[Federal Register Volume 79, Number 192 (Friday, October 3, 2014)]
[Notices]
[Pages 59855-59861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23684]


-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5815-N-01]


Statutorily Mandated Designation of Difficult Development Areas 
and Qualified Census Tracts for 2015

AGENCY: Office of the Assistant Secretary for Policy Development and 
Research, HUD.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: This document designates ``Difficult Development Areas'' 
(DDAs) and ``Qualified Census Tracts'' (QCTs) for purposes of the Low-
Income Housing Tax Credit (LIHTC) under Internal Revenue Code (IRC) 
Section 42 (26 U.S.C. 42). The United States Department of Housing and 
Urban Development (HUD) makes new DDA designations annually and is 
making new designation of QCTs at this time to incorporate more recent 
income and poverty measures. As previously announced, the 2015 
metropolitan DDA designations will be the last designated for entire 
metropolitan areas. Beginning with the 2016 DDA designations, 
metropolitan DDAs will use Small Area Fair Market Rents (FMRs), rather 
than metropolitan-area FMRs, for designating metropolitan DDAs.

FOR FURTHER INFORMATION CONTACT: For questions on how areas are 
designated and on geographic definitions, contact Michael K. Hollar, 
Senior Economist, Economic Development and Public Finance Division, 
Office of Policy Development and Research, Department of Housing and 
Urban Development, 451 Seventh Street SW., Room 8234, Washington, DC 
20410-6000; telephone number (202) 402-5878, or send an email to 
[email protected]. For specific legal questions pertaining to 
Section 42, contact Branch 5, Office of the Associate Chief Counsel, 
Passthroughs and Special Industries, Internal Revenue Service, 1111 
Constitution Avenue NW., Washington, DC 20224; telephone number (202) 
317-4137, fax number (202) 317-6731. For questions about the ``HUB 
Zone'' program, contact Mariana Pardo, Director, HUBZone Program, 
Office of Government Contracting and Business Development, U.S. Small 
Business Administration, 409 Third Street SW., Suite 8800, Washington, 
DC 20416; telephone number (202) 205-2985, fax number (202) 481-6443, 
or send an email to [email protected]. A text telephone is available for 
persons with hearing or speech impairments at 800-877-8339. (These are 
not toll-free telephone numbers.) Additional copies of this notice are 
available through HUD User at 800-245-2691 for a small fee to cover 
duplication and mailing costs.
    Copies Available Electronically: This notice and additional 
information about DDAs and QCTs are available electronically on the 
Internet at http://www.huduser.org/datasets/qct.html.

SUPPLEMENTARY INFORMATION:

This Document

    This notice designates DDAs for each of the 50 states, the District 
of Columbia, Puerto Rico, American Samoa, Guam, the Northern Mariana 
Islands, and the U.S. Virgin Islands. The designations of DDAs in this 
notice are based on final Fiscal Year (FY) 2014 Fair Market Rents 
(FMRs), FY2014 income limits, and 2010 Census population counts, as 
explained below.
    This notice also re-designates QCTs based on new income and poverty 
data released in the American Community Survey (ACS). HUD is 
establishing a new method which incorporates several years of ACS 
estimates to ensure that anomalous estimates, due to sampling 
anomalies, do not affect the QCT eligibility of tracts.

2010 Census and 2006-2010, 2007-2011 and 2008-2012 American Community 
Survey Data

    Data from the 2010 Census on total population of metropolitan areas 
and nonmetropolitan areas are used in the designation of DDAs. The 
Office of Management and Budget (OMB) first published new metropolitan 
area definitions incorporating 2000 Census data in OMB Bulletin No. 03-
04 on June 6, 2003, and updated them periodically through OMB Bulletin 
No. 10-02 on December 1, 2009. FY2014 FMRs and FY2014 income limits 
used to designate DDAs are based on these metropolitan statistical area 
(MSA) definitions, with modifications to account for substantial 
differences in rental housing markets (and, in some cases, median 
income levels) within MSAs.
    Data from the 2010 Census on total population of census tracts, 
metropolitan areas, and the nonmetropolitan parts of states are used in 
the designation of QCTs. The FY2012, FY2013 and FY2014 income limits 
used to designate QCTs are based on these metropolitan statistical area

[[Page 59856]]

(MSA) definitions with modifications to account for substantial 
differences in rental housing markets (and in some cases median income 
levels) within MSAs. This QCT designation uses the OMB metropolitan 
area definitions published in OMB Bulletin No. 10-02 on December 1, 
2009 without modification for purposes of evaluating how many census 
tracts can be designated under the population cap, but uses the HUD-
modified definitions and their associated area median incomes for 
determining QCT eligibility.
    Because the 2010 Decennial Census did not include questions on 
respondent household income, HUD uses ACS data to designate QCTs. The 
ACS tabulates data collected over 5 years to provide estimates of 
socioeconomic variables for small areas containing fewer than 20,000 
persons, like Census Tracts. Although the previous QCT designations 
relied on one set of estimates, based on 2006-2010 ACS tabulations, HUD 
noticed anomalies in some estimates when compared to 2007-2011 and 
2008-2012 estimates. For this reason, HUD is implementing a new QCT 
designation method which incorporates several years of ACS data to 
ensure that anomalous estimates do not affect QCT eligibility.

Background

    The U.S. Department of the Treasury (Treasury) and its Internal 
Revenue Service (IRS) are authorized to interpret and enforce the 
provisions of the LIHTC found at IRC Section 42. The Secretary of HUD 
is required to designate DDAs and QCTs by IRC Section 42(d)(5)(B). In 
order to assist in understanding HUD's mandated designation of DDAs and 
QCTs for use in administering IRC Section 42, a summary of the section 
is provided. The following summary does not purport to bind Treasury or 
the IRS in any way, nor does it purport to bind HUD, since HUD has 
authority to interpret or administer the IRC only in instances where it 
receives explicit statutory delegation.

Summary of the Low-Income Housing Tax Credit

    The LIHTC is a tax incentive intended to increase the availability 
of low-income housing. IRC Section 42 provides an income tax credit to 
owners of newly constructed or substantially rehabilitated low-income 
rental housing projects. The dollar amount of the LIHTC available for 
allocation by each state (credit ceiling) is limited by population. 
Each state is allowed a credit ceiling based on a statutory formula 
indicated at IRC Section 42(h)(3). States may carry forward unallocated 
credits derived from the credit ceiling for one year; however, to the 
extent such unallocated credits are not used by then, the credits go 
into a national pool to be redistributed to states as additional 
credit. State and local housing agencies allocate the state's credit 
ceiling among low-income housing buildings whose owners have applied 
for the credit. Besides IRC Section 42 credits derived from the credit 
ceiling, states may also provide IRC Section 42 credits to owners of 
buildings based on the percentage of certain building costs financed by 
tax-exempt bond proceeds. Credits provided under the tax-exempt bond 
``volume cap'' do not reduce the credits available from the credit 
ceiling.
    The credits allocated to a building are based on the cost of units 
placed in service as low-income units under particular minimum 
occupancy and maximum rent criteria. In general, a building must meet 
one of two thresholds to be eligible for the LIHTC; either: (1) 20 
percent of the units must be rent-restricted and occupied by tenants 
with incomes no higher than 50 percent of the Area Median Gross Income 
(AMGI), or (2) 40 percent of the units must be rent-restricted and 
occupied by tenants with incomes no higher than 60 percent of AMGI. A 
unit is ``rent-restricted'' if the gross rent, including an allowance 
for tenant-paid utilities, does not exceed 30 percent of the imputed 
income limitation (i.e., 50 percent or 60 percent of AMGI) applicable 
to that unit. The rent and occupancy thresholds remain in effect for at 
least 15 years, and building owners are required to enter into 
agreements to maintain the low-income character of the building for at 
least an additional 15 years.
    The LIHTC reduces income tax liability dollar-for-dollar. It is 
taken annually for a term of 10 years and is intended to yield a 
present value of either: (1) 70 percent of the ``qualified basis'' for 
new construction or substantial rehabilitation expenditures that are 
not federally subsidized (as defined in IRC Section 42(i)(2)), or (2) 
30 percent of the qualified basis for the cost of acquiring certain 
existing buildings or projects that are federally subsidized. The 
actual credit rates are adjusted monthly for projects placed in service 
after 1987 under procedures specified in IRC Section 42. Individuals 
can use the credits up to a deduction equivalent of $25,000 (the actual 
maximum amount of credit that an individual can claim depends on the 
individual's marginal tax rate). For buildings placed in service after 
December 31, 2007, individuals can use the credits against the 
alternative minimum tax. Corporations, other than S or personal service 
corporations, can use the credits against ordinary income tax, and, for 
buildings placed in service after December 31, 2007, against the 
alternative minimum tax. These corporations also can deduct losses from 
the project.
    The qualified basis represents the product of the building's 
``applicable fraction'' and its ``eligible basis.'' The applicable 
fraction is based on the number of low-income units in the building as 
a percentage of the total number of units, or based on the floor space 
of low-income units as a percentage of the total floor space of 
residential units in the building. The eligible basis is the adjusted 
basis attributable to acquisition, rehabilitation, or new construction 
costs (depending on the type of LIHTC involved). These costs include 
amounts chargeable to a capital account that are incurred prior to the 
end of the first taxable year in which the qualified low-income 
building is placed in service or, at the election of the taxpayer, the 
end of the succeeding taxable year. In the case of buildings located in 
designated DDAs or designated QCTs, eligible basis can be increased up 
to 130 percent from what it would otherwise be. This means that the 
available credits also can be increased by up to 30 percent. For 
example, if a 70 percent credit is available, it effectively could be 
increased to as much as 91 percent.
    IRC Section 42 defines a DDA as an area designated by the Secretary 
of HUD that has high construction, land, and utility costs relative to 
the AMGI. All designated DDAs in metropolitan areas (taken together) 
may not contain more than 20 percent of the aggregate population of all 
metropolitan areas, and all designated areas not in metropolitan areas 
may not contain more than 20 percent of the aggregate population of all 
nonmetropolitan areas.
    IRC Section 42(d)(5)(B)(v) allows states to award an increase in 
basis up to 30 percent to buildings located outside of federally 
designated DDAs and QCTs if the increase is necessary to make the 
building financially feasible. This state discretion applies only to 
buildings allocated credits under the state housing credit ceiling and 
is not permitted for buildings receiving credits in connection with 
tax-exempt bonds. Rules for such designations shall be set forth in the 
LIHTC-allocating agencies' qualified allocation plans (QAPs).

[[Page 59857]]

Explanation of HUD Designation Method

A. 2015 Difficult Development Areas

    In developing the list of DDAs, HUD compared housing costs with 
incomes. HUD used 2010 Census population for metropolitan and 
nonmetropolitan areas, and the MSA definitions, as published in OMB 
Bulletin No. 10-02 on December 1, 2009, with modifications, as 
described below. In keeping with past practice of basing the coming 
year's DDA designations on data from the preceding year, the basis for 
these comparisons is the FY2014 HUD income limits for very low-income 
households (very low-income limits, or VLILs), which are based on 50 
percent of AMGI, and metropolitan FMRs based on the Final FY2014 FMRs 
used for the Housing Choice Voucher (HCV) program.
    In formulating the FY2014 FMRs and VLILs, HUD modified the current 
OMB definitions of MSAs to account for substantial differences in rents 
among areas within each current MSA that were in different FMR areas 
under definitions used in prior years. HUD formed these ``HUD Metro FMR 
Areas'' (HMFAs) in cases where one or more of the parts of newly 
defined MSAs that previously were in separate FMR areas had 2000 Census 
based 40th-percentile recent-mover rents that differed, by 5 percent or 
more, from the same statistic calculated at the MSA level. In addition, 
a few HMFAs were formed on the basis of very large differences in AMGIs 
among the MSA parts. All HMFAs are contained entirely within MSAs. All 
nonmetropolitan counties are outside of MSAs and are not broken up by 
HUD for purposes of setting FMRs and VLILs. (Complete details on HUD's 
process for determining FY2014 FMR areas and FMRs are available at 
http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr14. 
Complete details on HUD's process for determining FY2014 income limits 
are available at http://www.huduser.org/portal/datasets/il/il14/index.html.)
    HUD's unit of analysis for designating metropolitan DDAs consists 
of: entire MSAs, in cases where these were not broken up into HMFAs for 
purposes of computing FMRs and VLILs; and HMFAs within the MSAs that 
were broken up for such purposes. Hereafter in this notice, the unit of 
analysis for designating metropolitan DDAs will be called the HMFA, and 
the unit of analysis for nonmetropolitan DDAs will be the 
nonmetropolitan county or county equivalent area. The procedure used in 
making the DDA calculations follows:
    1. For each metropolitan HMFA and each nonmetropolitan county, HUD 
calculated a ratio. HUD used the final FY2014 two-bedroom FMR and the 
FY2014 four-person VLIL for this calculation.
    a. The numerator of the ratio, representing the development cost of 
housing, was the area's final FY2014 FMR. In general, the FMR is based 
on the 40th-percentile gross rent paid by recent movers to live in a 
two-bedroom apartment. In metropolitan areas granted a FMR based on the 
50th-percentile rent for purposes of improving the administration of 
HUD's HCV program (see 78 FR 61668), HUD used the 40th-percentile rent 
to ensure nationwide consistency of comparisons.
    b. The denominator of the ratio, representing the maximum income of 
eligible tenants, was the monthly LIHTC income-based rent limit, which 
was calculated as 1/12 of 30 percent of 120 percent of the area's VLIL 
(where the VLIL was rounded to the nearest $50 and not allowed to 
exceed 80 percent of the AMGI in areas where the VLIL is adjusted 
upward from its 50 percent-of-AMGI base).
    2. The ratios of the FMR to the LIHTC income-based rent limit were 
arrayed in descending order, separately, for HMFAs and for 
nonmetropolitan counties.
    3. The DDAs are those with the highest ratios cumulative to 20 
percent of the 2010 population of all metropolitan areas and all 
nonmetropolitan areas.
Application of Population Caps to DDA Determinations
    In identifying DDAs, HUD applied caps, or limitations, as noted 
above. The cumulative population of metropolitan DDAs cannot exceed 20 
percent of the cumulative population of all metropolitan areas, and the 
cumulative population of nonmetropolitan DDAs cannot exceed 20 percent 
of the cumulative population of all nonmetropolitan areas.
    In applying these caps, HUD established procedures to deal with how 
to treat small overruns of the caps. The remainder of this section 
explains those procedures. In general, HUD stops selecting areas when 
it is impossible to choose another area without exceeding the 
applicable cap. The only exceptions to this policy are when the next 
eligible excluded area contains either a large absolute population or a 
large percentage of the total population, or the next excluded area's 
ranking ratio, as described above, was identical (to four decimal 
places) to the last area selected, and its inclusion resulted in only a 
minor overrun of the cap. Thus, for both the designated metropolitan 
and nonmetropolitan DDAs, there may be minimal overruns of the cap. HUD 
believes the designation of additional areas in the above examples of 
minimal overruns is consistent with the intent of the IRC. As long as 
the apparent excess is small due to measurement errors, some latitude 
is justifiable, because it is impossible to determine whether the 20 
percent cap has been exceeded. Despite the care and effort involved in 
a Decennial Census, the Census Bureau and all users of the data 
recognize that the population counts for a given area and for the 
entire country are not precise. Therefore, the extent of the 
measurement error is unknown. There can be errors in both the numerator 
and denominator of the ratio of populations used in applying a 20 
percent cap. In circumstances where a strict application of a 20 
percent cap results in an anomalous situation, recognition of the 
unavoidable imprecision in the census data justifies accepting small 
variances above the 20 percent limit.

B. Qualified Census Tracts

    In developing this list of QCTs, HUD used 2010 Census 100-percent 
count data on total population, total households, and population in 
households; the median household income and poverty rate as estimated 
in the 2006-2010, 2007-2011 and 2008-2012 ACS tabulations; the FY2012, 
FY2013 and FY2014 Very Low-Income Limits (VLILs) computed at the HUD 
Metropolitan FMR Area (HMFA) level \1\ to determine tract eligibility; 
and the MSA definitions published in OMB Bulletin No. 10-02 on December 
1, 2009, for determining how many

[[Page 59858]]

eligible tracts can be designated under the statutory 20 percent 
population cap.
---------------------------------------------------------------------------

    \1\ FY2012 HUD income limits for very low-income households 
(very low-income limits, or VLILs) are based on 50 percent of AMGI. 
In formulating the FY2012 Fair Market Rents (FMRs) and VLILs, HUD 
modified the current OMB definitions of MSAs to account for 
substantial differences in rents among areas within each new MSA 
that were in different FMR areas under definitions used in prior 
years. HUD formed these ``HUD Metro FMR Areas'' (HMFAs) in cases 
where one or more of the parts of newly defined MSAs that previously 
were in separate FMR areas had 2000 Census based 40th-percentile 
recent-mover rents that differed, by 5 percent or more, from the 
same statistic calculated at the MSA level. In addition, a few HMFAs 
were formed on the basis of very large differences in AMGIs among 
the MSA parts. All HMFAs are contained entirely within MSAs. All 
nonmetropolitan counties are outside of MSAs and are not broken up 
by HUD for purposes of setting FMRs and VLILs. (Complete details on 
HUD's process for determining FY2012 FMR areas and FMRs are 
available at http://www.huduser.org/portal/datasets/fmr/fmrs/docsys.html&data=fmr12. Complete details on HUD's process for 
determining FY2012 income limits are available at http://www.huduser.org/portal/datasets/il/il12/index.html.)
---------------------------------------------------------------------------

    HUD uses the HMFA-level AMGIs to determine QCT eligibility because 
the statute, specifically IRC Section 42(d)(5)(B)(iv)(II), refers to 
the same section of the IRC that defines income for purposes of tenant 
eligibility and unit maximum rent, specifically IRC Section 42(g)(4). 
By rule, the IRS sets these income limits according to HUD's VLILs, 
which, starting in FY2006 and thereafter, are established at the HMFA 
level. Similarly, HUD uses the entire MSA to determine how many 
eligible tracts can be designated under the 20 percent population cap 
as required by the statute (IRC Section 42(d)(5)(B)(ii)(III)), which 
states that MSAs should be treated as singular areas. The QCTs were 
determined as follows:
    1. To be eligible to be designated a QCT, a census tract must have 
50 percent of its households with incomes below 60 percent of the AMGI 
or have a poverty rate of 25 percent or more. Due to potential 
statistical anomalies in the ACS 5-year estimates, one of these 
conditions must be met in at least 2 of the 3 evaluation years for a 
tract to be considered eligible for QCT designation. HUD calculates 60 
percent of AMGI by multiplying by a factor of 1.2 the HMFA or 
nonmetropolitan county VLIL adjusted for inflation to match the ACS 
estimates. For example, the FY2012 VLILs were adjusted for inflation to 
2010 dollars. The FY2013 VLILs were adjusted for inflation to 2011 
dollars. The FY2014 VLILs were adjusted for inflation to 2012 dollars.
    2. For each census tract, whether or not 50 percent of households 
have incomes below the 60 percent income standard (income criterion) 
was determined by: (a) Calculating the average household size of the 
census tract, (b) applying the income standard after adjusting it to 
match the average household size, and (c) comparing the average-
household-size-adjusted income standard to the median household income 
for the tract reported in each of the three years of ACS tabulations 
\2\ (2006-2010, 2007-2011 and 2008-2012). Since 50 percent of 
households in a tract have incomes above and below the tract median 
household income, if the tract median household income is less than the 
average-household-size-adjusted income standard for the tract, then 
more than 50 percent of households have incomes below the standard.
---------------------------------------------------------------------------

    \2\ If the confidence interval around the median household 
income determined from the margin of error for the estimate as 
published by Census included $0 in one or more of the ACS 
tabulations evaluated, HUD determined the tract to be ineligible for 
evaluation as a QCT under the income criterion due to lack of a 
reliable income statistic in that ACS tabulation.
---------------------------------------------------------------------------

    3. For each census tract, the poverty rate was determined in each 
of the three years of ACS tabulations (2006-2010, 2007-2011 and 2008-
2012) by dividing the population with incomes below the poverty line by 
the population for whom poverty status has been determined \3\.
---------------------------------------------------------------------------

    \3\ If the confidence interval around the estimates of the 
population for whom poverty status has been determined or the number 
of persons below poverty included zero persons as determined from 
the margins of error for the estimates as published by Census in one 
or more of the ACS tabulations evaluated, HUD determined the tract 
to be ineligible for evaluation as a QCT under the poverty rate 
criterion due to lack of reliable poverty statistics in that ACS 
tabulation.
---------------------------------------------------------------------------

    4. QCTs are those census tracts in which 50 percent or more of the 
households meet the income criterion in at least two of the three years 
evaluated, or 25 percent or more of the population is in poverty in at 
least two of the three years evaluated, such that the population of all 
census tracts that satisfy either one or both of these criteria does 
not exceed 20 percent of the total population of the respective area.
    5. In areas where more than 20 percent of the population resides in 
eligible census tracts, census tracts are designated as QCTs in 
accordance with the following procedure:
    a. The income and poverty criteria are each averaged over the three 
years of data (2006-2010, 2007-2011 and 2008-2012) if the values exceed 
the threshold \4\. Values below the threshold are excluded.
---------------------------------------------------------------------------

    \4\ If a tract exceeded the threshold in only 2 years, only the 
qualifying two years of data were averaged.
---------------------------------------------------------------------------

    b. Eligible tracts are placed in one of two groups based on the 
averaged values of the income and poverty criteria. The first group 
includes tracts that satisfy both the income and poverty criteria for 
QCTs in the same year for at least two of the three evaluation years. 
The second group includes tracts that satisfy either the income 
criterion or the poverty criterion in at least two of three years, but 
not both. A tract must qualify for at least one of the criteria in at 
least two of the three evaluation years to be eligible, although it 
does not need to be the same criterion.
    c. Tracts in the first group are ranked from highest to lowest by 
the average of the ratios of the tract average-household-size-adjusted 
income limit to the median household income. Then, tracts in the first 
group are ranked from highest to lowest by the average of the poverty 
rates. The two ranks are averaged to yield a combined rank. The tracts 
are then sorted on the combined rank, with the census tract with the 
highest combined rank being placed at the top of the sorted list. In 
the event of a tie, more populous tracts are ranked above less populous 
ones.
    d. Tracts in the second group are ranked from highest to lowest by 
the average of the ratios of the tract average-household-size-adjusted 
income limit to the median household income. Then, tracts in the second 
group are ranked from highest to lowest by the average of the poverty 
rates. The two ranks are then averaged to yield a combined rank. The 
tracts are then sorted on the combined rank, with the census tract with 
the highest combined rank being placed at the top of the sorted list. 
In the event of a tie, more populous tracts are ranked above less 
populous ones.
    e. The ranked first group is stacked on top of the ranked second 
group to yield a single, concatenated, ranked list of eligible census 
tracts.
    f. Working down the single, concatenated, ranked list of eligible 
tracts, census tracts are identified as designated until the 
designation of an additional tract would cause the 20 percent limit to 
be exceeded. If a census tract is not designated because doing so would 
raise the percentage above 20 percent, subsequent census tracts are 
then considered to determine if one or more census tract(s) with 
smaller population(s) could be designated without exceeding the 20 
percent limit.

C. Exceptions to OMB Definitions of MSAs and Other Geographic Matters

    As stated in OMB Bulletin 10-02, defining metropolitan areas:

    ``OMB establishes and maintains the definitions of Metropolitan 
. . . Statistical Areas, . . . solely for statistical purposes. . . 
. OMB does not take into account or attempt to anticipate any non-
statistical uses that may be made of the definitions[.] In cases 
where . . . an agency elects to use the Metropolitan . . . Area 
definitions in nonstatistical programs, it is the sponsoring 
agency's responsibility to ensure that the definitions are 
appropriate for such use. An agency using the statistical 
definitions in a nonstatistical program may modify the definitions, 
but only for the purposes of that program. In such cases, any 
modifications should be clearly identified as deviations from the 
OMB statistical area definitions in order to avoid confusion with 
OMB's official definitions of Metropolitan . . . Statistical 
Areas.''

    Following OMB guidance, the estimation procedure for the FY2014 
FMRs and income limits incorporates the current OMB definitions of 
metropolitan areas based on the Core-Based Statistical Area (CBSA) 
standards,

[[Page 59859]]

as implemented with 2000 Census data, but makes adjustments to the 
definitions, in order to separate subparts of these areas in cases 
where FMRs (and in a few cases, VLILs) would otherwise change 
significantly if the new area definitions were used without 
modification. In CBSAs where subareas are established, it is HUD's view 
that the geographic extent of the housing markets are not yet the same 
as the geographic extent of the CBSAs, but may approach becoming so as 
the social and economic integration of the CBSA component areas 
increases.
    The geographic baseline for the FMR and income limit estimation 
procedure is the CBSA Metropolitan Areas (referred to as Metropolitan 
Statistical Areas or MSAs) and CBSA Non-Metropolitan Counties 
(nonmetropolitan counties include the county components of Micropolitan 
CBSAs where the counties are generally assigned separate FMRs). The 
HUD-modified CBSA definitions allow for subarea FMRs within MSAs based 
on the boundaries of ``Old FMR Areas'' (OFAs) within the boundaries of 
new MSAs. (OFAs are the FMR areas defined for the FY2005 FMRs. 
Collectively, they include the June 30, 1999, OMB definitions of MSAs 
and Primary MSAs (old definition MSAs/PMSAs), metropolitan counties 
deleted from old definition MSAs/PMSAs by HUD for FMR-setting purposes, 
and counties and county parts outside of old definition MSAs/PMSAs 
referred to as nonmetropolitan counties). Subareas of MSAs are assigned 
their own FMRs and Income Limits when the subarea 2000 Census Base FMR 
differs significantly from the MSA 2000 Census Base FMR (or, in some 
cases, where the 2000 Census base AMGI differs significantly from the 
MSA 2000 Census Base AMGI). MSA subareas, and the remaining portions of 
MSAs after subareas have been determined, are referred to as ``HUD 
Metro FMR Areas (HMFAs),'' to distinguish such areas from OMB's 
official definition of MSAs.
    In the New England states (Connecticut, Maine, Massachusetts, New 
Hampshire, Rhode Island, and Vermont), HMFAs are defined according to 
county subdivisions or minor civil divisions (MCDs), rather than county 
boundaries. However, since no part of an HMFA is outside an OMB-
defined, county-based MSA, all New England nonmetropolitan counties are 
kept intact for purposes of designating Nonmetropolitan DDAs.
    For the convenience of readers of this notice, the geographical 
definitions of designated Metropolitan DDAs are included in the list of 
DDAs.
Future Designations
    DDAs are designated annually as updated income and FMR data are 
made public. As previously announced, beginning with the 2016 
metropolitan area designations, HUD will use ``Small Area FMRs'' 
(SAFMRs) defined at the ZIP Code level within metropolitan areas as the 
measure of ``construction, land, and utility costs relative to area 
median gross income'' rather than FMRs established for HUD Metropolitan 
FMR Areas. In general, HUD estimates SAFMRs by multiplying the ratio of 
ZIP-Code area to metropolitan-area median gross rent by the 
metropolitan-area FMRs (a complete description of how SAFMRs are 
estimated is available at: http://www.huduser.org/portal/datasets/fmr/fmr2013f/FY13_SAFMR_Notice.pdf.
    QCTs are designated periodically as new data become available, or 
as metropolitan area definitions change. QCTs are being updated at this 
time to incorporate two additional releases of data since the 2013 QCT 
designations, which were based on 2006-2010 ACS estimates, were 
announced. The two subsequent releases of the ACS, the 2007-2011 
estimates released in December of 2012, and the 2008-2012 estimates 
released in December 2013, indicate that the 2006-2010 poverty rate 
estimates for certain tracts were anomalous and not an accurate 
reflection of the true poverty rate in the tract. In order to avoid 
basing QCT designations on a single estimate which may be an anomaly 
due to sampling error rather than an accurate reflection of local 
conditions, HUD is adopting the method described in this notice 
incorporating three years of estimates.
Effective Date
    The 2015 lists of DDAs are effective:
    (1) For allocations of credit after December 31, 2014; or
    (2) for purposes of IRC Section 42(h)(4), if the bonds are issued 
and the building is placed in service after December 31, 2014.
    If an area is not on a subsequent list of DDAs, the 2015 lists are 
effective for the area if:
    (1) The allocation of credit to an applicant is made no later than 
the end of the 365-day period after the applicant submits a complete 
application to the LIHTC-allocating agency, and the submission is made 
before the effective date of the subsequent lists; or
    (2) for purposes of IRC Section 42(h)(4), if:
    (a) The bonds are issued or the building is placed in service no 
later than the end of the 365-day period after the applicant submits a 
complete application to the bond-issuing agency, and
    (b) the submission is made before the effective date of the 
subsequent lists, provided that both the issuance of the bonds and the 
placement in service of the building occur after the application is 
submitted.
    An application is deemed to be submitted on the date it is filed if 
the application is determined to be complete by the credit-allocating 
or bond-issuing agency. A ``complete application'' means that no more 
than de minimis clarification of the application is required for the 
agency to make a decision about the allocation of tax credits or 
issuance of bonds requested in the application.
    In the case of a ``multiphase project,'' the DDA or QCT status of 
the site of the project that applies for all phases of the project is 
that which applied when the project received its first allocation of 
LIHTC. For purposes of IRC Section 42(h)(4), the DDA or QCT status of 
the site of the project that applies for all phases of the project is 
that which applied when the first of the following occurred: (a) The 
building(s) in the first phase were placed in service, or (b) the bonds 
were issued.
    For purposes of this notice, a ``multiphase project'' is defined as 
a set of buildings to be constructed or rehabilitated under the rules 
of the LIHTC and meeting the following criteria:
    (1) The multiphase composition of the project (i.e., total number 
of buildings and phases in project, with a description of how many 
buildings are to be built in each phase and when each phase is to be 
completed, and any other information required by the agency) is made 
known by the applicant in the first application of credit for any 
building in the project, and that applicant identifies the buildings in 
the project for which credit is (or will be) sought;
    (2) The aggregate amount of LIHTC applied for on behalf of, or that 
would eventually be allocated to, the buildings on the site exceeds the 
one-year limitation on credits per applicant, as defined in the 
Qualified Allocation Plan (QAP) of the LIHTC-allocating agency, or the 
annual per-capita credit authority of the LIHTC allocating agency, and 
is the reason the applicant must request multiple allocations over 2 or 
more years; and
    (3) All applications for LIHTC for buildings on the site are made 
in immediately consecutive years.
    Members of the public are hereby reminded that the Secretary of 
Housing

[[Page 59860]]

and Urban Development, or the Secretary's designee, has legal authority 
to designate DDAs and QCTs, by publishing lists of geographic entities 
as defined by, in the case of DDAs, the Census Bureau, the several 
states and the governments of the insular areas of the United States 
and, in the case of QCTs, by the Census Bureau; and to establish the 
effective dates of such lists. The Secretary of the Treasury, through 
the IRS thereof, has sole legal authority to interpret, and to 
determine and enforce compliance with the IRC and associated 
regulations, including Federal Register notices published by HUD for 
purposes of designating DDAs and QCTs. Representations made by any 
other entity as to the content of HUD notices designating DDAs and QCTs 
that do not precisely match the language published by HUD should not be 
relied upon by taxpayers in determining what actions are necessary to 
comply with HUD notices.


Interpretive Examples of Effective Date

    For the convenience of readers of this notice, interpretive 
examples are provided below to illustrate the consequences of the 
effective date in areas that gain or lose DDA status. The examples 
covering DDAs are equally applicable to QCT designations.
    (Case A) Project A is located in a 2015 DDA that is NOT a 
designated DDA in 2016. A complete application for tax credits for 
Project A is filed with the allocating agency on November 15, 2015. 
Credits are allocated to Project A on October 30, 2016. Project A is 
eligible for the increase in basis accorded a project in a 2015 DDA 
because the application was filed BEFORE January 1, 2016 (the assumed 
effective date for the 2016 DDA lists), and because tax credits were 
allocated no later than the end of the 365-day period after the filing 
of the complete application for an allocation of tax credits.
    (Case B) Project B is located in a 2015 DDA that is NOT a 
designated DDA in 2016 or 2017. A complete application for tax credits 
for Project B is filed with the allocating agency on December 1, 2015. 
Credits are allocated to Project B on March 30, 2017. Project B is NOT 
eligible for the increase in basis accorded a project in a 2015 DDA 
because, although the application for an allocation of tax credits was 
filed BEFORE January 1, 2016 (the assumed effective date of the 2016 
DDA lists), the tax credits were allocated later than the end of the 
365-day period after the filing of the complete application.
    (Case C) Project C is located in a 2015 DDA that was not a DDA in 
2014. Project C was placed in service on November 15, 2014. A complete 
application for tax-exempt bond financing for Project C is filed with 
the bond-issuing agency on January 15, 2015. The bonds that will 
support the permanent financing of Project C are issued on September 
30, 2015. Project C is NOT eligible for the increase in basis otherwise 
accorded a project in a 2015 DDA, because the project was placed in 
service BEFORE January 1, 2015.
    (Case D) Project D is located in an area that is a DDA in 2015, but 
is NOT a DDA in 2016. A complete application for tax-exempt bond 
financing for Project D is filed with the bond-issuing agency on 
October 30, 2015. Bonds are issued for Project D on April 30, 2016, but 
Project D is not placed in service until January 30, 2017. Project D is 
eligible for the increase in basis available to projects located in 
2015 DDAs because: (1) One of the two events necessary for triggering 
the effective date for buildings described in Section 42(h)(4)(B) of 
the IRC (the two events being bonds issued and buildings placed in 
service) took place on April 30, 2016, within the 365-day period after 
a complete application for tax-exempt bond financing was filed, (2) the 
application was filed during a time when the location of Project D was 
in a DDA, and (3) both the issuance of the bonds and placement in 
service of Project D occurred after the application was submitted.
    (Case E) Project E is a multiphase project located in a 2015 DDA 
that is not a designated DDA in 2016. The first phase of Project E 
received an allocation of credits in 2015, pursuant to an application 
filed March 15, 2015, which describes the multiphase composition of the 
project. An application for tax credits for the second phase Project E 
is filed with the allocating agency by the same entity on March 15, 
2016. The second phase of Project E is located on a contiguous site. 
Credits are allocated to the second phase of Project E on October 30, 
2016. The aggregate amount of credits allocated to the two phases of 
Project E exceeds the amount of credits that may be allocated to an 
applicant in one year under the allocating agency's QAP and is the 
reason that applications were made in multiple phases. The second phase 
of Project E is, therefore, eligible for the increase in basis accorded 
a project in a 2015 DDA, because it meets all of the conditions to be a 
part of a multiphase project.
    (Case F) Project F is a multiphase project located in a 2015 DDA 
that is NOT a designated DDA in 2016. The first phase of Project F 
received an allocation of credits in 2015, pursuant to an application 
filed March 15, 2015, which does not describe the multiphase 
composition of the project. An application for tax credits for the 
second phase of Project F is filed with the allocating agency by the 
same entity on March 15, 2017. Credits are allocated to the second 
phase of Project F on October 30, 2017. The aggregate amount of credits 
allocated to the two phases of Project F exceeds the amount of credits 
that may be allocated to an applicant in one year under the allocating 
agency's QAP. The second phase of Project F is, therefore, not eligible 
for the increase in basis accorded a project in a 2015 DDA, since it 
does not meet all of the conditions for a multiphase project, as 
defined in this notice. The original application for credits for the 
first phase did not describe the multiphase composition of the project. 
Also, the application for credits for the second phase of Project F was 
not made in the year immediately following the first phase application 
year.

Findings and Certifications

Environmental Impact

    This notice involves the establishment of fiscal requirements or 
procedures that are related to rate and cost determinations and do not 
constitute a development decision affecting the physical condition of 
specific project areas or building sites. Accordingly, under 40 CFR 
1508.4 of the regulations of the Council on Environmental Quality and 
24 CFR 50.19(c)(6) of HUD's regulations, this notice is categorically 
excluded from environmental review under the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321).

Federalism Impact

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any policy document that has federalism implications if 
the document either imposes substantial direct compliance costs on 
state and local governments and is not required by statute, or the 
document preempts state law, unless the agency meets the consultation 
and funding requirements of section 6 of the executive order. This 
notice merely designates DDAs as required under IRC Section 42, as 
amended, for the use by political subdivisions of the states in 
allocating the LIHTC. This notice also details the technical method 
used in making such designations. As a result, this notice is not 
subject to review under the order.


[[Page 59861]]


    Dated: September 29, 2014.
Kathy M. O'Regan,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2014-23684 Filed 10-2-14; 8:45 am]
BILLING CODE 4210-67-P