[Federal Register Volume 69, Number 211 (Tuesday, November 2, 2004)]
[Notices]
[Pages 63551-63554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24542]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4889-N-02]


Change in Effective Date in Notice for Designation of 
DifficultDevelopment Areas Under Section 42 of the Internal Revenue 
Code of 1986

AGENCY: Office of the Secretary, HUD.

ACTION: Notice.

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SUMMARY: This document amends a notice that designates 2004 Difficult 
Development Areas (the 2004 notice), by extending 2003 eligibility for 
areas that were designated as 2003 Difficult Development Areas in a 
notice published in 2002 (the 2003 notice), but were not so designated 
in the 2004 notice. The amendment is necessary because publication of 
the 2004 notice only two weeks prior to its effective date did not 
provide adequate notice to affected entities. This notice (1) changes 
the definition of effective date to relate it to the filing date of an 
application for Low-Income Housing Tax Credits or tax-exempt bond 
financing, (2) extends the effective date for areas designated as 
Difficult Development Areas in the 2003 notice that were not Difficult 
Development Areas in the 2004 notice, and (3) changes the definition of 
effective date for the Difficult Development Areas and Qualified Census 
Tracts in the 2004 notice to relate it to the filing date of an 
application for Low-Income Housing Tax Credits or tax-exempt bond 
financing, but does not change the dates themselves.

FOR FURTHER INFORMATION CONTACT: With questions related narrowly to the 
issue of the effective dates in this notice, Kurt G. Usowski, Associate 
Deputy Assistant Secretary for Economic Affairs, Office of Policy 
Development and Research, 451 Seventh Street, SW., Washington, DC 
20410-6000, telephone (202) 708-2770, or e-mail <a href="/cdn-cgi/l/email-protection#cf84babdbb9088e1909abca0b8bca4a68fa7baabe1a8a0b9"><span class="__cf_email__" data-cfemail="d893adaaac879ff6878dabb7afabb3b198b0adbcf6bfb7ae">[email protected]</span></a>. With questions on how areas are designated and on 
geographic definitions, Alastair McFarlane, Senior Economist, Economic 
Development and Public Finance Division, Office of Policy Development 
and Research, Department of Housing and Urban Development, 451 Seventh 
Street, SW., Washington, DC 20410-6000, telephone (202) 708-0426, e-
mail <a href="/cdn-cgi/l/email-protection#07466b667473666e75584a644166756b666962476f726329606871"><span class="__cf_email__" data-cfemail="fbba979a888f9a9289a4b698bd9a89979a959ebb938e9fd59c948d">[email protected]</span></a>. A text telephone is available for 
persons with hearing or speech impairments at (202) 708-9300. (These 
are not toll-free telephone numbers.) Additional copies of this notice 
are available through HUDUSER at (800) 260-2691 for a small fee to 
cover duplication and mailing costs.
    Copies Available Electronically: This notice is available 
electronically on the Internet (World Wide Web) at http://www.huduser.org/datasets/qct.html.

SUPPLEMENTARY INFORMATION: 

Background

    On December 19, 2003, HUD published the 2004 notice in the Federal 
Register designating Difficult Development Areas and Qualified Census 
Tracts for calendar year 2004. The 2004 notice provides that the lists 
of Difficult Development Areas are effective if the credits are 
allocated after December 31, 2003; and, in the case of a building 
described in section 42(h)(4)(B) of the Internal Revenue Code (Code), 
the lists are effective if the bonds are issued and the building is 
placed in service after December 31, 2003.
    Section 42(d)(5)(C) of the Code defines a Difficult Development 
Area as any area designated by the Secretary of HUD as an area that has 
high construction, land, and utility costs relative to the area median 
gross income. All designated Difficult Development Areas in 
metropolitan statistical areas (MSAs) may not contain more than 20 
percent of the aggregate population of all MSAs, and all designated 
areas not in MSAs (nonmetropolitan areas) may not contain more than 20 
percent of the aggregate population of all nonmetropolitan areas. In 
the case of buildings located in Difficult Development Areas, eligible 
basis can be increased by as much as 130 percent of what it would 
otherwise be. This means that the available Low-Income Housing Tax 
Credits also can be increased by as much as 30 percent.
    HUD typically issues a notice in the Federal Register in the last 
quarter of a calendar year designating Difficult Development Areas for 
the forthcoming calendar year. HUD uses a ranking procedure to select 
Difficult Development Areas, subject to the 20 percent population cap. 
Because income and housing cost conditions change, new areas are added 
to the lists of designated Difficult Development Areas each year and 
some old areas are dropped from the lists. The 2004 lists published on 
December 19, 2003, do not include 10 metropolitan areas and 68 
nonmetropolitan areas on the 2003 lists of Difficult Development Areas 
and include 3 metropolitan areas and 47 nonmetropolitan areas not on 
the 2003 lists of Difficult Development Areas.

Determination

    HUD recognizes that, with every new designation of Difficult 
Development Areas, some metropolitan areas and nonmetropolitan areas 
lose their designation and rental projects planned in these areas lose 
their eligibility for

[[Page 63552]]

the extra credits. Nevertheless, HUD believes that the Department 
should update the lists of designated areas as new data become 
available.
    Low-Income Housing Tax Credit-allocating agencies and rental 
project developers have adjusted to a system in which the future 
availability of the extra credits is uncertain. Generally, for any 
rental project that a credit-allocating agency believes is crucial to 
meeting the housing needs of the area and for which the extra credits 
are essential for economic feasibility, the credit-allocating agency 
ensures that all the steps necessary to qualify are accomplished before 
a new designation list becomes effective. HUD attempts to publish the 
designation notice early enough to allow credit-allocating agencies to 
accomplish the necessary steps. HUD did not publish the 2004 notice 
until December 19, 2003, which did not provide adequate time before the 
effective date for allocating agencies or applicants for tax credits or 
tax-exempt bond financing to take actions to meet the conditions 
necessary to capture the benefits of the 2003 Difficult Development 
Area designations before they expired.
    In addition, the practice of tying the effective date of Difficult 
Development Areas and Qualified Census Tracts to the allocation date, 
without regard to the application date, creates a potential disruption 
to the financing and development plans for buildings to be constructed 
or rehabilitated in areas that lose Difficult Development Area or 
Qualified Census Tract designations after credits (or tax-exempt bond 
financing) are applied for and before the allocations of credits are 
made (or the bonds are issued and the building is placed in service). 
HUD seeks to reduce the uncertainty and ease the transition associated 
with the changes in Difficult Development Area and Qualified Census 
Tract designations for allocating agencies and affordable housing 
developers while ensuring that the additional resources governed by 
these designations are directed to the areas where the need is 
greatest.
    HUD has determined that reasonable accommodation should be made to 
allow the Difficult Development Area and Qualified Census Tract 
features of the Low-Income Housing Tax Credit to work effectively. 
Because the late publication of the 2004 notice impeded the 
effectiveness of the Difficult Development Area feature of the Low-
Income Housing Tax Credit, HUD is amending the effective date published 
in the 2004 notice. Because tying the effective date of Difficult 
Development Areas and Qualified Census Tracts to the allocation of 
credits (or the issuance of tax-exempt bonds and placement in service) 
without regard to the application date for these Federal subsidies 
increases uncertainty in the development and financing process of 
affordable rental housing in areas that lose Difficult Development Area 
or Qualified Census Tract designations, HUD is revising the definition 
of effective date published in the 2004 notice.
    This amendment provides that, in the case of a building to be 
constructed or rehabilitated, that is located in a Difficult 
Development Area designated in the 2003 notice that is not designated 
in the 2004 notice, the 2003 lists of Difficult Development Areas 
remain in effect (1) for allocations of credit to an applicant within 
the 365-day period after the submission to the credit-allocating agency 
of a complete application that was filed after December 31, 2002, and 
before December 17, 2004, or (2) for purposes of section 42(h)(4)(B) of 
the Code, for bonds issued or buildings placed in service within the 
365-day period after the submission to the bond-issuing agency of a 
complete application that was filed after December 31, 2002, and before 
December 17, 2004, provided that both the issuance of the bonds and the 
placement in service of the building occur after the application is 
submitted.
    An application is deemed to be submitted on the date it is filed if 
the application is determined to be complete as certified in writing by 
the credit-allocating agency or the bond-issuing agency. A ``complete 
application'' means that no more than de minimis clarifications of the 
application are required for the agency to make a decision about the 
allocation of tax credit or issuance of bonds covered by the 
application.
    This amendment will extend Difficult Development Area designations 
in the 2003 notice for buildings to be constructed or rehabilitated 
that are located in Difficult Development Areas in the 2003 notice and 
that are not located in Difficult Development Areas in the 2004 notice. 
Thus, a building to be constructed or rehabilitated that is located in 
a Difficult Development Area designated in the 2003 notice that is not 
designated in the 2004 notice would be deemed to be located in a 
Difficult Development Area if a complete application for a tax credit 
allocation was filed, as certified in writing by the allocating agency, 
after December 31, 2002, and before December 17, 2004, and credits were 
allocated to the building within the 365-day period after the 
application filing date. Similarly, a building described in section 
42(h)(4)(B) of the Code that was located in a Difficult Development 
Area designated in the 2003 notice that was not designated in the 2004 
notice would be deemed to be located in a Difficult Development Area if 
a complete application for tax-exempt bond financing was filed, as 
certified in writing by the bond-issuing agency, after December 31, 
2002, and before December 17, 2004, and the building was placed in 
service or the bonds were issued within the 365-day period after the 
application filing date, provided that the issuance of the bonds and 
the placement in service of the building occur after the application is 
filed. That is, the applicant submitting an application during the 
prescribed time frame has up to 365 days after the application date 
either to place the project in service or to issue bonds to be eligible 
for the increase in basis accorded to projects located in 2003 
Difficult Development Areas. The applicant is ineligible for the 
increase in basis if the building was placed in service before the 
application date, or if the application was submitted before the area 
was a Difficult Development Area.
    This amendment also revises the language defining the effective 
date for 2004 Difficult Development Areas and Qualified Census Tracts 
designated in the 2004 notice to base the effective date on the filing 
of a complete application for tax credit or tax-exempt bond financing. 
The revision of the effective date definition will reduce uncertainty 
for developers of affordable rental housing that rely on the additional 
subsidies available in Difficult Development Areas and Qualified Census 
Tracts by effectively allowing them to lock in the availability of 
additional subsidy based on application date and provide a smoother 
transition to subsequent Difficult Development Area and Qualified 
Census Tract designations.
    This amendment, therefore, provides that the 2004 lists of 
Difficult Development Areas and Qualified Census Tracts (including 
Qualified Census Tracts designated in notices FR-4799-N-01 and 
designated by reference in FR-4889-N-01) are effective (1) for 
allocations of credit after December 31, 2003; or (2) for purposes of 
section 42(h)(4)(B) of the Code, if the bonds are issued and the 
building is placed in service after December 31, 2003. If an area or 
census tract is not on subsequent lists of Difficult Development Areas 
or Qualified Census Tracts, the 2004 lists remain effective for the 
area or tract if (1) the allocation of credit to an

[[Page 63553]]

applicant is made no later than the end of the 365-day period after the 
submission to the credit-allocating agency of a complete application 
filed before the effective date of the subsequent lists of Difficult 
Development Areas and Qualified Census Tracts; or (2) for purposes of 
section 42(h)(4)(B) of the Code, the bonds are issued or the building 
is placed in service no later than the end of the 365-day period after 
the submission to the bond-issuing agency of a complete application 
filed before the effective date of the subsequent lists of Difficult 
Development Areas and Qualified Census Tracts, provided that both the 
issuance of the bonds and the placement in service of the building 
occur after the application is submitted. That is, the applicant 
submitting an application during 2004 has up to 365 days after the 
application date either to place the project in service or to issue 
bonds to be eligible for the increase in basis accorded to projects 
located in 2004 Difficult Development Areas and Qualified Census Tracts 
that are not so designated in, for example, 2005. The applicant is 
ineligible for the increase in basis if the building was placed in 
service before the application date, or if the application was 
submitted before the area was a Difficult Development Area or the tract 
was a Qualified Census Tract.
    An application is deemed to be submitted on the date it is filed if 
the application is determined to be complete as certified in writing by 
the credit-allocating agency or bond-issuing agency. A ``complete 
application'' means that no more than de minimis clarifications of the 
application are required for the agency to make a decision about the 
allocation of tax credits or issuance of bonds covered by the 
application.
    The effect of this amendment will be to allow developers of 
affordable rental housing in Difficult Development Areas and Qualified 
Census Tracts for 2004 that will not be so designated in, for example, 
2005 to submit applications prior to the expiration of the 2004 
designations and be eligible for the associated increase in basis so 
long as credits are allocated (or for section 42(h)(4)(B) buildings, 
the bonds are issued or the building placed in service) within the 365-
day period after the filing of a complete application as certified in 
writing by the credit-allocating agency or bond-issuing agency.

Effective Date

2003 Difficult Development Areas That Are Not 2004 Difficult 
Development Areas

    In the case of Difficult Development Areas designated in the 2003 
notice, but not designated in the 2004 notice, these Difficult 
Development Areas are effective (1) for allocations of credit to an 
applicant within the 365-day period after the submission to the credit-
allocating agency of a complete application by the applicant that was 
submitted after December 31, 2002, and before December 17, 2004; or (2) 
for purposes of section 42(h)(4)(B) of the Code, for bonds issued or 
buildings placed in service within the 365-day period after the 
submission to the bond-issuing agency of a complete application by the 
applicant that was submitted after December 31, 2002, and before 
December 17, 2004, provided that both the issuance of the bonds and the 
placement in service of the building occur after the application is 
submitted.
    An application is deemed to be submitted on the date it is filed if 
the application is determined to be complete as certified in writing by 
the credit-allocating agency or bond-issuing agency. A ``complete 
application'' means that no more than de minimis clarifications of the 
application are required for the agency to make a decision about the 
allocation of tax credits or issuance of bonds covered by the 
application.

2004 Difficult Development Areas and Qualified Census Tracts

    The effective date section of the 2004 notice is revised to read as 
follows:
    The 2004 lists of Difficult Development Areas and Qualified Census 
Tracts (including Qualified Census Tracts designated in notices FR-
4799-N-01 and FR-4889-N-01) are effective (1) for allocations of credit 
after December 31, 2003; or (2) for purposes of section 42(h)(4)(B) of 
the Code, if the bonds are issued and the building is placed in service 
after December 31, 2003. If an area or census tract is not on 
subsequent lists of Difficult Development Areas or Qualified Census 
Tracts, the 2004 lists remain effective for the area or tract if (1) 
the allocation of credit to an applicant is made no later than the end 
of the 365-day period after the submission of a complete application by 
the applicant to the credit-allocating agency, and the submission is 
made before the effective date of the subsequent lists of Difficult 
Development Areas and Qualified Census Tracts; or (2) for purposes of 
section 42(h)(4)(B) of the Code, the bonds are issued or the building 
is placed in service no later than the end of the 365-day period after 
the submission of a complete application by the applicant to the bond-
issuing agency, and the submission is made before the effective date of 
the subsequent lists of Difficult Development Areas and Qualified 
Census Tracts, provided that both the issuance of the bonds and the 
placement in service of the building occur after the application is 
submitted.
    An application is deemed to be submitted on the date it is filed if 
the application is determined to be complete as certified in writing by 
the credit-allocating agency or bond-issuing agency. A ``complete 
application'' means that no more than de minimis clarifications of the 
application are required for the agency to make a decision about the 
allocation of tax credits or issuance of bonds covered by the 
application.

Obligation of Credit-Allocating and Bond-Issuing Agencies With Regard 
to Subsidy Amounts

    A governmental unit continues to be obligated under section 
42(m)(2) of the Code to ensure that the amount of credits attributable 
to a project affected by this notice do not exceed the amount necessary 
for the financial feasibility of the project and its viability as a 
qualified low-income housing project throughout the credit period.

Other Matters

Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.19(c)(6) of HUD's regulations, 
the policies and procedures contained in this notice provide for the 
establishment of fiscal requirements or procedures that do not 
constitute a development decision that affects the physical condition 
of specific project areas or building sites and, therefore, are 
categorically excluded from the requirements of the National 
Environmental Policy Act, except for extraordinary circumstances, and 
no Finding of No Significant Impact is required.

Regulatory Flexibility Act

    The Secretary, in accordance with 5 U.S.C. 605(b) (the Regulatory 
Flexibility Act), has reviewed and approved this notice, and in so 
doing certifies that this notice does not have a significant economic 
impact on a substantial number of small entities. The notice involves 
the designation of ``Difficult

[[Page 63554]]

Development Areas'' as required by Section 42 of the Code, as amended, 
for use by political subdivisions of the states in allocating Low-
Income Housing Tax Credits or issuing tax-exempt bonds. This notice 
places no new requirements on the states, their political subdivisions, 
or the applicants for credits. This notice also details the technical 
methodology used in making such designations.

Executive Order 12612, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any policy document that has federalism implications if 
the document either imposes substantial direct compliance costs on 
State and local governments and is not required by statute, or the 
document preempts State law, unless the agency meets the consultation 
and funding requirements of section 6 of the executive order. As a 
result, the notice is not subject to review under the order. The notice 
merely designates ``Difficult Development Areas'' and ``Qualified 
Census Tracts'' as required under section 42 of the Code, as amended, 
for the use by political subdivisions of the states in allocating Low-
Income Housing Tax Credits or issuing tax-exempt bonds.

    Dated: October 28, 2004.
Alphonso Jackson,
Secretary.
[FR Doc. 04-24542 Filed 11-1-04; 8:45 am]
BILLING CODE 4210-29-P


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