[Federal Register Volume 70, Number 109 (Wednesday, June 8, 2005)]
[Proposed Rules]
[Pages 33642-33648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-11311]



[[Page 33641]]

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Part III





Department of Housing and Urban Development





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24 CFR Part 598



Empowerment Zones: Performance Standards for Utilization of Grant 
Funds; Proposed Rule

  Federal Register / Vol. 70 , No. 109 / Wednesday, June 8, 2005 / 
Proposed Rules  

[[Page 33642]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 598

[Docket No. FR-4853-P-01; HUD-2005-0009]
RIN 2506-AC16


Empowerment Zones: Performance Standards for Utilization of Grant 
Funds

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

ACTION: Proposed rule.

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SUMMARY: This rule proposes to establish certain planning and 
performance standards for utilization of grant funds allocated to 
Empowerment Zones, including for benefit levels and economic-
development activities. The standards are designed to ensure that the 
activities undertaken by Empowerment Zones with Federal grants are 
consistent with the Empowerment Zone's strategic plan.

DATES: Comment Due Date: August 8, 2005.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410-0500. Interested persons may also submit 
comments electronically through either:
     The Federal eRulemaking Portal at: http://www.regulations.gov; or
     The HUD electronic Web site at: http://www.epa.gov/feddocket. Follow the link entitled ``View Open HUD Dockets.'' 
Commenters should follow the instructions provided on that site to 
submit comments electronically.
    Facsimile (FAX) comments are not acceptable. In all cases, 
communications must refer to the above docket number and title. All 
comments and communications submitted will be available, without 
charge, for public inspection and copying between 8 a.m. and 5 p.m. 
weekdays at the above address. Due to security measures at the HUD 
Headquarters building, please schedule an appointment to review the 
public comments by calling the Regulations Division at (202) 708-3055 
(this is not a toll-free number). Copies of the public comments are 
also available for inspection and downloading at http://www.epa.gov/feddocket.

FOR FURTHER INFORMATION CONTACT: John Haines, Office of Community 
Planning and Development, 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 number). Individuals 
with speech or hearing impairments may access this number through TTY 
by calling the toll-free Federal Information Relay Service at (800) 
877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    This rule proposes to amend HUD's regulations at 24 CFR part 598 by 
adding a new subpart G, ``Empowerment Zone Grants,'' that will 
establish an implementation plan and performance standards for the use 
of funds appropriated by Congress and made available by HUD 
specifically for the Round II urban Empowerment Zones (EZs). These 
funds are referred to as HUD EZ Grant Funds. The funds Congress has 
appropriated to date are found under the following appropriation acts 
commencing with fiscal year 1999: Public Laws 105-277, 106-74, 106-377, 
106-554, 107-73, and 108-7. Should additional funds be made available 
in the future for Round II or Round III EZs, the provisions of this new 
subpart G, once promulgated as a final rule, would apply to them as 
well. Subpart G would provide for an EZ to submit to HUD its plan for 
expenditure of HUD EZ Grant Funds. Such planning would assist both HUD 
and the EZ to ensure that HUD EZ Grant Funds are expended consistent 
with the EZ's strategic plan and any directions or restrictions that 
may be imposed on the grant funds by the appropriations acts that make 
the funds available to EZs. Subpart G also would establish certain 
performance standards for the expenditure of EZ grant funds to greater 
ensure that a certain level of the benefits resulting from the 
expenditure of these funds will accrue to persons who reside within the 
EZ.

II. Benefits to EZ Residents

    With respect to performance standards for utilization of funds for 
the benefit of EZ residents, numerous comments were received by HUD on 
this subject following HUD's issuance of a policy statement on resident 
benefit in July 2002. Round I EZs received Social Service Block Grants 
(SSBG) from the Department of Health and Human Services (HHS). Part of 
an HHS statute governing the use of SSBG funding, (42 U.S.C. 
1397f(c)(1)(C)), states that, ``an area shall use the grant for 
activities that benefit residents of the area for which the grant is 
made.'' Round II EZs received HUD EZ Grant Funds rather than SSBG 
funds. This funding distinction has created a situation where there is 
an explicit statutory basis for a resident benefit standard for Round 
I, but not for Round II EZs. Nevertheless, HUD has determined that it 
is appropriate to establish a performance standard that helps to ensure 
a certain level of resident benefit from the use of HUD EZ Grant Funds. 
The establishment of such a standard is supported by and would be 
consistent with the fact that several of the tax incentives that are 
the primary benefits for businesses operating in the EZs also provide a 
direct benefit to EZ residents. For example, the Empowerment Zone 
Employment Wage Credit is specifically linked to existing employees and 
new hires who live and work in the EZ, and the Work Opportunity Tax 
Credit gives employers a tax credit for hiring EZ residents who are 
within specified age brackets. EZ residents are certainly intended to 
be among the principal beneficiaries of the EZ program.
    Accordingly, to enhance achievement of the objectives of an EZ 
strategic plan and the specific objective of benefiting EZ residents, 
this rule proposes for each EZ to submit an implementation plan for HUD 
approval, after this rule is issued as final and becomes effective. The 
implementation plan will describe the EZ's planned use of HUD EZ Grant 
Funds, and how utilization of funds will meet one of three performance 
standards designed to promote benefit to residents. The three 
performance standards are a principal benefit standard, a proportional 
benefit standard, and an exception criterion for determining the amount 
of HUD EZ Grant Funds that may be used to fund a particular project or 
activity described in an implementation plan. The following discusses 
each of these standards in more detail.

A. Principal Benefit Standard

    The principal benefit standard looks at the percentage of the total 
number of persons projected to benefit from the assisted activity who 
reside within the boundaries of the EZ. This standard begins with the 
presumption, with which HUD agrees, that for most projects it is not 
feasible to entirely limit the persons who benefit directly to those 
who reside within the EZ. This rule proposes to establish a minimum 
percentage for this purpose. The strong emphasis on the benefits to be 
received by EZ residents stems from HUD's belief that such an emphasis 
is needed to make the main goal of the EZ program more likely to be 
achieved. That goal is the long-term, sustainable revitalization of a 
highly impoverished area. In the

[[Page 33643]]

case of an EZ, which by definition includes a very high percentage of 
persons in poverty, this means that many such persons must find a way 
to raise their income. Accordingly, the objective expressed at 24 CFR 
598.2 in the Round II regulations appropriately calls for ``empowering 
low-income persons and families receiving public assistance to become 
economically self-sufficient.'' Conversely, HUD also recognizes that 
the local governments involved in the EZ program must partner with 
private businesses to achieve the desired redevelopment of the area, 
and cannot control the results entirely. Thus, some sharing of the 
direct benefits with those outside the EZ is likely to occur. HUD 
accepts the proposition that, if a majority of the direct beneficiaries 
reside within the EZ, the project that provides the benefits may be 
assisted with HUD EZ Grant Funds to meet this concern. However, HUD 
also notes that the Congress, in setting the requirements for some of 
the tax incentives available in conjunction with EZs, allows for a 
smaller proportion of resident benefit. In these cases, the tax 
incentives only require 35 percent of jobholders to be EZ residents. 
For example, among the criteria a business has to meet to qualify as an 
``Enterprise Zone Business'' eligible to use the Increased Section 179 
Deduction, EZ Facility Bonds, and certain other incentives is the 
requirement that 35 percent of employees must be EZ residents. HUD 
believes that this requirement provides a reasonable basis for allowing 
as few as 35 percent of the direct beneficiaries to be EZ residents to 
suffice with respect to a project that provides for the creation of 
jobs or, in the case where the loss of jobs would result without the 
assistance of the federal EZ funds, the retention of jobs.
    Therefore, this proposed rule provides that an EZ may use HUD EZ 
Grant Funds to assist any project that provides at least 51 percent of 
its direct benefits to persons who reside within the designated EZ 
boundaries. Moreover, in any case where the direct benefits to be 
provided by the project in question will be in the form of jobs, the 
project may be assisted if at least 35 percent of the jobs, on a full-
time equivalent basis, are taken by, or made available to, EZ 
residents. But HUD also recognizes that there may be projects that 
would be helpful to the overall effort to revitalize an EZ but which 
cannot meet either of these tests (51 percent or 35 percent), and so 
two other standards are also provided, as discussed below.

B. Proportional Benefit Standard

    In the interest of providing maximum flexibility to an EZ in its 
quests to pursue its strategic plan, HUD has made provision to also 
assist such an activity to a lesser degree. That is, while a project 
that will meet either the 51 percent or 35 percent test, as applicable, 
may be fully assisted with HUD EZ Grant Funds, one that cannot meet 
those tests may also be assisted in part. The level of assistance that 
may be provided must be limited so that it does not exceed the 
percentage of direct beneficiaries that are EZ residents. An example 
might help to show how this would work. If a business needs $100,000 to 
expand its operations and will create four new full time jobs, but it 
can only assure that one of those four jobs will be made available to 
an EZ resident, the EZ could provide $25,000 (one-fourth of the total 
amount needed by the business) in the form of HUD EZ Grant Funds. This 
is because only one-fourth of the jobs will benefit EZ residents. Using 
this practical approach, HUD allows the use of the HUD EZ Grant Funds 
at a level commensurate with the extent to which EZ residents will 
benefit directly from such a project.
    Comparing the principal benefit standard to the proportional 
standard proposed by this regulation means that the EZs will have an 
incentive to fund projects that will provide at least 51 percent (or 35 
percent, where applicable) of the direct benefits to EZ residents. This 
is because where the applicable percentage can be reached, there is no 
limit as to the percentage of the funding needed by the project in 
question that may be met using the HUD EZ Grant Funds. However, if a 
project is highly desirable for other reasons, it may still be 
assisted, in part, using such funds.

C. Exception Criterion

    In any case where a proposed project does not meet the principal 
benefit standard or the proportional benefit standard set forth in this 
regulation, the regulation provides that HUD will consider a request 
for exception if an EZ concludes that the project would contribute to 
its strategic plan in a critical way. Where an EZ shows, to HUD's 
satisfaction, other substantial benefits to the EZ that would result 
from the project or other compelling reasons justifying the 
appropriateness of the implementation plan to its strategic plan, HUD 
may expressly approve the project despite its failure to meet either 
the principal or proportionate criterion. All requests for exceptions 
to these criteria must be in writing, accompanied by the facts that the 
EZ wants HUD to review and consider as justifying the exception. The 
performance standards proposed in this rule for determining whether an 
activity is in conjunction with economic development contain a similar 
exception provision, as discussed elsewhere in this preamble.

D. Additional Issues

    1. Amount of benefit. The question of how much benefit, at minimum, 
should be derived from the expenditure of HUD EZ Grant Funds is not 
addressed in this proposed rule. The concern about the amount of 
benefit stems from the fact that the dominant use of HUD EZ Grant Funds 
is expected to be for assisting private businesses to establish, expand 
or remain in place and thus to create or retain jobs that would 
otherwise not be available. Since private businesses must principally 
focus on their own profitability, the public sector needs to make sure 
that the number of jobs that are made available is commensurate with 
the amount of HUD EZ Grant Funds provided to such businesses. HUD is 
not aware of abuses in this regard with respect to the use of HUD EZ 
Grant Funds, but is interested in receiving public comment on whether 
establishing specific requirements would be desirable to prevent them 
from occurring. For example, in the Community Development Block Grant 
(CDBG) program, there is a general requirement that economic 
development activities that will create or retain jobs must create or 
retain at least one permanent, full-time equivalent job for each 
$35,000 of CDBG funds obligated for applicable activities during the 
program year. HUD invites public comment on whether this or any similar 
requirement would be appropriate to apply to all jobs created or 
retained by the use of the HUD EZ Grant Funds.
    2. Types of benefits/service area/location of the project. Economic 
development professionals recognize other types of direct benefits 
besides creation and retention of jobs. For example, a supermarket, 
drug store, or for-profit medical clinic may provide essential services 
to support the quality of life and the business climate in the 
community. Specifically, if EZ residents comprise at least 51 percent 
of the persons who live within the area served by the business, the 
project would qualify under that standard, even if it cannot meet the 
35 percent jobs standard. (Appendix D of the CDBG Guide to National 
Objectives and Eligible Activities for Entitlement Communities, 
published in 1998, contains guidance on how to determine a service area 
that may be used for this

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purpose.) Thus, an EZ may choose which of the two standards, principal 
benefit or proportional benefit, to apply to a proposed commercial 
project. In addition, the location of a facility within the EZ and the 
nature of the goods and services that it will provide may justify a 
presumption that most of its goods and services would benefit the 
residents of the EZ. If a project is located outside the EZ, HUD would 
naturally expect the EZ to provide more substantial analysis of its 
service area and customer base if it claims that a majority of these 
kinds of benefits would accrue to EZ residents.
    3. Full-time equivalency. The standards for ensuring that 
sufficient benefit will go to EZ residents from activities assisted 
with HUD EZ Grant Funds require measuring the jobs on a full-time 
equivalent basis. This is because many of the jobs can be expected to 
involve less than full-time employment. Because the standards in this 
regulation require that a calculation of the percentage of the total 
jobs resulting that will benefit EZ residents, it is important that 
provision be made for those cases where one or more of the resulting 
jobs will be part-time jobs. An example might help to clarify the 
concerns HUD has and how the calculation should be made. Assume that a 
proposed project is expected to create 10 new jobs, four of which will 
require only 20 hours of work per week. Knowing that four of the new 
jobs will go to EZ residents would, on the surface, appear to meet the 
standard that at least 35 percent of the new jobs benefit EZ residents. 
However, if the four jobs to be taken by EZ residents are all only 
part-time, the simple calculation based on the number of jobs alone is 
misleading. While 40 percent of the new jobs will benefit EZ residents, 
less than 40 percent of the total employment to be produced will accrue 
to them. Using a full-time equivalent approach, only 25 percent of the 
employment opportunity will benefit EZ residents. This is because when 
the part-time jobs are converted to their equivalent in full-time jobs 
(i.e., a 20 hour per week job is the equivalent of one-half of a full-
time job), they would compute to only two full-time equivalent jobs. 
Thus, using a full-time equivalent calculation, the 10 new jobs are 
seen as equaling only eight full-time equivalent jobs. The four part-
time jobs that would go to EZ residents convert to the equivalent of 
two of those eight full-time jobs, yielding only 25 percent of the 
total employment opportunities to be produced by the HUD EZ Grant 
Funds. (Note: In those cases where an employer operates on the basis of 
a full-time schedule of less than 40 hours [e.g., 36 hours], the 
calculation of part-time to full-time equivalency would be made using 
that lesser figure in lieu of 40.)
    4. Making jobs ``available to'' EZ residents. The standards 
proposed in this regulation for ensuring sufficient benefit to EZ 
residents allow for qualifying based on the fact that a job was made 
available to such residents even if they do not actually take the job. 
This provision recognizes that it may not be feasible for a business to 
hold one or more jobs open indefinitely while they attempt to fill it 
with a resident of the EZ. If the EZ can demonstrate that the job 
referral resources and the business have a good faith plan to provide 
first consideration to EZ residents who reasonably can be expected to 
fill 35 percent of the jobs, it will be seen as meeting the principal 
benefit standard under this regulation. Note, however, that qualifying 
for tax exempt financing, increased deductions for capital equipment in 
accordance with section 179 of the Internal Revenue Code, and 
preferential tax treatment for capital gains otherwise available to an 
``EZ business'' requires that the business meet the tests that define 
an ``Enterprise Zone Business'' under the Internal Revenue Code, 
including having at least 35 percent of its employees residing in the 
EZ.

III. In Conjunction With Economic Development

    To date, all funds appropriated by Congress for Round II EZs (the 
HUD EZ Grant Funds) have generally been accompanied by the explicit 
requirement that the funds be used ``in conjunction with economic 
development activities consistent with the strategic plan for each 
EZ.'' (See Public Laws 105-277, 106-74, 106-377, 107-73, and 108-7. 
Public Law 106-554 does not contain this requirement, but HUD has 
determined to apply a consistent approach to focus the use of all HUD 
funds made available to EZs.) Over the course of time that such funds 
have been made available to these EZs, a number of questions have 
arisen about whether particular planned activities would fall within 
this statutory restriction. While each question was answered on an 
individual basis, HUD had not attempted to set forth specific 
requirements for adhering to the economic development restriction. The 
regulations governing urban EZs from Round II are contained in 24 CFR 
part 598. At the time they were published, it was expected that any 
funds the Congress would appropriate for Round II EZs would continue to 
fall under the jurisdiction of HHS as the Round I funds did. The 
regulations are now being amended to reflect the change in jurisdiction 
over the funds to HUD. This rulemaking removes references to HHS at 24 
CFR 598.215(b)(4)(i)(D) and in its place provides that HUD EZ Grant 
Funds are to be used in conjunction with economic development 
activities consistent with an EZ's strategic plan. This rule also 
provides for economic development activity standards.
    In order to ensure that the economic development standard is met, 
each proposed use of the funds must be described in an implementation 
plan and approved by HUD in advance. This rule would provide that in 
reviewing a proposed use of HUD EZ Grant Funds, HUD will consider the 
nature of the activity and, in addition to making a determination that 
the resident benefit standard is met, will make a decision as to 
whether the activity is in conjunction with economic development. It 
should be noted that while the two standards (resident benefit and 
economic development) covered in this proposed rule are independent of 
each other, they will have to be considered almost simultaneously by 
those making decisions about how to spend HUD EZ Grant Funds. This 
preamble and Sec. Sec.  598.605 and 598.615(a)(1) of the proposed rule 
contain reminders that both resident benefit and economic development 
standards must be separately met for each activity supported with HUD 
EZ Grant Funds. HUD's decision as to whether the activity is in 
conjunction with economic development will be made in accordance with 
the following:
    1. An activity that involves assisting a business to establish or 
expand is clearly ``economic development.'' Such activities include 
efforts to stimulate the development or expansion of microenterprises. 
Assisting commercial businesses that provide goods or services within 
the EZ to either remain within the EZ or expand would also satisfy the 
standard, whether or not the business will create any new jobs, so long 
as either the principal benefit or the proportional benefit standard is 
met, or an exception is granted for resident benefit.
    2. An activity that assists a person to take, or remain in, a job 
also meets the economic development standard. The standard is met by 
job training, provision of child care or transportation to or from the 
place of employment (or the place where job training is taking place), 
or even by counseling persons on how to interview successfully for a 
job, dress and/or act appropriately in the conduct of a job.

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    3. The provision of other kinds of educational assistance meets the 
economic development standard only if the EZ's implementation plan 
demonstrates that such education will be provided to persons who cannot 
qualify for available jobs because of the lack of some specific 
knowledge that would be given them through the course(s) to be provided 
and at least 51 percent of whom are EZ residents.
    4. An activity that is clearly aimed at increasing the capacity of 
governance board members, or staff of the EZ's lead agency, to carry 
out their roles with respect to economic development projects expected 
to be assisted in support of the EZ's strategic plan meets the test as 
well. This includes the cost of attending a conference on economic 
development. Because of the difficulty of tracking the relationship of 
such capacity building to resultant grant-assisted activities, this 
rule would deem the use of funds to build capacity for carrying out 
economic development activities as providing adequate benefit to EZ 
residents.
    5. The provision of public improvements, such as construction of a 
parking structure, extension of water or sewer capacity, street 
widening, etc., meets the economic development standard only if it is 
shown that the lack of the improvements clearly is an impediment to the 
establishment, expansion or retention of one or more businesses, and 
that the provision of the proposed public improvement would be limited 
as much as feasible to assisting the business or businesses. The 
benefits provided by such businesses would need to satisfy the resident 
benefit standard.
    6. HUD may also expressly approve a project that does not fall 
within any of the previous review standards if the EZ provides evidence 
in the implementation plan that, in some other way, the project can 
reasonably be seen as meeting the economic development standard. All 
requests for such an exception must be in writing, accompanied by the 
facts that the EZ wants HUD to review and consider as justification.

IV. Technical and Conforming Changes

    This proposed rule would add, at Sec.  598.605(b), provisions to 
emphasize the need for compliance with other requirements applicable to 
the use of HUD EZ Grant Funds, such as the uniform administrative 
requirements of 24 CFR part 85, the Uniform Relocation Assistance and 
Real Property Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601 et 
seq.) and with the environmental review procedures required to expend 
HUD funds. These amendments are in the nature of technical corrections 
to codify general requirements affecting the use of HUD grant funds.
    This rule would also remove references to SSBG. Congress 
appropriated HUD EZ Grant Funds rather than SSBG funds as was 
anticipated when 24 CFR part 598 was first issued. As a result, the 
SSBG references in part 598 are not relevant and would be removed, as 
follows:
    The definition of ``EZ/EC SSBG'' would be removed from Sec.  598.3. 
``HUD EZ Grant Funds'' would be defined in Sec.  598.600.
    The certification requirement in Sec.  598.210(e) would be removed. 
It reads as follows: ``Provide assurances that any Round II EZ/EC SSBG 
funds that may be provided to the state for the area will not be used 
to supplant federal or non-federal funds for services and activities 
that promote the purposes of section 2007 of the Social Security Act.''
    The phrase, ``and reporting on the use of EZ/EC SSBG funds'' would 
be removed from the certification requirement in Sec.  598.210(f), 
which would be redesignated as Sec.  598.210(e).
    The certification requirement in Sec.  598.210(g) would be removed. 
It reads as follows: ``Provide assurances that the nominating State(s) 
agrees to distribute any EZ/EC SSBG funds that may be awarded to it for 
use by a designated Empowerment Zone for programs, services, and 
activities included in the Empowerment Zone's strategic plan to the 
extent they are consistent with section 2007(a) of the Social Security 
Act as well as other applicable Federal, State, and local laws and 
regulations.''
    Section 598.210(h) would be redesignated as Sec.  598.210(f).
    The last sentence of Sec.  598.215(b)(4)(i)(D) would be removed. It 
reads as follows: ``Budgets will also include details about proposed 
uses of any Round II EZ/EC SSBG funds that may become available from 
HHS, in accordance with Guidelines on Eligible Uses of EZ/EC SSBG 
Funds.''
    The reference to EZ/EC SSBG funds in Sec.  598.405 would be changed 
to HUD EZ Grant Funds. Section 598.405 would also identify HUD's 
environmental review responsibility under 24 CFR part 50 and specify, 
consistent with 24 CFR 50.3(h)(1), that the EZ must provide HUD with 
the information necessary to conduct an environmental review.

V. Evaluation, Monitoring and Enforcement

    HUD will review the performance of the EZ's use of HUD EZ Grant 
Funds as part of its regular evaluation process under 24 CFR 598.420, 
through on-site monitoring under 24 CFR 85.40(e), and by other 
appropriate means. Should it appear that an EZ is not carrying out its 
funded activities in accordance with its approved implementation plan, 
including performance standards, HUD may forward a warning letter to 
the EZ informing it of a potential violation. If HUD makes an initial 
determination that there has been a violation in the use of HUD EZ 
Grant Funds, it will notify the EZ of the alleged violation and the 
proposed action HUD will take under 24 CFR 85.43, the enforcement 
provision of HUD's promulgation at 24 CFR part 85 of the government-
wide ``Administrative Requirements for Grants and Cooperative 
Agreements to State, Local and Federally Recognized Indian Tribal 
Governments'' or if appropriate, 24 CFR 598.430. The notice will also 
provide the EZ with at least 30 days to respond with any information to 
rebut or mitigate the alleged violation. If the EZ does not respond 
within the specified period, HUD may proceed to take the action 
proposed in the notice. If the EZ responds, HUD will consider the 
information received from the EZ and may request additional 
information. After considering the information received from the EZ, 
HUD will notify the EZ of HUD's final determination and action, 
affirming, modifying, or repealing HUD's initial determination and 
proposed action.

VI. Findings and Certifications

Paperwork Reduction Act

    The proposed new information collection requirements contained in 
subpart G of part 598 have been submitted to the Office of Management 
and Budget (OMB) for review under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501-3520). Under this Act, 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 valid control number.
    The public reporting burden for this new collection of information 
is estimated to include the time for reviewing the instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. 
Information on the estimated public reporting burden is provided in the 
following table:

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                                     Number of     Responses per   Total annual      Hours per
     Information collection         respondents     respondent       responses       response       Total hours
----------------------------------------------------------------------------------------------------------------
Sec.   598.610..................              15               1              15               4              60
Sec.   598.615..................              15               1              15               3              45
Sec.   598.620..................              15               1              15               6              90
---------------------------------
    Total hours.................  ..............  ..............  ..............  ..............             195
----------------------------------------------------------------------------------------------------------------

    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
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.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this proposal. Under the 
provisions of 5 CFR part 1320, OMB is required to make a decision 
concerning this collection of information between 30 and 60 days after 
today's publication date. Therefore, a comment on the information 
collection requirements is best assured of having its full effect if 
OMB receives the comment within 30 days of today's publication. This 
time frame does not affect the deadline for comments to the agency on 
the interim rule, however. Comments must refer to the proposal by name 
and docket number (FR-4853-P-01) and must be sent to:

HUD Desk Officer, Office of Management and Budget, New Executive Office 
Building, Washington, DC 20503-0001; Fax number (202) 395-6974;

 and

Shelia Jones, Reports Liaison Officer, Department of Housing and Urban 
Development, Office of Community and Planning Development, Room 7232, 
451 Seventh Street, SW., Washington, DC 20410-7000.

Environmental Review

    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 (42 U.S.C. 4332(2)(C)). The Finding of 
No Significant Impact is available for public inspection between 8 a.m. 
and 5 p.m. weekdays in the Regulations Division, Room 10276, Office of 
General Counsel, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410-0500.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments and the private sector. This proposed rule would 
only establish program-specific requirements governing a recipient's 
use of federal grant funds and does not impose a federal mandate that 
will result in expenditure by state, local, or tribal governments, 
within the meaning of the UMRA.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The rule would establish performance standards for the use of grant 
funds made available to EZs by HUD, largely pertaining to benefit 
levels and economic-development activities. There are no anti-
competitive discriminatory aspects of the rule with regard to small 
entities and there are not any unusual procedures that would need to be 
complied with by small entities. Accordingly, the undersigned certifies 
that this rule will not have a significant economic impact on a 
substantial number of small entities.
    Notwithstanding HUD's determination that this rule will not have a 
significant economic effect on a substantial number of small entities, 
HUD specifically invites comments regarding less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Executive Order 13132, Federalism

    Executive Order 13132 (``Federalism'') prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This proposed rule would not have 
federalism implications and would not impose substantial direct 
compliance costs on state and local governments or preempt state law 
within the meaning of the Executive Order.

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``Regulatory Planning and Review''). 
OMB determined that this is a ``significant regulatory action,'' as 
defined in section 3(f) of the order (although not an economically 
significant regulatory action under the Order). The docket file is 
available for public inspection in the Regulations Division, Room 
10276, Office of General Counsel, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-0500. Due to 
security measures at the HUD Headquarters building, please schedule an 
appointment to review the docket file by calling the Regulations 
Division at (202) 708-3055 (this is not a toll-free number).

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance Numbers for 24 CFR part 
598 is 14.244.

List of Subjects in 24 CFR Part 598

    Community development, Economic development, Empowerment zones, 
Housing, Indians, Intergovernmental relations, Reporting and record 
keeping requirements, Urban renewal.

[[Page 33647]]

    Accordingly, HUD proposes to amend 24 CFR part 598 as follows:

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

    1. 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).


Sec.  598.3  [Amended]

    2. In Sec.  598.3, remove the definition of ``EZ/EC SSBG funds.''
    3. In Sec.  598.210, remove paragraphs (e) and (g), redesignate 
paragraph (f) as paragraph (e), redesignate paragraph (h) as paragraph 
(f), and revise redesignated paragraphs (e) and (f) to read as follows:


Sec.  598.210  What certifications must governments make?

* * * * *
    (e) Provide that the nominating governments or corporations agree 
to make available all information requested by HUD to aid in the 
evaluation of progress in implementing the strategic plan; and
    (f) Provide assurances that the nominating governments will 
administer the Empowerment Zone program in a manner that affirmatively 
furthers fair housing on the bases of race, color, national origin, 
religion, sex, disability, and familial status (presence of children).
* * * * *


Sec.  598.215  [Amended]

    4. In Sec.  598.215, remove the last sentence of paragraph 
(b)(4)(i)(D).
    5. Revise Sec.  598.405 to read as follows:


Sec.  598.405  Environmental review.

    Where any EZ's strategic plan or any revision thereof proposes the 
use of HUD EZ Grant Funds (see Sec.  598.600) for activities that are 
not excluded from environmental review under 24 CFR 50.19(b), the EZ 
shall supply HUD with all available, relevant information necessary for 
HUD to perform any environmental review required by 24 CFR part 50.
    6. Following Sec.  598.515, add a new subpart G to read as follows:

Subpart G--Empowerment Zone Grants

Sec.
598.600 Applicability.
598.605 Implementation plan.
598.610 Resident benefit standards.
598.615 Economic development standards.
598.620 Evaluation, monitoring, and enforcement.


Sec.  598.600  Applicability.

    This subpart applies to the use of funds appropriated by Congress 
and made available by HUD specifically for use by EZs. These funds are 
referred to as ``HUD EZ Grant Funds.''


Sec.  598.605  Implementation plan.

    (a) Implementation plan content. An EZ must submit an 
implementation plan for HUD approval that addresses each project or 
activity proposed to be undertaken by the EZ with HUD EZ Grant Funds. 
The implementation plan must:
    (1) Describe the project or activity;
    (2) Identify the completion date or duration of the project or 
activity;
    (3) Provide the total cost of the project or activity;
    (4) Identify the amount of HUD EZ Grant Funds to be used for the 
project or activity; and
    (5) Include a narrative description of how the project or activity 
meets the resident benefit and economic development standards of this 
subpart.
    (b) Proposed funded project or activity. The project or activity 
proposed in the implementation plan is subject to the following 
requirements:
    (1) The federal requirements listed in 24 CFR 5.105;
    (2) The governmentwide, Uniform Administrative Requirements for 
Grants and Cooperative Agreements to State, Local and Federally 
Recognized Indian Tribal Governments at 24 CFR part 85;
    (3) The requirements of the Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970 (URA) (42 U.S.C. 4601 et 
seq.);
    (4) The environmental review and approval requirements of 24 CFR 
part 50;
    (5) The provisions of the Memorandum of Agreement (MOA) setting 
forth the obligations and requirements that the state and local 
governments, as Empowerment Zone designees, have agreed to meet as 
signatories of the agreement.
    (6) Recipients of the HUD EZ Grant Funds also must adhere to the 
requirements set forth in the provisions of the grant agreement for HUD 
EZ Grant Funds.


Sec.  598.610  Resident benefit standards.

    The project or activity described in an implementation plan 
submitted for HUD approval by an Empowerment Zone to describe the 
planned use of HUD EZ Grant Funds must meet one of the following three 
standards of resident benefit for determining the amount of HUD EZ 
Grant Funds that may be used to fund a particular project or activity:
    (a) Principal benefit standard. (1) Benefits other than jobs. If a 
majority (51 percent) of the direct beneficiaries of the project or 
activity described in the implementation plan reside within the 
Empowerment Zone, the project or activity may be fully assisted with 
HUD EZ Grant Funds.
    (2) Jobs benefit. In any case where the direct benefits to be 
provided by a project or activity described in an implementation plan 
will be in the form of jobs, the project may be fully assisted with HUD 
EZ grant funds if at least 35 percent of the jobs, on a full-time 
equivalent basis, are taken by, or made available to, Empowerment Zone 
residents.
    (b) Proportional benefit standard. If a project or activity 
described in an implementation plan cannot meet the principal benefit 
standard of paragraph (a) of this section, the percent of the cost of 
the project or activity that may be assisted with HUD EZ Grant Funds 
may not be greater than the percent of all persons benefiting directly 
from the project or activity who reside within the Empowerment Zone.
    (c) Exception criterion. In any case where a proposed project or 
activity would not meet the standards of paragraph (a) or paragraph (b) 
of this section, HUD EZ Grant Funds may be used where HUD determines 
that an implementation plan, accompanied by the facts that the 
Empowerment Zone requests HUD to review and consider as justifying the 
exception, demonstrates substantial benefits to the Empowerment Zone 
that would result from the project or other compelling reasons 
justifying the appropriateness of the implementation plan to the 
Empowerment Zone's strategic plan.


Sec.  598.615  Economic development standards.

    (a) Economic development standards. The project or activity in an 
implementation plan submitted for HUD approval by an Empowerment Zone 
to describe the planned use of HUD EZ Grant Funds must meet one of the 
following economic development standards:
    (1) Business development assistance. An activity that involves 
assisting a business in the Empowerment Zone meets the standard, 
whether or not the business will create any new jobs. Any such activity 
must also meet the standards for benefiting a sufficient portion of 
Empowerment Zone residents as required under Sec.  598.610. Qualifying 
activities include the use of HUD EZ Grant Funds to:
    (i) Assist in establishing a business;
    (ii) Expand a business, including efforts to stimulate the 
development or expansion of microenterprises; and

[[Page 33648]]

    (iii) Assisting businesses that provide goods or services within 
the Empowerment Zone to remain within the Empowerment Zone.
    (2) Employment training and assistance. An activity that assists a 
person to take, or remain in, a job, subject to meeting the standards 
for benefiting a sufficient proportion of Empowerment Zone residents as 
required under Sec.  598.610, including:
    (i) Job training;
    (ii) Provision of child care;
    (iii) Transportation to or from the place of employment or the 
place where job training is taking place; or
    (iv) Counseling persons on job-related skills, such as how to 
interview successfully for a job, and dress and act appropriately in 
the conduct of a job.
    (3) Educational assistance. The provision of educational assistance 
meets the economic development standard only if the Empowerment Zone's 
implementation plan demonstrates that such education will be provided 
to persons who cannot qualify for available jobs because of the lack of 
some specific knowledge that would be given them through the course(s) 
to be provided. Any educational assistance provided must also meet the 
standard for benefiting a sufficient portion of Empowerment Zone 
residents as required under Sec.  598.610.
    (4) Empowerment Zone administrative capacity. An activity that 
increases the capacity of governance board members or staff of the 
Empowerment Zone's lead agency to carry out their roles with respect to 
economic development projects expected to be assisted in support of the 
Empowerment Zone's strategic plan is eligible. This includes the cost 
of attending a conference on economic development. The use of HUD EZ 
Grant Funds for capacity building under this paragraph is deemed to 
provide adequate benefit to Empowerment Zone residents.
    (5) Public improvements. The provision of public improvements, such 
as extension of water or sewer capacity, or street widening, meets the 
economic development standard only if it is shown in the implementation 
plan that the lack of the improvements clearly is an impediment to the 
establishment, expansion or retention of one or more businesses in the 
Empowerment Zone, and that the provision of the proposed public 
improvement would be limited as much as feasible to assisting the 
business or businesses. Any public improvements must also meet the 
standard for benefiting a sufficient portion of Empowerment Zone 
residents as required under Sec.  598.610.
    (b) Exception request. HUD may approve a project or activity that 
does not fall within any of the previous review standards of this 
section if the Empowerment Zone provides evidence that, in some way, 
the project or activity can reasonably be seen as meeting the economic 
development standard. Such a project or activity must also meet the 
standards for benefiting a sufficient portion of Empowerment Zone 
residents as required under Sec.  598.610. All requests for such an 
exception must be in writing, accompanied by the facts that the 
Empowerment Zone wants HUD to review and consider as justification.


Sec.  598.620  Evaluation, monitoring, and enforcement.

    (a) Progress, evaluation, and monitoring. HUD will review the 
performance of an Empowerment Zone's use of HUD EZ Grant Funds for 
compliance with this subpart as part of its regular evaluation process 
under 24 CFR 598.420, through on-site monitoring under 24 CFR 85.40(e), 
and by other appropriate means.
    (b) Warning letter. If HUD has reason to believe that an 
Empowerment Zone is not carrying out its funded activities in 
accordance with any applicable requirements, including the resident 
benefit and economic development standards of this subpart, HUD may 
forward a warning letter to the Empowerment Zone informing it of a 
potential violation and recommending action to avoid a violation. A 
warning letter is not a prerequisite for any other action HUD may take.
    (c) Notice of violation. If HUD determines that there appears to be 
a violation in the use of HUD EZ Grant Funds, it will notify the 
Empowerment Zone of the alleged violation and the action HUD proposes 
to take under 24 CFR 85.43 or its successor regulation or if 
appropriate, 24 CFR 598.430.
    (d) Response to notice. A notice sent to an Empowerment Zone under 
paragraph (c) of this section will provide the Empowerment Zone with at 
least 30 calendar days from the time HUD sends the notice to respond 
with any information to rebut or mitigate the alleged violation.
    (e) Final action. If the Empowerment Zone does not respond within 
the period specified pursuant to paragraph (d) of this section, HUD 
will make a final determination of the violation and may proceed to 
take the action proposed in the notice. If the Empowerment Zone 
responds, HUD will consider the information received from the 
Empowerment Zone and may request additional information. After 
considering the information received from the Empowerment Zone, HUD 
will notify the Empowerment Zone of HUD's final determination and 
action, affirming, modifying, or repealing HUD's initial determination 
of an alleged violation and proposed action.

    Dated: May 10, 2005.
Pamela H. Patenaude,
Assistant Secretary for Community Planning and Development.
[FR Doc. 05-11311 Filed 6-7-05; 8:45 am]
BILLING CODE 4210-29-P