[Federal Register Volume 64, Number 128 (Tuesday, July 6, 1999)]
[Notices]
[Pages 36389-36391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17180]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4401-N-02]


Change in Effective Date in 1999 Notice for Designation of 
Difficult Development Areas Under Section 42 of the Internal Revenue 
Code of 1986

AGENCY: Office of the Secretary, HUD.

ACTION: Notice.

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SUMMARY: This document amends the Notice for the Designation of 
Difficult Development Areas, published December 9, 1998 (the 1999 
Notice,) by extending 1998 eligibility for areas that were designated 
as 1998 Difficult Development Areas in the Notice published October 21, 
1997 (the 1998 Notice) but were not designated as difficult development 
areas in the 1999 Notice. This amendment is limited to buildings 
described in section 42(h)(4)(B) of the Internal Revenue Code of 1986 
(the Code) and located in a 1998 Difficult Development Area. The 
amendment is necessary because publication of the 1999 Notice three 
weeks prior to the effective date of the 1999 Notice did not provide 
adequate notice to affected entities. This Notice does not change the 
effective date in the 1999 Notice for (1) areas designated as Difficult 
Development Areas in the 1999 Notice that were not Difficult 
Development Areas in the 1998 Notice, or (2) that were Difficult 
Development Areas in both the 1998 Notice and the 1999 Notice.

FOR FURTHER INFORMATION CONTACT: With questions related narrowly to the 
issue of the effective date for areas that lost 1998 Difficult 
Development Area designations, Frederick J. Eggers, Deputy Assistant 
Secretary for Economic Affairs, Office of Policy Development and 
Research, 451 Seventh Street, SW, Washington, DC 20410, telephone (202) 
708-3080, e-mail Frederick J.__E[email protected]. With questions on how 
areas are designated and on geographic definitions, Kurt G. Usowski, 
Economist, Division of Economic Development and Public Finance, Office 
of Policy Development and Research, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410, telephone 
(202) 708-0426, e-mail Kurt G.__U[email protected]. A text telephone is 
available for persons with hearing or speech impairments at (202) 708-
9300. (These are not toll-free telephone numbers.) Additional copies of 
this notice are available through HUDUSER at (800) 245-2691 for a small 
fee to cover duplication and mailing costs.
    Copies Available Electronically: This notice is available 
electronically on the Internet (World Wide Web) at http://
www.huduser.org/ under the heading ``Data Available from HUDUser.''

SUPPLEMENTARY INFORMATION:

Background

    On October 21, 1997 (62 FR 54732), HUD published in the Federal 
Register a Notice Designating Difficult Development Areas for calendar 
year 1998 (the 1998 Notice). The 1998 Notice provided that, in the case 
of a building described in section 42(h)(4)(B) of the Code, the list 
(of Difficult Development Areas) is effective if the bonds are issued 
and the building is placed in service after December 31, 1997.
    On December 9, 1998 (64 FR 68116), HUD published in the Federal 
Register the Notice Designating Difficult Development Areas for 
calendar year 1999 (the 1999 Notice). The 1999 Notice provided that, in 
the case of a building described in section 42(h)(4)(B) of the Code, 
the list (of Difficult Development Areas) is effective if the bonds are 
issued and the building is placed in service after December 31, 1998.
    Section 42(d)(5)(C) of the Code defines a Difficult Development 
Area as any area designated by the Secretary of HUD as an area that has 
high construction, land, and utility costs relative to the area gross 
median income. All designated Difficult Development Areas in 
metropolitan statistical areas or primary metropolitan statistical 
areas (MSAs/PMSAs) may not contain more than 20 percent of the 
aggregate population of all MSAs/PMSAs, and all designated areas not in

[[Page 36390]]

metropolitan areas may not contain more than 20 percent of the 
aggregate population of all nonmetropolitan counties. In the case of 
buildings located in designated Difficult Development Areas, eligible 
basis can be increased by up to 130 percent of what it would otherwise 
be. This means that the available Low-Income Housing Tax Credit also 
can be increased by up to 30 percent.
    HUD typically issues a Notice in the Federal Register early in the 
last quarter of a calendar year designating Difficult Development Areas 
for the forthcoming calendar year. HUD uses a ranking procedure to 
select Difficult Development Areas subject to the 20 percent population 
cap. Because income and housing cost conditions change, new areas are 
added to the list of designated Difficult Development Areas each year 
and some old areas are dropped from the list. The list published on 
December 9, 1998, dropped 9 metropolitan areas and 35 nonmetropolitan 
counties from the list of Difficult Development Areas and added 3 
metropolitan areas and 40 nonmetropolitan counties to the list of 
Difficult Development Areas.

Determination

    HUD recognizes that, with every new designation of Difficult 
Development Areas, some metropolitan areas and nonmetropolitan counties 
lose their designation and rental projects planned in these areas lose 
their eligibility for the extra credit. State agencies and rental 
project developers have adjusted to a system in which the future 
availability of the extra credits is uncertain. HUD attempts to publish 
the designation Notice early enough to allow State agencies and 
developers to make informed decisions for the forthcoming year. HUD did 
not publish the 1999 Notice until December 9, 1998, because the 
Department had to revise the list after section 508 of the Quality 
Housing and Work Responsibility Act of 1998 (Pub. L. 105-276, approved 
October 21, 1998), changed the rules for designating Difficult 
Development Areas as the rules apply to two counties. The late 
publication of the 1999 Notice impeded the effectiveness of the 
Difficult Development Area feature of the Low-Income Housing Tax 
Credit. Accordingly, HUD has decided to amend the effective date 
published in the 1999 Notice.
    This amendment extends Difficult Development Area designations in 
the 1998 Notice through August 20, 1999 for any building described in 
section 42(h)(4)(B) of the Code that was located in a Difficult 
Development Area in the 1998 Notice, but not in the 1999 Notice if the 
bonds are issued or the building is placed in service before August 20, 
1999. Therefore, for example, a building described in section 
42(h)(4)(B) of the Code that was located in a Difficult Development 
Area designated in the 1998 Notice, but not located in a Difficult 
Development Area designated in the 1999 Notice, would be deemed to be 
located in a Difficult Development Area if either the bonds are issued 
or the building is placed in service from January 1, 1998 through 
August 20, 1999.
    This Notice is consistent with section 42(d)(5)(C)(iii)(II) of the 
Code, which limits the cumulative population of metropolitan Difficult 
Development Areas to 20 percent of the cumulative population of all 
metropolitan areas and the cumulative population of nonmetropolitan 
Difficult Development Areas to 20 percent of the cumulative population 
of all nonmetropolitan counties. The 20 percent cap applies only to 
Difficult Development Area designations made by HUD for a particular 
year. The extension of time for the 1998 Difficult Development Areas 
does not reflect a determination by HUD that an aggregate population 
substantially in excess of 20 percent of the metropolitan or 
nonmetropolitan population should be treated as Difficult Development 
Areas for 1998. The notice is a ministerial administrative 
accommodation which may, for a limited period of time, result in an 
aggregate population slightly exceeding 20 percent of either the 
metropolitan or nonmetropolitan population being designated for that 
limited period of time. This temporary de minimis overlap of two 
separate Difficult Development Area designations, each of which 
complied with the 20 percent cap for the respective years in which 
those designations were made, is consistent with the statutory intent 
of the 20 percent limitation.
    Moreover, HUD has consistently interpreted the 20 percent caps as 
permitting minimal overruns because it is impossible to determine 
whether the 20 percent cap has been exceeded, so long as the apparent 
excess is small, due to measurement error. See 62 FR 203. Despite the 
care and effort involved in a decennial census, the Census Bureau and 
users of census data recognize that the population counts for a given 
area are not precise. The actual extent of the measurement error is 
unknown. Thus, there can be errors in both the numerator and the 
denominator of the ratio of populations used in applying a 20 percent 
cap. In circumstances where a strict application of a 20 percent cap 
results in an anomalous situation, recognition of the unavoidable 
imprecision in the census data justifies accepting small variations 
above the 20 percent limit. Here, similarly, a strict application of 
the 20 percent cap would prevent the proposed accommodation and prevent 
the efficient administration of the statute.

Effective Date

    This amendment is effective immediately.
    A governmental unit continues to be obligated under Sec. 42(m)(2) 
of the Code to ensure that the amount of credit attributable to a 
project affected by this Notice does not exceed the amount necessary 
for the financial feasibility of the project and its viability as a 
qualified low-income housing project throughout the credit period.

Other Matters

Environmental Impact

    In accordance with 40 CFR 1508.4 of the CEQ regulations and 24 CFR 
50.19(c)(6) of the HUD regulations, the policies and procedures 
contained in this notice provide for the establishment of fiscal 
requirements or procedures which do not constitute a development 
decision that affects the physical condition of specific project areas 
or building sites and therefore, are categorically excluded from the 
requirements of the National Environmental Policy Act, except for 
extraordinary circumstances, and a Finding of No Significant is not 
required.

Regulatory Flexibility Act

    In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility 
Act), the undersigned hereby certifies that this notice does not have a 
significant economic impact on a substantial number of small entities. 
The notice involves the designation of Difficult Development Areas as 
required by section 42 of the Code, as amended, for use by political 
subdivisions of the States in allocating the Low-Income Housing Tax 
Credit. This notice places no new requirements on the States, their 
political subdivisions, or the applicants for the credit.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this notice will not have any substantial direct effects 
on States or their political subdivisions, or the relationship between 
the Federal government and the States, or on the

[[Page 36391]]

distribution of power and responsibilities among the various levels of 
government. As a result, the notice is not subject to review under the 
order. The notice merely designates Difficult Development Areas as 
required under section 42 of the Code, as amended, for the use by 
political subdivisions of the States in allocating the Low-Income 
Housing Tax Credit. The notice also details the technical methodology 
used in making such designations.

    Dated: July 1, 1999.
Andrew M. Cuomo,
Secretary.
[FR Doc. 99-17180 Filed 7-1-99; 2:55 pm]
BILLING CODE 4210-32-P