Statutorily Mandated Designation of Difficult Development Areas and Qualified Census Tracts for 2020
| Published date | 25 September 2019 |
| Citation | 84 FR 50465 |
| Record Number | 2019-20833 |
| Section | Notices |
| Court | Housing And Urban Development Department |
Federal Register, Volume 84 Issue 186 (Wednesday, September 25, 2019)
[Federal Register Volume 84, Number 186 (Wednesday, September 25, 2019)]
[Notices]
[Pages 50465-50470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20833]
[[Page 50465]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-6180-N-01]
Statutorily Mandated Designation of Difficult Development Areas
and Qualified Census Tracts for 2020
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 Internal Revenue Code (IRC)
Section 42, as enacted by the Tax Reform Act of 1986. The United States
Department of Housing and Urban Development (HUD) makes new DDA and QCT
designations annually.
FOR FURTHER INFORMATION CONTACT: For questions on how areas are
designated and on geographic definitions, contact Michael K. Hollar,
Senior Economist, Public Finance and Regulatory Analysis Division,
Office of Policy Development and Research, Department of Housing and
Urban Development, 451 Seventh Street SW, Room 8216, Washington, DC
20410-6000; telephone number 202-402-5878, or send an email to
[email protected]. 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 number 202-317-
4137, fax number 202-317-6731. For questions about the ``HUBZone''
program, contact Bruce Purdy, Deputy Director, HUBZone Program, Office
of Government Contracting and Business Development, U.S. Small Business
Administration, 409 Third Street SW, Suite 8800, Washington, DC 20416;
telephone number 202-205-7554, or send an email to [email protected].
(These are not toll-free telephone numbers.) A text telephone is
available for persons with hearing or speech impairments at 800-877-
8339. 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 including the lists of DDAs and QCTs
are available electronically on the internet at http://www.huduser.org/datasets/qct.html.
SUPPLEMENTARY INFORMATION:
I. This Notice
Under 26 U.S.C. 42(d)(5)(B)(iii)(I), for purposes of the LIHTC, the
Secretary of HUD must designate DDAs, which are areas with high
construction, land, and utility costs relative to area median gross
income (AMGI). 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 modified Fiscal Year (FY) 2019
Small Area Fair Market Rents (Small Area FMRs), FY 2019 nonmetropolitan
county FMRs, FY 2019 income limits, and 2010 Census population counts,
as explained below.
Similarly, under 26 U.S.C. 42(d)(5)(B)(ii)(I), the Secretary of HUD
must designate QCTs, which are areas where either 50 percent or more of
the households have an income less than 60 percent of the AMGI for such
year or have a poverty rate of at least 25 percent. This notice
designates QCTs based on new income and poverty data released in the
American Community Survey (ACS). Specifically, HUD relies on the most
recent three sets of ACS data to ensure that anomalous estimates, due
to sampling, do not affect the QCT status of tracts.
II. Data Used To Designate DDAs
Data from the 2010 Census on total population of metropolitan
areas, metropolitan ZIP Code Tabulation Areas (ZCTAs), and
nonmetropolitan areas are used in the designation of DDAs. The Office
of Management and Budget (OMB) published updated metropolitan areas in
OMB Bulletin No. 15-01 on July 15, 2015. FY 2019 FMRs and FY 2019
income limits used to designate DDAs are based on these metropolitan
statistical area (MSA) definitions, with modifications to account for
substantial differences in rental housing markets (and, in some cases,
median income levels) within MSAs. Small Area FMRs are calculated for
the ZCTAs, or portions of ZCTAs within the metropolitan areas defined
by OMB Bulletin No. 15-01.
III. Data Used To Designate QCTs
Data from the 2010 Census on total population of census tracts,
metropolitan areas, and the nonmetropolitan parts of states are used in
the designation of QCTs. The FY 2019 income limits used to designate
QCTs are based on these MSA definitions with modifications to account
for substantial differences in rental housing markets (and in some
cases median income levels) within MSAs. This QCT designation uses the
OMB metropolitan area definitions published in OMB Bulletin No. 15-01
on July 15, 2015, 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.
Because the 2010 Decennial Census did not include questions on
respondent household income, HUD uses ACS data to designate QCTs. The
ACS tabulates data collected over 5 years to provide estimates of
socioeconomic variables for small areas containing fewer than 65,000
persons, such as census tracts. Due to sample-related anomalies in
estimates from year to year, HUD utilizes three sets of ACS tabulations
to ensure that anomalous estimates do not affect QCT status.
IV. 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 LIHTC found at IRC Section 42. In order to assist in
understanding HUD's mandated designation of DDAs and QCTs for use in
administering IRC Section 42, a summary of the section is provided
below. 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 IRC only in instances where it
receives explicit statutory delegation.
V. Summary of the Low-Income Housing Tax Credit
A. Determining Eligibility
The LIHTC is a tax incentive intended to increase the availability
of low-income rental housing. IRC Section 42 provides an income tax
credit to certain 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 each state's population. Each state is allowed a credit
ceiling based on a statutory formula indicated at IRC Section
42(h)(3)(C). According to IRC Section 42(h)(3)(D)(ii), states may carry
forward unallocated credits derived from the credit ceiling for one
year; however, to the extent such 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
[[Page 50466]]
low-income housing buildings whose owners have applied for the credit.
Besides IRC Section 42 credits derived from the credit ceiling, under
IRC Section 42(h)(4), the LIHTCs may also be available to owners of
buildings based on the percentage of certain building costs financed by
tax-exempt bond proceeds. Credits available 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. Prior to the enactment of the
Consolidated Appropriations Act of 2018 (Act), under IRC Section
42(g)(1), a building was required to meet one of two tests to be
eligible for the LIHTC; either: (1) 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 (2) 40 percent of
the units must be rent-restricted and occupied by tenants with incomes
no higher than 60 percent of AMGI. A unit is ``rent-restricted'' if the
gross rent, including an allowance for tenant-paid utilities, does not
exceed 30 percent of the imputed income limitation (i.e., 50 percent or
60 percent of AMGI) applicable to that unit. 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 Act added a third test, the average income test. See Sec.
42(g)(1)(C), as added by section 103(a)(1), Division T, of the Act. A
building meets the minimum requirements of the average income test if
40 percent or more (25 percent or more in the case of a project located
in a high cost housing area as described in IRS Section 142(d)(6)) of
the residential units in such project are both rent-restricted and
occupied by individuals whose income does not exceed the imputed income
limitation designated by the taxpayer with respect to the respective
unit. The taxpayer designates the imputed income limitation for each
unit. The designated imputed income limitation of any unit is
determined in 10-percentage-point increments, and may be designated as
20, 30, 40, 50, 60, 70, or 80 percent of AMGI. The average of the
imputed income limitations designated must not exceed 60 percent of
AMGI. See Sec. 42(g)(1)(C), as added by section 103(a)(2), Division T,
of the Act.
B. Calculating the LIHTC
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 (as defined in IRC Section 42(i)(2)), or (2)
30 percent of the qualified basis for the cost of acquiring certain
existing buildings or projects that are federally subsidized. The tax
credit rates are determined monthly under procedures specified in IRC
Section 42 and cannot be less than 9 percent for new buildings that are
not federally subsidized. 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). For buildings placed in service after December 31, 2007,
individuals can use the credits against the alternative minimum tax.
Corporations, other than S or personal service corporations, can use
the credits against ordinary income tax. These corporations also can
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, or buildings designated by the
state agency, eligible basis can be increased 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 (70 percent x 130 percent).
C. Defining Difficult Development Areas (DDAs) and Qualified Census
Tracts (QCTs)
As stated above, IRC Section 42(d)(5)(B)(iii) defines a DDA as an
area designated by the Secretary of HUD 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.
Similarly, IRC Section 42(d)(5)(B)(ii) defines a QCT as an area
designated by the Secretary of HUD where, for the most recent year for
which census data are available on household income in such tract,
either 50 percent or more of the households in the tract have an income
which is less than 60 percent of the AMGI or the tract's poverty rate
is at least 25 percent. All designated QCTs in a single metropolitan
area or nonmetropolitan area (taken together) may not contain more than
20 percent of the population of that metropolitan or nonmetropolitan
area. Thus, unlike the restriction on DDA designations, QCTs are
restricted by the total population of each individual area as opposed
to the aggregate population across all metropolitan areas and
nonmetropolitan areas.
IRC Section 42(d)(5)(B)(v) allows states to award an increase in
basis up to 30 percent to buildings located outside of federally
designated DDAs and QCTs if the increase is necessary to make the
building financially feasible. This state discretion applies only to
buildings allocated credits under the state housing credit ceiling and
is not permitted for buildings receiving credits entirely in connection
with tax-exempt bonds. Rules for such designations shall be set forth
in the LIHTC-allocating agencies' qualified allocation plans (QAPs).
See 26 U.S.C. 42(m).
VI. Explanation of HUD Designation Method
A. 2020 Difficult Development Areas
In developing the 2020 list of DDAs, as required by 26 U.S.C.
42(d)(5)(B)(iii), HUD compared housing costs with incomes. HUD used
2010 Census population for ZCTAs, and nonmetropolitan areas, and the
MSA definitions, as published in OMB Bulletin 15-01 on July 15, 2015,
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
[[Page 50467]]
these comparisons is the FY 2019 HUD income limits for very low-income
households (very low-income limits, or VLILs), which are based on 50
percent of AMGI, and modified FMRs based on the FY 2019 FMRs used for
the Housing Choice Voucher (HCV) program. For metropolitan DDAs, HUD
used Small Area FMRs based on three annual releases of ACS data, to
compensate for statistical anomalies which affect estimates for some
ZCTAs. For non-metropolitan DDAs, HUD used the FY 2019 FMRs published
on August 31, 2018 (83 FR 44644) as updated through March 14, 2019 (84
FR 9371).
In formulating the FY 2019 FMRs and VLILs, HUD modified the current
OMB definitions of MSAs to account for differences in rents among areas
within each current 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 were previously in separate FMR areas. All counties added
to metropolitan areas are treated as HMFAs with rents and incomes based
on their own county data, where available. HUD no longer requires
recent-mover rents to differ by five percent or more in order to form a
new HMFA. 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 FY 2019 FMR areas and FMRs are available at
https://www.huduser.gov/portal/datasets/fmr.html#2019. Complete details
on HUD's process for determining FY 2019 income limits are available at
https://www.huduser.gov/portal/datasets/il.html#2019.)
HUD's unit of analysis for designating metropolitan DDAs consists
of ZCTAs, whose Small Area FMRs are compared to metropolitan VLILs. For
purposes of computing VLILs in metropolitan areas, HUD considers entire
MSAs in cases where these were not broken up into HMFAs for purposes of
computing 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 ZCTA, and the unit of
analysis for nonmetropolitan DDAs will be the nonmetropolitan county or
county equivalent area. The procedure used in making the DDA
designations follows:
1. Calculate FMR-to-Income Ratios. For each metropolitan ZCTA and
each nonmetropolitan county, HUD calculated a ratio of housing costs to
income. HUD used a modified FY 2019 two-bedroom Small Area FMR for
ZCTAs, the FY 2019 two-bedroom FMR as published for non-metropolitan
counties, and the FY 2019 four-person VLIL for this calculation.
The modified FY 2019 two-bedroom Small Area FMRs for ZCTAs differ
from the FY 2019 Small Area FMRs in four ways. First, HUD did not limit
the Small Area FMR to 150 percent of its metropolitan area FMR. Second,
HUD did not limit annual decreases in Small Area FMRs to ten percent,
which was first applied in the FY 2019 FMR calculations. Third, HUD
adjusted the Small Area FMRs in New York City using the New York City
Housing and Vacancy Survey, which is conducted by the U.S. Census
Bureau, to adjust for the effect of local rent control and
stabilization regulations. No other jurisdictions have provided HUD
with data that could be used to adjust Small Area FMRs for rent control
or stabilization regulations.\1\ Finally, the Small Area FMRs are not
limited to the State non-metropolitan minimum FMR.
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\1\ HUD encourages other jurisdictions with rent control laws
that affect rents paid by recent movers into existing units to
contact HUD about what data might be provided or collected to adjust
Small Area FMRs in those jurisdictions.
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The numerator of the ratio, representing the development cost of
housing, was the area's FY 2019 FMR, or Small Area FMR in metropolitan
areas. In general, the FMR is based on the 40th-percentile gross rent
paid by recent movers to live in a two-bedroom rental unit.
The denominator of the ratio, representing the maximum income of
eligible tenants, 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. Sort Areas by Ratio and Exclude Unsuitable Areas. The ratios of
the FMR, or Small Area FMR, to the LIHTC income-based rent limit were
arrayed in descending order, separately, for ZCTAs and for
nonmetropolitan counties. ZCTAs with populations less than 100 were
excluded in order to avoid designating areas unsuitable for residential
development, such as ZCTAs containing airports.
3. Select Areas with Highest Ratios and Exclude QCTs. The DDAs are
those areas with the highest ratios that cumulatively comprise 20
percent of the 2010 population of all metropolitan areas and all
nonmetropolitan areas. For purposes of applying this population cap,
HUD excluded the population in areas designated as 2020 QCTs. Thus, an
area can be designated as a QCT or DDA, but not both.
B. Application of Population Caps to DDA Determinations
In identifying DDAs, HUD applied caps, or limitations, as noted
above. The cumulative population of metropolitan DDAs cannot exceed 20
percent of the cumulative population of all metropolitan areas, and the
cumulative population of nonmetropolitan DDAs 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 those procedures. 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 additional areas in the above examples of
minimal overruns is consistent with the intent of the IRC. 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. Therefore, the extent of the
measurement error is unknown. 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. Qualified Census Tracts
In developing the list of QCTs, HUD used 2010 Census 100-percent
count data on total population, total households, and population in
households; the median household
[[Page 50468]]
income and poverty rate as estimated in the 2011-2015, 2012-2016 and
2013-2017, ACS tabulations; the FY 2019 Very Low-Income Limits (VLILs)
computed at the HUD Metropolitan FMR Area (HMFA) level to determine
tract eligibility; and the MSA definitions published in OMB Bulletin
No. 15-01 on July 15, 2015, 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 IRC Section 42(d)(5)(B)(iv)(II), refers to
the same section of the IRC that defines income for purposes of tenant
eligibility and unit maximum rent, specifically IRC Section 42(g)(4).
By rule, the IRS sets these income limits according to HUD's VLILs,
which, starting in FY 2006 and thereafter, are established at the HMFA
level. 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 (IRC Section 42(d)(5)(B)(ii)(III)), which states that MSAs
should be treated as singular areas.
The QCTs were determined as follows:
1. Calculate 60 percent AMGI. 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. Due to potential statistical anomalies in the ACS 5-year
estimates, one of these conditions must be met in at least 2 of the 3
ACS 5-year tabulations for a tract to be considered eligible for QCT
designation. HUD calculates 60 percent of AMGI by multiplying by a
factor of 1.2 the HMFA or nonmetropolitan county FY 2019 VLIL adjusted
for inflation to match the ACS estimates, which are adjusted to the
value of the dollar in the last year of the 5-year group.
2. Determine Whether Census Tracts Have Less than 50 percent of
Households Below 60 percent AMGI. For each census tract, whether or not
50 percent of households have incomes below the 60 percent income
standard (income criterion) was determined by: (a) calculating the
average household size of the census tract, (b) adjusting the income
standard to match the average household size, and (c) comparing the
average-household-size-adjusted income standard to the median household
income for the tract reported in each of the three years of ACS
tabulations (2011-2015, 2012-2016 and 2013-2017). HUD did not consider
estimates of median household income to be statistically reliable
unless the margin of error was less than half of the estimate (or a
Margin of Error Ratio, MoER, of 50 percent or less). If at least two of
the three estimates were not statistically reliable by this measure,
HUD determined the tract to be ineligible under the income criterion
due to lack of consistently reliable median income statistics across
the three ACS tabulations. Since 50 percent of households in a tract
have incomes above and below the tract median household income, if the
tract median household income is less than the average-household-size-
adjusted income standard for the tract, then more than 50 percent of
households have incomes below the standard.
3. Estimate Poverty Rate. For each census tract, the poverty rate
was determined in each of the three releases of ACS tabulations (2011-
2015, 2012-2016 and 2013-2017) by dividing the population with incomes
below the poverty line by the population for whom poverty status has
been determined. As with the evaluation of tracts under the income
criterion, HUD applies a data quality standard for evaluating ACS
poverty rate data in designating the 2020 QCTs. HUD did not consider
estimates of the poverty rate to be statistically reliable unless both
the population for whom poverty status has been determined and the
number of persons below poverty had MoERs of less than 50 percent of
the respective estimates. If at least two of the three poverty rate
estimates were not statistically reliable, HUD determined the tract to
be ineligible under the poverty rate criterion due to lack of reliable
poverty statistics across the ACS tabulations.
4. Designate QCTs Where 20 percent or Less of Population Resides in
Eligible Census Tracts. QCTs are those census tracts in which 50
percent or more of the households meet the income criterion in at least
two of the three years evaluated, or 25 percent or more of the
population is in poverty in at least two of the three years evaluated,
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. Designate QCTs Where More than 20 percent of Population Resides
in Eligible Census Tracts. 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. The statistically reliable income and poverty criteria are each
averaged over the three ACS tabulations (2011-2015, 2012-2016 and 2013-
2017). Statistically reliable values that did not exceed the income and
poverty rate thresholds were included in the average.
b. Eligible tracts are placed in one of two groups based on the
averaged values of the income and poverty criteria. The first group
includes tracts that satisfy both the income and poverty criteria for
QCTs for at least two of the three evaluation years; a different pair
of years may be used to meet each criterion. The second group includes
tracts that satisfy either the income criterion in at least two of the
three years, or the poverty criterion in at least two of three years,
but not both. A tract must qualify by at least one of the criteria in
at least two of the three evaluation years to be eligible.
c. Tracts in the first group are ranked from highest to lowest by
the average of the ratios of the tract average-household-size-adjusted
income limit to the median household income. Then, tracts in the first
group are ranked from highest to lowest by the average of the poverty
rates. 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.
d. Tracts in the second group are ranked from highest to lowest by
the average of the ratios of the tract average-household-size-adjusted
income limit to the median household income. Then, tracts in the second
group are ranked from highest to lowest by the average of the poverty
rates. 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.
e. The ranked first group is stacked on top of the ranked second
group to yield a single, concatenated, ranked list of eligible census
tracts.
f. Working down the single, concatenated, ranked list of eligible
tracts, census tracts are identified as designated until the
designation of an additional tract would cause the 20 percent limit to
be exceeded. If a census tract is not designated because doing so would
raise the percentage above 20 percent, subsequent eligible census
tracts are then considered to determine if one or more eligible census
tract(s) with smaller population(s) could be designated without
exceeding the 20 percent limit.
[[Page 50469]]
D. Exceptions to OMB Definitions of MSAs and Other Geographic Matters
As stated in OMB Bulletin 15-01, defining metropolitan areas:
``OMB establishes and maintains the delineations 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 delineations, [.] 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 delineations are appropriate for such use. An agency
using the statistical delineations in a nonstatistical program may
modify the delineations, but only for the purposes of that program. In
such cases, any modifications should be clearly identified as
delineations from the OMB statistical area delineations in order to
avoid confusion with OMB's official definitions of Metropolitan . . .
Statistical Areas.''
Following OMB guidance, the estimation procedure for the FMRs and
income limits incorporates the current OMB definitions of metropolitan
Core-Based Statistical Areas (CBSAs) based on the CBSA standards, as
implemented with 2010 Census data, but makes adjustments to the
definitions, in order to separate subparts of these areas in cases
where counties were added to an existing or newly defined metropolitan
area. In CBSAs where subareas are established, it is HUD's view that
the geographic extent of the housing markets are not the same as the
geographic extent of the CBSAs.
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 an HMFA is outside an OMB-
defined, county-based MSA, all New England nonmetropolitan counties are
kept intact for purposes of designating Nonmetropolitan DDAs.
Future Designations
DDAs are designated annually as updated HUD income limit and FMR
data are made public. QCTs are designated annually as new income and
poverty rate data are released.
Effective Date
The 2020 lists of QCTs and DDAs are effective:
(1) For allocations of credit after December 31, 2019; or
(2) for purposes of IRC Section 42(h)(4), if the bonds are issued
and the building is placed in service after December 31, 2019.
If an area is not on a subsequent list of QCTs or DDAs, the 2020
lists are effective for the area if:
(1) The allocation of credit to an applicant is made no later than
the end of the 730-day period after the applicant submits a complete
application to the LIHTC-allocating agency, and the submission is made
before the effective date of the subsequent lists; or
(2) for purposes of IRC Section 42(h)(4), if:
(a) The bonds are issued or the building is placed in service no
later than the end of the 730-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 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.
In the case of a ``multiphase project,'' the DDA or QCT status of
the site of the project that applies for all phases of the project is
that which applied when the project received its first allocation of
LIHTC. For purposes of IRC Section 42(h)(4), the DDA or QCT status of
the site of the project that applies for all phases of the project is
that which applied when the first of the following occurred: (a) The
building(s) in the first phase were placed in service, or (b) the bonds
were issued.
For purposes of this notice, a ``multiphase project'' is defined as
a set of buildings to be constructed or rehabilitated under the rules
of the LIHTC and meeting the following criteria:
(1) The multiphase composition of the project (i.e., total number
of buildings and phases in project, with a description of how many
buildings are to be built in each phase and when each phase is to be
completed, and any other information required by the agency) is made
known by the applicant in the first application of credit for any
building in the project, and that applicant identifies the buildings in
the project for which credit is (or will be) sought;
(2) the aggregate amount of LIHTC applied for on behalf of, or that
would eventually be allocated to, the buildings on the site exceeds the
one-year limitation on credits per applicant, as defined in the
Qualified Allocation Plan (QAP) of the LIHTC-allocating agency, or the
annual per-capita credit authority of the LIHTC allocating agency, and
is the reason the applicant must request multiple allocations over 2 or
more years; and
(3) all applications for LIHTC for buildings on the site are made
in immediately consecutive years.
Members of the public are hereby reminded that the Secretary of
Housing and Urban Development, or the Secretary's designee, has legal
authority to designate DDAs and QCTs, by publishing lists of geographic
entities as defined by, in the case of DDAs, the Census Bureau, 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 such lists. The Secretary of the Treasury,
through the IRS thereof, has sole legal authority to interpret, and to
determine and enforce compliance with the IRC 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 QCT or DDA status. The
examples covering DDAs are equally applicable to QCT designations.
(Case A) Project A is located in a 2020 DDA that is NOT a
designated DDA in 2021 or 2022. A complete application for tax credits
for Project A is filed with the allocating agency on November 15, 2020.
Credits are allocated to Project A on October 30, 2022. Project A is
eligible for the increase in basis accorded a project in a 2020 DDA
because the application was filed BEFORE January 1, 2021 (the assumed
effective date for the 2021 DDA lists), and because tax credits were
allocated no later than the end of the 730-day period after the filing
of the complete application for an allocation of tax credits.
[[Page 50470]]
(Case B) Project B is located in a 2020 DDA that is NOT a
designated DDA in 2021 or 2022. A complete application for tax credits
for Project B is filed with the allocating agency on December 1, 2020.
Credits are allocated to Project B on March 30, 2023. Project B is NOT
eligible for the increase in basis accorded a project in a 2020 DDA
because, although the application for an allocation of tax credits was
filed BEFORE January 1, 2021 (the assumed effective date of the 2021
DDA lists), the tax credits were allocated later than the end of the
730-day period after the filing of the complete application.
(Case C) Project C is located in a 2020 DDA that was not a DDA in
2019. Project C was placed in service on November 15, 2019. A complete
application for tax-exempt bond financing for Project C is filed with
the bond-issuing agency on January 15, 2020. The bonds that will
support the permanent financing of Project C are issued on September
30, 2020. Project C is NOT eligible for the increase in basis otherwise
accorded a project in a 2020 DDA, because the project was placed in
service BEFORE January 1, 2020.
(Case D) Project D is located in an area that is a DDA in 2020 but
is NOT a DDA in 2021 or 2022. A complete application for tax-exempt
bond financing for Project D is filed with the bond-issuing agency on
October 30, 2020. Bonds are issued for Project D on April 30, 2022, but
Project D is not placed in service until January 30, 2023. Project D is
eligible for the increase in basis available to projects located in
2020 DDAs because: (1) One of the two events necessary for triggering
the effective date for buildings described in Section 42(h)(4)(B) of
the IRC (the two events being bonds issued and buildings placed in
service) took place on April 30, 2022, within the 730-day period after
a complete application for tax-exempt bond financing was filed, (2) the
application was filed during a time when the location of Project D was
in a DDA, and (3) both the issuance of the bonds and placement in
service of Project D occurred after the application was submitted.
(Case E) Project E is a multiphase project located in a 2020 DDA
that is NOT a designated DDA or QCT in 2021. The first phase of Project
E received an allocation of credits in 2020, pursuant to an application
filed March 15, 2020, which describes the multiphase composition of the
project. An application for tax credits for the second phase of Project
E is filed with the allocating agency by the same entity on March 15,
2021. The second phase of Project E is located on a contiguous site.
Credits are allocated to the second phase of Project E on October 30,
2021. The aggregate amount of credits allocated to the two phases of
Project E exceeds the amount of credits that may be allocated to an
applicant in one year under the allocating agency's QAP and is the
reason that applications were made in multiple phases. The second phase
of Project E is, therefore, eligible for the increase in basis accorded
a project in a 2020 DDA, because it meets all of the conditions to be a
part of a multiphase project.
(Case F) Project F is a multiphase project located in a 2020 DDA
that is NOT a designated DDA in 2021 or 2022. The first phase of
Project F received an allocation of credits in 2020, pursuant to an
application filed March 15, 2020, which does not describe the
multiphase composition of the project. An application for tax credits
for the second phase of Project F is filed with the allocating agency
by the same entity on March 15, 2022. Credits are allocated to the
second phase of Project F on October 30, 2022. The aggregate amount of
credits allocated to the two phases of Project F exceeds the amount of
credits that may be allocated to an applicant in one year under the
allocating agency's QAP. The second phase of Project F is, therefore,
NOT eligible for the increase in basis accorded a project in a 2020
DDA, since it does not meet all of the conditions for a multiphase
project, as defined in this notice. The original application for
credits for the first phase did not describe the multiphase composition
of the project. Also, the application for credits for the second phase
of Project F was not made in the year immediately following the first
phase application year.
Findings and Certifications
Environmental Impact
This notice involves the establishment of fiscal requirements or
procedures that are related to rate and cost determinations and do not
constitute a development decision affecting the physical condition of
specific project areas or building sites. Accordingly, under 40 CFR
1508.4 of the regulations of the Council on Environmental Quality and
24 CFR 50.19(c)(6) of HUD's regulations, this notice is categorically
excluded from environmental review under the National Environmental
Policy Act of 1969 (42 U.S.C. 4321).
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 DDAs and QCTs as required under IRC Section
42, as amended, for the use by political subdivisions of the states in
allocating the LIHTC. This notice also details the technical methods
used in making such designations. As a result, this notice is not
subject to review under the order.
Dated: September 19, 2019.
Seth D. Appleton,
Assistant Secretary for Policy Development and Research.
[FR Doc. 2019-20833 Filed 9-24-19; 8:45 am]
BILLING CODE 4210-67-P
