[Federal Register Volume 65, Number 82 (Thursday, April 27, 2000)]
[Proposed Rules]
[Pages 24656-24663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10138]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 65, No. 82 / Thursday, April 27, 2000 / 
Proposed Rules

[[Page 24656]]



DEPARTMENT OF AGRICULTURE

Office of the Secretary

7 CFR Part 25

RIN 0503-AA20


Rural Empowerment Zones and Enterprise Communities

AGENCY: Office of the Secretary, USDA.

ACTION: Proposed rule.

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

SUMMARY: This proposed rule contains the policy and procedures 
pertaining to 20 new rural enterprise communities designated by the 
Secretary of the U.S. Department of Agriculture (USDA) (Secretary) as 
authorized by the Agriculture, Rural Development, Food and Drug 
Administration and Related Agencies Appropriations Act, 1999 
(Agriculture Appropriations Act 1999) (Round IIS). These new Round IIS 
rural enterprise communities are supplemental to the second round of 
rural empowerment zone designations authorized by the Taxpayer Relief 
Act of 1997 (Round II). This rule also contains the policies and 
procedures for implementing a new grant program for Round II 
empowerment zones and Round IIS enterprise communities authorized by 
section 766 of the Agriculture Appropriations Act 1999 (USDA EZ/EC 
grants). Additionally, this rule clarifies post-designation procedures 
that rural empowerment zones and enterprise communities must follow to 
maintain their standing.

DATES: Written or email comments must be submitted on or before June 
26, 2000. The comment period for information collections under the 
Paperwork Reduction Act of 1995 continues through June 26, 2000.

ADDRESSES: Submit written comments in duplicate. Comments sent via the 
U.S. Postal Service should be addressed to the Regulations and 
Paperwork Management Branch, Attention: Cheryl Thompson, Rural 
Development, U.S. Department of Agriculture, STOP 0742, 1400 
Independence Ave., SW, Washington, DC 20250-0742. Comments sent via 
Federal Express Mail, or via another mail courier service requiring a 
street address, should be addressed to the same attention at 300 E 
Street, SW, 3rd Floor, Washington, DC 20546. Also, comments may be 
submitted via the Internet by addressing them to 
``<a href="/cdn-cgi/l/email-protection#2b484446464e455f586b595e58055e584f4a054c445d"><span class="__cf_email__" data-cfemail="afccc0c2c2cac1dbdcefdddadc81dadccbce81c8c0d9">[email protected]</span></a>'' and must contain the word ``Enterprise'' in 
the subject line. All written comments will be available for public 
inspection during regular work hours at the 300 E Street, SW, address 
listed above.

FOR FURTHER INFORMATION CONTACT: Deputy Administrator for Community 
Development, USDA Rural Development, Office of Community Development, 
Reporters Building, Room 701, STOP 3203, 300 7th Street, SW, 
Washington, DC 20024-3203, telephone 1-800-851-3403, or by sending an 
Internet e-mail message to ``<a href="/cdn-cgi/l/email-protection#81eee2e5c1eee2e5f9aff4f2e5e0afe6eef7"><span class="__cf_email__" data-cfemail="f8979b9cb8979b9c80d68d8b9c99d69f978e">[email protected]</span></a>''. For hearing-and 
speech-impaired persons, information concerning this program may be 
obtained by contacting USDA's TARGET Center at (202) 720-2600 (Voice 
and TDD).

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been reviewed under E.O. 12866 and has been 
determined to be a significant regulatory action, as that term is 
defined in Executive Order 12866, and has been reviewed by OMB.

Programs Affected

    The Catalog of Federal Domestic Assistance Program number assigned 
to this program is 10.772.

Program Administration

    The program is administered through the Office of Community 
Development within the Rural Development mission area of USDA, and 
delivered via the USDA Rural Development state directors in those 
states which have designated rural empowerment zones and enterprise 
communities.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act, USDA 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.
    The information collection requirements contained in 7 CFR part 25 
are comprised of one-time application requirements (Application burden) 
and ongoing reporting requirements (Reporting burden). For Round IIS, 
the Secretary designated the 20 additional rural enterprise communities 
from applications received in response to the notice inviting 
applications published April 16, 1998 in the Federal Register at 63 FR 
19143.
    The Application burden paperwork package approved by OMB under 
control no. 0570-0026 covered the Round II application effort. No 
additional Application paperwork requirements were associated with the 
Round IIS designations. USDA will, however, seek to amend the Reporting 
burden paperwork reduction package approved by OMB under control no. 
0570-0027 to reflect the reporting requirements contained in this rule, 
as described in part 25, Secs. 25.400, 25.403, 25.405(b)(2), 
attributable to 20 additional rural enterprise communities, and to 
reflect the requirements relating to the new 7 CFR part 25, subpart G 
imposed by Secs. 25.603, 25.604(b) and 25.607(c), which requirements 
are imposed on Round II empowerment zones and Round IIS enterprise 
communities. Accordingly, USDA asks for comments regarding the 
information collections contained in the sections of this rule and 
elsewhere in 7 CFR part 25 stated above. The Secretary has submitted an 
information collection to OMB for approval.
    Comments on these information collections should refer to the 
proposal by name or OMB control number. Organizations and individuals 
desiring to submit comments on the information collection requirements 
should direct them to the Office of Information and Regulatory Affairs, 
OMB, Room 10235, New Executive Office Building, Washington, D.C.; 
Attention: Desk Officer for Rural Development, U.S. Department of 
Agriculture.
    Written comments may also be submitted via the U.S. Postal Service 
to Cheryl Thompson, Regulations and Paperwork Management Branch, 
Support Services Division, Rural Development, U.S. Department of 
Agriculture, STOP 0742, 1400 Independence Ave., SW, Washington, DC 
20250-0742. Mail courier service deliveries requiring a street address 
should be sent to the same attention at

[[Page 24657]]

300 E Street, SW, 3rd Floor, Washington, DC 20546.
    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:

----------------------------------------------------------------------------------------------------------------
                                                                                          Estimate
                                                                                          average       Annual
       Type of collection          Section of 7 CFR part 25    Number of    Frequency     response      burden
                                           affected           respondents  of response      time       (hours)
                                                                                          (hours)
----------------------------------------------------------------------------------------------------------------
Periodic Reporting (all ECs and  25.400(a)                             57            2           10        1,140
 EZs).                           25.400(b)
                                 25.403
Grant related paperwork burden   25.603(a)                             25            1            3           75
 (Round II EZs, Round IIS ECs    25.603(b)                             25            1            3           75
 only).                          25.603(c)                             25            1            1           25
                                 25.604(b)                             25            1            1           25
Response to designation warning  25.405(b)(2)                           1            1            1            1
 letter.
Response to notice of grant      25.607(c)                              1            1            1            1
 suspension.
----------------------------------------------------------------------------------------------------------------

    Total Burden in each Reporting Year, Years 1 through 10: 1,342 
hours

Environmental Impact Statement

    It is the determination of the Secretary that this action is not a 
major Federal action significantly affecting the environment. 
Therefore, in accordance with the National Environmental Policy Act of 
1969, an Environmental Impact Statement is not required.

Executive Order 12988

    This rule has been reviewed in accordance with E.O. 12988, Civil 
Justice Reform. In accordance with this rule: (1) All state and local 
laws and regulations that are in conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule; and 
(3) administrative proceedings in accordance with 7 CFR part 11 must be 
exhausted before bringing suit in court challenging action taken under 
this rule unless those regulations specifically allow bringing suit at 
an earlier time.

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on state, local, and tribal governments and 
the private sector. Under section 202 of the UMRA, USDA must prepare a 
written statement, including a cost benefit analysis, for proposed and 
final rules with ``Federal mandates'' that may result in expenditures 
to state, local or tribal governments, in the aggregate, or to the 
private sector, of $100 million or more in any one year. When such a 
statement is needed for a rule, section 205 of UMRA generally requires 
USDA to identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, more cost effective or least 
burdensome alternative that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of title II of the UMRA) for state, local, and tribal 
governments or the private sector. Therefore this rule is not subject 
to the requirements of sections 202 and 205 of UMRA.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the undersigned has determined and certified by signature of this 
document that this rule will not have a significant economic impact on 
a substantial number of small entities. The Regulatory Flexibility 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. The provisions included in this rule will not impact a 
substantial number of small entities to a greater extent than large 
entities. Therefore, no regulatory flexibility analysis under the 
Regulatory Flexibility Act is necessary.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on state and local 
governments. This rule is intended to foster cooperation between the 
Federal Government and the states and local governments, and reduces, 
where possible, 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 state.

I. Background

    The Empowerment Zone/Enterprise Community program confers upon 
rural distressed American communities the opportunity to design and 
implement programs to create jobs, support their residents in becoming 
skilled and able to earn a livable income and establish other 
strategies for creating opportunity and building a brighter future.
    On April 16, 1998, the Secretary published an interim final rule 
and notice inviting applications for 5 newly authorized Round II rural 
empowerment zone designations. The deadline for applications was 
October 9, 1998. One hundred sixty eligible applications were received. 
On October 21, 1998, the Agriculture, Rural Development, Food and Drug 
Administration and Related Agencies Appropriations Act 1999 was signed 
into law, authorizing an additional 20 rural enterprise communities. 
These Round II rural empowerment zones and Round IIS rural enterprise 
communities are in addition to the 3 rural empowerment zones and 30 
rural enterprise

[[Page 24658]]

communities designated on December 21, 1994, by the Secretary pursuant 
to Title XIII of the Omnibus Budget Reconciliation Act of 1993 (Round 
I).

Designation

    The statutory deadline by which Round II rural empowerment zones 
must be designated was January 1, 1999. There is no deadline for Round 
IIS rural enterprise community designations. On December 24, 1998 the 
Secretary designated 5 Round II rural empowerment zones and 20 Round 
IIS rural enterprise communities from the pool of over 160 eligible 
applications received for Round II. Notice to this effect was published 
on May 25, 1999 in the Federal Register at 64 FR 28152.
    The nomination process for designation requires applicant 
communities to take stock of their assets and problems, create a vision 
for the future, and structure a strategic plan for achieving their 
vision. The amount of time and effort which an applicant community 
exerts in developing a strategic plan is considerable. USDA is of the 
opinion that a quality strategic plan (required as part of the 
application process) takes at least 6 months to develop. Town meetings 
are held and cross sections of the community are brought together to 
decide how they wish to develop as a community and how best to achieve 
those goals.
    In Round II, over 160 communities took on this monumental task and 
expended a great deal of time, effort and money in bringing together 
their citizens and creating a strategic plan for their communities in 
applying for 5 authorized designations. The 160 eligible applications 
reflect a cross section of 38 states; 22 or more applications include 
reservation land or were submitted by Native American tribal 
communities. Nineteen Round I enterprise communities submitted 
applications for Round II empowerment zone designation. Also, Round IIS 
follows closely on the heels of the October 9, 1998, application 
deadline for Round II. The Round II applications were current for 
purposes of Round IIS as well.

Eligibility

    Part I of subchapter U of chapter 1 of the Internal Revenue Code of 
1986 contains the eligibility criteria for Round IIS rural enterprise 
communities. The Secretary elected in his discretion to apply the 
criteria as modified for additional designations under section 1391(g) 
of the Internal Revenue Code, the same criteria which apply to Round II 
rural empowerment zones. These criteria are more inclusive than the 
original Round I EC eligibility criteria; they represent the latest 
version of eligibility criteria legislated for the program, including 
modifications to allow reservation land to be incorporated in the 
applications for designation and an outmigration criteria to be 
substituted for the poverty rate test defined in item 4 below:
    To be eligible for designation as a Round IIS rural enterprise 
community an area must:
    1. Have a maximum population of 30,000;
    2. Be one of pervasive poverty, unemployment, and general distress;
    3. Not exceed one thousand square miles in total land area;
    4. Demonstrate a poverty rate that is not less than:
    a. 20 percent in each census tract or census block numbering area 
(BNA); and
    b. 25 percent in 90 percent of the census tracts and BNAs within 
the nominated area;
    5. Be located entirely within no more than 3 contiguous states; if 
it is located in more than one state, the area must have one continuous 
boundary; if located in only one state, the area may consist of no more 
than 3 noncontiguous parcels;
    6. Show that each nominated parcel independently meets the two 
poverty rate requirements;
    7. Be located entirely within the jurisdiction of the unit or units 
of general local government making the nomination; and
    8. Not include any portion of a central business district as 
defined in the Census of Retail Trade unless the poverty rate for each 
Census tract is at least 35 percent.

Benefit Comparison

    During the time period from April 16, 1998 (publication of the 
notice inviting Round II applications) to October 9, 1998 (the deadline 
for applications), no direct federal funding from any appropriation 
source was in place for Round II designees. However, prospective 
applicant communities were made aware that future authorization of 
direct funding was possible. Effective October 21, 1998, section 766 of 
the Agriculture Appropriations Act 1999 appropriated a total of 
$15,000,000 in grant funds to implement a second round of empowerment 
zone and enterprise communities, $10,000,000 for the 5 Round II rural 
empowerment zones and $5,000,000 for the 20 newly authorized Round IIS 
rural enterprise communities. In the notice designating Round II and 
Round IIS rural empowerment zones and enterprise communities published 
on May 25, 1999, the Secretary announced his intent to award equal 
grants of $2,000,000 to the Round II rural empowerment zones, and equal 
grants of $250,000 to each of the new Round IIS rural enterprise 
communities. An additional $15,000,000 was appropriated on October 20, 
1999, for Round II rural empowerment zones and enterprise communities 
(P.L. 106-74). It is the Secretary's intent to similarly allocate this 
appropriation.
    The authorizing legislation provides that none of the tax benefits 
that are in effect for all other rural empowerment zones or enterprise 
communities accrue to Round IIS rural enterprise communities. Targeted 
federal financial assistance specific to enterprise community status is 
limited, in the case of Round IIS rural enterprise communities, to the 
newly authorized USDA EZ/EC grants.

          Rural Enterprise Communities Benefit Comparison Table
  [Subject to change in the event of legislation enacted subsequent to
                            this rulemaking]
------------------------------------------------------------------------
                                     Round I              Round IIS
------------------------------------------------------------------------
Period......................  In most cases, ten    In most cases, ten
                               full calendar years   full calendar years
                               following the         following the
                               Designation Date      Designation Date
                               (December 21, 1994).  (December 24,
                                                     1999).
Title XX of the Social        1 grant equal to      None.
 Security Act Appropriations.  $2.9 million
                               (rounded).
Title VII of the              None................  $250,000 per EC.
 Agriculture, Rural
 Development, Food and Drug
 Administration and Related
 Agencies Appropriations
 Act, 1999.

[[Page 24659]]

 
Title II of the Veterans      None................  $250,000 per EC.
 Affairs and Housing and
 Urban Development, and
 Independent Agencies
 Appropriations Act, 2000.
Tax Exempt Bonds............  A new category of     Round IIS EC
                               tax-exempt private    facilities do not
                               activity bonds was    have any special
                               authorized for        status, nor do the
                               certain zone          ECs have any
                               facilities. Issues    special status
                               are subject to        relating to tax
                               state private         exempt bonding
                               activity bond cap     authority.
                               levels on total
                               issuances, and
                               special limits on
                               issue size.
Work Opportunity Tax Credit   40% of qualified      This benefit does
 (not exclusive to ECs or      first-year wages      not attach to youth
 EZs; note: as of 11/1/99      paid to a member of   residents of Round
 this tax code provision had   a targeted group,     IIS ECs, per se,
 expired 6/30/99 but           where first-year      however, they may
 legislation to                wages taken into      qualify under the
 retroactively extend it was   account may not       other identified
 under consideration).         exceed $6,000.        targeted groups.
                               Targeted employees
                               include high risk
                               youth residents of
                               EZs and ECs, food
                               stamp and SSI
                               recipients,
                               vocational
                               rehabilitation
                               referrals and
                               others.
Internal Revenue Code 26      Capital costs of      Not applicable.
 U.S.C. 179                    some kinds of
Expensing...................   business property
                               which must
                               otherwise be
                               capitalized and
                               depreciated over
                               time may be
                               deducted in the
                               year incurred under
                               section 179. For a
                               zone business, the
                               annual expensing
                               allowance for
                               section 179
                               property is
                               increased by the
                               lesser of (1)
                               $20,000 or (2)
                               actual cost of
                               property placed in
                               service during the
                               year. Eligible
                               types of property
                               do not include
                               buildings. The
                               phaseout provision
                               of section 179 that
                               would otherwise
                               apply to eligible
                               179 property is
                               reduced for zone
                               property.
Brownfields Deductible        Certain               No special status
 Expense (not exclusive to     environmental         accrues to Round
 EZs and ECs).                 remediation           IIS ECs.
                               expenditures that
                               would otherwise be
                               capitalized into
                               the cost of the
                               land may be
                               deducted if the
                               costs are paid or
                               incurred prior to
                               January 1, 2001.
Qualified Zone Academy Bonds  Tax credit bonds      This benefit does
 (A national limitation        whereby certain       not attach to rural
 across all empowerment        financial             IIS ECs per se,
 zones and enterprise          institutions (i.e.,   however, Round IIS
 communities of up to $400     banks, insurance      academies may
 million each year for years   companies, and        qualify under the
 1998 and 1999).               corporations          subsidized school
                               actively engaged in   lunch criteria.
                               the business of
                               lending money) that
                               hold ``qualified
                               zone academy
                               bonds'' are
                               entitled to a
                               nonrefundable tax
                               credit in an amount
                               equal to a credit
                               rate (set by the
                               Treasury
                               Department)
                               multiplied by the
                               face amount of the
                               bond. They may or
                               may not be interest
                               bearing; if so, the
                               interest is taxable.
                              The credit is
                               effective for
                               obligations issued
                               after December 31,
                               1997.
                              The statute does not
                               expressly provide
                               for an allocation
                               to rural
                               empowerment zones
                               or enterprise
                               communities.
------------------------------------------------------------------------

II. Program Description

Use of Grant Funds

    The authorizing statute is silent on the purposes for which Round 
IIS grant funds may be used. In the interest of uniformity in 
administering program benefits and efficiency in administering the 
program, the Secretary has elected in his discretion to provide that 
the purposes for which Round II and Round IIS grant funds may be used 
shall correspond to the purposes legislated for Round I federal 
funding, namely, those purposes contained in section 2007(a) of the 
Social Security Act (42 U.S.C. 1397(f)) for social services block 
grants awarded to Round I empowerment zones and enterprise communities 
(EZ/EC SSBG funds). Further guidance on the purposes for which EZ/EC 
SSBG grant funds may be used may be found in Appendix C to the notice 
inviting applications for Round II, published on April 16, 1998 at 63 
FR 19147.

Funding of Grants

    Round IIS of the program will be administered by USDA as a Federal-
local-private partnership, with a minimum of red tape. This rule 
proposes that the designated lead managing entity, as identified in the 
Memorandum of Agreement executed by the designee (see below), is to be 
the recipient, or ``primary grantee'' of the USDA EZ/EC grant funds.

Modification of Strategic Plans

    The pool from which the 20 new rural enterprise communities were 
designated was comprised of those which applied for Round II 
empowerment zone status. The strategic plans were developed with 
assumed spending levels higher than what direct federal funding levels 
authorized by the 1999 Agriculture Appropriations Act would support. 
Accordingly, this rule proposes that the plans incorporated in the 
applications be adjusted to reflect spending levels commensurate with 
actual appropriation levels for both Round II

[[Page 24660]]

empowerment zones and Round IIS enterprise communities. This 
requirement is imposed on the Round II and Round IIS designees only, it 
is not a modification of the Round II application process.

Memorandum of Agreement

    The notice inviting applications published April 16, 1998 at 63 FR 
19143 includes as an appendix a form of Memorandum of Agreement (MOA). 
Round I designees were asked to sign comparable MOAs. Round II and 
Round IIS applicants were given notice that they, too, will be required 
to sign comparable MOAs. A revised model MOA is included as an appendix 
to the notice of designation published in the Federal Register.

List of Subjects in 7 CFR Part 25

    Community development, Economic development, Empowerment zones, 
Enterprise communities, Housing, Indians, Intergovernmental relations, 
Reporting and recordkeeping requirements, Rural development, Strategic 
planning.

    In accordance with the reasons set out in the preamble, 7 CFR part 
25 is proposed to be amended as follows:

PART 25--RURAL EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

    1. The authority citation for part 25 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 26 U.S.C. 1391; Sec. 766, Pub. L. 105-
277, 112 Stat. 2681.

Subpart A--General Provisions


Sec. 25.1  [Amended]

    2. Amend Sec. 25.1 by revising paragraph (a) to read as follows:


Sec. 25.1  Applicability and scope.

    (a) Applicability. This part contains policies and procedures 
applicable to rural empowerment zones and enterprise communities, 
authorized under the Omnibus Budget Reconciliation Act of 1993, title 
XIII, subchapter C, part I (Round I), the Taxpayer Relief Act of 1997, 
title IX, subtitle F (Round II), and the Agriculture, Rural 
Development, Food and Drug Administration and Related Agencies 
Appropriations Act, 1999 (Public Law 105-277) (Round IIS).
* * * * *


Sec. 25.3  [Amended]

    3. Amend Sec. 25.3 by revising the definitions of ``brownfield'', 
``designation'', and ``designation date'' and by adding in alphabetical 
order definitions for ``designation period'', ``funding official'', 
``Office of Community Development'', ``Round IIS'', ``state director'' 
and ``USDA EZ/EC grant program'' to read as follows:
    Brownfield means a ``qualified contaminated site'' meeting the 
requirements of section 941 of the Taxpayer Relief Act of 1997, (26 
U.S.C. 198(c)), where the site is located in an empowerment zone or 
enterprise community.
    Designation means the process by which the Secretary designates 
rural areas as empowerment zones or enterprise communities pursuant to 
eligibility criteria established by subchapter U of the Internal 
Revenue Code (26 U.S.C. 1391 et seq.).
    Designation date means December 21, 1994, in the case of Round I 
designations, and December 24, 1998, in the case of Round II and Round 
IIS designations.
    Designation period means the lesser of ten years or such time as 
has elapsed from the designation date to the effective date of an 
applicable notice of revocation pursuant to 7 CFR 25.405(e).
    Funding official means the state director in the state where the 
designated rural area is located, or if the designated rural area is 
located in more than one state, the state where the headquarters office 
of the lead managing entity is located.
    Office of Community Development or OCD means the office of the 
Deputy Administrator, Community Development, as identified in 7 CFR 
2003.26(b)(4).
    Round IIS identifies designations of rural enterprise communities 
pursuant to section 766 of the Agriculture, Rural Development, Food and 
Drug Administration and Related Agencies Appropriations Act 1999 
(Public Law 105-277).
    State director means the state director for the Rural Development 
mission area within USDA, as identified in 7 CFR 2003.10.
    USDA EZ/EC grant program means the grant program authorized by 
section 766 of the Agriculture, Rural Development, Food and Drug 
Administration and Related Agencies Appropriations Act, 1999 (Public 
Law 105-277) for the benefit of Round II empowerment zones and Round 
IIS enterprise communities.


Sec. 25.4  [Amended]

    4. Amend Sec. 25.4 by revising paragraphs (a) and (b)(2) and adding 
paragraphs (b)(3) and (b)(4) to read as follows:


Sec. 25.4  Secretarial review and designation.

    (a) Designation. The Secretary will review applications for the 
designation of nominated rural areas to determine the effectiveness of 
the strategic plans submitted by applicants; such designations of rural 
empowerment zones and enterprise communities as are made shall be from 
the applications submitted in response to the notice inviting 
applications or other applicable notice published in the Federal 
Register. The Secretary may elect to designate as champion communities 
those nominated areas which are not designated as either a rural 
empowerment zone or enterprise community and whose applications meet 
the criteria contained in Sec. 25.301.
    (b) * * *
    (2) Round II. The Secretary may, prior to January 1, 1999, 
designate up to five rural empowerment zones in addition to those 
designated in Round I.
    (3) Round IIS. The Secretary may designate up to 20 rural 
enterprise communities in addition to those designated in Round I.
    (4) Champion communities. The number of champion communities is 
limited to the number of applicants which are not designated 
empowerment zones or enterprise communities.
* * * * *

Subpart B--Area Requirements


Sec. 25.103  [Amended]

    5. Amend Sec. 25.103 by revising the introductory text of 
paragraphs (b)(2) and (b)(3) to read as follows:


Sec. 25.103  Area size and boundary requirements.

* * * * *
    (b) * * *
    (2) For purposes of applying paragraph (a)(1) of this section to 
Round II and Round IIS designations:
* * * * *
    (3) For purposes of applying paragraph (a)(2) of this section to 
Round II and Round IIS designations, the following shall not be treated 
as violating the continuous boundary requirement nor the limit on the 
number of noncontiguous parcels:
* * * * *


Sec. 25.104  [Amended]

    6. Amend Sec. 25.104 as follows:
    a. Amend the headings of paragraphs (a)(2) and (b)(2) by adding 
``and Round IIS''.
    b. Revise the introductory text of paragraphs (a), (b) and (c), and 
revise paragraph (c)(2) to read as follows:


Sec. 25.104  Poverty rate.

    (a) General. Eligibility of an area on the basis of poverty shall 
be established in accordance with the following

[[Page 24661]]

poverty rate criteria specific to Round I, Round II and Round IIS 
nominated areas:
* * * * *
    (b) Special rules. The following special rules apply to the 
determination of poverty rate for Round I, Round II and Round IIS 
nominated areas:
* * * * *
    (c) General rules. The following general rules apply to the 
determination of poverty rate for Round I, Round II and Round IIS 
nominated areas.
* * * * *
    (2) Noncontiguous parcels. Each such parcel (excluding, in the case 
of Round II and Round IIS, up to 3 noncontiguous developable sites not 
exceeding 2,000 acres in the aggregate) must separately meet the 
poverty criteria contained in this section.
* * * * *

Subpart C--Nomination Procedure


Sec. 25.202  [Amended]

    7. Amend Sec. 25.202 by revising paragraph (b)(7) to read as 
follows:


Sec. 25.202  Strategic plan.

* * * * *
    (b) * * *
    (7) Include such other information as required by USDA in the 
notice inviting applications or other applicable notice.
* * * * *


Sec. 25.203  [Revised]

    8. Revise Sec. 25.203 to read as follows:


Sec. 25.203  Submission of applications.

    General. A separate application for designation as an empowerment 
zone or enterprise community must be submitted for each rural area for 
which such designation is requested. The application shall be submitted 
in a form to be prescribed by USDA in the notice inviting applications 
or other applicable notice as published in the Federal Register and 
must contain complete and accurate information.

Subpart D--Designation Process


Sec. 25.300  [Amended]

    9. Amend Sec. 25.300 by revising paragraphs (a) and (b) to read as 
follows:


Sec. 25.300  USDA action and review of nominations for designation.

    (a) Establishment of submission procedures. USDA will establish a 
time period and procedure for the submission of applications for 
designation as empowerment zones or enterprise communities, including 
submission deadlines and addresses, in a notice inviting applications 
or other applicable notice, to be published in the Federal Register.
    (b) Acceptance for processing. USDA will accept for processing 
those applications as empowerment zones and enterprise communities 
which USDA determines have met the criteria required under this part. 
USDA will notify the states and local governments whether or not the 
nomination has been accepted for processing. The application must be 
received by USDA on or before the close of business on the date 
established by the notice inviting applications or other applicable 
notice published in the Federal Register. The applications must be 
complete, inclusive of the strategic plan, as required by Sec. 25.202, 
and the certifications and written assurances required by 
Sec. 25.200(b).
* * * * *

Subpart E--Post-Designation Requirements


Sec. 25.404  [Amended]

    10. Amend Sec. 25.404 as follows:
    a. Redesignate paragraph (a) as (c) and paragraph (b) as (d).
    b. Add new paragraphs (a) and (b) to read as follows:


Sec. 25.404  Validation of designation.

    (a) Maintaining the principles of the program. The empowerment 
zone, enterprise community or champion community (the designated 
community) must maintain a process for ensuring ongoing broad-based 
participation by community residents consistent with the approved 
application and planning process outlined in the strategic plan.
    (1) Continuous improvement. The designated community must maintain 
a process for evaluating and learning from its experiences. It must 
detail the methods by which the community will assess its own 
performance in implementing its benchmarks, the process it will use for 
reviewing goals and benchmarks and revising its strategic plan.
    (2) Participation. The designated community must develop as part of 
its strategic plan a written plan for assuring continuous broad-based 
community participation in the implementation of the strategic plan and 
the means by which the strategic plan is implemented, including board 
membership in the lead entity and other key partnership entities.
    (b) Administration of the strategic plan. The strategic plan must 
be administered in a manner consistent with the principles of the 
program contained in Sec. 25.202(a).
    (1) Lead Entity. The lead entity must have legal status and 
authority to receive and administer funds pursuant to Federal, state 
and other government or nonprofit programs.
    (2) Capacity. The lead entity must have the capacity to implement 
the strategic plan, as demonstrated by audited financial statements as 
of the most recent fiscal year or other documentation that may be 
requested by USDA.
    (3) Board membership. The membership of the board must be 
representative of the entire socio-economic spectrum in the designated 
community including business, social service agencies, health and 
education entities, low income and minority residents. Board membership 
may be determined by either broad-based election or by appointment to 
meet this diversity requirement; however, not more than 45 percent of 
board members may be selected by appointment. Elections of community 
residents to the board may be done by any locally acceptable process; 
however, at least one board member from each of the designated 
community's census tracts must be elected and representative of the low 
income residents in their census tract.
    (4) Partnerships. The relationship between the designated 
community's lead entity board and local governments and other major 
regional and community organizations operating in the same geographic 
area is critical to the community's success in implementing its 
strategic plan. Every effort should be made to identify and maintain 
relationships with local partners. Documentation including, but not 
limited to, minutes of meetings, benchmark activity reports and annual 
reports of the lead entity must reflect the contributions of local 
partnership entities.
    (5) Public information. The designated community must have written 
procedures in place describing the means by which citizens of the 
community and partnership organizations will be kept informed of the 
community's activities and progress in implementing the strategic plan, 
consistent with the principal objective of community based partnerships 
pursuant to Sec. 25.202(a)(2). These procedures must be kept current 
and compliance with them documented on an ongoing basis.
* * * * *
    11. Subpart G of part 25, consisting of Secs. 25.600 through 25.999 
is added to read as follows:

[[Page 24662]]

Subpart G--Round II and Round IIS Grants
Sec.
25.600   Purpose.
25.601   Delegation of authority.
25.602   Eligible recipients.
25.603   Grant approval and obligation of funds.
25.604   Disbursement of grant funds.
25.605   Grant program reporting requirements.
25.606   Financial management and records.
25.607   Suspension or termination of grant funds.
25.608-25.619   [Reserved]
25.620   Eligible grant purposes
25.621   Ineligible grant purposes
25.622   Other considerations
25.623   Programmatic changes
25.624   Exception authority
25.625-25.999   [Reserved]

Subpart G-- Round II and Round IIS Grants


Sec. 25.600  Purpose.

    This subpart outlines USDA policies and authorizations and contains 
procedures for the USDA EZ/EC grant program.


Sec. 25.601  Delegation of authority.

    (a) Program administration. The Deputy Administrator, Office of 
Community Development, shall be responsible for the overall development 
of policy and administration of the USDA EZ/EC grant program.
    (b) Funding official. Unless otherwise provided, the state director 
is responsible for implementing the authorities in this subpart, 
consistent with the guidance issued by the Office of Community 
Development. Except for grant approval and environmental determination 
authorities, state directors may re-delegate their duties to qualified 
staff members.
    (c) Environmental review determinations. The funding official is 
responsible for making environmental review determinations.
    (d) Authority to issue regulations. The Under Secretary, Rural 
Development, may promulgate regulations under this part.


Sec. 25.602  Eligible recipients.

    (a) General. The grants made under this subpart shall be made to 
the lead managing entities on behalf of the Round II rural empowerment 
zones and Round IIS rural enterprise communities, respectively, in 
accordance with an approved strategic plan. Such grants shall be 
available to successor entities approved in writing by USDA.
    (b) Exception. The funding official, with the approval of the 
Office of Community Development, may elect to award all or part of the 
available grant funds to an alternate grantee.
    (c) Subrecipients. The grantee shall relay funds to subrecipients, 
as provided in the approved strategic plan, as soon as practicable.


Sec. 25.603  Grant approval and obligation of funds.

    Grants may be made at such time as the nominated area has been 
designated and such other prerequisites as USDA shall determine have 
been met, including but not limited to:
    (a) The empowerment zone or enterprise community has entered into a 
memorandum of agreement satisfactory to USDA;
    (b) The empowerment zone or enterprise community has conformed its 
strategic plan to be consistent with the level of federal grant aid 
available and such conforming amendments (if any) have met with the 
approval of the Office of Community Development and the funding 
official;
    (c) Completion of the environmental review process, including all 
appropriate public notices;
    (d) The proposed grantee has agreed, in form and substance 
satisfactory to the Office of Community Development, to any funding 
conditions imposed by USDA;
    (e) The grantee has submitted a request for obligation of funds, in 
form and substance satisfactory to the Office of Community Development, 
inclusive of the following certification:

    ``The grantee certifies that it and all direct or substantial 
subrecipients are in compliance and will continue to comply with all 
applicable laws, regulations, executive orders and other generally 
applicable requirements, including those contained in 7 CFR parts 
25, 3015, 3016, 3017, 3018, 3019 and 3052, and any agreement to meet 
funding conditions, in effect at the time of the grant or as 
subsequently amended.''


Sec. 25.604  Disbursement of grant funds.

    (a) The funding official will determine, based on 7 CFR parts 3015, 
3016 and 3019, as applicable, whether disbursement of a grant will be 
by advance or reimbursement.
    (b) A ``request for advance or reimbursement,'' in form and 
substance satisfactory to USDA, must be completed by the grantee on 
behalf of itself and all applicable subrecipients and submitted to the 
funding official.
    (c) Requests for advance or reimbursement must identify:
    (1) The amount requested for each benchmark activity;
    (2) The cumulative amount advanced to date (not inclusive of the 
current amount requested) for each benchmark activity;
    (3) The total USDA EZ/EC grant obligated for each benchmark 
activity;
    (4) The total approved budget for the applicable project or program 
(inclusive of non USDA EZ/EC grant program sources);
    (5) An estimated percentage of completion or progress made in 
accomplishing the benchmark goal associated with each benchmark 
activity;
    (6) Certification that the lead managing entity and the 
subrecipients (where applicable) are in compliance with all applicable 
laws and regulatory requirements; and
    (7) Such other information as the funding official may require.
    (d) Requests for advance or reimbursement may include only 
activities or projects which are identified in an approved strategic 
plan.


Sec. 25.605  Grant program reporting requirements.

    Grantees may incorporate grant reporting requirements in the 
reports submitted pursuant to Sec. 25.400, or submit them separately. 
In complying with the requirements of 7 CFR parts 3015, 3016, or 3019, 
as applicable, grantees must submit, in lieu of the forms prescribed 
therein, the equivalent of such forms prescribed by the Office of 
Community Development pursuant to this subpart as such may be adapted 
to the USDA EZ/EC grant program and which may be submitted and retained 
in electronic form.


Sec. 25.606  Financial management and records.

    (a) In complying with the requirements of 7 CFR parts 3015, 3016, 
or 3019, as applicable, grantees must submit, in lieu of the forms 
prescribed in those parts, the equivalent of such forms prescribed by 
the Office of Community Development pursuant to this subpart as such 
may be adapted to the USDA EZ/EC grant program and which may be 
submitted and retained in electronic form.
    (b) Grantees must retain financial records, supporting documents, 
statistical records and all other records pertinent to the grant for a 
period of at least 3 years after the end of the designation period, 
except that the records shall be retained beyond the 3 year period if 
audit findings have not been resolved or if directed by the United 
States. Records may be retained and submitted in electronic form if 
allowed by Generally Accepted Government Accounting Principles.


Sec. 25.607  Suspension or termination of grant funds.

    (a) Grants under this subpart, may be suspended or terminated by 
the funding official, in all or in part, in accordance

[[Page 24663]]

with this subpart and the applicable provisions of 7 CFR parts 3015, 
3016 and 3019, as applicable.
    (b) The funding official may elect to suspend or terminate the 
entirety of a grant, or funding of a particular benchmark activity, but 
nevertheless fund the remainder of a request for advance or 
reimbursement, where the funding official has determined:
    (1) That grantee or subrecipient of the grant funds has 
demonstrated insufficient progress toward achieving the related 
benchmark goal or in any other way failed to comply with the strategic 
plan;
    (2) There is reason to believe that other sources of joint funding 
have not been or will not be forthcoming on a timely basis;
    (3) The strategic plan, as amended, calls for a revised use of the 
grant funds; or
    (4) Such other cause as the funding official identifies in writing 
to the grantee (including but not limited to the use of federal grant 
funds for ineligible purposes).
    (c) The funding official shall notify the grantee in writing within 
30 days of the official's decision to suspend or terminate all or part 
of the grant. This notice shall identify what is being suspended or 
terminated, whether such decision is revocable, and such requirements 
as may be a precondition to reconsideration of the decision.


Secs. 25.608-25.619  [Reserved]


Sec. 25.620  Eligible grant purposes.

    Eligible grant purposes are:
    (a) Services directed at the goals of--
    (1) Achieving or maintaining economic self-support to prevent, 
reduce, or eliminate dependency;
    (2) Achieving or maintaining self sufficiency, including reduction 
or prevention of dependency;
    (3) Preventing or remedying neglect, abuse, or exploitation of 
children and adults unable to protect their own interests, or 
preserving, rehabilitating or reuniting families;
    (b) Projects and activities identified in the strategic plan for 
the area; and
    (c) Activities that benefit residents of the area for which the 
grant is made.


Sec. 25.621  Ineligible grant purposes.

    Grant funds may not be used:
    (a) As a source of local matching funds required for other federal 
grants;
    (b) To fund political activities;
    (c) To duplicate current services or replace or substitute for 
financial support provided from other sources. If the current service 
is inadequate, however, grant funds may be used to augment financial 
support or service levels beyond what is currently provided;
    (d) To pay costs of preparing the application package for 
designation under this part;
    (e) To pay costs of a project which were incurred prior to the 
execution date of the applicable memorandum of agreement;
    (f) To pay for assistance to any private business enterprise which 
does not have at least 51 percent ownership by those who are either 
citizens of the United States or reside in the United States after 
being legally admitted for permanent residence;
    (g) To pay any judgment or debt owed to the United States;
    (h) To assist in the relocation of businesses;
    (i) To support or promote gambling; or
    (j) For political lobbying.


Sec. 25.622  Other considerations.

    (a) Civil rights compliance requirements. All grants made under 
this subpart are subject to Title VI of the Civil Rights Act of 1964 
and part 1901, subpart E, of this title.
    (b) Environmental review. All grants made under this subpart are 
subject to the environmental requirements in effect for the water and 
environmental programs of the Rural Utilities Service at 7 CFR part 
1794. The threshold levels of environmental review, for projects funded 
by the USDA EZ/EC grant program (or EZ/EC SSBG funds where the 
Secretary is authorized to execute the responsibilities under the 
National Environmental Policy Act of 1969), which projects, by their 
nature, would qualify for assistance under any program administered by 
the Rural Housing Service or Rural Business Service within USDA, shall 
be determined in accordance with 7 CFR 1940 Subpart G as follows:
    (1) Projects meeting the descriptions found at 7 CFR 1940.310(b), 
(c), (d) and (e) shall be considered categorically excluded (without an 
environmental report) for purposes of 7 CFR 1794.21.
    (2) Projects meeting the descriptions found at 7 CFR 1940.311 shall 
be considered categorically excluded (with an environmental report) for 
purposes of 7 CFR 1794.22.
    (3) Projects meeting the description found at 7 CFR 1940.312 shall 
require the preparation of an environmental assessment (EA) for 
purposes of 7 CFR 1794.23.
    (4) Projects which would normally require the preparation of an 
environmental impact statement (EIS) for purposes of 7 CFR 1940.313 
shall require an EIS for purposes of 7 CFR 1794.25.
    (c) Other USDA regulations. The rural empowerment zone and 
enterprise community program is subject to the provisions of the 
following regulations, as applicable:
    (1) 7 CFR part 3015, ``Uniform Federal Assistance Regulations'';
    (2) 7 CFR part 3016, ``Uniform Administrative Requirements for 
Grants and Cooperative Agreements to State and Local Governments'';
    (3) 7 CFR part 3017, ``Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free 
Workplace (Grants)'';
    (4) 7 CFR part 3018, ``New Restrictions on Lobbying'';
    (5) 7 CFR part 3019, ``Uniform Administrative Requirements for 
Grants and Agreements with Institutions of Higher Education, Hospitals, 
and other Non-Profit Organizations; and
    (6) 7 CFR part 3052, ``Audits of States, Local Governments, and 
Non-Profit Organizations.''


Sec. 25.623  Programmatic changes.

    Prior approval from USDA is required for all changes to the scope 
or objectives of an approved strategic plan or benchmark activity. 
Failure to obtain prior approval of changes to the strategic plan or 
benchmarks, including changes to the scope of work or a project budget 
may result in suspension, termination, and recovery of USDA EZ/EC grant 
funds.


Sec. 25.624  Exception authority.

    The Deputy Administrator, Office of Community Development, may, in 
individual cases, grant an exception to any requirement or provision of 
this subpart which is not inconsistent with any applicable law, 
provided the Deputy Administrator determines that application of the 
requirement or provision would adversely affect USDA's interest.


Secs. 25.625-25.999  [Reserved]

    Dated: April 14, 2000.
Dan Glickman,
Secretary.
[FR Doc. 00-10138 Filed 4-26-00; 8:45 am]
BILLING CODE 3410-07-P


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