[Federal Register Volume 66, Number 131 (Monday, July 9, 2001)]
[Rules and Regulations]
[Pages 35850-35860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17011]



[[Page 35849]]

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Part IV





Department of Housing and Urban Development





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24 CFR Parts 598 and 599



Designation of Round III Urban Empowerment Zones and Renewal 
Communities; Interim Rule

  Federal Register / Vol. 66, No. 131 / Monday, July 9, 2001 / Rules 
and Regulations  

[[Page 35850]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 598 and 599

[Docket No. FR-4663-I-01]
RIN 2506-AC09


Designation of Round III Urban Empowerment Zones and Renewal 
Communities

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

ACTION: Interim rule.

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SUMMARY: This interim rule governs the designation of Round III Urban 
Empowerment Zones (EZs) and Renewal Communities (RCs) nominated by 
States and local governments. The designation of an area as an EZ or an 
RC provides special Federal income tax treatment as an incentive for 
businesses to locate within the area. This rule lays the foundation for 
designations to be made on the basis of applications submitted in 
response to the Notice Inviting Applications published elsewhere in 
this issue of the Federal Register.

DATES: Effective Date: August 8, 2001.
    Comment Due Date: September 7, 2001.

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

FOR FURTHER INFORMATION CONTACT: For EZ/EC issues, Lisa Hill, and for 
RC issues, John Haines, at the Department of Housing and Urban 
Development, Room 7130, 451 Seventh Street, SW, Washington, DC 20410, 
telephone (202) 708-6339. (This telephone number is not toll-free.) For 
hearing- and speech-impaired persons, this telephone number may be 
accessed via TTY (text telephone) by calling the Federal Information 
Relay Service at 1-800-877-8339 (toll-free).

SUPPLEMENTARY INFORMATION:

I. Community Renewal Tax Relief Act of 2000--Authorization for 
Round III Empowerment Zones and for Renewal Communities

    The Omnibus Consolidated and Emergency Supplemental Appropriations 
Act for Fiscal Year 2001 (Omnibus Act) (Pub. L. 106-554, 114 Stat. 
2763, approved December 21, 2000) enacted into law the provisions of a 
number of bills of the 106th Congress. One of the bills enacted by the 
Omnibus Act is H.R. 5662, the Community Renewal Tax Relief Act of 2000 
(CRTR Act).
    The CRTR Act, among other things, authorizes the designation of 
nine Round III Empowerment Zones (EZs). Seven of the Round III EZs are 
to be designated in urban areas by the Secretary of HUD. The remaining 
two Round III EZs are to be designated in rural areas by the Secretary 
of Agriculture. The CRTR Act also conforms and enhances the tax 
incentives for Round I and Round II EZs, and makes the new Round III 
EZs eligible for these incentives. The availability of the tax 
incentives is extended to December 31, 2009 for all EZs.
    The CRTR Act also authorizes HUD to designate up to 40 Renewal 
Communities (RCs) within which special tax incentives would be 
available. At least 12 of the designated RCs must be in rural 
communities. Unlike the EZ program, which splits the designation 
responsibility between HUD and the Department of Agriculture for urban 
and rural areas respectively, all RC designations are to be made by 
HUD.
    This rule would implement the designation requirements for Round 
III EZs and for RCs as discussed in the following preamble sections.

II. Designation of Round III Empowerment Zones

    Section 111 of the CRTR Act adds a new subsection (h), which 
authorizes the designation of nine additional EZs, to section 1391 of 
Subchapter U of Chapter 1 of the Internal Revenue Code of 1986. 
Subchapter U governs the designation and treatment of Empowerment 
Zones, Enterprise Communities, and Rural Development Investment Areas, 
and provided authorization by separate legislative enactments for the 
designation of Round I EZs in 1993, and Round II EZs in 1997.
    HUD promulgated Round I EZ regulations at 24 CFR part 597 in 1994, 
and Round II EZ regulations at 24 CFR part 598 in 1998. Separate Round 
I and Round II regulations were issued because although many of the 
Round I and II submission requirements, such as the strategic plan, 
were similar, there were some differences in the authorizing statutes 
for each Round. For example, the legislation authorizing the Round II 
designations changed the eligibility and selection criteria from the 
Round I requirements. Two specific changes in the Round II eligibility 
criteria were an increase in the size of zones and elimination of the 
requirement that at least half of the nominated area consist of census 
tracts with poverty rates of 35 percent. Round II designations were 
also permitted to except up to three ``developable sites''--parcels 
that may be developed for commercial or industrial purposes--from 
satisfying the two poverty rate criteria that otherwise would be 
applicable, but the size of the area given this special poverty rate 
treatment was restricted to a total of 2,000 acres.
    Unlike the differences in Round I and Round II, the eligibility and 
selection criteria for the Round III EZs are the same as the criteria 
that applied to the Round II EZs. HUD is therefore implementing Round 
III in a timely and efficient manner by making only conforming changes 
to include references to Round III in part 598. This approach will 
continue, and not disrupt, the EZ designation process with which 
interested parties have already become familiar. The regulation at 24 
CFR part 598 will apply for Round III designations for urban areas as 
it did for Round II. The designation of rural areas as EZs will 
continue to be implemented separately by the Department of Agriculture.

III. The Renewal Communities Program

    Section 101 of the CRTR Act adds a new Subchapter X, consisting of 
sections 1400E through 1400J, to Chapter 1 of the Internal Revenue Code 
of 1986. Subchapter X governs the designation of, and tax incentives 
for, Renewal Communities. This rule would implement, at 24 CFR part 
599, sec. 1400E, which authorizes HUD to designate up to 40 Renewal 
Communities and provides the process by which these designations are to 
be made.
    The Renewal Communities program represents a different approach 
from the EZ program to the economic revitalization of distressed 
communities and to help residents gain employment, succeed in their 
careers and become economically self-sufficient. Rather than providing 
grants of funds or guarantees to finance development projects in the 
distressed communities, the RC program seeks to achieve its goals 
through the

[[Page 35851]]

coordinated efforts of government at the Federal, State and local 
levels to attract and encourage business development in the designated 
areas. The government incentives provided in RCs are, generally, 
incentives of forbearance: the business activities in the RCs will not 
be subject to the same levels of taxation or regulatory restrictions 
that apply elsewhere. An additional significant component to the 
success of RCs is a commitment from State and local governments to 
improve the infrastructure and enhance and make more efficient a 
variety of services for businesses and residents in the designated 
areas. The increase in business activity that results from these 
actions will provide economic growth and benefits to the RCs and 
surrounding communities.
    The Federal commitment to RCs is twofold. First, substantial 
Federal tax incentives, described immediately below, are made available 
for businesses located in RCs. Second, and perhaps more significant, is 
HUD's commitment to work with RCs in planning and organizing their 
development activities and in reaching out to the business community to 
promote the many attractive features of, and encourage investment in, 
RCs.
    General description of tax benefits. The tax incentives available 
in Renewal Communities, administered by the Treasury Department, are 
authorized in secs. 1400F through 1400J of the Internal Revenue Code, 
and are generally available during the period beginning January 1, 2002 
and ending December 31, 2009. A brief description of these incentives 
follows:
    1. Zero-percent capital gains rate. A zero-percent capital gains 
rate applies with respect to gain from the sale of a qualified 
community asset acquired after December 31, 2001, and before January 1, 
2010, and held for more than five years.
    2. Renewal community employment credit. A 15-percent wage credit is 
available to employers for the first $10,000 of qualified wages paid to 
each employee who is a resident of the renewal community and also 
performs substantially all employment services within the renewal 
community in a trade or business for the employer.
    3. Commercial revitalization deduction. Each State is permitted to 
allocate up to $12 million of ``commercial revitalization 
expenditures'' to each renewal community located within the State. A 
``commercial revitalization expenditure'' means the cost of a new 
building or the cost of substantially rehabilitating an existing 
building. A taxpayer can elect either to deduct one-half of the 
commercial revitalization expenditures for the taxable year the 
building is placed in service or amortize all the expenditures ratably 
over the 120-month period beginning with the month the building is 
placed in service.
    4. Additional section 179 expensing. A Renewal Community business 
is allowed an additional $35,000 of section 179 expensing for 
``qualified renewal property.'' The term ``qualified renewal property'' 
is similar to the definition of ``qualified zone property'' used in 
connection with Empowerment Zones.
    5. Extension of work opportunity tax credit (WOTC). The high-risk 
youth and qualified summer youth categories in the WOTC are expanded to 
include qualified individuals who live in a Renewal Community.
    Designation of Renewal Communities--General Overview. The process 
for designating RCs differs from the EZ selection process in that the 
RC process is more streamlined and objective. Section 1400E establishes 
a two step process in which basic eligibility for designation is based 
upon meeting a number of threshold qualifications, and selection for 
designation is based upon rating and ranking using objective data. The 
rule at 24 CFR part 599 that implements this process is divided into 
subparts that address general provisions, eligibility, rating, and 
selection of applications. An additional subpart addresses post-
designation requirements, which are broadly designed to promote the 
intergovernmental efforts necessary to ensure the success of RCs. Each 
of these subparts is discussed below.
    Subpart A--General Provisions. This subpart lays the groundwork for 
part 599 by defining basic terms and data sources used in the RC 
program. Many of these definitions and sources are familiar from the EZ 
program requirements; however, HUD calls attention to the definitions 
of ``rural area'' and ``urban area'' in subpart A. At least 12 of the 
40 available RC designations will be made for rural areas. ``Rural 
area'' is specifically defined, with an ``urban area'' being any area 
that is not a rural area. In addition to the statutory parameters given 
to the definition of ``rural area,'' including allowing determinations 
to be made on a case-by-case basis, the definition adds a specific 
example of an area that would otherwise qualify as a rural area ``after 
consultation with the Secretary of Commerce'' as permitted by 
1400E(a)(2)(B)(iii). The intent is to expand the definition of ``rural 
area'' and ensure a sufficient number of rural applications by 
permitting a nominated area which crosses jurisdictional lines to 
qualify as a rural area even though the area taken as a whole would not 
satisfy the statutory requirements of being in jurisdictions with less 
than 50,000 population or being located entirely outside of a 
metropolitan area (MA). As long as the nominated area is within the 
overall RC population cap of 200,000, and each portion of the nominated 
area that is located within a separate jurisdiction meets the 
population or MA requirements, the area as a whole can qualify as a 
rural area. HUD has determined, in accordance with the flexibility 
provided by the statute, that at least in such circumstances, the 
essential rural characteristics of the nominated area should be 
recognized.
    Subpart B--Eligibility Requirements for Nomination of Renewal 
Communities. Subpart B contains the requirements of the eligibility 
thresholds to nominate an area for RC designation. The more significant 
aspects of these threshold requirements are discussed below according 
to the sections of part 599 in which they appear.
    Who must nominate (Sec. 599.101). This section includes the 
requirements of secs. 1400E(a)(1)(A) and (a)(5). A nomination must be 
submitted by one or more local governments and the State or States in 
which the nominated area is located. The governing body of an Indian 
reservation is treated as being both the State and local governments 
for RC purposes.
    Geographic and population requirements (Sec. 599.103). Sections 
1400E(c)(2)(B) and (C) form the basis for the eligibility requirements 
of this section. Section 509.103(a)(2)(ii) clarifies that although the 
outer boundary of a nominated area must be continuous, the nominated 
area may enclose areas that are not included in the nomination. The 
resulting map in such an instance would have a ``swiss cheese'' 
appearance.
    A nominated area that is entirely within an Indian reservation is 
not subject to the population eligibility requirements.
    Economic condition requirements (599.105). Section 1400E(c)(3) 
contains the four economic condition threshold requirements of (1) 
pervasive poverty, unemployment, and general distress; (2) unemployment 
rate; (3) poverty rate; and (4) income levels. The first three 
requirements apply to all nominated areas, rural and urban. The fourth 
threshold requirement only applies to urban areas. A nominated area 
must meet each of the applicable economic condition threshold 
requirements before

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it can be rated and ranked for RC designation. For purposes of the RC 
application process, sec. 1400E(c)(3) only requires the State and local 
governments in which the nominated area is located to certify that the 
nominated area meets the threshold requirements, and HUD's acceptance 
of the certification is subject to ``such review of supporting data'' 
as HUD deems appropriate. These threshold requirements appropriately 
limit the pool of areas eligible for RC designation to areas with 
significant negative economic conditions.
    The statute lays out specific percentages that must be present to 
meet the thresholds of requirements (2) through (4): The unemployment 
rate in the nominated area taken as a whole must be at least one and 
one-half times (150% of) the national unemployment rate; the poverty 
rate for each population census tract within the nominated area must be 
at least 20 percent; and in the case of a nominated urban area, at 
least 70 percent of the households living in the nominated area must 
have incomes below 80 percent of the median income of households within 
the jurisdiction of the local government or governments in which the 
nominated area is located.
    In addition to serving as thresholds, the second and third 
requirements, unemployment and poverty rate, are used to rate and rank 
rural and urban area applications, and the fourth requirement, income 
levels, is also used to rate and rank urban areas. A description of the 
rating and ranking process appears below in this preamble in the 
discussion of subpart D of the rule.
    HUD has deemed 1990 census data as the appropriate data to review 
in determining whether to accept a certification as to unemployment, 
poverty, and income. Section 1400E(f)(4) specifically requires the use 
of 1990 census data for determining population and poverty rate. 
Although sec. 1400E(c)(3)(B) requires that the unemployment rate in the 
nominated area be determined using ``the most recent available data,'' 
the 1990 census data is still the most recent available data at a 
census tract level. More recent unemployment rate data for local areas 
are available, but the more recent data are not usable for the RC 
designations because they give the rates for larger areas, namely 
counties and incorporated jurisdictions of 25,000 or more, that would 
not generally correspond to the tract-based RC areas. Accordingly, the 
nominating State and local governments should make their certification 
for unemployment, poverty and income, as applicable, on the basis of 
1990 census data for HUD to find it acceptable.
    Whether HUD accepts the certification that the nominated area is 
one of pervasive poverty, unemployment and general distress, will 
follow Sec. 598.110 of the EZ Round II and III rule, which addresses an 
identical demonstration required by the EZ authorizing statute. 
Accordingly, the provisions of Sec. 598.110 appear at 
Sec. 599.105(e)(2) of this rule.
    State and local commitments (Sec. 599.107). Two very significant 
thresholds that must be met by the nominating State and local 
governments are (1) the submission of a ``course of action,'' a plan 
showing how the governments and local organizations will reduce 
regulatory, infrastructure and service burdens on employers and 
employees in the nominated area, and (2) the submission of a 
certification from the nominating governments that they have repealed 
or reduced, will not enforce, or will reduce within the nominated area 
at least four of five governmental restrictions listed in the statute. 
These threshold requirements are included in sec. 1400E(d) of the 
statute.
    It is important that the nominees involve all appropriate State and 
local government agencies when preparing the application because 
programs managed by various different agencies may be among those that 
could be made more efficient as part of the Renewal Community project. 
Similarly, the combined effect of requirements from multiple agencies 
sometimes produce negative burdens for businesses and residents. HUD 
does not require nominees to involve a defined list of State and local 
government agencies, but it does encourage nominees to seek the active 
participation of many such agencies including, but not limited to, ones 
responsible for: Community and economic development and business 
assistance; human services and human development such as the State and/
or county agency that administers the Federal Temporary Assistance for 
Needy Families program and other agencies that administer job support 
programs including child care, employment training, welfare-to-work and 
school-to-work efforts.
    Subpart C--Procedures for Nomination of Renewal Communities. This 
subpart provides that the application process for RCs is initiated by 
the publication of a notice inviting applications in the Federal 
Register, and that the notice will include specific information as to 
due dates and submission requirements. An application must include 
information demonstrating that all of the threshold eligibility 
requirements are met. An application must also include a certification, 
signed by a responsible official or employee of each State and local 
government in which the nominated area is located, that the public was 
provided notice of, and an opportunity to participate in, the 
application development process. Even though the threshold requirements 
and rating and ranking factors for Renewal Community designation are 
narrowly drawn by the authorizing statute, public support and 
involvement from the earliest stages of the development of a Renewal 
Community are necessary if the effort is to be successful. Notice and 
opportunity to participate may include procedures such as placing 
announcements in newspapers or other media, holding public meetings and 
soliciting comments.
    An applicant may continue to submit information to meet the 
threshold requirements until the application due date that will be 
specified in the notice inviting applications. Once an application 
meets the threshold requirements, it is rated and ranked in accordance 
with the procedures in subpart D.
    Subpart D--Evaluation of Applications Nominating Renewal 
Communities. Section 1400E(a)(3)(A) provides that, ``the nominated 
areas designated as renewal communities under this subsection shall be 
those nominated areas with the highest average ranking with respect to 
the criteria described in subparagraphs (B), (C), and (D) of subsection 
(c)(3).'' These criteria are the three economic condition threshold 
requirements described at Sec. 599.105(b) through (d) of this rule. The 
following paragraph describes how HUD will implement the ranking 
process.
    Each nominated area meeting the minimum thresholds will be ranked 
from highest to lowest according to the area poverty rate, area 
unemployment rate, and for urban areas, the percentage of families 
below 80 percent of area median income (the low-mod rate). Urban 
nominated areas will be ranked separately from rural nominated areas. 
The percentile rank will be determined by dividing these rankings by 
the total number of nominated areas ranked and multiplying the result 
by 100. The average ranking will be determined by computing the simple 
average of the percentile ranks for each nominated area. To create a 
100 point scale, the average rankings will be subtracted from 100. The 
following table illustrates this process for urban nominated areas

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under the assumption that there are 150 nominated areas being ranked.

                                              Illustrative Example of Ranking Process, 150 Nominated Areas
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                                       Absolute Rankings                                           Percentile Rankings  (100  x
-----------------------------------------------------------------------------------------------  Absolute Rank  Number of
                                                                                                              Areas)                 Average
                                                             Poverty   Unemployment   Low-Mod  ------------------------------------  ranking     Score
                          App. No                              rate        rate         rate     Poverty   Unemployment   Low-Mod
                                                                                                   rate        rate         rate
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1.........................................................          6            3           1        4.0          2.0         0.7        2.2       97.8
2.........................................................          1            8           3        0.7          5.3         2.0        2.7       97.3
3.........................................................          2            6           6        1.3          4.0         4.0        3.1       96.9
4.........................................................          3            5           7        2.0          3.3         4.7        3.3       96.7
5.........................................................          4           12           5        2.7          8.0         3.3        4.7       95.3
6.........................................................          9            1          14        6.0          0.7         9.3        5.3       94.7
 
                 *                  *                   *                   *                  *                   *                   *
150.......................................................        140          150         145       93.3          100        96.7       96.7        3.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Once a nominated area receives a score using the process described 
above, preference points are awarded based on two additional factors: 
The incidence of crime in the area, and whether census tracts in the 
area have been identified as distressed by the U.S. General Accounting 
Office.
    First, section 1400E(c)(4)(A)(i) requires HUD to take into account 
the extent to which an area has a high incidence of crime. HUD has 
determined that, because of the nature of the RC program, the most 
appropriate way of taking the incidence of crime into account is to 
reward jurisdictions that have managed to control crime levels, even in 
their most distressed areas. The RC program is not a crime reduction 
program, but a business development program. The success of a Renewal 
Community will ultimately be measured by the extent to which it 
develops and expands business activities within its boundaries. A 
Renewal Community in an area that has already begun to address 
successfully the high incidence of crime starts out with a more 
inviting business environment, and is better poised to achieve success. 
There will be less concern on the part of business investors that their 
employees may be the victims of crime or that their facilities and 
property may be vandalized or subject to theft. Insurance rates for 
businesses in such areas are likely to be lower, further making such 
areas more attractive for investment and development.
    A nominated area will receive 1 additional point if its 1999 Local 
Crime Index rate per 100,000 inhabitants (LCI), as determined on the 
basis of data from each State and local law enforcement authority with 
jurisdiction in the nominated area, does not exceed by more than 25% 
the 1999 Crime Index rate per 100,000 inhabitants (CI) prepared as part 
of the FBI's Uniform Crime Reporting (UCR) Program. The Crime Index is 
composed of selected offenses used to gauge fluctuations in the overall 
volume and rate of crime reported to law enforcement. The offenses 
included are the violent crimes of murder and nonnegligent 
manslaughter, forcible rape, robbery, and aggravated assault, and the 
property crimes of burglary, larceny-theft, motor vehicle theft, and 
arson. A preference of 2 points will be added to the score of a 
nominated area with an LCI that does not exceed the CI by more than 10 
percent. A nominated area that has an LCI that is less than the CI will 
receive 4 preference points. To qualify for the preference points, the 
nominating governments must determine and then certify to the LCI 
determined for the nominated area.
    Second, one preference point is awarded if any census tract in the 
nominated area is identified in GAO Report RCED-98-158R, dated May 12, 
1998, cited in section 1400E(c)(4)(A)(ii).
    Subpart E--Selection of Nominated Areas To Be Renewal Communities. 
Section 1400E(a)(3)(C) provides a selection preference for the first 20 
of the 40 permitted RC designations to nominated areas that are EZs or 
ECs. Section 1400E(a)(2)(B) requires that at least 12 RC designations 
be made in rural nominated areas. To implement these statutory 
requirements, Subpart E establishes a selection process in which 
applications are separated into two categories after rating and initial 
ranking, and in which the priority of selection is given to EZs, ECs, 
and rural areas. Category 1 consists of applications for designation of 
nominated areas that are EZs or ECs. Applications for designation of 
nominated areas that are not placed into or selected from Category 1 
will be placed into Category 2.
    All or 20, whichever number is lower, of the Category 1 nominated 
areas will be designated RCs. HUD will select the six highest ranked 
rural areas in Category 1 for designation as Renewal Communities. The 
remaining number of Category 1 selections will be made in rank order 
from the combined rural and urban nominated areas. If there are fewer 
than six rural areas and additional urban Category 1 areas, urban areas 
will be selected until not more than 20 Category 1 designations are 
made.
    Once the Category 1 nominated areas are selected, remaining urban 
and rural areas will be ranked in Category 2. The six highest ranked, 
or the number of highest ranked rural applications necessary to 
designate at least 12 if fewer than six rural areas were selected in 
Category 1, rural applications will be selected from Category 2. If HUD 
does not receive at least 12 eligible rural area applications for 
Renewal Community designation, the number of rural area designations 
will be the number of eligible rural area applications received by HUD. 
The remaining designations will be made from both rural and urban areas 
in rank order until a combined Category 1 and Category 2 total of not 
more than 40 designations is made.
    The rule also provides, at Sec. 599.405(c), that the effective date 
of designation as a Renewal Community is the date a nominated area is 
selected in accordance with this selection procedure.
    HUD will make every effort to see that at least 12 rural areas are 
designated as Renewal Communities. For example, HUD in consultation 
with the Department of Commerce has

[[Page 35854]]

established, at Sec. 599.3, a broader definition of areas that will 
qualify as rural areas, including allowing determinations to be made on 
a case-by-case basis as permitted by sec. 1400E(a)(2)(B)(iii). In 
addition, HUD intends to leave the application period for RC 
designations open for the longest feasible period to allow the most 
time for the preparation of applications. It will only be in the 
unlikely event that HUD does not receive at least 12 eligible RC 
applications from rural areas, including Indian reservations, that HUD 
will designate additional urban area applications so that the full 
number of 40 RC designations can be made.
    Subpart F--Post-Designation Requirements. As noted above, Federal 
tax benefits are a part of the Federal commitment to the success of 
RCs. The rest of the Federal commitment consists of assisting State and 
local governments in their planning and outreach to the business 
community and residents to develop and expand activities in RCs. 
Subpart F requires the nominating State and local governments to 
identify, within 30 days of RC designation, a coordinating responsible 
authority (CoRA). The CoRA will be the entity, organization or persons 
with the responsibility and authority to achieve the State and local 
commitments made at the time of application. The CoRA will also 
undertake the development and administration of policies, procedures 
and activities to implement and maximize the Federal, State and local 
benefits made available in the Renewal Community. The CoRA will 
function as the central point of contact for the RC.
    HUD will work with each CoRA to develop a tax incentives 
utilization plan to develop and expand businesses in the RCs through 
the Federal, State and local incentives made available. A preliminary 
plan must be developed within 6 months, and a final plan must be 
completed within one year of the designation. Because the RC 
designations have a 10-year term, it is important to undertake 
development activities as early as possible. Businesses should also 
note that they will garner the most benefit the earlier they take 
advantage of the available incentives, and HUD will assist in getting 
the word out to the business community.
    HUD will also encourage other Federal agencies, in particular the 
Department of Health and Human Services, to provide technical 
assistance as appropriate to the CoRAs. The technical assistance would 
be designed to help CoRAs and the appropriate State and/or local 
agencies to develop and implement effective and innovative strategies, 
services and/or activities that assist residents and their families 
move successfully to work on to self-sufficiency.
    The Renewal Communities program presents a great challenge and 
opportunity to HUD and it State and local government partners, and one 
that HUD looks forward to addressing with them.

IV. Findings and Certifications

    Justification for Interim Rule. In general, the Department 
publishes a rule for public comment before issuing a rule for effect, 
in accordance with its own regulations on rulemaking at 24 CFR part 10. 
Part 10, however, does provide in Sec. 10.1 for exceptions from that 
general rule where the Department finds good cause to omit advance 
notice and public participation. The good cause requirement is 
satisfied when the prior public procedure is ``impracticable, 
unnecessary, or contrary to the public interest''. The Department finds 
that good cause exists to publish this interim rule for effect without 
first soliciting public comment. Prior public procedure is contrary to 
the public interest because of the practical necessity of preparing an 
application for designation as a Renewal Community within the timeframe 
set by the authorizing statute. The designations are required by the 
statute (section 1400E(a)(4)(B)) to be made before January 1, 2002. 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 plans and apply 
for designation. Delay in prescribing the criteria for designating new 
Renewal Communities would delay the development of these cooperative 
efforts and make it extremely difficult for applicants to develop their 
applications in a timely fashion.
    Paperwork Reduction Act. The information collections contained in 
24 CFR part 598 and implementing documents were approved for Round II 
EZs by the Office of Management and Budget (OMB) and assigned OMB 
control number 2506-0148. Since there are no additional Round II 
designations and the Round III requirements are the same as those for 
Round II, the same OMB control number continues to be applicable. HUD 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless the collection displays a currently 
valid OMB control number.
    The information collection requirements contained in 24 part 599 of 
this rule, as described in subparts C and F, and the implementing 
application forms, have been approved by the Office of Management and 
Budget under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) 
and assigned OMB control number 2506-0173. This approval has been 
granted on an emergency basis through July 31, 2001. In accordance with 
the Paperwork Reduction Act, HUD may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless the collection displays a currently valid OMB control number.
    In addition, HUD is seeking regular, non-emergency approval for 
these information collections. Therefore, HUD asks for comments 
regarding the information collections contained in the subparts of part 
599 of this rule stated above. Comments regarding the information 
collections contained must be submitted by September 7, 2001. Comments 
on these information collections should refer to the proposal by name 
and/or OMB control number and must be sent to: Reports Liaison Officer, 
Shelia E. Jones, Department of Housing and Urban Development, 451 
Seventh Street, SW., Room 7230, Washington, DC 20410.
    Specifically, comments are solicited from members of the public and 
affected agencies concerning the proposed collection of information to: 
(1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility; (2) 
Evaluate the accuracy of the agency's estimate of the burden of the 
proposed collection of information; (3) Enhance the quality, utility, 
and clarity of the information to be collected; and (4) Minimize the 
burden of the collection of information on those who are to respond, 
including through the use of appropriate automated collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    The following table identifies the components of the information 
collection.

[[Page 35855]]



----------------------------------------------------------------------------------------------------------------
                                                                                     Est. Ave.
 Type of Collection  *First year   Section of 24     Number of     Frequency of    response time   Annual burden
       **Subsequent years          CFR affected     respondents      response         (Hrs.)           hrs.
----------------------------------------------------------------------------------------------------------------
*Application....................         599.203             200               1              35           7,000
*Identification of Coordinating          599.505              40               1               5             200
 Responsible Authority..........
*Tax Incentives Utilization Plan         599.507              40               1              35           1,400
** Modifications................         599.509              40               2               5             200
** Periodic Reporting...........         599.511              40               2              10             400
** Response to Warning Letter...         599.513              40               2               4             160
                                 -------------------------------------------------------------------------------
    Total Burden................  ..............  ..............  ..............  ..............           9,360
----------------------------------------------------------------------------------------------------------------

    Environmental Impact. A Finding of No Significant Impact with 
respect to the environment for this rule has been made in accordance 
with HUD regulations at 24 CFR part 50, which implement section 
102(2)(C) of the National Environmental Policy Act of 1969. The Finding 
of No Significant Impact is available for public inspection between 
7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket 
Clerk, Office of the General Counsel, Department of Housing and Urban 
Development, Room 10276, 451 Seventh Street, S.W., Washington, D.C. 
20410.
    Regulatory Flexibility Act. The Secretary, in accordance with the 
Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this rule 
before publication and by approving it certifies that this rule will 
not have a significant economic impact on a substantial number of small 
entities as distinguished from large entities. The rule does not place 
any mandates on small entities. It merely authorizes them to seek 
designation as Renewal Communities as authorized by statute and the 
burdens placed on applicants derive from the statute.
    HUD is sensitive to the fact, however, that the uniform application 
of requirements on entities of differing sizes may place a 
disproportionate burden on small entities. Therefore, HUD is soliciting 
recommendations for how these small entities might fulfill the purposes 
of the rule in a way less burdensome to them.
    Executive Order 13132, Federalism. This rule does not impose 
substantial direct compliance costs on States or local governments or 
preempt State law within the meaning of the Executive Order. As a 
result, the rule is not subject to review under the order. The purpose 
of the rule is to provide a cooperative atmosphere between the Federal 
government and States, local, and Tribal governments, and to reduce any 
regulatory burden imposed by the Federal government that impedes the 
ability of States and local governments to solve pressing economic, 
social, and physical problems in their communities.
    Unfunded Mandates. Executive Order 12875 calls for Federal agencies 
to refrain, to the extent feasible and permitted by law, from 
promulgating any regulation that is not required by statute that would 
create a mandate on a State, local, or Tribal government, unless the 
agency provides funds for complying with the mandate or the agency 
first consults with affected State, local, and Tribal governments. 
Title II of the Unfunded Mandates Reform Act of 1995 (12 U.S.C. 1501) 
established requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector.
    This rule does not impose any Federal mandates on any State, local, 
or tribal governments or the private sector within the meaning of the 
Unfunded Mandates Reform Act of 1995, because it does not mandate any 
particular action. The rule only authorizes States, localities, and 
tribes to apply for designation of areas within their jurisdiction as 
Empowerment Zones or Renewal Communities, which permits special tax 
treatment of business activities within the areas.
    Regulatory Review. The Office of Management and Budget (OMB) 
reviewed this rule under Executive Order 12866, Regulatory Planning and 
Review. OMB determined that this rule is a ``significant regulatory 
action,'' as defined in section 3(f) of the Order (although not 
economically significant, as provided in section 3(f)(1) of the Order). 
Any changes made to the interim rule after its submission to OMB are 
identified in the docket file, which is available for public inspection 
in the Regulations Division of the Office of General Counsel, Room 
10276, 451 Seventh Street, SW, Washington, DC 20410-0500.
    Catalog of Federal Domestic Assistance. The Catalog of Federal 
Domestic Assistance Program number assigned to these programs is 
14.244.

List of Subjects

24 CFR Part 598

    Community development, Economic development, Empowerment zones, 
Housing, Indians, Intergovernmental relations, Reporting and 
recordkeeping requirements, Urban areas.

24 CFR Part 599

    Community development, Economic development, Housing, Indians, 
Intergovernmental relations, Renewal communities, Reporting and 
recordkeeping requirements, Urban areas.

    Accordingly, for the reasons set forth in the preamble, in title 24 
of the Code of Federal Regulations, chapter V is amended as follows:

PART 598--URBAN EMPOWERMENT ZONES: ROUND TWO AND THREE DESIGNATIONS

    1. The heading for part 598 is revised to read as set forth above.

    2. The authority citation for 24 CFR part 598 continues to read as 
follows:

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


    3. In Sec. 598.1, paragraph (a) is revised to read as follows:


Sec. 598.1  Applicability and scope.

    (a) This part establishes policies and procedures applicable to the 
second and third rounds of designations of urban Empowerment Zones, 
authorized under Subchapter U of the Internal Revenue Code of 1986 (26 
U.S.C. 1391, et seq.), as amended. Any reference to, or requirement of, 
Round II in this part is also a reference to, or requirement of, Round 
III.
* * * * *

    4. A new part 599 is added to read as follows:

PART 599--RENEWAL COMMUNITIES

Subpart A--General Provisions

Sec.
599.1   Applicability and scope.
599.3   Definitions.

[[Page 35856]]

599.5   Data used for eligibility determinations.
Subpart B--Eligibility Requirements for Nomination of Renewal 
Communities 599.101 Eligibility to submit nominations.
599.103   Geographic and population requirements for a nominated 
area.
599.105   Economic condition requirements for a nominated area.
599.107   Required State and local commitments.
Subpart C--Procedures for Nomination of Renewal Communities 599.201 
Initiation of application process.
599.203   Basic application submission requirements.
Subpart D--Evaluation of Applications Nominating Renewal Communities 
599.301 Initial determination of threshold requirements.
599.303   Rating of applications.
Subpart E--Selection of Nominated Areas To Be Renewal Communities
599.401   Ranking of applications.
599.403   Number of Renewal Communities to be designated.
599.405   Selection of Renewal Communities.
599.407   Notification of Renewal Community designations.
Subpart F--Post-Designation Requirements
599.501   Period for which Renewal Community designation is in 
effect.
599.503   Effect of Renewal Community designation on an EZ/EC.
599.505   Coordinating responsible authority (CoRA).
599.507   Tax incentives utilization plan.
599.509   Modification of commitments and plans.
599.511   Reports and other information.
599.513   Revocation of designation.

    Authority: 26 U.S.C. 1400E; 42 U.S.C. 3535(d).

Subpart A--General Provisions


Sec. 599.1  Applicability and scope.

    (a) This part establishes requirements and procedures applicable to 
the designation of Renewal Communities (RCs) through December 31, 2001, 
authorized under Subchapter X of the Internal Revenue Code of 1986 (26 
U.S.C. 1400E, et seq.). HUD may choose to use these requirements and 
procedures in whole or in part for any future Renewal Community 
designations that may be authorized.
    (b) This part contains provisions relating to area requirements, 
the nomination process for Renewal Communities, and the evaluation and 
designation of nominated areas by HUD.


Sec. 599.3  Definitions.

    In addition to the definitions of ``HUD'' and ``Secretary'' found 
in 24 CFR 5.100, the following definitions apply to this part:
    Census tract means a census tract, as the term is used by the 
Bureau of the Census, or, if census tracts are not defined for the 
area, a block numbering area.
    Designation means the process by which the Secretary designates 
areas as Renewal Communities eligible for tax incentives and credits 
established by Subchapter X of the Internal Revenue Code of 1986, as 
amended (26 U.S.C. 1400E, et seq.) and for any additional assistance 
that may be made available.
    Empowerment Zone (EZ) means an area so designated by the Secretary 
in accordance with 24 CFR part 597 or 24 CFR part 598.
    Enterprise Community (EC) means an area so designated by the 
Secretary in accordance with 24 CFR part 597.
    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.
    Metropolitan Area (MA) means an area as defined to be a 
Metropolitan Statistical Area or Primary Metropolitan Statistical Area 
by the Office of Management and Budget on June 30, 1999.
    Nominated area means an area with a population of not more than 
200,000 that is nominated by one or more local governments and the 
State or States in which it is located, or the governing body of the 
Indian reservation in which it is located, for designation in 
accordance with this part.
    Renewal Community (RC) means an area so designated by HUD in 
accordance with this part.
    Rural area means a nominated area:
    (1) Which is within a local government jurisdiction or 
jurisdictions with a population of less than 50,000; or
    (2) Which is outside of an MA; or
    (3) Which is determined by HUD, after consultation with the 
Secretary of Commerce, to be a rural area. An area may qualify as a 
rural area under this paragraph (3) of this definition if:
    (i) It is a nominated area that crosses jurisdictional boundaries;
    (ii) The total population of the nominated area does not exceed 
200,000;
    (iii) The nominated area as a whole would not satisfy the 
requirements of either paragraph (1) or (2) of this definition;
    (iv) Each portion of the nominated area that is located within a 
separate jurisdiction meets the requirements of either paragraph (1) or 
(2) of this definition; and
    (v) The area is specifically nominated as a rural area; or
    (4) Which does not meet the requirements of either paragraph (1), 
(2), or (3) of this definition but which is determined by HUD on a 
case-by-case basis, after consultation with the Secretary of Commerce, 
to be a rural area based on information submitted to demonstrate that 
the nominated area should be considered as a rural area.
    State means any State of the United States.
    Urban area means a nominated area that is not a rural area.


Sec. 599.5  Data used for eligibility determinations.

    (a) Source of data. The data to be used in determining the 
population, poverty rate, unemployment rate and household income 
distribution information of an area is from the 1990 Decennial Census.
    (b) Geographic boundaries. The boundary of an area that is 
nominated for designation as an Renewal Community must coincide with 
the boundaries of census tracts, as defined in Sec. 599.3 except in the 
case of Indian reservation areas where the use of census tracts would 
tend to include areas outside the jurisdiction of the reservation 
governing body and such body is not making the nomination in concert 
with another jurisdiction.

Subpart B--Eligibility Requirements for Nomination of Renewal 
Communities


Sec. 599.101  Eligibility to submit nominations.

    (a) In general. Except as provided in paragraph (b) of this 
section, a nomination for the designation of an area as a Renewal 
Community must be submitted by one or more local governments and the 
State or States in which the nominated area is located.
    (b) Nominated areas on Indian reservations. In the case of a 
nominated area on an Indian reservation, the reservation governing body 
(as determined by the Secretary of the Interior) must submit the 
nomination and shall be treated as being both the State and local 
governments with respect to the area for purposes of this part.
    (c) Responsible official. The submission of an application, and any 
other action required of a nominating government under this part, such 
as the submission of a certification, must be performed by an official 
or employee authorized to act on behalf of the government for that 
purpose.


Sec. 599.103  Geographic and population requirements for a nominated 
area.

    (a) Geographic requirements. A nominated area must meet the 
following

[[Page 35857]]

geographic requirements to be eligible for designation as a Renewal 
Community:
    (1) The area must be within the jurisdiction of one or more local 
governments.
    (2) The boundary of the area must be continuous.
    (i) The boundary line of the nominated area may be interrupted by 
jurisdictional boundaries, such as State or county lines, or natural 
boundaries, such as rivers, as long as the resulting area is entirely 
within the boundary line except for the interruptions.
    (ii) The nominated area may enclose an area or areas that are 
excluded from the nominated area, as long as each enclosed area to be 
excluded is within a continuous boundary line.
    (3) The nominated area may be any size, as long as it meets all of 
the requirements of this part.
    (b) Population requirements.--(1) In general. Except as provided in 
paragraph (b)(2) of this section, a nominated area must have a 
population of not more than 200,000 and at least:
    (i) 4,000 if any portion of the area (other than a nominated rural 
area) is located within an MA which has a population of 50,000 or 
greater; or
    (ii) 1,000 in any other case.
    (2) Nominated areas on Indian reservations. A nominated area that 
is entirely within an Indian reservation (as determined by the 
Secretary of the Interior) is not subject to the population 
requirements of paragraph (b)(1) of this section.


Sec. 599.105  Economic condition requirements for a nominated area.

    (a) Certification for economic requirements. An official or 
officials authorized to do so by the nominating State and local 
governments must certify in writing for HUD's acceptance that the 
nominated area is an area of pervasive poverty, unemployment, and 
general distress, and that the nominated area meets the requirements of 
paragraphs (b), (c) and, in the case of urban areas, paragraph (d) of 
this section. HUD's acceptance of the certification is subject to a 
review of data supporting the certification, as provided in paragraph 
(e) of this section.
    (b) Unemployment requirement. A nominated area meets the 
unemployment requirement if the unemployment rate in the nominated area 
taken as a whole was at least one and one-half times (150% of) the 
national unemployment rate for the period to which such data relate.
    (c) Poverty requirement. A nominated area meets the poverty 
requirement if the poverty rate for each population census tract within 
the nominated area is at least 20 percent. In the case of a nominated 
area that is within an Indian reservation, and cannot equivalently be 
described with census tracts, the poverty rate of the nominated area 
taken as a whole is considered for purposes of making this 
determination.
    (d) Income requirement for urban areas. In the case of a nominated 
urban area, at least 70 percent of the households living in the 
nominated area must have incomes below 80 percent of the median income 
of households within the jurisdiction of the local government or 
governments in which the nominated area is located. The number of 
households below 80 percent of the median income in each census tract 
shall be the number of households with incomes below 80 percent of the 
Household Adjusted Median Family Income (HAMFI) in each census tract as 
determined by HUD.
    (e) HUD review of supporting data.--(1) Unemployment, poverty and 
income. HUD will review 1990 census data to determine whether to accept 
a certification that a nominated area meets the requirements of 
paragraphs (b), (c) and (d) of this section.
    (2) Pervasive poverty, unemployment and general distress.--(i) 
Pervasive poverty. Pervasive poverty is demonstrated by evidence that:
    (A) Poverty, as indicated by the number of persons listed as being 
in poverty in the 1990 Decennial Census, is widespread throughout the 
nominated area; or
    (B) Poverty, as described in paragraph (e)(2)(i)(A) of this 
section, has become entrenched or intractable over time (through 
comparison of 1980 and 1990 census data or other relevant evidence).
    (ii) Unemployment. Unemployment is demonstrated by:
    (A) The most recent data available indicating that the annual rate 
of unemployment for the nominated area is not less than the national 
annual average rate of unemployment; or
    (B) Evidence of especially severe economic conditions, such as 
military base or plant closings or other conditions that have brought 
about significant job dislocation within the nominated area.
    (iii) General distress. General distress is evidenced by describing 
adverse conditions within the nominated urban area other than those of 
pervasive poverty and unemployment. Below average or decline in per 
capita income, earnings per worker, number of persons on welfare, per 
capita property tax base, average years of school completed, 
substantial population decline, and a high or rising incidence of 
crime, narcotics use, homelessness, high incidence of AIDS, abandoned 
housing, deteriorated infrastructure, school dropouts, teen pregnancy, 
incidence of domestic violence, incidence of certain health conditions 
and illiteracy are examples of appropriate indicators of general 
distress.


Sec. 599.107  Required State and local commitments.

    (a) Commitment to a course of action.--(1) Agreement of State and 
local governments. The nominating State and local governments must 
agree in writing that, for any period during which the area is a 
Renewal Community, the governments will follow a specified course of 
action which meets the requirements of paragraph (a)(2) of this 
section. If each nominating State and local government is a signatory 
to a course of action under paragraph (a)(2) of this section, a 
separate written agreement is not necessary to meet the requirements of 
this paragraph.
    (2) Course of action requirements.--(i) In general. A course of 
action is a written document, signed by the nominated area's State and/
or local governments and community-based organizations which commits 
each signatory to undertake and achieve measurable goals and actions 
within the nominated area upon its designation as a Renewal Community.
    (ii) Community-based organizations. For purposes of the course of 
action, ``community-based organizations'' includes for-profit and non-
profit private entities, businesses and business organizations, 
neighborhood organizations, and community groups. Community-based 
organizations are not required to be located in the nominated area as 
long as they commit to achieving the goals of the course of action in 
the Renewal Community.
    (iii) Timetable. The course of action must include a timetable that 
identifies the significant steps and target dates for implementing the 
goals and actions.
    (iv) Performance measures. The course of action must include a 
description of how the performance of the course of action will be 
measured and evaluated.
    (v) Required goals and actions. The course of action must include 
at least four of the following:
    (A) A reduction of tax rates or fees applying within the Renewal 
Community;
    (B) An increase in the level of efficiency of local services within 
the Renewal Community, such as services for residents funded through 
the Federal

[[Page 35858]]

Temporary Assistance for Needy Families program and related Federal 
programs including, for example, job support services, child care and 
after school care for children of working residents, employment 
training, transportation services and other services that help 
residents become economically self-sufficient;
    (C) Crime reduction strategies, such as crime prevention, including 
the provision of crime prevention services by nongovernmental entities;
    (D) Actions to reduce, remove, simplify, or streamline governmental 
requirements applying within the Renewal Community, such as:
    (1) Density bonus. Permission to develop or redevelop real property 
at a higher density level than otherwise permitted under the zoning 
ordinance, e.g., increased height or increased number of residential or 
business units;
    (2) Incentive zoning. Providing a density bonus or other real 
property-related incentive for the development, redevelopment, or 
preservation of a parcel in the designated area;
    (3) Comprehensive or one-stop permit. Streamlining construction or 
other development permitting processes, rather than requiring multiple 
applications for multiple permits, e.g., for demolition, site 
preparation, and construction, the developer or redeveloper submits a 
single application that is circulated for the necessary reviews by the 
various planning, engineering, and other departments in the county or 
municipality;
    (4) Variance and exception policies. Counties or municipalities may 
pass ordinancesthat permit variances to or exceptions from certain 
zoning or other land use limitations. Examples include a reduced 
building set-back requirement or a reduced requirement for the 
provision of parking. Thepolicy may be limited to a particular 
geographic area;
    (5) Voluntary environmental compliance program. A shared or limited 
environmental liability program, with limited liability from certain 
legal or administrative action in exchange for undertaking an approved 
program of environmental investigation, hazard control, and on-going 
risk reduction activities. Typically, the liability limitation is for 
future environmental cleanup (and not against lawsuit for damages). 
Risk of cleanup may be shared by the developer or property owner and 
the government;
    (E) Involvement in economic development activities by private 
entities, organizations, neighborhood organizations, and community 
groups, particularly those in the Renewal Community, including a 
commitment from such private entities to provide jobs and job training 
for, and technical, financial, or other assistance to, employers, 
employees, and residents from the Renewal Community;
    (F) The gift or sale at below fair market value of surplus real 
property held by State or local governments, such as land, homes, and 
commercial or industrial structures in the Renewal Community to 
neighborhood organizations, community development corporations, or 
private companies.
    (3) Certification requirement for crime incidence. If preference 
points are being sought for the nominated area because it qualifies for 
preference points in accordance with Sec. 599.303(c)(1), the course of 
action must contain a certification by each nominating State and local 
government of the 1999 Local Crime Index rate per 100,000 inhabitants 
(LCI) determined for the nominated area. The offenses used in 
determining the LCI are the violent crimes of murder and nonnegligent 
manslaughter, forcible rape, robbery, and aggravated assault, and the 
property crimes of burglary, larceny-theft, motor vehicle theft, and 
arson.
    (b) Economic growth promotion requirements.--(1) Required 
certification. The State and local governments in which a nominated 
area is located must certify in writing that they have repealed or 
reduced, will not enforce, or will reduce within the nominated area at 
least four of the following:
    (i) Licensing requirements for occupations that do not ordinarily 
require a professional degree;
    (ii) Zoning restrictions on home-based businesses which do not 
create a public nuisance;
    (iii) Permit requirements for street vendors who do not create a 
public nuisance;
    (iv) Zoning or other restrictions that impede the formation of 
schools or child care centers; and
    (v) Franchises or other restrictions on competition for businesses 
providing public services, including taxicabs, jitneys, cable 
television, or trash hauling.
    (2) Exception. The requirements of paragraph (b)(1) of this section 
do not apply to the extent that a regulation of businesses and 
occupations is necessary for and well-tailored to the protection of 
health and safety. The certifications required under paragraph (b)(1) 
of this section may be limited to exclude or include specific 
businesses and occupations.
    (c) Recognition of past efforts. The course of action and economic 
growth requirements under paragraphs (a) and (b), respectively, of this 
section are not limited to future goals and actions. Past efforts 
within the previous eight years, either completed or on-going, of the 
nominating State or local governments to undertake any of the goals or 
actions listed in paragraph (a)(2)(v) or (b)(1) of this section qualify 
to meet these requirements. If past efforts are used, the nominating 
governments must identify which of the required goals and actions 
listed in paragraph (a)(2)(v) or (b)(1) of this section they address; 
the timetable for their continued implementation, if on-going; and the 
community-based organizations involved, if any.

Subpart C--Procedures for Nomination of Renewal Communities


Sec. 599.201  Initiation of application process.

    (a) Federal Register notice. To initiate the nomination process for 
Renewal Communities, HUD will publish a notice inviting applications 
for the designation of Renewal Communities in the Federal Register.
    (b) Contents. The notice inviting applications will include 
specific information as to due dates and submission requirements.


Sec. 599.203  Basic application submission requirements.

    The basic application submission requirements for nominating an 
area as a Renewal Community are:
    (a) Identification of the nominated area. An application must 
identify the census tracts that constitute the nominated area. The 
nominated area must meet all of the eligibility requirements of subpart 
B of this part.
    (b) State and local commitments. An application must include the 
documents evidencing compliance with State and local commitments 
required by Sec. 599.107.
    (c) Public notice certification. An application must include a 
certification, signed by a responsible official or employee of each 
nominating State and local government, that the public was provided 
notice of, and an opportunity to participate in, the application 
development process. Notice and opportunity to participate may include 
procedures such as placing announcements in newspapers or other media, 
holding public meetings, and soliciting comments.

Subpart D--Evaluation of Applications Nominating Renewal 
Communities


Sec. 599.301  Initial determination of threshold requirements.

    (a) Two threshold requirements. Before rating and ranking an

[[Page 35859]]

application, HUD will review it to determine if the application meets 
both of the following thresholds:
    (1) Eligibility of the nominated area. This threshold is met if HUD 
determines that the nominated area as identified in the application 
meets all of the area eligibility requirements of subpart B of this 
part.
    (2) Adequacy of State and local commitments. This threshold is met 
if HUD determines that the documents in the application evidencing 
compliance with the required State and local commitments meet all of 
the course of action and economic growth promotion requirements of 
Sec. 599.107.
    (b) Failure to meet threshold requirements.--(1) No rating or 
ranking. An application that does not meet both of the threshold 
requirements by the application due date specified in the published 
notice inviting applications will not be rated or ranked for further 
Renewal Community consideration.
    (2) Opportunity to correct failure. HUD will notify an applicant of 
the threshold deficiencies in its application. An applicant may submit 
additional information and take any other action required to correct 
the deficiencies and meet the threshold requirements until the due date 
for applications specified in the published notice inviting 
applications.


Sec. 599.303  Rating of applications.

    (a) In general. Each application that qualifies by meeting the 
threshold requirements will receive a score based on its ranking, as 
described in paragraph (b) of this section, plus any preference points, 
as described in paragraph (c) of this section.
    (b) Ranking score. Each nominated area meeting the minimum 
thresholds will be ranked from highest to lowest according to the area 
poverty rate, area unemployment rate, and for urban areas, the 
percentage of families below 80 percent of area median income. Urban 
nominated areas will be ranked separately from rural nominated areas. 
The percentile rank will be determined by dividing these rankings by 
the total number of nominated areas ranked and multiplying the result 
by 100. The average ranking will be determined by computing the simple 
average of the percentile ranks for each nominated area. To create a 
100 point scale, the average rankings will be subtracted from 100.
    (c) Preference points.--(1) Incidence of crime. A nominated area 
may receive a maximum of 1, 2, or 4 crime incidence preference points 
as follows:
    (i) Number of points awarded. A nominated area will receive 1 
additional point if its 1999 Local Crime Index (LCI), as determined on 
the basis of data from each State and local law enforcement authority 
with jurisdiction in the nominated area, does not exceed by more than 
25% the nation-wide 1999 Crime Index rate per 100,000 inhabitants (CI) 
prepared as part of the FBI's Uniform Crime Reporting (UCR) Program. A 
preference of 2 points will be added to the score of a nominated area 
with an LCI that does not exceed the CI by more than 10 percent. A 
nominated area that has an LCI that is less than the CI will receive 4 
preference points.
    (ii) Qualifying for preference points. To qualify for preference 
points based on the incidence of crime, the nominating governments must 
determine and then certify to the LCI determined for the nominated 
area, in accordance with Sec. 599.107(a)(3)
    (2) Preference points for certain census tracts. A nominated area 
will receive one preference point if any of its census tracts is a 
census tract identified in GAO Report RCED-98-158R, dated May 12, 1998. 
(The GAO Report is available from U.S. General Accounting Office, P.O. 
Box 37050, Washington, DC 20013 or http://www.gao.gov.)

Subpart E--Selection of Nominated Areas To Be Renewal Communities


Sec. 599.401  Ranking of applications.

    (a) Ranking order. Rural and urban applications will be ranked 
according to their final scores as determined in accordance with 
Sec. 599.303, with the highest scoring applications ranked first.
    (b) Separate ranking categories. After initial ranking, both rural 
and urban applications will be separated into two ranking categories:
    (1) Category 1. Applications for designation of nominated areas 
that are Enterprise Communities or Empowerment Zones will be placed 
into Category 1 in rank order.
    (2) Category 2. Applications for designation of nominated areas 
that are not placed into or selected from Category 1 will be placed 
into Category 2 in rank order.


Sec. 599.403  Number of Renewal Communities to be designated.

    (a) In general. Except as provided in paragraph (b) of this 
section, the total number of Renewal Communities to be designated and 
the distribution of designations between urban and rural areas are as 
follows:
    (1) Total number. The total number of nominated areas to be 
selected for designation as Renewal Communities is 40.
    (2) Rural areas. HUD will select at least 12 rural areas for 
designation as Renewal Communities. If HUD does not receive at least 12 
eligible rural area applications for Renewal Community designation, the 
number of rural area designations will be the number of eligible rural 
area applications received by HUD.
    (3) Urban areas. The number of urban areas selected for designation 
as Renewal Communities will be the number remaining after subtracting 
the number of rural areas selected from 40.
    (b) Less than 40 eligible applications. If HUD receives fewer than 
40 eligible applications nominating areas, the total number of 
nominated areas to be selected for designation as Renewal Communities 
will be the total number of eligible applications.


Sec. 599.405  Selection of Renewal Communities.

    (a) Selection of Category 1 applications. (1) Six or less rural 
nominations. If there are six or fewer Category 1 rural area 
nominations, HUD will select all of the nominated rural areas in 
Category 1 for designation as Renewal Communities. HUD will then select 
the highest ranking Category 1 urban area nominations, but will not 
exceed a total of 20 Category 1 designations.
    (2) More than six rural nominations. If there are more than six 
Category 1 rural area nominations, HUD will select the six highest 
ranked Category 1 rural applications, and will then select, in rank 
order, the highest ranking Category 1 area nominations, whether urban 
or rural, until not more than a total of 20 Category 1 designations is 
made.
    (b) Selection of Category 2 applications. After not more than 20 
Category 1 designations are made in accordance with paragraph (a) of 
this section, any remaining Category 1 applications will be placed back 
in rank order into Category 2, with selections for a combined Category 
1 and Category 2 total of not more than 40 designations made as 
follows:
    (1) Less than six Category 1 rural applications. If the number of 
rural area applications selected in Category 1 is less than six, HUD 
will select the highest ranking rural area applications in Category 2 
until the total number of rural areas selected is 12. The remaining 
designations will be made from both rural and urban areas in rank 
order. If there are fewer than 12 eligible rural applications overall, 
counting both Category 1 and Category 2, all of the eligible rural 
applications will be selected.

[[Page 35860]]

    (2) Six or more Category 1 rural applications. If the number of 
rural area applications selected in Category 1 is six or more, HUD will 
select the six highest Category 2 rural applications. The remaining 
designations will be made from both rural and urban areas in rank 
order.
    (c) Effective date of designation. The effective date of 
designation as a Renewal Community is the date a nominated area is 
selected in accordance with this section.


Sec. 599.407  Notification of Renewal Community designations.

    (a) Notification of applicant. HUD will notify each applicant of 
the designation of its nominated area as a Renewal Community.
    (b) Federal Register publication. In addition to any other form of 
notification, HUD will publish a notice of the designation of Renewal 
Communities in the Federal Register.

Subpart F--Post-Designation Requirements


Sec. 599.501  Period for which Renewal Community designation is in 
effect.

    Any designation of an area as a Renewal Community will remain in 
effect during the period beginning on January 1, 2002, and ending on 
the earliest of:
    (a) December 31, 2009;
    (b) The termination date designated by the State and local 
governments in their nomination application, if any; or
    (c) The date HUD revokes the designation.


Sec. 599.503  Effect of Renewal Community designation on an EZ/EC.

    The designation of any area as an Empowerment Zone or Enterprise 
Community shall cease to be in effect as of the date that the 
designation of any portion of such area as a Renewal Community takes 
effect.


Sec. 599.505  Coordinating responsible authority (CoRA).

    Within 30 days of the Renewal Community designation, the State and 
local governments in which the area is located must submit to HUD 
information identifying the coordinating responsible authority (CoRA), 
which is the entity, organization or persons with the responsibility 
and authority to achieve the State and local government commitments 
made at the time of application as required by Sec. 599.107 and to 
undertake the development and administration of policies, procedures 
and activities to implement and maximize the Federal, State and local 
benefits made available in the Renewal Community.


Sec. 599.507  Tax incentives utilization plan.

    (a) Preliminary plan. Within six months of designation, the CoRA 
must prepare and submit to HUD a preliminary tax incentives utilization 
plan for achieving the State and local commitments made at the time of 
application as required by Sec. 599.107 and implementing and maximizing 
the Federal, State and local benefits made available in the Renewal 
Community.
    (b) Final plan. Within twelve months of designation, the CoRA must 
prepare and submit to HUD the final tax incentives utilization plan for 
achieving the State and local commitments made at the time of 
application as required by Sec. 599.107 and implementing and maximizing 
the Federal, State and local benefits made available in the Renewal 
Community.
    (c) Community participation. The CoRA must ensure that the 
preliminary and final tax incentives utilizations plans are developed 
with the participation of the residents and community organizations in 
the Renewal Community.
    (d) Coordination with Consolidated Plan and Indian Housing Plan. 
The tax incentives utilization plan must include a certification that 
it is consistent with the Consolidated Plan prepared in accordance with 
24 CFR part 91 or the Indian Housing Plan prepared in accordance with 
24 CFR part 1000, as applicable.
    (e) HUD technical assistance. HUD will provide technical assistance 
as authorized to assist the CoRA in preparing the required tax 
incentives utilization plans.


Sec. 599.509  Modification of commitments and plans.

    The CoRA may submit requests to HUD to modify the State and local 
commitments made at the time of application as required by Sec. 599.107 
and the tax incentives utilization plans required by Sec. 599.505. 
Requests must provide evidence to support the proposed modifications. 
HUD will review the proposed modification for consistency with 
regulatory and statutory requirements and approve, suggest additional 
or alternate modifications or deny the request within 30 days.


Sec. 599.511  Reports and other information.

    The CoRA and the State or local governments in which the Renewal 
Community is located must submit such periodic reports and provide such 
additional information as HUD may require.


Sec. 599.513  Revocation of designation.

    (a) Basis for revocation. HUD may revoke the Renewal Community 
designation of an area if HUD determines that the CoRA or the State or 
local governments in which the area is located:
    (1) Have modified the boundaries of the area; or
    (2) Are not complying substantially with, or fail to make progress 
in achieving the State and local commitments made at the time of 
application as required by Sec. 599.107.
    (b) Letter of warning. Before revoking the Renewal Community 
designation of an area, HUD will issue a letter of warning to the CoRa 
and the State and local governments in which the area is located, with 
a copy to all affected Federal agencies of which HUD is aware:
    (1) Advising that HUD has determined that the CoRA and/or State 
and/or local governments in which the area is located have:
    (i) Modified the boundaries of the area without written approval 
from HUD; or
    (ii) Are not complying substantially with, or have failed to make 
progress in achieving the State and local commitments made at the time 
of application as required by Sec. 599.107; and
    (2) Requesting a reply from the CoRa and State and local 
governments in which the area is located within 90 days of the receipt 
of this letter of warning.
    (c) Notice of revocation. To revoke the designation, HUD must issue 
a final notice of revocation of the designation of the area as a 
Renewal Community, after allowing 90 days from the date of receipt of 
the letter of warning for response, and after making a determination in 
accordance with paragraph (a) of this section.
    (d) Notice to affected Federal agencies. HUD will notify all 
affected Federal agencies of which it is aware, of its determination to 
revoke any designation in accordance with this section.
    (e) Effect of revocation. Upon revocation of a Renewal Community 
designation, the designation and applicable benefits cease to be 
available in the area.
    (f) Publication. The final notice of revocation of designation will 
be published in the Federal Register, and the revocation will be 
effective on the date of publication.

    Dated: June 14, 2001.
Mel Martinez,
Secretary.
[FR Doc. 01-17011 Filed 7-6-01; 8:45 am]
BILLING CODE 4210-29-P