[Federal Register Volume 60, Number 8 (Thursday, January 12, 1995)]
[Rules and Regulations]
[Pages 3034-3045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-734]




[[Page 3033]]

_______________________________________________________________________

Part II





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Community Planning and 
Development



_______________________________________________________________________



24 CFR Part 597



Designation of Empowerment Zones and Enterprise Communities; Final Rule

Federal Register / Vol. 60, No. 8 / Thursday, January 12, 1995 / 
Rules and Regulations 
[[Page 3034]]

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Community Planning and 
Development

24 CFR Part 597

[Docket No. R-95-1702; FR-3580-F-03]
RIN 2506-AB65


Designation of Empowerment Zones and Enterprise Communities

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Final rule.

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

SUMMARY: This rule makes final an interim rule published on January 18, 
1994 that implemented that portion of Subchapter C, Part I (Empowerment 
Zones, Enterprise Communities and Rural Development Investment Areas) 
of Title XIII of the Omnibus Budget Reconciliation Act of 1993 dealing 
with the designation of urban Empowerment Zones and Enterprise 
Communities. The interim rule, consistent with the statute, authorized 
the Secretary of HUD to designate not more than six urban Empowerment 
Zones and not more than 65 urban Enterprise Communities based upon the 
effectiveness of the strategic plan submitted by a State or States and 
local government(s) nominating an area for designation.

EFFECTIVE DATE: February 13, 1995.

FOR FURTHER INFORMATION CONTACT: Michael T. Savage, Deputy Director, 
Office of Economic Development, Room 7136, Department of Housing and 
Urban Development, 451 Seventh Street SW, Washington, DC 20410, 
telephone (202) 708-2290; TDD (202) 708-2565. (These are not toll-free 
numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The information collection requirements contained in this rule were 
approved by the Office of Management and Budget (OMB) for review under 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520), and assigned 
OMB Control Number 2506-0148.

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

    On January 18, 1994 (59 FR 2700), HUD published an interim rule 
that implemented that portion of Subchapter C, Part I (Empowerment 
Zones, Enterprise Communities and Rural Development Investment Areas) 
of Title XIII of the Omnibus Budget Reconciliation Act of 1993 which 
addresses the designation of urban Empowerment Zones and Enterprise 
Communities. Title XIII also provides for the designation of rural 
Empowerment Zones and Enterprise Communities. As noted in the January 
18, 1994 interim rule, the urban part of the program is administered by 
HUD as a Federal-State-local partnership. The rural part of the program 
is administered by the Department of Agriculture. The Department of 
Agriculture also published an interim rule on January 18, 1994 (59 FR 
2686). (The program is hereafter referred to as the EZ/EC program.)
    The EZ/EC program is a key step in rebuilding communities in 
America's poverty-stricken inner cities and rural heartland. It is 
designed to empower people and communities across the nation in 
developing and implementing strategic plans to create job opportunities 
and sustainable community development. The program combines tax 
benefits with substantial investment of Federal resources and enhanced 
coordination among Federal agencies.
    Designated Enterprise Communities are eligible for new Tax-Exempt 
Facilities Bonds for certain private business activities. States with 
designated Enterprise Communities will receive approximately $3 million 
in Empowerment Zone/Enterprise Community Social Service Block Grant 
(EZ/EC SSBG) funds to pass through to each designated area for approved 
activities identified in their strategic plans. Enterprise Communities 
will receive special consideration in competition for funding under 
numerous Federal programs, including the new National Service and 
proposed Community Policing initiatives. The Federal Government will 
focus special attention on working cooperatively with designated 
Enterprise Communities to overcome regulatory impediments, to permit 
flexible use of existing Federal funds, and to assist these Communities 
in meeting essential mandates.
    Designated Empowerment Zones will receive all the benefits provided 
to Enterprise Communities and other communities with innovative visions 
for change. Empowerment Zones are awarded substantial Empowerment Zone/
Enterprise Community Social Service Block Grant funds, in the amount of 
$100 million for each urban Zone. An Employer Wage Credit for Zone 
residents is extended to qualified employers engaged in trade or 
business, in designated Empowerment Zones. Businesses are afforded an 
increased deduction under section 179 of the Internal Revenue Code for 
qualified properties.
    The preamble to the January 18, 1994 interim rule described in 
detail the eligibility requirements for Empowerment Zones and 
Enterprise Communities and the nomination process. This information is 
not repeated in this final rule.
    The Department also published on January 18, 1994, a notice 
inviting applications on nominations for areas as Empowerment Zones and 
Enterprise Communities (59 FR 2711). Title XIII of the Omnibus Budget 
Reconciliation Act of 1993 authorized the Secretary of HUD to designate 
up to six urban Empowerment Zones and up to 65 urban Enterprise 
Communities. The purpose of this document is to make final the interim 
regulations published on January 18, 1994. The designated Empowerment 
Zones and Enterprise Communities will be announced by separate notice 
published in the Federal Register.

II. Differences Between Final Rule and Interim Rule

    This final rule makes only editorial and technical correction 
changes to the January 18, 1994 interim rule. As will be discussed in 
the following section of this preamble, HUD received several good 
suggestions and recommendations of matters that the rule should address 
or expand upon, or terms that should be defined. These changes are 
largely directed to the nomination process, to the eligibility process, 
to the contents of the strategic plan or to the evaluation of the plan. 
Because of the need to have applications submitted by June 30, 1994 so 
that HUD and the Department of Agriculture could make designations 
within the time period set by statute, any significant or substantial 
revisions to the interim rule would have delayed the application 
process, and therefore delayed the designation process. Any significant 
or substantial revisions made at this time to the nomination process, 
evaluation process, etc., would have no effect since the designation 
process is complete.
    HUD anticipates that if another round of designations is authorized 
by the Congress, there will be accompanying legislation that may make 
changes to the existing EZ/EC program, and thus require amendments to 
the regulations in 24 CFR part 597. At the time of this rulemaking, HUD 
will again consider the comments received on the January 18, 1994, and 
if they remain applicable to the new round of designations (the issue 
of applicability depends upon the type of legislative changes, if any, 
made to the EZ/EC program by the Congress), [[Page 3035]] these 
comments will be adopted in new regulations.
    The technical changes made by this final rule are largely directed 
to that section of the rule (Sec. 597.200(d)) which addresses the use 
of EZ/EC SSBG funds and therefore are relevant even after the 
designation process is complete. The following provides a list of the 
editorial/technical changes made to the interim rule by this final 
rule.
    1. In Sec. 597.3 (Definitions), the second paragraph of the 
definition of ``urban area'' inadvertently omitted the phrase 
``jurisdiction of the'' before the words ``nominating local 
government.'' (See 59 FR 2704, second column).
    2. In Sec. 597.200 (Nominations by State and local governments), 
HUD sets forth the procedures for nominations by State and local 
governments of areas for designation as an Empowerment Zone and/or 
Enterprise Community. Paragraph (d) of that section addresses the 
elements of the strategic plan which must be developed as part of the 
application for designation, and paragraph (d)(12) specifically 
addresses how the Social Services Block Grant (SSBG) funds for 
designated Empowerment Zones and Enterprise Communities will be 
utilized. Several technical errors were made in paragraph (d)(12), and 
these are as follows:
    a. Paragraph (d)(12)(i)(A) discusses the commitment concerning the 
use of EZ/EC SSBG funds. The rule provides for the commitment to be 
made by the ``applicant as well as by the State government(s).'' In 
this paragraph, HUD inadvertently omitted reference to the full range 
of nominating entities that would have to make this commitment, and 
only listed ``State governments.'' (Note that Sec. 597.501 provides for 
nomination by States and local governments [the preamble also discusses 
this at page 2701, second column] and Sec. 597.502 provides for 
nominations by State-chartered economic development corporations.) 
Accordingly, the final rule corrects this paragraph to include not only 
State governments, but local governments and State-chartered economic 
development corporations. The final rule also explains that the 
``services or activities'' referenced in this paragraph are the 
``services or activities which can be used to achieve or maintain the 
goals set forth in paragraph (d)(12).''
    b. Paragraph (d)(12)(ii) provides, in error, that Empowerment Zone 
or Enterprise Community SSBG funds (EZ/EC SSBG funds) may be used to 
achieve certain goals set forth in this paragraph by ``undertaking one 
of the below specified options.'' (See 59 FR 2706, first and second 
columns.) The correct wording should provide that States and local 
governments may undertake ``one or more'' of the options set forth in 
the paragraph. One option available to States and local governments for 
the use of EZ/EC SSBG funds was inadvertently omitted from the interim 
rule. This option provides for the use of EZ/EC SSBG funds to promote 
the economic independence of low-income residents, such as capitalizing 
revolving or micro-enterprise loan funds for their benefit.
    c. In paragraph (d)(12)(ii), the interim rule provides that EZ/EC 
SSBG funds ``may'' be used to maintain the goals set forth in paragraph 
(d)(12). (See page 2706, first column.) The rule should have stated 
that the EZ/EC SSBG funds ``must'' be used to maintain the goals set 
forth in paragraph (d)(12), and that the goals ``may be achieved'' by 
undertaking the program options listed in (d)(12)(ii).
    d. The interim rule inadvertently omitted the paragraph that 
provides guidance concerning how designated empowerment zones and 
enterprise communities may meet the goals specified in paragraph 
(d)(12). (See 59 FR 2706, middle column.) This paragraph does not 
dictate how the goals may be met, but offers guidance as to how they 
may be met. This rule makes this correction by adding a new paragraph 
(iii), and the succeeding paragraphs are redesignated accordingly.
    e. In paragraph (d)(12)(v) of the interim rule, the Department 
provided that the State must obligate EZ/EC SSBG funds in accordance 
with the strategic plan within two years from the ``date of designation 
of the Empowerment Zone or Enterprise Community.'' (See page 2706, 
middle column.) This time frame is incorrect. This paragraph should 
have provided that the State must obligate funds two years from the 
date ``the funds are paid to the State.'' This paragraph is also 
corrected by this document to add that ``funds not obligated must be 
remitted to the Secretary of Health and Human Services.'' This sentence 
was inadvertently dropped in the rule text.
    f. Two requirements pertaining to the strategic plan were 
inadvertently omitted from paragraph (d)(12). One requirement provides 
that the strategic plan must indicate how the EZ/EC SSBG funds will be 
invested and used for the period of designation, and the second 
provides that the strategic plan must provide for periodic reporting of 
information by the relevant State. These requirements are now set forth 
in (d)(12)(vii) and (viii).
    g. In addition to the above corrections, this document corrects 
missing or erroneous punctuation in paragraph (d)(12). For example, 
some paragraphs ended in periods, and should have ended in semicolons.
    4. In Sec. 597.200, paragraph (d)(17) is corrected by removing the 
``and'' which follows the semicolon at the end of this paragraph. (See 
59 FR 2706, third column.)
    5. In Sec. 597.200, paragraph (d)(18) is corrected by removing the 
period at the end of the paragraph, and replacing it with a semicolon. 
(See 59 FR 2706, third column.)
    6. In Sec. 597.201 (Evaluating the strategic plan), paragraph 
(b)(9) should end with a semicolon and not a period. (See 59 FR 2707, 
third column.)
    7. In Sec. 597.201 (Evaluating the strategic plan), paragraph 
(c)(1) should end with a semicolon and not a period. (See 59 FR 2708, 
first column.)
    8. In Sec. 597.301 (Selection factors for designation of nominated 
urban areas), paragraphs (a) (1), (2) and (3) should each end with a 
semicolon instead of a period, and the word ``and'' should follow the 
semicolon in paragraph (a)(3). (See 59 FR 2709, first column.)
    The above changes are the only ones that have been made to the 
interim rule by this final rule.

III. The Public Comments

General Comments

    The January 18, 1994 interim rule provided for a 30-day public 
comment period. The public comment period expired on February 17, 1994. 
Comments, however, were accepted through March 1, 1994. By this date, a 
total of 45 comments had been received. The commenters consisted of 
State and local jurisdictions (or agencies of such jurisdictions), 
State legislators and non-profit organizations. Twenty-two (22) of the 
commenters were from the State of California.
    The majority of the commenters gave the interim regulations 
favorable marks, stating that, overall, the interim rule clearly 
delineates the role of the State and participating entities. As noted 
earlier in this preamble, HUD received several good suggestions and 
recommendations from the commenters that will be considered in any 
future rulemaking needed for a new round of designation. Other 
suggestions raised by commenters, although equally with merit, could 
not be adopted (even if HUD were making substantive changes at this 
time) given the current statutory framework of the EZ/EC Program, and 
other requests for changes or clarification were determined to be 
adequately addressed by the January 18, 1994 interim rule. The 
following provides a summary of the significant [[Page 3036]] issues 
raised by the public commenters, and HUD's response to these issues.

General Comments on the Rule

    Comment. One commenter stated that the interim rule as a whole did 
not adequately address the needs of extremely low-income persons.
    Response. HUD disagrees with the commenter. The eligibility for 
designation as an Empowerment Zone or Enterprise Community requires a 
significant level of poverty, and the strategic plan required various 
descriptions of how the nominated area would address the need of low-
income persons, for example, through the creation of economic 
opportunities, home ownership, education or other route to economic 
independence for low-income families, youth and other individuals. (See 
Sec. 597.200.)
    Comment. Two commenters stated that the rule should explicitly 
address the need of areas in which military base closures have occurred 
or will occur.
    Response. Military base closure was explicitly referenced in the 
rule. Note that Sec. 597.102(b)(1) of the rule provides in relevant 
part that ``Unemployment shall be demonstrated by * * * (2) Evidence of 
especially severe economic conditions, such as military base or plant 
closings, or other conditions which have brought about significant job 
dislocation within the nominated area.''
    Comment. One commenter stated that the rule should have taken into 
consideration areas which have both rural and urban characteristics.
    Response. HUD strived to the extent possible, given the statutory 
framework and requirements, to be as flexible as possible in describing 
eligibility for nominated areas, and to recognize that some urban areas 
will have rural characteristics. To a significant degree, however, this 
flexibility was limited by the statutory requirements for eligible 
urban areas.
    Comment. One commenter stated that the rule and program structure 
perpetuate the inner city as a place for only low-income persons to 
live. The commenter stated that while EZ/EC SSBG eligible expenditures 
give latitude for communities to address social problems, they leave 
little room for needed neighborhood economic development programs that 
could make urban neighborhoods better places to live, to raise 
families, to shop, to work and to grow businesses.
    Response. The entire EZ/EC program is directed to uplifting the 
economic and social environment of the designated urban area. HUD 
believes that the four key principles of the program, set forth in 
Sec. 597.200, and the specific elements embodied in each principle, 
clearly make this point.

Comments on Terms Used

    Comment. One commenter stated that the rule should have defined the 
terms ``community'' and ``low-income.'' Another commenter stated that 
the interim rule should have defined the term ``long-term unemployed.''
    Response. HUD acknowledges the merit of these suggestions, and 
definitions for these terms will be considered for any future 
rulemaking that may be necessary for a new round of designations.
    Comment. Two commenters stated that the term ``disadvantaged'' 
should be defined in the regulation. The commenter stated that this 
term should be defined to mean household or individual income below 30 
percent or 50 percent of the area-wide income.
    Response. This term appears in Sec. 507.200(d)(12) which addresses 
the use of EZ/EC SSBG funds. EZ/EC SSBG funds are administered by the 
Department of Health and Human Services. Accordingly, HHS has 
responsibility for defining this term. Although this term is not 
defined in the HHS regulations governing Social Service Block Grant 
Funds (see 45 CFR part 96, subpart G), HHS should be able to provide 
guidance to grantees on the meaning of this term.
    Comment. One commenter stated that the definition of ``State-
chartered economic development corporation'' was not very clear.
    Response. The statute defined this term, and the rule simply 
incorporated the statutory definition.

Comments on Census Tracts and Census Tract Data

    Comment. Twenty-four (24) commenters objected to the failure to use 
census block data instead of census tract data. The commenters pointed 
out that many city boundaries do not coincide with census boundaries, 
and these cities would be disqualified. In addition to requesting use 
of census block data in lieu of census tract data, other suggestions 
submitted by commenters included: Excluding significantly-sized public 
facilities from calculation of a city's total mileage; and allowing an 
entity to request EC designation to be extended on a case-by-case basis 
to coterminous properties adjacent to an eligible poverty census tract.
    Response. HUD is unable to adopt the suggestions of the commenters. 
The statute requires the use of census tract data, and does not permit 
the exclusions or case-by-case exceptions as suggested by the 
commenters.
    Comment. One commenter requested that the rule exclude portions of 
census tracts incapable of development, such as those that may be 
covered by water.
    Response. In determining what constitutes census tracts, and what 
areas are not included or excluded in census tracts, HUD follows 
existing regulations applicable to census tracts issued by the U.S. 
Census Bureau.
    Comment. Another commenter stated that census retail trade data 
does not accurately characterize central business districts. The 
commenter stated that the rule excludes central business districts 
(CBDs) as defined by the 1987 Census Retail Trade unless poverty rate 
for each tract in the CBD is not less than 35 percent for an EZ and 30 
percent for an EC.
    Response. Central business districts are addressed in 
Sec. 597.100(f). HUD's rule provides some flexibility since the last 
Census of Retail Trade was in 1982. The issue of characterization of 
CBDs is not a question of whether an area was listed in the Census of 
Retail Trade, but whether the area fits characteristics of CBDs. HUD's 
rule allows applicants to demonstrate that the character of an area has 
changed, and does not meet the definition of CBD as used in the most 
recent Census of Retail Trade.

Comments on Population Levels

    Comment. Twelve commenters stated that the 50,000 population 
limitation excludes many cities in need of EZ/EC assistance, and 
requested that the population limit be increased to 200,000 for all 
urban nominated areas.
    Response. The population limitation of 50,000 found in 
Sec. 597.100(a)(2) is directly from the statute.
    Comment. Another commenter said that the rule should have excluded 
prison and hospital populations from the populations caps.
    Response. This concern was accommodated by HUD at the time of 
issuance of the January 18, 1994 interim rule. The application process 
allowed cities to deduct institutional populations or populations in 
group quarters.

Comments on Pervasive Poverty and Unemployment

    Comment. One commenter stated that the test for pervasive poverty 
should meet all three criteria, not simply one, and that a higher test 
should be utilized to determine unemployment.
    Response. HUD believes that each of the three factors presented in 
Sec. 597.102(a), in and of itself, adequately exemplifies an area that 
has pervasive [[Page 3037]] poverty. Similarly, HUD believes that each 
of the two factors presented in Sec. 597.103(b) adequately exemplifies 
an area of unemployment. However, these comments will certainly be 
considered if another round of designations is authorized by the 
Congress.

Comments on Poverty Rate

    Comment. Sixteen commenters stated that the definition of low or 
zero population industrial or commercial census tracts should be 
extended to include zero population census blocks which meet the same 
criteria. Two other commenters stated that the requirement for a non-
contiguous area to separately meet the poverty rate criteria makes no 
sense where the non-contiguous area consists of a single census tract.
    Response. Poverty rate is addressed in Sec. 597.103 of the rule. 
The existing EZ/EC legislation provides no flexibility to adopt the 
comments suggested by the commenters.
    Comment. Other commenters asked that HUD take into consideration 
the unique poverty rates of their own States or communities due to the 
high cost of living.
    Response. HUD believes that the poverty rate factors in the rule 
are sufficiently broad to encompass the unique poverty and high cost of 
living characteristics of any individual State or community.

Comments on the Strategic Plan

    Comment. Three commenters stated that the strategic plan principle 
concerning employment should emphasize job creation for low-income 
persons. Another commenter stated that the strategic plan principle 
concerning employment should emphasize job creation for minority 
businesses.
    Response. HUD agrees with the commenters and such emphasis will be 
considered in future rulemaking that may be necessary for any 
additional rounds of designations that may be authorized.
    Comment. Two commenters stated that the rule should require an 
explanation of how participants in the planning process are 
representative of the ``affected'' community.
    Response. This requirement was included in the application, and HUD 
will consider including this requirement in the text of the regulation 
in any future rulemaking that may be needed.
    Comment. Two commenters stated that the rule should emphasize that 
public funds cannot be used to encourage plant relocations or pirating 
of jobs from one place to another.
    Response. This issue was addressed in Sec. 597.200(3) of the rule, 
and the EZ/EC application included a certification to this effect.
    Comment. Two commenters stated that the rule should allow 
designated communities to use funds and other resources identified in 
the strategic plan for properties directly adjacent to the boundaries 
of the designated census tracts.
    Response. HUD provides flexibility on this issue. Businesses and 
enterprise communities do not receive tax incentives and the only 
funding that flows from EZ/EC designation is title 20 funding. The 
latter can be used outside of the EC if the use of the funds benefits 
the EC residents directly.
    Comment. Two commenters stated that the rule did not discuss the 
applicability of existing plans (e.g., CHAS) to the strategic planning 
process.
    Response. Although the rule does not specifically reference the 
CHAS, the rule contains reference to other local planning efforts and 
to consolidated planning efforts (See Secs. 597.200(d)(15) and 
597.201(b).) Once the Consolidated Plan final rule is published, it 
will bring all plans into conformance.
    Comment. One commenter stated that the rule should require 
jurisdictions to disclose areas considered for nomination, but not 
selected, and to explain why they were not selected.
    Response. This issue is addressed to some extent in Sec. 597.201(c) 
of the rule, but HUD will consider expanding on this issue in any 
future rulemaking that may be needed.
    Comment. One commenter, in response to the requirements of 
Sec. 597.200(d) (14), (15), and (16), stated that the rule should 
require applicants to explain which existing resources (including the 
amounts) will be shifted from other geographic locations to the EZ/EC 
area to fulfill the applicant's commitment to resources to the EZ/EC 
area.
    Response. HUD believes that such a requirement would be an 
unwarranted intrusion in local government processes.
    Comment. Two commenters stated that the rule should identify 
specific regulatory and other impediments to implementing the strategic 
plan, and indicate whether waivers can be accomplished administratively 
or through statutory changes.
    Response. HUD cannot identify specific regulatory barriers for each 
applicant. The applicant is in a better position to advise HUD where 
there are barriers and other impediments to implementation of the plan, 
and HUD asks applicants to identify such barriers in Sec. 597.200(d) 
(17) and (18).
    Comment. Other commenters made several other suggestions for the 
strategic plan, including: requiring the same standards for citizen 
participation for strategic plan revisions as required for initial 
development of the plan, requiring benchmarks that identify benefits to 
low-income persons and long-term unemployed persons, and encouraging 
activities that specifically meet the needs of low-income persons.
    Response. All these suggestions have merit and HUD will consider 
these in any future rulemaking that may be needed.

Comments on Evaluation of the Strategic Plan

    Comment. Several commenters made suggestions for changes to 
Sec. 597.201 which describes how the strategic plan will be evaluated. 
The suggestions included evaluating the plan based on the number of 
quality jobs provided to low-income persons; allowing community-based 
partnerships to include labor unions; allowing community-based 
partnerships to include low-income persons, long-term unemployed 
persons, and residents of the area to be designated; providing minimum 
standards for participation in the development of the plan; and 
providing for low-income persons to monitor the implementation of the 
plan.
    Response. All of these suggestions will be taken into consideration 
in any future EZ/EC rulemaking.
    Comment. One commenter stated that the rule must promote affordable 
housing and without affordable housing in proposed zones, the EZ/EC 
program will fail.
    Response. Affordable housing was promoted through the rule. See 
Secs. 597.200(d)(12)(ii)(B)(3) and (g)(3), and 597.201(b)(8).
    Comment. One commenter stated that a city's compliance with the 
affordable housing requirement may make the city ineligible for EZ/EC 
designation. The commenter stated that as a result of compliance with 
this requirement, some cities do not have concentration of poverty 
described in the threshold requirements for EZ/EC designation. Another 
commenter stated that the evaluation of a plan should have included a 
review of whether a jurisdiction is affirmatively furthering fair 
housing, and also required applicants to submit a certification that 
they are in compliance with fair housing laws. The commenter also 
stated that the rule should provide for revocation of designation as a 
zone or community if the jurisdiction fails to comply with these laws.
    Response. With respect to the first commenter's concern, the 
poverty rates set forth in the interim rule are based on 
[[Page 3038]] the 1990 Census, which HUD believes provides a fair and 
impartial measure of poverty level. With respect to the second 
commenter's concern, these suggestions will be considered in future 
rulemaking.

Comments on Submission of Nomination of Designation

    Comment. Two commenters stated that the affected community should 
have access to the same information and reports, at no cost, that are 
available to HUD.
    Response. Following completion of the designation process, the 
information contained in applications will be available to the public 
through requests made under the Freedom of Information Act.
    Comment. One commenter suggested that the rule require the affected 
State to receive a copy of notice of intent to participate by the 
community, at the same time the local community sends the notice to 
HUD.
    Response. HUD will consider adopting this suggestion in future 
rulemaking.

Comments on the Selection Factors for Designation

    Comment. One commenter stated that the rule should include 
procedures for appealing selections based on geographic diversity. The 
commenter notes the rule allows HUD to designate a lower rated 
application over a higher rated application in the interests of 
geographic diversity of the designations (see Sec. 597.301). Another 
commenter states that the geographic diversity provision should be 
strengthened by providing that each State will receive at least one 
urban designation as either an EZ or EC. A third commenter stated that 
HUD should reserve two of the six urban zone designations for small 
cities with populations under 100,000.
    Response. HUD is not inclined to adopt any of these commenters' 
suggestions as regulatory requirements. These suggestions limit the 
flexibility that is needed in the selection process. However, HUD will 
re-evaluate these issues at the time of any future rulemaking.

Comments on Other Provisions

    Comment. One commenter stated that the rule should be explicit 
about the eligibility of areas for designation within the Commonwealth 
of Puerto Rico.
    Response. Pursuant to Title XIII, no areas of Puerto Rico were 
eligible for designation.

IV. Other Matters

    National Environmental Policy Act. A Finding of No Significant 
Impact with respect to the environment was made in accordance with HUD 
regulations in 24 CFR part 50, which implement section 102(c) of the 
National Environmental Policy Act of 1969 (42 U.S.C. 4332) at the time 
of development of the interim rule. That Finding remains applicable to 
this final rule and is available for public inspection and copying 
during regular business hours in the Office of the Rules Docket Clerk, 
Room 10276, 451 Seventh Street SW, Washington, DC 20410.
    Executive Order 12866, Regulatory Planning and Review. This rule 
was reviewed and approved by the Office of Management and Budget as a 
significant rule, as that term is defined in Executive Order 12866, 
which was signed by the President on September 30, 1993. Any changes to 
the rule as a result of that review are contained in the public file of 
the rule in the office of the Department's Rules Docket Clerk.
    Regulatory Flexibility Act. The Secretary, in accordance with the 
Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this rule 
before publication and by approving it certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities within the intent and purpose of that Act. The Act is intended 
to encourage Federal agencies to utilize innovative administrative 
procedures in dealing with individuals, small businesses, small 
organizations, and small governmental bodies that would otherwise be 
unnecessarily adversely affected by Federal regulations. To the extent 
that this rule affects those entities, its purpose is to reduce any 
disproportionate burden by providing for the waiver of regulations and 
by affording other incentives directed toward a positive economic 
impact. Therefore, no regulatory flexibility analysis under the Act is 
necessary.
    Executive Order 12611, Federalism. The General Counsel, as the 
Designated Official under section 6(a) of Executive Order 12611, 
Federalism, has determined that, although the policies contained in 
this rule may have a substantial direct effect on States or their 
political subdivisions that are designated as Empowerment Zones or 
Enterprise Communities, this effect is intended by the legislation 
authorizing the program. The purpose of the rule is to provide a 
cooperative atmosphere between the Federal government and States and 
local governments, and to reduce any regulatory burden imposed by the 
Federal government that impedes the ability of States and local 
governments to solve pressing economic, social, and physical problems 
in their communities.
    Executive Order 12606, The Family. The General Counsel, as the 
Designated Official under Executive Order 12606, The Family, has 
determined that the provisions of this rule will not have a significant 
impact on family formation, maintenance or well being, except to the 
extent that the program authorized by the rule will empower communities 
and their residents to take effective action to solve difficult and 
pressing economic, human, community and physical development challenges 
that have a negative impact on families. Any such impact is beneficial 
and merits no further review under the Order.
    Semiannual Agenda. This rule was listed as sequence number 1851 in 
the Department's semiannual agenda of regulations published on November 
14, 1994 (59 FR 57632, 57665) under Executive Order 12866 and the 
Regulatory Flexibility Act.

List of Subjects in 24 CFR Part 597

    Community development, Empowerment zones, Enterprise communities, 
Economic development, Housing, Indians, Intergovernmental relations, 
Reporting and recordkeeping requirements, Urban renewal.
    In accordance with the reasons set out in the preamble, 24 CFR part 
597 is revised to read as follows:

PART 597--URBAN EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

Subpart A--General Provisions

Sec.
597.1  Applicability and scope.
597.2  Objective and purpose.
597.3  Definitions.
597.4  Secretarial review and designation.
597.5  Waivers.

Subpart B--Area Requirements

597.100  Eligibility requirements and data usage.
597.101  Data utilized for eligibility determinations.
597.102  Tests of pervasive poverty, unemployment and general 
distress.
597.103  Poverty rate.

Subpart C--Nomination Procedure

597.200  Nominations by State and local governments.
597.201  Evaluating the strategic plan.
597.202  Submission of nominations for designation.

Subpart D--Designation Process

597.300  HUD action and review of nominations for designation.
597.301  Selection factors for designation of nominated urban areas. 
[[Page 3039]] 
597.302  Number of Empowerment Zones and Enterprise Communities 
designated.

Subpart E--Post-Designation Requirements

597.400  Reporting.
597.401  Periodic performance reviews.
597.402  Validation of designation.
597.403  Revocation of designation.

Subpart F--Special Rules

597.500  Indian Reservations.
597.501  Governments.
597.502  Nominations by economic development corporations or the 
District of Columbia.
597.503  Use of census data.

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

Subpart A--General Provisions


Sec. 597.1  Applicability and scope.

    (a) This part establishes policies and procedures applicable to 
urban Empowerment Zones and Enterprise Communities, authorized under 
Subchapter U of the Internal Revenue Code of 1986, as amended, relating 
to the designation and treatment of Empowerment Zones, Enterprise 
Communities and Rural Development Investment Areas.
    (b) This part contains provisions relating to area requirements, 
the nomination process for urban Empowerment Zones and urban Enterprise 
Communities, and the designation and administration of these Zones and 
Communities by HUD. Provisions dealing with the nomination and 
designation of rural Empowerment Zones and Enterprise Communities will 
be promulgated by the Department of Agriculture. HUD and the Department 
of Agriculture will consult in all cases in which nominated areas 
possess both urban and rural characteristics, and will utilize a 
flexible approach in determining the appropriate designation.


Sec. 597.2  Objective and purpose.

    The purpose of this part is to provide for the establishment of 
Empowerment Zones and Enterprise Communities in urban areas, to 
stimulate the creation of new jobs, particularly for the disadvantaged 
and long-term unemployed, and to promote revitalization of economically 
distressed areas.


Sec. 597.3  Definitions.

    Designation means the process by which the Secretary designates 
urban areas as Empowerment Zones or Enterprise Communities eligible for 
tax incentives and credits established by Subchapter U of the Internal 
Revenue Code of 1986, as amended (26 U.S.C. 1391 et seq.) and for 
special consideration for programs of Federal assistance.
    Empowerment Zone means an urban area so designated by the Secretary 
pursuant to this part. Up to six such Zones may be designated, 
provided, that if the Secretary designates the maximum number of zones, 
not less than one shall be in a nominated urban area the most populous 
city of which has a population of 500,000 or less; and no less than one 
shall be a nominated urban area which includes areas in two States and 
which has an area population of 50,000 or less.
    Enterprise Community means an urban area so designated by the 
Secretary pursuant to this part. Not more than 65 such communities may 
be so designated.
    HUD means the Department of Housing and Urban Development.
    Local government means any county, city, town, township, parish, 
village, or other general purpose political subdivision of a State, and 
any combination of these political subdivisions which is recognized by 
the Secretary.
    Nominated area means an area nominated by one or more local 
governments and the State or States in which it is located for 
designation pursuant to this part.
    Population census tract means a census tract, or, if census tracts 
are not defined for the area, a block numbering area.
    Poverty means the number of persons listed as being in poverty in 
the 1990 Decennial Census.
    Revocation of designation means the process by which the Secretary 
may revoke the designation of an urban area as an Empowerment Zone or 
Enterprise Community pursuant to Sec. 597.403.
    Secretary means the Secretary of Housing and Urban Development.
    State means any State of the United States.
    Strategic plan means a strategy developed and agreed to by the 
nominating local government(s) and State(s), which have provided 
certifications of their authority to adopt such a strategy in their 
application for nomination, in consultation and cooperation with the 
residents of the nominated are, pursuant to the provisions of 
Sec. 597.200(c). The plan must include written commitments from the 
local government(s) and State(s) that they will adhere to that 
strategy.
    Urban area means:
    (1) Any area that lies inside a Metropolitan Area (MA), as 
designated by the Office of Management and Budget; or
    (2) Any area outside an MA if the jurisdiction of the nominating 
local government has a population of 20,000 or more, or documents the 
urban character of the area.


Sec. 597.4  Secretarial review and designation.

    (a) Designation. The Secretary will review applications for the 
designation of nominated urban areas to determine the effectiveness of 
the strategic plans submitted by nominating State and local 
government(s) in accordance with Sec. 597.200(c). The Secretary will 
designate up to six urban Empowerment Zones and up to 65 urban 
Enterprise Communities.
    (b) Period of Designation. The designation of an urban area as an 
Empowerment Zone or Enterprise Community shall remain in full effect 
during the period beginning on the date of designation and ending on 
the earliest of:
    (1) The close of the tenth calendar year beginning on or after the 
date of designation;
    (2) The termination date designated by the State and local 
governments in their application for nomination; or
    (3) The date the Secretary modifies or revokes the designation, in 
accordance with Secs. 597.402 or 597.403.


Sec. 597.5  Waivers.

    The Secretary of HUD may waive for good cause any provision of this 
part not required by statute, where it is determined that application 
of the requirement would produce a result adverse to the purpose and 
objectives of this part.

Subpart B--Area Requirements


Sec. 597.100  Eligibility requirements and data usage.

    A nominated urban area may be eligible for designation pursuant to 
this part only if the area:
    (a) Has a maximum population which is the lesser of:
    (1) 200,000; or
    (2) The greater of 50,000 or ten percent of the population of the 
most populous city located within the nominated area;
    (b) Is one of pervasive poverty, unemployment and general distress, 
as described in Sec. 597.102;
    (c) Does not exceed twenty square miles in total land area;
    (d) Has a continuous boundary, or consists of not more than three 
noncontiguous parcels;
    (e) Is located entirely within the jurisdiction of the unit or 
units of general local government making the nomination, and is located 
in no more than two contiguous States; and
    (f) Does not include any portion of a central business district, as 
this term is [[Page 3040]] used in the most recent Census of Retail 
Trade, unless the poverty rate for each population census tract in the 
district is not less than 35 percent for an Empowerment Zone and 30 
percent for an Enterprise Community.


Sec. 597.101  Data utilized for eligibility determinations.

    (a) Source of data. The data to be employed in determining 
eligibility pursuant to the criteria set forth at Sec. 597.102 shall be 
based upon the 1990 Decennial Census, and from information published by 
the Bureau of the Census and the Bureau of Labor Statistics. The data 
shall be comparable as to point or period of time and methodology 
employed. Specific information on appropriate data to be submitted will 
be provided in the application.
    (b) Use of statistics on boundaries. The boundary of an urban area 
nominated for designation as an Empowerment Zone or Enterprise 
Community must coincide with the boundaries of census tracts, or, where 
tracts are not defined, with block numbering areas.


Sec. 597.102  Tests of pervasive poverty, unemployment and general 
distress.

    (a) Pervasive poverty. Pervasive poverty shall be demonstrated by 
the nominating entities by providing evidence that:
    (1) Poverty is widespread throughout the nominated area; or
    (2) Poverty has become entrenched or intractable over time (through 
comparison of 1980 and 1990 census data or other relevant evidence); or
    (3) That no portion of the nominated area contains any component 
areas of an affluent character.
    (b) Unemployment. Unemployment shall be demonstrated by:
    (1) Data indicating that the weighted average rate of unemployment 
for the nominated area is not less than the national average rate of 
unemployment; or
    (2) Evidence of especially severe economic conditions, such as 
military base or plant closings or other conditions which have brought 
about significant job dislocation within the nominated area.
    (c) General distress. General distress shall be evidenced by 
describing adverse conditions within the nominated urban area other 
than those of pervasive poverty and unemployment. A high incidence of 
crime, narcotics use, homelessness, abandoned housing, and deteriorated 
infrastructure or substantial population decline, are examples of 
appropriate indicators of general distress.


Sec. 597.103  Poverty rate.

    (a) General. The poverty rate shall be established in accordance 
with the following criteria:
    (1) In each census tract within a nominated urban area, the poverty 
rate shall be not less than 20 percent;
    (2) For at least 90 percent of the population census tracts within 
the nominated urban area, the poverty rate shall not be less than 25 
percent; and
    (3) For at least 50 percent of the population census tracts within 
the nominated urban area, the poverty rate shall be not less than 35 
percent.
    (b) Special rules relating to the determination of poverty rate. 
(1) Census Tracts with no population. Census tracts with no population 
shall be treated as having a poverty rate which meets the standards of 
paragraphs (a)(1) and (2) of this section, but shall be treated as 
having a zero poverty rate for purposes of applying paragraph (a)(3) of 
this section.
    (2) Census tracts with populations of less than 2,000. A population 
census tract which has a population of less than 2,000 shall be treated 
as having a poverty rate which meets the requirements of paragraphs 
(a)(1) and (a)(2) of this section if more than 75 percent of the tract 
is zoned for commercial or industrial use.
    (3) Adjustment of poverty rates for Enterprise Communities. Where 
necessary to carry out the purposes of this part, the Secretary may 
reduce by 5 percentage points one of the following thresholds for not 
more than 10 percent of the census tracts, or, if fewer, five 
population tracts in the nominated urban area:
    (i) The 20 percent threshold in paragraph (a)(1) of this section;
    (ii) The 25 percent threshold in paragraph (a)(2) of this section; 
and
    (iii) The 35 percent threshold in paragraph (a)(3) of this section; 
Provided that, the Secretary may in the alternative reduce the 35 
percent threshold by 10 percentage points for three population census 
tracts.
    (4) Rounding up of percentages. In making the calculations required 
by this section, the Secretary shall round all fractional percentages 
of one-half percent or more up to the next highest whole percentage 
figure.
    (c) Noncontiguous areas. A nominated urban area may not contain a 
noncontiguous parcel unless such parcel separately meets the criteria 
set forth at paragraphs (a)(1), (2), and (3) of this section.
    (d) Areas not within census tracts. In the case of an area which 
does not have population census tracts, the block numbering area shall 
be used.

Subpart C--Nomination Procedure


Sec. 597.200  Nominations by State and local governments.

    (a) Nomination criteria. One or more local governments and the 
State or States in which an urban area is located may nominate such 
area for designation as an Empowerment Zone and/or as an Enterprise 
Community, if:
    (1) The urban area meets the requirements for eligibility set forth 
in Secs. 597.100 and 597.103;
    (2) The urban area is within the jurisdiction of a State or States 
and local government(s) that have the authority to nominate the urban 
area for designation and that provide written assurances satisfactory 
to the Secretary that the strategic plan described in paragraph (c) of 
this section will be implemented;
    (3) All information furnished by the nominating State(s) and local 
government(s) is determined by the Secretary to be reasonably accurate; 
and
    (4) The State(s) and local government(s) certify that no portion of 
the area nominated is already included in an Empowerment Zone or 
Enterprise Community or in an area otherwise nominated to be designated 
under this section.
    (b) Nomination for designation. No urban area may be considered for 
designation pursuant to subpart D of this part unless the nomination 
for designation:
    (1) Demonstrates that the nominated urban area satisfies the 
eligibility criteria set forth at Sec. 597.100;
    (2) Includes a strategic plan, as described in paragraph (c) of 
this section; and
    (3) Includes such other information as may be required by HUD in 
the application or in a Notice Inviting Applications, to be published 
in the Federal Register.
    (c) Strategic plan. Each application for designation must be 
accompanied by a strategic plan, which must be developed in accordance 
with four key principles, which will also be utilized to evaluate the 
plan. These principles are:
    (1) Economic opportunity, including job creation within the 
community and throughout the region, as well as entrepreneurial 
initiatives, small business expansion and training for jobs that offer 
upward mobility;
    (2) Sustainable Community Development, to advance the creation of 
liveable and vibrant communities through comprehensive approaches that 
coordinate economic, physical, community and human development;
    (3) Community-Based Partnerships, involving the participation of 
all segments of the community, including [[Page 3041]] the political 
and governmental leadership, community groups, health and social 
service groups, environmental groups, religious organizations, the 
private and non-profit sectors, centers of learning and other community 
institutions; and
    (4) Strategic vision for change, which identifies what the 
community will become and a strategic map for revitalization. The 
vision should build on assets and coordinate a response to community 
needs in a comprehensive fashion. It should also set goals and 
performance benchmarks for measuring progress and establish a framework 
for evaluating and adjusting the revitalization plan.
    (d) Elements of strategic plan. The strategic plan should:
    (1) Indicate and briefly describe the specific groups, 
organizations, and individuals participating in the production of the 
plan and describe the history of these groups in the community;
    (2) Explain how participants were selected and provide evidence 
that the participants, taken as a whole, broadly represent the racial, 
cultural and economic diversity of the community;
    (3) Describe the role of the participants in the creation, 
development and future implementation of the plan;
    (4) Identify two or three topics addressed in the plan that caused 
the most serious disagreements among participants and describe how 
those disagreements were resolved;
    (5) Explain how the community participated in choosing the area to 
be nominated and why the area was nominated;
    (6) Provide evidence that key participants have the capacity to 
implement the plan;
    (7) Provide a brief explanation of the community's vision for 
revitalizing the area;
    (8) Explain how the vision creates economic opportunity, encourages 
self-sufficiency and promotes sustainable community development;
    (9) Identify key needs of the area and the current barriers to 
achieving the vision for it, including a description of poverty and 
general distress, barriers to economic opportunity and development and 
barriers to human development;
    (10) Discuss how the vision is related to the assets and needs of 
the area and its surroundings;
    (11) Describe the ways in which the community's approaches to 
economic development, social/human services, transportation, housing, 
sustainable community development, public safety, drug abuse 
prevention, and educational and environmental concerns will be 
addressed in a coordinated fashion; and explain how these linkages 
support the community's vision;
    (12) Indicate how all Social Services Block Grant funds for 
designated Empowerment Zones and Enterprise Communities (EZ/EC SSBG 
funds) will be utilized.
    (i) In doing so, the strategic plan shall provide the following 
information:
    (A) A commitment by the applicant, as well as by the nominating 
State-chartered economic development corporation or State government(s) 
and local governments, that the EZ/EC SSBG funds will be used to 
supplement, not replace, other Federal or non-Federal funds available 
for financing for services or activities which can be used to achieve 
or maintain the goals outlined in paragraph (d)(12) of this section;
    (B) A description of the entities that will administer the EZ/EC 
SSBG funds;
    (C) A certification by such entities that they will provide 
periodic reports on the use of the EZ/EC SSBG funds; and
    (D) A detailed description of all the activities to be financed 
with the EZ/EC SSBG funds and how all such funds will be allocated.
    (ii) The EZ/EC SSBG funds must be used to achieve or maintain the 
following goals. The goals may be achieved by undertaking one or more 
of the following program options:
    (A) The goal of economic self-support to prevent, reduce or 
eliminate dependencies, through one or more of the following program 
options:
    (1) Funding community and economic development services focused on 
disadvantaged adults and youths, including skills training, 
transportation services and job, housing, business, and financial 
management counseling;
    (2) Supporting programs that promote home ownership, education or 
other routes to economic independence for low-income families, youths, 
and other individuals;
    (3) Assisting in the provision of emergency and transitional 
shelter for disadvantaged families, youths, and other individuals;
    (B) The goal of self-sufficiency, including reduction or prevention 
of dependencies, through one or more of the following program options:
    (1) Providing assistance to non-profit organizations and/or 
community and junior colleges that provide disadvantaged adults and 
youths with opportunities for short-term training courses in 
entrepreneurial and self employment skills and other training that 
promotes individual self-sufficiency, and the interest of the 
community;
    (2) Funding programs to provide training and employment for 
disadvantaged adults and youths in construction, rehabilitation or 
improvement of affordable housing, public infrastructure and community 
facilities; and
    (C) The goal of prevention or remedying the neglect, abuse or 
exploitation of children and/or adults unable to protect their own 
interest; and the goal of preservation, rehabilitation, or reuniting of 
families, through one or more of the following program options:
    (1) Providing support for residential or non-residential drug and 
alcohol prevention and treatment programs that offer comprehensive 
services for pregnant women, and mothers and their children;
    (2) Establishing programs that provide activities after school 
hours, including keeping school buildings open during evenings and 
weekends for mentor and study programs.
    (iii) Designated Empowerment Zone and Enterprise Communities may 
work to achieve or maintain the goals outlined in paragraphs 
(d)(12)(ii) (A) and (B) of this section by using EZ/EC SSBG funds to 
capitalize revolving or micro-enterprise loan funds which benefit low-
income residents of the designated Empowerment Zones and Enterprise 
Communities. Similarly, the Zones and Communities may work to achieve 
or maintain the goals outlined in paragraphs (d)(12)(ii) (A) and (B) of 
this section by using the EZ/EC SSBG funds to create jobs and promote 
economic opportunity for low-income families and individuals through 
matching grants, loans, or investments in community development 
financial institutions.
    (iv) If the EZ/EC SSBG funds are to be used for program options not 
included in paragraph (d)(12)(ii) of this section, the strategic plan 
must indicate how the proposed activities meet the goals set forth in 
paragraph (d)(12)(ii) of this section and the reasons the approved 
program options were not pursued.
    (v) To the extent that the EZ/EC SSBG funds are to be used for the 
program options included in paragraph (d)(12)(ii) of this section, they 
may be used for the following activities, in addition to those 
activities permitted by Section 2005 of the Social Security Act (42 
U.S.C. 1379d):
    (A) To purchase or improve land or facilities;
    (B) To make cash payments to individuals for subsistence or room 
and board; [[Page 3042]] 
    (C) To make wage payments to individuals as a social service;
    (D) To make cash payments for medical care; and
    (E) To provide social services to institutionalized persons.
    (vi) The State must obligate the EZ/EC SSBG funds in accordance 
with the strategic plan within 2 years from the date of payment to the 
State, or remit the unobligated funds to the Secretary of Health and 
Human Services (HHS).
    (vii) The strategic plan must indicate how all the EZ/EC SSBG funds 
will be invested and used for the period of designation of the 
Empowerment Zone or Enterprise Community.
    (viii) The strategic plan must provide for periodic reporting of 
information by the State in which the Empowerment Zone or Enterprise 
Community is located.
    (13) Indicate how tax benefits for designated Zones and 
Communities, State and local resources, existing Federal resources 
available to the locality and additional Federal resources believed 
necessary to implement the strategic plan will be utilized within the 
Empowerment Zone or Enterprise Community;
    (14) Indicate a level of commitment necessary to ensure that these 
resources will be available to the area upon designation;
    (15) Identify the Federal resources applied for or for which 
applications are planned; if a strategic plan indicates how Community 
Development Block Grant (CDBG), HOME, Emergency Shelter Grant, and 
Housing Opportunities for People with AIDS (HOPWA) funds will be 
expended (for the entire locality including the nominated area), the 
strategic plan will be considered by the Office of Community Planning 
and Development at HUD toward satisfying the consolidated planning 
requirements that will soon be issued for these programs;
    (16) Identify private resources and support, including assistance 
from business, non-profit organizations and foundations, which are 
available to be leveraged with public resources; and provide assurances 
that these resources will be made available to the area upon 
designation;
    (17) Identify changes necessary to Federal rules and regulations 
necessary to implement the plan, including specific paperwork or other 
Federal program requirements that must be altered to permit effective 
implementation of the strategic plan; and
    (18) Identify specific regulatory and other impediments to 
implementing the strategic plan for which waivers are requested, with 
appropriate citations and an indication whether waivers can be 
accomplished administratively or require statutory changes;
    (19) Demonstrate how State and local governments will reinvent 
themselves to help implement the plan, by identifying changes that will 
be made in State and local organizations, processes and procedures, 
including laws and ordinances;
    (20) Explain how different agencies in State and local governments 
will work together in new responsive ways to implement the strategic 
plan;
    (21) Identify the specific tasks and timetable necessary to 
implement the plan;
    (22) Describe the partnerships that will be established to carry 
out the plan;
    (23) Explain how the plan will be regularly revised to reflect new 
information and opportunities; and
    (24) Identify benchmarks and goals that should be used in 
evaluating performance in implementing the plan.
    (e) Prohibition against business relocation. The strategic plan may 
not include any action to assist any establishment in relocating from 
one area outside the nominated urban area to the nominated urban area, 
except that assistance for the expansion of an existing business entity 
through the establishment of a new branch, affiliate, or subsidiary is 
permitted if:
    (1) The establishment of a new branch, affiliate, or subsidiary 
will not result in a decrease in employment in the area of original 
location or in any other area where the existing business entity 
conducts business operations; and
    (2) There is no reason to believe that the new branch, affiliate, 
or subsidiary is being established with the intention of closing down 
the operations of the existing business entity in the area of its 
original location or in any other area where the existing business 
entity conducts business operations.
    (f) Implementation of strategic plan. The strategic plan may be 
implemented by the local government(s) and/or by the State(s) 
nominating an urban area for designation and/or by nongovernmental 
entities identified in the strategic plan. Activities included in the 
plan may be funded from any source, Federal, State, local, or private, 
which provides assistance in the nominated area.
    (g) Activities included in strategic plan. A strategic plan may 
include, but is not limited to, activities which address:
    (1) Economic problems, through measures designed to create job 
training and employment opportunities; support for business start-up or 
expansion; or development of community institutions;
    (2) Human concerns, through the provision of social services, such 
as rehabilitation and treatment programs or the provision of training, 
education, or other services within the affected area;
    (3) Community needs, such as the expansion of housing stock and 
homeownership opportunities, efforts to reduce homelessness, efforts to 
promote fair housing and equal opportunity, efforts to reduce and 
prevent crime and improve security in the area; and
    (4) Physical improvements, such as the provision or improvement of 
recreational areas, transportation or other public services within the 
affected area, and improvements to the infrastructure and environmental 
protection.


Sec. 597.201  Evaluating the strategic plan.

    The strategic plan will be evaluated for effectiveness as part of 
the designation process for nominated urban areas described in 
Sec. 597.301. On the basis of this evaluation, HUD may negotiate 
reasonable modifications of the strategic plan or of the boundaries of 
a nominated urban area or the period for which such designation shall 
remain in full effect. The effectiveness of the strategic plan will be 
determined in accordance with the four key principles set forth in 
Sec. 597.200(c). HUD will review each plan submitted in terms of the 
four equally weighted key principles, and of such other elements of 
these key principles as are appropriate to address the opportunities 
and problems of each nominated area which may include:
    (a) Economic opportunity. (1) The extent to which businesses, jobs, 
and entrepreneurship increase within the Zone or Community;
    (2) The extent to which residents will achieve a real economic 
stake in the Zone or Community;
    (3) The extent to which residents will be employed in the process 
of implementing the plan and in all phases of economic and community 
development;
    (4) The extent to which residents will be linked with employers and 
jobs throughout the entire region or metropolitan area, and the way in 
which residents will receive training, assistance, and family support 
to become economically self-sufficient;
    (5) The extent to which economic revitalization in the Zone or 
Community interrelates with the broader regional or metropolitan 
economies; and
    (6) The extent to which lending and investment opportunities will 
increase within the Zone or Community through [[Page 3043]] the 
establishment of mechanisms to encourage community investment and to 
create new economic growth.
    (b) Sustainable Community Development. (1) Consolidated planning. 
The extent to which the plan is part of a larger strategic community 
development plan for the nominating locality and is consistent with 
broader regional development strategies;
    (2) Public safety. The extent to which strategies such as community 
policing will be used to guarantee the basic safety and security of 
persons and property within the Zone or Community;
    (3) Amenities and design. The extent to which the plan considers 
issues of design and amenities that will foster a sustainable 
community, such as open spaces, recreational areas, cultural 
institutions, transportation, energy, land and water uses, waste 
management, environmental protection, and the quality of life in the 
community;
    (4) Sustainable development. The extent to which economic 
development will be achieved in a manner that protects public health 
and the environment;
    (5) Supporting families. The extent to which the strengths of 
families will be supported so that parents can succeed at work, provide 
nurture in the home, and contribute to the life of the community;
    (6) Youth development. The extent to which the development of 
children, youth, and young adults into economically productive and 
socially responsible adults will be promoted, and the extent to which 
young people will be provided with the opportunity to take 
responsibility for learning the skills, discipline, attitude, and 
initiative to make work rewarding;
    (7) Education goals. The extent to which schools, religious 
institutions, non-profit organizations, for-profit enterprises, local 
governments and families will work cooperatively to provide all 
individuals with the fundamental skills and knowledge they need to 
become active participants and contributors to their community, and to 
succeed in an increasingly competitive global economy;
    (8) Affordable Housing. The extent to which a housing component, 
providing for adequate safe housing and ensuring that all residents 
will have equal access to that housing is contained in the strategic 
plan;
    (9) Drug Abuse. The extent to which the plan addresses levels of 
drug abuse and drug related activity through the expansion of drug 
treatment services, drug law enforcement initiatives and community 
based drug abuse education programs;
    (10) Equal opportunity. The extent to which the plan offers an 
opportunity for diverse residents to participate in the rewards and 
responsibilities of work and service. The extent to which the plan 
ensures that no business within a nominated Zone or Community will 
directly or through contractual or other arrangements subject a person 
to discrimination on the basis of race, color, national origin, gender 
or disability in its employment practices, including recruitment, 
recruitment advertising, employment, layoff, termination, upgrading, 
demotion, transfer, rates of pay or other forms of compensation, or use 
of facilities.
    (c) Community-Based Partnerships. (1) Community partners. The 
extent to which residents of the nominated area have participated in 
the development of the strategic plan and their commitment to 
implementing it, and the extent to which community-based organizations 
in the nominated area have participated in the development of the plan 
and their record of success measured by their achievements and support 
for undertakings within the nominated area; and the extent to which the 
plan integrates the local educational, social, civic, environmental and 
health organizations and reflects the prominent place that these 
institutions play in the life of a revitalized community;
    (2) Private and non-profit organizations as partners. The extent to 
which partnership arrangements include commitments from private and 
non-profit organizations, including corporations, utilities, banks and 
other financial institutions, and educational institutions supporting 
implementation of the strategic plan;
    (3) State and local government partners. The extent to which State 
and local governments are committed to providing support to implement 
the strategic plan, including their commitment to ``reinventing'' their 
roles and coordinating programs to implement the strategic plan; and
    (4) Permanent implementation and evaluation structure. The extent 
to which a responsible and accountable implementation structure or 
process has been created to ensure that the plan is successfully 
carried out and that improvements are made throughout the period of the 
Zone or Community's designation and the extent to which the partners 
agree to be bound by their commitments.
    (d) Strategic vision for change. (1) Goals and Coordinated 
strategy. The extent to which the strategic plan reflects a projection 
for the community's revitalization which links economic, human, 
physical, community development and other activities in a mutually 
reinforcing, synergistic way to achieve ultimate goals;
    (2) Creativity and innovation. The extent to which the activities 
proposed in the plan are creative, innovative and promising and will 
promote the civic spirit necessary to revitalize the nominated area;
    (3) Building on assets. The extent to which the vision for 
revitalization realistically addresses the needs of the nominated area 
in a way that takes advantage of its assets;
    (4) Benchmarks and learning. The extent to which the plan includes 
performance benchmarks for measuring progress in its implementation, 
including an on-going process for adjustments, corrections and building 
on what works.


Sec. 597.202  Submission of nominations for designation.

    (a) General. A nomination for designation as an Empowerment Zone 
and/or Enterprise Community must be submitted for each urban area for 
which such designation is requested. The nomination shall be submitted 
in a form to be prescribed by HUD in the application and in the Notice 
Inviting Applications published in the Federal Register, and must 
contain complete and accurate information.
    (b) Certifications. Certifications must be submitted by the 
State(s) and local government(s) requesting designation stating that:
    (1) The nominated urban area satisfies the boundary tests of 
Sec. 597.100(d);
    (2) The nominated urban area is one of pervasive poverty, 
unemployment and general distress, as prescribed by Sec. 597.102;
    (3) The nominated urban area satisfies the poverty rate tests set 
forth in Sec. 597.103;
    (4) The nominated urban area contains no portion of an area that is 
either already designated as an Empowerment Zone and/or Enterprise 
Community, or is otherwise included in any other area nominated for 
designation as an Empowerment Zone and/or Enterprise Community;
    (5) Each nominating governmental entity has the authority to:
    (i) Nominate the urban area for designation as an Empowerment Zone 
and/or Enterprise Community;
    (ii) Make the State and local commitments required by 
Sec. 597.200(d); and
    (iii) Provide written assurances satisfactory to the Secretary that 
these commitments will be met.
    (6) Provide assurances that the amounts provided to the State for 
the [[Page 3044]] area under Section 2007 of Title XX of the Social 
Security Act will not be used to supplant Federal or non-Federal funds 
for services and activities which promote the purposes of Section 2007;
    (7) Provide that the nominating governments or corporations agree 
to make available all information requested by HUD to aid in the 
evaluation of progress in implementing the strategic plan and reporting 
on the use of Empowerment Zone/Enterprise Community Social Service 
Block Grant funds; and
    (8) Provide assurances that the nominating State(s) agrees to 
distribute the Empowerment Zone/Enterprise Community Social Service 
Block Grant funds in accordance with the strategic plan submitted for 
the designated Zone or Community.
    (c) Maps and area description. Maps and a general description of 
the nominated urban area shall accompany the nomination request.

Subpart D--Designation Process


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

    (a) Establishment of submission procedures. HUD will establish a 
time period and procedures for the submission of nominations for 
designation as Empowerment Zones or Enterprise Communities, including 
submission deadlines and addresses, in a Notice Inviting Applications, 
to be published in the Federal Register.
    (b) Acceptance for processing. (1) HUD will accept for processing 
those nominations for designation as Empowerment Zones or Enterprise 
Communities which HUD determines have met the criteria required by this 
Part. HUD will notify the State(s) and local government(s) whether or 
not the nomination has been accepted for processing. The criteria for 
acceptance for processing are as follows:
    (2) The nomination for designation as an Empowerment Zone or 
Enterprise Community must be received by HUD on or before the time on 
the date established by the Notice Inviting Applications published in 
the Federal Register. The nomination for designation as an Empowerment 
Zone or Enterprise Community must be complete and must be accompanied 
by a strategic plan, as required by Sec. 597.200(c), and the 
certifications required by Sec. 597.202(b).
    (c) Evaluation of nominations. In the process of reviewing each 
nomination accepted for processing, HUD may undertake a site visit(s) 
to any nominated area to aid in the process of evaluation.
    (d) Modification of the strategic plan, boundaries of nominated 
urban areas, and/or period during which designation is in effect. 
Subject to the limitations imposed by Sec. 597.100, HUD may negotiate 
reasonable modifications of the strategic plan, the proposed boundaries 
of a nominated urban area, or the term for which a designation is to 
remain in full effect, to ensure maximum efficiency and fairness in the 
provision of assistance to such areas.
    (e) Publication of designations. Announcements of those nominated 
urban areas designated as Empowerment Zones or Enterprise Communities 
will be made by publication of a Notice in the Federal Register.


Sec. 597.301  Selection factors for designation of nominated urban 
areas.

    (a) Selection factors. In choosing among nominated urban areas 
eligible for designation, the Secretary shall consider:
    (1) The effectiveness of the strategic plan in accordance with the 
key principles and evaluative criteria set out in Sec. 597.201;
    (2) The effectiveness of the assurances made pursuant to 
Sec. 597.200(a)(2) that the strategic plan will be implemented;
    (3) The extent to which an application proposes activities that are 
creative and innovative in comparison to other applications; and
    (4) Such other factors established by HUD. Such factors include, 
but are not limited to, the degree of need demonstrated by the 
nominated area for assistance under this part. If other factors are 
established by HUD, a Federal Register notice will be published 
identifying such factors, along with an extension of the application 
due date if necessary.
    (b) Geographic diversity. HUD, in its discretion, may choose to 
select for designation a lower rated approvable application over a 
higher rated application in order to increase the level of geographic 
diversity of designations approved under this part.


Sec. 597.302  Number of Empowerment Zones and Enterprise Communities 
designated.

    (a) Empowerment Zones. HUD will designate up to six of the 
nominated urban areas as Empowerment Zones, provided: that if six such 
zones are so designated, no less than one shall be designated in an 
urban area the most populous city of which has a population of 500,000 
or less and no less than one shall be a nominated urban area which 
includes areas in two States and which has a population of 50,000 or 
less.
    (b) Enterprise Communities. HUD will designate up to 65 of the 
nominated urban areas not designated Empowerment Zones under paragraph 
(a) of this section as Enterprise Communities.

Subpart E--Post-Designation Requirements


Sec. 597.400  Reporting.

    HUD will require periodic reports for the Empowerment Zones and 
Enterprise Communities designated pursuant to this part. These reports 
will identify the community, local government and State actions which 
have been taken in accordance with the strategic plan. In addition to 
these reports, such other information relating to designated 
Empowerment Zones and Enterprise Communities as HUD shall request from 
time to time, including information documenting nondiscrimination in 
hiring and employment by businesses within the designated Empowerment 
Zone or Enterprise Community, shall be submitted promptly.


Sec. 597.401  Periodic performance reviews.

    HUD will regularly evaluate the progress of the strategic plan in 
each designated Empowerment Zone and Enterprise Community on the basis 
of performance reviews to be conducted on site and other information 
submitted. HUD will also commission evaluations of the Empowerment Zone 
program as a whole by an impartial third party, at such intervals as 
HUD may establish.


Sec. 597.402  Validation of designation.

    (a) Reevaluation of designations. On the basis of the performance 
reviews described in Sec. 597.401, and subject to the provisions 
relating to the revocation of designation appearing at Sec. 597.403, 
HUD will make findings on the continuing eligibility for and the 
validity of the designation of any Empowerment Zone or Enterprise 
Community. Determinations of whether any designated Empowerment Zone or 
Enterprise Community remains in good standing shall be promptly 
communicated to all Federal agencies providing assistance or 
administering programs under which assistance can be made available in 
such Zone or Community.
    (b) Modification of designation. Based on an urban area's success 
in carrying out its strategic plan, and subject to the provisions 
relating to revocation of designation appearing at Sec. 597.403 and the 
requirements as to the number, maximum population and other 
characteristics of urban Empowerment Zones set forth in Sec. 597.3, the 
Secretary may modify designations by reclassifying urban Empowerment 
[[Page 3045]] Zones as Enterprise Communities or Enterprise Communities 
as Empowerment Zones.


Sec. 597.403  Revocation of designation.

    (a) Basis for revocation. The Secretary may revoke the designation 
of an urban area as an Empowerment Zone or Enterprise Community if the 
Secretary determines, on the basis of the periodic performance review 
described at Sec. 597.401, that the State(s) or local government(s) in 
which the urban area is located:
    (1) Has modified the boundaries of the area;
    (2) Has failed to make progress in achieving the benchmarks set 
forth in the strategic plan; or
    (3) Has not complied substantially with the strategic plan.
    (b) Letter of warning. Before revoking the designation of an urban 
area as an Empowerment Zone or Enterprise Community, the Secretary will 
issue a letter of warning to the nominating State(s) and local 
government(s):
    (1) Advising that the Secretary has determined that the nominating 
local government(s) and/or State(s) has:
    (i) Modified the boundaries of the area; or
    (ii) Is not complying substantially with, or has failed to make 
progress in achieving the benchmarks set forth in the strategic plan 
prepared pursuant to Sec. 597.200(c); and
    (2) Requesting a reply from all involved parties within 90 days of 
the receipt of this letter of warning.
    (c) Notice of revocation. After allowing 90 days from the date of 
receipt of the letter of warning for response, and after making a 
determination pursuant to paragraph (a) of this section, the Secretary 
may issue a final notice of revocation of the designation of the urban 
area as an Empowerment Zone or Enterprise Community.
    (d) Notice to affected Federal agencies. HUD will notify all 
affected Federal agencies providing assistance in an urban Empowerment 
Zone or Enterprise Community of its determination to revoke any 
designation pursuant to this section or to modify a designation 
pursuant to Sec. 597.402(b).

Subpart F--Special Rules


Sec. 597.500  Indian Reservations.

    No urban Empowerment Zone or Enterprise Community may include any 
area within an Indian reservation.


Sec. 597.501  Governments.

    If more than one State or local government seeks to nominate an 
urban area under this part, any reference to or requirement of this 
part shall apply to all such governments.


Sec. 597.502  Nominations by economic development corporations or the 
District of Columbia.

    Any urban area nominated by an Economic Development Corporation 
chartered by the State in which it is located or by the District of 
Columbia shall be treated as nominated by a State and local government.


Sec. 597.503  Use of census data.

    Population and poverty rate data shall be determined by the most 
recent decennial census data available.

    Dated: December 2, 1994.
Andrew Cuomo,
Assistant Secretary for Community Planning and Development.
[FR Doc. 95-734 Filed 1-11-95; 8:45 am]
BILLING CODE 4210-29-P