Empowerment Zones: Rule for Second Round Designations

SUMMARY: This interim rule adds new regulations to govern the

designation of fifteen urban areas as Empowerment Zones. This new rule

is being published to implement the changes made by sections 952-954 of

the Taxpayer Relief Act of 1997. That statute authorized designation of

a second round of Empowerment Zones, which receive special tax benefits

for area businesses. (The Act also authorized HUD to designate two

additional EZs under the criteria specified for the first round, for

which a separate final rule has been issued.) By specifying the new

eligibility criteria to be used in designating a second round of EZs,

this rule lays the foundation for designations to be made in response

to applications submitted in response to the Notice Inviting

Applications published elsewhere in this issue of the Federal Register.

DATES: Effective date: May 18, 1998.

Comment due date: Comments must be submitted by June 15, 1998.

ADDRESSES: Interested persons are invited to submit comments regarding

this rule to the Office of the General Counsel, Regulations Division,

room 10276, Department of Housing and Urban Development, 451 Seventh

Street, SW, Washington, DC 20410-0500. Comments should refer to the

above docket number and title of the rule. Facsimile (FAX) comments are

not acceptable. A copy of each communication submitted will be

available for public inspection and copying during regular business

hours (weekdays 7:30 a.m. to 5:30 p.m. Eastern time) at the above

address. (In addition, see the Paperwork Reduction Act heading under

the Findings and Certifications section of this preamble regarding

submission of comments on the information collection burden.)

FOR FURTHER INFORMATION CONTACT: Elaine Braverman, Empowerment Zone/

Enterprise Community Initiative, Department of Housing and Urban

Development, Room 7130, 451 Seventh Street, SW, Washington, DC 20410,

telephone (202) 708-6339. (This telephone number is not toll-free.) For

hearing-and speech-impaired persons, this telephone number may be

accessed via TTY (text telephone) by calling the Federal Information

Relay Service at 1-800-877-8339 (toll-free).

SUPPLEMENTARY INFORMATION:

I. Background

Section 13301 of the Omnibus Budget Reconciliation Act of 1993

created a new Subchapter U of the Internal Revenue Code, which

authorized the Secretary of Housing and Urban Development (HUD) to

designate not more than six urban Empowerment Zones and not more than

65 urban Enterprise Communities. It also authorized the Secretary of

Agriculture to designate not more than three Empowerment Zones. The two

Departments issued separate but parallel interim rules, following a

standard format, on January 18, 1994 (59 FR 2700). Notices Inviting

Applications were published, and the agencies designated the maximum

number of EZs and ECs authorized. HUD issued a final rule, making only

technical changes to the interim rule, on January 12, 1995 (60 FR

3034). At that time, HUD responded to comments received on the interim

rule. With respect to comments made concerning the designation process,

HUD generally responded that, because the designations had already been

made under the interim rule, changes to those provisions would not have

any effect, but the suggested changes would be considered in any future

rulemaking to implement any additional Congressional authorization for

new designations. HUD has reconsidered the changes requested, as

discussed in the preamble to that final rule, and has decided that they

are inappropriate or unnecessary.

Section 952 of the Taxpayer Relief Act of 1997 (Pub. L. 105-34, 111

Stat. 788, enacted on August 5, 1997) (the 1997 Act) amended section

1391 of the Internal Revenue Code (26 U.S.C. 1391) to add a new

paragraph (g), that changed the eligibility criteria for the 20

additional Empowerment Zones, 15 of which are to be in urban areas,

designated by the Secretary of HUD and 5 of which are to be in rural

areas, designated by the Secretary of Agriculture. The Act expanded the

eligibility criteria slightly, provided different tax incentives

applicable to the new EZs, and made other changes affecting EZs, thus

necessitating changes to the implementing regulations. Section 954 of

the 1997 Act amended section 1392 to revise eligibility criteria with

respect to Alaska and Hawaii, which changes are also reflected in this

interim rule, and section 701 expressly designated a special

Empowerment Zone in the District of Columbia, to last five years

instead of the usual ten.

Two specific changes in the eligibility criteria in the 1997 Act

for new EZs were an increase in the size of zones and elimination of

the requirement that at least half of the nominated area consist of

census tracts with poverty rates of 35 percent. The requirements for at

least a 25 percent poverty rate for 90 percent of the area's census

tracts and at least a 20 percent poverty rate for the remainder

continue to apply, but census tracts with populations under 2,000 get

special consideration for satisfying the 25 percent rate. The

requirement that an urban EZ must be located entirely within no more

than two contiguous States remains unchanged.

The tax benefits that apply to the Round II EZs are the following:

tax-exempt bond financing, welfare-to-work tax credit, work opportunity

tax credit, environmental cleanup cost deduction (``brownfields'' tax

incentive), and up to $20,000 of additional section 179 (accelerated

depreciation) expensing. The Round II EZs are not eligible for the

present-law wage credit enjoyed by the Round I EZs.

The strategic plan submitted by an applicant must describe its

plans for using these tax benefits, in accordance with

Sec. 598.215(b)(4)(ii). (For a full description of the tax benefits,

see IRS Publication 954, ``Tax Incentives for Empowerment Zones and

Other Distressed Communities.'')

When the first round of designations was being made, there was

funding authorized and appropriated for the U.S. Department of Health

and Human Services to award EZ/EC SSBG grants for the Empowerment Zones

and Enterprise Communities. It is anticipated that such funding may

become available for Round II designees in Fiscal Year 1999. See the

Appendix, ``Eligible Uses of EZ/EC SSBG Funds,'' for guidance on uses

of these funds.

For the current fiscal year, however, there is $1.5 million in HUD

funding for planning grants and approximately $502 million in tax

benefits. Each of the 15 areas that receives designation under this

rule as an EZ will be awarded a $100,000 planning grant.

II. New Rule

A. Statutory Changes

The principal change that affects all areas to be nominated for the

second round of designations is the replacement of the existing

criteria

[[Page 19152]]

concerning poverty rate. For the first round of designations, there

were three elements of the poverty rate criterion of eligibility for

Empowerment Zone designation: (1) The poverty rate for each census

tract must be at least 20 percent; (2) the poverty rate for at least 90

percent of the census tracts must be at least 25 percent; and (3) the

poverty rate for at least 50 percent of the census tracts must be at

least 35 percent. The areas designated under the revised authority are

subject to only the first two of these poverty rate criteria. (See

Sec. 598.115(a).)

A new provision excepts up to three ``developable sites''--parcels

that may be developed for commercial or industrial purposes--from

satisfying the two poverty rate criteria that otherwise would be

applicable, but restricts the size of the area given this special

poverty rate treatment to a total of 2,000 acres. There may be up to

three noncontiguous developable sites within a nominated area, which

themselves may be noncontiguous with the parcels that do meet the

poverty criteria.

Treatment of census tracts with small populations has been changed.

Now they must satisfy an additional condition to be treated as if they

have a poverty rate of at least 25 percent (the second criterion

described above): The census tract must be contiguous to one or more

other census tracts that have a poverty rate of at least 25 percent,

determined without regard to this exception. (See Sec. 598.115(b)(2).)

For the first round of designations, the statute (at section

1391(e)(5)) required that States and local governments certify that no

portion of the area nominated is already included in an EZ or in an EC

or in an area otherwise nominated for designation. For this round, the

statute was amended. We interpret the amendment to permit nomination of

areas that were contained in areas nominated for EZ or EC status that

were not granted such status. In other words, the certification for

Round II requires that the nominated area contain no portion of an area

that is part of either an EZ or an area currently being nominated for

EZ designation. (See Sec. 598.210(c).)

In the first round, Indian reservations were not permitted to be

included in an Empowerment Zone. The statute has been changed to permit

them to be included, and to be treated as nominated by both a State and

a local government if it is nominated by the reservation governing

body. Section 598.500 implements this change, permitting the nomination

of the tribal governing body to be treated as a nomination by both a

State and a local government where the area included in the nomination

is entirely within the reservation. If part of the area nominated is

outside the Indian reservation, the State would be required to

participate in the nomination. The statute references a determination

by the Secretary of the Interior with respect to the Indian

reservation's governing body. HUD interprets this to mean that the

Indian organizations from whom HUD should accept nominations are those

that constitute Federally recognized tribes, those specified by the

Department of the Interior. This interpretation is reflected in the new

section.

The States of Alaska and Hawaii are given special treatment with

respect to satisfying the distress, size, and poverty rate criteria in

the revised statute for Round II designations. A nominated area is

treated as satisfying those requirements if 20 percent or more of the

families of each census tract have incomes that are no more than 50

percent of the statewide median family income. (See Sec. 598.515.)

The District of Columbia also is singled out in the statute for

separate designation. Section 701 of the Act designates the existing

Empowerment Zone in DC as the DC special Empowerment Zone, with the

addition of all other census tracts for which the poverty rate is at

least 20 percent. It has special provisions concerning the issuance of

bonds during the period of January 1, 1998 through December 31, 2002,

and concerning treatment of capital gains on DC Zone assets. These

special provisions for the District of Columbia are not included in

this rule, since they are unique to DC. They are being implemented

directly, as specified in the statute. This special EZ status does not

disqualify the District of Columbia from seeking designation as a

standard EZ, which provides benefits over a ten year period.

B. Policy Changes

The language of the rule is being revised to link the EZs to moving

people from welfare to work, since that has become a high priority

after the enactment of welfare reform legislation. See Sec. 598.2.

C. Clarifying Changes

Some terminology used in part 597, the current rule, such as

``population census tract'' seems confusing, and so is modified when it

is replicated in this proposed rule. This rule applies only to Round II

designations, which do not include Enterprise Communities designations.

Consequently, the references to Enterprise Communities do not appear in

this new part.

The section on evaluating the strategic plan that was contained in

the rule for Round I has been removed. That level of detail will be

provided in the Notice Inviting Applications for Round II. The

selection criteria used in making the designations, however, remain in

the rule, in Sec. 598.305. The heading has been changed to

``Designation factors.'' That section echoes the statute in providing

that HUD will choose among applicants that satisfy the eligibility

criteria by evaluating the quality of the strategic plan and other

factors to be specified in the Notice Inviting Applications.

D. Funding Differences

In Round I, the U.S. Department of Health and Human Services (HHS)

awarded EZ/EC SSBG funds to States for each designated Round I EZ and

EC. The HUD rule for Round I included guidance about use of those grant

funds. Similar grant funding has not been authorized for Round II. If

grants are authorized for Round II, HHS will issue guidance about those

funds.

E. Corresponding Sections Between New Rule and Old Rule

The following chart shows the sections of this new part 598 that

correspond to the sections of part 597:

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

Part 598 Part 597

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

598.1 Applicability and scope......... 597.1 Applicability and scope

598.2 Objective and purpose........... 597.2 Objective and purpose

598.3 Definitions..................... 597.3 Definitions

598.4 Secretarial review * * *........ 597.4 Secretarial review * * *

598.100 Eligibility requirements...... 597.100 Eligibility

requirements * * *

598.105 Data used for elig * * *...... 597.101 Data utilized for

eligibility &

597.503 Use of census data

598.110 Tests of pervasive pov * * *.. 597.102 Tests of pervasive

poverty, * * *

598.115 Poverty rate.................. 597.103 Poverty rate

[[Page 19153]]

598.200 Who nominates an area * * *... 597.200(a)&(b) Nominations by

State and * * *

598.205 What are the requirements * * 597.202 Submission of

*. nominations for * * *

598.210 What certifications must the * 597.200(a)(4), 597.202(b)

* *. Submission of nom * * *

598.215 What are the purpose and 597.200(c)&(d) Nominations by

content * * *. State and * * *

598.300 Procedure for submitting * * * 597.300 HUD action and review

of nomin * * *

598.305 Designation factors * * *..... 597.301 Selection factors for

designation * * *

598.400 HUD grants for planning * * * NEW

598.405 Environmental review.......... NEW

598.410 Public access to materials * * NEW

*.

598.415 Reporting..................... 597.400 Reporting

598.420 Periodic progress 597.401 Periodic performance

determinations. reviews

598.425 Validation of designation..... 597.402 Validation of

designation

598.430 Revocation of designation..... 597.403 Revocation of

designation

598.500 Indian Reservations........... 597.500 Indian Reservations

598.505 Governments................... 597.501 Governments

598.510 Nominations by EDCs or DC..... 597.502 Nominations by EDCs or

DC

598.515 Alaska and Hawaii............. NEW

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

III. Findings and Certifications

Justification for Interim Rule

In general, HUD publishes a rule for public comment before issuing

a rule for effect, in accordance with its own regulations on rulemaking

at 24 CFR part 10. However, part 10 does provide for exceptions from

that general rule where the agency finds good cause to omit advance

notice and public participation. The good cause requirement is

satisfied when prior public procedure is ``impracticable, unnecessary,

or contrary to the public interest.'' (24 CFR 10.1.)

HUD finds that good cause exists to publish this rule for effect

without first soliciting public comment, because advance solicitation

of comment is both unnecessary and contrary to the public interest.

The Department has already published a rule for notice and comment

on the subject of designation of Empowerment Zones, which was codified

at 24 CFR part 597. This new rule to implement a second round of

designation of Empowerment Zones is patterned on the prior rule. The

major differences between this rule and the earlier rule are based on

statutory changes, which leave virtually no room for exercise of

discretion. Other additions to the rule reflect HUD's experience with

the first round, clarifying the expectations of the parties to reflect

actual experience. These changes are not controversial and, therefore,

do not signal a necessity for advance public comment.

HUD's finding that it would be contrary to the public interest to

delay the effectiveness of the rule is based on the practical necessity

of preparing an application for designation as an empowerment zone

within the timeframe set by the authorizing statute. The designations

are required by the statute (section 1391(g)(2)) to be made before

January 1, 1999. The governmental entities and other entities that may

work with them in partnership to develop an application for designation

need to know the requirements of the program in time to develop their

strategic plans and apply for designation. Delay in prescribing the

criteria for designating new empowerment zones would delay the

development of these cooperative efforts and make it extremely

difficult for applicants to develop their strategic plans in a timely

fashion.

For these reasons, HUD believes that an interim rulemaking is

justified. HUD is soliciting public comments on this rule and will

consider these comments in the development of a final rule.

Paperwork Reduction Act

The information collection requirements contained in this rule, as

described in Secs. 598.200, 598.205, 598.210, 598.215, 598.415, and

598.430, and the implementing application forms, have been approved by

the Office of Management and Budget under the Paperwork Reduction Act

of 1995 (44 U.S.C. 3501-3520) and assigned OMB control number 2506-

0148. This approval has been granted on an emergency basis through

August 31, 1998. In accordance with the Paperwork Reduction Act, HUD

may not conduct or sponsor, and a person is not required to respond to,

a collection of information unless the collection displays a currently

valid OMB control number.

In addition, HUD will seek an extension of this approval for these

information collections. Therefore, HUD asks for comments regarding the

information collections contained in the sections of this rule stated

above. At the end of the comment period, HUD will submit the proposed

information collections to OMB for approval.

Comments regarding the information collections contained in the

rule must be submitted by June 15, 1998. Comments on these information

collections should refer to the proposal by name and/or OMB control

number and must be sent to: Reports Liaison Officer, Shelia E. Jones,

Department of Housing and Urban Development, 451 Seventh Street, SW,

Room 7230, Washington, DC 20410.

Specifically, comments are solicited from members of the public and

affected agencies concerning the proposed collection of information to:

(1) Evaluate whether the proposed collection of information is

necessary for the proper performance of the functions of the agency,

including whether the information will have practical utility; (2)

Evaluate the accuracy of the agency's estimate of the burden of the

proposed collection of information; (3) Enhance the quality, utility,

and clarity of the information to be collected; and (4) Minimize the

burden of the collection of information on those who are to respond,

including through the use of appropriate automated collection

techniques or other forms of information technology, e.g., permitting

electronic submission of responses.

The following table identifies the components of the information

collection:

[[Page 19154]]

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

Est. ave.

Type of collection Section of 24 Number of Frequency of response time Annual burden

CFR affected respondents response (hrs.) hrs.

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

Application..................... 598.200

598.205

598.210

598.215 225 1 50 11,250

Periodic Reporting.............. 597.400

598.415 87 1 15 1,305

Response to Warning Letter...... 597.403

598.430 5 1 20 100

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

Total Burden--12,655 hours per year.

Environmental Impact

A Finding of No Significant Impact with respect to the environment

for this rule has been made in accordance with HUD regulations at 24

CFR part 50, which implement section 102(2)(C) of the National

Environmental Policy Act of 1969. The Finding of No Significant Impact

is available for public inspection between 7:30 a.m. and 5:30 p.m.

weekdays in the Office of the Rules Docket Clerk, Office of the General

Counsel, Department of Housing and Urban Development, Room 10276, 451

Seventh Street, S.W., Washington, DC 20410.

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this rule before publication and by

approving it certifies that this rule will not have a significant

economic impact on a substantial number of small entities as

distinguished from large entities. The rule does not place any mandates

on small entities. It merely authorizes them to seek designation as

Empowerment Zones, as authorized by statute.

The burdens placed on applicants derive from the statute, and

primary among them is the requirement for a strategic plan. The entity

responsible for preparing a strategic plan for HUD funds for a

metropolitan area is the local government that generally would be

seeking the nomination of an area, not the small businesses that are

located or could be located within the area. A small government is

defined by the Small Business Administration as one that has a

population of less than 50,000. It is possible that a government of

that size will seek designation for an area within its boundaries, if

it is part of a Metropolitan Statistical Area, as required by the

statute. The contents of such an entity's strategic plan would be

expected to reflect its size, not the size of a larger applicant.

HUD is sensitive to the fact, however, that the uniform application

of requirements on entities of differing sizes may place a

disproportionate burden on small entities. Therefore, HUD is soliciting

recommendations for how these small entities might fulfill the purposes

of the rule in a way less burdensome to them.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that, although

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

political subdivisions that are designated as Empowerment Zones, 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, local, and Tribal 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.

Unfunded Mandates

Executive Order 12875 calls for Federal agencies to refrain, to the

extent feasible and permitted by law, from promulgating any regulation

that is not required by statute that would create a mandate on a State,

local, or Tribal government, unless the agency provides funds for

complying with the mandate or the agency first consults with affected

State, local, and Tribal governments. Title II of the Unfunded Mandates

Reform Act of 1995 (12 U.S.C. 1501) established requirements for

Federal agencies to assess the effects of their regulatory actions on

State, local, and tribal governments and the private sector.

This rule does not impose any Federal mandates on any State, local,

or tribal governments or the private sector within the meaning of the

Unfunded Mandates Reform Act of 1995, because it does not mandate any

particular action. The rule just authorizes States, localities, and

tribes to apply for designation of areas within their jurisdiction as

Empowerment Zones, which permits special tax treatment of business

activities within the areas and may make the areas eligible for other

government benefits.

HUD has, nonetheless, had regular contact with the representatives

of the already designated EZs and ECs concerning the effect of the

statutory changes and on possible means for implementation. In

addition, individual citizens, academicians, and members of Congress

have inquired about the possible resolution of issues they identified

with respect to implementing the statutory changes. All of the

information and views provided have been considered in the development

of this rule.

Regulatory Review

The Office of Management and Budget (OMB) reviewed this rule under

Executive Order 12866, Regulatory Planning and Review. OMB determined

that this rule is a ``significant regulatory action,'' as defined in

section 3(f) of the Order (although not economically significant, as

provided in section 3(f)(1) of the Order). Any changes made to the

interim rule after its submission to OMB are identified in the docket

file, which is available for public inspection in the Regulations

Division of the Office of General Counsel, Room 10276, 451 Seventh

Street, SW, Washington, DC 20410-0500.

Catalog of Federal Domestic Assistance.

The Catalog of Federal Domestic Assistance Program number assigned

to this program is 14.244.

List of Subjects in 24 CFR Part 598

Community development, Economic development, Empowerment zones,

Housing, Indians, Intergovernmental relations, Reporting and record

keeping requirements, Urban renewal.

Accordingly, for the reasons set forth in the preamble, a new part

598 is added to title 24 of the Code of Federal Regulations, to read as

follows:

[[Page 19155]]

PART 598--URBAN EMPOWERMENT ZONES: ROUND TWO DESIGNATIONS

Subpart A--General Provisions

Sec.

598.1 Applicability and scope.

598.2 Objective and purpose.

598.3 Definitions.

598.4 Period of designation.

Subpart B--Eligibility Requirements

598.100 Eligibility requirements.

598.105 Data used for eligibility determinations.

598.110 Tests of pervasive poverty, unemployment and general

distress.

598.115 Poverty rate.

Subpart C--Nomination Procedure

598.200 Who nominates an area for designation?

598.205 What are the requirements for nomination?

598.210 What certifications must governments make?

598.215 What are the purpose and content of the strategic plan?

Subpart D--Designation Process

598.300 Procedure for submitting a nomination.

598.305 Selection factors for designation of urban empowerment

zones.

Subpart E--Post-Designation Requirements

598.400 HUD grants for planning activities.

598.405 Environmental review.

598.410 Public access to materials and proceedings.

598.415 Reporting.

598.420 Periodic progress determinations.

598.425 Validation of designation.

598.430 Revocation of designation.

Subpart F--Special Rules

598.500 Indian Reservations.

598.505 Governments.

598.510 Nominations by Economic Development Corporations or the

District of Columbia.

598.515 Alaska and Hawaii.

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

Subpart A--General Provisions

Sec. 598.1 Applicability and scope.

(a) This part establishes policies and procedures applicable to the

second round of designations of urban Empowerment Zones, authorized

under Subchapter U of the Internal Revenue Code of 1986 (26 U.S.C.

1391, et seq.), as amended by sections 952 and 954 of the Taxpayer

Relief Act of 1997.

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

the nomination process for urban Empowerment Zones, and the designation

and evaluation of these Zones by HUD. Provisions dealing with the

nomination and designation of rural Empowerment Zones are issued by the

Department of Agriculture.

Sec. 598.2 Objective and purpose.

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

Empowerment Zones in urban areas, to stimulate the creation of new

jobs--empowering low-income persons and families receiving public

assistance to become economically self-sufficient--and to promote

revitalization of economically distressed areas.

Sec. 598.3 Definitions.

In addition to the definitions of ``HUD'' and ``Secretary'' found

in 24 CFR 5.100, the following definitions apply to this part.

Census tract means a census tract, as the term is used by the

Bureau of the Census, or, if census tracts are not defined for the

area, a block numbering area.

Designation means the process by which the Secretary designates

urban areas as Empowerment Zones 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.

Developable site means a parcel of land in a nominated area that

may be developed for commercial or industrial purposes.

Empowerment Zone means an urban area so designated by the Secretary

in accordance with this part.

EZ/EC SSBG funds means any funds that may be provided to States or

Tribes by HHS in accordance with section 2007(a) of the Social Security

Act (42 U.S.C. 1397f), for use by the designated Round II Empowerment

Zone.

HHS means the U.S. Department of Health and Human Services.

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 that 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 in accordance with this part.

Revocation of designation means the process by which the Secretary

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

(See subpart E of this part.)

State means any State of the United States.

Urban area means:

(1) An area that lies inside a Metropolitan Statistical Area (MSA),

as designated by the Office of Management and Budget; or

(2) An area outside an MSA if the jurisdiction of the nominating

local government documents:

(i) The urban character of the area, or

(ii) The link between the area and the proposed area in the MSA.

Sec. 598.4 Period of designation.

The designation of an urban area as an Empowerment Zone will remain

in full effect during the period beginning on the date of designation

and ending on the earliest of:

(a) The close of the tenth calendar year beginning on the date of

designation;

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

Governments in their application for nomination; or

(c) The date the Secretary modifies or revokes the designation.

Subpart B--Eligibility Requirements

Sec. 598.100 Eligibility requirements.

A nominated urban area is eligible for designation in accordance

with this part only if the area:

(a) Has a maximum population that 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. 598.110;

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

excluding up to three noncontiguous developable sites that are exempt

from the poverty criteria;

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

non-contiguous parcels meeting the poverty criteria, and not more than

three noncontiguous developable sites exempt under Sec. 598.115(c)(1)

from the poverty rate criteria;

(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 used in the most recent Census of Retail Trade, unless the

poverty rate for each census tract in the district is not less than 35

percent.

Sec. 598.105 Data used for eligibility determinations.

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

eligibility of an area is from the 1990 Decennial Census, and from

information published by the Bureau of the Census and the Bureau of

Labor Statistics. Specific information on

[[Page 19156]]

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 must coincide with the

boundaries of census tracts, as defined in Sec. 598.3.

Sec. 598.110 Tests of pervasive poverty, unemployment and general

distress.

(a) Pervasive poverty. Pervasive poverty is demonstrated by

evidence that:

(1) Poverty, as indicated by the number of persons listed as being

in poverty in the 1990 Decennial Census, is widespread throughout the

nominated area; or

(2) Poverty, as described above, has become entrenched or

intractable over time (through comparison of 1980 and 1990 census data

or other relevant evidence).

(b) Unemployment. Unemployment is demonstrated by:

(1) The most recent data available indicating that the annual rate

of unemployment for the nominated area is not less than the national

annual average rate of unemployment; or

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

military base or plant closings or other conditions that have brought

about significant job dislocation within the nominated area.

(c) General distress. General distress is evidenced by describing

adverse conditions within the nominated urban area other than those of

pervasive poverty and unemployment. Below average or decline in per

capita income, earnings per worker, number of persons on welfare, per

capita property tax base, average years of school completed,

substantial population decline, and a high or rising incidence of

crime, narcotics use, homelessness, high incidence of AIDS, abandoned

housing, deteriorated infrastructure, school dropouts, teen pregnancy,

incidence of domestic violence, incidence of certain health conditions

and illiteracy are examples of appropriate indicators of general

distress.

Sec. 598.115 Poverty rate.

(a) General. In order to be eligible for designation, an area's

poverty rate must satisfy the following criteria:

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

rate must be not less than 20 percent; and

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

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

percent.

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

(1) Census tracts with populations of less than 2,000. A census tract

that has a population of less than 2,000 is treated as having a poverty

rate that 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, and the tract is contiguous to one or

more other census tracts that have an actual poverty rate of not less

than 25 percent.

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

by this section, the Secretary will round all fractional percentages of

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

figure.

(c) Noncontiguous parcels. (1) Noncontiguous parcels that are

developable sites are exempt from the poverty rate criteria of

paragraph (a) of this section, for up to three developable sites.

(2) The total area of the noncontiguous parcels that are

developable sites exempt from the poverty rate criteria of paragraph

(a) of this section must not exceed 2,000 acres.

(3) A nominated urban area must not contain a noncontiguous parcel

unless such parcel separately meets the criteria set forth at

paragraphs (a)(1) and (2) of this section, except for up to three

developable sites.

(4) There must not be more than three noncontiguous parcels, except

that up to three developable sites are not included in this limit.

Subpart C--Nomination Procedure

Sec. 598.200 Who nominates an area for designation?

Applicants for empowerment zone designation must be nominated by

the State or States and one or more local government(s) in which the

area is located, except as provided in Secs. 598.500, 598.510, and

598.515. The nomination must be submitted in a form to be prescribed by

HUD in the application and in the document announcing the initiation of

the designation process, and must contain complete and accurate

information.

Sec. 598.205 What are the requirements for nomination?

(a) General. No urban area may be considered for designation in

accordance with subpart D of this part unless:

(1) 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 Sec. 598.215 will

be implemented, and these governments submit its nomination;

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

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

and

(3) The application for designation is complete, as described in

paragraph (b) of this section.

(b) Contents of application for designation. The application for

designation of an urban area as an Empowerment Zone must do the

following:

(1) Demonstrate that the nominated urban area satisfies the

eligibility criteria set forth in subpart B of this part;

(2) Include a strategic plan, as described in Sec. 598.215;

(3) Include the certifications described in Sec. 598.210;

(4) Include the 1990 census maps showing the following:

(i) The boundaries of the local government(s): and

(ii) The boundaries of the nominated area, including any

developable sites; and

(5) Include such other information as may be required by HUD in the

application or in the document announcing the initiation of the

designation process.

Sec. 598.210 What certifications must governments make?

Certifications must be submitted by the State(s) and local

government(s) requesting designation stating that:

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

Sec. 598.100(d);

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

unemployment and general distress, as prescribed by Sec. 598.110;

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

included in an Empowerment Zone or any other area currently nominated

for designation as an Empowerment Zone (but it may include an

Enterprise Community);

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

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

(2) Make the commitments required of nominating entities by

Sec. 598.215(b); and

(3) Provide written assurances satisfactory to the Secretary that

the strategic plan will be implemented.

(e) Provide assurances that any Round II EZ/EC SSBG funds that may

be provided to the State for the area will not be used to supplant

Federal or non-Federal funds for services and activities that promote

the purposes of section 2007 of the Social Security Act;

[[Page 19157]]

(f) 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 EZ/EC SSBG funds; and

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

distribute any EZ/EC SSBG funds that may be awarded to it for use by a

designated Empowerment Zone for programs, services, and activities

included in the Empowerment Zone's strategic plan to the extent they

are consistent with section 2007(a) of the Social Security Act as well

as other applicable Federal, State, and local laws and regulations.

(h) Provide assurances that the nominating governments will

administer the Empowerment Zone program in a manner which affirmatively

furthers fair housing on the bases of race, color, national origin,

religion, sex, disability, and familial status (presence of children).

Sec. 598.215 What are the purpose and content of the strategic plan?

(a) Principles of strategic plan. The strategic plan, which

accompanies the application for designation, must be developed in

accordance with four key principles:

(1) 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 also should set goals and

performance benchmarks for measuring progress and establish a framework

for evaluating and adjusting the revitalization plan;

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

all segments of the community, including the political and governmental

leadership, community groups, local public health and social service

departments and nonprofit groups providing similar services,

environmental groups, local transportation planning entities, public

and private schools, religious organizations, the private and nonprofit

sectors, centers of learning, and other community institutions and

individual citizens;

(3) Economic Opportunity, including job creation within the

community and throughout the region, entrepreneurial initiatives, small

business expansion, job training and other important job readiness and

job support services, such as affordable child care and transportation

services, that may enable residents to be employed in jobs that offer

upward mobility;

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

livable and vibrant communities through comprehensive approaches that

coordinate economic, physical, environmental, community and human

development. These approaches should preserve the environment and

historic landmarks, address ``brownfields'' clean-up and redevelopment,

explore the economic development advantages of energy efficiency and

use of renewable energy resources, and improve transportation,

education, public safety, and enhanced access to information and

technology among all segments of the community.

(b) Elements of strategic plan. The strategic plan must include the

following elements:

(1) Vision and values: The community's strategic vision for

change--a statement of what the community believes its future should

be, and a statement of the community's values that guided the creation

of the vision. Explain how the vision creates economic opportunity,

encourages self-sufficiency and promotes sustainable community

development.

(2) Community assessment: A comprehensive assessment of existing

conditions and trends within the community, which includes, as a

minimum:

(i) Assessment of problems and opportunities. A description and

assessment of the trends and conditions within the community and of the

surrounding region that form the basis of the strategic plan. The

assessment will include an analysis of the strengths and assets of the

community and region, as well as needs and problems, and should include

a description of poverty and general distress, barriers to economic

development and barriers to human development; and

(ii) Resource analysis. An assessment of the resources available to

the community, including potential resources outside the nominated

area, to address identified problems and needs, and maximize

opportunities that exist within the community. Such resources may

include financial, technical, human, cultural, educational, leadership,

volunteerism, communications, transportation and commerce centers, rail

and mass transit linkages, redevelopable land (including land, such as

ports, that can be designated as ``developable sites'' under the

additional 2,000 acres available), public space, infrastructure, and

other community and regional assets that form the basis for the

formulation and implementation of the strategic plan.

(3) Goals: A statement of a comprehensive and holistic set of goals

to be achieved through implementation of the strategic plan throughout

the 10-year implementation period, and a statement of the strategies

the community proposes to use to achieve the strategic plan goals, and

the identification of priority objectives.

(4) Implementation plan: A detailed plan that outlines how the

community will implement its strategic plan. The plan will include:

(i) Projects and programs. Provide, for the first two-year

implementation period, the following:

(A) A narrative outlining the specific projects and programs that

will be implemented that will result in the achievement of the

community's goals;

(B) Proposed timelines for implementing identified projects and

programs;

(C) Identification of lead implementers of identified projects and

programs, along with innovative partnerships that will be utilized to

insure maximum community participation and project sustainability;

(D) Proposed budgets for each identified project or program,

including projected costs, and sources of funding. Information on

sources of funding will include whether the funding is anticipated or

committed, and whether funding is conditioned upon the designation of

the community as an Empowerment Zone. Evidence of committed funding is

required, and may include letters of commitment, resolutions of

support, or similar documentation as outlined in paragraph (b)(6) of

this section. Funding may include cash and in-kind support from

Federal, State and local governments, non-profit organizations,

foundations, private businesses and other entities that will assist in

the implementation of the strategic plan. Budgets will also include

details about proposed uses of any Round II EZ/EC SSBG funds that may

become available from HHS, in accordance with Guidelines on Eligible

Uses of EZ/EC SSBG Funds.1

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

\1\ The Guidelines were published as an appendix to the interim

rule on Empowerment Zones; Second Round Designation, published in

the Federal Register on April 16, 1998.

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

(E) Baselines and proposed measurable outputs;

(ii) Tax incentive utilization plan. A plan for integrating the new

business tax incentives that are available to designated Empowerment

Zones into the nominated area's business development efforts. The Round

II tax

[[Page 19158]]

incentives include Tax-Exempt Bond Financing, Increased Section 179

Deduction, Welfare-to-Work Credit, Environmental Cleanup Cost Deduction

(i.e., ``Brownfields Tax Incentive''), and the Work Opportunity Tax

Credit. For a description of the tax incentives, see IRS Publication

954, ``Tax Incentives for Empowerment Zones and Other Distressed

Communities'';

(iii) Developable sites plan. If the nominated area is to include

developable sites, a plan to describe how the use of these parcels

would benefit residents and businesses of the nominated area;

(iv) Governance plan. A Governance Plan for the administration of

the strategic plan implementation process, which will include the

following:

(A) The name of the proposed lead implementing entity, and other

major administrative entities and their proposed or actual legal status

and authority to receive and administer Federal funds. The strategic

plan may be implemented by the local governments(s) and/or by the

State(s) nominating an urban area for designation and/or by

nongovernmental entities identified in the strategic plan;

(B) Evidence that the lead implementing entity and other key

entities participating in the strategic plan implementation have the

capacity to implement the plan;

(C) Proposed composition and date of establishment of any

governance boards, advisory boards, commissions or similar bodies that

will be established to manage the implementation of the strategic plan.

Specific information will be included regarding representation of

residents and businesses of the proposed Empowerment Zone area, and how

members of the boards or commissions will be selected;

(D) The relationship between any governance structure created and

local governments and other major community or regional organizations,

such as a metropolitan planning organization, operating in the same

geographic area;

(E) The methods by which stakeholders within the Zone will be kept

informed about Zone activities and progress in implementing the

strategic plan, including a description of plans for meetings open to

the public. The community should utilize modern communication

techniques and incorporate the Internet in order to enhance the

communication and access to information among all stakeholders and

participants; and

(F) The methods and procedures that will ensure continuing

community and grassroots participation in the implementation of the

strategic plan and in the governance of the Zone's activities.

(v) Community performance assessment. Methods the community will

use to assess its own performance in implementing the strategic plan,

and the process it will use to continually review the plan and amend as

appropriate.

(5) Strategic planning process documentation: A description of the

process the community used to select the boundaries of the proposed

Empowerment Zone, including the developable sites, and to prepare the

Strategic Plan. The documentation will:

(i) Explain how the community participated in choosing the area

that is being nominated and why the area was nominated;

(ii) 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;

(iii) Explain how participants were selected and provide evidence

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

cultural, gender, and economic diversity of the community;

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

development and future implementation of the plan; and

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

the most serious disagreements among participants and describe how

those disagreements were resolved; and

(6) Documentation of commitments: Letters of commitment,

resolutions committing public or private resources, and other

documentation that will demonstrate the level of public and private

resources, both inside and outside the nominated area, that will be

available to implement the Strategic Plan and increase economic

opportunity in the nominated Empowerment Zone.

(c) 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 the 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.

Subpart D--Designation Process

Sec. 598.300 Procedure for submitting a nomination.

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

time period and procedures for the submission of nominations for

designation as Empowerment Zones, including submission deadlines and

addresses, in a document announcing the initiation of the designation

process.

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

nominations for designation as Empowerment Zones that HUD determines

have met the criteria required by this part.

(c) Publication of designations. Announcements of those nominated

urban areas designated as Empowerment Zones will be made by publication

in the Federal Register.

Sec. 598.305 Designation factors.

In choosing among nominated urban areas eligible for designation,

the Secretary will consider:

(a) Quality of strategic plan. The quality of the strategic plan

(see Sec. 598.215(b));

(b) Quality of commitments. The quality and breadth of the

commitments made in connection with the strategic plan (see

Sec. 598.215(b)); and

(c) Other factors. Other factors established by HUD, as specified

in a Federal Register notice.

Subpart E--Post-Designation Requirements

Sec. 598.400 HUD grants for planning activities.

(a) HUD will award planning grants up to $100,000 to each of the

Empowerment Zones designated in accordance with this part.

(b) Eligible recipients for these grants are the lead unit of

general local government that received designation under this part, or

its designee. These recipients may subgrant all or part of the planning

grant to qualified subgrantees, such as community organizations,

agencies of local government, regional planning authorities, or

planning consultants.

[[Page 19159]]

(c) Eligible planning activities include: hiring and development of

staff, consulting services, publication of materials, community

outreach and participation, governing board training, and similar

activities that are intended to:

(1) Expand the planning capacity of the designee local government,

the governing board, and/or participating entities, such as community

organizations;

(2) Help the designee plan the implementation of the strategic

plan; and

(3) Help the designee to develop its performance measurement

process.

(d) The document announcing the initiation of the designation

process describes the procedures for award of these planning grants,

post-award reporting requirements with respect to the grants, and the

uniform requirements applicable to all Federal grants.

Sec. 598.405 Environmental review.

Where an empowerment zone's strategic plan or any revision thereof

proposes the use of EZ/EC SSBG funds for activities that are not

excluded from environmental review under 24 CFR 50.19(b), an

environmental review will be performed as required by applicable law.

Sec. 598.410 Public access to materials and proceedings.

After designation, an area designated an EZ must make available to

the public copies of the strategic plan and supporting documentation

and must conduct its meetings in accordance with applicable open

meetings statutes. HUD may make the strategic plan and supporting

documentation available to members of the public.

Sec. 598.415 Reporting.

(a) Empowerment Zones designated in accordance with this part must

submit periodic reports to HUD. These reports must identify the

community, local government and State actions that have been taken in

accordance with the strategic plan and provide notice of updates and

modifications to the strategic plan. In addition to these reports, such

other information relating to designated Empowerment Zones as HUD

requests from time to time, including information documenting

nondiscrimination in hiring and employment by businesses within the

designated Empowerment Zone, must be submitted promptly.

(b) The States must submit periodic reports to HUD, demonstrating

compliance with the certifications it is required to submit in

accordance with this part.

Sec. 598.420 Periodic progress determinations.

HUD will regularly evaluate the progress of implementation of the

strategic plan in each designated Empowerment Zone on the basis of

available information. HUD also may commission evaluations of the

Empowerment Zone program as a whole by an impartial third party, at

such intervals as HUD may establish.

Sec. 598.425 Validation of designation.

(a) On the basis of the periodic progress determinations described

in Sec. 598.420, and subject to the provisions relating to the

revocation of designation in Sec. 598.430, HUD will make findings on

the continuing eligibility for and the validity of the designation of

any Empowerment Zone.

(b) HUD may approve an Empowerment Zone's request for boundary

modification, subject to the requirements specified in subpart B of

this part.

Sec. 598.430 Revocation of designation.

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

of an urban area as an Empowerment Zone if the Secretary determines, on

the basis of the periodic progress determination described at

Sec. 598.420, that the State(s) or local government(s) in which the

urban area is located:

(1) Has modified the boundaries of the area without written

approval from HUD;

(2) Has failed to make progress in implementing 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 and an Empowerment Zone, the Secretary will issue a letter of

warning to the nominating State(s) and local government(s), with a copy

to all affected Federal agencies of which the Secretary is aware;

(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 without written approval

from HUD; or

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

progress in implementing the strategic plan; and

(2) Requesting a reply from the nominating entities within 90 days

of the receipt of this letter of warning.

(c) Notice of revocation. To revoke the designation, the Secretary

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

area as an Empowerment Zone, after allowing 90 days from the date of

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

determination in accordance with paragraph (a) of this section.

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

affected Federal agencies of which it is aware, of its determination to

revoke any designation in accordance with this section.

(e) Effect of revocation. Upon revocation of an EZ's designation,

the designation and remaining benefits may be awarded to the next

highest ranked Round II applicant.

(f) Publication. The final notice of revocation of designation will

be published in the Federal Register, and the revocation will be

effective on the date of publication.

Subpart F--Special Rules

Sec. 598.500 Indian reservations.

(a) An area within an Indian reservation (as defined in section

168(j)(6) if the Internal Revenue Code, 26 U.S.C. 168(j)(6)) may be

included in an area nominated as an Empowerment Zone by State and local

governments. An area completely within an Indian reservation may be

nominated by the reservation governing body and, in that case, the area

is treated as if it also were nominated by a State and a local

government. Where two (or more) governing bodies have joint

jurisdiction over an Indian reservation, the nomination of a

reservation area must be a joint nomination.

(b) For purposes of paragraph (a) of this section, a reservation

governing body must be the governing body of an Indian entity

recognized and eligible to receive services from the Bureau of Indian

Affairs, United States Department of Interior.

Sec. 598.505 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 applies to all such governments.

Sec. 598.510 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. 598.515 Alaska and Hawaii.

A nominated area in Alaska or Hawaii is deemed to satisfy the

criteria of distress, size, and poverty rate detailed

[[Page 19160]]

in Sec. 598.100(b), (c), (d), and (f), and Sec. 598.110 if, for each

census tract or block numbering area within the area, 20 percent or

more of the families have income that is 50 percent or less of the

statewide median family income (as determined under section 143 of the

Internal Revenue Code).

Dated: March 27, 1998.

Saul N. Ramirez, Jr.,

Assistant Secretary for Community Planning and Development.

Appendix--Guidelines on Eligible Uses of EZ/EC SSBG Funds

(1) Background

This appendix includes general guidance about allowed uses of

any Round II EZ/EC SSBG funds that may be made available for Round

II Empowerment Zones (EZs). It is based on the assumption that any

Round II EZ/EC SSBG funding will be subject to the same statutory

restrictions as the Round I EZ/EC SSBG grants. The U.S. Department

of Health and Human Services (HHS) will issue further guidance

regarding any Round II EZ/EC SSBG funds soon after it is authorized

to award the funds.

(2) Awards to States

(a) HHS will award Round II EZ/EC SSBG grants to each State that

nominated a designated Round II EZ. HHS will award the funds for

each Round II EZ to the State agency that typically receives Social

Services Block Grants, unless the EZ Lead Entity and its State

request HHS to award them to a different agency.

(b) The HHS Terms and Conditions of the Round II EZ/EC SSBG

grants will direct the recipient State agency to provide the funds

to the appropriate Round II EZ Lead Entity(ies) for activities

specified in the EZ's strategic plan and benchmarks/implementation

plan. It is expected that the EZs will revise their plans and

benchmarks from time to time.

(3) Allowed Uses of Round II EZ/EC SSBG Funds

(a) The Round II EZs may use Round II EZ/EC SSBG funds for a

wide variety of programs, services and activities directed at

revitalizing distressed communities and promoting economic

independence for residents. Allowed programs, services and

activities include, but are not limited to:

Community and economic development programs and efforts

to create employment opportunities;

Job training and job readiness projects;

Health programs such as public health education,

primary health care, emergency medical services, alcohol and

substance abuse prevention and treatment programs, and mental health

services;

Human development services such as child, youth and

family development programs, services for the elderly, and child

care services;

Education projects such as after-school activities,

adult learning classes, and school-to-work projects;

Transportation services;

Environmental clean up programs;

Policing and criminal justice projects such as

community policing efforts and youth gang prevention programs;

Housing programs;

Projects providing training and technical assistance to

the EZ Lead Entity, its board and committee members, and other

organizations; and

Projects to finance community-focused financial

institutions for enhancing the availability of credit such as loan

funds, revolving loan funds, and micro-enterprise loan funds as well

as other activities for easing financial barriers faced by social

services entities, housing organizations and other organizations

serving EZ residents.

(b) Round II EZs may use the Round II EZ/EC SSBG funds for

projects supported in part with other Federal, State, local or

private funds, and they may allocate a portion of the funds to the

State grantee agency for its administrative and grant oversight

costs. Round II EZs may not use the funds as the source of local

matching funds required for other Federal grants.

(c) Round II EZs must ensure that each proposed use of Round II

EZ/EC SSBG funds is: Directed at one or more of the EZ/EC SSBG

statutory goals; included in the strategic plan; structured to

benefit EZ residents; and in compliance with all applicable Federal,

State and local laws and regulations.

(d) The statutory goals for uses of EZ/EC SSBG funds are as

follows:

(1) Achieving and maintaining economic self-support for

residents, to help them develop and retain the ability to support

themselves and their families economically;

(2) Achieving and maintaining self-sufficiency for residents, to

enable them to become and remain able to care for themselves in

daily activities and in the long-term; and

(3) Preventing Neglect and Abuse and Preserving Families, to

protect children and adults, who are unable to protect themselves

from neglect, abuse or exploitation, and to preserve, rehabilitate

or reunite families living in the designated neighborhoods.

(e) All programs, services and activities financed in whole or

in part with Round II EZ/EC SSBG funds must be included in the

strategic plan and benchmarks/implementation plans. Each project

description must indicate the EZ/EC SSBG statutory goal it is

attempting to achieve and how it will benefit EZ residents.

(f) All programs, services and activities financed in whole or

in part with Round II EZ/EC SSBG funds must be structured to

primarily benefit EZ residents; the programs, services and

activities may also benefit nonresidents.

(g) To the extent consistent with the local strategic vision,

localities may use Round II EZ/EC SSBG funds to finance programs,

services and activities for addressing any of the following broad

statute-based ``program options.'' EZs that use the funds for any of

the program options will have more flexibility in uses of funds.

(See section (h) below). The EZs are not required to use the funds

for the program options, and may use Round II EZ/EC SSBG funds to

finance programs, services and activities addressing other issues.

The program options are as follows:

(1) To provide residential or nonresidential drug and alcohol

prevention and treatment programs that offer comprehensive services

for residents, particularly for pregnant women and mothers and their

children;

(2) To support: (A) Training and employment opportunities for

disadvantaged adults and youths in construction, rehabilitation, or

improvement of affordable housing, public infrastructure, and

community facilities; and

(B) Nonprofit organizations such as community and junior

colleges providing short-term training courses for disadvantaged

adults and youths about entrepreneurism and self-employment, and

other types of training that will promote individual self-

sufficiency and the interests of the community.

(3) To support projects designed to promote and protect the

interests of children and families outside of school hours,

including keeping schools open during evenings and weekends for

mentoring and study.

(4) To support:

(A) Services designed to promote community and economic

development and job support services such as skills training, job

counseling, transportation services, housing counseling, financial

management, and business counseling;

(B) Emergency and transitional housing and shelters for families

and individuals; or

(C) Programs that promote home ownership, education, and other

routes to economic independence for families and individuals.

(h) To the extent a program, service or activity in the

strategic plan and benchmark/implementation plan document is a

statutory program option listed in section (g) above, the EZ may use

the Round II EZ/EC SSBG funds to implement that activity including

to:

(1) Purchase or improve land or facilities;

(2) Make cash payments to individuals for subsistence or room

and board;

(3) Make wage payments to individuals as a social service;

(4) Make cash payments for medical care; and

(5) Provide social services to institutionalized persons.

(i) To the extent a program, service or activity in the

strategic plan and benchmark/implementation plan document is not a

statutory program option listed in section (g) above, the EZ may use

Round II EZ/EC SSBG funds for the following purposes as a component

of that activity only after receiving approval from the U.S.

Department of Health and Human Services :

(1) Purchase or improve land or facilities;

(2) Make cash payments to individuals for subsistence or room

and board;

(3) Make wage payments to individuals as a social service;

(4) Make cash payments for medical care; or

(5) Provide social services to institutionalized persons.

(j) To the extent a program, service or activity in the

strategic plan and benchmark/implementation plan document is not one

of

[[Page 19161]]

the program options listed in section (g) above, the plan must

include a statement explaining why the locality chose that project.

[FR Doc. 98-10130 Filed 4-14-98; 11:41 am]

BILLING CODE 4210-29-P