Designation of Empowerment Zones and Enterprise Communities

SUMMARY: This rule makes final an interim rule published on January 18,

1994 that implemented that portion of Subchapter C, Part I (Empowerment

Zones, Enterprise Communities and Rural Development Investment Areas)

of Title XIII of the Omnibus Budget Reconciliation Act of 1993 dealing

with the designation of urban Empowerment Zones and Enterprise

Communities. The interim rule, consistent with the statute, authorized

the Secretary of HUD to designate not more than six urban Empowerment

Zones and not more than 65 urban Enterprise Communities based upon the

effectiveness of the strategic plan submitted by a State or States and

local government(s) nominating an area for designation.

EFFECTIVE DATE: February 13, 1995.

FOR FURTHER INFORMATION CONTACT: Michael T. Savage, Deputy Director,

Office of Economic Development, Room 7136, Department of Housing and

Urban Development, 451 Seventh Street SW, Washington, DC 20410,

telephone (202) 708-2290; TDD (202) 708-2565. (These are not toll-free

numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The information collection requirements contained in this rule were

approved by the Office of Management and Budget (OMB) for review under

the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520), and assigned

OMB Control Number 2506-0148.

I. Background--the January 18, 1994 Interim Rule

On January 18, 1994 (59 FR 2700), HUD published an interim rule

that implemented that portion of Subchapter C, Part I (Empowerment

Zones, Enterprise Communities and Rural Development Investment Areas)

of Title XIII of the Omnibus Budget Reconciliation Act of 1993 which

addresses the designation of urban Empowerment Zones and Enterprise

Communities. Title XIII also provides for the designation of rural

Empowerment Zones and Enterprise Communities. As noted in the January

18, 1994 interim rule, the urban part of the program is administered by

HUD as a Federal-State-local partnership. The rural part of the program

is administered by the Department of Agriculture. The Department of

Agriculture also published an interim rule on January 18, 1994 (59 FR

2686). (The program is hereafter referred to as the EZ/EC program.)

The EZ/EC program is a key step in rebuilding communities in

America's poverty-stricken inner cities and rural heartland. It is

designed to empower people and communities across the nation in

developing and implementing strategic plans to create job opportunities

and sustainable community development. The program combines tax

benefits with substantial investment of Federal resources and enhanced

coordination among Federal agencies.

Designated Enterprise Communities are eligible for new Tax-Exempt

Facilities Bonds for certain private business activities. States with

designated Enterprise Communities will receive approximately $3 million

in Empowerment Zone/Enterprise Community Social Service Block Grant

(EZ/EC SSBG) funds to pass through to each designated area for approved

activities identified in their strategic plans. Enterprise Communities

will receive special consideration in competition for funding under

numerous Federal programs, including the new National Service and

proposed Community Policing initiatives. The Federal Government will

focus special attention on working cooperatively with designated

Enterprise Communities to overcome regulatory impediments, to permit

flexible use of existing Federal funds, and to assist these Communities

in meeting essential mandates.

Designated Empowerment Zones will receive all the benefits provided

to Enterprise Communities and other communities with innovative visions

for change. Empowerment Zones are awarded substantial Empowerment Zone/

Enterprise Community Social Service Block Grant funds, in the amount of

$100 million for each urban Zone. An Employer Wage Credit for Zone

residents is extended to qualified employers engaged in trade or

business, in designated Empowerment Zones. Businesses are afforded an

increased deduction under section 179 of the Internal Revenue Code for

qualified properties.

The preamble to the January 18, 1994 interim rule described in

detail the eligibility requirements for Empowerment Zones and

Enterprise Communities and the nomination process. This information is

not repeated in this final rule.

The Department also published on January 18, 1994, a notice

inviting applications on nominations for areas as Empowerment Zones and

Enterprise Communities (59 FR 2711). Title XIII of the Omnibus Budget

Reconciliation Act of 1993 authorized the Secretary of HUD to designate

up to six urban Empowerment Zones and up to 65 urban Enterprise

Communities. The purpose of this document is to make final the interim

regulations published on January 18, 1994. The designated Empowerment

Zones and Enterprise Communities will be announced by separate notice

published in the Federal Register.

II. Differences Between Final Rule and Interim Rule

This final rule makes only editorial and technical correction

changes to the January 18, 1994 interim rule. As will be discussed in

the following section of this preamble, HUD received several good

suggestions and recommendations of matters that the rule should address

or expand upon, or terms that should be defined. These changes are

largely directed to the nomination process, to the eligibility process,

to the contents of the strategic plan or to the evaluation of the plan.

Because of the need to have applications submitted by June 30, 1994 so

that HUD and the Department of Agriculture could make designations

within the time period set by statute, any significant or substantial

revisions to the interim rule would have delayed the application

process, and therefore delayed the designation process. Any significant

or substantial revisions made at this time to the nomination process,

evaluation process, etc., would have no effect since the designation

process is complete.

HUD anticipates that if another round of designations is authorized

by the Congress, there will be accompanying legislation that may make

changes to the existing EZ/EC program, and thus require amendments to

the regulations in 24 CFR part 597. At the time of this rulemaking, HUD

will again consider the comments received on the January 18, 1994, and

if they remain applicable to the new round of designations (the issue

of applicability depends upon the type of legislative changes, if any,

made to the EZ/EC program by the Congress), [[Page 3035]] these

comments will be adopted in new regulations.

The technical changes made by this final rule are largely directed

to that section of the rule (Sec. 597.200(d)) which addresses the use

of EZ/EC SSBG funds and therefore are relevant even after the

designation process is complete. The following provides a list of the

editorial/technical changes made to the interim rule by this final

rule.

1. In Sec. 597.3 (Definitions), the second paragraph of the

definition of ``urban area'' inadvertently omitted the phrase

``jurisdiction of the'' before the words ``nominating local

government.'' (See 59 FR 2704, second column).

2. In Sec. 597.200 (Nominations by State and local governments),

HUD sets forth the procedures for nominations by State and local

governments of areas for designation as an Empowerment Zone and/or

Enterprise Community. Paragraph (d) of that section addresses the

elements of the strategic plan which must be developed as part of the

application for designation, and paragraph (d)(12) specifically

addresses how the Social Services Block Grant (SSBG) funds for

designated Empowerment Zones and Enterprise Communities will be

utilized. Several technical errors were made in paragraph (d)(12), and

these are as follows:

a. Paragraph (d)(12)(i)(A) discusses the commitment concerning the

use of EZ/EC SSBG funds. The rule provides for the commitment to be

made by the ``applicant as well as by the State government(s).'' In

this paragraph, HUD inadvertently omitted reference to the full range

of nominating entities that would have to make this commitment, and

only listed ``State governments.'' (Note that Sec. 597.501 provides for

nomination by States and local governments [the preamble also discusses

this at page 2701, second column] and Sec. 597.502 provides for

nominations by State-chartered economic development corporations.)

Accordingly, the final rule corrects this paragraph to include not only

State governments, but local governments and State-chartered economic

development corporations. The final rule also explains that the

``services or activities'' referenced in this paragraph are the

``services or activities which can be used to achieve or maintain the

goals set forth in paragraph (d)(12).''

b. Paragraph (d)(12)(ii) provides, in error, that Empowerment Zone

or Enterprise Community SSBG funds (EZ/EC SSBG funds) may be used to

achieve certain goals set forth in this paragraph by ``undertaking one

of the below specified options.'' (See 59 FR 2706, first and second

columns.) The correct wording should provide that States and local

governments may undertake ``one or more'' of the options set forth in

the paragraph. One option available to States and local governments for

the use of EZ/EC SSBG funds was inadvertently omitted from the interim

rule. This option provides for the use of EZ/EC SSBG funds to promote

the economic independence of low-income residents, such as capitalizing

revolving or micro-enterprise loan funds for their benefit.

c. In paragraph (d)(12)(ii), the interim rule provides that EZ/EC

SSBG funds ``may'' be used to maintain the goals set forth in paragraph

(d)(12). (See page 2706, first column.) The rule should have stated

that the EZ/EC SSBG funds ``must'' be used to maintain the goals set

forth in paragraph (d)(12), and that the goals ``may be achieved'' by

undertaking the program options listed in (d)(12)(ii).

d. The interim rule inadvertently omitted the paragraph that

provides guidance concerning how designated empowerment zones and

enterprise communities may meet the goals specified in paragraph

(d)(12). (See 59 FR 2706, middle column.) This paragraph does not

dictate how the goals may be met, but offers guidance as to how they

may be met. This rule makes this correction by adding a new paragraph

(iii), and the succeeding paragraphs are redesignated accordingly.

e. In paragraph (d)(12)(v) of the interim rule, the Department

provided that the State must obligate EZ/EC SSBG funds in accordance

with the strategic plan within two years from the ``date of designation

of the Empowerment Zone or Enterprise Community.'' (See page 2706,

middle column.) This time frame is incorrect. This paragraph should

have provided that the State must obligate funds two years from the

date ``the funds are paid to the State.'' This paragraph is also

corrected by this document to add that ``funds not obligated must be

remitted to the Secretary of Health and Human Services.'' This sentence

was inadvertently dropped in the rule text.

f. Two requirements pertaining to the strategic plan were

inadvertently omitted from paragraph (d)(12). One requirement provides

that the strategic plan must indicate how the EZ/EC SSBG funds will be

invested and used for the period of designation, and the second

provides that the strategic plan must provide for periodic reporting of

information by the relevant State. These requirements are now set forth

in (d)(12)(vii) and (viii).

g. In addition to the above corrections, this document corrects

missing or erroneous punctuation in paragraph (d)(12). For example,

some paragraphs ended in periods, and should have ended in semicolons.

4. In Sec. 597.200, paragraph (d)(17) is corrected by removing the

``and'' which follows the semicolon at the end of this paragraph. (See

59 FR 2706, third column.)

5. In Sec. 597.200, paragraph (d)(18) is corrected by removing the

period at the end of the paragraph, and replacing it with a semicolon.

(See 59 FR 2706, third column.)

6. In Sec. 597.201 (Evaluating the strategic plan), paragraph

(b)(9) should end with a semicolon and not a period. (See 59 FR 2707,

third column.)

7. In Sec. 597.201 (Evaluating the strategic plan), paragraph

(c)(1) should end with a semicolon and not a period. (See 59 FR 2708,

first column.)

8. In Sec. 597.301 (Selection factors for designation of nominated

urban areas), paragraphs (a) (1), (2) and (3) should each end with a

semicolon instead of a period, and the word ``and'' should follow the

semicolon in paragraph (a)(3). (See 59 FR 2709, first column.)

The above changes are the only ones that have been made to the

interim rule by this final rule.

III. The Public Comments

General Comments

The January 18, 1994 interim rule provided for a 30-day public

comment period. The public comment period expired on February 17, 1994.

Comments, however, were accepted through March 1, 1994. By this date, a

total of 45 comments had been received. The commenters consisted of

State and local jurisdictions (or agencies of such jurisdictions),

State legislators and non-profit organizations. Twenty-two (22) of the

commenters were from the State of California.

The majority of the commenters gave the interim regulations

favorable marks, stating that, overall, the interim rule clearly

delineates the role of the State and participating entities. As noted

earlier in this preamble, HUD received several good suggestions and

recommendations from the commenters that will be considered in any

future rulemaking needed for a new round of designation. Other

suggestions raised by commenters, although equally with merit, could

not be adopted (even if HUD were making substantive changes at this

time) given the current statutory framework of the EZ/EC Program, and

other requests for changes or clarification were determined to be

adequately addressed by the January 18, 1994 interim rule. The

following provides a summary of the significant [[Page 3036]] issues

raised by the public commenters, and HUD's response to these issues.

General Comments on the Rule

Comment. One commenter stated that the interim rule as a whole did

not adequately address the needs of extremely low-income persons.

Response. HUD disagrees with the commenter. The eligibility for

designation as an Empowerment Zone or Enterprise Community requires a

significant level of poverty, and the strategic plan required various

descriptions of how the nominated area would address the need of low-

income persons, for example, through the creation of economic

opportunities, home ownership, education or other route to economic

independence for low-income families, youth and other individuals. (See

Sec. 597.200.)

Comment. Two commenters stated that the rule should explicitly

address the need of areas in which military base closures have occurred

or will occur.

Response. Military base closure was explicitly referenced in the

rule. Note that Sec. 597.102(b)(1) of the rule provides in relevant

part that ``Unemployment shall be demonstrated by * * * (2) Evidence of

especially severe economic conditions, such as military base or plant

closings, or other conditions which have brought about significant job

dislocation within the nominated area.''

Comment. One commenter stated that the rule should have taken into

consideration areas which have both rural and urban characteristics.

Response. HUD strived to the extent possible, given the statutory

framework and requirements, to be as flexible as possible in describing

eligibility for nominated areas, and to recognize that some urban areas

will have rural characteristics. To a significant degree, however, this

flexibility was limited by the statutory requirements for eligible

urban areas.

Comment. One commenter stated that the rule and program structure

perpetuate the inner city as a place for only low-income persons to

live. The commenter stated that while EZ/EC SSBG eligible expenditures

give latitude for communities to address social problems, they leave

little room for needed neighborhood economic development programs that

could make urban neighborhoods better places to live, to raise

families, to shop, to work and to grow businesses.

Response. The entire EZ/EC program is directed to uplifting the

economic and social environment of the designated urban area. HUD

believes that the four key principles of the program, set forth in

Sec. 597.200, and the specific elements embodied in each principle,

clearly make this point.

Comments on Terms Used

Comment. One commenter stated that the rule should have defined the

terms ``community'' and ``low-income.'' Another commenter stated that

the interim rule should have defined the term ``long-term unemployed.''

Response. HUD acknowledges the merit of these suggestions, and

definitions for these terms will be considered for any future

rulemaking that may be necessary for a new round of designations.

Comment. Two commenters stated that the term ``disadvantaged''

should be defined in the regulation. The commenter stated that this

term should be defined to mean household or individual income below 30

percent or 50 percent of the area-wide income.

Response. This term appears in Sec. 507.200(d)(12) which addresses

the use of EZ/EC SSBG funds. EZ/EC SSBG funds are administered by the

Department of Health and Human Services. Accordingly, HHS has

responsibility for defining this term. Although this term is not

defined in the HHS regulations governing Social Service Block Grant

Funds (see 45 CFR part 96, subpart G), HHS should be able to provide

guidance to grantees on the meaning of this term.

Comment. One commenter stated that the definition of ``State-

chartered economic development corporation'' was not very clear.

Response. The statute defined this term, and the rule simply

incorporated the statutory definition.

Comments on Census Tracts and Census Tract Data

Comment. Twenty-four (24) commenters objected to the failure to use

census block data instead of census tract data. The commenters pointed

out that many city boundaries do not coincide with census boundaries,

and these cities would be disqualified. In addition to requesting use

of census block data in lieu of census tract data, other suggestions

submitted by commenters included: Excluding significantly-sized public

facilities from calculation of a city's total mileage; and allowing an

entity to request EC designation to be extended on a case-by-case basis

to coterminous properties adjacent to an eligible poverty census tract.

Response. HUD is unable to adopt the suggestions of the commenters.

The statute requires the use of census tract data, and does not permit

the exclusions or case-by-case exceptions as suggested by the

commenters.

Comment. One commenter requested that the rule exclude portions of

census tracts incapable of development, such as those that may be

covered by water.

Response. In determining what constitutes census tracts, and what

areas are not included or excluded in census tracts, HUD follows

existing regulations applicable to census tracts issued by the U.S.

Census Bureau.

Comment. Another commenter stated that census retail trade data

does not accurately characterize central business districts. The

commenter stated that the rule excludes central business districts

(CBDs) as defined by the 1987 Census Retail Trade unless poverty rate

for each tract in the CBD is not less than 35 percent for an EZ and 30

percent for an EC.

Response. Central business districts are addressed in

Sec. 597.100(f). HUD's rule provides some flexibility since the last

Census of Retail Trade was in 1982. The issue of characterization of

CBDs is not a question of whether an area was listed in the Census of

Retail Trade, but whether the area fits characteristics of CBDs. HUD's

rule allows applicants to demonstrate that the character of an area has

changed, and does not meet the definition of CBD as used in the most

recent Census of Retail Trade.

Comments on Population Levels

Comment. Twelve commenters stated that the 50,000 population

limitation excludes many cities in need of EZ/EC assistance, and

requested that the population limit be increased to 200,000 for all

urban nominated areas.

Response. The population limitation of 50,000 found in

Sec. 597.100(a)(2) is directly from the statute.

Comment. Another commenter said that the rule should have excluded

prison and hospital populations from the populations caps.

Response. This concern was accommodated by HUD at the time of

issuance of the January 18, 1994 interim rule. The application process

allowed cities to deduct institutional populations or populations in

group quarters.

Comments on Pervasive Poverty and Unemployment

Comment. One commenter stated that the test for pervasive poverty

should meet all three criteria, not simply one, and that a higher test

should be utilized to determine unemployment.

Response. HUD believes that each of the three factors presented in

Sec. 597.102(a), in and of itself, adequately exemplifies an area that

has pervasive [[Page 3037]] poverty. Similarly, HUD believes that each

of the two factors presented in Sec. 597.103(b) adequately exemplifies

an area of unemployment. However, these comments will certainly be

considered if another round of designations is authorized by the

Congress.

Comments on Poverty Rate

Comment. Sixteen commenters stated that the definition of low or

zero population industrial or commercial census tracts should be

extended to include zero population census blocks which meet the same

criteria. Two other commenters stated that the requirement for a non-

contiguous area to separately meet the poverty rate criteria makes no

sense where the non-contiguous area consists of a single census tract.

Response. Poverty rate is addressed in Sec. 597.103 of the rule.

The existing EZ/EC legislation provides no flexibility to adopt the

comments suggested by the commenters.

Comment. Other commenters asked that HUD take into consideration

the unique poverty rates of their own States or communities due to the

high cost of living.

Response. HUD believes that the poverty rate factors in the rule

are sufficiently broad to encompass the unique poverty and high cost of

living characteristics of any individual State or community.

Comments on the Strategic Plan

Comment. Three commenters stated that the strategic plan principle

concerning employment should emphasize job creation for low-income

persons. Another commenter stated that the strategic plan principle

concerning employment should emphasize job creation for minority

businesses.

Response. HUD agrees with the commenters and such emphasis will be

considered in future rulemaking that may be necessary for any

additional rounds of designations that may be authorized.

Comment. Two commenters stated that the rule should require an

explanation of how participants in the planning process are

representative of the ``affected'' community.

Response. This requirement was included in the application, and HUD

will consider including this requirement in the text of the regulation

in any future rulemaking that may be needed.

Comment. Two commenters stated that the rule should emphasize that

public funds cannot be used to encourage plant relocations or pirating

of jobs from one place to another.

Response. This issue was addressed in Sec. 597.200(3) of the rule,

and the EZ/EC application included a certification to this effect.

Comment. Two commenters stated that the rule should allow

designated communities to use funds and other resources identified in

the strategic plan for properties directly adjacent to the boundaries

of the designated census tracts.

Response. HUD provides flexibility on this issue. Businesses and

enterprise communities do not receive tax incentives and the only

funding that flows from EZ/EC designation is title 20 funding. The

latter can be used outside of the EC if the use of the funds benefits

the EC residents directly.

Comment. Two commenters stated that the rule did not discuss the

applicability of existing plans (e.g., CHAS) to the strategic planning

process.

Response. Although the rule does not specifically reference the

CHAS, the rule contains reference to other local planning efforts and

to consolidated planning efforts (See Secs. 597.200(d)(15) and

597.201(b).) Once the Consolidated Plan final rule is published, it

will bring all plans into conformance.

Comment. One commenter stated that the rule should require

jurisdictions to disclose areas considered for nomination, but not

selected, and to explain why they were not selected.

Response. This issue is addressed to some extent in Sec. 597.201(c)

of the rule, but HUD will consider expanding on this issue in any

future rulemaking that may be needed.

Comment. One commenter, in response to the requirements of

Sec. 597.200(d) (14), (15), and (16), stated that the rule should

require applicants to explain which existing resources (including the

amounts) will be shifted from other geographic locations to the EZ/EC

area to fulfill the applicant's commitment to resources to the EZ/EC

area.

Response. HUD believes that such a requirement would be an

unwarranted intrusion in local government processes.

Comment. Two commenters stated that the rule should identify

specific regulatory and other impediments to implementing the strategic

plan, and indicate whether waivers can be accomplished administratively

or through statutory changes.

Response. HUD cannot identify specific regulatory barriers for each

applicant. The applicant is in a better position to advise HUD where

there are barriers and other impediments to implementation of the plan,

and HUD asks applicants to identify such barriers in Sec. 597.200(d)

(17) and (18).

Comment. Other commenters made several other suggestions for the

strategic plan, including: requiring the same standards for citizen

participation for strategic plan revisions as required for initial

development of the plan, requiring benchmarks that identify benefits to

low-income persons and long-term unemployed persons, and encouraging

activities that specifically meet the needs of low-income persons.

Response. All these suggestions have merit and HUD will consider

these in any future rulemaking that may be needed.

Comments on Evaluation of the Strategic Plan

Comment. Several commenters made suggestions for changes to

Sec. 597.201 which describes how the strategic plan will be evaluated.

The suggestions included evaluating the plan based on the number of

quality jobs provided to low-income persons; allowing community-based

partnerships to include labor unions; allowing community-based

partnerships to include low-income persons, long-term unemployed

persons, and residents of the area to be designated; providing minimum

standards for participation in the development of the plan; and

providing for low-income persons to monitor the implementation of the

plan.

Response. All of these suggestions will be taken into consideration

in any future EZ/EC rulemaking.

Comment. One commenter stated that the rule must promote affordable

housing and without affordable housing in proposed zones, the EZ/EC

program will fail.

Response. Affordable housing was promoted through the rule. See

Secs. 597.200(d)(12)(ii)(B)(3) and (g)(3), and 597.201(b)(8).

Comment. One commenter stated that a city's compliance with the

affordable housing requirement may make the city ineligible for EZ/EC

designation. The commenter stated that as a result of compliance with

this requirement, some cities do not have concentration of poverty

described in the threshold requirements for EZ/EC designation. Another

commenter stated that the evaluation of a plan should have included a

review of whether a jurisdiction is affirmatively furthering fair

housing, and also required applicants to submit a certification that

they are in compliance with fair housing laws. The commenter also

stated that the rule should provide for revocation of designation as a

zone or community if the jurisdiction fails to comply with these laws.

Response. With respect to the first commenter's concern, the

poverty rates set forth in the interim rule are based on

[[Page 3038]] the 1990 Census, which HUD believes provides a fair and

impartial measure of poverty level. With respect to the second

commenter's concern, these suggestions will be considered in future

rulemaking.

Comments on Submission of Nomination of Designation

Comment. Two commenters stated that the affected community should

have access to the same information and reports, at no cost, that are

available to HUD.

Response. Following completion of the designation process, the

information contained in applications will be available to the public

through requests made under the Freedom of Information Act.

Comment. One commenter suggested that the rule require the affected

State to receive a copy of notice of intent to participate by the

community, at the same time the local community sends the notice to

HUD.

Response. HUD will consider adopting this suggestion in future

rulemaking.

Comments on the Selection Factors for Designation

Comment. One commenter stated that the rule should include

procedures for appealing selections based on geographic diversity. The

commenter notes the rule allows HUD to designate a lower rated

application over a higher rated application in the interests of

geographic diversity of the designations (see Sec. 597.301). Another

commenter states that the geographic diversity provision should be

strengthened by providing that each State will receive at least one

urban designation as either an EZ or EC. A third commenter stated that

HUD should reserve two of the six urban zone designations for small

cities with populations under 100,000.

Response. HUD is not inclined to adopt any of these commenters'

suggestions as regulatory requirements. These suggestions limit the

flexibility that is needed in the selection process. However, HUD will

re-evaluate these issues at the time of any future rulemaking.

Comments on Other Provisions

Comment. One commenter stated that the rule should be explicit

about the eligibility of areas for designation within the Commonwealth

of Puerto Rico.

Response. Pursuant to Title XIII, no areas of Puerto Rico were

eligible for designation.

IV. Other Matters

National Environmental Policy Act. A Finding of No Significant

Impact with respect to the environment was made in accordance with HUD

regulations in 24 CFR part 50, which implement section 102(c) of the

National Environmental Policy Act of 1969 (42 U.S.C. 4332) at the time

of development of the interim rule. That Finding remains applicable to

this final rule and is available for public inspection and copying

during regular business hours in the Office of the Rules Docket Clerk,

Room 10276, 451 Seventh Street SW, Washington, DC 20410.

Executive Order 12866, Regulatory Planning and Review. This rule

was reviewed and approved by the Office of Management and Budget as a

significant rule, as that term is defined in Executive Order 12866,

which was signed by the President on September 30, 1993. Any changes to

the rule as a result of that review are contained in the public file of

the rule in the office of the Department's Rules Docket Clerk.

Regulatory Flexibility Act. The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this rule

before publication and by approving it certifies that the rule will not

have a significant economic impact on a substantial number of small

entities within the intent and purpose of that Act. The Act is intended

to encourage Federal agencies to utilize innovative administrative

procedures in dealing with individuals, small businesses, small

organizations, and small governmental bodies that would otherwise be

unnecessarily adversely affected by Federal regulations. To the extent

that this rule affects those entities, its purpose is to reduce any

disproportionate burden by providing for the waiver of regulations and

by affording other incentives directed toward a positive economic

impact. Therefore, no regulatory flexibility analysis under the Act is

necessary.

Executive Order 12611, Federalism. The General Counsel, as the

Designated Official under section 6(a) of Executive Order 12611,

Federalism, has determined that, although the policies contained in

this rule may have a substantial direct effect on States or their

political subdivisions that are designated as Empowerment Zones or

Enterprise Communities, this effect is intended by the legislation

authorizing the program. The purpose of the rule is to provide a

cooperative atmosphere between the Federal government and States and

local governments, and to reduce any regulatory burden imposed by the

Federal government that impedes the ability of States and local

governments to solve pressing economic, social, and physical problems

in their communities.

Executive Order 12606, The Family. The General Counsel, as the

Designated Official under Executive Order 12606, The Family, has

determined that the provisions of this rule will not have a significant

impact on family formation, maintenance or well being, except to the

extent that the program authorized by the rule will empower communities

and their residents to take effective action to solve difficult and

pressing economic, human, community and physical development challenges

that have a negative impact on families. Any such impact is beneficial

and merits no further review under the Order.

Semiannual Agenda. This rule was listed as sequence number 1851 in

the Department's semiannual agenda of regulations published on November

14, 1994 (59 FR 57632, 57665) under Executive Order 12866 and the

Regulatory Flexibility Act.

List of Subjects in 24 CFR Part 597

Community development, Empowerment zones, Enterprise communities,

Economic development, Housing, Indians, Intergovernmental relations,

Reporting and recordkeeping requirements, Urban renewal.

In accordance with the reasons set out in the preamble, 24 CFR part

597 is revised to read as follows:

PART 597--URBAN EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

Subpart A--General Provisions

Sec.

597.1 Applicability and scope.

597.2 Objective and purpose.

597.3 Definitions.

597.4 Secretarial review and designation.

597.5 Waivers.

Subpart B--Area Requirements

597.100 Eligibility requirements and data usage.

597.101 Data utilized for eligibility determinations.

597.102 Tests of pervasive poverty, unemployment and general

distress.

597.103 Poverty rate.

Subpart C--Nomination Procedure

597.200 Nominations by State and local governments.

597.201 Evaluating the strategic plan.

597.202 Submission of nominations for designation.

Subpart D--Designation Process

597.300 HUD action and review of nominations for designation.

597.301 Selection factors for designation of nominated urban areas.

[[Page 3039]]

597.302 Number of Empowerment Zones and Enterprise Communities

designated.

Subpart E--Post-Designation Requirements

597.400 Reporting.

597.401 Periodic performance reviews.

597.402 Validation of designation.

597.403 Revocation of designation.

Subpart F--Special Rules

597.500 Indian Reservations.

597.501 Governments.

597.502 Nominations by economic development corporations or the

District of Columbia.

597.503 Use of census data.

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

Subpart A--General Provisions

Sec. 597.1 Applicability and scope.

(a) This part establishes policies and procedures applicable to

urban Empowerment Zones and Enterprise Communities, authorized under

Subchapter U of the Internal Revenue Code of 1986, as amended, relating

to the designation and treatment of Empowerment Zones, Enterprise

Communities and Rural Development Investment Areas.

(b) This part contains provisions relating to area requirements,

the nomination process for urban Empowerment Zones and urban Enterprise

Communities, and the designation and administration of these Zones and

Communities by HUD. Provisions dealing with the nomination and

designation of rural Empowerment Zones and Enterprise Communities will

be promulgated by the Department of Agriculture. HUD and the Department

of Agriculture will consult in all cases in which nominated areas

possess both urban and rural characteristics, and will utilize a

flexible approach in determining the appropriate designation.

Sec. 597.2 Objective and purpose.

The purpose of this part is to provide for the establishment of

Empowerment Zones and Enterprise Communities in urban areas, to

stimulate the creation of new jobs, particularly for the disadvantaged

and long-term unemployed, and to promote revitalization of economically

distressed areas.

Sec. 597.3 Definitions.

Designation means the process by which the Secretary designates

urban areas as Empowerment Zones or Enterprise Communities eligible for

tax incentives and credits established by Subchapter U of the Internal

Revenue Code of 1986, as amended (26 U.S.C. 1391 et seq.) and for

special consideration for programs of Federal assistance.

Empowerment Zone means an urban area so designated by the Secretary

pursuant to this part. Up to six such Zones may be designated,

provided, that if the Secretary designates the maximum number of zones,

not less than one shall be in a nominated urban area the most populous

city of which has a population of 500,000 or less; and no less than one

shall be a nominated urban area which includes areas in two States and

which has an area population of 50,000 or less.

Enterprise Community means an urban area so designated by the

Secretary pursuant to this part. Not more than 65 such communities may

be so designated.

HUD means the Department of Housing and Urban Development.

Local government means any county, city, town, township, parish,

village, or other general purpose political subdivision of a State, and

any combination of these political subdivisions which is recognized by

the Secretary.

Nominated area means an area nominated by one or more local

governments and the State or States in which it is located for

designation pursuant to this part.

Population census tract means a census tract, or, if census tracts

are not defined for the area, a block numbering area.

Poverty means the number of persons listed as being in poverty in

the 1990 Decennial Census.

Revocation of designation means the process by which the Secretary

may revoke the designation of an urban area as an Empowerment Zone or

Enterprise Community pursuant to Sec. 597.403.

Secretary means the Secretary of Housing and Urban Development.

State means any State of the United States.

Strategic plan means a strategy developed and agreed to by the

nominating local government(s) and State(s), which have provided

certifications of their authority to adopt such a strategy in their

application for nomination, in consultation and cooperation with the

residents of the nominated are, pursuant to the provisions of

Sec. 597.200(c). The plan must include written commitments from the

local government(s) and State(s) that they will adhere to that

strategy.

Urban area means:

(1) Any area that lies inside a Metropolitan Area (MA), as

designated by the Office of Management and Budget; or

(2) Any area outside an MA if the jurisdiction of the nominating

local government has a population of 20,000 or more, or documents the

urban character of the area.

Sec. 597.4 Secretarial review and designation.

(a) Designation. The Secretary will review applications for the

designation of nominated urban areas to determine the effectiveness of

the strategic plans submitted by nominating State and local

government(s) in accordance with Sec. 597.200(c). The Secretary will

designate up to six urban Empowerment Zones and up to 65 urban

Enterprise Communities.

(b) Period of Designation. The designation of an urban area as an

Empowerment Zone or Enterprise Community shall remain in full effect

during the period beginning on the date of designation and ending on

the earliest of:

(1) The close of the tenth calendar year beginning on or after the

date of designation;

(2) The termination date designated by the State and local

governments in their application for nomination; or

(3) The date the Secretary modifies or revokes the designation, in

accordance with Secs. 597.402 or 597.403.

Sec. 597.5 Waivers.

The Secretary of HUD may waive for good cause any provision of this

part not required by statute, where it is determined that application

of the requirement would produce a result adverse to the purpose and

objectives of this part.

Subpart B--Area Requirements

Sec. 597.100 Eligibility requirements and data usage.

A nominated urban area may be eligible for designation pursuant to

this part only if the area:

(a) Has a maximum population which is the lesser of:

(1) 200,000; or

(2) The greater of 50,000 or ten percent of the population of the

most populous city located within the nominated area;

(b) Is one of pervasive poverty, unemployment and general distress,

as described in Sec. 597.102;

(c) Does not exceed twenty square miles in total land area;

(d) Has a continuous boundary, or consists of not more than three

noncontiguous parcels;

(e) Is located entirely within the jurisdiction of the unit or

units of general local government making the nomination, and is located

in no more than two contiguous States; and

(f) Does not include any portion of a central business district, as

this term is [[Page 3040]] used in the most recent Census of Retail

Trade, unless the poverty rate for each population census tract in the

district is not less than 35 percent for an Empowerment Zone and 30

percent for an Enterprise Community.

Sec. 597.101 Data utilized for eligibility determinations.

(a) Source of data. The data to be employed in determining

eligibility pursuant to the criteria set forth at Sec. 597.102 shall be

based upon the 1990 Decennial Census, and from information published by

the Bureau of the Census and the Bureau of Labor Statistics. The data

shall be comparable as to point or period of time and methodology

employed. Specific information on appropriate data to be submitted will

be provided in the application.

(b) Use of statistics on boundaries. The boundary of an urban area

nominated for designation as an Empowerment Zone or Enterprise

Community must coincide with the boundaries of census tracts, or, where

tracts are not defined, with block numbering areas.

Sec. 597.102 Tests of pervasive poverty, unemployment and general

distress.

(a) Pervasive poverty. Pervasive poverty shall be demonstrated by

the nominating entities by providing evidence that:

(1) Poverty is widespread throughout the nominated area; or

(2) Poverty has become entrenched or intractable over time (through

comparison of 1980 and 1990 census data or other relevant evidence); or

(3) That no portion of the nominated area contains any component

areas of an affluent character.

(b) Unemployment. Unemployment shall be demonstrated by:

(1) Data indicating that the weighted average rate of unemployment

for the nominated area is not less than the national average rate of

unemployment; or

(2) Evidence of especially severe economic conditions, such as

military base or plant closings or other conditions which have brought

about significant job dislocation within the nominated area.

(c) General distress. General distress shall be evidenced by

describing adverse conditions within the nominated urban area other

than those of pervasive poverty and unemployment. A high incidence of

crime, narcotics use, homelessness, abandoned housing, and deteriorated

infrastructure or substantial population decline, are examples of

appropriate indicators of general distress.

Sec. 597.103 Poverty rate.

(a) General. The poverty rate shall be established in accordance

with the following criteria:

(1) In each census tract within a nominated urban area, the poverty

rate shall be not less than 20 percent;

(2) For at least 90 percent of the population census tracts within

the nominated urban area, the poverty rate shall not be less than 25

percent; and

(3) For at least 50 percent of the population census tracts within

the nominated urban area, the poverty rate shall be not less than 35

percent.

(b) Special rules relating to the determination of poverty rate.

(1) Census Tracts with no population. Census tracts with no population

shall be treated as having a poverty rate which meets the standards of

paragraphs (a)(1) and (2) of this section, but shall be treated as

having a zero poverty rate for purposes of applying paragraph (a)(3) of

this section.

(2) Census tracts with populations of less than 2,000. A population

census tract which has a population of less than 2,000 shall be treated

as having a poverty rate which meets the requirements of paragraphs

(a)(1) and (a)(2) of this section if more than 75 percent of the tract

is zoned for commercial or industrial use.

(3) Adjustment of poverty rates for Enterprise Communities. Where

necessary to carry out the purposes of this part, the Secretary may

reduce by 5 percentage points one of the following thresholds for not

more than 10 percent of the census tracts, or, if fewer, five

population tracts in the nominated urban area:

(i) The 20 percent threshold in paragraph (a)(1) of this section;

(ii) The 25 percent threshold in paragraph (a)(2) of this section;

and

(iii) The 35 percent threshold in paragraph (a)(3) of this section;

Provided that, the Secretary may in the alternative reduce the 35

percent threshold by 10 percentage points for three population census

tracts.

(4) Rounding up of percentages. In making the calculations required

by this section, the Secretary shall round all fractional percentages

of one-half percent or more up to the next highest whole percentage

figure.

(c) Noncontiguous areas. A nominated urban area may not contain a

noncontiguous parcel unless such parcel separately meets the criteria

set forth at paragraphs (a)(1), (2), and (3) of this section.

(d) Areas not within census tracts. In the case of an area which

does not have population census tracts, the block numbering area shall

be used.

Subpart C--Nomination Procedure

Sec. 597.200 Nominations by State and local governments.

(a) Nomination criteria. One or more local governments and the

State or States in which an urban area is located may nominate such

area for designation as an Empowerment Zone and/or as an Enterprise

Community, if:

(1) The urban area meets the requirements for eligibility set forth

in Secs. 597.100 and 597.103;

(2) The urban area is within the jurisdiction of a State or States

and local government(s) that have the authority to nominate the urban

area for designation and that provide written assurances satisfactory

to the Secretary that the strategic plan described in paragraph (c) of

this section will be implemented;

(3) All information furnished by the nominating State(s) and local

government(s) is determined by the Secretary to be reasonably accurate;

and

(4) The State(s) and local government(s) certify that no portion of

the area nominated is already included in an Empowerment Zone or

Enterprise Community or in an area otherwise nominated to be designated

under this section.

(b) Nomination for designation. No urban area may be considered for

designation pursuant to subpart D of this part unless the nomination

for designation:

(1) Demonstrates that the nominated urban area satisfies the

eligibility criteria set forth at Sec. 597.100;

(2) Includes a strategic plan, as described in paragraph (c) of

this section; and

(3) Includes such other information as may be required by HUD in

the application or in a Notice Inviting Applications, to be published

in the Federal Register.

(c) Strategic plan. Each application for designation must be

accompanied by a strategic plan, which must be developed in accordance

with four key principles, which will also be utilized to evaluate the

plan. These principles are:

(1) Economic opportunity, including job creation within the

community and throughout the region, as well as entrepreneurial

initiatives, small business expansion and training for jobs that offer

upward mobility;

(2) Sustainable Community Development, to advance the creation of

liveable and vibrant communities through comprehensive approaches that

coordinate economic, physical, community and human development;

(3) Community-Based Partnerships, involving the participation of

all segments of the community, including [[Page 3041]] the political

and governmental leadership, community groups, health and social

service groups, environmental groups, religious organizations, the

private and non-profit sectors, centers of learning and other community

institutions; and

(4) Strategic vision for change, which identifies what the

community will become and a strategic map for revitalization. The

vision should build on assets and coordinate a response to community

needs in a comprehensive fashion. It should also set goals and

performance benchmarks for measuring progress and establish a framework

for evaluating and adjusting the revitalization plan.

(d) Elements of strategic plan. The strategic plan should:

(1) Indicate and briefly describe the specific groups,

organizations, and individuals participating in the production of the

plan and describe the history of these groups in the community;

(2) Explain how participants were selected and provide evidence

that the participants, taken as a whole, broadly represent the racial,

cultural and economic diversity of the community;

(3) Describe the role of the participants in the creation,

development and future implementation of the plan;

(4) Identify two or three topics addressed in the plan that caused

the most serious disagreements among participants and describe how

those disagreements were resolved;

(5) Explain how the community participated in choosing the area to

be nominated and why the area was nominated;

(6) Provide evidence that key participants have the capacity to

implement the plan;

(7) Provide a brief explanation of the community's vision for

revitalizing the area;

(8) Explain how the vision creates economic opportunity, encourages

self-sufficiency and promotes sustainable community development;

(9) Identify key needs of the area and the current barriers to

achieving the vision for it, including a description of poverty and

general distress, barriers to economic opportunity and development and

barriers to human development;

(10) Discuss how the vision is related to the assets and needs of

the area and its surroundings;

(11) Describe the ways in which the community's approaches to

economic development, social/human services, transportation, housing,

sustainable community development, public safety, drug abuse

prevention, and educational and environmental concerns will be

addressed in a coordinated fashion; and explain how these linkages

support the community's vision;

(12) Indicate how all Social Services Block Grant funds for

designated Empowerment Zones and Enterprise Communities (EZ/EC SSBG

funds) will be utilized.

(i) In doing so, the strategic plan shall provide the following

information:

(A) A commitment by the applicant, as well as by the nominating

State-chartered economic development corporation or State government(s)

and local governments, that the EZ/EC SSBG funds will be used to

supplement, not replace, other Federal or non-Federal funds available

for financing for services or activities which can be used to achieve

or maintain the goals outlined in paragraph (d)(12) of this section;

(B) A description of the entities that will administer the EZ/EC

SSBG funds;

(C) A certification by such entities that they will provide

periodic reports on the use of the EZ/EC SSBG funds; and

(D) A detailed description of all the activities to be financed

with the EZ/EC SSBG funds and how all such funds will be allocated.

(ii) The EZ/EC SSBG funds must be used to achieve or maintain the

following goals. The goals may be achieved by undertaking one or more

of the following program options:

(A) The goal of economic self-support to prevent, reduce or

eliminate dependencies, through one or more of the following program

options:

(1) Funding community and economic development services focused on

disadvantaged adults and youths, including skills training,

transportation services and job, housing, business, and financial

management counseling;

(2) Supporting programs that promote home ownership, education or

other routes to economic independence for low-income families, youths,

and other individuals;

(3) Assisting in the provision of emergency and transitional

shelter for disadvantaged families, youths, and other individuals;

(B) The goal of self-sufficiency, including reduction or prevention

of dependencies, through one or more of the following program options:

(1) Providing assistance to non-profit organizations and/or

community and junior colleges that provide disadvantaged adults and

youths with opportunities for short-term training courses in

entrepreneurial and self employment skills and other training that

promotes individual self-sufficiency, and the interest of the

community;

(2) Funding programs to provide training and employment for

disadvantaged adults and youths in construction, rehabilitation or

improvement of affordable housing, public infrastructure and community

facilities; and

(C) The goal of prevention or remedying the neglect, abuse or

exploitation of children and/or adults unable to protect their own

interest; and the goal of preservation, rehabilitation, or reuniting of

families, through one or more of the following program options:

(1) Providing support for residential or non-residential drug and

alcohol prevention and treatment programs that offer comprehensive

services for pregnant women, and mothers and their children;

(2) Establishing programs that provide activities after school

hours, including keeping school buildings open during evenings and

weekends for mentor and study programs.

(iii) Designated Empowerment Zone and Enterprise Communities may

work to achieve or maintain the goals outlined in paragraphs

(d)(12)(ii) (A) and (B) of this section by using EZ/EC SSBG funds to

capitalize revolving or micro-enterprise loan funds which benefit low-

income residents of the designated Empowerment Zones and Enterprise

Communities. Similarly, the Zones and Communities may work to achieve

or maintain the goals outlined in paragraphs (d)(12)(ii) (A) and (B) of

this section by using the EZ/EC SSBG funds to create jobs and promote

economic opportunity for low-income families and individuals through

matching grants, loans, or investments in community development

financial institutions.

(iv) If the EZ/EC SSBG funds are to be used for program options not

included in paragraph (d)(12)(ii) of this section, the strategic plan

must indicate how the proposed activities meet the goals set forth in

paragraph (d)(12)(ii) of this section and the reasons the approved

program options were not pursued.

(v) To the extent that the EZ/EC SSBG funds are to be used for the

program options included in paragraph (d)(12)(ii) of this section, they

may be used for the following activities, in addition to those

activities permitted by Section 2005 of the Social Security Act (42

U.S.C. 1379d):

(A) To purchase or improve land or facilities;

(B) To make cash payments to individuals for subsistence or room

and board; [[Page 3042]]

(C) To make wage payments to individuals as a social service;

(D) To make cash payments for medical care; and

(E) To provide social services to institutionalized persons.

(vi) The State must obligate the EZ/EC SSBG funds in accordance

with the strategic plan within 2 years from the date of payment to the

State, or remit the unobligated funds to the Secretary of Health and

Human Services (HHS).

(vii) The strategic plan must indicate how all the EZ/EC SSBG funds

will be invested and used for the period of designation of the

Empowerment Zone or Enterprise Community.

(viii) The strategic plan must provide for periodic reporting of

information by the State in which the Empowerment Zone or Enterprise

Community is located.

(13) Indicate how tax benefits for designated Zones and

Communities, State and local resources, existing Federal resources

available to the locality and additional Federal resources believed

necessary to implement the strategic plan will be utilized within the

Empowerment Zone or Enterprise Community;

(14) Indicate a level of commitment necessary to ensure that these

resources will be available to the area upon designation;

(15) Identify the Federal resources applied for or for which

applications are planned; if a strategic plan indicates how Community

Development Block Grant (CDBG), HOME, Emergency Shelter Grant, and

Housing Opportunities for People with AIDS (HOPWA) funds will be

expended (for the entire locality including the nominated area), the

strategic plan will be considered by the Office of Community Planning

and Development at HUD toward satisfying the consolidated planning

requirements that will soon be issued for these programs;

(16) Identify private resources and support, including assistance

from business, non-profit organizations and foundations, which are

available to be leveraged with public resources; and provide assurances

that these resources will be made available to the area upon

designation;

(17) Identify changes necessary to Federal rules and regulations

necessary to implement the plan, including specific paperwork or other

Federal program requirements that must be altered to permit effective

implementation of the strategic plan; and

(18) Identify specific regulatory and other impediments to

implementing the strategic plan for which waivers are requested, with

appropriate citations and an indication whether waivers can be

accomplished administratively or require statutory changes;

(19) Demonstrate how State and local governments will reinvent

themselves to help implement the plan, by identifying changes that will

be made in State and local organizations, processes and procedures,

including laws and ordinances;

(20) Explain how different agencies in State and local governments

will work together in new responsive ways to implement the strategic

plan;

(21) Identify the specific tasks and timetable necessary to

implement the plan;

(22) Describe the partnerships that will be established to carry

out the plan;

(23) Explain how the plan will be regularly revised to reflect new

information and opportunities; and

(24) Identify benchmarks and goals that should be used in

evaluating performance in implementing the plan.

(e) Prohibition against business relocation. The strategic plan may

not include any action to assist any establishment in relocating from

one area outside the nominated urban area to the nominated urban area,

except that assistance for the expansion of an existing business entity

through the establishment of a new branch, affiliate, or subsidiary is

permitted if:

(1) The establishment of a new branch, affiliate, or subsidiary

will not result in a decrease in employment in the area of original

location or in any other area where the existing business entity

conducts business operations; and

(2) There is no reason to believe that the new branch, affiliate,

or subsidiary is being established with the intention of closing down

the operations of the existing business entity in the area of its

original location or in any other area where the existing business

entity conducts business operations.

(f) Implementation of strategic plan. The strategic plan may be

implemented by the local government(s) and/or by the State(s)

nominating an urban area for designation and/or by nongovernmental

entities identified in the strategic plan. Activities included in the

plan may be funded from any source, Federal, State, local, or private,

which provides assistance in the nominated area.

(g) Activities included in strategic plan. A strategic plan may

include, but is not limited to, activities which address:

(1) Economic problems, through measures designed to create job

training and employment opportunities; support for business start-up or

expansion; or development of community institutions;

(2) Human concerns, through the provision of social services, such

as rehabilitation and treatment programs or the provision of training,

education, or other services within the affected area;

(3) Community needs, such as the expansion of housing stock and

homeownership opportunities, efforts to reduce homelessness, efforts to

promote fair housing and equal opportunity, efforts to reduce and

prevent crime and improve security in the area; and

(4) Physical improvements, such as the provision or improvement of

recreational areas, transportation or other public services within the

affected area, and improvements to the infrastructure and environmental

protection.

Sec. 597.201 Evaluating the strategic plan.

The strategic plan will be evaluated for effectiveness as part of

the designation process for nominated urban areas described in

Sec. 597.301. On the basis of this evaluation, HUD may negotiate

reasonable modifications of the strategic plan or of the boundaries of

a nominated urban area or the period for which such designation shall

remain in full effect. The effectiveness of the strategic plan will be

determined in accordance with the four key principles set forth in

Sec. 597.200(c). HUD will review each plan submitted in terms of the

four equally weighted key principles, and of such other elements of

these key principles as are appropriate to address the opportunities

and problems of each nominated area which may include:

(a) Economic opportunity. (1) The extent to which businesses, jobs,

and entrepreneurship increase within the Zone or Community;

(2) The extent to which residents will achieve a real economic

stake in the Zone or Community;

(3) The extent to which residents will be employed in the process

of implementing the plan and in all phases of economic and community

development;

(4) The extent to which residents will be linked with employers and

jobs throughout the entire region or metropolitan area, and the way in

which residents will receive training, assistance, and family support

to become economically self-sufficient;

(5) The extent to which economic revitalization in the Zone or

Community interrelates with the broader regional or metropolitan

economies; and

(6) The extent to which lending and investment opportunities will

increase within the Zone or Community through [[Page 3043]] the

establishment of mechanisms to encourage community investment and to

create new economic growth.

(b) Sustainable Community Development. (1) Consolidated planning.

The extent to which the plan is part of a larger strategic community

development plan for the nominating locality and is consistent with

broader regional development strategies;

(2) Public safety. The extent to which strategies such as community

policing will be used to guarantee the basic safety and security of

persons and property within the Zone or Community;

(3) Amenities and design. The extent to which the plan considers

issues of design and amenities that will foster a sustainable

community, such as open spaces, recreational areas, cultural

institutions, transportation, energy, land and water uses, waste

management, environmental protection, and the quality of life in the

community;

(4) Sustainable development. The extent to which economic

development will be achieved in a manner that protects public health

and the environment;

(5) Supporting families. The extent to which the strengths of

families will be supported so that parents can succeed at work, provide

nurture in the home, and contribute to the life of the community;

(6) Youth development. The extent to which the development of

children, youth, and young adults into economically productive and

socially responsible adults will be promoted, and the extent to which

young people will be provided with the opportunity to take

responsibility for learning the skills, discipline, attitude, and

initiative to make work rewarding;

(7) Education goals. The extent to which schools, religious

institutions, non-profit organizations, for-profit enterprises, local

governments and families will work cooperatively to provide all

individuals with the fundamental skills and knowledge they need to

become active participants and contributors to their community, and to

succeed in an increasingly competitive global economy;

(8) Affordable Housing. The extent to which a housing component,

providing for adequate safe housing and ensuring that all residents

will have equal access to that housing is contained in the strategic

plan;

(9) Drug Abuse. The extent to which the plan addresses levels of

drug abuse and drug related activity through the expansion of drug

treatment services, drug law enforcement initiatives and community

based drug abuse education programs;

(10) Equal opportunity. The extent to which the plan offers an

opportunity for diverse residents to participate in the rewards and

responsibilities of work and service. The extent to which the plan

ensures that no business within a nominated Zone or Community will

directly or through contractual or other arrangements subject a person

to discrimination on the basis of race, color, national origin, gender

or disability in its employment practices, including recruitment,

recruitment advertising, employment, layoff, termination, upgrading,

demotion, transfer, rates of pay or other forms of compensation, or use

of facilities.

(c) Community-Based Partnerships. (1) Community partners. The

extent to which residents of the nominated area have participated in

the development of the strategic plan and their commitment to

implementing it, and the extent to which community-based organizations

in the nominated area have participated in the development of the plan

and their record of success measured by their achievements and support

for undertakings within the nominated area; and the extent to which the

plan integrates the local educational, social, civic, environmental and

health organizations and reflects the prominent place that these

institutions play in the life of a revitalized community;

(2) Private and non-profit organizations as partners. The extent to

which partnership arrangements include commitments from private and

non-profit organizations, including corporations, utilities, banks and

other financial institutions, and educational institutions supporting

implementation of the strategic plan;

(3) State and local government partners. The extent to which State

and local governments are committed to providing support to implement

the strategic plan, including their commitment to ``reinventing'' their

roles and coordinating programs to implement the strategic plan; and

(4) Permanent implementation and evaluation structure. The extent

to which a responsible and accountable implementation structure or

process has been created to ensure that the plan is successfully

carried out and that improvements are made throughout the period of the

Zone or Community's designation and the extent to which the partners

agree to be bound by their commitments.

(d) Strategic vision for change. (1) Goals and Coordinated

strategy. The extent to which the strategic plan reflects a projection

for the community's revitalization which links economic, human,

physical, community development and other activities in a mutually

reinforcing, synergistic way to achieve ultimate goals;

(2) Creativity and innovation. The extent to which the activities

proposed in the plan are creative, innovative and promising and will

promote the civic spirit necessary to revitalize the nominated area;

(3) Building on assets. The extent to which the vision for

revitalization realistically addresses the needs of the nominated area

in a way that takes advantage of its assets;

(4) Benchmarks and learning. The extent to which the plan includes

performance benchmarks for measuring progress in its implementation,

including an on-going process for adjustments, corrections and building

on what works.

Sec. 597.202 Submission of nominations for designation.

(a) General. A nomination for designation as an Empowerment Zone

and/or Enterprise Community must be submitted for each urban area for

which such designation is requested. The nomination shall be submitted

in a form to be prescribed by HUD in the application and in the Notice

Inviting Applications published in the Federal Register, and must

contain complete and accurate information.

(b) Certifications. Certifications must be submitted by the

State(s) and local government(s) requesting designation stating that:

(1) The nominated urban area satisfies the boundary tests of

Sec. 597.100(d);

(2) The nominated urban area is one of pervasive poverty,

unemployment and general distress, as prescribed by Sec. 597.102;

(3) The nominated urban area satisfies the poverty rate tests set

forth in Sec. 597.103;

(4) The nominated urban area contains no portion of an area that is

either already designated as an Empowerment Zone and/or Enterprise

Community, or is otherwise included in any other area nominated for

designation as an Empowerment Zone and/or Enterprise Community;

(5) Each nominating governmental entity has the authority to:

(i) Nominate the urban area for designation as an Empowerment Zone

and/or Enterprise Community;

(ii) Make the State and local commitments required by

Sec. 597.200(d); and

(iii) Provide written assurances satisfactory to the Secretary that

these commitments will be met.

(6) Provide assurances that the amounts provided to the State for

the [[Page 3044]] area under Section 2007 of Title XX of the Social

Security Act will not be used to supplant Federal or non-Federal funds

for services and activities which promote the purposes of Section 2007;

(7) 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 reporting

on the use of Empowerment Zone/Enterprise Community Social Service

Block Grant funds; and

(8) Provide assurances that the nominating State(s) agrees to

distribute the Empowerment Zone/Enterprise Community Social Service

Block Grant funds in accordance with the strategic plan submitted for

the designated Zone or Community.

(c) Maps and area description. Maps and a general description of

the nominated urban area shall accompany the nomination request.

Subpart D--Designation Process

Sec. 597.300 HUD action and review of nominations for designation.

(a) Establishment of submission procedures. HUD will establish a

time period and procedures for the submission of nominations for

designation as Empowerment Zones or Enterprise Communities, including

submission deadlines and addresses, in a Notice Inviting Applications,

to be published in the Federal Register.

(b) Acceptance for processing. (1) HUD will accept for processing

those nominations for designation as Empowerment Zones or Enterprise

Communities which HUD determines have met the criteria required by this

Part. HUD will notify the State(s) and local government(s) whether or

not the nomination has been accepted for processing. The criteria for

acceptance for processing are as follows:

(2) The nomination for designation as an Empowerment Zone or

Enterprise Community must be received by HUD on or before the time on

the date established by the Notice Inviting Applications published in

the Federal Register. The nomination for designation as an Empowerment

Zone or Enterprise Community must be complete and must be accompanied

by a strategic plan, as required by Sec. 597.200(c), and the

certifications required by Sec. 597.202(b).

(c) Evaluation of nominations. In the process of reviewing each

nomination accepted for processing, HUD may undertake a site visit(s)

to any nominated area to aid in the process of evaluation.

(d) Modification of the strategic plan, boundaries of nominated

urban areas, and/or period during which designation is in effect.

Subject to the limitations imposed by Sec. 597.100, HUD may negotiate

reasonable modifications of the strategic plan, the proposed boundaries

of a nominated urban area, or the term for which a designation is to

remain in full effect, to ensure maximum efficiency and fairness in the

provision of assistance to such areas.

(e) Publication of designations. Announcements of those nominated

urban areas designated as Empowerment Zones or Enterprise Communities

will be made by publication of a Notice in the Federal Register.

Sec. 597.301 Selection factors for designation of nominated urban

areas.

(a) Selection factors. In choosing among nominated urban areas

eligible for designation, the Secretary shall consider:

(1) The effectiveness of the strategic plan in accordance with the

key principles and evaluative criteria set out in Sec. 597.201;

(2) The effectiveness of the assurances made pursuant to

Sec. 597.200(a)(2) that the strategic plan will be implemented;

(3) The extent to which an application proposes activities that are

creative and innovative in comparison to other applications; and

(4) Such other factors established by HUD. Such factors include,

but are not limited to, the degree of need demonstrated by the

nominated area for assistance under this part. If other factors are

established by HUD, a Federal Register notice will be published

identifying such factors, along with an extension of the application

due date if necessary.

(b) Geographic diversity. HUD, in its discretion, may choose to

select for designation a lower rated approvable application over a

higher rated application in order to increase the level of geographic

diversity of designations approved under this part.

Sec. 597.302 Number of Empowerment Zones and Enterprise Communities

designated.

(a) Empowerment Zones. HUD will designate up to six of the

nominated urban areas as Empowerment Zones, provided: that if six such

zones are so designated, no less than one shall be designated in an

urban area the most populous city of which has a population of 500,000

or less and no less than one shall be a nominated urban area which

includes areas in two States and which has a population of 50,000 or

less.

(b) Enterprise Communities. HUD will designate up to 65 of the

nominated urban areas not designated Empowerment Zones under paragraph

(a) of this section as Enterprise Communities.

Subpart E--Post-Designation Requirements

Sec. 597.400 Reporting.

HUD will require periodic reports for the Empowerment Zones and

Enterprise Communities designated pursuant to this part. These reports

will identify the community, local government and State actions which

have been taken in accordance with the strategic plan. In addition to

these reports, such other information relating to designated

Empowerment Zones and Enterprise Communities as HUD shall request from

time to time, including information documenting nondiscrimination in

hiring and employment by businesses within the designated Empowerment

Zone or Enterprise Community, shall be submitted promptly.

Sec. 597.401 Periodic performance reviews.

HUD will regularly evaluate the progress of the strategic plan in

each designated Empowerment Zone and Enterprise Community on the basis

of performance reviews to be conducted on site and other information

submitted. HUD will also commission evaluations of the Empowerment Zone

program as a whole by an impartial third party, at such intervals as

HUD may establish.

Sec. 597.402 Validation of designation.

(a) Reevaluation of designations. On the basis of the performance

reviews described in Sec. 597.401, and subject to the provisions

relating to the revocation of designation appearing at Sec. 597.403,

HUD will make findings on the continuing eligibility for and the

validity of the designation of any Empowerment Zone or Enterprise

Community. Determinations of whether any designated Empowerment Zone or

Enterprise Community remains in good standing shall be promptly

communicated to all Federal agencies providing assistance or

administering programs under which assistance can be made available in

such Zone or Community.

(b) Modification of designation. Based on an urban area's success

in carrying out its strategic plan, and subject to the provisions

relating to revocation of designation appearing at Sec. 597.403 and the

requirements as to the number, maximum population and other

characteristics of urban Empowerment Zones set forth in Sec. 597.3, the

Secretary may modify designations by reclassifying urban Empowerment

[[Page 3045]] Zones as Enterprise Communities or Enterprise Communities

as Empowerment Zones.

Sec. 597.403 Revocation of designation.

(a) Basis for revocation. The Secretary may revoke the designation

of an urban area as an Empowerment Zone or Enterprise Community if the

Secretary determines, on the basis of the periodic performance review

described at Sec. 597.401, that the State(s) or local government(s) in

which the urban area is located:

(1) Has modified the boundaries of the area;

(2) Has failed to make progress in achieving the benchmarks set

forth in the strategic plan; or

(3) Has not complied substantially with the strategic plan.

(b) Letter of warning. Before revoking the designation of an urban

area as an Empowerment Zone or Enterprise Community, the Secretary will

issue a letter of warning to the nominating State(s) and local

government(s):

(1) Advising that the Secretary has determined that the nominating

local government(s) and/or State(s) has:

(i) Modified the boundaries of the area; or

(ii) Is not complying substantially with, or has failed to make

progress in achieving the benchmarks set forth in the strategic plan

prepared pursuant to Sec. 597.200(c); and

(2) Requesting a reply from all involved parties within 90 days of

the receipt of this letter of warning.

(c) Notice of revocation. After allowing 90 days from the date of

receipt of the letter of warning for response, and after making a

determination pursuant to paragraph (a) of this section, the Secretary

may issue a final notice of revocation of the designation of the urban

area as an Empowerment Zone or Enterprise Community.

(d) Notice to affected Federal agencies. HUD will notify all

affected Federal agencies providing assistance in an urban Empowerment

Zone or Enterprise Community of its determination to revoke any

designation pursuant to this section or to modify a designation

pursuant to Sec. 597.402(b).

Subpart F--Special Rules

Sec. 597.500 Indian Reservations.

No urban Empowerment Zone or Enterprise Community may include any

area within an Indian reservation.

Sec. 597.501 Governments.

If more than one State or local government seeks to nominate an

urban area under this part, any reference to or requirement of this

part shall apply to all such governments.

Sec. 597.502 Nominations by economic development corporations or the

District of Columbia.

Any urban area nominated by an Economic Development Corporation

chartered by the State in which it is located or by the District of

Columbia shall be treated as nominated by a State and local government.

Sec. 597.503 Use of census data.

Population and poverty rate data shall be determined by the most

recent decennial census data available.

Dated: December 2, 1994.

Andrew Cuomo,

Assistant Secretary for Community Planning and Development.

[FR Doc. 95-734 Filed 1-11-95; 8:45 am]

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