RC/EZ Laws and Regulations

Information by State  Print version

Congress has split oversight of the RCs and urban EZs between the Department of Housing and Urban Development and the Department of Health and Human Services. Each plays a different, but important role in ensuring program integrity.

By statute, HUD is the designating agency for urban and rural RCs and for urban EZs. HUD is also statutorily responsible for making a periodic progress determination for each of its designees. The HHS Office of Community Services administers the federal funding for the Round I EZ projects. OCS has awarded the funds to state agencies that, in turn, pass them to local-level organizations that implement EZ projects. In many cases, the city planning department receives the federal grant funding and coordinates the EZ activities at the local level, but in several cities, a private not-for-profit organization has that responsibility. The federal grants are authorized in Section 2007 of the Social Security Act and they are a special component of the Social Services Block Grant program. The HHS website for the EZ program provides more details about the Round I grants. HHS regulations concerning the grants are found at 45 CFR Part 96.

Congress has provided a different funding source for the 15 Round II EZs and a different mechanism must be followed to distribute that funding. HUD uses a process similar to the HUD Community Development Block Grant (CDBG) program to distribute the EZ funding. HUD sends its funding to the lead locality (city or county) which in turn may distribute the funding to a non-profit 501c(3) corporation.

Framework Governing HUD'S Legal Responsibility for Monitoring & Auditing the RC/EZ Initiative

HUD's legal responsibility regarding monitoring the EZs derives primarily from section 1391(d)(2) of the Omnibus Budget Reconciliation Act, which provides for the revocation of an EZ's designation if the Secretary determines, among other things, that a designated EZ has failed "to make progress in achieving the benchmarks set forth in the strategic plan." This provision applies to Round I - Round III designations, and implies that information must be submitted to and reviewed by HUD in order for the Department to make such determinations. To further implement this responsibility the Department's regulations at 24 CFR §597.400-403 provide for reporting, performance reviews, validation of designation and revocation of designation under appropriate circumstances. Similar provisions apply to Empowerment Zones designated in Round II pursuant to 24 CFR § 58.415-430.

Provisions for monitoring the RCs derives from section 1400E of the Omnibus Budget Reconciliation Act, which provides in paragraph (b)(2) for the revocation of an RC's designation if the Secretary determines that the local government or the State in which the RC is located has modified the boundaries of the RC or the RC is not complying substantially with, or fails to make progress in achieving, State or local commitments.

HUD'S Process for Monitoring Progress of RCs and Urban EZs

HUD's Office of Community Renewal has full-time staff devoted to monitor and communicate with each RC and EZ. In addition, to help ensure compliance with applicable laws and regulations, HUD's Assistant Secretary for CPD has assigned a CPD Representative to monitor and assess the progress of these communities. The CPD Representatives work with the Office of Community Renewal to help ensure full compliance with HUD's statutory monitoring responsibilities for the RCs and EZs. These representatives have received training from the Office of Community Renewal on monitoring the designees. This Office will use annual assessments from these CPD representatives and other pertinent information to determine if a designee will maintain its good standing and retain its designation.

RC/EZ Initiative Performance Measurement System (PERMS)

To satisfy its monitoring and evaluation responsibilities, HUD's Office of Community Renewal instituted an Internet-based performance measurement system called PERMS. The RC/EZ designees use PERMS to document the projects and programs they are implementing to achieve their local strategic plan and Course of Action. The CPD Representatives use PERMS to monitor and evaluate the progress of each RC/EZ. Each year the designees use PERMS to submit an annual performance report that identifies progress made in achieving project/program milestones and output measurements and tracks the performance of governance boards and, for RCs, the Coordinating Responsible Agency (CoRA). The CPD Representatives use PERMS to evaluate the information contained in the RC/EZ annual reports. PERMS not only cuts down on the paperwork burden facing the designees, it provides HUD with a low-cost mechanism for continually monitoring the progress of each designee.

Statutory and Regulatory Framework Concerning HHS's Responsibilities for the Round I Grants

Section 13761 of the Omnibus Budget Reconciliation Act of 1993 authorizes the Department of Health and Human Services' Office of Community Services to provide funds to appropriate State agencies for designated Round I Empowerment Zone projects. The grants are subject to that department's regulations and procedures.

Legal Responsibility of the States Regarding Monitoring and Auditing

In general, HHS has delegated some oversight responsibilities for the EZ funds to the States. The States are responsible for ensuring program integrity. The States are responsible for monitoring EZ spending to ensure compliance with legal requirements. Regarding HUD and the States, Section 597.400 of the implementing regulations provides that the required periodic reports submitted by designees must include "State actions which have been taken in accordance with the strategic plan," but no further State action is specified. For Round II §598.415(b) specifically provides that the States must submit periodic reports to HUD, demonstrating compliance with the certifications they must submit to HUD pursuant to the statute and regulations. Other than these reporting requirements, progress determinations are left to HUD. The State agencies that receive federal grants from HHS for the EZ projects are also required to provide annual reports to HHS about the grants.

Statutory Framework Governing Designees' Legal Responsibility for Monitoring & Auditing the Initiative

Pursuant to 24 CFR §597.400, EZ designees must present periodic reports of actions taken pursuant to their strategic plans. Under §597.401, HUD will regularly evaluate that progress, and on the basis of these performance reviews may reevaluate designations, pursuant to §597.402 or revoke designations, under §597.403. Designees under Rounds II and III must submit periodic reports to HUD pursuant to 24 CFR§598.415(a). HUD must periodically review and evaluate progress in implementation of the strategic plan, in accordance with §598.420, and may validate designations, pursuant to §598.425 or revoke designations under §598.430. HUD considers input from the states in making its progress determination.

With regard to monitoring the RCs, §599.511 indicates that each CoRA and the State or local governments where the RC is located must submit period reports as HUD may require. Pursuant to §599.513, HUD may revoke a designation if it determines that the RC has modified its boundaries without authorization or is failing to achieve progress in meeting commitments under its Course of Action.