[Federal Register Volume 68, Number 192 (Friday, October 3, 2003)]
[Rules and Regulations]
[Pages 57604-57606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25041]



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Part IV





Housing and Urban Development





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24 CFR Parts 598 and 599



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

  Federal Register / Vol. 68, No. 192 / Friday, October 3, 2003 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 598 and 599

[Docket No. FR-4663-F-07]
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: Final rule.

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SUMMARY: This final rule adopts without change an interim rule that 
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.

DATES: Effective Date: November 3, 2003.

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-
7000, telephone (202) 708-6339 (this is not a toll-free telephone 
number). Individuals with speech or hearing impairments may access 
these numbers via TTY by calling the Federal Information Relay Service 
at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    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 into 
law as part of the Omnibus Act is H.R. 5662, the Community Renewal Tax 
Relief Act of 2000 (CRTR Act).
    Section 111 of the CRTR Act added a new subsection (h), which 
authorized the designation of nine Round III Empowerment Zones (EZs) to 
section 1391 of Subchapter U of Chapter 1 of the Internal Revenue Code 
of 1986 (IRC). Subchapter U governs the designation and treatment of 
Empowerment Zones, Enterprise Communities, and Rural Development 
Investment Areas and provided authorization (though separate 
legislative enactments) for the designation of Round I EZs in 1993 and 
Round II EZs in 1997. The CRTR Act requires seven of the Round III EZs 
to be designated in urban areas by the Secretary of HUD and the 
remaining two Round III EZs 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.
    Section 101 of the CRTR Act added a new Subchapter X, consisting of 
sections 1400E through 1400J, to Chapter 1 of the IRC. Subchapter X 
governs the designation of, and tax incentives for, Renewal Communities 
(RCs) within which special tax incentives would be available. At least 
12 of the 40 RC designations authorized by the CRTR Act 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.
    On July 9, 2001 (66 FR 35850), HUD published an interim rule to 
implement the designation requirements for Round III EZs and for RCs 
and requested public comment on the rule. HUD received four public 
comments, which are discussed in section III, Public Comments, of this 
preamble.

II. Changes in the Final Rule

    The Department has determined to adopt the July 9, 2001, interim 
rule as a final rule without change.

III. Public Comments

    Four municipalities submitted comments on the interim rule. The 
issues raised in the comments, all of them concerning the RC rule at 24 
CFR part 599, followed by HUD's response, are set out under separate 
subject headings in this section of the preamble.

Too Small Areas

    Because the nominated areas will be ranked solely on statistical 
criteria, there is nothing to prevent small areas from winning 
designation. The selection formula should give added weight to areas 
with larger populations.
    HUD response: The statutory authorization for the designation of 
RCs, at section 1400E(c)(2)(C) of the IRC, establishes maximum and 
minimum population limits as eligibility requirements for RC 
designation. The criteria that may be used to designate RCs is also 
specifically limited to those provided in section 1400E. Although the 
population of an area must be within the statutory limits for the area 
to be considered for RC designation, population size is not included as 
one of the selection criteria provided in section 1400E. Therefore, HUD 
must determine that an area meets the population eligibility threshold, 
but HUD is not permitted to use population size in the selection 
formula.

Awarding RC Designation in a City With an EZ

    If a city that already contains an EZ applies for an RC designation 
for an area that does not contain any census tracts from the EZ, it 
could receive the RC designation and also retain its EZ. This 
opportunity is unfair to a community that needs and deserves one of the 
designations.
    HUD response: Section 1400E does not permit EZs and RCs to overlap 
by even a single census tract. Section 1400E(e) specifically provides 
that, ``[T]he 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.'' Beyond this limitation, the statute does not impose any 
restrictions on the availability of both EZs and RCs to qualifying 
areas within a community.

Including No- or Low-Population Tracts

    A census tract with very low or no population may be critical for 
inclusion to create an effective RC, yet it would be ineligible unless 
it meets the 20 percent poverty criterion. This may result in 
inadequate land for business growth. HUD should allow inclusion of 
census tracts that are predominantly industrial or transportation uses 
if they are adjacent to tracts that meet the 20 percent poverty 
standard and if fewer than 50 households were counted in determining 
the poverty percentage.
    HUD response: Although the authorizing statute for the EZ program 
specifically included, at 26 U.S.C. 1391(g)(3)(A)(ii), a provision 
permitting such treatment of census tracts with small populations, no 
such provision was included in the authorizing statute for the RC 
program. HUD hesitates to adopt such requirements absent the specific 
legislative authority.

Using Employment Tax Credits Cross-Boundary

    The employment tax credits should be available for an employee that 
works in one EZ or RC and lives in another. This would include allowing 
an employer to claim the RC employment tax credit if both an EZ and an 
RC are involved. HUD and the Internal Revenue Service

[[Page 57605]]

(IRS) should issue the rulings that are necessary to confirm that these 
interpretations are correct.
    HUD response: While HUD is responsible for the designation of RCs, 
the implementation and administration of the tax incentives for these 
areas is the responsibility of the Internal Revenue Service.

Regulation Protecting Health and Safety or Preventing Public Nuisance

    The program requires the nominating governments to commit to 
``economic growth promotion requirements.'' Specifically, they certify 
that they will repeal, reduce, or not enforce legal restrictions on 
certain types of business activities. The certifications do not apply 
to the extent that the regulation of businesses and occupations is 
necessary for, and well-tailored to, the protection of health and 
safety or if a public nuisance is involved, and the certifications may 
be limited to exclude specific businesses and occupations. The 
commenter recommended that HUD should allow the local governments broad 
discretion in determining what is a public nuisance.
    HUD response: What constitutes a public nuisance is a determination 
to be made by the community at the local level.

Using CDBG Funds To Implement Renewal Communities

    HUD should allow jurisdictions with designated RCs to use funds 
from the CDBG program, or, if applicable, EZ funds, for promotion and 
administration of RC responsibilities, perhaps with an annual cap of, 
say, $2.00 per RC resident.
    HUD response: HUD is considering this suggestion, and will issue 
appropriate guidance to grantees.

Retaining One State's EZ Designation

    Philadelphia and Camden request that Camden be allowed to retain 
its EZ status even if Philadelphia is awarded designation of an RC that 
includes census tracts from the Philadelphia-Camden EZ. They point out 
that the EZ is in two states and two cities, and each state/city 
combination has entered into a separate Memorandum of Agreement with 
HUD to implement their portions of the Round I EZ.
    HUD response: As discussed above, section 1400E(e) of the IRC 
mandates that if any portion of an area designated as an EZ is given RC 
designation, the entire EZ designation ceases to be in effect. HUD has 
no authority to permit a different result.

IV. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in 24 CFR parts 
598 and 599 have been approved by the Office of Management and Budget 
(OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520) and assigned OMB control numbers 2506-0148 and 2506-0173, 
respectively. An agency 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.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made for this rule at the interim rule stage in accordance with HUD 
regulations at 24 CFR part 50, which implement section 102(2)(C) of the 
National Environmental Policy Act of 1969. Because this final rule 
adopts the interim rule without change, the Finding of No Significant 
Impact continues to apply. 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, SW., Washington, DC 20410-0500.

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.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute, or preempts state law, unless the relevant 
requirements of section 6 of the Executive Order are met. This rule 
does not have federalism implications and does not impose substantial 
direct compliance costs on state and local governments or preempt state 
law within the meaning of the Executive Order.

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, (entitled ``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 rule after its submission to OMB are identified in the 
docket file, which is available for public inspection in the 
Regulations Division, Room 10276, Office of General Counsel, 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 record 
keeping requirements, Urban renewal.

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24 CFR Part 599

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

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

PART 599--RENEWAL COMMUNITIES

0
Accordingly, the interim rule amending 24 CFR part 598 and adding 24 
CFR part 599, which was published at 66 FR 35850 on July 9, 2001, is 
adopted as final without change.

    Dated: August 11, 2003.
Roy A. Bernardi,
Assistant Secretary for Community Planning and Development.
[FR Doc. 03-25041 Filed 10-2-03; 8:45 am]
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