education, public safety, and enhanced access to information and 
technology among all segments of the community.
    (b) Elements of strategic plan. The strategic plan must include the 
following elements:
    (1) Vision and values: The community's strategic vision for 
change--a statement of what the community believes its future should 
be, and a statement of the community's values that guided the creation 
of the vision. Explain how the vision creates economic opportunity, 
encourages self-sufficiency and promotes sustainable community 
development.
    (2) Community assessment: A comprehensive assessment of existing 
conditions and trends within the community, which includes, as a 
minimum:
    (i) Assessment of problems and opportunities. A description and 
assessment of the trends and conditions within the community and of the 
surrounding region that form the basis of the strategic plan. The 
assessment will include an analysis of the strengths and assets of the 
community and region, as well as needs and problems, and should include 
a description of poverty and general distress, barriers to economic 
development and barriers to human development; and
    (ii) Resource analysis. An assessment of the resources available to 
the community, including potential resources outside the nominated 
area, to address identified problems and needs, and maximize 
opportunities that exist within the community. Such resources may 
include financial, technical, human, cultural, educational, leadership, 
volunteerism, communications, transportation and commerce centers, rail 
and mass transit linkages, redevelopable land (including land, such as 
ports, that can be designated as ``developable sites'' under the 
additional 2,000 acres available), public space, infrastructure, and 
other community and regional assets that form the basis for the 
formulation and implementation of the strategic plan.
    (3) Goals: A statement of a comprehensive and holistic set of goals 
to be achieved through implementation of the strategic plan throughout 
the 10-year implementation period, and a statement of the strategies 
the community proposes to use to achieve the strategic plan goals, and 
the identification of priority objectives.
    (4) Implementation plan: A detailed plan that outlines how the 
community will implement its strategic plan. The plan will include:
    (i) Projects and programs. Provide, for the first two-year 
implementation period, the following:
    (A) A narrative outlining the specific projects and programs that 
will be implemented that will result in the achievement of the 
community's goals;
    (B) Proposed timelines for implementing identified projects and 
programs;
    (C) Identification of lead implementers of identified projects and 
programs, along with innovative partnerships that will be utilized to 
insure maximum community participation and project sustainability;
    (D) Proposed budgets for each identified project or program, 
including projected costs, and sources of funding. Information on 
sources of funding will include whether the funding is anticipated or 
committed, and whether funding is conditioned upon the designation of 
the community as an Empowerment Zone. Evidence of committed funding is 
required, and may include letters of commitment, resolutions of 
support, or similar documentation as outlined in paragraph (b)(6) of 
this section. Funding may include cash and in-kind support from 
Federal, State and local governments, non-profit organizations, 
foundations, private businesses and other entities that will assist in 
the implementation of the strategic plan. Budgets will also include 
details about proposed uses of any Round II EZ/EC SSBG funds that may 
become available from HHS, in accordance with Guidelines on Eligible 
Uses of EZ/EC SSBG Funds.1
---------------------------------------------------------------------------

    \1\ The Guidelines were published as an appendix to the interim 
rule on Empowerment Zones; Second Round Designation, published in 
the Federal Register on April 16, 1998.
---------------------------------------------------------------------------

    (E) Baselines and proposed measurable outputs;
    (ii) Tax incentive utilization plan. A plan for integrating the new 
business tax incentives that are available to designated Empowerment 
Zones into the nominated area's business development efforts. The Round 
II tax

[[Page 19158]]

incentives include Tax-Exempt Bond Financing, Increased Section 179 
Deduction, Welfare-to-Work Credit, Environmental Cleanup Cost Deduction 
(i.e., ``Brownfields Tax Incentive''), and the Work Opportunity Tax 
Credit. For a description of the tax incentives, see IRS Publication 
954, ``Tax Incentives for Empowerment Zones and Other Distressed 
Communities'';
    (iii) Developable sites plan. If the nominated area is to include 
developable sites, a plan to describe how the use of these parcels 
would benefit residents and businesses of the nominated area;
    (iv) Governance plan. A Governance Plan for the administration of 
the strategic plan implementation process, which will include the 
following:
    (A) The name of the proposed lead implementing entity, and other 
major administrative entities and their proposed or actual legal status 
and authority to receive and administer Federal funds. The strategic 
plan may be implemented by the local governments(s) and/or by the 
State(s) nominating an urban area for designation and/or by 
nongovernmental entities identified in the strategic plan;
    (B) Evidence that the lead implementing entity and other key 
entities participating in the strategic plan implementation have the 
capacity to implement the plan;
    (C) Proposed composition and date of establishment of any 
governance boards, advisory boards, commissions or similar bodies that 
will be established to manage the implementation of the strategic plan. 
Specific information will be included regarding representation of 
residents and businesses of the proposed Empowerment Zone area, and how 
members of the boards or commissions will be selected;
    (D) The relationship between any governance structure created and 
local governments and other major community or regional organizations, 
such as a metropolitan planning organization, operating in the same 
geographic area;
    (E) The methods by which stakeholders within the Zone will be kept 
informed about Zone activities and progress in implementing the 
strategic plan, including a description of plans for meetings open to 
the public. The community should utilize modern communication 
techniques and incorporate the Internet in order to enhance the 
communication and access to information among all stakeholders and 
participants; and
    (F) The methods and procedures that will ensure continuing 
community and grassroots participation in the implementation of the 
strategic plan and in the governance of the Zone's activities.
    (v) Community performance assessment. Methods the community will 
use to assess its own performance in implementing the strategic plan, 
and the process it will use to continually review the plan and amend as 
appropriate.
    (5) Strategic planning process documentation: A description of the 
process the community used to select the boundaries of the proposed 
Empowerment Zone, including the developable sites, and to prepare the 
Strategic Plan. The documentation will:
    (i) Explain how the community participated in choosing the area 
that is being nominated and why the area was nominated;
    (ii) Indicate and briefly describe the specific groups, 
organizations, and individuals participating in the production of the 
plan and describe the history of these groups in the community;
    (iii) Explain how participants were selected and provide evidence 
that the participants, taken as a whole, broadly represent the racial, 
cultural, gender, and economic diversity of the community;
    (iv) Describe the role of the participants in the creation, 
development and future implementation of the plan; and
    (v) Identify two or three topics addressed in the plan that caused 
the most serious disagreements among participants and describe how 
those disagreements were resolved; and
    (6) Documentation of commitments: Letters of commitment, 
resolutions committing public or private resources, and other 
documentation that will demonstrate the level of public and private 
resources, both inside and outside the nominated area, that will be 
available to implement the Strategic Plan and increase economic 
opportunity in the nominated Empowerment Zone.
    (c) Prohibition against business relocation. The strategic plan may 
not include any action to assist any establishment in relocating from 
one area outside the nominated urban area to the nominated urban area, 
except that assistance for the expansion of an existing business entity 
through the establishment of a new branch, affiliate, or subsidiary is 
permitted if:
    (1) The establishment of the new branch, affiliate, or subsidiary 
will not result in a decrease in employment in the area of original 
location or in any other area where the existing business entity 
conducts business operations; and
    (2) There is no reason to believe that the new branch, affiliate, 
or subsidiary is being established with the intention of closing down 
the operations of the existing business entity in the area of its 
original location or in any other area where the existing business 
entity conducts business operations.

Subpart D--Designation Process


Sec. 598.300  Procedure for submitting a nomination.

    (a) Establishment of submission procedures. HUD will establish a 
time period and procedures for the submission of nominations for 
designation as Empowerment Zones, including submission deadlines and 
addresses, in a document announcing the initiation of the designation 
process.
    (b) Acceptance for processing. HUD will accept for processing those 
nominations for designation as Empowerment Zones that HUD determines 
have met the criteria required by this part.
    (c) Publication of designations. Announcements of those nominated 
urban areas designated as Empowerment Zones will be made by publication 
in the Federal Register.


Sec. 598.305  Designation factors.

    In choosing among nominated urban areas eligible for designation, 
the Secretary will consider:
    (a) Quality of strategic plan. The quality of the strategic plan 
(see Sec. 598.215(b));
    (b) Quality of commitments. The quality and breadth of the 
commitments made in connection with the strategic plan (see 
Sec. 598.215(b)); and
    (c) Other factors. Other factors established by HUD, as specified 
in a Federal Register notice.

Subpart E--Post-Designation Requirements


Sec. 598.400  HUD grants for planning activities.

    (a) HUD will award planning grants up to $100,000 to each of the 
Empowerment Zones designated in accordance with this part.
    (b) Eligible recipients for these grants are the lead unit of 
general local government that received designation under this part, or 
its designee. These recipients may subgrant all or part of the planning 
grant to qualified subgrantees, such as community organizations, 
agencies of local government, regional planning authorities, or 
planning consultants.

[[Page 19159]]

    (c) Eligible planning activities include: hiring and development of 
staff, consulting services, publication of materials, community 
outreach and participation, governing board training, and similar 
activities that are intended to:
    (1) Expand the planning capacity of the designee local government, 
the governing board, and/or participating entities, such as community 
organizations;
    (2) Help the designee plan the implementation of the strategic 
plan; and
    (3) Help the designee to develop its performance measurement 
process.
    (d) The document announcing the initiation of the designation 
process describes the procedures for award of these planning grants, 
post-award reporting requirements with respect to the grants, and the 
uniform requirements applicable to all Federal grants.


Sec. 598.405  Environmental review.

    Where an empowerment zone's strategic plan or any revision thereof 
proposes the use of EZ/EC SSBG funds for activities that are not 
excluded from environmental review under 24 CFR 50.19(b), an 
environmental review will be performed as required by applicable law.


Sec. 598.410  Public access to materials and proceedings.

    After designation, an area designated an EZ must make available to 
the public copies of the strategic plan and supporting documentation 
and must conduct its meetings in accordance with applicable open 
meetings statutes. HUD may make the strategic plan and supporting 
documentation available to members of the public.


Sec. 598.415  Reporting.

    (a) Empowerment Zones designated in accordance with this part must 
submit periodic reports to HUD. These reports must identify the 
community, local government and State actions that have been taken in 
accordance with the strategic plan and provide notice of updates and 
modifications to the strategic plan. In addition to these reports, such 
other information relating to designated Empowerment Zones as HUD 
requests from time to time, including information documenting 
nondiscrimination in hiring and employment by businesses within the 
designated Empowerment Zone, must be submitted promptly.
    (b) The States must submit periodic reports to HUD, demonstrating 
compliance with the certifications it is required to submit in 
accordance with this part.


Sec. 598.420  Periodic progress determinations.

    HUD will regularly evaluate the progress of implementation of the 
strategic plan in each designated Empowerment Zone on the basis of 
available information. HUD also may commission evaluations of the 
Empowerment Zone program as a whole by an impartial third party, at 
such intervals as HUD may establish.


Sec. 598.425  Validation of designation.

    (a) On the basis of the periodic progress determinations described 
in Sec. 598.420, and subject to the provisions relating to the 
revocation of designation in Sec. 598.430, HUD will make findings on 
the continuing eligibility for and the validity of the designation of 
any Empowerment Zone.
    (b) HUD may approve an Empowerment Zone's request for boundary 
modification, subject to the requirements specified in subpart B of 
this part.


Sec. 598.430  Revocation of designation.

    (a) Basis for revocation. The Secretary may revoke the designation 
of an urban area as an Empowerment Zone if the Secretary determines, on 
the basis of the periodic progress determination described at 
Sec. 598.420, that the State(s) or local government(s) in which the 
urban area is located:
    (1) Has modified the boundaries of the area without written 
approval from HUD;
    (2) Has failed to make progress in implementing the strategic plan; 
or
    (3) Has not complied substantially with the strategic plan.
    (b) Letter of warning. Before revoking the designation of an urban 
area and an Empowerment Zone, the Secretary will issue a letter of 
warning to the nominating State(s) and local government(s), with a copy 
to all affected Federal agencies of which the Secretary is aware;
    (1) Advising that the Secretary has determined that the nominating 
local government(s) and/or State(s) has:
    (i) Modified the boundaries of the area without written approval 
from HUD; or
    (ii) Is not complying substantially with, or has failed to make 
progress in implementing the strategic plan; and
    (2) Requesting a reply from the nominating entities within 90 days 
of the receipt of this letter of warning.
    (c) Notice of revocation. To revoke the designation, the Secretary 
must issue a final notice of revocation of the designation of the urban 
area as an Empowerment Zone, after allowing 90 days from the date of 
receipt of the letter of warning for response, and after making a 
determination in accordance with paragraph (a) of this section.
    (d) Notice to affected Federal agencies. HUD will notify all 
affected Federal agencies of which it is aware, of its determination to 
revoke any designation in accordance with this section.
    (e) Effect of revocation. Upon revocation of an EZ's designation, 
the designation and remaining benefits may be awarded to the next 
highest ranked Round II applicant.
    (f) Publication. The final notice of revocation of designation will 
be published in the Federal Register, and the revocation will be 
effective on the date of publication.

Subpart F--Special Rules


Sec. 598.500  Indian reservations.

    (a) An area within an Indian reservation (as defined in section 
168(j)(6) if the Internal Revenue Code, 26 U.S.C. 168(j)(6)) may be 
included in an area nominated as an Empowerment Zone by State and local 
governments. An area completely within an Indian reservation may be 
nominated by the reservation governing body and, in that case, the area 
is treated as if it also were nominated by a State and a local 
government. Where two (or more) governing bodies have joint 
jurisdiction over an Indian reservation, the nomination of a 
reservation area must be a joint nomination.
    (b) For purposes of paragraph (a) of this section, a reservation 
governing body must be the governing body of an Indian entity 
recognized and eligible to receive services from the Bureau of Indian 
Affairs, United States Department of Interior.


Sec. 598.505  Governments.

    If more than one State or local government seeks to nominate an 
urban area under this part, any reference to or requirement of this 
part applies to all such governments.


Sec. 598.510  Nominations by economic development corporations or the 
District of Columbia.

    Any urban area nominated by an Economic Development Corporation 
chartered by the State in which it is located or by the District of 
Columbia shall be treated as nominated by a State and local government.


Sec. 598.515  Alaska and Hawaii.

    A nominated area in Alaska or Hawaii is deemed to satisfy the 
criteria of distress, size, and poverty rate detailed

[[Page 19160]]

in Sec. 598.100(b), (c), (d), and (f), and Sec. 598.110 if, for each 
census tract or block numbering area within the area, 20 percent or 
more of the families have income that is 50 percent or less of the 
statewide median family income (as determined under section 143 of the 
Internal Revenue Code).

    Dated: March 27, 1998.
Saul N. Ramirez, Jr.,
Assistant Secretary for Community Planning and Development.

Appendix--Guidelines on Eligible Uses of EZ/EC SSBG Funds

(1) Background

    This appendix includes general guidance about allowed uses of 
any Round II EZ/EC SSBG funds that may be made available for Round 
II Empowerment Zones (EZs). It is based on the assumption that any 
Round II EZ/EC SSBG funding will be subject to the same statutory 
restrictions as the Round I EZ/EC SSBG grants. The U.S. Department 
of Health and Human Services (HHS) will issue further guidance 
regarding any Round II EZ/EC SSBG funds soon after it is authorized 
to award the funds.

(2) Awards to States

    (a) HHS will award Round II EZ/EC SSBG grants to each State that 
nominated a designated Round II EZ. HHS will award the funds for 
each Round II EZ to the State agency that typically receives Social 
Services Block Grants, unless the EZ Lead Entity and its State 
request HHS to award them to a different agency.
    (b) The HHS Terms and Conditions of the Round II EZ/EC SSBG 
grants will direct the recipient State agency to provide the funds 
to the appropriate Round II EZ Lead Entity(ies) for activities 
specified in the EZ's strategic plan and benchmarks/implementation 
plan. It is expected that the EZs will revise their plans and 
benchmarks from time to time.

(3) Allowed Uses of Round II EZ/EC SSBG Funds

    (a) The Round II EZs may use Round II EZ/EC SSBG funds for a 
wide variety of programs, services and activities directed at 
revitalizing distressed communities and promoting economic 
independence for residents. Allowed programs, services and 
activities include, but are not limited to:
     Community and economic development programs and efforts 
to create employment opportunities;
     Job training and job readiness projects;
     Health programs such as public health education, 
primary health care, emergency medical services, alcohol and 
substance abuse prevention and treatment programs, and mental health 
services;
     Human development services such as child, youth and 
family development programs, services for the elderly, and child 
care services;
     Education projects such as after-school activities, 
adult learning classes, and school-to-work projects;
     Transportation services;
     Environmental clean up programs;
     Policing and criminal justice projects such as 
community policing efforts and youth gang prevention programs;
     Housing programs;
     Projects providing training and technical assistance to 
the EZ Lead Entity, its board and committee members, and other 
organizations; and
     Projects to finance community-focused financial 
institutions for enhancing the availability of credit such as loan 
funds, revolving loan funds, and micro-enterprise loan funds as well 
as other activities for easing financial barriers faced by social 
services entities, housing organizations and other organizations 
serving EZ residents.
    (b) Round II EZs may use the Round II EZ/EC SSBG funds for 
projects supported in part with other Federal, State, local or 
private funds, and they may allocate a portion of the funds to the 
State grantee agency for its administrative and grant oversight 
costs. Round II EZs may not use the funds as the source of local 
matching funds required for other Federal grants.
    (c) Round II EZs must ensure that each proposed use of Round II 
EZ/EC SSBG funds is: Directed at one or more of the EZ/EC SSBG 
statutory goals; included in the strategic plan; structured to 
benefit EZ residents; and in compliance with all applicable Federal, 
State and local laws and regulations.
    (d) The statutory goals for uses of EZ/EC SSBG funds are as 
follows:
    (1) Achieving and maintaining economic self-support for 
residents, to help them develop and retain the ability to support 
themselves and their families economically;
    (2) Achieving and maintaining self-sufficiency for residents, to 
enable them to become and remain able to care for themselves in 
daily activities and in the long-term; and
    (3) Preventing Neglect and Abuse and Preserving Families, to 
protect children and adults, who are unable to protect themselves 
from neglect, abuse or exploitation, and to preserve, rehabilitate 
or reunite families living in the designated neighborhoods.
    (e) All programs, services and activities financed in whole or 
in part with Round II EZ/EC SSBG funds must be included in the 
strategic plan and benchmarks/implementation plans. Each project 
description must indicate the EZ/EC SSBG statutory goal it is 
attempting to achieve and how it will benefit EZ residents.
    (f) All programs, services and activities financed in whole or 
in part with Round II EZ/EC SSBG funds must be structured to 
primarily benefit EZ residents; the programs, services and 
activities may also benefit nonresidents.
    (g) To the extent consistent with the local strategic vision, 
localities may use Round II EZ/EC SSBG funds to finance programs, 
services and activities for addressing any of the following broad 
statute-based ``program options.'' EZs that use the funds for any of 
the program options will have more flexibility in uses of funds. 
(See section (h) below). The EZs are not required to use the funds 
for the program options, and may use Round II EZ/EC SSBG funds to 
finance programs, services and activities addressing other issues. 
The program options are as follows:
    (1) To provide residential or nonresidential drug and alcohol 
prevention and treatment programs that offer comprehensive services 
for residents, particularly for pregnant women and mothers and their 
children;
    (2) To support: (A) Training and employment opportunities for 
disadvantaged adults and youths in construction, rehabilitation, or 
improvement of affordable housing, public infrastructure, and 
community facilities; and
    (B) Nonprofit organizations such as community and junior 
colleges providing short-term training courses for disadvantaged 
adults and youths about entrepreneurism and self-employment, and 
other types of training that will promote individual self-
sufficiency and the interests of the community.
    (3) To support projects designed to promote and protect the 
interests of children and families outside of school hours, 
including keeping schools open during evenings and weekends for 
mentoring and study.
    (4) To support:
    (A) Services designed to promote community and economic 
development and job support services such as skills training, job 
counseling, transportation services, housing counseling, financial 
management, and business counseling;
    (B) Emergency and transitional housing and shelters for families 
and individuals; or
    (C) Programs that promote home ownership, education, and other 
routes to economic independence for families and individuals.
    (h) To the extent a program, service or activity in the 
strategic plan and benchmark/implementation plan document is a 
statutory program option listed in section (g) above, the EZ may use 
the Round II EZ/EC SSBG funds to implement that activity including 
to:
    (1) Purchase or improve land or facilities;
    (2) Make cash payments to individuals for subsistence or room 
and board;
    (3) Make wage payments to individuals as a social service;
    (4) Make cash payments for medical care; and
    (5) Provide social services to institutionalized persons.
    (i) To the extent a program, service or activity in the 
strategic plan and benchmark/implementation plan document is not a 
statutory program option listed in section (g) above, the EZ may use 
Round II EZ/EC SSBG funds for the following purposes as a component 
of that activity only after receiving approval from the U.S. 
Department of Health and Human Services :
    (1) Purchase or improve land or facilities;
    (2) Make cash payments to individuals for subsistence or room 
and board;
    (3) Make wage payments to individuals as a social service;
    (4) Make cash payments for medical care; or
    (5) Provide social services to institutionalized persons.
    (j) To the extent a program, service or activity in the 
strategic plan and benchmark/implementation plan document is not one 
of

[[Page 19161]]

the program options listed in section (g) above, the plan must 
include a statement explaining why the locality chose that project.

[FR Doc. 98-10130 Filed 4-14-98; 11:41 am]
BILLING CODE 4210-29-P