Statutorily Mandated Designation of Difficult Development Areas and Qualified Census Tracts for Section 42 of the Internal Revenue Code of 1986, 57234-57353 [06-8197]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 71, Number 188 (Thursday, September 28, 2006)]
[Notices]
[Pages 57234-57353]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-8197]



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Part III





Department of Housing and Urban Development





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Statutorily Mandated Designation of Difficult Development Areas and 
Qualified Census Tracts for Section 42 of the Internal Revenue Code of 
1986; Notice

Federal Register / Vol. 71, No. 188 / Thursday, September 28, 2006 / 
Notices

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4889-N-08]


Statutorily Mandated Designation of Difficult Development Areas 
and Qualified Census Tracts for Section 42 of the Internal Revenue Code 
of 1986

AGENCY: Office of the Assistant Secretary for Policy Development and 
Research, HUD.

ACTION: Notice.

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SUMMARY: This document designates ``Difficult Development Areas'' 
(DDAs) and ``Qualified Census Tracts'' (QCTs) 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). The United States 
Department of Housing and Urban Development (HUD) makes new DDA 
designations annually and is making new designation of QCTs at this 
time on the basis of revised metropolitan statistical area (MSA) 
definitions published by the Office of Management and Budget (OMB) and 
on the basis of more detailed census tract income distribution data 
from the 2000 Census.

FOR FURTHER INFORMATION CONTACT: For questions on how areas are 
designated and on geographic definitions, contact Michael K. Hollar, 
Economist, Economic Development and Public Finance Division, Office of 
Policy Development and Research, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-6000, 
telephone (202) 708-0426, extension 5878, or send an e-mail to 
Michael--K.--Hollar@hud.gov. For specific legal questions pertaining to 
Section 42, contact Branch 5, Office of the Associate Chief Counsel, 
Passthroughs and Special Industries, Internal Revenue Service, 1111 
Constitution Avenue, NW., Washington, DC 20224, telephone (202) 622-
3040. 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 an 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 https://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) 2006 Fair Market Rents 
(FMRs), FY2006 income limits, and 2000 Census population counts as 
explained below. This notice also lists those areas treated as DDAs 
under the Gulf Opportunity Zone Act of 2005 (Pub. L. 109-135; 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 (Stafford Act) as a result 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 Housing and Urban 
Development 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 designates QCTs for each of the 50 States, the District 
of Columbia, and Puerto Rico based on new MSA definitions published by 
the Office of Management and Budget (OMB) and new detailed data on 
census tract household income distributions from the 2000 Census. The 
designations of QCTs under Section 42 of the Internal Revenue Code 
published December 12, 2002, (67 FR 76451) for the U.S. Virgin Islands, 
and on December 19, 2003, (68 FR 70982) for American Samoa, Guam, and 
the Northern Mariana Islands, remain in effect because these areas are 
not affected by new metropolitan area definitions or the release of 
more detailed 2000 Census data on household incomes.

2000 Census

    Data from the 2000 Census on total population of metropolitan areas 
and nonmetropolitan areas are used in the designation of DDAs. OMB 
published new metropolitan area definitions incorporating 2000 Census 
data first in OMB Bulletin No. 03-04 on June 6, 2003, and updated 
periodically through OMB Bulletin No. 06-01 on December 5, 2005. The 
FY2006 FMRs and FY2006 income limits used to designate DDAs are based 
on these new MSA definitions with modifications to account for 
substantial differences in rental housing markets (and in some cases 
median income levels) within MSAs.
    HUD has obtained a more highly detailed, special tabulation of 2000 
Census household income data at the census tract level than that 
published for general public use by the Census Bureau. HUD is using 
these new data to more accurately determine the eligibility of census 
tracts for QCT designation. This QCT designation uses the new OMB 
metropolitan area definitions without modification for purposes of 
evaluating how many census tracts can be designated under the 
population cap but uses the HUD-modified definitions and their 
associated area median incomes for determining QCT eligibility.

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 Internal Revenue Code (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, since 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

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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 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 particular 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 Area Median Gross Income 
(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 10 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 Stafford 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. 
Because the populations of DDAs designated under the GO Zone Act are 
not counted against the statutory 20 percent cap on the aggregate 
population of DDAs, the total population of designated metropolitan 
DDAs listed in this notice exceeds 20 percent of the total population 
of all MSAs, and the population of all nonmetropolitan DDAs listed in 
this notice exceeds 20 percent of the total population of 
nonmetropolitan counties.

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 Stafford 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 (https://www.fema.gov/
). 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 MSA 
definitions as published in OMB Bulletin No. 06-01 on December 5, 2005, 
with modifications as described below. 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 FY2006 HUD income limits 
for very low-income households (Very Low Income Limits, or VLILs), 
which are based on 50 percent of AMGI, and final FY2006 FMRs used for 
the Housing Choice Voucher program. In formulating the FY2006 FMRs and 
VLILs, HUD modified the current OMB definitions of MSAs to account for 
substantial differences in rents among areas within each new MSA that 
were in different FMR areas under definitions used in prior years. HUD 
formed these ``HUD Metro FMR Areas'' (HMFAs) in cases where one or more 
of the parts of newly defined MSAs that previously were in separate FMR 
areas had 2000 Census base 40th-percentile recent mover rents that 
differed, by 5 percent or more, from the same statistic calculated at 
the MSA level. In addition, a few HMFAs were formed on the basis of 
very large differences in AMGIs among the MSA parts. All HMFAs are 
contained entirely within MSAs. All nonmetropolitan counties are 
outside of MSAs and are not broken up by HUD for purposes of setting 
FMRs and VLILs. (Complete details on HUD's process for determining 
FY2006 FMR areas and FMRs are available at https://www.huduser.org/
datasets/fmr/fmrs/index.asp?data=fmr06).

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    HUD's unit of analysis for designating metropolitan DDAs, 
therefore, consists of: Entire MSAs where these were not broken up into 
HMFAs for purposes of computing FMRs and VLILs; and HMFAs within the 
MSAs that were broken up for such purposes. Hereafter in this notice, 
the unit of analysis for designating metropolitan DDAs will be called 
the HMFA, and the unit of analysis for nonmetropolitan DDAs will be the 
nonmetropolitan county or county equivalent area. The procedure used in 
making the DDA calculations follows:
    1. For each HMFA and each nonmetropolitan county, a ratio was 
calculated. This calculation used the final FY2006 two-bedroom FMR and 
the FY2006 four-person VLIL.
    a. The numerator of the ratio was the area's final FY2006 FMR. In 
general, the FMR is based on the 40th-percentile gross rent paid by 
recent movers to live in a two-bedroom apartment. In metropolitan areas 
granted an FMR based on the 50th-percentile rent for purposes of 
improving the administration of HUD's Housing Choice Voucher program 
(see 71 FR 7832), the 40th-percentile rent was used to ensure 
nationwide consistency of comparisons.
    b. The denominator of the ratio was the monthly LIHTC income-based 
rent limit, which was 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 HMFAs and for 
nonmetropolitan counties.
    3. The non-GO Zone DDAs are those HMFAs and nonmetropolitan 
counties not in areas determined by the President to warrant individual 
or individual and public assistance from the federal government under 
the Stafford Act by reason of Hurricanes Katrina, Rita, or Wilma with 
the highest ratios cumulative to 20 percent of the 2000 population of 
all HMFAs and of all nonmetropolitan counties, respectively.

B. Qualified Census Tracts

    In developing this list of QCTs, HUD used 2000 Census 100-percent 
count data on total population, total households, and population in 
households; a special tabulation of household income at the tract level 
from the 2000 Census; the 2000 Census base AMGIs computed at the HMFA 
level as described above to determine tract eligibility; and the MSA 
definitions published in OMB Bulletin No. 06-01 on December 5, 2005, 
for determining how many eligible tracts can be designated under the 
statutory 20 percent population cap.
    HUD uses the HMFA-level AMGIs to determine QCT eligibility because 
the statute, specifically 26 U.S.C. 42(d)(5)(C)(iv)(II), refers to the 
same section of the Code that defines income for purposes of tenant 
eligibility and unit maximum rent, specifically 26 U.S.C. 42(g)(4). By 
rule, the IRS sets these income limits according to HUD's VLILs, which 
in FY2006 and thereafter are established at the HMFA level. Similarly, 
HUD uses the entire MSA to determine how many eligible tracts can be 
designated under the 20 percent population cap as required by the 
statute (26 U.S.C. 42(d)(5)(C)(ii)(III)), which states that MSAs should 
be treated as singular areas. The QCTs were determined as follows:
    1. To be eligible to be designated a QCT, a census tract must have 
50 percent of its households with incomes below 60 percent of the AMGI 
or have a poverty rate of 25 percent or more. In metropolitan areas, 
HUD calculates 60 percent of AMGI by multiplying by a factor of 0.6 the 
HMFA median family income for 1999, as estimated by HUD from 2000 
Census data. Outside of metropolitan areas, HUD calculates 60 percent 
of AMGI by multiplying by a factor of 0.6 the state-specific, non-
metropolitan balance median family income for 1999, as estimated by 
HUD. (For a complete listing of HMFA median family incomes for 1999, 
see https://www.huduser.org/datasets/il/il06/Medians_2006.pdf. For a 
complete listing of state non-metropolitan balance median family 
incomes for 1999, see https://www.huduser.org/datasets/il/il06/
MedianNotice_2006.pdf.)
    2. For each census tract, the percentage of households below the 60 
percent income standard (income criterion) was determined by: (a) 
Calculating the average household size of the census tract, (b) 
applying the income standard after adjusting it to match the average 
household size, and (c) calculating the number of households with 
incomes below the income standard. In performing this calculation, HUD 
used a special tabulation of household income data from the 2000 Census 
that provides more detail than the data on household income 
distribution publicly released by the Census Bureau and used in the 
designation of QCTs published December 12, 2002. Therefore, even in 
MSAs where there was no geographic change, a different set of census 
tracts may be determined eligible and designated as QCTs based on these 
more accurate data. HUD's special tabulations of census tract household 
income distribution are available for download from https://
qct.huduser.org/tract_data.html.
    3. For each census tract, the poverty rate was determined by 
dividing the population with incomes below the poverty line by the 
population for whom poverty status has been determined.
    4. QCTs are those census tracts in which 50 percent or more of the 
households meet the income criterion, or 25 percent or more of the 
population is in poverty, such that the population of all census tracts 
that satisfy either one or both of these criteria does not exceed 20 
percent of the total population of the respective area.
    5. In areas where more than 20 percent of the population resides in 
eligible census tracts, census tracts are designated as QCTs in 
accordance with the following procedure:
    a. Eligible tracts are placed in one of two groups. The first group 
includes tracts that satisfy both the income and poverty criteria for 
QCTs. The second group includes tracts that satisfy either the income 
criterion or the poverty criterion, but not both.
    b. Tracts in the first group are ranked from lowest to highest on 
the income criterion. Then, tracts in the first group are ranked from 
lowest to highest on the poverty criterion. The two ranks are averaged 
to yield a combined rank. The tracts are then sorted on the combined 
rank, with the census tract with the highest combined rank being placed 
at the top of the sorted list. In the event of a tie, more populous 
tracts are ranked above less populous ones.
    c. Tracts in the second group are ranked from lowest to highest on 
the income criterion. Then, tracts in the second group are ranked from 
lowest to highest on the poverty criterion. The two ranks are then 
averaged to yield a combined rank. The tracts are then sorted on the 
combined rank, with the census tract with the highest combined rank 
being placed at the top of the sorted list. In the event of a tie, more 
populous tracts are ranked above less populous ones.
    d. The ranked first group is stacked on top of the ranked second 
group to yield a single, concatenated, ranked list of eligible census 
tracts.
    e. Working down the single, concatenated, ranked list of eligible 
tracts, census tracts are designated until the designation of an 
additional tract would cause the 20 percent limit to be exceeded. If a 
census tract is not

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designated because doing so would raise the percentage above 20 
percent, subsequent census tracts are then considered to determine if 
one or more census tract(s) with smaller population(s) could be 
designated without exceeding the 20 percent limit.

C. Application of Population Caps to DDA 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 Stafford 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 Stafford Act by reason 
of 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.

D. Exceptions to OMB Definitions of MSAs and Other Geographic Matters

    As stated in OMB Bulletin 06-01 defining metropolitan areas:

    OMB establishes and maintains the definitions of Metropolitan * 
* * Statistical Areas, * * * solely for statistical purposes. * * * 
OMB does not take into account or attempt to anticipate any non-
statistical uses that may be made of the definitions[.] In cases 
where * * * an agency elects to use the Metropolitan * * * Area 
definitions in nonstatistical programs, it is the sponsoring 
agency's responsibility to ensure that the definitions are 
appropriate for such use. An agency using the statistical 
definitions in a nonstatistical program may modify the definitions, 
but only for the purposes of that program. In such cases, any 
modifications should be clearly identified as deviations from the 
OMB statistical area definitions in order to avoid confusion with 
OMB's official definitions of Metropolitan * * * Statistical Areas.

    Following OMB guidance, the estimation procedure for the FY2006 
FMRs incorporates the current OMB definitions of metropolitan areas 
based on the new Core-Based Statistical Area (CBSA) standards as 
implemented with 2000 Census data, but makes adjustments to the 
definitions in order to separate subparts of these areas in cases where 
FMRs (and in a few cases, VLILs) would otherwise change significantly 
if the new area definitions were used without modification. In CBSAs 
where sub-areas are established, it is HUD's view that the geographic 
extent of the housing markets are not yet the same as the geographic 
extent of the CBSAs, but may become so in the future as the social and 
economic integration of the CBSA component areas increases.
    The geographic baseline for the new estimation procedure is the 
CBSA Metropolitan Areas (referred to as Metropolitan Statistical Areas 
or MSAs) and CBSA Non-Metropolitan Counties (non-metropolitan counties 
include the county components of Micropolitan CBSAs where the counties 
are generally assigned separate FMRs). The proposed HUD-modified CBSA 
definitions allow for sub-area FMRs within MSAs based on the boundaries 
of ``Old FMR Areas'' (OFAs) within the boundaries of new MSAs. (OFAs 
are the FMR areas defined for the FY2005 FMRs. Collectively, they 
include June 30, 1999, OMB-definition Metropolitan Statistical Areas 
and Primary Metropolitan Statistical Areas (old definition MSAs/PMSAs), 
metropolitan counties deleted from old definition MSAs/PMSAs by HUD for 
FMR-setting purposes, and counties and county parts outside of old 
definition MSAs/PMSAs referred to as non-metropolitan counties.) Sub-
areas of MSAs are assigned their own FMRs when the sub-area 2000 Census 
Base FMR differs significantly from the MSA 2000 Census Base FMR (and 
in some cases where the 2000 Census base AMGI differs significantly 
from the MSA 2000 Census Base AMGI). MSA subareas, and the remaining 
portions of MSAs after sub-areas have been determined, are referred to 
as ``HUD Metro FMR Areas (HMFAs)'' to distinguish these areas from 
OMB's official definition of MSAs.
    In addition, Waller County, Texas, which is part of the Houston-
Baytown-Sugar Land, TX HMFA, is not an area determined by the President 
to warrant individual or individual and public assistance from the 
Federal government under the Stafford Act by reason of Hurricanes 
Katrina, Rita, or Wilma. It is therefore excluded from the definition 
of the Houston-Baytown-Sugar Land, TX HMFA and is assigned the FMR and 
VLIL of the Houston-Baytown-Sugar Land, TX HMFA and is evaluated as if 
it were a separate metropolitan area for purposes of designating DDAs. 
The Houston-Baytown-Sugar Land, TX HMFA is assigned the indicator 
``(part)'' in the list of Metropolitan DDAs.
    In the New England states (Connecticut, Maine, Massachusetts, New 
Hampshire, Rhode Island, and Vermont), HMFAs are defined according to 
county subdivisions or minor civil divisions (MCDs), rather than county 
boundaries. However, since no part of a HMFA is outside an OMB-defined, 
county-based MSA, all New England nonmetropolitan counties are kept 
intact for purposes of designating Nonmetropolitan DDAs.
    For the convenience of readers of this notice, the geographical 
definitions of designated Metropolitan DDAs are included in the list of 
DDAs.
    The Census Bureau provides no tabulations of 2000 Census data for 
Broomfield County, Colorado, an area that was created from parts of 
four Colorado counties when the City of Broomfield became a county in 
November 2001. Broomfield County is made up of former parts of Adams, 
Boulder, Jefferson, and Weld counties. The boundaries of Broomfield 
County are similar, but not identical to, the boundaries of Broomfield 
city at the time of the 2000 Census. In OMB metropolitan area 
definitions and, therefore, for purposes of this notice, Broomfield 
County is included as part of the Denver-Aurora, CO MSA. Census tracts 
in Broomfield County include the

[[Page 57238]]

parts of the Adams, Boulder, Jefferson, and Weld County census tracts 
that were within the boundaries of Broomfield city according to the 
2000 Census, plus parts of three Adams County tracts (85.15, 85.16, and 
85.28), and one Jefferson County tract (98.25) that were not within any 
municipality during the 2000 Census but which, according to Census 
Bureau maps, are within the boundaries of Broomfield County. Data for 
Adams, Boulder, Jefferson, and Weld counties and their census tracts 
were adjusted to exclude the data assigned to Broomfield County and its 
census tracts.

Future Designations

    DDAs are designated annually as updated income and FMR data are 
made public. QCTs are designated periodically as new data become 
available, or as metropolitan area definitions change. QCTs are being 
updated at this time to reflect the recent change to 2000 Census-based 
metropolitan area definitions (OMB Bulletin N0. 03-04, June 6, 2003, as 
updated through OMB Bulletin 06-01, December 5, 2005) and the 
availability of new detailed 2000 Census income distribution tables.

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 Stafford 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 Internal Revenue 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 2007 lists of QCTs and the 2007 lists of DDAs that are not part 
of the GO Zone Designation are effective: (1) For allocations of credit 
after December 31, 2006; 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, 2006. If an area is not on a subsequent list of DDAs 
or QCTs, the 2007 lists 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, if: (a) 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 (b) 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 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) for the U.S. Virgin 
Islands, and on December 19, 2003, (68 FR 70982) for American Samoa, 
Guam, and the Northern Mariana Islands, remain in effect.
    Members of the public are hereby reminded that the Secretary of 
Housing and Urban Development, or his designee, has sole legal 
authority to designate DDAs and QCTs by publishing lists of geographic 
entities as defined by, in the case of DDAs, the several states and the 
governments of the insular areas of the United States and, in the case 
of QCTs, by the Census Bureau; and to establish the effective dates of 
these lists. The Secretary of the Treasury, through the IRS thereof, 
has sole legal authority to interpret, and to determine and enforce 
compliance with, the Internal Revenue Code and associated regulations 
including Federal Register notices published by HUD for purposes of 
designating DDAs and QCTs. Representations made by any other entity as 
to the content of HUD notices designating DDAs and QCTs that do not 
precisely match the language published by HUD should not be relied upon 
by taxpayers in determining what actions are necessary to comply with 
HUD notices.

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 Stafford Act by reason 
of Hurricanes Katrina, Rita, or Wilma. The examples covering regular 
DDAs are equally applicable to QCT designations.
    (Case A) Project A is located in a 2007 regular DDA that is NOT a 
designated regular DDA in 2008. An application for tax credits for 
Project A is filed with the allocating agency on November 15, 2007, 
and, in writing, the credit-allocating agency certifies the application 
as complete. Credits are allocated to Project A on October 30, 2008. 
Project A is eligible for the increase in basis accorded a project in a 
2007 regular DDA because the application was filed before January 1, 
2008 (the assumed effective date for the 2008 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 2007 regular DDA that is NOT a 
designated regular DDA in 2008. An application for tax credits for 
Project B is filed with the allocating agency on December 1, 2007, and, 
in writing, the credit-allocating agency certifies the application as 
complete. Credits are allocated to Project B on March 30, 2009. Project 
B is NOT eligible for the increase in basis accorded a project in a 
2007 regular DDA because, although the application for an allocation of 
tax credits was filed BEFORE January 1, 2008 (the assumed effective 
date of the 2008 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 2007 regular DDA that was not a 
DDA in 2006. Project C was placed in service on November 15, 2006. An 
application for tax-exempt bond financing for Project C is filed with 
the bond-issuing agency on January 15, 2007, and, in writing, the bond-
issuing agency certifies the application as complete. The bonds that 
will support the permanent financing of Project C are issued on 
September 30, 2007. Project C is NOT eligible for the increase in basis 
otherwise accorded a project in a 2007 DDA because the project was 
placed in service BEFORE January 1, 2007.
    (Case D) Project D is located in an area that is a regular DDA in 
2007, but is NOT a regular DDA in 2008. An application for tax-exempt 
bond financing for Project D is filed with the

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bond-issuing agency on October 30, 2007, and, in writing, the bond-
issuing agency certifies the application as complete. Bonds are issued 
for Project D on April 30, 2008, but Project D is not placed in service 
until January 30, 2009. Project D is eligible for the increase in basis 
available to projects located in 2007 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, 2008, within the 365-day period after a complete application for 
tax-exempt bond financing was filed, the application was filed during a 
time when the location of Project D was in a regular DDA, and both the 
issuance of the bonds and placement in service of project D occurred 
after the application was submitted.
    (Case E) Project E is located in a GO Zone DDA. The bonds used to 
finance project E are issued on 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 on 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'' and 
``Qualified Census Tracts'' 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 designations. As a result, this notice is not subject to 
review under the order.

    Dated: September 12, 2006.
Darlene F. Williams,
Assistant Secretary for Policy Development and Research.
BILLING CODE 4120-67-P

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[FR Doc. 06-8197 Filed 9-27-06; 8:45 am]
BILLING CODE 4120-67-C