Statutorily Mandated Designation of Difficult Development Areas for Section 42 of the Internal Revenue Code of 1986: Supplemental Designation Under the Gulf Opportunity Zone Act of 2005, 9676-9689 [06-1708]

Download as PDF 9676 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices User at (800) 245–2691 for a small fee to cover duplication and mailing costs. Copies Available Electronically: This notice and additional information about DDAs and QCTs are available electronically on the Internet at http:// www.huduser.org/datasets/qct.html. SUPPLEMENTARY INFORMATION: DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT [Docket No. FR–4889–N–06] Statutorily Mandated Designation of Difficult Development Areas for Section 42 of the Internal Revenue Code of 1986: Supplemental Designation Under the Gulf Opportunity Zone Act of 2005 Office of the Secretary, HUD. Notice. AGENCY: cchase on PROD1PC60 with NOTICES3 ACTION: SUMMARY: This document designates ‘‘Difficult Development Areas’’ (DDAs) for purposes of the Low-Income Housing Tax Credit (LIHTC) under section 42 of the Internal Revenue Code of 1986 (the Code) (26 U.S.C. 42) as amended by the Gulf Opportunity Zone Act of 2005 (Pub. L. 109–135; the GO Zone Act). The United States Department of Housing and Urban Development (HUD) makes new Difficult Development Area designations annually and is making a supplemental designation at this time because of changes in the program enacted in the GO Zone Act. The designations of ‘‘Qualified Census Tracts’’ (QCTs) under section 42 of the Internal Revenue Code published December 12, 2002, as supplemented on December 19, 2003, remain in effect. FOR FURTHER INFORMATION CONTACT: For questions on how areas are designated and on geographic definitions, contact Kurt G. Usowski, Associate Deputy Assistant Secretary for Economic Affairs, Office of Policy Development and Research, Department of Housing and Urban Development, 451 Seventh Street, SW., Washington, DC 20410– 6000, telephone (202) 708–2770, or send e-mail to Kurt_G._Usowski@hud.gov. For specific legal questions pertaining to Section 42, contact Branch 5, Office of the Associate Chief Counsel, Passthroughs & Special Industries, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC 20224, telephone (202) 622–3040, fax (202) 622–4753. For questions about the ‘‘HUB Zones’’ program, contact Michael P. McHale, Assistant Administrator for Procurement Policy, Office of Government Contracting, Small Business Administration, 409 Third Street, SW., Suite 8800, Washington, DC 20416, telephone (202) 205–8885, fax (202) 205–7167, or send e-mail to hubzone@sba.gov. A text telephone is available for persons with hearing or speech impairments at (202) 708–9300. (These are not toll-free telephone numbers.) Additional copies of this notice are available through HUD VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 This Document This notice designates DDAs for each of the 50 states, the District of Columbia, Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands. The designations of DDAs in this notice are based on final Fiscal Year (FY) 2005 Fair Market Rents (FMRs), 2005 income limits, and 2000 Census population counts as explained below. HUD is making a supplemental designation at this time because of changes in the program enacted in the GO Zone Act. Specifically, the GO Zone Act provides that areas determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma shall be treated as DDAs designated under subclause (I) of Internal Revenue Code section 42(d)(5)(C)(iii) (i.e., areas designated by the Secretary of HUD as having high construction, land, and utility costs relative to area median gross income (AMGI)), and shall not be taken into account for purposes of applying the limitation under subclause (II) of such section (i.e., the 20 percent cap on the total population of designated areas). This notice lists the affected areas described in the GO Zone Act. Some of the areas made DDAs under the GO Zone Act were designated as DDAs for 2006 on the basis of having high housing cost relative to income. When their populations are exempted from the computation of total population in areas previously designated as DDAs for 2006, this population falls well below the statutory 20 percent cap. Therefore, this notice designates additional 2006 DDAs where the Secretary of HUD finds that construction, land, and utility costs are high relative to AMGI. The designations of QCTs under section 42 of the Internal Revenue Code published December 12, 2002 (67 FR 76451), as supplemented on December 19, 2003 (68 FR 70982), remain in effect. 2000 Census Data from the 2000 Census on total population of metropolitan areas and nonmetropolitan areas are used in the designation of DDAs. The Office of Management and Budget (OMB) PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 published new metropolitan area definitions incorporating 2000 Census data in OMB Bulletin No. 03–04 on June 6, 2003, as updated in OMB Bulletin No. 04–03 on February 18, 2004, and OMB Bulletin No. 05–02 on February 22, 2005. The FY2005 FMRs and 2005 income limits used to designate DDAs are based on the Metropolitan Statistical Area (MSA) and Primary Metropolitan Statistical Area (PMSA) definitions established by OMB in OMB Bulletin No. 99–04 on June 30, 1999. Therefore, for the purposes of designating DDAs, ‘‘metropolitan areas’’ will continue to be defined according to the MSA/PMSA definitions established in OMB Bulletin No. 99–04 on June 30, 1999, until further notice. Background The U.S. Department of the Treasury (Treasury) and its Internal Revenue Service (IRS) are authorized to interpret and enforce the provisions of the Code, including the LIHTC found at section 42 of the Code. The Secretary of HUD is required to designate DDAs and QCTs by section 42(d)(5)(C) of the Code. In order to assist in understanding HUD’s mandated designation of DDAs and QCTs for use in administering section 42, a summary of the section is provided. The following summary does not purport to bind Treasury or the IRS in any way, nor does it purport to bind HUD, as HUD has authority to interpret or administer the Code only in instances where it receives explicit delegation. Summary of Low-Income Housing Tax Credit The LIHTC is a tax incentive intended to increase the availability of lowincome housing. Section 42 provides an income tax credit to owners of newly constructed or substantially rehabilitated low-income rental housing projects. The dollar amount of the LIHTC available for allocation by each state (credit ceiling) is limited by population. Each state is allowed a credit ceiling based on a statutory formula indicated at section 42(h)(3). States may carry forward unallocated credits derived from the credit ceiling for one year; however, to the extent these unallocated credits are not used by then, the credits go into a national pool to be redistributed to states as additional credit. State and local housing agencies allocate the state’s credit ceiling among low-income housing buildings whose owners have applied for the credit. Besides section 42 credits derived from the credit ceiling, states may also provide section 42 credits to owners of buildings based on the percentage of certain building E:\FR\FM\24FEN3.SGM 24FEN3 cchase on PROD1PC60 with NOTICES3 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices costs financed by tax-exempt bond proceeds. Credits provided under the tax-exempt bond ‘‘volume cap’’ do not reduce the credits available from the credit ceiling. The credits allocated to a building are based on the cost of units placed in service as low-income units under certain minimum occupancy and maximum rent criteria. In general, a building must meet one of two thresholds to be eligible for the LIHTC: either 20 percent of the units must be rent-restricted and occupied by tenants with incomes no higher than 50 percent of the AMGI or 40 percent of the units must be rent restricted and occupied by tenants with incomes no higher than 60 percent of AMGI. The term ‘‘rentrestricted’’ means that gross rent, including an allowance for utilities, cannot exceed 30 percent of the tenant’s imputed income limitation (i.e., 50 percent or 60 percent of AMGI). The rent and occupancy thresholds remain in effect for at least 15 years, and building owners are required to enter into agreements to maintain the lowincome character of the building for at least an additional 15 years. The LIHTC reduces income tax liability dollar for dollar. It is taken annually for a term of ten years and is intended to yield a present value of either: (1) 70 percent of the ‘‘qualified basis’’ for new construction or substantial rehabilitation expenditures that are not federally subsidized (i.e., financed with tax-exempt bonds or below-market federal loans), or (2) 30 percent of the qualified basis for the cost of acquiring certain existing buildings or projects that are federally subsidized. The actual credit rates are adjusted monthly for projects placed in service after 1987 under procedures specified in section 42. Individuals can use the credits up to a deduction equivalent of $25,000 (the actual maximum amount of credit that an individual can claim depends on the individual’s marginal tax rate). Individuals cannot use the credits against the alternative minimum tax. Corporations, other than S or personal service corporations, can use the credits against ordinary income tax. They cannot use the credits against the alternative minimum tax. These corporations can also deduct losses from the project. The qualified basis represents the product of the building’s ‘‘applicable fraction’’ and its ‘‘eligible basis.’’ The applicable fraction is based on the number of low-income units in the building as a percentage of the total number of units, or based on the floor space of low income-units as a percentage of the total floor space of VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 residential units in the building. The eligible basis is the adjusted basis attributable to acquisition, rehabilitation, or new construction costs (depending on the type of LIHTC involved). These costs include amounts chargeable to a capital account that are incurred prior to the end of the first taxable year in which the qualified lowincome building is placed in service or, at the election of the taxpayer, the end of the succeeding taxable year. In the case of buildings located in designated DDAs or designated QCTs, eligible basis can be increased by up to 130 percent from what it would otherwise be. This means that the available credits also can be increased by up to 30 percent. For example, if a 70 percent credit is available, it effectively could be increased to as much as 91 percent. Section 42 of the Code defines a DDA as any area designated by the Secretary of HUD as an area that has high construction, land, and utility costs relative to the AMGI. All designated DDAs in metropolitan areas (taken together) may not contain more than 20 percent of the aggregate population of all metropolitan areas, and all designated areas not in metropolitan areas may not contain more than 20 percent of the aggregate population of all nonmetropolitan areas. The GO Zone Act provides that areas determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma shall be treated as DDAs designated under subclause (I) of Internal Revenue Code section 42(d)(5)(C)(iii) (i.e., areas designated by the Secretary of HUD as having high construction, land, and utility costs relative to AMGI), and shall not be taken into account for purposes of applying the limitation under subclause (II) of such section (i.e., the 20 percent cap on the total population of designated areas). This notice lists the affected areas described in the GO Zone Act. Some of the areas designated DDAs under the GO Zone Act were designated 2006 DDAs in a notice published August 22, 2005 on the basis of having high construction, land, and utility costs relative to AMGI. When GO Zone Act DDAs’ populations are exempted from the computation of total population in areas previously designated as DDAs for 2006, this population falls well below the statutory 20 percent cap. Therefore, this notice designates additional 2006 DDAs where the Secretary of HUD finds that construction, land, and utility costs are high relative to AMGI. PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 9677 Explanation of HUD Designation Methodology A. Difficult Development Areas This notice lists all areas determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma as DDAs according to lists of counties and parishes from the Federal Emergency Management Agency Web site (http:// www.fema.gov/) as of January 27, 2006. Affected metropolitan areas and nonmetropolitan areas are assigned the indicator ‘‘[GO Zone]’’ in the lists of DDAs. In developing the list of the remaining DDAs, HUD compared housing costs with incomes. HUD used 2000 Census population data and the metropolitan area (MSA/PMSA) definitions as published in OMB Bulletin No. 99–04 on June 30, 1999. In keeping with past practice of basing the coming year’s DDA designations on data from the preceding year, the basis for these comparisons was the 2005 HUD income limits for Very Low-Income households (Very Low Income Limits, or VLILs) and final FY2005 FMRs used for the Section 8 Housing Choice Voucher program. The procedure used in making the DDA calculations follows: 1. For each MSA/PMSA and each nonmetropolitan area, a ratio was calculated. This calculation used the final FY2005 two-bedroom FMR and the 2005 four-person VLIL. a. The numerator of the ratio was the area’s final FY2005 FMR. In general, the FMR is based on the 40th percentile rent paid by recent movers for a twobedroom apartment. In metropolitan areas granted a FMR based on the 50th percentile rent for purposes of improving the administration of HUD’s Housing Choice Voucher program (see 66 FR 162), the 40th percentile rent was used for nationwide consistency of comparisons. b. The denominator of the ratio was the monthly LIHTC income-based rent limit calculated as 1⁄12 of 30 percent of 120 percent of the area’s VLIL (where the VLIL was rounded to the nearest $50 and not allowed to exceed 80 percent of the AMGI in areas where the VLIL is adjusted upward from its 50 percent of AMGI base). 2. The ratios of the FMR to the LIHTC income-based rent limit were arrayed in descending order, separately, for MSAs/ PMSAs and for nonmetropolitan areas. 3. The DDAs are those metropolitan areas and nonmetropolitan areas not in areas determined by the President to E:\FR\FM\24FEN3.SGM 24FEN3 9678 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices cchase on PROD1PC60 with NOTICES3 warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma with the highest ratios cumulative to 20 percent of the 2000 population of all metropolitan areas and of all nonmetropolitan areas, respectively. B. Application of Population Caps to Difficult Development Area Determinations In identifying DDAs, HUD applied caps, or limitations, as noted above. The cumulative population of metropolitan DDAs not in areas determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma cannot exceed 20 percent of the cumulative population of all metropolitan areas and the cumulative population of nonmetropolitan DDAs not in areas determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma cannot exceed 20 percent of the cumulative population of all nonmetropolitan areas. In applying these caps, HUD established procedures to deal with how to treat small overruns of the caps. The remainder of this section explains the procedure. In general, HUD stops selecting areas when it is impossible to choose another area without exceeding the applicable cap. The only exceptions to this policy are when the next eligible excluded area contains either a large absolute population or a large percentage of the total population, or the next excluded area’s ranking ratio as described above was identical (to four decimal places) to the last area selected, and its inclusion resulted in only a minor overrun of the cap. Thus, for both the designated metropolitan and nonmetropolitan DDAs, there may be minimal overruns of the cap. HUD believes the designation of these additional areas is consistent with the intent of the legislation. As long as the apparent excess is small due to measurement errors, some latitude is justifiable because it is impossible to determine whether the 20 percent cap has been exceeded. Despite the care and effort involved in a decennial census, the Census Bureau and all users of the data recognize that the population counts for a given area and for the entire VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 country are not precise. The extent of the measurement error is unknown. Thus, there can be errors in both the numerator and denominator of the ratio of populations used in applying a 20 percent cap. In circumstances where a strict application of a 20 percent cap results in an anomalous situation, recognition of the unavoidable imprecision in the census data justifies accepting small variances above the 20 percent limit. C. Exceptions to OMB Definitions of MSAs/PMSAs and Other Geographic Matters As stated in OMB Bulletin 99–04 defining metropolitan areas: ‘‘OMB establishes and maintains the definitions of the [Metropolitan Areas] solely for statistical purposes * * * OMB does not take into account or attempt to anticipate any nonstatistical uses that may be made of the definitions * * *. We recognize that some legislation specifies the use of metropolitan areas for programmatic purposes, including allocating Federal funds.’’ HUD makes exceptions to OMB definitions in calculating FMRs by deleting counties from metropolitan areas whose OMB definitions are determined by HUD to be larger than their housing market areas. The following counties are assigned their own FMRs and VLILs and evaluated as if they were separate metropolitan areas for purposes of designating DDAs. Metropolitan Area and Counties Deleted Chicago, Illinois: DeKalb, Grundy, and Kendall Counties. Cincinnati-Hamilton, Ohio-KentuckyIndiana: Brown County, Ohio; Gallatin, Grant, and Pendleton Counties, Kentucky; and Ohio County, Indiana. Dallas, Texas: Henderson County. Flagstaff, Arizona-Utah: Kane County, Utah. New Orleans, Louisiana: St. James Parish. Washington, DC-Maryland-VirginiaWest Virginia: Clarke, Culpeper, King George, and Warren Counties, Virginia; and Berkely and Jefferson Counties, West Virginia. In addition, Waller County, TX, part of the Houston, TX PMSA, is not an area determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma. It is therefore excluded from the definition of the Houston, TX PMSA PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 and is assigned the FMR and VLIL of the Houston, TX PMSA and evaluated as if it were a separate metropolitan area for purposes of designating DDAs. MSAs/PMSAs affected by geographic definition changes are assigned the indicator ‘‘(part)’’ in the list of Metropolitan DDAs. Any of the excluded counties designated as DDAs separately from their metropolitan areas are designated by the county name. In the New England states (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont), OMB defined MSAs/PMSAs according to county subdivisions or minor civil divisions (MCDs), rather than county boundaries. Thus, when a New England county is designated as a Nonmetropolitan DDA, only that part of the county (the group of MCDs) not included in any MSA/PMSA is the Nonmetropolitan DDA. Affected counties are assigned the indicator ‘‘(part)’’ in the list of Nonmetropolitan DDAs. For the convenience of readers of this notice, the geographical definitions of designated Metropolitan DDAs and the MCDs included in partial-county Nonmetropolitan DDAs in the New England states are included in the list of DDAs. Future Designations DDAs are designated annually as updated income and FMR data become available. Effective Date For DDAs designated by reason of being in areas determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma (the GO Zone Designation), the designation is effective: (1) For housing credit dollar amounts allocated and buildings placed in service during the period beginning on January 1, 2006, and ending on December 31, 2008; or (2) for purposes of section 42(h)(4)(B) of the Code, for buildings placed in service during the period beginning on January 1, 2006, and ending on December 31, 2008, but only with respect to bonds issued after December 31, 2005. The 2006 lists of DDAs that are not part of the GO Zone Designation are effective: (1) For allocations of credit after December 31, 2005; or (2) for purposes of section 42(h)(4)(B) of the Code, if the bonds are issued and the building is placed in service after December 31, 2005. If an area is not on a subsequent list of DDAs, the 2006 lists E:\FR\FM\24FEN3.SGM 24FEN3 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices cchase on PROD1PC60 with NOTICES3 are effective for the area if (1) the allocation of credit to an applicant is made no later than the end of the 365day period after the submission to the credit-allocating agency of a complete application by the applicant, and the submission is made before the effective date of the subsequent lists; or (2) for purposes of section 42(h)(4)(B) of the Code, the bonds are issued or the building is placed in service no later than the end of the 365-day period after the applicant submits a complete application to the bond-issuing agency, and the submission is made before the effective date of the subsequent lists, provided that both the issuance of the bonds and the placement in service of the building occur after the application is submitted. An application is deemed to be submitted on the date it is filed if the application is determined to be complete as certified in writing by the credit-allocating agency or bond-issuing agency. A ‘‘complete application’’ means that no more than de minimis clarification of the application is required for the agency to make a decision about the allocation of tax credits or issuance of bonds requested in the application. The designations of QCTs under section 42 of the Internal Revenue Code published December 12, 2002 (67 FR 76451), as supplemented on December 19, 2003 (68 FR 70982), remain in effect. The above language regarding calendar year 2006 and subsequent designations of DDAs also applies to the designations of QCTs published December 12, 2002 (67 FR 76451), as supplemented on December 19, 2003 (68 FR 70982), and subsequent designations of QCTs. Interpretive Examples of Effective Date For the convenience of readers of this notice, interpretive examples are provided below to illustrate the consequences of the effective date in areas that gain or lose DDA status. The term ‘‘regular DDA’’ as used below refers to DDAs that are designated by the Secretary of HUD as having high construction, land, and utility costs relative to AMGI. The term ‘‘GO Zone DDA’’ refers to areas determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma. The examples covering ‘‘regular DDAs’’ are equally applicable to future QCT designations. (Case A) Project ‘‘A’’ is located in a 2006 regular DDA that is NOT a designated regular DDA in 2007. An VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 application for tax credits for Project ‘‘A’’ is filed with the allocating agency November 15, 2006, which the creditallocating agency certifies in writing as complete. Credits are allocated to Project ‘‘A’’ on October 30, 2007. Project ‘‘A’’ IS eligible for the increase in basis accorded a project in a 2006 regular DDA because the application was filed BEFORE January 1, 2007 (the assumed effective date for the 2007 regular DDA lists), and tax credits were allocated no later than the end of the 365-day period after the filing of the complete application for an allocation of tax credits. (Case B) Project ‘‘B’’ is located in a 2006 regular DDA that is NOT a designated regular DDA in 2007. An application for tax credits for Project ‘‘B’’ is filed with the allocating agency December 1, 2006, which the creditallocating agency certifies in writing as complete. Credits are allocated to Project ‘‘B’’ on March 30, 2008. Project ‘‘B’’ IS NOT eligible for the increase in basis accorded a project in a 2006 regular DDA because, although the application for an allocation of tax credits was filed BEFORE January 1, 2007 (the assumed effective date of the 2007 regular DDA lists), the tax credits were allocated later than the end of the 365-day period after the filing of the complete application. (Case C) Project ‘‘C’’ is located in a 2006 regular DDA that was not a DDA in 2005. Project ‘‘C’’ was placed in service November 15, 2005. An application for tax-exempt bond financing for Project ‘‘C’’ is filed with the bond-issuing agency on January 15, 2006, which the bond-issuing agency certifies in writing as complete. The bonds that will support the permanent financing of Project ‘‘C’’ are issued September 30, 2006. Project ‘‘C’’ IS NOT eligible for the increase in basis otherwise accorded a project in a 2006 DDA because the project was placed in service BEFORE January 1, 2006. (Case D) Project ‘‘D’’ is located in an area that is a regular DDA in 2006, but IS NOT a regular DDA in 2007. An application for tax-exempt bond financing for Project ‘‘D’’ is filed with the bond-issuing agency on October 30, 2006, which the bond-issuing agency certifies in writing as complete. Bonds are issued for Project ‘‘D’’ on April 30, 2007, but Project ‘‘D’’ is not placed in service until January 30, 2008. Project ‘‘D’’ is eligible for the increase in basis available to projects located in 2006 regular DDAs because the first of the two events necessary for triggering the effective date for buildings described in section 42(h)(4)(B) of the Code (the two events being bonds issued and buildings PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 9679 placed in service) took place on April 30, 2007, within the 365-day period after a complete application for taxexempt bond financing was filed, and the application was filed during a time when the location of Project ‘‘D’’ was in a regular DDA. (Case E) Project ‘‘E’’ is located in a GO Zone DDA. The bonds used to finance project ‘‘E’’ are issued July 1, 2008, and project ‘‘E’’ is placed in service July 1, 2009. Project ‘‘E’’ is NOT eligible for the increase in basis available to projects in GO Zone DDAs because it was not placed in service during the period beginning on January 1, 2006, and ending on December 31, 2008. (Case F) Project ‘‘F’’ is located in a GO Zone DDA. The bonds used to finance project ‘‘F’’ were issued July 1, 2005, and project ‘‘F’’ is placed in service July 1, 2006. Project ‘‘F’’ is NOT eligible for the increase in basis available to projects in GO Zone DDAs because the bonds used to finance project ‘‘F’’ were issued BEFORE December 31, 2005. Findings and Certifications Environmental Impact In accordance with 40 CFR 1508.4 of the regulations of the Council on Environmental Quality and 24 CFR 50.19(c)(6) of HUD’s regulations, the policies and procedures contained in this notice provide for the establishment of fiscal requirements or procedures that do not constitute a development decision affecting the physical condition of specific project areas or building sites and, therefore, are categorically excluded from the requirements of the National Environmental Policy Act, except for extraordinary circumstances, and no Finding of No Significant Impact is required. Federalism Impact Executive Order 13132 (entitled ‘‘Federalism’’) prohibits an agency from publishing any policy document that has federalism implications if the document either imposes substantial direct compliance costs on state and local governments and is not required by statute, or the document preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the executive order. This notice merely designates ‘‘Difficult Development Areas’’ as required under section 42 of the Internal Revenue Code, as amended, for the use by political subdivisions of the states in allocating the Low-Income Housing Tax Credit. This notice also details the technical methodology used in making such E:\FR\FM\24FEN3.SGM 24FEN3 9680 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices designations. As a result, this notice is not subject to review under the order. Dated: February 16, 2006. Darlene Williams, Assistant Secretary for Policy Development and Research. cchase on PROD1PC60 with NOTICES3 BILLING CODE 4210–67–P VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 E:\FR\FM\24FEN3.SGM 24FEN3 VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4725 E:\FR\FM\24FEN3.SGM 24FEN3 9681 EN24FE06.016</GPH> cchase on PROD1PC60 with NOTICES3 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices VerDate Aug<31>2005 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4725 E:\FR\FM\24FEN3.SGM 24FEN3 EN24FE06.017</GPH> cchase on PROD1PC60 with NOTICES3 9682 VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4725 E:\FR\FM\24FEN3.SGM 24FEN3 9683 EN24FE06.018</GPH> cchase on PROD1PC60 with NOTICES3 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices VerDate Aug<31>2005 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4725 E:\FR\FM\24FEN3.SGM 24FEN3 EN24FE06.019</GPH> cchase on PROD1PC60 with NOTICES3 9684 VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4725 E:\FR\FM\24FEN3.SGM 24FEN3 9685 EN24FE06.020</GPH> cchase on PROD1PC60 with NOTICES3 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices VerDate Aug<31>2005 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4725 E:\FR\FM\24FEN3.SGM 24FEN3 EN24FE06.021</GPH> cchase on PROD1PC60 with NOTICES3 9686 VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4725 E:\FR\FM\24FEN3.SGM 24FEN3 9687 EN24FE06.022</GPH> cchase on PROD1PC60 with NOTICES3 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices VerDate Aug<31>2005 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4725 E:\FR\FM\24FEN3.SGM 24FEN3 EN24FE06.023</GPH> cchase on PROD1PC60 with NOTICES3 9688 9689 [FR Doc. 06–1708 Filed 2–23–06; 8:45 am] BILLING CODE 4210–67–C VerDate Aug<31>2005 18:10 Feb 23, 2006 Jkt 208001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4703 E:\FR\FM\24FEN3.SGM 24FEN3 EN24FE06.024</GPH> cchase on PROD1PC60 with NOTICES3 Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / Notices

Agencies

[Federal Register Volume 71, Number 37 (Friday, February 24, 2006)]
[Notices]
[Pages 9676-9689]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-1708]



[[Page 9675]]

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Part III





Department of Housing and Urban Development





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Statutorily Mandated Designation of Difficult Development Areas for 
Section 42 of the Internal Revenue Code of 1986: Supplemental 
Designation Under the Gulf Opportunity Zone Act of 2005; Notice

Federal Register / Vol. 71, No. 37 / Friday, February 24, 2006 / 
Notices

[[Page 9676]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4889-N-06]


Statutorily Mandated Designation of Difficult Development Areas 
for Section 42 of the Internal Revenue Code of 1986: Supplemental 
Designation Under the Gulf Opportunity Zone Act of 2005

AGENCY: Office of the Secretary, HUD.

ACTION: Notice.

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SUMMARY: This document designates ``Difficult Development Areas'' 
(DDAs) for purposes of the Low-Income Housing Tax Credit (LIHTC) under 
section 42 of the Internal Revenue Code of 1986 (the Code) (26 U.S.C. 
42) as amended by the Gulf Opportunity Zone Act of 2005 (Pub. L. 109-
135; the GO Zone Act). The United States Department of Housing and 
Urban Development (HUD) makes new Difficult Development Area 
designations annually and is making a supplemental designation at this 
time because of changes in the program enacted in the GO Zone Act. The 
designations of ``Qualified Census Tracts'' (QCTs) under section 42 of 
the Internal Revenue Code published December 12, 2002, as supplemented 
on December 19, 2003, remain in effect.

FOR FURTHER INFORMATION CONTACT: For questions on how areas are 
designated and on geographic definitions, contact Kurt G. Usowski, 
Associate Deputy Assistant Secretary for Economic Affairs, Office of 
Policy Development and Research, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-6000, 
telephone (202) 708-2770, or send e-mail to Kurt--G.--Usowski@hud.gov. 
For specific legal questions pertaining to Section 42, contact Branch 
5, Office of the Associate Chief Counsel, Passthroughs & Special 
Industries, Internal Revenue Service, 1111 Constitution Avenue, NW., 
Washington, DC 20224, telephone (202) 622-3040, fax (202) 622-4753. For 
questions about the ``HUB Zones'' program, contact Michael P. McHale, 
Assistant Administrator for Procurement Policy, Office of Government 
Contracting, Small Business Administration, 409 Third Street, SW., 
Suite 8800, Washington, DC 20416, telephone (202) 205-8885, fax (202) 
205-7167, or send e-mail to hubzone@sba.gov. A text telephone is 
available for persons with hearing or speech impairments at (202) 708-
9300. (These are not toll-free telephone numbers.) Additional copies of 
this notice are available through HUD User at (800) 245-2691 for a 
small fee to cover duplication and mailing costs.
    Copies Available Electronically: This notice and additional 
information about DDAs and QCTs are available electronically on the 
Internet at http://www.huduser.org/datasets/qct.html.

SUPPLEMENTARY INFORMATION:

This Document

    This notice designates DDAs for each of the 50 states, the District 
of Columbia, Puerto Rico, American Samoa, Guam, the Northern Mariana 
Islands, and the U.S. Virgin Islands. The designations of DDAs in this 
notice are based on final Fiscal Year (FY) 2005 Fair Market Rents 
(FMRs), 2005 income limits, and 2000 Census population counts as 
explained below. HUD is making a supplemental designation at this time 
because of changes in the program enacted in the GO Zone Act. 
Specifically, the GO Zone Act provides that areas determined by the 
President to warrant individual or individual and public assistance 
from the Federal Government under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act by reason of Hurricanes Katrina, 
Rita, or Wilma shall be treated as DDAs designated under subclause (I) 
of Internal Revenue Code section 42(d)(5)(C)(iii) (i.e., areas 
designated by the Secretary of HUD as having high construction, land, 
and utility costs relative to area median gross income (AMGI)), and 
shall not be taken into account for purposes of applying the limitation 
under subclause (II) of such section (i.e., the 20 percent cap on the 
total population of designated areas). This notice lists the affected 
areas described in the GO Zone Act. Some of the areas made DDAs under 
the GO Zone Act were designated as DDAs for 2006 on the basis of having 
high housing cost relative to income. When their populations are 
exempted from the computation of total population in areas previously 
designated as DDAs for 2006, this population falls well below the 
statutory 20 percent cap. Therefore, this notice designates additional 
2006 DDAs where the Secretary of HUD finds that construction, land, and 
utility costs are high relative to AMGI. The designations of QCTs under 
section 42 of the Internal Revenue Code published December 12, 2002 (67 
FR 76451), as supplemented on December 19, 2003 (68 FR 70982), remain 
in effect.

2000 Census

    Data from the 2000 Census on total population of metropolitan areas 
and nonmetropolitan areas are used in the designation of DDAs. The 
Office of Management and Budget (OMB) published new metropolitan area 
definitions incorporating 2000 Census data in OMB Bulletin No. 03-04 on 
June 6, 2003, as updated in OMB Bulletin No. 04-03 on February 18, 
2004, and OMB Bulletin No. 05-02 on February 22, 2005. The FY2005 FMRs 
and 2005 income limits used to designate DDAs are based on the 
Metropolitan Statistical Area (MSA) and Primary Metropolitan 
Statistical Area (PMSA) definitions established by OMB in OMB Bulletin 
No. 99-04 on June 30, 1999. Therefore, for the purposes of designating 
DDAs, ``metropolitan areas'' will continue to be defined according to 
the MSA/PMSA definitions established in OMB Bulletin No. 99-04 on June 
30, 1999, until further notice.

Background

    The U.S. Department of the Treasury (Treasury) and its Internal 
Revenue Service (IRS) are authorized to interpret and enforce the 
provisions of the Code, including the LIHTC found at section 42 of the 
Code. The Secretary of HUD is required to designate DDAs and QCTs by 
section 42(d)(5)(C) of the Code. In order to assist in understanding 
HUD's mandated designation of DDAs and QCTs for use in administering 
section 42, a summary of the section is provided. The following summary 
does not purport to bind Treasury or the IRS in any way, nor does it 
purport to bind HUD, as HUD has authority to interpret or administer 
the Code only in instances where it receives explicit delegation.

Summary of Low-Income Housing Tax Credit

    The LIHTC is a tax incentive intended to increase the availability 
of low-income housing. Section 42 provides an income tax credit to 
owners of newly constructed or substantially rehabilitated low-income 
rental housing projects. The dollar amount of the LIHTC available for 
allocation by each state (credit ceiling) is limited by population. 
Each state is allowed a credit ceiling based on a statutory formula 
indicated at section 42(h)(3). States may carry forward unallocated 
credits derived from the credit ceiling for one year; however, to the 
extent these unallocated credits are not used by then, the credits go 
into a national pool to be redistributed to states as additional 
credit. State and local housing agencies allocate the state's credit 
ceiling among low-income housing buildings whose owners have applied 
for the credit. Besides section 42 credits derived from the credit 
ceiling, states may also provide section 42 credits to owners of 
buildings based on the percentage of certain building

[[Page 9677]]

costs financed by tax-exempt bond proceeds. Credits provided under the 
tax-exempt bond ``volume cap'' do not reduce the credits available from 
the credit ceiling.
    The credits allocated to a building are based on the cost of units 
placed in service as low-income units under certain minimum occupancy 
and maximum rent criteria. In general, a building must meet one of two 
thresholds to be eligible for the LIHTC: either 20 percent of the units 
must be rent-restricted and occupied by tenants with incomes no higher 
than 50 percent of the AMGI or 40 percent of the units must be rent 
restricted and occupied by tenants with incomes no higher than 60 
percent of AMGI. The term ``rent-restricted'' means that gross rent, 
including an allowance for utilities, cannot exceed 30 percent of the 
tenant's imputed income limitation (i.e., 50 percent or 60 percent of 
AMGI). The rent and occupancy thresholds remain in effect for at least 
15 years, and building owners are required to enter into agreements to 
maintain the low-income character of the building for at least an 
additional 15 years.
    The LIHTC reduces income tax liability dollar for dollar. It is 
taken annually for a term of ten years and is intended to yield a 
present value of either: (1) 70 percent of the ``qualified basis'' for 
new construction or substantial rehabilitation expenditures that are 
not federally subsidized (i.e., financed with tax-exempt bonds or 
below-market federal loans), or (2) 30 percent of the qualified basis 
for the cost of acquiring certain existing buildings or projects that 
are federally subsidized. The actual credit rates are adjusted monthly 
for projects placed in service after 1987 under procedures specified in 
section 42. Individuals can use the credits up to a deduction 
equivalent of $25,000 (the actual maximum amount of credit that an 
individual can claim depends on the individual's marginal tax rate). 
Individuals cannot use the credits against the alternative minimum tax. 
Corporations, other than S or personal service corporations, can use 
the credits against ordinary income tax. They cannot use the credits 
against the alternative minimum tax. These corporations can also deduct 
losses from the project.
    The qualified basis represents the product of the building's 
``applicable fraction'' and its ``eligible basis.'' The applicable 
fraction is based on the number of low-income units in the building as 
a percentage of the total number of units, or based on the floor space 
of low income-units as a percentage of the total floor space of 
residential units in the building. The eligible basis is the adjusted 
basis attributable to acquisition, rehabilitation, or new construction 
costs (depending on the type of LIHTC involved). These costs include 
amounts chargeable to a capital account that are incurred prior to the 
end of the first taxable year in which the qualified low-income 
building is placed in service or, at the election of the taxpayer, the 
end of the succeeding taxable year. In the case of buildings located in 
designated DDAs or designated QCTs, eligible basis can be increased by 
up to 130 percent from what it would otherwise be. This means that the 
available credits also can be increased by up to 30 percent. For 
example, if a 70 percent credit is available, it effectively could be 
increased to as much as 91 percent.
    Section 42 of the Code defines a DDA as any area designated by the 
Secretary of HUD as an area that has high construction, land, and 
utility costs relative to the AMGI. All designated DDAs in metropolitan 
areas (taken together) may not contain more than 20 percent of the 
aggregate population of all metropolitan areas, and all designated 
areas not in metropolitan areas may not contain more than 20 percent of 
the aggregate population of all nonmetropolitan areas.
    The GO Zone Act provides that areas determined by the President to 
warrant individual or individual and public assistance from the Federal 
Government under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma shall be 
treated as DDAs designated under subclause (I) of Internal Revenue Code 
section 42(d)(5)(C)(iii) (i.e., areas designated by the Secretary of 
HUD as having high construction, land, and utility costs relative to 
AMGI), and shall not be taken into account for purposes of applying the 
limitation under subclause (II) of such section (i.e., the 20 percent 
cap on the total population of designated areas). This notice lists the 
affected areas described in the GO Zone Act. Some of the areas 
designated DDAs under the GO Zone Act were designated 2006 DDAs in a 
notice published August 22, 2005 on the basis of having high 
construction, land, and utility costs relative to AMGI. When GO Zone 
Act DDAs' populations are exempted from the computation of total 
population in areas previously designated as DDAs for 2006, this 
population falls well below the statutory 20 percent cap. Therefore, 
this notice designates additional 2006 DDAs where the Secretary of HUD 
finds that construction, land, and utility costs are high relative to 
AMGI.

Explanation of HUD Designation Methodology

A. Difficult Development Areas

    This notice lists all areas determined by the President to warrant 
individual or individual and public assistance from the Federal 
Government under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma as DDAs 
according to lists of counties and parishes from the Federal Emergency 
Management Agency Web site (http://www.fema.gov/) as of January 27, 
2006. Affected metropolitan areas and nonmetropolitan areas are 
assigned the indicator ``[GO Zone]'' in the lists of DDAs.
    In developing the list of the remaining DDAs, HUD compared housing 
costs with incomes. HUD used 2000 Census population data and the 
metropolitan area (MSA/PMSA) definitions as published in OMB Bulletin 
No. 99-04 on June 30, 1999. In keeping with past practice of basing the 
coming year's DDA designations on data from the preceding year, the 
basis for these comparisons was the 2005 HUD income limits for Very 
Low-Income households (Very Low Income Limits, or VLILs) and final 
FY2005 FMRs used for the Section 8 Housing Choice Voucher program. The 
procedure used in making the DDA calculations follows:
    1. For each MSA/PMSA and each nonmetropolitan area, a ratio was 
calculated. This calculation used the final FY2005 two-bedroom FMR and 
the 2005 four-person VLIL.
    a. The numerator of the ratio was the area's final FY2005 FMR. In 
general, the FMR is based on the 40th percentile rent paid by recent 
movers for a two-bedroom apartment. In metropolitan areas granted a FMR 
based on the 50th percentile rent for purposes of improving the 
administration of HUD's Housing Choice Voucher program (see 66 FR 162), 
the 40th percentile rent was used for nationwide consistency of 
comparisons.
    b. The denominator of the ratio was the monthly LIHTC income-based 
rent limit calculated as \1/12\ of 30 percent of 120 percent of the 
area's VLIL (where the VLIL was rounded to the nearest $50 and not 
allowed to exceed 80 percent of the AMGI in areas where the VLIL is 
adjusted upward from its 50 percent of AMGI base).
    2. The ratios of the FMR to the LIHTC income-based rent limit were 
arrayed in descending order, separately, for MSAs/PMSAs and for 
nonmetropolitan areas.
    3. The DDAs are those metropolitan areas and nonmetropolitan areas 
not in areas determined by the President to

[[Page 9678]]

warrant individual or individual and public assistance from the Federal 
Government under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act by reason of Hurricanes Katrina, Rita, or Wilma with the 
highest ratios cumulative to 20 percent of the 2000 population of all 
metropolitan areas and of all nonmetropolitan areas, respectively.

B. Application of Population Caps to Difficult Development Area 
Determinations

    In identifying DDAs, HUD applied caps, or limitations, as noted 
above. The cumulative population of metropolitan DDAs not in areas 
determined by the President to warrant individual or individual and 
public assistance from the Federal Government under the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act by reason of 
Hurricanes Katrina, Rita, or Wilma cannot exceed 20 percent of the 
cumulative population of all metropolitan areas and the cumulative 
population of nonmetropolitan DDAs not in areas determined by the 
President to warrant individual or individual and public assistance 
from the Federal Government under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act by reason of Hurricanes Katrina, 
Rita, or Wilma cannot exceed 20 percent of the cumulative population of 
all nonmetropolitan areas.
    In applying these caps, HUD established procedures to deal with how 
to treat small overruns of the caps. The remainder of this section 
explains the procedure. In general, HUD stops selecting areas when it 
is impossible to choose another area without exceeding the applicable 
cap. The only exceptions to this policy are when the next eligible 
excluded area contains either a large absolute population or a large 
percentage of the total population, or the next excluded area's ranking 
ratio as described above was identical (to four decimal places) to the 
last area selected, and its inclusion resulted in only a minor overrun 
of the cap. Thus, for both the designated metropolitan and 
nonmetropolitan DDAs, there may be minimal overruns of the cap. HUD 
believes the designation of these additional areas is consistent with 
the intent of the legislation. As long as the apparent excess is small 
due to measurement errors, some latitude is justifiable because it is 
impossible to determine whether the 20 percent cap has been exceeded. 
Despite the care and effort involved in a decennial census, the Census 
Bureau and all users of the data recognize that the population counts 
for a given area and for the entire country are not precise. The extent 
of the measurement error is unknown. Thus, there can be errors in both 
the numerator and denominator of the ratio of populations used in 
applying a 20 percent cap. In circumstances where a strict application 
of a 20 percent cap results in an anomalous situation, recognition of 
the unavoidable imprecision in the census data justifies accepting 
small variances above the 20 percent limit.

C. Exceptions to OMB Definitions of MSAs/PMSAs and Other Geographic 
Matters

    As stated in OMB Bulletin 99-04 defining metropolitan areas: ``OMB 
establishes and maintains the definitions of the [Metropolitan Areas] 
solely for statistical purposes * * * OMB does not take into account or 
attempt to anticipate any nonstatistical uses that may be made of the 
definitions * * *. We recognize that some legislation specifies the use 
of metropolitan areas for programmatic purposes, including allocating 
Federal funds.''
    HUD makes exceptions to OMB definitions in calculating FMRs by 
deleting counties from metropolitan areas whose OMB definitions are 
determined by HUD to be larger than their housing market areas.
    The following counties are assigned their own FMRs and VLILs and 
evaluated as if they were separate metropolitan areas for purposes of 
designating DDAs.
Metropolitan Area and Counties Deleted
Chicago, Illinois: DeKalb, Grundy, and Kendall Counties.
Cincinnati-Hamilton, Ohio-Kentucky-Indiana: Brown County, Ohio; 
Gallatin, Grant, and Pendleton Counties, Kentucky; and Ohio County, 
Indiana.
Dallas, Texas: Henderson County.
Flagstaff, Arizona-Utah: Kane County, Utah.
New Orleans, Louisiana: St. James Parish.
Washington, DC-Maryland-Virginia-West Virginia: Clarke, Culpeper, King 
George, and Warren Counties, Virginia; and Berkely and Jefferson 
Counties, West Virginia.

    In addition, Waller County, TX, part of the Houston, TX PMSA, is 
not an area determined by the President to warrant individual or 
individual and public assistance from the Federal Government under the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act by 
reason of Hurricanes Katrina, Rita, or Wilma. It is therefore excluded 
from the definition of the Houston, TX PMSA and is assigned the FMR and 
VLIL of the Houston, TX PMSA and evaluated as if it were a separate 
metropolitan area for purposes of designating DDAs.
    MSAs/PMSAs affected by geographic definition changes are assigned 
the indicator ``(part)'' in the list of Metropolitan DDAs. Any of the 
excluded counties designated as DDAs separately from their metropolitan 
areas are designated by the county name.
    In the New England states (Connecticut, Maine, Massachusetts, New 
Hampshire, Rhode Island, and Vermont), OMB defined MSAs/PMSAs according 
to county subdivisions or minor civil divisions (MCDs), rather than 
county boundaries. Thus, when a New England county is designated as a 
Nonmetropolitan DDA, only that part of the county (the group of MCDs) 
not included in any MSA/PMSA is the Nonmetropolitan DDA. Affected 
counties are assigned the indicator ``(part)'' in the list of 
Nonmetropolitan DDAs.
    For the convenience of readers of this notice, the geographical 
definitions of designated Metropolitan DDAs and the MCDs included in 
partial-county Nonmetropolitan DDAs in the New England states are 
included in the list of DDAs.

Future Designations

    DDAs are designated annually as updated income and FMR data become 
available.

Effective Date

    For DDAs designated by reason of being in areas determined by the 
President to warrant individual or individual and public assistance 
from the Federal Government under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act by reason of Hurricanes Katrina, 
Rita, or Wilma (the GO Zone Designation), the designation is effective: 
(1) For housing credit dollar amounts allocated and buildings placed in 
service during the period beginning on January 1, 2006, and ending on 
December 31, 2008; or (2) for purposes of section 42(h)(4)(B) of the 
Code, for buildings placed in service during the period beginning on 
January 1, 2006, and ending on December 31, 2008, but only with respect 
to bonds issued after December 31, 2005.
    The 2006 lists of DDAs that are not part of the GO Zone Designation 
are effective: (1) For allocations of credit after December 31, 2005; 
or (2) for purposes of section 42(h)(4)(B) of the Code, if the bonds 
are issued and the building is placed in service after December 31, 
2005. If an area is not on a subsequent list of DDAs, the 2006 lists

[[Page 9679]]

are effective for the area if (1) the allocation of credit to an 
applicant is made no later than the end of the 365-day period after the 
submission to the credit-allocating agency of a complete application by 
the applicant, and the submission is made before the effective date of 
the subsequent lists; or (2) for purposes of section 42(h)(4)(B) of the 
Code, the bonds are issued or the building is placed in service no 
later than the end of the 365-day period after the applicant submits a 
complete application to the bond-issuing agency, and the submission is 
made before the effective date of the subsequent lists, provided that 
both the issuance of the bonds and the placement in service of the 
building occur after the application is submitted.
    An application is deemed to be submitted on the date it is filed if 
the application is determined to be complete as certified in writing by 
the credit-allocating agency or bond-issuing agency. A ``complete 
application'' means that no more than de minimis clarification of the 
application is required for the agency to make a decision about the 
allocation of tax credits or issuance of bonds requested in the 
application.
    The designations of QCTs under section 42 of the Internal Revenue 
Code published December 12, 2002 (67 FR 76451), as supplemented on 
December 19, 2003 (68 FR 70982), remain in effect. The above language 
regarding calendar year 2006 and subsequent designations of DDAs also 
applies to the designations of QCTs published December 12, 2002 (67 FR 
76451), as supplemented on December 19, 2003 (68 FR 70982), and 
subsequent designations of QCTs.

Interpretive Examples of Effective Date

    For the convenience of readers of this notice, interpretive 
examples are provided below to illustrate the consequences of the 
effective date in areas that gain or lose DDA status. The term 
``regular DDA'' as used below refers to DDAs that are designated by the 
Secretary of HUD as having high construction, land, and utility costs 
relative to AMGI. The term ``GO Zone DDA'' refers to areas determined 
by the President to warrant individual or individual and public 
assistance from the Federal Government under the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act by reason of Hurricanes 
Katrina, Rita, or Wilma. The examples covering ``regular DDAs'' are 
equally applicable to future QCT designations.
    (Case A) Project ``A'' is located in a 2006 regular DDA that is NOT 
a designated regular DDA in 2007. An application for tax credits for 
Project ``A'' is filed with the allocating agency November 15, 2006, 
which the credit-allocating agency certifies in writing as complete. 
Credits are allocated to Project ``A'' on October 30, 2007. Project 
``A'' IS eligible for the increase in basis accorded a project in a 
2006 regular DDA because the application was filed BEFORE January 1, 
2007 (the assumed effective date for the 2007 regular DDA lists), and 
tax credits were allocated no later than the end of the 365-day period 
after the filing of the complete application for an allocation of tax 
credits.
    (Case B) Project ``B'' is located in a 2006 regular DDA that is NOT 
a designated regular DDA in 2007. An application for tax credits for 
Project ``B'' is filed with the allocating agency December 1, 2006, 
which the credit-allocating agency certifies in writing as complete. 
Credits are allocated to Project ``B'' on March 30, 2008. Project ``B'' 
IS NOT eligible for the increase in basis accorded a project in a 2006 
regular DDA because, although the application for an allocation of tax 
credits was filed BEFORE January 1, 2007 (the assumed effective date of 
the 2007 regular DDA lists), the tax credits were allocated later than 
the end of the 365-day period after the filing of the complete 
application.
    (Case C) Project ``C'' is located in a 2006 regular DDA that was 
not a DDA in 2005. Project ``C'' was placed in service November 15, 
2005. An application for tax-exempt bond financing for Project ``C'' is 
filed with the bond-issuing agency on January 15, 2006, which the bond-
issuing agency certifies in writing as complete. The bonds that will 
support the permanent financing of Project ``C'' are issued September 
30, 2006. Project ``C'' IS NOT eligible for the increase in basis 
otherwise accorded a project in a 2006 DDA because the project was 
placed in service BEFORE January 1, 2006.
    (Case D) Project ``D'' is located in an area that is a regular DDA 
in 2006, but IS NOT a regular DDA in 2007. An application for tax-
exempt bond financing for Project ``D'' is filed with the bond-issuing 
agency on October 30, 2006, which the bond-issuing agency certifies in 
writing as complete. Bonds are issued for Project ``D'' on April 30, 
2007, but Project ``D'' is not placed in service until January 30, 
2008. Project ``D'' is eligible for the increase in basis available to 
projects located in 2006 regular DDAs because the first of the two 
events necessary for triggering the effective date for buildings 
described in section 42(h)(4)(B) of the Code (the two events being 
bonds issued and buildings placed in service) took place on April 30, 
2007, within the 365-day period after a complete application for tax-
exempt bond financing was filed, and the application was filed during a 
time when the location of Project ``D'' was in a regular DDA.
    (Case E) Project ``E'' is located in a GO Zone DDA. The bonds used 
to finance project ``E'' are issued July 1, 2008, and project ``E'' is 
placed in service July 1, 2009. Project ``E'' is NOT eligible for the 
increase in basis available to projects in GO Zone DDAs because it was 
not placed in service during the period beginning on January 1, 2006, 
and ending on December 31, 2008.
    (Case F) Project ``F'' is located in a GO Zone DDA. The bonds used 
to finance project ``F'' were issued July 1, 2005, and project ``F'' is 
placed in service July 1, 2006. Project ``F'' is NOT eligible for the 
increase in basis available to projects in GO Zone DDAs because the 
bonds used to finance project ``F'' were issued BEFORE December 31, 
2005.

Findings and Certifications

Environmental Impact

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

Federalism Impact

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any policy document that has federalism implications if 
the document either imposes substantial direct compliance costs on 
state and local governments and is not required by statute, or the 
document preempts state law, unless the agency meets the consultation 
and funding requirements of section 6 of the executive order. This 
notice merely designates ``Difficult Development Areas'' as required 
under section 42 of the Internal Revenue Code, as amended, for the use 
by political subdivisions of the states in allocating the Low-Income 
Housing Tax Credit. This notice also details the technical methodology 
used in making such

[[Page 9680]]

designations. As a result, this notice is not subject to review under 
the order.

    Dated: February 16, 2006.
Darlene Williams,
Assistant Secretary for Policy Development and Research.
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[FR Doc. 06-1708 Filed 2-23-06; 8:45 am]
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