Questions and Answers from the
Empowerment Zones: Round II
Q. What is Round II?
A. On August 5, 1997 President Clinton signed the Taxpayer Relief Act of 1997, which establishes a second round of designations for 15 new Empowerment Zones. Applications for Round II designations will be due by October 9, 1998. Designations will be announced prior to January 1, 1999.
Q. What material is available to assist applying communities?
A. We have several items that will assist Round II: 1) Notice Inviting Applications: Second Round Designation of 15 Urban Empowerment Zones, 2) Empowerment Zones: Rule for Round II Designation, 3) Application Forms, 4) Application Guide, 5) Strategic Planning Guide, 6) Performance Measurement System Guide, 7) Federal Programs Guide, 8) IRS Brochure 954 "Tax Incentives for Empowerment Zones and Other Distressed Communities, 9) "What Works!" in Empowerment Zones and Enterprise Communities 10) U.S. Department of Health and Human Services Preliminary Guidelines: Round II EZ/EC SSBG Grants for Empowerment Zones. These materials are available at HUD's urban EZ/EC web site (http://www.hud.gov/nofa/ez/nofaez.html)or by calling 1-800-998-9999.
Q. Where can we get a copy of the legislation?
A. We do not have copies available for distribution from this office. However, all pertinent provisions are included in the interim regulations pertaining to Round II, which are available from the sources indicated in Question 2. The Enrolled Bill as sent to the President may be downloaded at the following web site: http://thomas.loc.gov (H.R.2014.ENR is the Enrolled Bill sent to the President to be signed into law. Portions relating to the Empowerment Zone Initiative were not subjected to any line item vetoes-See title IX, subtitle F).
Q. When was Round II announced?
Round II was announced by the Vice President at the National Conference of Black Mayors in New Orleans, Louisiana on April 16, 1998.
Q. When are applications due?
Applications for both rural and urban designations are due October 9,1998. USDA and HUD will designate Round II Empowerment Zones by January 1, 1999.
Q. How much money is available for Round 2?
None at this time; however, the President requested $1.7 billion for Round II funding. This would provide fifteen urban zones with $100 Million over ten years, the same level as in Round 1. Five rural zones would receive $40 million over ten years.
Congress has not yet appropriated these funds; however, funding bills have been introduced in the House and the Senate. The bill (H.R. 3622) was introduced in the U.S. House of Representatives on April 1, 1998, by Representative Charles B. Rangel of New York. In the Senate, the bill (S.1927) was introduced on April 2, 1998 by Senator Carol Moseley-Braun of Illinois.
Q. Can you put me on your mailing list?
A. Yes. Please call 1-800-998-9999 and provide your name, address, telephone and fax numbers, and if possible, e-mail address for our mailing list. If you registered to attend one of the Application Workshops, you will automatically be added to the mailing list and do not need to give us your name again.
Q. How can I stay in touch about announcements, etc.?
A. If you have access to the Internet, visit the EZ/EC web site at http://www.ezec.gov (Click on Round II Urban Designations) for up-to-date information on Round II. Otherwise, call us toll free at (800) 998-9999 to put yourself on our mailing list or ask questions as necessary. If you intend to apply, please submit a Notice of Intent to Participate by mail or via the EZ/EC web site.
Questions about the Application Process
Q. Who should be involved in putting together the application?
A. It is up to each community to develop their own approach to doing the application; however, it should be emphasized that the involvement of key partners during the application process is critical to the design of a successful application. In Round I, successful teams included residents, members of the non-profit community, state and local government officials, business people, philanthropic organizations, educational institutions, faith-based organizations and many other players representing all parts of the community.
A. The application must be nominated by the state and local governing entities and therefore, should pass through the appropriate offices.
Q. What model of strategic planning should we use?
A. There are many models for developing strategic plans. Applicants should use the approach they prefer. However, the process must be open and inclusive. HUD has published a Strategic Planning Guide to assist you in this process. No one process is required. You can obtain a copy of the HUD Strategic Planning Guide on the EZ/EC web site (http://www.hud.gov) or by calling (800) 998-9999.
Q. Can EZs and ECs use their 1994 SSBG funds to pay for Round II application preparation?
Q. Must the census tract maps included in the application be originals, or may color copies be used?
A. One set of original census tract outline maps must be included in each copy of the application you submit. Any additional maps used in the application may be copies of the census tract maps, GIS generated maps, or any other map that explains or augments information in the application
Questions about Eligibility
Q. Are Enterprise Communities and Champion Communities eligible for Round II?
A. Yes, Enterprise Communities and Champion Communities may apply for Round II, provided that they meet all of the eligibility requirements.
Q. Do you have to be an Enterprise Community or Champion Community to be eligible?
A. No, any community that meets the eligibility criteria is eligible to apply.
Q. What evidence must an Economic Development Corporation include in the application demonstrating its eligibility to nominate an area?
A. The Economic Development Corporation should include some form of documentation from the State (or the District of Columbia) showing that it is chartered by the State in which it is located.
Q. If an area nominated by a State chartered Economic Development Corporation is treated as a nomination by a state and local government, may the EDC nominate eligible areas in several separate jurisdictions?
Questions Regarding Census Tracts
Q. Can 2 census tracts be contiguous if they are separated by a river?
A. The Census Bureau considers that the tracts are contiguous if it is only the river that separates them.
Q. What census tracts can be included in the nominated Empowerment Zone area?
A. The Empowerment Zone area may include all census tracts that meet the eligibility criteria; however, there is a prohibition against including any census tracts that are currently included in a federal Empowerment Zone as designated in 1994.
Q. Can we use updated census tract information in our application if we have reason to believe the 1990 census data is no longer accurate?
A. 1990 Census data is the only acceptable source of this information for determination of eligibility. It will not be possible for us to consider any other census data in the application. However, if you feel that it is necessary to explain changes that are not reflected in the 1990 census data, you may describe these updates as part of your strategic plan.
Questions Regarding Population Criteria
Q. If a county otherwise without a city joins with a small city, must the city's population be considered when applying the alternative population test?
A. The statute requires that the population of the nominated area not exceed the lesser of 1) 200,000 or 2) the greater of 50,000 or 10 percent of the population of the most populous city located within the nominated area. Even if the county does not contain a city, if it joins with a city as a participating nominating entity for an urban area extending into both jurisdictions, the city is within the nominated area and 10 percent of its population or 50,000, whichever is greater (subject to the overall limit of 200,000) will establish the maximum population for the nominated area.
Questions about How the Application will be Evaluated
Q. Are there preferences for higher poverty? A. All communities must satisfy the poverty criteria specified in the Rule: Urban Empowerment Zones; Round II. The eligibility requirements (598.100) require that a nominated urban area is one of pervasive poverty, unemployment and general distress. Points are given for the Community Assessment part of the Strategic Plan. Within this element, applicants may describe and assess existing conditions and trends in the community and the surrounding region. Levels of distress should be discussed within this section. However, actual points will not be given based on levels of distress.
Q. What will be the process for evaluating applications?
A. A threshold review will be conducted to ensure the eligibility requirements are satisfied. Applications determined eligible will receive a technical review under the rating factors described in Section IV of the Notice Inviting Applications. Applications will be evaluated against the rating factors, then placed in rank order. Evaluation and ranking of applications will be made relative to other applications received. To review and evaluate applications, the Department may establish panels including employees of other Federal agencies to obtain certain expertise and outside points of view. These panels will be making recommendations to the Secretary of Housing and Urban Development.
Questions about Developable Sites
Q. Does the population in the developable site count toward your total population?
A. No, any population in a developable site will not count toward the overall population of your nominated zone. However, developable sites must be for commercial or industrial use.
Q. What is the main purpose of developable sites?
A. The square mileage limitations of the areas designated as EZs (20 square miles for urban areas and 1,000 square miles for rural areas) can be expanded to allow the Zones to include an additional 2,000 acres of property called "developable sites." This additional acreage must be used for commercial and industrial purposes only. This is a terrific new opportunity allowing communities to link their Zones with other areas that can provide jobs for Zone residents. Examples of developable sites include ports, transportation and railway hubs, dilapidated buildings, brownfields, and former military bases. Typically, these and other sites would be targeted for an economic development project that will employ zone residents.
Q. Can the Section 179 deduction be claimed in developable sites?
A. No. The law does not permit the increased expensing under Section 179 in developable sites.
Q. If any part of a developable site is located in a central business district (CBD), must that site meet the requirement that the poverty rate be not less than 35%?
A. No. The poverty requirements do not apply to a developable site located in a CBD.
Q. If a developable site is located outside of the nominating jurisdiction, does the jurisdiction in which the developable site is located have to sign the application?
A. Yes. The nominated area (including any developable sites included as part of the nominated area) must be nominated by the local government(s) and the state(s) in which the area is located.
Q. What information for developable sites must be included in the application�s Population Data Form (HUD-40003)?
A. The census tract number(s) in which the developable site is located, and the special code for developable sites should be included. Population, poverty, and size data is not provided for developable sites.
Q. Do you have any further guidance on the uses of developable sites?
A. The Taxpayer Relief Act of 1997 contains complex language related to "developable sites." The following guidance is intended to help clarify the uses and definition of developable sites for the Round II EZ competition.
Questions about Post-designation
Q. Who will participate in the Memorandum of Agreement? A. The Memorandum of Agreement will be developed between the local government, the State agency, and the Department of Housing and Urban Development, unless someone else is designated on behalf of the local government.
Q. Will communities who are not designated get anything?
A. Many communities reported that the process of designing an application itself was helpful in constructing an effective plan for revitalization and in getting all stakeholders involved. Helped by the leveraging of resources that became a part of designing an application, some of these communities went ahead and implemented their plans even without receiving EZ designation.
Q. How do you begin and sustain communication throughout the application process? How do you communicate to the whole community?
A. Make communication a continual priority throughout your planning process. Design a broad-based outreach strategy, using all forms of available media and technology. An effective media strategy might include producing a local newsletter and establishing a local website or chat-line to provide information to community members. Communities might team with a local news organization to promote planning meetings and activities in the EZ. Experience suggests that the best way to sustain communication is to "go where the people are." Some EZs have held meetings at public events, church meetings, even half-time at high school football games to ensure that community members are kept informed and given information about how to get involved in the process.
Questions about HHS SSBG Funding
Q. In designing our strategic plans, should we assume that we will get the $100 million in HHS SSBG funds?
A. Yes, for planning purposes, your application for Empowerment Zone designation should assume that you will receive $100 million ($10 million per year for ten years).
Q. Can SSBG be used as match dollars for other federal grants?
A. No, because SSBG is a federal source of funds, it cannot be used to match other federal dollars.
Q. Will designations happen even if Congress does not approve the EZ/EC SSBG funding for Round II?
A. Yes, if Congress does not approve funding, we will still designate the fifteen new urban zones and five new rural zones and offer them the benefit of the tax incentives.
Q. How soon will we know about the availability of SSBG funds?
Questions Regarding the Leveraging of Commitments
Q. Does the waiving of local fees, either by local government or utility companies or some similar entity, count as a commitment?
Questions about Central Business Districts
Q. What is the definition of the Central Business District?
A. The Central Business District is defined by the U.S. Bureau of the Census. Consult the 1982 Census of Retail Trade, RC82-C-5, Major Retail Centers in Standard Metropolitan Statistical Areas, publication for your State/metropolitan area for current designation of Central Business Districts. State data centers should have this publication.
Questions about HUD's Available Technical Assistance
Q. As communities are preparing their applications, will there be separate conferences on Strategic Planning?
A. There will not be any separate conferences on Strategic Planning; however, during the month of June, HUD will be doing a Satellite Broadcast on Strategic Planning. Satellite Broadcasts on Governance and Leveraging Commitments will follow in July and August.
Questions about Round II Tax Incentives
Q. What tax benefits/breaks do we get as an EZ as opposed to what we got as an EC?
A. As an Empowerment Zone designated in the Second Round, you will receive two primary tax benefits: tax-exempt bond financing and Section 179 expensing. The tax-exempt bonds have several exciting features. First, the amount of bonding authority available is significant. Designated Zones will populations of 100,000 or more will be eligible to issue up to $230 million in bonds. Zones with populations under 100,000 will be able to issue up to $130 million in bonds.
The other exciting feature is that the bonds are not subject to the State cap on private activity bonds or special limits on issue size. Having $130-230 million in lower-interest funding provides communities with a significant resource for creating economic activity in their Zones.
Section 179 expensing allows businesses to deduct, up to a maximum of $37,500, all or part of the cost of certain qualifying property in the year it is placed in service.
In addition, as an Empowerment Zone, you will be eligible for a variety of other tax incentives targeted to distressed communities, such as: Environmental Cleanup Cost Deduction (Brownfields Tax Incentive); Welfare to Work Tax Credit; Qualified Zone Academy Bonds; and Work Opportunity Tax Credit.
Q. How are qualified zone businesses defined in this Round?
A. In general, a business is a qualified zone business if 1) every trade or business of the corporation or partnership is the active conduct of a qualified business within an empowerment zone; 2)at least 50% (80% for tax years beginning before August 5, 1997) of its total gross income is from the active conduct of a qualified business within the Zone, 3) a substantial part of the use of its tangible property is within a zone, 4) a substantial part of its intangible property is used in the active conduct of the business, 5) a substantial part of the employees' services are performed within a zone, 6) at least 35% of the employees are residents of an empowerment zone, and 7) less than 5% of the average of the total unadjusted bases of the property owned by the business is from a) certain financial property, or b) collectibles not held primarily for sale to customers. Please refer to the IRS Publication 954, "Tax Incentives for Empowerment Zones and Other Distressed Communities", for a complete definition of EZ businesses and its applicability to the different tax incentives.
Q. Is the $130 million in bonding authority available over the 10-year life of the program?
Q. Will the Welfare to Work Tax Credit be extended?
Questions about Qualified Zone Academy Bonds
Q. Can private universities satisfy the business partner requirement for the Qualified Zone Academy Bonds?
A. Yes, as private for-profit organizations, private universities may participate as business partners for Qualified Zone Academy Bonds. For more information on how to use these bonds, contact your State Education Agency.
Q. Who is eligible for the Qualified Zone Academy Bonds?
A. Schools in Empowerment Zones and Enterprise Communities, as well as schools where at least 35 % of the students qualify for free and reduced lunch.
Q. What can QZABs be used for?
A. At least 95% of the proceeds from the bond issue are to be used to do any of the following for the qualified zone academy: a) rehabilitate or repair its facility; b) obtain equipment; c) develop course materials; and d) train teachers or other personnel.
Q. Can Qualified Zone Academy Bonds be used by both public and private schools?
Questions Regarding Applicants who are now Enterprise Communities
Q. Can current ECs change their nominating entity in applying for EZ status?
A. Yes, ECs will be submitting an entirely new application for the Empowerment Zone designation; therefore, changing nominating entities is possible. However, applicants are still required to have their application signed by the appropriate nominating entities on both the local and State levels. Nominating entities must be: 1) a local government and 2) one of the following: a nominating State government, tribal governing body, or a State Chartered Economic Development Corporation.
Q. Can an EC change its boundaries in applying for an EZ?
A. Yes, the application for Empowerment Zone designation is entirely separate from the EC application; therefore, the boundaries for the proposed Empowerment Zone do not need to be the same as those for the Enterprise Community. The boundaries, however, must meet all of the eligibility criteria.
Q. If an EC receives a designation as an Empowerment Zone in Round II, will it continue its EC program after designation?
A. Current ECs who receive EZ designation will need to consider their EZ designation as separate from the Enterprise Community program. While we would expect that the activities proposed within the EZ strategic plan will flow out of programs designed and implemented through the Enterprise Community, the EZ would still be required to account for EC funds and activities separately from its EZ funds and activities.
Current ECs applying for EZ designation are encouraged to include a chart in their application, showing a side-by-side comparison of the current EC activities and the proposed EZ activities. This side-by-side should make it clear how the EZ relates to or builds upon activities begun under the Enterprise Community program.
Question Regarding the Design of the Governance Board
Q. Who must sit on the Governance Board?
A. HUD does not require any particular governance board composition. The design of your Board is at your discretion; however, we have found that the most successful boards: 1) are of a manageable size, usually no more than 30 people, 2) include representatives from all key stakeholder groups, such as government, business, non-profit organizations, educational institutions, faith-based organizations, philanthropic organizations and residents, 3) have established a clear process for decisionmaking that is known to all parties involved and 4) have strong leadership and skilled staff. The design of the Governance Board should be discussed in your "Governance Plan" within your Strategic Plan submission.
Questions Regarding the Role of the State
Q. Will the role of the State be better defined in Round II?
A. Yes, if we receive SSBG funds under Round II, HHS will work with the states to better define their role as the pass-through agent for these funds. Please remember that the designated State entity must nominate the area and therefore, must sign the Empowerment Zone application.
Q. What are the chances of getting two EZs in one State?
A. No rule exists that would prevent any State from having more than one Empowerment Zone.
Q. How will states be involved in Round II?
A. States must sign the Round II Empowerment Zone application. States are valuable sources of financial and technical assistance for communities, and they should not be overlooked during the planning process. If the SSBG funds are approved by Congress, the State will serve as the entity through which funds will be passed to the Empowerment Zone.
Questions Regarding One Stop Capital Shops and Weed And Seed
Q. Is it necessary to submit a separate application to SBA to become a One Stop Capital Shop?
A. No, SBA has committed to putting One Stop Capital Shops in communities designated as Empowerment Zones in Round II. The Strategic Plan of your EZ application will also serve as your One Stop Capital Shop application. Your Strategic Plan should include a specific plan for the creation and operation of a One Stop Capital Shop. For more information, please contact the Small Business Administration District Director in your area or see the SBA website at www.sba.gov.
Q. Is it necessary to submit a separate application to Justice for Weed and Seed?
A. Yes, the Department of Justice has asked that communities complete a regular Weed and Seed application. The Department has committed to giving preference to designated Empowerment Zones in selecting Weed and Seed sites. If you will be seeking a Weed and Seed grant, crime prevention strategies and community-based policing initiatives should be part of your Strategic Plan.
Questions About Poverty Rates
Q. Our nominated area will consist of 3 noncontiguous parcels. How do I calculate the poverty rates to meet the requirement that 90% of the tracts must have a poverty rate not less than 25%?
A. First, the poverty rate for each complete census tract is determined from the Bureau of the Census CPH-3 Tables 1 and 19. Each noncontiguous area must separately meet the 90% requirement. The 90% is applied to numbers of census tracts. For example, if 9 of 10 tracts in a parcel meet the 25% requirement, 90% of the tracts qualify. However, in a parcel of 8 tracts, where 7 meet the 25% poverty requirement, the percentage is calculated at 87.5% Because the percentage of tracts with 25% poverty is less than 90%, all 8 census tracts would have to meet the 25% rule. Similarly, if an area consisted of 26 census tracts, 24 would be required to have at least 25% poverty. There are no provisions for rounding up the number of census tracts.
Q. If a census tract with a population of less than 2,000 has a poverty rate of at least 25%, must it meet the special rules requiring zoning and contiguity to other poverty tracts?
A. No. If the census tract has at least 25% poverty, it may qualify under the general rules requiring at least 90% of tracts to have at least a 25% poverty rate. In completing the Population Data Form (Part IV), such tracts should be listed without using the Special Code for tracts with less than 25% poverty.
Q. Why should I spend a large amount to build a new plan when I can spend it more wisely in my community on things that have a real chance at success?
A. A strategic plan should not cost that much. Communities should look to technical assistance available to them from regional planning agencies, extension services, universities, and businesses. A strategic plan is the heart of a community's development process. All communities need comprehensive (economic, social, civic, etc.) and long-term plans that set out a road map for development. Developing a strategic plan will enhance a community's development efforts, even if it does not secure Empowerment Zone designation. This alone can make it worth the effort.
Q. Are projects in the Zone eligible for EZ/EC bonus points in the SuperNOFA?
A. The HUD SuperNOFA provides for the award of up to 2 bonus points for eligible activities/ projects that are proposed to be located in federally designated Empowerment Zones, Enterprise Communities and Urban Enhanced Enterprise Communities, and serve the EZ/EC residents, and are certified to be consistent with the strategic plan of the EZs and ECs. The SuperNOFA application kit contains a certification which must be completed for the application to be considered for EZ/EC bonus points.
Q. Since my community already prepared a strategic plan for Round I, can we just submit that plan for Round II consideration?
A. Although there is no prohibition against submitting your Round I plan, if that plan was prepared in 1994, it probably should be updated. The strategic plan must reflect current community priorities, organizational partnerships, and reinvigorated citizen participation. In the event that any new area is being included, residents of those census tracts would need an opportunity to participate fully in the planning process.
Q. If we hire a consultant to produce a plan for us, will it increase our chances of getting designated?
A. Not necessarily. The most competitive plans will involve extensive citizen participation and reflect true local values and goals. While a consultant may be helpful in organizing the community to identify its goals, a plan produced by a consultant without that community involvement would most likely not be competitive.
Q. Are communities that are not current Enterprise Communities at a disadvantage in applying for Round II EZ designation?
A. No. Applications will be evaluated based on the Quality of the Strategic Plan and the Quality of Commitments. No preference will be given to communities currently designated as Enterprise Communities.
Q. As we decide how to involve resource partners in our strategic plan, does HUD prefer that we involve any particular partner over another?
A. No, the partners you choose and how you involve them is entirely at the discretion of the individual community. HUD encourages you to involve a broad array of partners in your planning process. Residents, in particular, will play a critical role in offering the perspective of what it is like to live, work and do business in the Zone.
Q. Once an area is designated, how long will it be before implementation can begin?
A. After a designation is made on or before January 1, 1999, we expect very little lag time before implementation begins. Communities should be prepared to begin implementation once the designation is made. The specific schedule for implementation depends on the readiness of the local community to get started.
Q. Will packaging the document in a special way or providing accessories such as videos make our application more competitive?
A. No, although HUD wishes to see an application that is creative and unique to your community, your are discouraged from spending time and resources on the production of videos or fancy packaging. The only factors to be evaluated in your application are those set forth in the Notice Inviting Applications. At the same time, the application should be clear and concise and, if possible, no more than 150 pages.
Q. Is Puerto Rico eligible for Round II?
A. No. Only areas within the jurisdiction of state governments are eligible; therefore, Puerto Rico, Guam and the Virgin Islands are not eligible for Round II Empowerment Zone designation.