[Federal Register Volume 63, Number 73 (Thursday, April 16, 1998)]
[Rules and Regulations]
[Pages 19108-19142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10156]



[[Page 19107]]

_______________________________________________________________________

Part IV





Department of Agriculture

7 CFR Part 25

Department of Housing and Urban Development

24 CFR Part 598



_______________________________________________________________________



Designation of Rural and Urban Empowerment Zones and Enterprise 
Communities; Interim Rules; Notices

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

[[Page 19108]]



DEPARTMENT OF AGRICULTURE

Office of the Secretary

7 CFR Part 25

RIN 0503-AA18


Designation of Rural Empowerment Zones and Enterprise Communities

AGENCY: Office of the Secretary, USDA.

ACTION: Interim rule with request for comments.

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

SUMMARY: This interim rule sets forth the policy and procedures by 
which the Secretary of the U.S. Department of Agriculture (USDA) will 
designate not more than five rural Empowerment Zones (Round II) as 
authorized by the Taxpayer Relief Act of 1997 (Pub. L. 105-34). This 
interim rule also amends regulations pertaining to the existing three 
(3) rural Empowerment Zones and thirty (30) rural Enterprise 
Communities which were designated pursuant to Title XIII of the Omnibus 
Budget Reconciliation Act of 1993 (Pub. L. 103-66) (Round I). Published 
elsewhere in this Federal Register is a Notice Inviting Applications 
for Designation of rural Empowerment Zones for Round II pursuant to 
this implementing regulation.

DATES: Effective May 18, 1998. Written comments must be received on or 
before June 15, 1998.

ADDRESSES: Submit written comments in duplicate on the interim rule to 
the Chief, Regulations and Paperwork Management Branch, Support 
Services Division, Rural Development, U.S. Department of Agriculture, 
STOP 0743, 1400 Independence Ave., SW, Washington, DC 20250-0743. Also, 
comments may be submitted via the Internet by addressing them to 
``[email protected]'' and must contain ``Empowerment'' in the 
subject. All written comments will be available for public inspection 
during regular work hours at the above address. (In addition, see the 
Paperwork Reduction Act heading under the Supplementary Information 
section of this preamble regarding submission of comments on the 
information collection burden.)

FOR FURTHER INFORMATION CONTACT: Deputy Administrator for Community 
Development, USDA Rural Development, Office of Community Development, 
Reporters Building, Room 701, STOP 3203, 300 7th Street, SW, 
Washington, DC 20024-3203, telephone 1-800-851-3403, or by sending an 
Internet e-mail message to www.ezec.gov">``round2.rural@www.ezec.gov''. For hearing- 
and speech-impaired persons, information concerning this program may be 
obtained by contacting USDA's TARGET Center at (202) 720-2600 (Voice 
and TDD).

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been reviewed under E.O. 12866 and has been 
determined to be a significant regulatory action, as that term is 
defined in Executive Order 12866, and has been reviewed by OMB.

Justification for Interim Rule

    It is the policy of this Department that rules relating to public 
property, loans, grants, benefits, or contracts shall be published for 
comment notwithstanding the exemption of 5 U.S.C. 553 with respect to 
such rules. However, exemptions are permitted where an agency finds, 
for good cause, that compliance would be impracticable, unnecessary, or 
contrary to the public interest.
    The Department finds that good cause exists to publish this rule 
for effect without first soliciting public comment. USDA believes it 
would be contrary to the public interest to delay the effectiveness of 
the rule, since it will prescribe the criteria for designating new 
empowerment zones. 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, which 
designations are subject to a statutory deadline of January 1, 1999.
    The Department has already published a rule for notice to comment 
on the subject of designation of Empowerment Zones, which was codified 
at 7 CFR part 25. 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 USDA'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.
    USDA'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, USDA believes that an interim rulemaking is 
justified. USDA is soliciting public comments on this rule and will 
consider these comments in the development of a final rule.

Programs Affected

    The Catalog of Federal Domestic Assistance Program number assigned 
to this program is 10.772.

Program Administration

    The program is administered through the Office of Community 
Development within the Rural Development mission area of the Department 
of Agriculture.

Paperwork Reduction Act

    The information collection requirements contained in this rule, as 
described in Secs. 25.200(b), 25.201, 25.202, 25.203 together with the 
implementing application form (Application burden), Secs. 25.400, 
25.403, 25.405(b) and 25.405(b)(1) (Reporting burden), have been 
approved by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB 
control numbers 0570-0026 (Application burden) and 0570-0027 (Reporting 
burden). This approval has been granted on an emergency basis through 
August 31, 1998. In accordance with the Paperwork Reduction Act, USDA 
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, USDA will seek an extension of this approval for these 
information collections. Therefore, USDA asks for comments regarding 
the information collections contained in the sections of this rule 
stated above. At the end of the comment period, USDA 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

[[Page 19109]]

collections should refer to the proposal by name and/or OMB control 
number and must be sent to: Cheryl Thompson, Regulations and Paperwork 
Management Branch, Support Services Division, U.S. Department of 
Agriculture, Rural Housing Service, STOP 0743, 1400 Independence Ave., 
SW, Washington, DC 20250-0743.
    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:

----------------------------------------------------------------------------------------------------------------
                                                                                         Est. avg.              
                                                  Section of   Number of    Frequency     response      Annual  
               Type of collection                 7 CFR part  respondents  of response      time        burden  
                                                 25 affected                              (hours)      (hours)  
----------------------------------------------------------------------------------------------------------------
Application....................................    25.200(b)                                                    
                                                      25.201                                                    
                                                      25.202                                                    
                                                      25.203           75            1           50        3,750
Periodic Reporting (all rural EZ/ECs)..........       25.400                                                    
                                                      25.403                                                    
                                                   25.405(b)           38            2           10          760
Response to Warning Letter.....................  25.405(b)(1                                                    
                                                           )            1            1            1            1
----------------------------------------------------------------------------------------------------------------

    Total Burden in the Round II Application Year: 4,511 hours
    Total Burden in each Reporting Year, Years 2 through 10: 761 hours

Environmental Impact Statement

    It is the determination of the Secretary that this action is not a 
major Federal action significantly affecting the environment. 
Therefore, in accordance with the National Environmental Policy Act of 
1969, Pub. L. 91-190, and 7 CFR part 1940 subpart G, an Environmental 
Impact Statement is not required.

Executive Order 12988

    This interim rule has been reviewed in accordance with E.O. 12988, 
Civil Justice Reform. In accordance with this rule: (1) All state and 
local laws and regulations that are in conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule; and 
(3) administrative proceedings in accordance with 7 CFR part 11 must be 
exhausted before bringing suit in court challenging action taken under 
this rule unless those regulations specifically allow bringing suit at 
an earlier time.

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on state, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, USDA 
must prepare a written statement, including a cost benefit analysis, 
for proposed and final rules with ``Federal mandates'' that may result 
in expenditures to state, local or tribal governments, in the 
aggregate, or to the private sector, of $100 million or more in any one 
year. When such a statement is needed for a rule, section 205 of UMRA 
generally requires USDA to identify and consider a reasonable number of 
regulatory alternatives and adopt the least costly, more cost effective 
or least burdensome alternative that achieves the objectives of the 
rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of title II of the UMRA) for state, local, and tribal 
governments or the private sector. Therefore this rule is not subject 
to the requirements of sections 202 and 205 of UMRA.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the undersigned has determined and certified by signature of this 
document that this rule will not have a significant economic impact on 
a substantial number of small entities. The Regulatory Flexibility Act 
is intended to encourage Federal agencies to utilize innovative 
administrative procedures in dealing with individuals, small 
businesses, small organizations, and small governmental bodies that 
would otherwise be unnecessarily adversely affected by Federal 
regulations. The provisions included in this rule will not impact a 
substantial number of small entities to a greater extent than large 
entities. Therefore, no regulatory flexibility analysis under the 
Regulatory Flexibility Act is necessary.

Executive Order 12611, Federalism

    The policies contained in this rule will not have substantial 
direct effects on states or their political subdivisions, or the 
relationship between the Federal Government and the states, or on the 
distribution of power and responsibilities among the various levels of 
government. The purpose of this rule is to provide a cooperative 
atmosphere between the Federal Government and the states and local 
governments, and to reduce any regulatory burden imposed by the Federal 
Government that impedes the ability of state and local governments to 
solve pressing economic, social, and physical problems in their 
communities.

I. Background

    The Empowerment Zones program confers upon rural distressed 
American communities the opportunity to design and implement programs 
to create jobs, support their residents in becoming skilled and able to 
earn a livable income and establish other strategies for creating 
opportunity and building a brighter future. The program combines tax 
benefits with investment of Federal resources and enhanced coordination 
among Federal agencies.
    The nomination process requires applicant communities to take stock 
of their assets and problems, create a vision for the future, and 
structure a strategic plan for achieving their vision. Local 
partnerships among community residents, businesses, financial 
institutions, service providers, transportation agencies, local court 
systems, neighborhood associations, tribal governments and state and 
local

[[Page 19110]]

governments are formed or strengthened by going through the application 
process. Businesses will be encouraged to invest and create jobs in 
distressed areas. Communities are afforded an opportunity to work with 
these partners in the creation and implementation of a community-based 
strategic plan. Local strategic plans are intended to produce more 
complete coordination between community members working in the areas of 
job creation, skills training, social services, education, criminal 
justice, infrastructure improvements and other areas critical to 
community development.
A. Champion Communities
    Applicants which are not designated as either an Empowerment Zone 
or Enterprise Community, but which have evidenced quality preparation 
and strong support for implementing their strategic plans, are eligible 
for designation by the Secretary as ``Champion communities.'' Champion 
communities are eligible for targeted technical assistance, information 
and outreach programs instituted by USDA. They receive priority 
preference points, where such discretionary points may be granted by 
agency administrators and state directors in administering USDA 
programs. They receive priority consideration under such other federal 
programs as may be identified and such other benefits as may be 
conferred by statute. State directors are strongly encouraged to use 
discretionary points on behalf of Champion communities where possible.
B. Community Development Corporations
    Under a separate program directed by the Department of Housing and 
Urban Development (HUD), Community Development Corporations (CDCs) 
nominated by the locality, or the Round I applicants for the 
empowerment zone or enterprise community designation, are considered 
eligible for designation to receive tax preferred contributions from 
donors. HUD has designated eight rural CDCs for this program.
C. Round I Enterprise Communities
    Communities designated as Enterprise Communities in Round I receive 
a number of benefits. Enterprise Communities are eligible for tax-
exempt facilities bonds for certain private business activities. States 
with designated Round I Enterprise Communities received Empowerment 
Zone/Enterprise Community Social Service Block Grants (EZ/EC SSBGs) in 
the amount of approximately $3 million for each rural Enterprise 
Community for activities identified in their strategic plans which are 
consistent with the statutory requirements for the use of those funds. 
Enterprise Communities received special consideration in competition 
for funding under numerous Federal programs. The Taxpayer Relief Act of 
1997 provided for a new qualified academy zone bond program to 
contribute toward educational needs. Also new under this recent 
legislation is a provision allowing certain environmental cleanup costs 
to be deducted from income for tax purposes in the year incurred, which 
costs would otherwise be capitalized into the cost of the land. 
Eligible cleanup costs include costs for cleaning up sites in targeted 
areas, which areas include Enterprise Communities.
D. Round I Empowerment Zones
    Communities designated as Round I Empowerment Zones receive all of 
the benefits provided to Enterprise Communities, in addition to other 
benefits. States with rural Empowerment Zones designated in Round I 
received EZ/EC SSBGs in the amount of $40 million for each rural 
Empowerment Zone, or their proportional share of $40 million in a 
multi-state Empowerment Zone, equal to the proportion of that 
Empowerment Zone's residents living in the state. Employer Wage Credits 
for Round I Empowerment Zone residents are provided to qualified 
employers engaged in trade, business, health care, or human service 
delivery in designated Round I Empowerment Zones.
E. Round II Empowerment Zones
    Communities designated as Round II Empowerment Zones will receive 
virtually all of the benefits provided to Round I Empowerment Zones. To 
the extent direct federal funding for Round II rural Empowerment Zones 
is not authorized as of the publication date of this rule, future 
authorization of direct funding is possible. A major benefit for Round 
II Empowerment Zones which is not available to Round I Empowerment 
Zones or Enterprise Communities is the $60,000,000 authorization per 
zone for issuing tax exempt facilities bonds, which issuance authority 
is not subject to the overall cap on state issuances of federally tax-
exempt private activity bonds. A comparison of the benefits (as of this 
publication date) afforded the additional five Round II rural 
empowerment zones to those available to Round I Empowerment Zones 
follows:

            Rural Empowerment Zones Benefit Comparison Table            
------------------------------------------------------------------------
                                        Round I            Round II     
------------------------------------------------------------------------
Period..........................  From December 21,   In most cases, ten
                                   1994 (Designation   full calendar    
                                   Date) to December   years following  
                                   31, 2004.           the Designation  
                                                       Date             
Title XX of the Social Security   2 grants            To be determined. 
 Act Appropriations.               aggregating                          
                                   $40,000,000 per                      
                                   rural zone.                          
Tax Exempt Bonds................  A new category of   Round II rural    
                                   tax-exempt          zones can each   
                                   private activity    issue up to      
                                   bonds was           $60,000,000 in   
                                   authorized for      ``new bonds'' to 
                                   certain zone        finance zone     
                                   facilities.         facilities in    
                                   Issues are          addition to Round
                                   subject to state    I type tax exempt
                                   private activity    bonds            
                                   bond cap levels    Round II ``new    
                                   on total            bonds'' are not  
                                   issuances, and      subject to       
                                   special limits on   private activity 
                                   issue size.         bond volume caps 
                                  Also available to    or the special   
                                   Round I ECs.        limits on issue  
                                                       size applicable  
                                                       to Round I type  
                                                       issues.          
Wage Credit Provision:            20% wage credit     None.             
 (exclusive to Round I EZs).       for the first                        
                                   $15,000 of                           
                                   qualified wages                      
                                   paid to a zone                       
                                   resident who                         
                                   works in the                         
                                   zone, with a                         
                                   phaseout                             
                                   beginning in                         
                                   2002. ``Qualified                    
                                   zone wages'' may                     
                                   not include wages                    
                                   for which a work                     
                                   opportunity tax                      
                                   credit is claimed                    
                                   (see next).                          

[[Page 19111]]

                                                                        
Work Opportunity Tax Credit (not  Available to Round  40% of qualified  
 exclusive to EZs; expires 6/30/   I EZs.              first-year wages 
 98).                             Also available to    paid to a member 
                                   Round I ECs.        of a targeted    
                                                       group, where     
                                                       first-year wages 
                                                       taken into       
                                                       account may not  
                                                       exceed $6,000.   
                                                       Targeted         
                                                       employees include
                                                       high risk youth  
                                                       residents of EZs 
                                                       and ECs, food    
                                                       stamp and SSI    
                                                       recipients,      
                                                       vocational       
                                                       rehabilitation   
                                                       referrals and    
                                                       others.          
Internal Revenue Code 26 U.S.C.   Capital costs of    As with Round I   
 Sec.  179 Expensing:.             some kinds of       EZs, up to       
                                   business property   $20,000 of       
                                   which must          additional       
                                   otherwise be        section 179      
                                   capitalized and     expensing,       
                                   depreciated over    however, the     
                                   time may be         property in      
                                   deducted in the     question must be 
                                   year incurred       on the parcels   
                                   under section       qualified under  
                                   179. For a zone     the poverty rate 
                                   business, the       criteria.        
                                   annual expensing   Property on       
                                   allowance for       parcels included 
                                   section 179         under the        
                                   property is         ``developable    
                                   increased by the    site'' per that  
                                   lesser of (1)       eligibility      
                                   $20,000 or (2)      provision is not 
                                   actual cost of      eligible property
                                   property placed     (see Eligibility 
                                   in service during   Criteria Table,  
                                   the year.           below).          
                                   Eligible types of                    
                                   property do not                      
                                   include                              
                                   buildings. The                       
                                   phaseout                             
                                   provision of                         
                                   section 179 that                     
                                   would otherwise                      
                                   apply to eligible                    
                                   179 property is                      
                                   reduced for zone                     
                                   property.                            
Brownfields Deductible Expense    Certain             Also available to 
 (not exclusive to EZs and ECs).   environmental       Round II EZs.    
                                   remediation                          
                                   expenditures that                    
                                   would otherwise                      
                                   be capitalized                       
                                   into the cost of                     
                                   the land may be                      
                                   deducted if the                      
                                   costs are paid or                    
                                   incurred prior to                    
                                   January 1, 2001.                     
                                  Also available to                     
                                   Round I ECs.                         
Qualified Zone Academy Bonds: (A  Tax credit bonds    Also available to 
 national limitation across all    whereby certain     Round II EZs.    
 empowerment zones and             financial          The statute does  
 enterprise communities of up to   institutions        not expressly    
 $400 million each year for        (i.e., banks,       provide for an   
 years 1998 and 1999).             insurance           allocation to    
                                   companies, and      rural empowerment
                                   corporations        zones or         
                                   actively engaged    enterprise       
                                   in the business     communities.     
                                   of lending money)                    
                                   that hold                            
                                   ``qualified zone                     
                                   academy bonds''                      
                                   are entitled to a                    
                                   nonrefundable tax                    
                                   credit in an                         
                                   amount equal to a                    
                                   credit rate (set                     
                                   by the Treasury                      
                                   Department)                          
                                   multiplied by the                    
                                   face amount of                       
                                   the bond. They                       
                                   may or may not be                    
                                   interest bearing;                    
                                   if so, the                           
                                   interest is                          
                                   taxable.                             
                                  The credit is                         
                                   effective for                        
                                   obligations                          
                                   issued after                         
                                   December 31, 1997.                   
                                  Also available to                     
                                   Round I ECs.                         
------------------------------------------------------------------------

    The rural part of the program will be administered by USDA as a 
Federal-state-local-private partnership, with a minimum of red tape 
associated with the application process. Applicants must demonstrate 
the ability to design and implement an effective strategic plan for 
real opportunities for growth and revitalization and must demonstrate 
the capacity or the commitment to carry out these plans. Effective plan 
development must involve the participation of the affected community, 
and of the private sector, acting in concert with the state, tribal and 
local governments. The plan should be developed in accordance with four 
key principles, which will also serve as the basis for the selection 
criteria that will be used to evaluate the plan. Poverty, unemployment, 
and other need factors are critical in determining eligibility for 
Empowerment Zone status, but play a less significant role in the 
selection process.
    State and local governments, tribal governments and economic 
development corporations that are state chartered may nominate 
distressed rural areas for designation as Empowerment Zones. A Round I 
Enterprise Community may apply for Round II Empowerment Zone status.

II. Program Description

General

    Pursuant to Title XIII of the Omnibus Budget Reconciliation Act of 
1993, the Secretary of Agriculture designated three rural Empowerment 
Zones and thirty rural Enterprise Communities on December 21, 1994. The 
Secretary is proposing to designate five more rural empowerment zones 
pursuant to the authorization in title IX of the Taxpayer Relief Act of 
1997 (Pub. L. 105-34, approved August 5, 1997).

Eligibility

    To be eligible for designation as a Round II rural Empowerment Zone 
an area must:
    1. Have a maximum population of 30,000;
    2. Be one of pervasive poverty, unemployment, and general distress;
    3. Not exceed one thousand square miles in total land area;
    4. Demonstrate a poverty rate that is not less than:
    a. 20 percent in each census tract or census block numbering area 
(BNA); and
    b. 25 percent in 90 percent of the census tracts and BNAs within 
the nominated area;
    5. Be located entirely within no more than three contiguous states; 
if it is located in more than one state, the area must have one 
continuous boundary; if located in only one state, the area may consist 
of no more than three noncontiguous parcels;
    6. Show that each nominated parcel independently meets the two 
poverty rate requirements;
    7. Be located entirely within the jurisdiction of the unit or units 
of general local government making the nomination; and
    8. Not include any portion of a central business district as 
defined in the Census of Retail Trade unless the poverty rate for each 
Census tract is at least 35 percent.
    A table summarizing the Eligibility Criteria applicable to Round II 
Rural Empowerment Zone designations follows:

[[Page 19112]]



           Rural Empowerment Zones Eligibility Criteria Table           
------------------------------------------------------------------------
           Criteria                             Round II                
------------------------------------------------------------------------
Population...................  The population of the nominated area may 
                                not exceed 30,000.                      
Distress.....................  The nominated area is one of pervasive   
                                poverty, unemployment, and general      
                                distress.                               
Area.........................  Not more than 1,000 square miles.        
                               Does not include any portion of a central
                                business district (as defined in the    
                                most recent Census of Retail Trade)     
                                unless the poverty rate for each        
                                population census tract in such district
                                is 35 percent or higher.                
                               Where a tract exceeds 1,000 square miles,
                                the excess land may be excluded.        
                               Where a tract includes substantial       
                                governmentally owned land, the          
                                governmentally owned land may be        
                                excluded.                               
                               Developable sites are not taken into     
                                account in determining whether the 1,000
                                square mile limitation is met.          
Boundary (sub category within  May be continuous or consist of not more 
 Area).                         than 3 noncontiguous parcels. Where a   
                                rural area straddles more than one state
                                (it may not, in any event, straddle more
                                than 3 states), the boundary must be    
                                continuous.                             
                               Subject to: Where a tract exceeds 1,000  
                                square miles or a nominated area        
                                includes substantial governmentally     
                                owned land, exclusion of the excess or  
                                government-owned land will not be       
                                treated as violating the continuous     
                                boundary requirement.                   
                               Developable sites are not taken into     
                                account in determining whether the      
                                continuous boundary requirement is met. 
Poverty Rate.................  (1) Not less than a 20% poverty rate in  
                                each census tract; and                  
                               (2) At least 90% of the total census     
                                tracts each have a poverty rate of not  
                                less than 25%;                          
                               Subject to:                              
                               Up to an aggregate of 2,000 acres in not 
                                more than 3 noncontiguous parcels may be
                                excluded from the nominated area for    
                                purposes of determining whether the 20% 
                                and 25% tests are met, where those acres
                                may be developed for commercial or      
                                industrial purposes.                    
                               Tracts with zero population are treated  
                                the same as tracts with population under
                                2,000 for purposes of applying the      
                                poverty rate criteria.                  
                               Tracts with population under 2,000 are   
                                presumed to have a poverty rate of not  
                                less than 25% if:                       
                               (1) more than 75% of the tract is zoned  
                                for commercial or industrial use; and   
                               (2) such tract is contiguous to 1 or more
                                other tracts which have a poverty rate  
                                of not less than 25%, where that        
                                determination for the contiguous tracts 
                                is made using the actual poverty rate,  
                                not by applying this provision.         
                               Noncontiguous parcels must separately    
                                meet the 20% and 25% tests above.       
                               In the case of an area not tracted for   
                                population census purposes, the         
                                equivalent county divisions, defined by 
                                the Bureau of the Census for defining   
                                poverty areas, shall be used for        
                                determining poverty rates.              
                               The Secretary of Agriculture may         
                                disregard the poverty rate test for not 
                                more than one Round II Rural Empowerment
                                Zone and apply in lieu thereof an       
                                emigration test as contained in the     
                                applicable regulations.                 
Additional Factors...........  (1) Effectiveness of the strategic plan; 
                                and                                     
                               (2) Assurances made by state and local   
                                governments that the strategic plan will
                                be implemented.                         
                               (3) Other criteria as the Secretary may  
                                impose.                                 
                               A Round I Enterprise Community (EC) may  
                                be designated a Round II Empowerment    
                                Zone, however, the enterprise community 
                                must apply for zone designation in its  
                                entirety, or in its entirety together   
                                with an additional area. A sub area of  
                                an Enterprise Community may not apply.  
                                With the exception of a Round I EC      
                                applying for a Round II Empowerment Zone
                                designation, no portion of the area     
                                nominated may already be included in a  
                                Round I Empowerment Zone or Enterprise  
                                Community.                              
                               A Round II Empowerment Zone may include  
                                an area on an Indian reservation.       
                               A nominated area in Alaska or Hawaii is  
                                deemed to meet the Distress, Area and   
                                Poverty Rate Criteria above, if for each
                                census tract or block group at least 20%
                                of the families within have an income   
                                which is 50% or less than the statewide 
                                median family income. [Note: the        
                                Population and other requirements still 
                                apply.]                                 
------------------------------------------------------------------------

Application of Poverty Rate Test

    A rounding methodology will be applied to the 90 percent 
calculation in determining the number of tracts which must evidence a 
poverty rate of not less than 25 percent. Where the nominated area 
consists of fewer than ten tracts, the following table reflects 
application of this methodology:

------------------------------------------------------------------------
                                     Number of tracts   Number of tracts
                                        which must         which must   
 Total Number of Census Tracts in     demonstrate a      demonstrate a  
        the Nominated Area           poverty rate of    poverty rate of 
                                    not less than 25%  not less than 20%
------------------------------------------------------------------------
9 [.90 x 9 = 8.1; rounded to 8]...                  8                  1
8.................................                  7                  1
7.................................                  6                  1
6.................................                  5                  1
5 [.90 x 5 = 4.5; rounded to 5]...                  5  .................
4.................................                  4  .................
3.................................                  3  .................
2.................................                  2  .................
1.................................                  1  .................
------------------------------------------------------------------------

Nomination Process

    The law requires that areas be nominated by one or more local 
governments and the states, or tribal government, where the nominated 
rural area is located. Nominations can be considered for designation 
only if:
    1. The rural area meets the applicable requirements for 
eligibility;

[[Page 19113]]

    2. The Secretary determines such governments have the authority to 
nominate the area for designation and to provide the required 
assurances; and
    3. The Secretary determines all information furnished by the 
nominating state and local governments is reasonably accurate.
    The state and local governments nominating an area for designation 
must certify:
    1. Each nominating governmental entity has the authority to 
nominate the rural area for designation as an Empowerment Zone or 
Enterprise Community and make the assurances required under this part;
    2. Each nominating governmental entity has the authority to make 
the state and local commitments contained in the strategic plan and as 
required by this part;
    3. Each nominating governmental entity has the authority to provide 
written assurances satisfactory to the Secretary that these commitments 
will be met;
    4. The nominated area satisfies the eligibility criteria, inclusive 
of the requirement that either
    a. No portion of the area nominated is already included in a 
designated Empowerment Zone or Enterprise Community or in an area 
otherwise nominated to be designated under this section; or
    b. Where an existing Round I Enterprise Community is seeking to be 
designated as a Round II Empowerment Zone, that the nominated area 
includes the entirety of the applicable Round I Enterprise Community 
and any other areas as may be included in the application do not 
comprise any portion of a designated Empowerment Zone or Enterprise 
Community or part of an area otherwise nominated to be designated under 
this section.
    The state and local governments nominating an area for designation 
must provide the following written assurances:
    1. The strategic plan will be implemented;
    2. The nominating governments will make available all information 
requested by USDA to aid in the evaluation of progress in implementing 
the strategic plan; and
    3. EZ/EC SSBG funds, as applicable, will be used to supplement, not 
supplant, other Federal or non-Federal funds available for financing 
services or activities which can be used to achieve or maintain the 
objectives consistent with EZ/EC SSBG purposes.

Strategic Plan

    The application for designation must include a strategic plan. The 
strategic plan must be developed in accordance with the following 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 should also 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 services such as 
affordable childcare 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--they may include ``brownfields'' clean-up and 
redevelopment, and promote transportation, education, and public 
safety.
    The strategic plan must:
    1. Describe the coordinated economic, human, community, and 
physical development plan and related activities proposed for the 
nominated area;
    2. Describe the process by which the affected community is a full 
partner in the process of developing and implementing the plan and the 
extent to which local institutions and organizations have contributed 
to the planning process;
    3. Identify the amount of state, local, and private resources that 
will be available in the nominated area and the private and public 
partnerships to be used, which may include participation by, and 
cooperation with, universities, medical centers, and other private and 
public entities;
    4. Identify the funding requested under any Federal program in 
support of the proposed economic, human, community, and physical 
development and related activities;
    5. Identify the baselines, methods, and benchmarks for measuring 
the success of carrying out the strategic plan, including the extent to 
which poor persons and families will be empowered to become 
economically self-sufficient;
    6. Must not include any action to assist any establishment in 
relocating from one area outside the nominated area to the nominated 
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:
    (i) 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
    (ii) 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 operation; and
    7. Include such other information as required by USDA in a Notice 
Inviting Applications.

III. Differences Between the Round II Interim Rule and the Round I 
Final Rule

    This interim rule amends the February 6, 1995 final rule 
promulgated with respect to Round I Empowerment Zones and Enterprise 
Communities. In addition to incorporating revised eligibility criteria 
for Round II Empowerment Zones, changes have been made to streamline 
the application process and provide guidance for the format of required 
strategic plans. Changes have been made to the post designation 
monitoring activities for all Empowerment Zones and Enterprise 
Communities as well.
    The broad categories for eligibility continue to be population, 
distress, area size and boundary configuration, and poverty rate. 
Within those categories, population limit and the requirement that the 
nominated area evidence pervasive poverty and general distress remain 
unchanged. The area size and boundary determinations were modified

[[Page 19114]]

for Round II and the specific poverty rate thresholds were relaxed 
somewhat. The former requirement that at least half of the nominated 
area consist of Census tracts with poverty rates of 35 percent or more 
does not apply to Round II designees. Round II applicants must 
demonstrate a poverty rate of not less than 25 percent for 90 percent 
of the census tracts and a poverty rate of not less than 20 percent for 
all Census tracts. The rule for Census tracts with populations under 
2,000 was changed. The low population tract may qualify under its 
actual poverty rate or by application of a special rule. If (i) the low 
population tract is contiguous to a census tract which has an actual 
poverty rate of not less than 25 percent, and (ii) more than 75 percent 
of the area in the low population tract area is zoned commercial or 
industrial, then the low population tract will be treated as having a 
poverty rate of not less than 25 percent under the applicable statutory 
provision.
    The requirement that nominated areas conform to census tract 
boundaries remains unchanged in most instances from Round I.
    The 1,000 square mile limitation continues to apply to rural areas; 
however, for purposes of determining whether a nominated area meets 
this test, a special rule for rural areas allows the exclusion in a 
single census tract of square mileage in excess of 1,000 square miles 
as well as land owned by the Federal, state or local governmental 
entities. The exclusion of such excess area or governmentally owned 
land will not be treated as violating the boundary requirements.
    The requirement that the nominated rural area not exceed 3 
noncontiguous parcels if it is wholly within one state, but observe a 
continuous boundary requirement if it crosses state lines, remains 
unchanged from Round I. It may not involve more than three contiguous 
states.
    Round II nominated areas may include developable sites for which 
the poverty rate criteria do not apply. The poverty rate criteria shall 
not apply to up to three noncontiguous parcels in a nominated area 
which may be developed for commercial or industrial purposes. The 
aggregate area of such parcels may not exceed 2,000 acres. This 
provision is subject to, and does not modify, the overall limit of 
three noncontiguous parcels for the entire nominated area. Developable 
sites are not taken into account in determining whether the 1,000 
square mile and boundary limitations are met.
    Round II provides that an area in an Indian reservation may be 
nominated for designation as a rural Empowerment Zone. Where two [or 
more] governing bodies have joint jurisdiction over an Indian 
reservation, the nomination of a reservation area must be a joint 
nomination. Nominated areas wholly within an Indian reservation are not 
required to adhere to census tract boundaries if sufficient credible 
data are available to show compliance with other requirements of the 
rule.
    The Interim rule does not include information concerning EZ/EC SSBG 
funds that may become available from the U.S. Department of Health and 
Human Services (HHS). Information about allowed uses of such grant 
funds may be found in an appendix to the USDA Notice Inviting 
Applications published elsewhere in this issue of the Federal Register.
    Previously designated Round I Enterprise Communities may apply for 
Round II Empowerment Zone designation. The Interim rule provides that a 
Round I Enterprise Community must apply in its entirety, or in its 
entirety together with additional area. A subportion of the Round I 
Enterprise Community may not spin off such that the remainder of the 
Round I Enterprise Community is not included in the application for 
Round II Empowerment Zone designation.
    The Interim rule provides that the format of the strategic plans 
conform to the requirements set forth in the Notice Inviting 
Applications published elsewhere in this Federal Register. This is to 
offer guidance to the applicants and facilitate greater efficiency in 
reviewing the applications and post designation evaluation. The Interim 
rule clarifies and makes applicable to all designees the USDA reporting 
requirements which were instituted for Round I Empowerment Zones and 
Enterprise Communities.
    The Notice Inviting Applications published elsewhere in this 
Federal Register includes as an appendix a model Memorandum of 
Agreement (MOA). Round I designees were asked to sign comparable MOAs; 
Round II applicants will also be required to sign comparable MOAs.

List of Subjects in 7 CFR Part 25

    Community development, Economic development, Empowerment zones, 
Enterprise communities, Housing, Indians, Intergovernmental relations, 
Reporting and recordkeeping requirements, Rural development.
    In accordance with the reasons set out in the preamble, 7 CFR part 
25 is revised to read as follows:
    1. Title 7 is amended by revising part 25 to read as follows:

PART 25--RURAL EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

Subpart A--General Provisions

Sec.
25.1  Applicability and scope.
25.2  Objective and purpose.
25.3  Definitions.
25.4  Secretarial review and designation.
25.5  Waivers.
25.6-25.9  [Reserved]

Subpart B--Area Requirements

25.100  Eligibility requirements.
25.101  Data utilized for eligibility determinations.
25.102  Pervasive poverty, unemployment and general distress.
25.103  Area size and boundary requirements.
25.104  Poverty rate.
25.105-25.199  [Reserved]

Subpart C--Nomination Procedure

25.200  Nominations by state and local governments.
25.201  Application.
25.202  Strategic plan.
25.203  Submission of applications.
25.204  Evaluation of the strategic plan.
25.205-25.299  [Reserved]

Subpart D--Designation Process

25.300  USDA action and review of nominations for designation.
25.301  Selection factors for designation of nominated rural areas.
25.302-25.399  [Reserved]

Subpart E--Post-Designation Requirements

25.400  Reporting.
25.401  Responsibility of lead managing entity.
25.402  Periodic performance reviews.
25.403  Ongoing 2-year work plan requirement.
25.404  Validation of designation.
25.405  Revocation of designation.
25.406-25.499  [Reserved]

Subpart F--Special Rules

25.500  Indian reservations.
25.501  Governments.
25.502  Nominations by state-chartered economic development 
corporations.
25.503  Rural areas.
25.504-25.599  [Reserved]
25.600-25.999  [Reserved]

    Authority: 5 U.S.C. 301, 26 U.S.C. 1391.

Subpart A--General Provisions


Sec. 25.1  Applicability and scope.

    (a) Applicability. This part sets forth policies and procedures 
applicable to rural Empowerment Zones and Enterprise Communities, 
authorized under the Omnibus Budget Reconciliation Act of 1993, title 
XIII, subchapter C, part I (Round I) and the Taxpayer Relief Act of 
1997, title IX, subtitle F (Round II).
    (b) Scope. This part contains provisions relating to area 
requirements,

[[Page 19115]]

the nomination process for rural Empowerment Zones and rural Enterprise 
Communities, and the designation of these Zones and Communities by the 
Secretary of the U.S. Department of Agriculture (Secretary) (USDA). 
Provisions dealing with the nominations and designation of urban 
Empowerment Zones and Enterprise Communities are promulgated by the 
U.S. Department of Housing and Urban Development (HUD). This part also 
contains provisions relating to granting certain nominated areas status 
as Champion communities.


Sec. 25.2  Objective and purpose.

    The purpose of this part is to provide for the establishment of 
Empowerment Zones and Enterprise Communities in rural areas in order to 
facilitate the empowerment of the disadvantaged and long-term 
unemployed such that they may become economically self-sufficient, and 
to promote revitalization of economically distressed areas, primarily 
by facilitating:
    (a) Coordination of economic, human services, health, 
transportation, education, community, and physical development plans, 
and other plans and related activities at the local level;
    (b) Local partnerships fully involving affected communities and 
local institutions and organizations in developing and implementing a 
comprehensive multi-sectoral strategic plan for any nominated rural 
Empowerment Zone or Enterprise Community;
    (c) Tax incentives and credits; and
    (d) Distribution of other federal resources including grants from 
USDA and other federal departments, including Empowerment Zone and 
Enterprise Community Social Services Block Grant (EZ/EC SSBG) funds as 
may be available from the U.S. Department of Health and Human Services 
(HHS).


Sec. 25.3  Definitions.

    As used in this part--
    Annual report means the report submitted to USDA by all rural 
Empowerment Zones and Enterprise Communities pursuant to Sec. 25.400.
    Applicant means the entity that is submitting the community's 
strategic plan for accomplishing comprehensive economic, human 
community, and physical development within the area; such an entity may 
include, but is not limited to, state governments, local governments, 
tribal governments, regional planning agencies, non-profit 
organizations, community-based organizations, or a partnership of 
community members and other entities. The applicant may be the same as 
or different from the lead managing entity.
    Baseline condition means a measurable condition or problem at the 
time of designation for which benchmark goals have been established for 
improvement.
    Benchmark activity means a program, project, task or combination 
thereof which is designed to achieve a benchmark goal.
    Benchmark goal means a measurable goal targeted for achievement in 
the strategic plan.
    Census tract means a population census tract, or, if census tracts 
are not defined for the area, a block numbering area (BNA) as 
established by the Bureau of the Census, U.S. Department of Commerce. 
BNAs are areas delineated by state officials or (lacking state 
participation) by the Census Bureau, following Census Bureau 
guidelines, for the purpose of grouping and numbering decennial census 
blocks in counties or statistically equivalent entities in which census 
tracts have not been established. A BNA is equivalent to a census tract 
in the Census Bureau's geographic hierarchy.
    Brownfield means a ``qualified contaminated site'' meeting the 
requirements of section 941 of the Taxpayer Relief Act of 1997, (26 
U.S.C. 198(c)), where the site is located in an empowerment zone or 
enterprise community.
    Champion Community means a rural area granted such status by the 
Secretary pursuant to this part from among those communities which 
applied for designation as either a rural Empowerment Zone or 
Enterprise Community and which were not so designated.
    Designation means the process by which the Secretary designates 
rural areas as Empowerment Zones or Enterprise Communities eligible for 
tax incentives and credits established by subchapter U of the Internal 
Revenue Code (26 U.S.C. 1391 et seq.), and for certain consideration by 
Federal programs such as the EZ/EC SSBG program established pursuant to 
section 2007 of title XX of the Social Security Act (42 U.S.C. 1397f).
    Designation date means December 21, 1994 in the case of Round I 
designations and, in the case of Round II designations, the date 
designation is made by the Secretary.
    Developable site means a parcel of land in a nominated area which 
may be developed for commercial or industrial purposes.
    Empowerment Zone means a rural area so designated by the Secretary 
pursuant to this part.
    Enterprise Community means a rural area so designated by the 
Secretary pursuant to this part.
    EZ/EC SSBG funds or EZ/EC Social Services Block Grant funds means 
any funds that may be provided to states or tribal governments by HHS 
in accordance with section 2007(a) of the Social Security Act (42 
U.S.C. 1397f), for use by designated Empowerment Zones or Enterprise 
Communities.
    HHS means the U.S. Department of Health and Human Services.
    HUD means the U.S. Department of Housing and Urban Development.
    Indian reservation means a reservation as defined in section 
168(j)(6) of the Internal Revenue Code, 26 U.S.C. 168(j)(6).
    Lead managing entity means the entity that will administer and be 
responsible for the implementation of the strategic plan.
    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 which is nominated by one or more 
local governments and the state or states in which it is located for 
designation in accordance with this part.
    Outmigration means the negative percentage change reported by the 
Bureau of the Census, U.S. Department of Commerce, for the sum of:
    (1) Net Domestic Migration;
    (2) Net Federal Movement; and
    (3) Net International Migration, as such terms are defined for 
purposes of the 1990 Census.
    Poverty rate means, for a given Census tract, the poverty rate 
reported in Table 19 of the Bureau of the Census CPH-3 series of 
publications from the 1990 Census of Population and Housing: Population 
and Housing Characteristics for Census Tracts and Block Numbering 
Areas.
    Revocation of designation means the process by which the Secretary 
may revoke the designation of an area as an Empowerment Zone or 
Enterprise Community pursuant to Sec. 25.405.
    Round I identifies designations of rural Empowerment Zones and 
Enterprise Communities pursuant to subchapter C, part I (Empowerment 
Zones, Enterprise Communities and Rural Development Investment Areas) 
of Title XIII of the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 
103-66).
    Round II identifies designations of rural Empowerment Zones 
pursuant to subtitle F (Empowerment Zones,

[[Page 19116]]

Enterprise Communities, Brownfields, and Community Development 
Financial Institutions) of Title IX of the Taxpayer Relief Act of 1997 
(Pub. L. 105-34).
    Rural area means any area defined pursuant to Sec. 25.503.
    Secretary means the Secretary of the U.S. Department of 
Agriculture.
    State means any state in the United States.
    Strategic plan means a plan for achieving benchmark goals 
evidencing improvement over identified baseline conditions, developed 
with the participation and commitment of local governments, tribal 
governments, state governments, private sector, community members and 
others, pursuant to the provisions of Sec. 25.202.
    USDA means the U.S. Department of Agriculture.


Sec. 25.4  Secretarial review and designation.

    (a) Designation. The Secretary will review applications for the 
designation of nominated rural areas to determine the effectiveness of 
the strategic plans submitted by applicants; such designations of rural 
Empowerment Zones and Enterprise Communities as are made shall be from 
the applications submitted in response to the applicable Notice 
Inviting Applications. The Secretary may elect to designate as Champion 
communities, those nominated areas which are not designated as either a 
rural Empowerment Zone or Enterprise Community and whose applications 
meet the criteria contained in Sec. 25.301.
    (b) Number of rural empowerment zones, enterprise communities and 
champion communities.--(1) Round I. The Secretary may designate up to 
three rural Empowerment Zones and up to thirty rural Enterprise 
Communities prior to December 31, 1996.
    (2) Round II. The Secretary may, prior to January 1, 1999, 
designate up to five rural Empowerment Zones in addition to those 
designated in Round I. The number of Champion Communities is limited to 
the number of applicants which are not designated.
    (c) Period of designation. The designation of a rural area as an 
Empowerment Zone or Enterprise Community shall remain in effect during 
the period beginning on the designation date and ending on the earliest 
of the:
    (1) End of the tenth calendar year beginning on or after the 
designation date;
    (2) Termination date designated by the state and local governments 
in their application for nomination;
    (3) Date the Secretary revokes the designation; or
    (4) Date the Empowerment Zone or Enterprise Community modifies its 
boundary without first obtaining the written approval of the Secretary.


Sec. 25.5  Waivers.

    The Secretary may waive any provision of this part in any 
particular case for good cause, where it is determined that application 
of the requirement would produce a result adverse to the purpose and 
objectives of this part.


Secs. 25.6--25.99  [Reserved]

Subpart B--Area Requirements


Sec. 25.100  Eligibility requirements.

    A nominated rural area may be eligible for designation pursuant to 
this part only if the area:
    (a) Has a maximum population of 30,000;
    (b) Is one of pervasive poverty, unemployment, and general 
distress, as described in Sec. 25.102;
    (c) Meets the area size and boundary requirements of Sec. 25.103;
    (d) Is located entirely within the jurisdiction of the general 
local government making the nomination; and
    (e) Meets the poverty rate criteria contained in Sec. 25.104.
    (f) Provision for Alaska and Hawaii. A nominated area in Alaska or 
Hawaii shall be presumed to meet the criteria of paragraphs (b), (c), 
and (e) of this section if, for each Census tract or block group in the 
area, at least 20 percent of the families in such tract have an income 
which is 50 percent or less of the statewide median family income.


Sec. 25.101  Data utilized for eligibility determinations.

    (a) Source of data. The data to be employed in determining 
eligibility pursuant to this part shall be based on the 1990 Census, 
and from information published by the Bureau of Census and the Bureau 
of Labor Statistics, provided, however, that for purposes of 
demonstrating outmigration pursuant to Sec. 25.104(b)(2)(iii), interim 
data collected by the Bureau of Census for the 1990-1994 period may be 
used. The data shall be comparable in point or period of time and 
methodology employed.
    (b) Use of statistics on boundaries. The boundary of a rural area 
nominated for designation as an Empowerment Zone or Enterprise 
Community must coincide with the boundaries of Census tracts, or, where 
tracts are not defined, with block numbering areas, except:
    (1) Nominated areas in Alaska and Hawaii shall coincide with the 
boundaries of census tracts or block groups as such term is used for 
purposes of the 1990 Census;
    (2) Developable sites are not required to coincide with the 
boundaries of Census tracts; and
    (3) Nominated areas wholly within an Indian reservation are not 
required to adhere to census tract boundaries if sufficient credible 
data are available to show compliance with other requirements of this 
part. The requirements of Sec. 25.103 are otherwise applicable.


Sec. 25.102  Pervasive poverty, unemployment and general distress.

    (a) Pervasive poverty. Conditions of poverty must be reasonably 
distributed throughout the entire nominated area. The degree of poverty 
shall be demonstrated by citing available statistics on low-income 
population, levels of public assistance, numbers of persons or families 
in poverty or similar data.
    (b) Unemployment. The degree of unemployment shall be demonstrated 
by the provision of information on the number of persons unemployed, 
underemployed (those with only a seasonal or part-time job) or 
discouraged workers (those capable of working but who have dropped out 
of the labor market--hence are not counted as unemployed), increase in 
unemployment rate, job loss, plant or military base closing, or other 
relevant unemployment indicators having a direct effect on the 
nominated area.
    (c) General distress. General distress shall be evidenced by 
describing adverse conditions within the nominated area other than 
those of pervasive poverty and unemployment. Below average or decline 
in per capita income, earnings per worker, per capita property tax 
base, average years of school completed; outmigration and population 
decline, a high or rising incidence of crime, narcotics use, abandoned 
housing, deteriorated infrastructure, school dropouts, teen pregnancy, 
incidents of domestic violence, incidence of certain health conditions 
and illiteracy are examples of appropriate indicators of general 
distress. The data and methods used to produce such indicators that are 
used to describe general distress must all be stated.


Sec. 25.103  Area size and boundary requirements

    (a) General eligibility requirements. A nominated area:
    (1) May not exceed one thousand square miles in total land area;
    (2) Must have one continuous boundary if located in more than one

[[Page 19117]]

state or may consist of not more than three noncontiguous parcels if 
located in only one state;
    (3) If located in more than one state, must be located within no 
more than three contiguous states;
    (4) May not include any portion of a central business district (as 
such term is used for purposes of the most recent Census of Retail 
Trade) unless the poverty rate for each Census tract in such district 
is not less than 35 percent for an Empowerment Zone (30 percent in the 
case of an Enterprise Community);
    (5) Subject to paragraph (b)(4) of this section, may not include 
any portion of an area already included in an Empowerment Zone or 
Enterprise Community or included in an area otherwise nominated to be 
designated under this section;
    (b) Eligibility requirements specific to different rounds.
    (1) For purposes of Round I designations only, a nominated area may 
not include any area within an Indian reservation;
    (2) For purposes of applying paragraph (a)(1) of this section to 
Round II designations:
    (i) A Census tract larger than 1,000 square miles shall be reduced 
to a 1,000 square mile area with a continuous boundary, if necessary, 
after application of Secs. 25.103(b)(2)(ii) and (iii);
    (ii) Land owned by the Federal, state or local government may (and 
in the event the Census tract exceeds 1,000 square miles, will) be 
excluded in determining the square mileage of a nominated area; and
    (iii) Developable sites, in the aggregate not exceeding 2,000 
acres, may (and in the event the Census tract exceeds 1,000 square 
miles, will) be excluded in determining the square mileage of the 
nominated area;
    (3) For purposes of applying paragraph (a)(3) of this section to 
Round II designations, the following shall not be treated as violating 
the continuous boundary requirement:
    (i) Exclusion of excess area pursuant to paragraph (b)(2)(i) of 
this section;
    (ii) Exclusion of government owned land pursuant to paragraph 
(b)(2)(ii) of this section; or
    (iii) Exclusion of developable sites pursuant to paragraph 
(b)(2)(iii) of this section; and
    (4) Paragraph (a)(5) of this section shall not apply where a Round 
I Enterprise Community is applying either in its entirety or together 
with an additional area for a Round II Empowerment Zone designation.


Sec. 25.104  Poverty rate.

    (a) General. Eligibility of an area on the basis of poverty shall 
be established in accordance with the following poverty rate criteria 
specific to Round I and Round II nominated areas:
    (1) Round I: (i) In each Census tract, the poverty rate may not be 
less than 20 percent;
    (ii) For at least 90 percent of the Census tracts within the 
nominated area, the poverty rate may not be less than 25 percent; and
    (iii) For at least 50 percent of the Census tracts within the 
nominated area, the poverty rate may not be less than 35 percent.
    (2) Round II: (i) In each Census tract, the poverty rate may not be 
less than 20 percent;
    (ii) For at least 90 percent of the Census tracts within the 
nominated area, the poverty rate may not be less than 25 percent;
    (iii) Up to three noncontiguous developable sites, in the aggregate 
not exceeding 2,000 acres, may be excluded in determining whether the 
requirements of paragraphs (a)(2)(i) and (a)(2)(ii) of this section are 
met; and
    (iv) The Secretary may designate not more than one rural 
Empowerment Zone without regard to paragraphs (a)(2)(i) and (a)(2)(ii) 
of this section if such nominated area satisfies the emigration 
criteria specified in paragraph (b)(2)(iii) of this section.
    (b) Special rules. The following special rules apply to the 
determination of poverty rate for Round I and Round II nominated areas:
    (1) Round I--(i) Census tracts with no population. Census tracts 
with no population shall be treated as having a poverty rate that meets 
the requirements of paragraphs (a)(1)(i) and (a)(1)(ii) of this 
section, but shall be treated as having a zero poverty rate for 
purposes of applying paragraph (a)(1)(iii) of this section;
    (ii) Census tracts with populations of less than 2,000. A Census 
tract with a population of less than 2,000 shall be treated as having a 
poverty rate which meets the requirements of paragraphs (a)(1)(i) and 
(ii) of this section if more than 75 percent of the tract is zoned for 
commercial or industrial use;
    (iii) Adjustment of poverty rates for Round I Enterprise 
Communities. For Round I Enterprise Communities only, the Secretary 
may, where necessary to carry out the purposes of this part, apply one 
of the following alternatives:
    (A) Reduce by 5 percentage points one of the following thresholds 
for not more than 10 percent of the Census tracts (or, if fewer, five 
Census tracts) in the nominated area:
    (1) The 20 percent threshold in paragraph (a)(1)(i) of this 
section;
    (2) The 25 percent threshold in paragraph (a)(1)(ii) of this 
section;
    (3) The 35 percent threshold in paragraph (a)(1)(iii) of this 
section; or
    (B) Reduce the 35 percent threshold in paragraph (a)(1)(iii) of 
this section by 10 percentage points for three Census tracts.
    (2) Round II--(i) Census tracts with no population. Census tracts 
with no population shall be treated the same as those Census tracts 
having a population of less than 2,000;
    (ii) Census tracts with populations of less than 2,000. A Census 
tract with a population of less than 2,000 shall be treated as having a 
poverty rate of not less than 25 percent if:
    (A) More than 75 percent of such tract is zoned for commercial or 
industrial use; and
    (B) Such tract is contiguous to 1 or more other Census tracts which 
have a poverty rate of 25 percent or more, where such determination is 
made without applying Sec. 25.104(b)(2)(ii).
    (iii) Emigration Criteria. For purposes of the discretion as may be 
exercised by the Secretary pursuant to paragraph (a)(2)(iv) of this 
section, a nominated area must demonstrate outmigration of not less 
than 15 percent over the period 1980-1994 for each census tract. The 
outmigration for each census tract in the nominated area shall be as 
reported for the county in which the census tract is located: Provided, 
however, That the nominated area may include not more than one census 
tract where the reported outmigration is less than 15 percent, which 
tract shall be contiguous to at least one other census tract in the 
nominated area.
    (c) General rules. The following general rules apply to the 
determination of poverty rate for both Round I and Round II nominated 
areas.
    (1) Rounding up of percentages. In making the calculations required 
by this section, the Secretary shall round all fractional percentages 
of one-half percentage point or more up to the next highest whole 
percentage point figure.
    (2) Noncontiguous parcels. Each such parcel (excluding, in the case 
of Round II, up to 3 noncontiguous developable sites not exceeding 
2,000 acres in the aggregate) must separately meet the poverty criteria 
set forth in this section.
    (3) Areas not within census tracts. In the case of an area which is 
not tracted for Census tracts, the block numbering area shall be used 
for purposes of determining poverty rates. Block groups may be used for 
Alaska and Hawaii.

[[Page 19118]]

Secs. 25.105-25.199  [Reserved]

Subpart C--Nomination Procedure


Sec. 25.200  Nominations by State and local governments.

    (a) Nomination criteria. One or more local governments and the 
states in which an area is located must nominate such area for 
designation as an Empowerment Zone or Enterprise Community. Nominated 
areas can be considered for designation only if:
    (1) The rural area meets the applicable requirements for 
eligibility identified in Sec. 25.100;
    (2) The Secretary determines such governments have the authority to 
nominate the area for designation and to provide the assurances 
described in paragraph (b) of this section; and
    (3) The Secretary determines all information furnished by the 
nominating states and local governments is reasonably accurate.
    (b) Required certifications and assurances. The state and local 
governments nominating an area for designation must:
    (1) Submit the following certifications:
    (i) Each nominating governmental entity has the authority to:
    (A) Nominate the rural area for designation as an Empowerment Zone 
or Enterprise Community and make the assurances required under this 
part;
    (B) Make the state and local commitments contained in the strategic 
plan or otherwise required under this part; and
    (C) Provide written assurances satisfactory to the Secretary that 
these commitments will be met; and
    (ii) The nominated area satisfies the eligibility criteria 
referenced in Sec. 25.100, inclusive of the requirement that either;
    (A) No portion of the area nominated is already included in a 
designated Empowerment Zone or Enterprise Community or in an area 
otherwise nominated to be designated under this section; or
    (B) Where an existing Round I Enterprise Community is seeking to be 
designated as a Round II Empowerment Zone, that the nominated area 
includes the entirety of the applicable Round I Enterprise Community 
and that any other areas as may be included in the application do not 
comprise any portion of a designated Empowerment Zone or Enterprise 
Community or part of an area otherwise nominated to be designated under 
this section; and
    (2) Provide written assurance that:
    (i) The strategic plan will be implemented;
    (ii) The nominating governments will make available, or cause to be 
made available, all information requested by USDA to aid in the 
evaluation of progress in implementing the strategic plan; and
    (iii) EZ/EC SSBG funds, as applicable, will be used to supplement, 
not supplant, other Federal or non-Federal funds available for 
financing services or activities which promote the purposes of section 
2007 of the Social Security Act.


Sec. 25.201  Application.

    No rural area may be considered for designation pursuant to this 
part unless the application:
    (a) Demonstrates that the nominated rural area satisfies the 
eligibility criteria contained in Sec. 25.100;
    (b) Includes a strategic plan, which meets the requirements 
contained in Sec. 25.202;
    (c) Includes the written commitment of the applicant, as 
applicable, that EZ/EC SSBG funds will be used to supplement, not 
replace, other Federal and non-Federal funds available for financing 
services or activities that promote the purposes of section 2007 of the 
Social Security Act; and
    (d) Includes such other information as may be required by USDA.


Sec. 25.202  Strategic plan.

    (a) Principles of strategic plan. The strategic plan included in 
the application must be developed in accordance with the following 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 should also 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 services such as 
affordable childcare 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--they may include ``brownfields'' clean-up and 
redevelopment, and promote transportation, education, and public 
safety.
    (b) Minimum requirements. The strategic plan must:
    (1) Describe the coordinated economic, human, community, and 
physical development plan and related activities proposed for the 
nominated area;
    (2) Describe the process by which the affected community is a full 
partner in the process of developing and implementing the plan and the 
extent to which local institutions and organizations have contributed 
to the planning process;
    (3) Identify the amount of state, local, and private resources that 
will be available in the nominated area and the private and public 
partnerships to be used, which may include participation by, and 
cooperation with, universities, medical centers, and other private and 
public entities;
    (4) Identify the funding requested under any Federal program in 
support of the proposed economic, human, community, and physical 
development and related activities, including details about proposed 
uses of EZ/EC SSBG funds that may be available from HHS;
    (5) Identify the baselines, methods, and benchmarks for measuring 
the success of carrying out the strategic plan, including the extent to 
which poor persons and families will be empowered to become 
economically self-sufficient;
    (6) Must not include any action to assist any establishment in 
relocating from one area outside the nominated area to the nominated 
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:
    (i) 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

[[Page 19119]]

    (ii) 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 operation; and
    (7) Include such other information as required by USDA in the 
Notice Inviting Applications.
    (c) Implementation of strategic plan. The strategic plan may be 
implemented by state governments, tribal governments, local 
governments, regional planning agencies, non-profit organizations, 
community-based organizations, or other nongovernmental entities. 
Activities included in the strategic plan may be funded from any 
source, Federal, state, local, or private, which agrees to provide 
assistance to the nominated area.
    (d) Public access to materials and proceedings. The applicant or 
the lead managing entity, as applicable, must make available to the 
public copies of the strategic plan and supporting documentation and 
must conduct its meetings in accordance with the applicable open 
meetings acts.


Sec. 25.203  Submission of applications.

    General. A separate application for designation as an Empowerment 
Zone or Enterprise Community must be submitted for each rural area for 
which such designation is requested. The application shall be submitted 
in a form to be prescribed by USDA in the Notice Inviting Applications 
as published in the Federal Register, and must contain complete and 
accurate information.


Sec. 25.204  Evaluation of the Strategic plan.

    The strategic plan will be evaluated for effectiveness as part of 
the designation process for nominated rural areas described in subpart 
D of this part. On the basis of this evaluation, USDA may request 
additional information pertaining to the plan and the proposed area and 
may, as part of that request, suggest modifications to the plan, 
proposed area, or term that would enhance its effectiveness. The 
effectiveness of the strategic plan will be determined in accordance 
with the four key principles contained in Sec. 25.202(a). USDA will 
review each plan submitted in terms of the four equally weighted 
principal objectives, and of such other elements of these principal 
objectives as are appropriate to address the opportunities and problems 
of each nominated area, which may include:
    (a) Strategic vision for change.--(1) Goals and coordinated 
strategy. The extent to which the strategic plan reflects a projection 
for the community's revitalization which links economic, human, 
physical, community development and other activities in a mutually 
reinforcing, synergistic way to achieve ultimate goals;
    (2) Creativity and innovation. The extent to which the activities 
proposed in the plan are creative, innovative and promising and will 
promote the civic spirit necessary to revitalize the nominated area;
    (3) Building on assets. The extent to which the vision for 
revitalization realistically addresses the needs of the nominated area 
in a way that takes advantage of its assets; and
    (4) Benchmarks and learning. The extent to which the plan includes 
performance benchmarks for measuring progress in its implementation, 
including an on-going process for adjustments, corrections and building 
on what works.
    (b) Community-based partnerships.--(1) Community partners. The 
extent to which residents of the community participated in developing 
the strategic plan and their commitment to implementing it, the extent 
to which community-based organizations in the nominated area have 
participated in the development of the nominated area, and their record 
of success measured by their achievements and support for undertakings 
within the nominated area;
    (2) Private and nonprofit organizations as partners. The extent to 
which partnership arrangements include commitments from private and 
nonprofit organizations, including corporations, utilities, banks and 
other financial institutions, human services organizations, health care 
providers, and educational institutions supporting implementation of 
the strategic plan;
    (3) State and local government partners. The extent to which states 
and local governments are committed to providing support to the 
strategic plan, including their commitment to ``reinventing'' their 
roles and coordinating programs to implement the strategic plan; and
    (4) Permanent implementation and evaluation structure. The extent 
to which a responsible and accountable implementation structure or 
process has been created to ensure that the plan is successfully 
carried out and that improvements are made throughout the period of the 
zone or community's designation.
    (c) Economic opportunity. (1) The extent to which businesses, jobs, 
and entrepreneurship will increase within the zone or community;
    (2) The extent to which residents will achieve a real economic 
stake in the zone or community;
    (3) The extent to which residents will be employed in the process 
of implementing the plan and in all phases of economic, community and 
human development;
    (4) The extent to which residents will be linked with employers and 
jobs throughout the entire area and the way in which residents will 
receive training, assistance, and family support to become economically 
self-sufficient;
    (5) The extent to which economic revitalization in the zone or 
community interrelates with the broader regional economies; and
    (6) The extent to which lending and investment opportunities will 
increase within the zone or community through the establishment of 
mechanisms to encourage community investment and to create new economic 
growth.
    (d) Sustainable community development.--(1) Consolidated planning. 
The extent to which the plan is part of a larger strategic community 
development plan for the nominating localities and is consistent with 
broader regional development strategies;
    (2) Public safety. The extent to which strategies such as community 
policing will be used to guarantee the basic safety and security of 
persons and property within the zone or community;
    (3) Amenities and design. The extent to which the plan considers 
issues of design and amenities that will foster a sustainable 
community, such as open spaces, recreational areas, cultural 
institutions, transportation, energy, land and water uses, waste 
management, environmental protection and the vitality of life of the 
community;
    (4) Sustainable development. The extent to which economic 
development will be achieved in a manner consistent that protects 
public health and the environment;
    (5) Supporting families. The extent to which the strengths of 
families will be supported so that parents can succeed at work, provide 
nurture in the home, and contribute to the life of the community;
    (6) Youth development. The extent to which the development of 
children, youth, and young adults into economically productive and 
socially responsible adults will be promoted and the extent to which 
young people will be:
    (i) Provided with the opportunity to take responsibility for 
learning the skills, discipline, attitude, and initiative to make work 
rewarding;
    (ii) Invited to take part as resources in the rebuilding of their 
community; and

[[Page 19120]]

    (iii) Provided the opportunity to develop a sense of industry and 
competency and a belief they might exercise some control over the 
course of their lives.
    (7) Education goals. The extent to which schools, religious 
organizations, non-profit organizations, for-profit enterprises, local 
governments and families will work cooperatively to provide all 
individuals with the fundamental skills and knowledge they need to 
become active participants and contributors to their community, and to 
succeed in an increasingly competitive global economy;
    (8) Affordable housing. The extent to which a housing component, 
providing for adequate safe housing and ensuring that all residents 
will have equal access to that housing is contained in the strategic 
plan;
    (9) Drug abuse. The extent to which the plan addresses levels of 
drug abuse and drug-related activity through the expansion of drug 
treatment services, drug law enforcement initiatives, and community-
based drug abuse education programs;
    (10) Health care. The extent to which the plan promotes a 
community-based system of health care that facilitates access to 
comprehensive, high quality care, particularly for the residents of EZ/
EC neighborhoods;
    (11) Equal opportunity. The extent to which the plan offers an 
opportunity for diverse residents to participate in the rewards and 
responsibilities of work and service. The extent to which the plan 
ensures that no business within a nominated zone or community will 
directly or through contractual or other arrangements subject a person 
to discrimination on the basis of race, color, creed, national origin, 
gender, handicap or age in its employment practices, including 
recruitment, recruitment advertising, employment, layoff, termination, 
upgrading, demotion, transfer, rates of pay or the forms of 
compensation, or use of facilities. Applicants must comply with the 
provisions of Title VI of the Civil Rights Act of 1964, section 504 of 
the Rehabilitation Act of 1973, and the Age Discrimination Act of 1975.


Secs. 25.205--25.299  [Reserved]

Subpart D--Designation Process


Sec. 25.300  USDA action and review of nominations for designation.

    (a) Establishment of submission procedures. USDA will establish a 
time period and procedure for the submission of applications for 
designation as Empowerment Zones or Enterprise Communities, including 
submission deadlines and addresses, in a Notice Inviting Applications, 
to be published in the Federal Register.
    (b) Acceptance for processing. USDA will accept for processing 
those applications as Empowerment Zones and Enterprise Communities 
which USDA determines have met the criteria required under this part. 
USDA will notify the states and local governments whether or not the 
nomination has been accepted for processing. The application must be 
received by USDA on or before the close of business on the date 
established by the Notice Inviting Applications published in the 
Federal Register. The applications must be complete, inclusive of the 
strategic plan, as required by Sec. 25.202, and the certifications and 
written assurances required by Sec. 25.200(b).
    (c) Site visits. In the process of reviewing each application 
accepted for processing, USDA may undertake site visits to any 
nominated area to aid in the process of evaluation.
    (d) Modification of the strategic plan, boundaries of nominated 
rural areas, or period during the application review period. Subject to 
the limitations imposed by Sec. 25.100.
    (1) USDA may request additional information pertaining to the 
strategic plan and proposed area and may, as a part of that request, 
suggest modifications to the strategic plan or nominated area that 
would enhance the effectiveness of the strategic plan;
    (2) Enlargement of a nominated area will not be allowed if the 
inclusion of the additional area will result in an average poverty rate 
less than the average poverty rate at the time of initial application; 
and
    (3) An applicant may modify the nominated area or strategic plan 
during the application review period with USDA approval.
    (e) Designations. Final determination of the boundaries of areas 
and the term for which the designations will remain in effect will be 
made by the Secretary.


Sec. 25.301  Selection factors for designation of nominated rural 
areas.

    In choosing among nominated rural areas eligible for designation as 
Empowerment Zone, Enterprise Community or Champion Community, the 
Secretary shall consider:
    (a) The potential effectiveness of the strategic plan, in 
accordance with the key principles in Sec. 25.202(a);
    (b) The strength of the assurances made pursuant to Sec. 25.200(b) 
that the strategic plan will be implemented;
    (c) The extent to which an application proposes activities that are 
creative and innovative;
    (d) The extent to which areas consisting of noncontiguous parcels 
are not so widely separated as to compromise achievement by the 
nominated area of a cohesive community or regional identity; and
    (e) Such other factors as established by the Secretary, which 
include the degree of need demonstrated by the nominated area for 
assistance under this part and the diversity within and among the 
nominated areas. If other factors are established by USDA, a Federal 
Register Notice will be published identifying such factors, along with 
an extension of the application due date if necessary.


Secs. 25.302-25.399  [Reserved]

Subpart E--Post-Designation Requirements


Sec. 25.400  Reporting.

    (a) Periodic reports. Empowerment Zones, Enterprise Communities and 
Champion Communities shall submit to USDA periodic reports which 
identify the community, local government and state actions which have 
been taken in accordance with the strategic plan. In addition to these 
reports, such other information relating to designated Empowerment 
Zones, Enterprise Communities and Champion communities as USDA may 
request from time to time shall be submitted promptly. On the basis of 
this information and of on-site reviews, USDA will prepare and issue 
periodic reports on the effectiveness of the Empowerment Zones/
Enterprise Communities Program.
    (b) Annual report. All rural Empowerment Zones and Enterprise 
Communities shall submit an annual report to USDA for each calendar 
year which includes an executive summary and benchmark progress report 
as follows:
    (1) Executive summary. The executive summary shall identify the 
progress and setbacks experienced in efforts to achieve benchmark 
goals. Activities other than those expressly included in the strategic 
plan should also be noted in order to provide an understanding of where 
the community stands with respect to implementation of the strategic 
plan. Furthermore, the executive summary should address the following:
    (i) Identify the most significant accomplishments to date.
    (ii) Describe the level of community participation and overall 
support for the EZ/EC initiative.
    (iii) List and describe new partnerships or alliances formed.

[[Page 19121]]

    (iv) Identify problems or obstacles not otherwise anticipated in 
the strategic plan.
    (v) Describe solutions developed or efforts to address the problems 
and obstacles.
    (vi) Identify practices or concepts which were found especially 
effective in implementing the strategic plan.
    (2) Benchmark progress report. For each benchmark goal the 
community will provide a current measure of the baseline condition 
which is the subject of targeted improvement and whether the current 
measure represents an improvement from the baseline condition as 
initially stated in the strategic plan. For each benchmark activity the 
community will provide a status report in form and substance acceptable 
to USDA.
    (c) Timely state data. Where not prevented by state law, nominating 
state governments must provide the timely release of data requested by 
USDA for the purposes of monitoring and assisting the success of 
Empowerment Zones and Enterprise Communities.


Sec. 25.401  Responsibility of lead managing entity.

    (a) Financial. The lead managing entity will be responsible for 
strategic plan program activities and monitoring the fiscal management 
of the funds of the Empowerment Zone or Enterprise Community.
    (b) Reporting. The lead managing entity will be responsible for 
developing the reports required under this subpart.
    (c) Cooperation. All entities with significant involvement in 
implementing the strategic plan shall cooperate with the lead managing 
entity in its compliance with paragraphs (a) and (b) of this section.


Sec. 25.402  Periodic performance reviews.

    USDA will regularly evaluate the progress in implementing the 
strategic plan in each designated Empowerment Zone and Enterprise 
Community on the basis of performance reviews to be conducted on site 
and using other information submitted. USDA may also commission 
evaluations of the Empowerment Zone program as a whole by an impartial 
third party. Evidence of continual involvement of all segments of the 
community, including low income and disadvantaged residents, must be 
evidenced in the implementation of the strategic plan.


Sec. 25.403.  Ongoing 2-year work plan requirement.

    (a) Each Empowerment Zone and Enterprise Community shall prepare 
and submit annually, work plans for the subsequent 2-year interval of 
the designation period.
    (b) The 2-year work plan shall be submitted to USDA 45 days prior 
to the start of the applicable 2-year period.
    (c) The 2-year work plan must include the following sections and 
content:
    (1) Section 1--Work Plan. Identify the benchmark goals to be 
achieved in the applicable 2 years of the strategic plan, together with 
the benchmark activities to be undertaken during the applicable 2 years 
of implementation. Include references to the applicable baseline 
conditions and performance indicators to be used in assessing 
performance.
    (2) Section 2--Operational Budget. For each benchmark activity to 
be undertaken in the applicable 2 years of the strategic plan, set 
forth the following information:
    (i) Expected implementation costs;
    (ii) Proposed sources of funding and whether actual commitments 
have been obtained;
    (iii) Technical assistance resources and other forms of support 
pledged by Federal, state and local governments, non-profit 
organizations, foundations, private businesses, and any other entity to 
assist in implementation of the community's strategic plan, and whether 
this support is conditional upon the designation of the community as an 
Empowerment Zone; and
    (iv) Documentation of applications for assistance and commitments 
identified as proposed funding and other resources.


Sec. 25.404  Validation of designation.

    (a) Reevaluation of designations. On the basis of the performance 
reviews described in Sec. 25.402, and subject to the provisions 
relating to the revocation of designation appearing at Sec. 25.405, 
USDA will make findings as to the continuing eligibility for and the 
validity of the designation of any Empowerment Zone, Enterprise 
Community, or Champion Community.
    (b) Modification of designation. Based on a rural zone or 
community's success in carrying out its strategic plan, and subject to 
the provisions relating to revocation of designation in accordance with 
Sec. 25.405 and the requirements as to the number, maximum population 
and other characteristics of rural Empowerment Zones referenced in 
Sec. 25.100, the Secretary may modify designations by reclassifying 
rural Empowerment Zones as Enterprise Communities or Enterprise 
Communities as Empowerment Zones.


Sec. 25.405  Revocation of designation.

    (a) Basis for revocation. The Secretary may revoke the designation 
of a rural area as an Empowerment Zone or Enterprise Community, or 
withdraw status as a Champion Community, if the Secretary determines, 
on the basis of the periodic monitoring and assessments described in 
Sec. 25.402, that the applicant, lead managing entity, or the states or 
local governments in which the rural area is located have:
    (1) Modified the boundaries of the area without written approval 
from USDA;
    (2) Failed to make progress in implementing the strategic plan; or
    (3) Not complied substantially with the strategic plan (which may 
include failing to apply funds as contained in the strategic plan 
without advance written approval from USDA).
    (b) Letter of Warning. Before revoking the designation of a rural 
area as an Empowerment Zone or Enterprise Community, the Secretary will 
issue a letter of warning to the applicant, the lead managing entity 
(if different from the applicant) and the nominating states and local 
governments, with a copy to all affected Federal agencies of which USDA 
is aware:
    (1) Advising that the Secretary has determined that the applicant 
and/or lead managing entity and/or the nominating local governments and 
state:
    (i) Have modified the boundaries of the area without written 
approval from USDA; or
    (ii) Are not complying substantially with, or have failed to make 
satisfactory progress in implementing the strategic plan; and
    (2) Requesting a reply from all involved parties 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 rural 
area as an Empowerment Zone or Enterprise Community, after:
    (1) Allowing 90 days from the date of receipt of the letter of 
warning for response; and
    (2) Making a determination pursuant to paragraph (a) of this 
section.
    (d) Notice to affected Federal agencies. USDA will notify all 
affected Federal agencies of which it is aware of its determination to 
revoke any designation pursuant to this section or to modify a 
designation pursuant to Sec. 25.404(b).
    (e) Effective date. 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.

[[Page 19122]]

Secs. 25.406-25.499  [Reserved]

Subpart F--Special Rules


Sec. 25.500  Indian reservations.

    (a) An area in an Indian reservation shall be treated as nominated 
by a state and a local government if it is nominated by the reservation 
governing body.
    (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 United States 
Bureau of Indian Affairs, U.S. Department of Interior.
    (c) Where two or more governing bodies have joint jurisdiction over 
an Indian reservation, the nomination of a reservation area must be a 
joint nomination.


Sec. 25.501  Governments.

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


Sec. 25.502  Nominations by state-chartered economic development 
corporations.

    Any rural area nominated by an economic development corporation 
chartered by a state and qualified to do business in the state in which 
it is located shall be treated as nominated by a state and local 
government.


Sec. 25.503  Rural areas.

    (a) What constitutes ``rural''. A rural area may consist of any 
area that lies outside the boundaries of a Metropolitan Area, as 
designated by the Office of Management and Budget, or, is an area that 
has a population density less than or equal to 1,000 persons per square 
mile, the land use of which is primarily agricultural.
    (b) Exceptions to the definition. On a case by case basis, the 
Secretary may grant requests for waiver from the definition of 
``rural'' stated in paragraph (a) of this section upon a showing of 
good cause. Applicants seeking to apply for a rural designation who do 
not satisfy the definition in paragraph (a) of this section must submit 
a request for waiver in writing to the Deputy Administrator, USDA 
Office of Community Development, Reporters Building, Room 701, STOP 
3203, 300 7th Street, SW, Washington, DC 20024-3202. Requests must 
include:
    (1) The name, address and daytime phone number of the contact 
person for the applicant seeking the waiver; and
    (2) Sufficient information regarding the area that would support 
the infrequent exception from the definition.
    (c) Waiver process. The Secretary, in consultation with the 
Department of Commerce, will have discretion to permit rural 
applications for communities that do not meet the above rural criteria.


Secs. 25.504-25.999  [Reserved]

    Dated: April 10, 1998.
Dan Glickman,
Secretary of Agriculture.

Regulatory Impact Analysis

DEPARTMENT OF AGRICULTURE

OFFICE OF THE SECRETARY

    1. Title/Description:
    Designation of Rural Empowerment Zones and Enterprise Communities.
    This rule establishes procedures for designating five new rural 
Empowerment Zones.
    2. Cite/Status: 7 CFR Part 25 Interim Rule.
    3. Purpose: This rule implements that portion of Subtitle F of 
Title IX of the Taxpayer Relief Act of 1997 (P. L. 105-34, approved 
August 5, 1997) concerning procedures for designating five rural 
Empowerment Zones (Round II). It also amends regulations pertaining to 
the three existing rural Empowerment Zones that were designated 
pursuant to Title XIII of the Omnibus Budget Reconciliation Act of 1993 
(P. L. 103-66, approved August 10, 1993).
    4. Degree of Discretion: Mandated by Subtitle F, referred to above.
    5. Special Considerations:
    a. Statutory or judicial deadlines: The law requires that 
designations be made prior to January 1, 1999.
    b. Public health and safety deadlines: None identified.
    c. Others: None identified.
    6. Economic Impacts:
    A. Costs:
    a. Nature of hindrance to economic growth:
    This rule establishes procedures for designating places to receive 
Round II rural Empowerment Zone (EZ) status. No hindrance to economic 
growth is expected, rather, the program objective is to foster economic 
growth in the designated communities. However, various participants 
will contribute funding to the program, hence there are some costs 
involved.
    b. Who is affected:
    This is a highly competitive program. It is expected that more than 
one hundred rural communities will submit applications with strategic 
plans in order to qualify for one of the five new rural EZ's. In 
comparison, there were 227 applicants for 3 Round Empowerment Zones and 
30 Round I Enterprise Communities. All communities that apply will 
incur some relatively minor costs in completing their plans--probably 
in the range of $2,000 to $20,000 per community. More significant costs 
may be incurred by those communities that receive designations. These 
costs will be borne by all entities that have promised to invest in the 
community, including Federal, State, and local governments, nonprofit 
organizations, neighborhood groups, and businesses.
    c. Degree of impact on individuals and society:
    It is important to distinguish between the concepts of ``cost'' and 
``investment.'' A cost estimate involves an attempt to summarize the 
amount of new or additional funds committed to implementation of 
community strategic plans or--in the case of the designated Empowerment 
Zones--the amount of revenues foregone as the result of tax benefits. 
Ordinarily, costs are assumed to be an involuntary burden on society, 
which it is necessary to minimize. Investments, on the other hand, are 
considered to be the application of resources in such a way as to 
produce desirable outcomes. Investments are considered to be both 
voluntary and likely to produce a rate of return that justifies their 
expenses. Because the expenditures of Empowerment Zones are made for 
the purpose of implementing the long-term strategic plans of these 
communities, these expenditures must be considered to be investments.
    The total costs to society associated with the five new zones are 
difficult to predict. The Department of Treasury estimates that the 
cost to the Federal Treasury in terms of taxes foregone associated with 
the various Federal tax incentives for the five new rural zones will be 
$200 million over the 10-year life of the designated zones. This 
estimate is subject to considerable uncertainty because the zones will 
receive tax incentives that are relatively new and it is hard to 
predict how much they will be used in the five zones. Unlike the first 
round of rural EZ's, which received $40 million each in Title XX Social 
Service Block Grants (SSBG), no automatic grant funding has been 
supplied for the Round II zones, though the Administration has proposed 
to include some such grant funding. Additional uncertainty over the 
cost to the Federal government involves other Federal assistance that 
these zones are likely to request in the future in order to carry out 
their strategic plans. The amount of such grants is a function of what 
the communities envision they

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need to implement their plans and the priority the Administration 
places on responding to their funding requests. The zone revitalization 
plans will also draw on the resources of State and local governments, 
the private sector, and on non-profit organizations. The costs incurred 
by these entities are difficult to predict, since they will depend on 
the communities' plans and on the willingness of these entities to 
contribute.
    A rough idea of the potential magnitude of these costs may be 
revealed from the experience of the three Round I rural EZ's designated 
in December 1994. (Round I also included 30 Enterprise Communities 
(EC's), which receive substantially less assistance than the EZ's--
because Round II does not include any EC's, we will ignore here the 
costs and benefits associated with EC's and focus only on the EZ's in 
this analysis). According to data collected by USDA covering the first 
three years since their designation, the three Round I rural EZ's have 
used the following funds (excluding the cost of tax incentives which 
remain unknown): $25 million from Federal SSBG funds, $35 million from 
other Federal funds, $24 million from State governments, $3 million 
from local governments, $53 million from the private sector, and $4 
million from nonprofit organizations. These investments are expected to 
continue to accumulate over the 10-year duration of the zones.
    While the magnitude of the investments by the Federal Government 
associated with these zones appears very small relative to the total 
Federal budget, their total for some of the other entities, such as the 
individual State and local governments contributing to these zones, may 
be more substantial relative to their budgets. However, these costs 
might be offset at least in part by development-induced increases in 
tax revenues resulting from the program, and by reduction in other 
government costs associated with higher levels of poverty and 
unemployment, both of which are expected to be reduced by this program. 
In addition, with the exception of Federal SSBG funds, all other 
expenditures of public and private funds represent voluntary 
investments from existing sources of funding that would otherwise be 
spent in other places, and they thus do not represent a net additional 
cost.
    The purpose of this regulatory impact analysis is to determine the 
extent to which program costs (and benefits) might be affected by 
USDA's rules. Because this is a bottom-up program that allows 
localities to make their own plans, most of the costs are determined by 
the locality and participating funding sources. Hence the magnitude of 
costs is not directly determined by USDA's regulations. The rule mainly 
affects costs through its selection criteria, in which communities are 
encouraged to develop and implement comprehensive plans using whatever 
Federal, State, and local resources are required for a successful, 
sustainable revitalization. The more comprehensive these plans are, the 
more costly (and beneficial) their implementation is likely to be. 
While USDA does not require a minimum amount of spending for each of 
its zones, given the comprehensive nature of its guidelines, that might 
lead applicants to propose more ambitious (and hence more costly) 
strategies than they might otherwise propose. However, these other 
Federal costs represent a redirection of funds that would otherwise be 
spent in other communities and they are therefore not a net additional 
burden on the Treasury.
    The highly competitive nature of the program's selection process is 
also expected to result in many communities going through the strategic 
planning process required as part of the application requirements. 
Since only five of these communities will receive designation, the 
remaining, undesignated communities will be left with a plan but 
without any automatic Federal support. USDA will designate applicant 
communities that complete a satisfactory planning process as Champion 
Communities. Following designation of the Round I zones, many of these 
communities have been found to follow through with some portion of 
their plans, seeking other types of assistance from various sources 
(Federal, State, local, etc.). This in turn will lead to additional 
costs (and benefits). However, these Federal costs represent a 
redirection of funds that would otherwise be spent in other communities 
and they are therefore not a net additional burden on the Treasury.
    The rule also provides a mechanism whereby zone designation may be 
terminated in the event that a zone does not live up to its promised 
strategy. This might also be expected to add to program costs (and 
benefits) because it places pressure on participants (States, local 
governments, private and nonprofit sectors) to make a good faith effort 
to deliver on their promised contributions to the zone.
    B. Benefits
    a. Nature:
    The Empowerment Zones program represents a radically new approach 
to the development of severely depressed rural communities. Unlike 
other Federal programs, the Empowerment Zone program is targeted 
heavily toward those rural communities with the highest levels of 
poverty or population loss. These communities are typically locked in a 
pattern of hopelessness from which it is very difficult to extricate 
themselves. Often, they have neither the will nor the organizational 
capacity, in addition to a lack of resources, to extricate themselves 
from the cycle of distress in which they are trapped. The objective of 
the Empowerment Zone program is not merely to expend Federal and other 
program dollars within the Zones. Instead, the program seeks to change 
the whole equation by which these communities approach their futures by 
helping them to develop fresh visions of what their futures can be 
like, build comprehensive, long-term strategic plans to achieve these 
visions, assemble resources and partners to assist with plan 
implementation, and build internal community capacity to plan and 
implement programs so that at the end of the ten-year designation 
period the communities have achieved a position in which the economic 
and social gains they have made will be sustainable without continued 
governmental assistance.
    This process of building sustainability cannot occur through 
isolated, single-program investments, even though these may 
individually meet pressing needs within the community. It requires the 
coordinated and comprehensive development of a wide range of community 
assets, skills and capacities that occur in a variety of sectors. One 
way of thinking about this process of building toward sustainability is 
by using the analogy of an ``empowerment staircase.'' The first steps 
on the staircase are building hope that a different future may be 
possible, forming a vision of what future is desired for the community, 
creating a realistic plan for achieving that vision, obtaining 
resources to implement the plan, achieving some initial positive 
results, revising the plan to reflect changed conditions and 
aspirations, building additional partnerships and leveraging additional 
resources, enhancing the community's organizational and skill base and 
its capacity to continue its development process after the Federal 
support runs out.
    The experience with the Round I Empowerment Zones and Enterprise 
Communities, which are approximately three years into the 
implementation of their development plans, shows that most of these 
communities have climbed the first five steps of the empowerment 
staircase. The

[[Page 19124]]

announcement of a program specifically limited to the most distressed 
communities gave the 227 applicant communities hope that a different 
outcome might be possible for them. The competition for designation and 
the required strategic planning process itself led most applicant 
communities to establish community-determined visions of different 
futures and to build meaningful, comprehensive, long-term strategic 
plans for reaching them. Both designated communities and those deemed 
to be Champion Communities have also obtained resources to implement 
portions of their plans and have achieved promising results, some of 
which are discussed further below. Many are now beginning to re-examine 
their strategic plans and to substitute alternative, more empowering 
development strategies for these strategies they employed initially. 
For example, the Mid-Delta Empowerment Zone Alliance, in Mississippi, 
has already created a number of jobs to help enable unemployed workers 
to be gainfully employed. Now it is turning its attention to strategies 
that will increase the number of opportunities for local workers to 
become business owners and increase the rates of entrepreneurship 
within the community. In addition, through training offered by the USDA 
and other sources, as well as on-the-job experience, the staff and 
board members of Empowerment Zones and Enterprise Communities are 
learning valuable skills in community organizing, resource 
identification and mobilization, strategic planning, and project 
implementation which will help them to continue their gains through 
local effort once the ten-year designation ends.
    The comprehensive and holistic nature of the community strategic 
plans is itself a significant benefit over the more typical pattern of 
disconnected, single-program investments that characterizes most 
Federally-assisted development efforts. Economic and community 
development relies on a number of factors to be successful, all of 
which must be present for significant and lasting gains to be 
accomplished. For example, not only must jobs be created, but workers 
must be trained with appropriate skills for these jobs in order for 
them to take these jobs and other services such as transportation and 
day care must be available. Not only must new small business financing 
be available, but entrepreneurship training and technical support must 
be available during the start-up phase to assure higher rates of 
business success. As a result of such coordinated and holistic 
development, the likely benefits from Federal and other investments are 
significantly higher than if the investments occurred singly, without 
linkage to other, complementary actions and investments.
    The statute entitles each of the five new rural Empowerment Zones 
to qualify for new Empowerment Zone Facility Bonds, a new category of 
tax exempt private activity bond, not subject to State volume caps. 
Each new rural zone may issue up to $60 million in these bonds. These 
are in addition to the more limited zone facility bonds available to 
Round I Empowerment Zones. The new rural Empowerment Zones also receive 
additional tax incentives for expensing of private investment in 
equipment. These tax incentives last for ten years. The new zones will 
also be eligible for some short-term tax reductions, including (1) 
Brownfields expensing of environmental cleanup costs for certain 
contaminated properties (through year 2000), (2) tax exempt Qualified 
Zone Academy Bonds for school programs, equipment, curriculum and 
rehabilitation, subject to a national volume cap (through 1999), and 
(3) Work Opportunity Tax Credits to employers hiring targeted groups of 
employees, including youths age 18-24 that reside within Empowerment 
Zones and Enterprise Communities (through June 30, 1998). All three of 
these tax benefits are to some extent available to other urban and 
rural communities, including Round I Empowerment Zones and Enterprise 
Communities, so that the total cost of these tax benefits cannot be 
attributed to the five rural Empowerment Zones.
    In addition, Federal agencies are expected to give special 
preference to Empowerment Zones and Enterprise Communities with 
legitimate requests for program assistance. State and local governments 
and private firms and nonprofit are also expected to confer grants or 
assistance to these places. The new zones, however, will not be 
eligible for some of the benefits that the first round of Empowerment 
Zones received, such as the employer wage tax credits, and to date, no 
Title XX Social Service Block Grants funds are available for the new 
zones.
    The comprehensive strategic planning approach employed by this 
program is meant to help poor communities identify their development 
needs and design strategies to address those needs. This type of 
approach should benefit the communities by helping them to focus their 
limited resources on their most important community goals and 
strategies, and it should also give them an advantage in obtaining 
outside assistance.
    If the program works as expected, the communities should benefit 
through economic and community revitalization, including economic 
growth in the form of increased employment and income and improved 
economic self sufficiency (reduction of unemployment, welfare 
dependency), and improved overall conditions in the community in the 
form of lower crime rates, less drug dependency, better housing, better 
education, and improved public and private services available to the 
population. In addition, as discussed above, empowerment--the capacity 
of communities to design and implement local strategies for long-term 
community and economic enhancement--is expected to occur.
    Recognizing the experimental character of this new approach, and 
also its demonstration value for other rural communities in similar 
circumstances, USDA has collected baseline information on the economic 
and social conditions that existed in each community at the time the 
program was inaugurated. In addition, USDA has undertaken a research 
project with Iowa State University to develop and collect information 
about the effect of the program on intangible community capacities, 
such as the extent of community participation in this highly democratic 
method of promoting community growth. USDA collects and publicizes best 
practices drawn from among the successes of the existing Empowerment 
Zones and Enterprise Communities and makes these available to all rural 
communities through publications and the EZ/EC web site. USDA regularly 
collects information from each of the Round I Empowerment Zones and 
Enterprise Communities about the actions they have undertaken and the 
results achieved, some of which results are reported below. At later 
stages in the implementation of Round I of the program, USDA will 
collect information about the overall impacts within the designated 
communities to evaluate both the extent of the benefits and costs of 
the program and the conditions under which optimal benefits were 
achieved.
    b. Who is affected:
    The residents of the designated Empowerment Zones will be the 
primary beneficiaries. The statute liberalizes the eligibility rules 
for the new Round II rural zones. The poverty rate eligibility 
threshold was higher for Round I, and Indian reservations were 
excluded. This was changed by statute for Round II. One of the five new 
rural

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zones is eligible based on outmigration, regardless of poverty, and 
Indian reservations can participate if they meet eligibility criteria. 
These and other changes in the statute's eligibility provisions should 
allow more places to be eligible. In addition, the regions surrounding 
these places are also expected to benefit. The existing statute 
prohibits development plans from proposing a strategy that actively 
encourages or assists the relocation of firms or branch plants into the 
zones. The rule further encourages communities to adopt strategies that 
complement, rather than compete with, the development of the 
surrounding region. Also expected to benefit are those places that 
apply but that do not receive designations (in rural areas, these are 
called Champion Communities). Such places should benefit through the 
value of the community partnerships formed and the strategic plans they 
produced in the process of applying for the program. They are also 
eligible, along with the designated Empowerment Zones, for certain tax 
breaks for contributors to HUD-designated Community Development 
Corporations.
    c. Degree of benefits to individuals and society:
    The magnitude of the economic benefits that each designated zone 
community will receive from this program is difficult to predict. Most 
of the tax incentives are new, as is the program itself. Because the 
benefits are also affected by the strategies the communities choose in 
their strategic plans, the benefits might be expected to vary from zone 
to zone.
    If the new Round II zones were to receive benefits like those of 
the Round I zones, an idea of the magnitude of such benefits is 
revealed by USDA statistics on Round I zones. As of January 1998, after 
the three Round I rural Empowerment Zones had completed their first 3 
years as EZ's, they had reported a total of $144 million in direct new 
public and private investment, and 2,000 jobs created or saved. These 
zones have created a total of 15 job training programs, 6 job training 
facilities, and trained 442 persons. They have created 20 youth 
development programs serving 3,375 youths, and 3 educational facilities 
and 4 heath care facilities have been built or upgraded. The three 
zones have established or upgraded 18 computer learning centers and 
have received 3,480 Federal surplus computers. Five revolving loan or 
microenterprise funds have been created, 44 housing units have been 
built or rehabilitated, 19 water and waste projects are under 
construction.
    These measures are indicative of recent performance and do not 
convey the full extent of benefits expected in the long run. A copy of 
a progress report based on information supplied by program participants 
is contained in Appendix A (attached).
    These zones have used the resources available to them at a pace 
that will allow them to use these funds throughout the ten-year period 
of designation. As of January 1998--a little over two years into the 
implementation of their plans--they had used about a fifth of the Title 
XX SSBG funds allotted to them--$25 million out of a total of $120 
million. These reserve SSBG funds should be able to leverage additional 
Federal, State, local, and private investments--the leverage ratio of 
non-SSBG funds to SSBG funds in the first three years averaged about 
4.7:1. Thus, activity levels might be expected to pick up in the coming 
years as the bulk of the SSBG funds are spent. Although their zone 
designations officially end in the year 2004, they may continue to 
benefit from this program in the following years, since many of their 
investments are in infrastructure, training, community development 
financial institutions, and other forms of capital--including social 
capital--which should enhance their future productivity long after they 
stop receiving EZ tax incentives and priority in receipt of Federal 
funds.
    The Round II zones will go through the same strategic planning 
process as did the Round I zones, and they may be expected to pursue 
similar comprehensive development strategies, drawing on various 
sources for funding. Other things being equal, their benefits should be 
roughly comparable to those of Round I zones. However, the five Round 
II zones might experience different economic impacts than those of the 
Round I zones because of the differences in tax incentives and the 
lack--thus far--of specially allocated Title XX grants that the Round I 
zones received. The difference in tax incentives might result in 
greater benefits, since the new zone facility bonds are not subject to 
the State volume cap and hence are more likely to be issued than the 
previous, more limited zone facility bonds. The additional $20,000 in 
expensing should also stimulate more private investment. And, although 
the employer wage tax credit is no longer available, this might be 
offset by the Work Opportunity Tax Credit and some of the other new tax 
incentives. However, if no specially-provided Title XX grant funds are 
provided to the Round II zones, as is true now, then this would dampen 
the economic benefits in the new zones. As currently structured, it 
seems likely that net benefits to Round II zones will be lower than 
those enjoyed by Round I zones, but it is difficult to estimate the 
actual amount of economic benefits involved.
    The magnitude of the economic benefits will also depend on the 
extent that State Governments and various Federal agencies are 
encouraged to give preference to these places in providing grants and 
loans and regulatory relief. It also depends on the extent that Federal 
grants are devoted to non-economic purposes, such as reduced crime and 
drug use, and improved recreational programs.
    Most of the program's benefits flow from the statutory aspects of 
the program and not from the rule itself. As previously noted, this 
rule pertains primarily to the application and selection process for 
the zones. The benefits that flow directly from the rule are related to 
the strategies that are being encouraged through the selection criteria 
specified in the rule. If successful, these strategies will result in 
sustainable, long-term development for the selected EZ's. This could 
lead to similar strategies being encouraged by other Federal and State 
programs that assist distressed areas, thereby having a more profound 
effect on society.
    C. Dynamic implications that may affect economic growth:
    Although the program is expected to significantly affect the 
economies of the designated local zones, in only a very minor way does 
this program affect dynamic aspects of national economic growth. Since 
it will tend to add to overall national spending and investment, this 
could slightly add to inflationary pressures while the economy remains 
near full-employment and slightly reduce unemployment during 
recessions. However, because the designated communities tend to have 
high rates of unemployment, this would dampen any inflationary pressure 
associated with the program. Moreover, the magnitude of these shifts is 
not large enough to make much of a difference, nationwide.
    It is expected that, in addition to these direct contributions to 
national economic growth, the comprehensive, long-term, community-based 
model of development that is employed in this program will serve as a 
model to Champion Communities and to other rural communities, which may 
choose to employ similar methods of development in order to achieve 
some of the same results as the Empowerment

[[Page 19126]]

Zones and Enterprise Communities have been able to achieve. If the 
model should come into widespread application throughout rural America, 
the net contribution to the national economy could be substantial. Such 
an impact is unlikely to occur, however, within the period of 
designation of the Round II Empowerment Zones but would most likely 
occur over a period of one or two generations.
    7. ``User Friendliness'':
    Every effort has been made to make this program work for all 
communities that apply. The regulations allow the communities maximum 
flexibility in the form that their plans take and the strategies that 
can be employed. A guidebook will be available to communities to guide 
them through the application process and to clarify any questions they 
may have about the program rules and procedures. In addition, lessons 
learned from Round I should add to the user-friendliness for the Round 
II zones, as modifications have been made to streamline the 
applications process and improve the structure of the required 
strategic plans.
    Attachment: Appendix A, Progress Report

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[FR Doc. 98-10156 Filed 4-14-98; 11:38 am]
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