[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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