[Federal Register Volume 76, Number 140 (Thursday, July 21, 2011)]
[Rules and Regulations]
[Pages 43571-43574]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18329]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 126
RIN 3245-AG45
Small Business HUBZone Program; Government Contracting Programs
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule with request for comments.
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SUMMARY: This interim final rule amends the U.S. Small Business
Administration's regulations pertaining to the Historically
Underutilized Business Zone (HUBZone Program). Specifically, this
interim final rule allows a declined or decertified HUBZone small
business to reapply ninety (90) calendar days after the decline or
decertification decision is rendered, rather than wait one year to
reapply, provided that it meets the eligibility requirements at that
time of application.
DATES: Effective Date: This rule is effective July 21, 2011.
Comment Date: Comments must be received on or before August 22,
2011.
ADDRESSES: You may submit comments, identified by RIN 3245-AG45 by any
of the following methods:
Federal Rulemaking Portal: http://www.regulations.gov and
follow the instructions for submitting comments.
Mail, for paper, disk, or CD-ROM submissions: Mariana
Pardo, Deputy Director, HUBZone Program, 409 Third Street, SW.,
Washington, DC 20416.
Hand Delivery/Courier: Mariana Pardo, Deputy Director,
HUBZone Program, 409 Third Street, SW., Washington, DC 20416.
SBA will post all comments on http://www.Regulations.gov. If you wish
to submit confidential business information (CBI) as defined in the
User Notice at http://www.Regulations.gov, please submit the
information to Mariana Pardo and highlight the information that you
consider to be CBI and explain why you believe this information should
be held confidential. SBA will review the information and make a final
determination of whether the information will be published or not.
[[Page 43572]]
FOR FURTHER INFORMATION CONTACT: Mariana Pardo, Deputy Director,
HUBZone Program, (202) 205-2985 or by e-mail at mariana.pardo@sba.gov.
SUPPLEMENTARY INFORMATION:
I. Background
The Small Business Act (Act) and implementing regulations require
that, with the exception of certain specified entities, qualified
HUBZone small business concerns (SBCs) have a principal office located
in a HUBZone. 15 U.S.C. 632(p)(5)(A)(i)(I)(aa); 13 CFR 126.103. The Act
and the implementing regulations also require that at least 35% of the
HUBZone small business concern's employees reside in a HUBZone. Id. 13
CFR 126.200(b). The statute and regulations define a HUBZone to mean an
area located within one or more qualified census tracts (QCTs),
qualified non-metropolitan counties (QNMCs), lands within the external
boundaries of an Indian reservation, redesignated areas, or base
closure areas. Id.Sec. 632(p)(1); 13 CFR 126.103.
The Act and SBA's regulations define a QCT by referring to the
Internal Revenue Code of 1987, which in turn defines a QCT as any
census tract which is designated by the Secretary of Housing and Urban
Development (HUD) and, for the most recent year for which census data
are available on household income in such tract, either in which 50
percent or more of the households have an income which is less than 60
percent of the area median gross income. See 26 U.S.C. 42(d)(5)(C).
Thus, a QCT may be located in a nonmetropolitan or a metropolitan area.
In addition, a QCT is not necessarily a ``county,'' but is an area
located within a county.
The Act and regulations also define a QNMC as any county that was
not located in a metropolitan statistical area and in which: (1) The
median household income is less than 80 percent of the nonmetropolitan
State median household income, based on the most recent data available
from the Census Bureau; (2) the unemployment rate is not less than 140
percent of the average unemployment rate for the United States or for
the State in which such county is located, whichever is less, based on
the most recent data available from the Department of Labor (DOL); or
(3) there is located a difficult development area, as designated by HUD
within Alaska, Hawaii, or any territory or possession of the United
States outside the 48 contiguous States. 15 U.S.C. 632(p)(4)(B).
In sum, the HUBZone areas are designated by statute and draw upon
determinations and information obtained by other agencies. The SBA
takes these designations and depicts them on an easy-to-use HUBZone
map, available at http://www.sba.gov/content/hubzone-maps. The SBA does
not have discretion when it comes to designating HUBZones.
With respect to both QCTs and QNMCs, the SBA relies on data from
HUD, Census Bureau and DOL in order to determine which areas are
HUBZones. With respect to the census tracts, HUD reviews census tracts
as new data from the Census Bureau become available or when
metropolitan area definitions change. HUD's current designations of
census tracts are based on data from the 2000 Census because in the
past, tract-level data was only available from a Decennial Census.
However, due to changes in collection of income data at the tract level
by the Census Bureau, HUD will now be relying on data from the American
Community Survey (ACS). Although the ACS is an annual survey, tract-
level data from the ACS will be released as five-year averages. The
first release of this data will cover the 2005 through 2009 period and
the Census Bureau expects to make this data available sometime soon.
HUD will review this new data during 2012 and make census tract
determinations. Census tracts will be subsequently reviewed based on
new data every 5 years. SBA relies on these HUD designations for
purposes of its program.
However, before HUD can designate a census tract, it must rely on
the Census Bureau to define the census tract's boundaries. With respect
to the census tracts, the Census Bureau defines the boundaries in
cooperation with local authorities every ten years and, following a
public comment period, has recently completed defining tract boundaries
for the 2010 Census. Once census tract boundaries are set, they remain
unchanged for the next decade. Thus, tract boundaries will not be
changed again until the 2020 Decennial Census.
Therefore, with respect to HUBZone QCTs, SBA relies on designations
from HUD and boundary designations from the Census Bureau.
With respect to nonmetropolitan counties, SBA receives unemployment
data from DOL yearly. Further, designations based on the HUD defined
Difficult Development Areas (DDAs) are updated annually. Thus, for
QNMCs, the SBA relies on DOL data and HUD definitions for DDAs.
When the HUBZone Program first started, the receipt of such data or
designations, especially the annual data, meant that in some cases
certain HUBZone areas could be affected every year by the release of
certain data, i.e., the areas would lose HUBZone status. As a result,
the Small Business Act was amended to add a new HUBZone area known as a
``redesignated area.'' At that time, a redesignated area, that is, any
QCT or QNMC that ceased to be qualified, would become redesignated as a
HUBZone area only for the 3-year period following the date on which the
QCT or QNMC ceased to be so qualified. Public Law 106-554, Sec.
613(1)(c) (2000). Congress added these redesignated areas because it
believed that decertifying large numbers of small businesses that had
not seen any benefit to the program would have threatened the HUBZone
program by giving it a reputation as not worthwhile. Congress also
believed any county that could change into and out of HUBZone status
annually would not attract small businesses to the HUBZone program and
would hinder investment in such a location. S. Rep. 107-19, 107th Cong.
1st Sess. (2001).
A few years later, the SBA encountered additional problems once the
Census Bureau released the 2000 Decennial Census results as a large
number of areas ceased to be considered HUBZones. In response, Congress
amended the Act in 2004 to redefine a redesignated area to mean any QCT
or QNMC that ceases to be qualified may be a redesignated area until
the later of: (1) The date on which the Census Bureau publicly releases
the first results from the 2010 Decennial Census that affects the
eligibility of the HUBZone; or (2) three years after the date on which
the census tract or nonmetropolitan county ceased to be so qualified.
15 U.S.C. 632(p)(4)(C). The purpose of extending the redesignated
status until the 2010 Decennial Census or three years after the date
the QCT or QNMC ceases to be a qualified HUBZone (whichever is later)
was to provide adequate time for HUBZone SBCs to recoup a return on
investment and assist the Federal government in meeting its statutory
prime contracting HUBZone goal of 3 percent.
This year, the Census Bureau will publicly release the first
results of the 2010 Decennial Census that affect the eligibility of the
HUBZones. The Census Bureau uses the ACS to collect socioeconomic and
housing information continuously from a national sample of housing
units and people living in group quarters, and tabulates these data on
a calendar year basis. Agencies will utilize the evaluated data from
the ACS to make QCT and QNMC determinations. The first set of evaluated
data using ACS numbers that affect HUBZone eligibility are expected
[[Page 43573]]
to be available to the public in the Fall 2011. SBA will generate a new
list of QNMCs at that time that will take into consideration the
analysis of the income data coming from the five year ACS. At the
moment that the new list is made public, those areas that were
redesignated prior to 2008 will expire and cease to be HUBZones. The
areas affected include redesignated QCTs and QNMCs (including QNMCs
that are difficult development areas).
The following provides examples of how the statutory redesignated
areas are affected or not affected by the release of the 2010 Decennial
Census:
Example 1: A QCT ceased to be a HUBZone in 2004 and therefore
became a redesignated HUBZone in 2004. The area may remain a HUBZone
until the release of the 2010 Decennial Census data that affects its
eligibility or three years from the date of redesignation, whichever
is later. In this case, the area will cease to be a HUBZone on the
release of the 2010 Decennial Census data that affects its
eligibility.
Example 2: A QNMC ceased to be a HUBZone in 2009 because the
unemployment ratio disqualified it and therefore became a
redesignated HUBZone in 2009. The area may remain a HUBZone until
the release of the 2010 Decennial Census data that affects its
eligibility or three years from the date of redesignation, whichever
is later. In this case, the area will cease to be a HUBZone three
years from the date of redesignation--2012.
Example 3: A QNMC ceased to be a HUBZone in 2008 because HUD
determined the area was no longer a difficult development area and
therefore it became a redesignated HUBZone in 2008. The area may
remain a HUBZone until the release of the 2010 Decennial Census data
that affects its eligibility or three years from the date of
redesignation, whichever is greater. In this case, the area will
cease to be a HUBZone three years from the date of redesignation--
2011.
When the Census Bureau releases the data, the SBA will publish
information and later update its current maps to show the public those
areas that are no longer qualified HUBZones because they are no longer
redesignated areas. Any current qualified HUBZone SBC with a principal
office in one of those areas will be proposed for decertification. The
SBA will also publish information and update its maps to show any areas
that may become new HUBZones. In some cases, a redesignated area could
remain a HUBZone by becoming a QNMC or QCT. The SBA does not have any
information at this time to identify areas that will be designated as
new HUBZones.
We note that the HUBZone Program was established in 1997, and all
the redesignated areas have been allowed to stay in the program or
reinstated since December 2004. Since then, no SBC has been decertified
because of an expired redesignation. In general, SBA believes that many
SBCs in these redesignated areas have been given ample time to recoup a
return on their investment. However, we understand that many of these
SBCs in the redesignated areas that are getting ready to expire may
want to continue to utilize the HUBZone Program and could do so by
moving their business into a HUBZone.
Specifically, the HUBZone Program has an average of 8,500
participating firms, and about 40% of the firms will be affected by the
expiring redesignations based on principal office location. In addition
there will be another set of small businesses that will be ineligible
because they no longer meet the HUBZone 35% residency requirement.
Further, the HUBZone Program receives approximately 4,000 applications
per year. Of the 1,089 applications that where declined in FY10, 62%
where declined due to the applicant not meeting the 35% employee
HUBZone residence requirement and 46% because of not meeting the
principal office requirement. Also, of the 742 firms that voluntarily
decertified in FY09 and FY10, 23% did so because they were not meeting
the 35% employee HUBZone residence requirement and 22% because of not
meeting the principal office requirement.
Under the current regulations, once declined or decertified, these
small businesses must wait one year to reapply. At the time it
promulgated that rule, the SBA believed that a one year wait was
sufficient time for a small business to come back into compliance.
However, in many cases, the small business only has to hire a few
additional HUBZone residents. In other cases, such as those small
businesses with principal offices in HUBZone areas that are about to
expire, the SBA has provided several years warning about the
expiration. In preparation, some businesses may be planning to move to
HUBZone areas. It would not serve the purposes of the program to make
such small businesses wait one year to reapply.
The SBA believes that reducing the one year wait period to ninety
(90) calendar days would encourage the businesses to move into newly
designated HUBZones and hire HUBZone residents, which are the two
purposes of the statute. It would also create an incentive for small
businesses that no longer meet the HUBZone program requirements to
voluntarily decertify and then seek eligibility when they come back
into compliance. Because so many small businesses will be affected by
the expiration of the redesignated areas--whether as a result of its
principal office no longer being located in a HUBZone or employees no
longer residing in a HUBZone--the SBA believes it is best to reduce the
one year wait period, so that no small business is subject to this
lengthy wait.
The SBA does not believe that reducing of the one year wait would
increase fraud, waste, and abuse on the program. The business concern
must meet all HUBZone eligibility requirements when it reapplies. In
fact decreasing the one year wait to ninety (90) calendar days will
incentivize small businesses to voluntarily decertify knowing that they
do not need to wait a year before reapplying.
As a result of the foregoing, with this interim final rule, the SBA
is reducing the one year wait period set forth in 13 CFR 126.309.
Accordingly, 13 CFR 126.309 would simply state that a concern that SBA
has declined or decertified may seek certification ninety (90) calendar
days after the date of decline or decertification if it believes that
it has overcome all reasons for decline or decertification through
changed circumstances and is currently eligible.
II. Justification for Publication as an Interim Final Status Rule
In general, SBA publishes a rule for public comment before issuing
a final rule in accordance with the Administrative Procedure Act (APA)
and SBA regulations. 5 U.S.C. 553 and 13 CFR 101.108. The APA provides
an exception to this standard rulemaking process where an agency finds
good cause to adopt a rule without prior public participation. 5 U.S.C.
553(b)(3)(B). The good cause requirement is satisfied when prior public
participation is impracticable, unnecessary, or contrary to the public
interest. Under such circumstances, an agency may publish an interim
final rule without soliciting public comment.
The purpose of the HUBZone program is job creation and capital
investment in Historically Underutilized Business Zones. In the present
case, the SBA believes that up to half of the currently certified
HUBZone SBCs may be affected by the results of the 2010 Decennial
Census, whether as a result of the company's principal office losing
HUBZone status or the company's employees no longer residing in a
HUBZone. Approximately 47.5% of current QNMCs will be removed from HZ
qualification, 30% of the current DDAs will be removed and 27% of
[[Page 43574]]
QCTs will be removed. This means that many small businesses will no
longer be certified HUBZone small business concerns and would have to
wait one year to reapply to the program, even if they moved their
business to a HUBZone or hired new HUBZone residents as employees.
Decreasing the one year wait would permit, and we believe encourage,
the businesses to move into newly designated HUBZones, which is one of
the purposes of the statute.
This rule will help the communities that qualify as HUBZones under
the criteria established by the Act. In allowing concerns to apply for
certification after ninety (90) calendar days from being declined or
decertified, such qualified HUBZone communities would boost their
capital investment and job opportunities for its residents, since these
declined or decertified small businesses will need to either locate to
HUBZone communities and/or hire HUBZone residents, giving them an
increased prospect of positively impacting jobs and investment in
historically underutilized areas.
In addition, we have been notifying small businesses whose
principal office is located in a redesignated area that is expiring
with the release of 2010 Census data but the SBA cannot easily notify
other small businesses who have a principal office in a continuing
HUBZone but who have employees who live in expiring areas, and must
meet the 35% HZ residency requirement. Reducing the one-year wait will
encourage such small businesses to voluntarily decertify from the
program because they know they will be able to reapply immediately when
they are eligible.
We note that the public will still have the opportunity to offer
comments, which will be reviewed by the SBA. Accordingly, SBA finds
that good cause exists to publish this rule as an interim final rule as
quickly as possible.
III. Justification for Immediate Effective Date of Interim Final Rule
The APA requires that ``publication or service of a substantive
rule shall be made not less than 30 days before its effective date,
except * * * as otherwise provided by the agency for good cause found
and published with the rule.'' 5 U.S.C. 553(d)(3). SBA finds that good
cause exists to make this final rule effective the same day it is
published in the Federal Register.
The purpose of the APA provision is to provide interested and
affected members of the public sufficient time to adjust their behavior
before the rule takes effect. For the reasons set forth above in
Section III, ``Justification for Publication as Interim Final Status
Rule'', SBA finds that good cause exists for making this interim final
rule effective immediately, instead of observing the 30-day period
between publication and effective date. Nonetheless, the public may
provide comments to SBA by the deadline for comments. SBA will review
any comments received.
IV. Compliance With Executive Orders 12866, 12988, and 13132, and the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
rule does not constitute a significant regulatory action under E.O.
12866. This is not a major rule under the Congressional Review Act, 5
U.S.C. 800.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) E.O. 12988, Civil Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce burden. The action does not have
retroactive or preemptive effect.
Executive Order 13132
For the purpose of E.O. 13132, SBA has determined that the rule
will not have substantial direct effects on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. Therefore, this final rule has no federalism implications
warranting preparation of a federalism assessment.
Paperwork Reduction Act
SBA has determined that this rule does not impose additional
reporting or recordkeeping requirements under the Paperwork Reduction
Act, 44 U.S.C., Chapter 35.
Regulatory Flexibility Act (RFA)
Because this rule is an interim final rule, there is no requirement
for SBA to prepare an Initial Regulatory Flexibility Act analysis. The
RFA requires administrative agencies to consider the effect of their
actions on small entities, small non-profit businesses, and small local
governments. Pursuant to the RFA, when an agency issues a rule the
agency must prepare analysis that describes whether the impact of the
rule will have a significant economic impact on a substantial number of
small entities. However, the RFA requires such analysis only where
notice and comment rulemaking is required.
List of Subjects in 13 CFR Part 126
Administrative practice and procedure, Government procurement,
Reporting and recordkeeping requirements, Small businesses.
For the reasons stated in the preamble, the Small Business
Administration amends 13 CFR part 126 as follows:
PART 126--HUBZONE PROGRAM
0
1. The authority citation for part 126 continues to read as follows:
Authority: 15 U.S.C. 632(a), 632(j), 632(p) and 657a.
0
2. Revise Sec. 126.309 to read as follows:
Sec. 126.309 May a declined or decertified concern seek certification
at a later date?
A concern that SBA has declined or decertified may seek
certification after ninety (90) calendar days from the date of decline
or decertification if it believes that it has overcome all reasons for
decline or decertification through changed circumstances and is
currently eligible. A concern found to be ineligible during a HUBZone
status protest is precluded from applying for HUBZone certification for
ninety (90) calendar days from the date of the final agency decision
(the D/HUB's decision if no appeal is filed or the decision of the AA/
GCBD) pursuant to 13 CFR 126.803(d)(5).
0
3. Amend Sec. 126.803 by revising paragraph (d)(5) to read as follows:
Sec. 126.803 How will SBA process a HUBZone status protest?
* * * * *
(d) * * *
(5) A concern found to be ineligible is precluded from applying for
HUBZone certification for ninety (90) calendar days from the date of
the final agency decision (the D/HUB's decision if no appeal is filed
or the decision of the AA/GCBD).
Dated: July 5, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2011-18329 Filed 7-20-11; 8:45 am]
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