[Federal Register Volume 67, Number 57 (Monday, March 25, 2002)]
[Rules and Regulations]
[Pages 13553-13560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7023]


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DEPARTMENT OF AGRICULTURE

Office of the Secretary

7 CFR Part 25

RIN 0503-AA20


Rural Empowerment Zones and Enterprise Communities

AGENCY: Office of the Secretary, USDA.

ACTION: Final rule.

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SUMMARY: This final rule establishes the policies and procedures 
pertaining to 20 rural enterprise communities designated by the 
Secretary of the U.S. Department of Agriculture (USDA) (Secretary) as 
authorized by the Agriculture, Rural Development, Food and Drug 
Administration and Related Agencies Appropriations Act, 1999 
(Agriculture Appropriations Act 1999) (Round IIS). This rule also 
contains the policies and procedures for implementing the grant program 
authorized by section 766 of the Agriculture Appropriations Act 1999 
(USDA EZ/EC grants). Additionally, this rule clarifies post-designation 
procedures that rural empowerment zones and enterprise communities must 
follow to maintain their standing. Finally, this final rule amends the 
regulation to reflect that two new rural empowerment zones were 
authorized by the Community Renewal Tax Relief Act of 2000 (Round III).

EFFECTIVE DATE: April 24, 2002.

FOR FURTHER INFORMATION CONTACT: Norman Reed, (202) 690-0719, Deputy 
Administrator for Community Development, USDA Rural Development, Office 
of Community Development, Reporters Building, Room 266, 300 7th Street, 
SW., Washington, DC 20024-3203, telephone 1-800-645-4712, or by sending 
an Internet e-mail message to ``[email protected]''. For hearing- and 
speech-impaired persons, information concerning this program may be 
obtained by contacting USDA's TARGET Center at (202) 720-2600 (Voice 
and TDD).

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been reviewed by the Office of Management and Budget 
(OMB) under E.O. 12866 and has been determined to be a significant 
regulatory action.

[[Page 13554]]

Programs Affected

    The Catalog of Federal Domestic Assistance Program affected by this 
action is 10.772, Empowerment Zone Program.

Program Administration

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

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act, USDA may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a currently 
valid OMB control number.
    The information collection requirements contained in 7 CFR part 25 
are comprised of one-time application requirements (Application burden) 
and ongoing reporting requirements (Reporting burden).
    The Application burden paperwork package approved under control no. 
0570-0026 was approved by OMB in the context of the Round II 
application effort. The overall burden is a function of the hours 
assumed for each applicant multiplied by an estimated number of 
applicants. Comments on these application requirements were invited 
April 16, 1998 [63 FR 19108] at the time the Interim Final Rule for 7 
CFR part 25 was published. No comments were received. After the 
expiration of the application deadline, the application burden no 
longer existed and USDA requested that the burden level under this 
control number be amended accordingly and this was approved by OMB. 
Subsequently, Congress authorized another competitive round for 
designations (Round III). USDA submitted a request to OMB to conform 
the burden level under this control number to reflect another round of 
application effort. The Application Form is the same as earlier 
approved under this burden level as well as the hour burden per 
applicant for Round III. The only difference between the burden levels 
estimated for Rounds II and III consists of a different assumed number 
of applicants. The burden level per applicant was the same. USDA's 
earlier estimate of 60 applicants for Round III is very close to the 55 
valid applications we actually received. Now that the deadline for 
Round III is passed, there is no ongoing Application Burden. 
Accordingly, the submission was withdrawn and remains as previously 
approved by OMB. USDA will seek to amend the Application Burden only in 
the event legislation is passed which authorizes additional 
designations.
    The Reporting burden paperwork package approved by OMB under 
control no. 0570-0027 covers the ongoing reporting requirements imposed 
by 7 CFR part 25 for empowerment zones and enterprise communities 
designated to date. USDA submitted a request to amend the Reporting 
paperwork burden to reflect the incrementally higher aggregate 
reporting burden associated with the designation of two empowerment 
zones pursuant to Round III and was approved by OMB. The individual 
reporting requirements imposed on Round III designees are the same as 
for all designees, and unchanged from those published and for which 
comments were invited April 27, 2000 [65 FR 24656] at the time the most 
recent proposed rule for amending 7 CFR part 25 was published. No 
comments were received.

Environmental Impact Statement

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

Executive Order 12988

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

The Unfunded Mandates Reform Act of 1995

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

Regulatory Flexibility Act

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

Executive Order 13132, Federalism

    The policies contained in this rule will not have substantial 
direct effects on states or their political subdivisions, or the 
relationship between the Federal Government and the states, or on the 
distribution of power and responsibilities among the various levels of 
government. Nor does this rule impose substantial direct compliance 
costs on state and local governments. This rule is intended to foster 
cooperation between the Federal Government and the states and local 
governments, and reduces, where possible, any regulatory burden imposed 
by the Federal Government that impedes the ability of state and local 
governments to solve pressing economic, social, and physical problems 
in their communities.

Background

    The Secretary of Agriculture published on April 16, 1998 [63 FR 
19108], an interim final rule with request for comments and a notice 
inviting applications for 5 additional rural empowerment zone 
designations as authorized by title IX of the Taxpayer Relief Act of 
1997 (Pub. L. 105-34,

[[Page 13555]]

approved August 5, 1997) (Round II). These Round II empowerment zones 
were designated on December 24, 1998.
    These 5 new rural empowerment zones were in addition to the 3 rural 
empowerment zones and 30 enterprise communities designated on December 
21, 1994 by the Secretary of Agriculture pursuant to Title XIII of the 
Omnibus Budget Reconciliation Act of 1993 (Round I).
    On December 21, 2000, the Community Renewal Tax Relief Act was 
signed into law (Pub. L. 106-554), authorizing the designation of two 
more rural empowerment zones (Round III), bringing the total authorized 
rural empowerment zones to ten. The eligibility criteria for Round III 
are exactly the same as for Round II empowerment zones.
    The legislation which authorized Round I empowerment zones also 
authorized 30 rural enterprise communities. On October 21, 1998, the 
Agriculture, Rural Development, Food and Drug Administration and 
Related Agencies Appropriations Act, 1999 was signed into law, 
authorizing an additional 20 rural enterprise communities (Round IIS), 
bringing the total authorized to 50.
    The proposed rule pertaining to Round IIS also amended 7 CFR part 
25 in other ways that affected all rural empowerment zones and rural 
enterprise communities. Most notably it implemented a newly authorized 
direct grant program for Round II and IIS designees. It also amended 
the ongoing reporting and administrative requirements for all 
designated communities.
    The Community Renewal Tax Relief Act of 2000 authorizing Round III 
was signed into law subsequent to publication of the proposed rule. It 
increased the number of designations the Secretary of Agriculture may 
make, it extends designation periods and increases certain tax code 
benefits which attach to the designations. It expressly provides that 
the eligibility requirements for Round III empowerment zones are to be 
the same as for Round II, with no change.
    In addition to the changes for which comments were invited in the 
published proposed rule, this Final Rule conforms 7 CFR part 25 to 
reflect the provisions of the Community Renewal Tax Relief Act of 2000. 
These conforming changes are technical in nature such the Secretary has 
determined it appropriate that they be incorporated in this final 
rulemaking without subjecting them to the notice and comment process.

Discussion of Comments

    Eleven comments were received in response to the published proposed 
rulemaking. Ten were from representatives of empowerment zones or 
enterprise communities (EZ/ECs); one was from a Rural Development State 
Director. Of the ten, five were from the same community and the other 
five represented different communities.
    Ten of the eleven comments received were opposed to the proposed 
requirement that not less than 55% of the membership of the board of 
directors of the lead entity be determined by broad-based election. One 
respondent raised concerns about the requirements associated with the 
National Environmental Protection Act (NEPA). One respondent requested 
that EZ/EC program funds be considered eligible match funding for other 
federal programs. The use of EZ/EC funds as matching funds for other 
federal programs is currently prohibited. See 7 CFR 3019.23(a)(5) and 
OMB Circular A-110 issued by the Office of Management and Budget.
    Objections to the board composition requirement were varied. One 
respondent argued that USDA's approval of the strategic plan at the 
time of designation included the proposed corporate organization of the 
lead entity, this approval was incorporated into the Memorandum of 
Agreement, and this agreement cannot be changed absent mutual consent.
    Another respondent expressed concern that imposing a 55% elected 
board is excessive control on the part of USDA and counter to the 
empowerment principle that community-based decisions should be 
supported. One specifically argued that the boards should be comprised 
of ``movers and shakers'' rather than run by committee. Yet another 
stated that elections are not necessary because representative boards 
are being appointed now.
    The regulatory amendment requiring 55% elected representation on 
the board of the lead entity was developed as a direct result of 
program reviews done for the first round of designated communities. In 
several of the most needy communities, the board members did not 
reflect the racial or economic diversity present in the community. 
Their decisions often did not reflect the principles of the EZ/EC 
program, or the best interest of the low-income residents. Rather, 
funding decisions and community management had reverted to traditional, 
less representative, power structures.
    Designations are granted contingent upon final USDA approval of the 
applicant's strategic plan and the signing of a Memorandum of Agreement 
(MOA). The MOA documents the relationship and respective 
responsibilities of USDA and the designated community. It is not 
contractually binding and so states in the text of the document.
    Public support for the policies of the lead entity is critical for 
the success of the strategic plan. USDA recognizes that appointed 
boards might be necessary in the start-up phase of an EZ/EC, but has 
learned from experience that it is possible to conduct board elections 
at the required public meetings at little or no additional cost to the 
community. Some appointments may yet be necessary to address special 
needs representation, such as youth or low-income representation, or to 
enjoy the benefit of legal, engineering, or other specific expertise on 
the board. USDA has observed that ``movers and shakers'' are capable of 
being elected to the board of lead entities.
    Two respondents cited election-related problems that are specific 
to tribal entities. One questioned USDA's authority to override 
decisions made by tribal governments to appoint boards. In the case of 
areas covering a group of distinct tribes, with separate governance 
structures, disbursed populations, historical animosities and uneven 
minority distribution within the populace, achieving a representative 
board is possible through appointments, but less likely via elections.
    USDA acknowledges the tribal governance issues, and has 
incorporated an exception for tribal entities if there is compelling 
evidence that the objectives intended by the election requirement 
cannot be realized except through an appointment process.
    One respondent requested requirements for environmental assessments 
or environmental impact statements be waived for some projects, citing 
redundant environmental requirements imposed by state and other Federal 
partners. It was suggested that USDA accept the determinations made 
pursuant to environmental reviews conducted by others for purposes of 
EZ/EC program requirements.
    USDA cannot waive the requirements of NEPA. The EZ/EC program has 
three options as far as NEPA is concerned. USDA could prepare yet 
another stand alone environmental regulation specific to the EZ/EC 
program, or use one of the two environmental regulations in effect 
within the Rural Development mission area at USDA. The final rule 
adopts the environmental review processes in effect for the Rural 
Utilities Service

[[Page 13556]]

(RUS) at 7 CFR part 1794. The environmental regulation that applies to 
other Rural Development agencies is referred to only for purposes of 
determining what level of environmental review is required for a given 
project. Once that threshold is determined, the notice and other 
provisions for environmental assessments, environmental impact 
statements, etc., contained in the RUS regulation are to be followed. 
The RUS regulation was chosen because it affords the greatest 
flexibility in implementing NEPA--most specifically with respect to 
whom can prepare the review document.
    As is the case with most federal environmental regulations 
implementing NEPA, an agency head can adopt as its own a determination 
made by another federal agency, provided the review has met federal 
requirements. NEPA expressly contemplates that where multiple federal 
agencies are involved, efforts are to be made to avoid redundancy and 
determine a ``lead agency''. Unless expressly authorized by law, NEPA 
requires an agency head to evaluate the environmental consequences of 
the federal action taken by that agency. It has happened that a non-
federal entity was authorized by law to make federal NEPA 
determinations, but it is not so authorized for the EZ/EC program.

List of Subjects in 7 CFR Part 25

    Community development, Economic development, Empowerment zones, 
Enterprise communities, Housing, Indians, Intergovernmental relations, 
Reporting and recordkeeping requirements, Rural development.

    In accordance with the reasons set out in the preamble, 7 CFR part 
25 is amended as follows:

PART 25--RURAL EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

    1. The authority citation for part 25 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 26 U.S.C. 1391; Sec. 766, Pub. L. 105-
277, 112 Stat. 2681; Pub. L. 106-554 [Title I of H.R. 5562], 114 
Stat. 2763.

Subpart A--General Provision


Sec. 25.1  [Amended]

    2. Amend Sec. 25.1 by revising paragraph (a) to read as follows:


Sec. 25.1  Applicability and scope.

    (a) Applicability. This part contains policies and procedures 
applicable to rural empowerment zones and enterprise communities, 
authorized under the Omnibus Budget Reconciliation Act of 1993, title 
XIII, subchapter C, part I (Round I), the Taxpayer Relief Act of 1997, 
title IX, subtitle F (Round II), the Agriculture, Rural Development, 
Food and Drug Administration, and Related Agencies Appropriations Act, 
1999 (Public Law 105-277) (Round IIS), and the Community Renewal Tax 
Relief Act of 2000 (Public Law 106-554) (Round III).
* * * * *


Sec. 25.3  [Amended]

    3. Amend Sec. 25.3 by revising the definitions of ``brownfield'' 
(and placing it in correct alphabetical order), ``designation'', 
``designation date'' and by adding in alphabetical order definitions 
for ``designation period'', ``funding official'', ``Office of Community 
Development'', ``Round IIS'', ``Round III'', ``state director'' and 
``USDA EZ/EC grant program'' to read as follows:


Sec. 25.3  Definitions.

* * * * *
    Brownfield means a ``qualified contaminated site'' meeting the 
requirements of section 941 of the Taxpayer Relief Act of 1997, (26 
U.S.C. 198(c)), where the site is located in an empowerment zone or 
enterprise community.
* * * * *
    Designation means the process by which the Secretary designates 
rural areas as empowerment zones or enterprise communities pursuant to 
eligibility criteria established by subchapter U of the Internal 
Revenue Code (26 U.S.C. 1391 et seq.).
    Designation date means December 21, 1994, in the case of Round I 
designations, and December 24, 1998, in the case of Round II and Round 
IIS designations.
    Designation period means, in the case of empowerment zones, the 
lesser of such time as has elapsed from the designation date to 
December 31, 2009 or from the designation date to the effective date of 
an applicable notice of revocation pursuant to 7 CFR 25.405(e) and, in 
the case of enterprise communities, the lesser of ten years or such 
time as has elapsed from the designation date to the effective date of 
an applicable notice of revocation pursuant to 7 CFR 25.405(e).
* * * * *
    Funding official means the state director in the state where the 
designated rural area is located, or if the designated rural area is 
located in more than one state, the state where the headquarters office 
of the lead managing entity is located.
* * * * *
    Office of Community Development or OCD means the office of the 
Deputy Administrator, Community Development, as identified in 7 CFR 
2003.26(b)(4).
* * * * *
    Round IIS identifies designations of rural enterprise communities 
pursuant to section 766 of the Agriculture, Rural Development, Food and 
Drug Administration, and Related Agencies Appropriations Act, 1999 
(Public Law 105-277).
    Round III identifies designations of empowerment zones pursuant to 
section 111 of the Community Renewal Tax Relief Act of 2000 (Public Law 
106-554).
* * * * *
    State director means the state director for the Rural Development 
mission area within USDA, as identified in 7 CFR 2003.10.
* * * * *
    USDA EZ/EC grant program means the grant program authorized by 
section 766 of the Agriculture, Rural Development, Food and Drug 
Administration, and Related Agencies Appropriations Act, 1999 (Public 
Law 105-277).


Sec. 25.4  [Amended]

    4. Amend Sec. 25.4 by revising paragraphs (a) and (b)(2) and adding 
paragraphs (b)(3), (b)(4) and (b)(5) to read as follows:


Sec. 25.4  Secretarial review and designation.

    (a) Designation. The Secretary will review applications for the 
designation of nominated rural areas to determine the effectiveness of 
the strategic plans submitted by applicants; such designations of rural 
empowerment zones and enterprise communities as are made shall be from 
the applications submitted in response to the notice inviting 
applications or other applicable notice published in the Federal 
Register. The Secretary may elect to designate as champion communities 
those nominated areas which are not designated as either a rural 
empowerment zone or enterprise community and whose applications meet 
the criteria contained in Sec. 25.301.
    (b) * * *
    (2) Round II. The Secretary may, prior to January 1, 1999, 
designate up to five rural empowerment zones in addition to those 
designated in Round I.
    (3) Round IIS. The Secretary may designate up to 20 rural 
enterprise communities in addition to those designated in Round I.

[[Page 13557]]

    (4) Round III. The Secretary may, prior to January 1, 2002, 
designate up to two rural empowerment zones in addition to those 
designated in Round I and Round II.
    (5) Champion communities. The number of champion communities is 
limited to the number of applicants which are not designated 
empowerment zones or enterprise communities.
* * * * *

Subpart B--Area Requirements


Sec. 25.103  [Amended]

    5. Amend Sec. 25.103 by revising the introductory text of 
paragraphs (b)(2) and (b)(3) to read as follows:


Sec. 25.103  Area size and boundary requirements.

* * * * *
    (b) * * *
    (2) For purposes of applying paragraph (a)(1) of this section to 
Round II, Round IIS and Round III designations: * * *
    (3) For purposes of applying paragraph (a)(2) of this section to 
Round II, Round IIS and Round III designations, the following shall not 
be treated as violating the continuous boundary requirement nor the 
limit on the number of noncontiguous parcels:
* * * * *


Sec. 25.104  [Amended]

    6. Amend Sec. 25.104 as follows:
    a. Amend the heading of paragraphs (a)(2) and (b)(2) by adding ``, 
Round IIS and Round III''.
    b. Revise the introductory text of paragraphs (a), (b) and (c), and 
revise paragraph (c)(2) to read as follows:


Sec. 25.104  Poverty rate.

    (a) General. Eligibility of an area on the basis of poverty shall 
be established in accordance with the following poverty rate criteria 
specific to Round I, Round II, Round IIS and Round III nominated areas:
* * * * *
    (a) Special rules. The following special rules apply to the 
determination of poverty rate for Round I, Round II, Round IIS and 
Round III nominated areas:
* * * * *
    (c) General rules. The following general rules apply to the 
determination of poverty rate for Round I, Round II, Round IIS and 
Round III nominated areas.
* * * * *
    (2) Noncontiguous parcels. Each such parcel (excluding, in the case 
of Round II, Round IIS and Round III, up to three noncontiguous 
developable sites not exceeding 2,000 acres in the aggregate) must 
separately meet the poverty criteria contained in this section.
* * * * *

Subpart C--Nomination Procedure


Sec. 25.202  [Amended]

    7. Amend Sec. 25.202 by revising paragraph (b)(7) to read as 
follows:


Sec. 25.202  Strategic plan.

* * * * *
    (b) * * *
    (7) Include such other information as required by USDA in the 
notice inviting applications or other applicable notice.
* * * * *


Sec. 25.203  [Amended]

    8. Revise Sec. 25.203 to read as follows:


Sec. 25.203  Submission of applications.

    General. A separate application for designation as an empowerment 
zone or enterprise community must be submitted for each rural area for 
which such designation is requested. The application shall be submitted 
in a form to be prescribed by USDA in the notice inviting applications 
or other applicable notice as published in the Federal Register and 
must contain complete and accurate information.

Subpart D--Designation Process


Sec. 25.300  [Amended]

    9. Amend Sec. 25.300 by revising paragraphs (a) and (b) to read as 
follows:


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

    (a) Establishment of submission procedures. USDA will establish a 
time period and procedure for the submission of applications for 
designation as empowerment zones or enterprise communities, including 
submission deadlines and addresses, in a notice inviting applications 
or other applicable notice, to be published in the Federal Register.
    (b) Acceptance for processing. USDA will accept for processing 
those applications as empowerment zones and enterprise communities 
which USDA determines have met the criteria required under this part. 
USDA will notify the states and local governments whether or not the 
nomination has been accepted for processing. The application must be 
received by USDA on or before the close of business on the date 
established by the notice inviting applications or other applicable 
notice published in the Federal Register. The applications must be 
complete, inclusive of the strategic plan, as required by Sec. 25.202, 
and the certifications and written assurances required by 
Sec. 25.200(b).
* * * * *

Subpart E--Post-Designation Requirements


Sec. 25.404  [Amended]

    10. Amend Sec. 25.404 as follows:
    a. Redesignate paragraph (a) as (c) and paragraph (b) as (d).
    b. Add new paragraphs (a) and (b) to read as follows:


Sec. 25.404  Validation of designation.

    (a) Maintaining the principles of the program. The empowerment 
zone, enterprise community or champion community (the designated 
community) must maintain a process for ensuring ongoing broad-based 
participation by community residents consistent with the approved 
application and planning process outlined in the strategic plan.
    (1) Continuous improvement. The designated community must maintain 
a process for evaluating and learning from its experiences. It must 
detail the methods by which the community will assess its own 
performance in implementing its benchmarks, the process it will use for 
reviewing goals and benchmarks and revising its strategic plan.
    (2) Participation. The designated community must develop as part of 
its strategic plan a written plan for assuring continuous broad-based 
community participation in the implementation of the strategic plan and 
the means by which the strategic plan is implemented, including board 
membership in the lead entity and other key partnership entities.
    (b) Administration of the strategic plan. The strategic plan must 
be administered in a manner consistent with the principles of the 
program contained in Sec. 25.202(a).
    (1) Lead entity. The lead entity must have legal status and 
authority to receive and administer funds pursuant to Federal, state 
and other government or nonprofit programs.
    (2) Capacity. The lead entity must have the capacity to implement 
the strategic plan, as demonstrated by audited financial statements as 
of the most recent fiscal year or other documentation that may be 
requested by USDA.
    (3) Board membership. The membership of the board must be 
representative of the entire socio-economic spectrum in the designated 
community including business, social service agencies, health and 
education entities, low income and minority residents. Board membership 
may be

[[Page 13558]]

determined by either broad-based election or by appointment to meet 
this diversity requirement; however, not more than 45 percent of board 
members may be selected by appointment. Elections of community 
residents to the board may be done by any locally acceptable process; 
however, at least one board member from each of the designated 
community's census tracts must be elected and representative of the low 
income residents in their census tract. The Deputy Administrator, 
Office of Community Development, may waive the 45 percent maximum 
appointment limit only for Tribal Governmental Organizations where the 
Deputy Administrator determines, in writing, that a more representative 
board would be obtained through the appointment process.
    (4) Partnerships. The relationship between the designated 
community's lead entity board and local governments and other major 
regional and community organizations operating in the same geographic 
area is critical to the community's success in implementing its 
strategic plan. Every effort should be made to identify and maintain 
relationships with local partners. Documentation including, but not 
limited to, minutes of meetings, benchmark activity reports and annual 
reports of the lead entity must reflect the contributions of local 
partnership entities.
    (5) Public information. The designated community must have written 
procedures in place describing the means by which citizens of the 
community and partnership organizations will be kept informed of the 
community's activities and progress in implementing the strategic plan, 
consistent with the principal objective of community based partnerships 
pursuant to Sec. 25.202(a)(2). These procedures must be kept current 
and compliance with them documented on an ongoing basis.
* * * * *
    11. Subpart G of part 25, consisting of Secs. 25.600 through 25.999 
is added to read as follows:

Subpart G--Round II and Round IIS Grants

Sec.
25.600   Purpose.
25.601   Delegation of authority.
25.602   Eligible recipients.
25.603   Grant approval and obligation of funds.
25.604   Disbursement of grant funds.
25.605   Grant program reporting requirements.
25.606   Financial management and records.
25.607   Suspension or termination of grant funds.
25.608-25.619   [Reserved]
25.620   Eligible grant purposes.
25.621   Ineligible grant purposes.
25.622   Other considerations.
25.623   Programmatic changes.
25.624-25.999   [Reserved]


Sec. 25.600  Purpose.

    This subpart outlines USDA policies and authorizations and contains 
procedures for the USDA EZ/EC grant program.


Sec. 25.601  Delegation of authority.

    (a) Program administration. The Deputy Administrator, Office of 
Community Development, shall be responsible for the overall development 
of policy and administration of the USDA EZ/EC grant program.
    (b) Funding official. Unless otherwise provided, the state director 
is responsible for implementing the authorities in this subpart, 
consistent with the guidance issued by the Office of Community 
Development. Except for grant approval and environmental determination 
authorities, state directors may re-delegate their duties to qualified 
staff members.
    (c) Environmental review determinations. The funding official is 
responsible for making environmental review determinations.
    (d) Authority to issue regulations. The Under Secretary, Rural 
Development, may promulgate regulations under this part.


Sec. 25.602  Eligible recipients.

    (a) General. The grants made under this subpart shall be made to 
the lead managing entities on behalf of the Round II rural empowerment 
zones and Round IIS rural enterprise communities, respectively, in 
accordance with an approved strategic plan. Such grants shall be 
available to successor entities approved in writing by USDA.
    (b) Exception. The funding official, with the approval of the 
Office of Community Development, may elect to award all or part of the 
available grant funds to an alternate grantee.
    (c) Subrecipients. The grantee shall relay funds to subrecipients, 
as provided in the approved strategic plan, as soon as practicable.


Sec. 25.603  Grant approval and obligation of funds.

    Grants may be made at such time as the nominated area has been 
designated and such other prerequisites as USDA shall determine have 
been met, including but not limited to:
    (a) The empowerment zone or enterprise community has entered into a 
memorandum of agreement satisfactory to USDA;
    (b) The empowerment zone or enterprise community has conformed its 
strategic plan to be consistent with the level of federal grant aid 
available and such conforming amendments (if any) have met with the 
approval of the Office of Community Development and the funding 
official;
    (c) Completion of the environmental review process, including all 
appropriate public notices;
    (d) The proposed grantee has agreed, in form and substance 
satisfactory to the Office of Community Development, to any funding 
conditions imposed by USDA;
    (e) The grantee has submitted a request for obligation of funds, in 
form and substance satisfactory to the Office of Community Development, 
inclusive of the following certification:

    ``The grantee certifies that it and all direct or substantial 
subrecipients are in compliance and will continue to comply with all 
applicable laws, regulations, executive orders and other generally 
applicable requirements, including those contained in 7 CFR parts 
25, 3015, 3016, 3017, 3018, 3019 and 3052 and any agreement to meet 
funding conditions, in effect at the time of the grant or as 
subsequently amended.''


Sec. 25.604  Disbursement of grant funds.

    (a) The funding official will determine, based on 7 CFR parts 3015, 
3016 and 3019, as applicable, whether disbursement of a grant will be 
by advance or reimbursement.
    (b) A ``request for advance or reimbursement,'' in form and 
substance satisfactory to USDA, must be completed by the grantee on 
behalf of itself and all applicable subrecipients and submitted to the 
funding official.
    (c) Requests for advance or reimbursement must identify:
    (1) The amount requested for each benchmark activity;
    (2) The cumulative amount advanced to date (not inclusive of the 
current amount requested) for each benchmark activity;
    (3) The total USDA EZ/EC grant obligated for each benchmark 
activity;
    (4) The total approved budget for the applicable project or program 
(inclusive of non USDA EZ/EC grant program sources);
    (5) An estimated percentage of completion or progress made in 
accomplishing the benchmark goal associated with each benchmark 
activity;
    (6) Certification that the lead managing entity and the 
subrecipients (where applicable) are in compliance

[[Page 13559]]

with all applicable laws and regulatory requirements; and
    (7) Such other information as the funding official may require.
    (d) Requests for advance or reimbursement may include only 
activities or projects which are identified in an approved strategic 
plan.


Sec. 25.605  Grant program reporting requirements.

    Grantees may incorporate grant reporting requirements in the 
reports submitted pursuant to Sec. 25.400, or submit them separately. 
In complying with the requirements of 7 CFR parts 3015, 3016, or 3019, 
as applicable, grantees must submit, in lieu of the forms prescribed 
therein, the equivalent of such forms prescribed by the Office of 
Community Development pursuant to this subpart as such may be adapted 
to the USDA EZ/EC grant program and which may be submitted and retained 
in electronic form.


Sec. 25.606  Financial management and records.

    (a) In complying with the requirements of 7 CFR parts 3015, 3016, 
or 3019, as applicable, grantees must submit, in lieu of the forms 
prescribed therein, the equivalent of such forms prescribed by the 
Office of Community Development pursuant to this subpart as such may be 
adapted to the USDA EZ/EC grant program and which may be submitted and 
retained in electronic form.
    (b) Grantees must retain financial records, supporting documents, 
statistical records and all other records pertinent to the grant for a 
period of at least 3 years after the end of the designation period, 
except that the records shall be retained beyond the 3 year period if 
audit findings have not been resolved or if directed by the United 
States. Records may be retained and submitted in electronic form if 
allowed by Generally Accepted Government Accounting Principles.


Sec. 25.607  Suspension or termination of grant funds.

    (a) Grants under this subpart may be suspended or terminated by the 
funding official, in all or in part, in accordance with this subpart 
and the applicable provisions of 7 CFR parts 3015, 3016 and 3019, as 
applicable.
    (b) The funding official may elect to suspend or terminate the 
entirety of a grant, or funding of a particular benchmark activity, but 
nevertheless fund the remainder of a request for advance or 
reimbursement, where the funding official has determined:
    (1) That grantee or subrecipient of the grant funds has 
demonstrated insufficient progress toward achieving the related 
benchmark goal or in any other way failed to comply with the strategic 
plan;
    (2) There is reason to believe that other sources of joint funding 
have not been or will not be forthcoming on a timely basis;
    (3) The strategic plan calls for a revised use of the grant funds; 
or
    (4) Such other cause as the funding official identifies in writing 
to the grantee (including but not limited to the use of federal grant 
funds for ineligible purposes).


Secs. 25.608-25.619  [Reserved]


Sec. 25.620  Eligible grant purposes.

    Eligible grant purposes are:
    (a) Services directed at the goals of--
    (1) Achieving or maintaining economic self-support to prevent, 
reduce, or eliminate dependency;
    (2) Achieving or maintaining self sufficiency, including reduction 
or prevention of dependency;
    (3) Preventing or remedying neglect, abuse, or exploitation of 
children and adults unable to protect their own interests, or 
preserving, rehabilitating or reuniting families;
    (b) Projects and activities identified in the strategic plan for 
the area; and
    (c) Activities that benefit residents of the area for which the 
grant is made.


Sec. 25.621  Ineligible grant purposes.

    Grant funds may not be used:
    (a) As a source of local matching funds required for other federal 
grants;
    (b) To fund political activities;
    (c) To duplicate current services or replace or substitute for 
financial support provided from other sources. If the current service 
is inadequate, however, grant funds may be used to augment financial 
support or service levels beyond what is currently provided;
    (d) To pay costs of preparing the application package for 
designation under this program;
    (e) To pay costs of a project which were incurred prior to the 
execution date of the applicable memorandum of agreement;
    (f) To pay for assistance to any private business enterprise which 
does not have at least 51 percent ownership by those who are either 
citizens of the United States or reside in the United States after 
being legally admitted for permanent residence;
    (g) To pay any judgment or debt owed to the United States;
    (h) To assist in the relocation of businesses;
    (i) To support or promote gambling; or
    (j) For political lobbying.


Sec. 25.622  Other considerations.

    (a) Civil rights compliance requirements. All grants made under 
this subpart are subject to Title VI of the Civil Rights Act of 1964 
and 7 CFR part 1901, subpart E.
    (b) Environmental review. All grants made under this subpart are 
subject to the environmental requirements in effect for the water and 
environmental programs of the Rural Utilities Service at 7 CFR part 
1794. The threshold levels of environmental review, for projects funded 
by the USDA EZ/EC grant program (or EZ/EC SSBG funds where the 
Secretary is authorized to execute the responsibilities under the 
National Environmental Policy Act of 1969), which projects, by their 
nature, would qualify for assistance under any program administered by 
the Rural Housing Service or Rural Business Service within USDA, shall 
be determined in accordance with 7 CFR part 1940, subpart G as follows:
    (1) Projects meeting the descriptions found at 7 CFR 1940.310(b), 
(c), (d) and (e) shall be considered categorically excluded (without an 
environmental report) for purposes of 7 CFR 1794.21.
    (2) Projects meeting the descriptions found at 7 CFR 1940.311 shall 
be considered categorically excluded (with an environmental report) for 
purposes of 7 CFR 1794.22.
    (3) Projects meeting the description found at 7 CFR 1940.312 shall 
require the preparation of an environmental assessment (EA) for 
purposes of 7 CFR 1794.23.
    (4) Projects which would normally require the preparation of an 
environmental impact statement (EIS) for purposes of 7 CFR 1940.313 
shall require an EIS for purposes of 7 CFR 1794.25.
    (c) Other USDA regulations. This program is subject to the 
provisions of the following regulations, as applicable:
    (1) 7 CFR part 3015, ``Uniform Federal Assistance Regulations'';
    (2) 7 CFR part 3016, ``Uniform Administrative Requirements for 
Grants and Cooperative Agreements to State and Local Governments'';
    (3) 7 CFR part 3017, ``Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free 
Workplace (Grants)'';
    (4) 7 CFR part 3018, ``New Restrictions on Lobbying'';
    (5) 7 CFR part 3019, ``Uniform Administrative Requirements for 
Grants and Agreements with Institutions of Higher Education, Hospitals, 
and other Non-Profit Organizations; and

[[Page 13560]]

    (6) 7 CFR part 3052, ``Audits of States, Local Governments, and 
Non-Profit Organizations.''


Sec. 25.623  Programmatic changes.

    Prior approval from USDA is required for all changes to the scope 
or objectives of an approved strategic plan or benchmark activity. 
Failure to obtain prior approval of changes to the strategic plan or 
benchmarks, including changes to the scope of work or a project budget 
may result in suspension, termination, and recovery of USDA EZ/EC grant 
funds.


Secs. 25.624-25.999  [Reserved]

    Dated: March 18, 2002.
Ann M. Veneman,
Secretary.
[FR Doc. 02-7023 Filed 3-22-02; 8:45 am]
BILLING CODE 3410-01-P