ADOPTED RULES An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 10. COMMUNITY DEVELOPMENT PART I. Texas Department of Housing and Community Affairs CHAPTER 49.Low Income Tax Credit Rules - 1996 10 TAC sec.sec.49.1-49.15 The Texas Department of Housing and Community Affairs (the Department) adopts the repeal of sec.sec.49.1-49.15, concerning the Low Income Tax Credit Rules, without changes to the proposed text as published in the March 19, 1996 issue of the Texas Register (21 TexReg 2095). The Sections are repealed in order to enact new sections conforming to the requirements of new regulations enacted under the Internal Revenue Code of 1986, sec.42 as amended, which provides for credits against federal income taxes for owners of qualified low-income rental housing. No comments were received regarding adoption of the repeals. The repeals are adopted pursuant to the authority of the Texas Government Code, Chapter 2306; Acts of the 73rd Legislature, Regular Senate Bill 45, Chapter 141, effective May 16, 1993; and Acts of the 73rd Legislature, Senate Bill 1356, Chapter 725, effective September 1, 1993; and the Internal Revenue Code of 1986, sec. 42 as amended, which provides the Department with the authority to adopt rules governing the administration of the Department and its programs and Executive Order AWR-91-4 (June 17, 1991), which provides this Department with the authority to make housing credit allocations in the State of Texas. The Texas Government Code, Chapter 2306, is affected by these adopted repeals. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 17, 1996. TRD-9609179 Larry Paul Manley Executive Director Texas Department of Housing and Community Affairs Effective date: July 17, 1996 Proposal publication date: March 19, 1996 For further information, please call: (512) 475-3044 The Texas Department of Housing and Community Affairs adopts new sec.sec.49.1- 49.15, concerning the Qualification Allocation Plan and Rules (the "Rules"), with changes to the proposed text as published in the March 19, 1996 issue of the Texas Register (21 TexReg 2096). The new sections are being adopted to provide procedures for the allocation, by the Department, of low income housing tax credits available under federal income tax laws to owners of qualified low-income rental housing projects. II. SUMMARY OF COMMENTS RECEIVED UPON PUBLICATION OF THE PROPOSED RULES IN THE TEXAS REGISTER ON MARCH 19, 1996, AND COMMENTS MADE AT A PUBLIC HEARING HELD ON APRIL 1, 1996: On March 19, 1996, the proposed Rules were published in the Texas Register thereby commencing the required 30 day comment period. Said comment period ended on April 19, 1996. The Department distributed 500 copies of the proposed 1996 Rules. Staff received 200 requests for copies of the proposed Rules from the public. During the public comment period and at the April 1, 1996, public hearing, the Department received both oral and written comments from the public. The scope of public comments concerning the Rules pertain to the following issues: Single Family Detached Homes - Several commenters at the April 1, 1996 public hearing and in written comments to the Department expressed opposition to the provision in the Rules which makes single-family detached homes ineligible to receive tax credits. One reason cited in support of a change in the Rules to allow such Projects to qualify for credits, was that single-family homes provide an avenue for home ownership after the 15-year Compliance Period when structured under a lease- purchase program. Commentators also reasoned that expectations of home ownership contribute to the stability of neighborhoods by encouraging longer tenancy for renters and better maintenance of the property. One commenter argued that precluding single-family detached Projects from qualifying for credits would negatively impact needed housing for border residents that now live in "Colonias." Department's Response - To leave in tact, the proposed exclusion of single family detached homes from the 1996 tax credit program. Prison Communities - Several commenters supported the idea of having a separate set-aside for Projects in Communities with State Prisons as opposed to considering such Projects under the rural set-aside. They expressed concern that Projects in Prison Communities will receive priority over those in rural areas. Department's Response - The Department believes 15% of the total credit ceiling dedicated to the Rural/Prison Communities set-aside is proportionate to these areas' share of the State's population. Furthermore, the Prison Community list was conceived to include communities under 50,000 that are located in areas that have received few credits in the past. Many of these communities also qualify as rural. In making an allocation of tax credits the Department and the Board will consider many factors besides project location. Thus the draft Rules do not provide any advantage to Projects in Prison Communities compared to those in rural areas. Rural Set-aside - Several members of the Rural Rental Housing Association of Texas, Inc. stated that the definition of a Rural Project would adversely affect those areas of the State that have traditionally qualified as "rural" as such term is defined by Texas Department Rural of Development (TxRD). The commenters also suggested that the 150 unit limitation for Prison/Rural Projects could allow a few Projects to utilize the entire set-aside. They also expressed concern that the Selection Criteria is heavily weighted towards giving points for items that most Projects financed by TxRD, primarily rehabs, could not claim. Other issues raised centered on the need to reduce the points for the creation of units that are accessible for the physically challenged in family Projects. The commenters reasoned that if not occupied by tenants who are physically challenged, many of these units will be difficult to rent to the general population. Department's Response - The definition of "Rural Project" was not based strictly on TxRD definition, primarily because TxRD has very limited resources to commit to Rural Projects compared to past years. Consequently, the number of units expected to be produced under the program will be located in a much broader geographic area than TxRD's definition would allow. However, the Department proposes to replace for item (C) in the definition of Rural Projects as follows: "that is located in an area that is eligible for funding by TxRD." With respect to the number of units allowable under the Rural/Prison Set-aside, the Department proposes that the maximum number of units for new construction Projects be reduced from 150 to 75. The Department believes that since Rural Projects will be competing against other Projects within the same set-aside, any advantage that Projects in the General set-aside have would not materially affect the allocation decisions. With respect to the units designed for the physically challenged, the Department has provided adequate flexibility to allow Applicants to claim these points if they have provided for the modifications of units to meet ANSI standards. Exhibit 109 and 112 Market Studies and Appraisal - Several commenters argued that the requirements for conducting a Market Study are too stringent and would mean the disqualification of otherwise qualified candidates. Others argued against requiring an appraisal for a property whose owner is not applying for acquisition credits. Department's Response - The Department believes that requiring professional credentials and setting minimum standards for Market Studies have been beneficial to the program and should be continued. With respect to the appraisal, the Department proposes that appraisals be required only in instances where a project is submitted for acquisition credits or where the Applicant is related to the Seller. Staff is proposing EXHIBIT 112 to read as follows: "if applying for acquisition credits or if the Applicant is affiliated with the seller an appraisal of the Property apportioning the value of the land and the improvements where applicable, a valuation report from the local tax appraisal district and a bona fide valid contract verifying the acquisition cost which clearly identifies the selling Persons or entities, and details any relationship with the Applicant or any Affiliation with the Development Team, any Qualified Market Analyst and any other professional or consulting performing services with respond to the Project and/or subject Property." Conditions to Carryover Allocation - Two commenters requested that the deadline for the closure of the construction loan be extended from 120 days from the execution of the carryover allocation document to 150 days after such event, with a one time 30-day extension. Department's Response - The Department agrees with this request and proposes that the Rules be amended to reflect this change. Exhibit 207, Leveraging of Funds - Several commenters have argued that grants, loans or other in-kind contributions should not be deducted from a Project's Eligible Basis as proposed in the Rules because it would negate any benefit created by the funding, thereby adversely affect the viability of many Projects. Department's Response - The Department proposes to amend this provision to allow the amount of the contribution to remain in basis only in the event that the Department makes a determination that the contribution fills a funding "gap" that is essential to the financial feasibility of the project. In making such a determination, the Department will take into account the possibility that the subject project may not be able to attract conventional financing. HUBs - A commenter suggested that the Department should strengthen the provision dealing with HUBs to ensure the individual or entities who claim these points are at risk with respect to financing the project. Department's Response - The Department concurs with this suggestion and proposes the addition of the following language to the HUB definition: "With respect to the filing of an Application and the development, operation and ownership of a Project, the historically underutilized person or persons whose ownership interests comprise a majority of a corporation, partnership, joint venture or other business entity, must maintain this majority and must demonstrate regular, continuous, and substantial participation in the operation and management activities of the entity. Likewise, with regard to a sole proprietorship, the individual who comprise the sole proprietorship must demonstrate regular, continuous, and substantial participation in the development, operation and ownership of the Project. The Department shall require evidence of regular, continuous and substantial participation and this evidence shall include, but not limited to, the agreement to personally guarantee the interim construction loan secured (and all other guarantees to the equity investor) relative to the development of a Project by the person or persons upon whose purported ownership interest(s) and participation form the basis for which the designation of a HUB is being claimed. Any such guarantee wherein an Affiliate, partner and or Beneficial Owner of the guarantor agrees to indemnify, in whole or in part, the guarantor from liability arising from the guarantee, shall not constitute said evidence. The Department shall, during and after the Application Round, monitor those individuals upon whose purported ownership interest(s) and participation form the basis for which the designation of HUB is being claimed and may require the submission of any additional documentation as required to verify said evidence." Nonprofit Developments and Right of First Refusal - Several commenters noted that in not providing points for Projects developed by Qualified Nonprofit Applicants, the Department would hinder the developments of Projects that are intended to serve the lowest income tenants for the longest period of time. The commenters also asked for the reinstatement of the Right of First Refusal provision which allows a project owner who wishes to sell the property after the end of the Compliance Period to offer the Project first to a Qualified Nonprofit Organization or tenants' organization. Department's Response - The draft Rules comply with the provisions of Section 42 of the Internal Revenue Code in requiring at least 10% of the total allocation be made to Qualified Nonprofit Projects. However, the Department proposes to reinstate the provision allowing longer low income use period to be used as one of the tie-breakers. Special Housing Needs - Several commenters urged the Department to equalize the points assigned to Projects serving special needs populations and to recognize that persons with mental disabilities do not necessarily have corresponding physical disabilities. Also, they suggested the addition of a new category for persons with mental disabilities. Department's Response - The points assigned for Projects serving tenants with special housing needs are not necessarily intended as a statement of the relative worth of one disability or set of disabilities over another. Rather, they are a recognition of the fact that tenants with special housing needs have varying degrees of access to housing. For instance, the fact that 10 points are awarded to Projects serving the elderly is a recognition that such tenants have access to regular apartments that are not dedicated or operated solely for them compared to a homeless person. Projects serving the homeless on the other hand, are assigned 15 points due to both the difficulty of producing housing for such groups and their lack of access to housing other than that dedicated specifically for them. The Department acknowledges that while persons with mental disabilities do not necessarily have corresponding physical disabilities, to the extent that they do, an Applicant can claim points for providing housing opportunities for tenants who are physically challenged (in addition to having a mental disability). Applicants that serve the needs of tenants with mental disabilities can claim points for providing supportive services under Exhibit 213. The Department proposes to amend its recommendation relating to the definition of Physically Challenged Persons as follows: Persons with Disabilities - A person who: (A) has a physical, mental or emotional impairment that; (i) Is expected to be of long, continued and indefinite duration, (ii) Substantially impedes his or her ability to live independently, and (iii) Is of such a nature that the ability could be improved by more suitable housing conditions, or (B) has a developmental disability, as defined in section 102(7) of the Developmental Disabilities Assistance and Bill of Rights Act (42 U.S.C. 6001- 6007). The Department also proposes to amend the definition of Special Housing Project as follows: Special Housing Project - Any Project developed specifically for Special Housing Need Groups, including mental health/mental retardation Projects, group homes, housing for the homeless, transitional housing, elderly Projects, congregate care facilities, Projects for persons with HIV/AIDS, or as otherwise defined in the State Consolidated Plan. Supportive Services - One commenter stated that by focusing on the duration of service agreements in awarding points for supportive services under Exhibit 213, the Department is not taking into account the fact that State service providers cannot enter into a long-term contract to provide such services. She suggested that this issue should be considered in evaluating supportive services. Department's Response - The Department is aware that some service providers rely on funding sources that are subject to annual reauthorization. The Department will take this into account in evaluating supportive services. Self-scoring by Applicants - Several commenters cautioned against allowing self- scoring to determine the ranking of tax credit Applications. Department's Response - Section 49.6(b)(2) of the Rules provides that for ranking purposes only, Applications not yet scored by staff shall be deemed to have the score allocated through self-scoring until actually scored. This is not intended to be a substitute for scoring by staff. Building Permits - Several commenters have highlighted the potential for inequity in awarding points for building permits based on the location of the project. Specifically, Projects located outside a city can secure a building permit with less expense compared to the cost of securing a permit within a city. Department's Response - The Department recognizes this disparity and will propose the elimination of the points for securing a building permit. As a substitute the Department proposes that points be awarded for SUBSTANTIAL READINESS TO PROCEED as follows: "Such evidence must be in the form of an enforceable construction financing commitment from a regulated financial institution that is actively and regularly engaged in the business of lending money. Such a commitment must be a written approval of a loan or grant (i.e., preliminary approval by the lender's loan committee) and be subject only to conditions fully under the control of the Applicant to satisfy (excluding the allocation of tax credits)." (4 Points) Evidence of Zoning - A commenter called attention to the Threshold Criterion which requires proper zoning at the time of Application. She reasoned that this measure gives properties in communities such as Houston, where zoning is not required, an unfair advantage over those in Austin or Dallas. Department's Response - The Department has re-evaluated this aspect of the Rules and proposes to allow the following: "In lieu of such documentation, the Applicant must submit evidence that a rezoning request has been filed with the appropriate Municipal Authority as of the date of submission of the Application. Any commitment of tax credits to the Applicant will be contingent upon proper rezoning prior to Carryover Allocation." Elderly Projects - A commenter asked if elderly Projects can include 3 bedroom units. Another sought clarification on qualification for occupancy of a unit in an elderly Project, specifically item 6(A)(ii) of the Selection Criteria which states, in part, "where at least 80% of the total housing Units are occupied by at least one Person who is 55 years of age or older." Department's Response - The Department believes available data indicates elderly Projects should contain mainly one and two bedrooms. They must not include any units with three or more bedrooms. With respect to eligibility requirements for an elderly project, there are two elections: (1) is constructed for, and solely occupied by Persons 60 years of age or older; and (2) adheres to policies and procedures which demonstrate a firm commitment by the owner and manager to provide housing for Persons 60 years of age or older. (10 points) Limitation on Project Size - With respect to the limitation of 250 units for a new construction project, a commenter asked whether an existing rehabilitation Project comprised of 200 units and is being expanded by an additional 100 units would fall under this limitation? Department's Response - The 250 unit limitation for new construction Projects was conceived to help distribute low income persons over a broad geographic area. Existing Projects are not covered by this limitation due to the large expense that would result from complying with this provision. To the extent that any new construction activity results in more than 250 units, the limitation would apply. The Department proposes to amend the Rules in response to this question. General Pool Credits - A commenter sought clarification of the meaning of general pool as used under Section 49.6(c). Department's Response - The "general pool" is comprised of tax credits that have been returned or recovered from prior years' allocations after the Board has made its initial allocation of the current year's available credit ceiling. General pool credits will be used to fund Applications on the waiting list without regard to set-aside. EXHIBIT 206A - The Department is proposing to remove item (ii) Low-Emittance Windows and include the following additional energy saving devices: (v) Gas heating system with an 80% flue efficiency (vi) Energy efficient air conditioning system with a 10 SEER or above (vii) Dual pane insulating windows The last sentence in this section will read as follows: Of the six (vi) items proposed to be listed in EXHIBIT 206 at least four must be selected to qualify for these points. EXHIBIT 202 - Staff is proposing that the documentation submitted to the Department shall include a certified copy of the appropriate resolution from the mayor, local city council, county judge, or county commissions court in support of the Project stating that the designated area was: (i) created by the local city council/county commission; (ii) targets a specific geographic area; and (iii) offers tangible and significant area-specific incentives or benefit over and above those normally provided by the city or county. Public Improvement Districts (PIDs), Tax Increment Financing Zones (TIFs), or similar districts organized under the Texas Local Government Code are prime examples of such redevelopment efforts. (10 points) The Department also proposes to provide guidance to Applicants with respect to what constitute "significant area-specific incentives or benefits" as follows: "To claim these points, the benefits or incentives provided must amount to at least 10% of the Total Development Cost." Real Estate Owned (REO) Projects - In view of the tax credit counsel comments on the definition of REO, the Department proposes to redefine REO Projects as follows: Real Estate Owned (REO) Projects - Any existing residential development that is owned or that is being sold by an insured depository institution in default, or by receiver or conservator of such an institution, or is a property held by, HUD , Fannie Mae, Freddie Mac, federally chartered bank, savings bank, Federal Home Loan Bank or a federally approved mortgage company or any other federal agency. EXHIBIT 213 (6)(A) - Staff is proposing to eliminate the term physical handicap accessibility from the text in Exhibit 213, subsection (6)(A), such that it reads as follows: "This criterion applies to elderly Projects which must provide significant facilities and services specifically designed to meet the physical and social needs of the residents. Significant services may include congregate dining facilities, social and recreation programs, continuing education, welfare information and counseling, referral services, transportation and recreation. Other attributes of such Projects include providing hand rails along steps and interior hallways, grab bars in bathrooms, routes that allow for barrier-free lever type doorknobs and single lever faucets as well as elevators for Projects of over two stories. Elderly Projects must not contain any three bedrooms or larger units. Such a Project must conform to the Federal Fair Housing Act and must be a Project which: (1) is constructed for, and solely occupied by Persons 60 years of age or older; and (2) adheres to policies and procedures which demonstrate a firm commitment by the owner and manager to provide housing for Persons 60 years of age or older. (10 points) EXHIBIT 214 - Staff is proposing to amend its recommendation relating to the narrative for Exhibit 214 which the committee accepted at the May 15, 1996 meeting as follows: (B) EXHIBIT 214: "Label as EXHIBIT 214, evidence verifying that the subject development provides units specifically equipped for persons who have a physical disability or targeted for persons with a mental disability as such a term is defined in the Rules. Such evidence must be in the form of a certification from an accredited architect stating the number of Units which are/will be designed to meet American National Standards for buildings and facilities providing accessibility and usability for persons with physical disabilities (ANSI A117.1 - 1986 or successor) and will conform to the Fair Housing Act of 1988. "Equipped" means that features that make the Units fully usable to such persons are installed in the Units at the time of construction or provisions have been included in construction for easy modification to meet the ANSI A117.1 standards. For Units targeted for tenants with mental disabilities, such evidence must include a referral agreement with an entity that provides on-site supportive services specifically designed for such tenants." (i) 6% to 10% of Units are set-aside for persons with physical disabilities or targeted for persons with mental disabilities. (4 points) (ii) 11% to 15% of Units are set-aside for persons with physical/mental disabilities. (6 points) (iii) 16% + of Units are set-aside for persons with physical/mental disabilities. (8 points) Limitation on Allocation Amount per Project and per Applicant - At the Committee's direction, staff is proposing to amend the language pertaining to the $1.2 million limit per project and the $2.4 million limit per Applicant as follows: "The foregoing information does not apply (i) to an entity which raises or provides equity for one or more Projects, solely with respect to its actions in raising or providing equity for such Projects (including syndication related activities as agent on behalf of investors), (ii) to the provision by an entity of "qualified commercial financing" within the meaning of the Code, sec.49(a)(1)(D)(ii) (without regard to the 80% limitation thereof), and (iii) to a Qualified Nonprofit Organization or other not-for-profit entity, to the extent that the participation in a Project by such organization consists of the provision of loan funds or grants." Limitation on Project Size - Pursuant to comments made at the Committee meeting on May 15, 1996, the Committee recommended that the sec.49.6(g) be amended as follows: "Rural Projects involving new construction must not exceed 75 Units. All other Projects involving new construction will be limited to 250 Units." FOR CLARIFICATION Assorted Questions - One commenter provided the scenario for the structuring of a partnership and asked the following questions: (1) Would the structure meet the definition of a "Qualified Nonprofit Project?" (2) Does Exhibit 111 require an IRS determination letter at the time of Application? (3) Would financial statements be required of the limited partners? Department's Response - The Department's response is as follows: 1. The definition of a Qualified Nonprofit Project is "a project in which a qualified nonprofit organization has control (directly or through a partnership or a wholly owned subsidiary) and materially participates within the meaning of Section 469(h) of the Code." 2. The Department requires the submission of an IRS determination letter at the time of Application if the Applicant if applying in the non-profit set-aside. 3. Financial statements are not required of the limited partners. Market Studies and Developer's Fees - One commenter urged the Department to allow 25% developer fees for Projects in the Colonias and for a waiver of the Market Studies for such Projects citing development costs and the existence of long Waiting Lists for affordable housing. Department's Response - The Department recognizes the difficulty in producing housing in many communities across the State where median incomes are substantially less than those of large metropolitan areas. Nevertheless, the tax credits are a source for filling an "equity gap" not a sole source of total funding for affordable housing. Furthermore, in the most recent Allocation Round in 1995B, the State allocated tax credits to Projects in El Paso, Brownsville and Edinburg all of which are in the process of syndication or closure of the interim construction loan and allowed only 15% developer fee in basis. While the Department is aware that the cost of a Market Study could be as high as $4,500, this amount is a small outlay relative to the total cost of a project. Additionally, a Waiting List is not a substitute for a Market Study because such studies address issues as operating expenses, development costs, unit-mix and Project feasibility that a Waiting List cannot address. Development Location and Phase I Review - Several commenters raised the following issues: 1. Will points be awarded for a project that meets the criteria for both Exhibit 201 and 202? 2. Are Municipal Management Districts or Tax Abatement Districts eligible for points under Exhibit 202? 3. What percentage of stock ownership in a corporation is sufficient to meet the definition of "Control?" 4. Is asbestos testing required for rehab Projects? Department's Response - The Department's Response as follows: 1. The points for Exhibit 201 and 202 are mutually exclusive and so are the points for Exhibit 211. 2. Points for tax abatement can be claimed under Exhibit 207. Municipal Management Districts or other locally sponsored redevelopment efforts may qualify provided they meet the three test described under Exhibit 202 and have been properly formed at the time of Application. The Department would also emphasize that to claim these points as part of a local redevelopment initiative, the benefits or incentives provided must amount to at least 10% of the total Project costs. 3. Under the Rules, "Control" is defined not in terms of percentage ownership, but as "the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any Person, whether through the ownership of voting securities, by contract or otherwise." 4. Phase I environmental reviews for older Projects are expected to address the presence of asbestos. If asbestos is detected on the property, remediation measures must be addressed in the report. The Department is also proposing to amend the Rules based on the suggestions from Anthony S. Freedman, tax credit counsel. The new sections are adopted under the Texas Government Code, Chapter 2306 and Texas Civil Statutes. Article 4413(501) as amended by the 73rd Legislature, Chapter 725 and 141, and Chapter 2001 and 2002, Texas Government Code, Texas Civil Statutes. The Internal Revenue Code of 1986, Section 42 as amended, provides for credits against federal income taxes for owners of qualified low income rental housing projects. That section provides for the allocation of available tax credit amount by state housing credit agencies. Pursuant to Executive Order AWR-91-4 (June 17, 1991), the Texas Department of Housing and Community Affairs was authorized to make housing credit allocation for the State of Texas. As required by the Internal Revenue Code, Section 42 (m)(1), the Department developed a Qualified Allocation Plan which sets forth sec.49.3 through sec.49.8 of this title (relating to State Housing Credit Ceiling, Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments, Set-Asides, Commitments and Preferences, Threshold Criteria; Evaluation Factors; Selection Criteria; Final Ranking; Credit Amount; Tax Exempt Bond Financed Projects; Compliance Monitoring, Housing Credit Allocations). sec.49.1.Scope. The Rules in this chapter apply to the allocation by the Texas Department of Housing and Community Affairs (the Department) of certain low income housing tax credits authorized by applicable federal income tax laws. The Internal Revenue Code of 1986, sec.42, as amended, provides for credits against federal income taxes for owners of qualified low-income rental housing Projects. That section provides for the allocation of the available tax credit amount by state housing credit agencies. Pursuant to Executive Order AWR-91-4 (June 17, 1991), the Department was authorized to make housing credit allocations for the State of Texas. As required by the Internal Revenue Code, sec.42(m)(1), the Department developed a Qualified Allocation Plan (QAP) which is set forth in sec.sec.49.3- 49.8 of this title (relating to State Housing Credit Ceiling, Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments, Set-Asides, Commitments and Preferences, Threshold Criteria; Evaluation Factors; Selection Criteria; Final Ranking; Credit Amount; Tax Exempt Bond Financed Projects; Compliance Monitoring, Housing Credit Allocations). Sections in this chapter establish procedures for applying for and obtaining an allocation of the low income housing tax credit, along with insuring that the proper Threshold Criteria, Selection Criteria, priorities and preferences are followed in making such allocations. It is a goal of this Department, through these provisions, to encourage diversity through broad geographic allocation of tax credits within the state and to promote maximum utilization of the available tax credit amount, consistent with ensuring that the tax credits are allocated to owners of Projects that will serve the Department's public policy objectives and federal requirements to provide housing to persons and families of very low and low income. It is the policy of the Department to encourage the use of Historically Underutilized Businesses (HUBs) in all of the Department's programs. In response to this policy, the Department has established a minimum goal of 30% participation of HUBs in the low income housing tax credit program. Project Owners are encouraged to achieve these minimum goals. sec.49.2.Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Ad Hoc Tax Credit Committee - That Committee comprised of members of the Board of the Department charged with the direct oversight of the Low Income Housing Tax Credit Program, also referred to as the "Committee." Affiliate - An individual, corporation, partnership, joint venture, limited liability company, trust, estate, association, cooperative or other organization or entity of any nature whatsoever that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with any other Person, and specifically shall include parents or subsidiaries. Agreement and Election Statement - A document in which the Project Owner elects, irrevocably, to fix the applicable credit percentage with respect to a building or buildings, as that in effect for the month in which the Department and the Project Owner enter into a binding agreement as to the housing credit dollar amount to be allocated to such building or buildings, which Agreement and Election Statement shall be executed by the Project Owner no later than five days after the end of the month of execution of the agreement as to housing credit dollar amount. Applicable Fraction - The fraction used to determine the Qualified Basis of the qualified low income building, which is the smaller of the Unit fraction or the floor space fraction, as defined more fully in the Code, sec.42(c)(1). Applicable Percentage - The percentage used to determine the amount of the low income housing tax credit, as defined more fully in the Code, sec.42(b). Applicant - Any Person and any Affiliate of such Person, corporation, a partnership, joint venture, association, or other that submits an Application to the Department requesting a tax credit allocation pursuant to the Rules and the QAP. The Applicant is also the Project Owner unless the Applicant transfers or assigns its interest in the Project (which assignment can only occur with the consent of the Department). Each Project Owner, and each of the Project Owner's successors in interest, shall be obligated to carry out the commitments made to the Department by the Applicant. Application - An Application in the form prescribed by the Department, including any required exhibits or other supporting materials, filed with the Department by a Project Owner requesting a low income housing tax credit allocation. Application Acceptance Period - That period of time as published in the Texas Register during which Applications for tax credits may be submitted to the Department. Application Round - The period beginning with the start of the Application Acceptance Period and lasting until such time as all available credits (as stipulated by the Department) are allocated, provided that the Application Round not extend beyond the last day of the calendar year. Application Submission Procedures Manual - That certain manual produced by the Department which sets forth procedures, forms, and guidelines for the filing of Applications for low income housing tax credits, which manual may be amended from time to time by the Department. Beneficial Owner - A "Beneficial Owner" means: (A) Any Person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares; (i) voting power which includes the power to vote, or to direct the voting as any other Person or the securities thereof, and/or (ii) investment power which includes the power to dispose, or direct the disposition of, any Person or the securities thereof. (B) Any Person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such Person of Beneficial Ownership (as defined herein) of a security or preventing the vesting of such Beneficial Ownership as part of a plan or scheme to evade inclusion within the definitional terms contained herein; and (C) Any Person who has the right to acquire Beneficial Ownership during the Compliance Period, including but not limited to any right to acquire any such Beneficial Ownership; (i) through the exercise of any option warrant or right, (ii) through the conversion of a security, (iii) pursuant to the power to revoke a trust, discretionary account or similar arrangement, or (iv) pursuant to the automatic termination of a trust, discretionary account, or similar arrangement. Provided, however, that any Person who acquires a security or power specified in clauses (i), (ii) or (iii) of this subparagraph, with the purpose or effect or changing or influencing the control of any other Person, or in connection with or as a participant in any transaction having such purpose or effect, immediately upon such acquisition is deemed to be the Beneficial Owner of the securities which may be acquired through the exercise or conversion of such security or power. Any securities not outstanding which are subject to options, warrants, rights or conversion privileges as deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such Person but are not deemed to be outstanding for the purpose of computing the percentage of the class by any other Person. Board - The governing Board of Directors of the Department and may also denote as used in this chapter, the Committee. Carryover Allocation - An allocation of current year tax credit authority by the Department pursuant to the provisions of the Code, sec.42(h)(1)(E) and Treasury Regulations, sec.1.42-6. Carryover Allocation Document - A document issued by the Department to a Project Owner pursuant to sec.49.4(k) of this title (relating to Applications; Environmental Assessments; Market Study; Reservations; Notification; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments). Carryover Allocation Procedures Manual - That certain manual produced by the Department which sets forth procedures, forms, and guidelines for the filing of request for Carryover Allocations for low income housing tax credits, which said manual may be amended from time to time by the Department. Code - The Internal Revenue Code of 1986, as the same may be amended from time to time, together with any applicable regulations, rules, rulings, revenue procedures, information statements or other official pronouncements issued thereunder by the United States Department of the Treasury or the Internal Revenue Service relating to the Low Income Housing Tax Credit Program authorized by the Code, sec.42, and as may be amended from time to time. Commitment Notice - A notice issued by the Department to a Project Owner pursuant to sec.49.4(h) of this title (relating to Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments) and also referred to as the "commitment". Compliance Period - With respect to a building, the period of 15 taxable years, beginning with the first taxable year of the Credit Period pursuant to the Code, sec.42(i)(1). Contractor - One who contracts for the construction, or rehabilitation of an entire building or Project, rather than a portion of the work. The Contractor hires subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates all work, and is responsible for payment to the said subcontractors. This party may also be referred to as the "general contractor". Control - (including the terms "controlling," "controlled by, and/or "under common control with") the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any Person, whether through the ownership of voting securities, by contract or otherwise. Cost Certification Procedures Manual - That certain manual produced by the Department which sets forth procedures, forms, and guidelines for the filing of requests for IRS Forms 8609 for Projects placed in service under the Low Income Housing Tax Credit Program, which said manual may be amended from time to time by the Department. Credit Period - With respect to a building within a Project, the period of ten taxable years beginning with the taxable year the building is placed in service or, at the election of the Project Owner, the succeeding taxable year, as more fully defined in the Code, sec.42(f)(1). Declaration of Land Use Restrictive Covenants (LURA) - An agreement between the Department, the Project Owner and all successors in interest in the Project Owner which encumbers the Project with respect to provisions stipulated in the Code, sec.42, sec.sec.49.1-49.15 of this title (relating to Low Income Housing Tax Credit Qualified Allocation Plan and Rules), and the Texas Government Code, Chapter 2306 as may be amended from time to time. The LURA includes an Extended Low Income Housing Commitment Agreement. Department - The Texas Department of Housing and Community Affairs, a public and official governmental Department of the State of Texas created and organized under the Texas Department of Housing and Community Affairs Act, Texas Government Code, Chapter 2306 and Texas Civil Statutes, Article 4413(501) as amended by the 73rd Legislature, Chapter 725 and 141. Development Team - All Persons or Affiliates thereof which play(s) a material role in the development, construction, rehabilitation, management and/or continuing operation of the subject Property, which may include any consultant(s) hired by the Applicant for the purpose of the filing of an Application for low income housing tax credits with the Department. Difficult Development Area - Any area which is so designated by the Secretary of the United States Department of Housing and Urban Development (HUD) as an area which has high construction, land, and utility costs relative to area median gross income. Eligible Basis - With respect to a building within a Project, the building's Eligible Basis as defined in the Code, sec.42(d). Equity Gap - The difference between the total sources of financing for the Project and the total Project costs that is to be filled with the proceeds of the credit. Extended Low Income Housing Commitment Agreement - An agreement between the Department, the project owner and all successors in interest to the project owner concerning the extended low income housing use of buildings within the project throughout the extended use period as provided in the Code, sec.42(h)(6). Financial Statement - Document(s) which provides information about the Applicant's economic resources, claims against those resources, and the interests of owners at specific dates as more fully defined in subparagraphs (A)-(D) of this definitions: (A) Statement of Financial Position/Balance Sheet - a listing, as of a particular date, of all assets and claims against those assets (liabilities). The difference is equity. (B) Income Statement - a listing that relates to a specific period of time, presenting an entity's results of operations. (C) Statement of Retained Earnings - reports all changes in retained earnings during the accounting period, reconciles beginning and ending retained earning balances and provides a connecting link between the income statement and the balance sheet. (D) Cash Flow Statement - a report listing the changes in an entity's cash and cash equivalents, classified by principal sources and uses, for a given period. General Project - Any project which is not a Qualified Nonprofit Project or is not under consideration in the Rural/Prison set-aside as such terms are defined by the Department. General Pool - The pool of credits that have been returned or recovered from prior years' allocations or current year's Commitment Notices after the Board has made its initial allocation of the current year's available credit ceiling. General pool credits will be used to fund Applications on the waiting list without regard to set-aside. Governmental Entity - Includes federal or state agencies, departments, boards, bureaus, commissions, authorities, and political subdivisions, special districts and other similar entities. Historically Underutilized Businesses - Pursuant to Texas Civil Statutes, Article 601b, sec.sec.1.02, 1.03, and 1.04, entitled State Purchasing and General Services Act which is codified at Chapter 2161, Texas Government Code, entitled Historically Underutilized Businesses, a business in the form of a corporation, partnership or joint venture which is at least 51% owned, or a sole proprietorship which is 100% owned by a person or persons who have been historically underutilized due to their identification as a member of a certain group. With respect to the filing of an Application and the development, operation and ownership of a Project, the historically underutilized person or persons whose ownership interests comprise a majority of a corporation, partnership, joint venture or other business entity, must maintain this majority and must demonstrate regular, continuous, and substantial participation in the operation and management activities of the entity. Likewise, with regard to a sole proprietorship, the individual who comprise the sole proprietorship must demonstrate regular, continuous, and substantial participation in the development, operation and ownership of the Project. The Department shall require evidence of regular, continuous and substantial participation and this evidence shall include, but not limited to, the agreement to personally guarantee the interim construction loan secured (and all other guarantees to the equity investor) relative to the development of a Project by the person or persons upon whose purported ownership interest(s) and participation form the basis for which the designation of a HUB is being claimed. Any such guarantee wherein an Affiliate, partner and or Beneficial Owner of the guarantor agrees to indemnify, in whole or in part, the guarantor from the liability arising from the guarantee, shall not constitute said evidence. The Department shall, during and after the Application Round, monitor those individuals upon whose purported ownership interest(s) and participation form the basis for which the designation of HUB is being claimed and may require the submission of any additional documentation as required to verify said evidence. The following are the groups which will be considered pursuant to this definition: (A) African Americans - persons having origins in any of the Black racial groups of Africa; (B) Hispanic Americans - persons of Mexican, Puerto Rican, Cuban, Central or South American, or other Spanish or Portuguese culture or origin, regardless of race; (C) Asian-Pacific Americans - persons whose origins are from Japan, China, Taiwan, Korea, Vietnam, Laos, Cambodia, Philippines, Samoa, Guam, U.S. Trust Territories of the Pacific and the Northern Marianas; (D) Native Americans - persons who are American Indians, Eskimos, Aleuts, or Native Hawaiians; or (E) Women - includes all women of any ethnicity. Homeless Person - An individual or family that lacks a fixed, regular, and adequate nighttime residence as more fully defined in 24 Code of Federal Regulations, sec.841.1, and as may be amended from time to time. Housing Credit Agency - A governmental entity charged with the responsibility of allocating low income housing tax credits pursuant to the Code, sec.42. For the proposes of these Rules, the Department is the sole "Housing Credit Agency" of the State of Texas. Housing Credit Allocation - An allocation by the Department to a Project Owner of low income housing tax credit in accordance with sec.49.8 of this title (relating to Housing Credit Allocations). Housing Credit Allocation Amount - With respect to a Project or a building within a Project, that amount the Department determines to be necessary for the financial feasibility of the Project and its viability as a qualified low income housing Project throughout the Compliance Period and allocates to the Project. HUD - The United States Department of Housing and Urban Development, or its successor. Costs - Costs associated with the sale or use of tax credits to raise equity capital. Such costs include but are not limited to syndication and partnership organization costs and fees, filing fees, broker commissions, related attorney and accounting fees, appraisal, engineering, environmental site assessment, etc. IRS - The Internal Revenue Service, or its successor. Local Tax Exempt Organization - An entity which is described in the Code, sec.501(c)(3) or (4), as these cited provisions may be amended from time to time, and which is registered or qualified to conduct business in the State of Texas and/or the governmental unit wherein the Project will be situated. Person - Means, without limitation, any natural person, corporation, partnership, limited partnership, joint venture, limited liability company, trust, estate, association, cooperative, government, political subdivision, agency or instrumentality or other organization of any nature whatsoever and shall include any group of Persons acting in concert toward a common goal. Persons with Disabilities - A person who: (A) has a physical, mental or emotional impairment that; (i) is expected to be of a long, continued and indefinite duration, (ii) substantially impedes his or her ability to live independently, and (iii) is of such a nature that the ability could be improved by more suitable housing conditions, or (B) has a developmental disability, as defined in section 102(7) of the 6001- 6007). Prison Community - A city or town which is located outside of a major Metropolitan Statistical Area (MSA) or Primary Metropolitan Statistical Area (PMSA) and was recently awarded a state prison as set forth in the Reference Manual. Project - A low income rental housing Property the owner of which represents that it is or will be a qualified low income housing Project within the meaning of the Code, sec.42(g). With regards to this definition, the "Project" is that Property which is the basis for the Application for low income housing tax credits. May also be referred to as the subject "property". Project Owner - Any Person or Affiliate thereof that owns or proposes to develop the Project or expects to acquire Control of the Project pursuant to a purchase contract satisfactory to the Department. Property - The real estate and all improvements thereon which are the subject of the Application (including all items of personal property affixed or related thereto), whether currently existing or proposed to be built thereon in connection with the Application. Qualified Allocation Plan - An allocation plan executed by the Governor of the State of Texas which sets forth the Threshold Criteria, Selection Criteria, priorities, preferences, and compliance and monitoring as provided in the Code, sec.42(m)(1) and as further provided in sec.sec.49.3-49.8 of this title(relating to State Housing Credit Ceiling, Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments, Set-Asides, Commitments and Preferences, Threshold Criteria; Evaluation Factors; Selection Criteria; Final Ranking; Credit Amount; Tax Exempt Bond Financed Projects; Compliance Monitoring, Housing Credit Allocations). Qualified Basis - With respect to a building within a Project, the building's Eligible Basis multiplied by the Applicable Fraction, within the meaning of the Code, sec.42(c)(1). Qualified Census Tract - Any census tract which is so designated by the Secretary of HUD and, for the most recent year for which census data are available on household income in such tract, in which 50% or more of the households have an income which is less than 60% of the area median gross income for such year. Qualified Market Analyst - Certified General Real Estate Appraiser (Texas) who is also designated as MAI, SRPA, RM, SREA or SRA and is independent of any member of the Development Team. The Qualified Market Analyst must also show proof of having taken and passed Parts A and B of the Standards of Professional Practice course within the last five years or is otherwise approved to conduct a market study by the Department. The Qualified Market Analyst must not be related to or Affiliated with the Project consultant, or the independent CPA employed for certifying the 10% test and/or the final Project cost certification. Qualified Nonprofit Organization - An organization that is described in the Code, sec.501(c)(3) or (4), as these cited provisions may be amended from time to time, that is exempt from federal income taxation under the Code, sec.501(a), that is not Affiliated with or Controlled by a for profit organization, and includes as one of its exempt purposes the fostering of low income housing within the meaning of the Code, sec.42(h)(5)(C). Qualified Nonprofit Project - A Project in which a Qualified Nonprofit Organization has Control (directly or through a partnership or wholly-owned subsidiary) and materially participates (within the meaning of the Code, sec.469(h), as may be amended from time to time) in its development and operation throughout the Compliance Period. Real Estate Owned (REO) Projects - Any existing residential development that is owned or that is being sold by an insured depository institution in default, or by receiver or conservator of such an institution, or is a property held by, HUD , Fannie Mae, Freddie Mac, federally chartered bank, savings bank, savings and loan association, Federal Home Loan Bank or a federally approved mortgage company or any other federal agency. Reference Manual - That certain manual, and any amendments thereto, produced by the Department which sets forth reference material pertaining to the Low Income Housing Tax Credit Program. Rehabilitation Expenditure - Amounts incurred in connection with the rehabilitation which the Project Owner represents to be "Rehabilitation Expenditures" within the meaning of the Code, sec.42(e)(2). Residential Development - Any Project that is comprised of at least one "Unit" as such term is defined in this title. Rules - The Department's low income housing tax credit Rules, sec.sec.49.1-49.15 of this title (relating to Low Income Housing Tax Credit Qualified Allocation Plan and Rules) excluding sec.sec.49.3-49.8 of this title (relating to State Housing Credit Ceiling, Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments, Set-Asides, Commitments and Preferences, Threshold Criteria; Evaluation Factors; Selection Criteria; Final Ranking; Credit Amount; Tax Exempt Bond Financed Projects; Compliance Monitoring, Housing Credit Allocations). Rural Project - A Project located within an area which: (A) is situated outside the boundaries of a PMSA or MSA; or (B) is situated within the boundaries of a PMSA or MSA if it has a population of not more than 20,000 and does not share boundaries with an urbanized area; or (C) is located in an area that is eligible for funding by TxRD. Scattered Site Project - A group of buildings, (excluding apartments and townhomes) which would (but for their lack of proximity) qualify as a Project for purposes of the Code and which are all rent restricted, owned by the same Project Owner and financed under a common plan. This shall include all single family detached housing, duplexes, triplexes and fourplexes, except fourplexes in clusters of four or more on contiguous property under common ownership, management and Control. Selection Criteria - Criteria used to determine housing priorities of the State under the Low Income Housing Tax Credit Program. Small Development - A Project consisting of not more than ten single-family detached Units or 35 multifamily Units, which is not a part of, or contiguous to, a larger Project. Special Housing Project - Any Project developed specifically for Special Housing Need Groups, including mental health/mental retardation Projects, group homes, housing for the homeless, transitional housing, elderly Projects, congregate care facilities, projects for persons with HIV/AIDS, or as otherwise defined in the State Consolidated Plan. State Housing Credit Ceiling - The limitation imposed by the Code, sec.42(h), on the aggregate amount of housing credit allocations that may be made by the Department during any calendar year, as determined from time to time by the Department in accordance with the Code, sec.42(h)(3). Sustaining Occupancy - The figure at which occupancy income is equal to all operating expenses and mandatory debt service requirements for a Project. Threshold Criteria - Criteria used to determine the Project's qualifications which are the minimum level of acceptability for consideration under the Low Income Housing Tax Credit Program. Total Housing Development Cost - The total of all costs incurred or to be incurred by the Project Owner in acquiring, constructing, rehabilitating and financing a Project, as determined by the Department based on the information contained in the Project Owner's Application. Such costs include Intermediary Costs, reserves and any expenses attributable to commercial areas. Projects which include commercial space must allocate the relative portion of all applicable expenses to the commercial space and exclude the same from Total Development Costs. In determining the Equity Gap calculation, the Department will not deduct from the Project's sources of funds the amount of financing associated with the commercial use, unless such financing specifically identifies in its terms that it is being provided for the commercial use. TxRD - The Texas Department of Rural Development, or its successor. Unit - Any residential rental unit in a Project consisting of an accommodation containing separate and complete physical facilities and fixtures for living, sleeping, eating, cooking and sanitation. The term "Unit" includes a single room occupancy housing unit used on a non-transient basis. sec.49.3.State Housing Credit Ceiling. (a) The Department shall determine the State Housing Credit Ceiling for each calendar year as provided in the Code, sec.42(h)(3)(C). (b) The Department shall publish each such determination in the Texas Register within 30 days after notification by the Internal Revenue Service. (c) The aggregate amount of Housing Credit Allocations made by the Department during any calendar year shall not exceed the State Housing Credit Ceiling for such year as provided in the Code, sec.42. sec.49.4.Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments. (a) Any Project Owner requesting a Housing Credit Allocation for a Project must submit an Application to the Department which Application shall be originally executed by the Project Owner. This Application shall contain full and complete information as to each item specified in the Application Submission Procedures Manual, as amended. When any item is marked "not applicable," the Project Owner shall provide a written explanation why such item is "not applicable." Failure to provide a detailed written explanation will result in the Application being deemed incomplete and not accepted for filing. The Department is also authorized to request the Project Owner to provide any additional information it deems relevant as clarification to the Application. The Department will require, as a part of a completed Application, information to be submitted by the Project Owner which identifies the number of HUBs to be used in the development and/or continuous operation of the Project, in a form specified within the Application Submission Procedures Manual. Further, the Department will require the Project Owner to supply sufficient documentation which will represent the means by which these HUBs were or are to be selected. The Project Owner is also advised that the Department will be requesting information pertaining to the use of HUBs in the actual development of the Project at the time of final allocation of tax credits, pursuant to sec.49.8(c) of this title (relating to Housing Credit Allocations). (b) As part of the complete Application the Applicant must submit the most current Phase I Environmental Assessment of the subject Property, dated not more than 12 months from the date of Application to the Department. In the event that a Phase I Environmental Assessment on the Project is older than 12 months, the Project Owner may supply the Department with an update letter from the Person or organization which prepared the initial assessment; provided, however, that the Department will not accept any Phase I Environmental Assessment which is more than 24 months old. This environmental assessment should be conducted and reported in conformity with the standards of the American Society for Testing and Materials (ASTM) and such other recognized industry standards as a reasonable person would deem relevant in view of the Property's anticipated use for human habitation. The report must include, but is not limited to, a review of records, interviews with people knowledgeable about the Property, a certification that the environmental engineer has conducted an inspection of the Property, the building(s), and adjoining Properties, as well as any other industry standards concerning the preparation of this type of environmental assessment. If the report recommends further studies or establishes that environmental hazards currently exist on the Property, or are originating off- site but would nonetheless affect the Property, the Project Owner must act on such a recommendation or provide either a plan for the abatement or elimination of the hazard. The environmental assessment shall be conducted by an environmental or professional engineer and be prepared at the expense of the Project Owner. For Projects which have had a Phase II Environmental Assessment performed and hazards identified, the Project Owner is required to maintain a copy of said assessment on site available for review by all persons which either occupy the Property or are applying for tenancy. Properties financed through the TxRD or Properties with four Units or fewer will not be required to supply this information; however, the Project Owners of such Projects are hereby notified that it is their responsibility to ensure that the Property is maintained in compliance with all state and federal environmental hazard requirements. Those Projects which have or are to receive first lien financing from HUD may submit HUD's environmental assessment report, provided that it conforms with the requirements of this subsection. An environmental report that is not submitted with the Application will result in the Application being deemed incomplete and not accepted for filing. (c) The Market Study required by the Department shall comply with the Uniform Standards of Professional Appraisal Practice and with paragraphs (1)-(2) of this subsection and other guidelines provided for the Reference Manual. (1) A Market Study (prepared by a Qualified Market Analyst acceptable to the Department who is independent of the Development Team), which is not dated more than six months prior to the date of Application, is required as part of the complete Application. Projects which are comprised of 12 Units or fewer or whose funds have been obligated by TxRD are not required to provide the Department with a market study; provided that the Department may request information with respect to the operating expenses, proposed new construction or rehabilitation cost or other information. In the event that a Market Study on a Project is older than six months, a Project Owner may supply the Department with an updated Market Study from the entity or organization which prepared the initial report; provided, however, that the Department will not accept as having satisfied the condition of this subsection any Market Study which is more than 12 months old. The Market Study shall be prepared for the Department at the expense of the Project Owner and shall include, at a minimum, the following information: (A) an evaluation of the existing occupancy rates in comparable multifamily rental Residential Developments in the same market and submarket area as the proposed Project with special emphasis given to available low income rental housing; (B) Project absorption rates for the three years prior to the date of the study for Units in comparable multifamily rental Residential Developments in the same market area as the Project. Further, provide a projection of the time necessary for the Project to achieve Sustaining Occupancy; (C) an evaluation of the current physical condition of existing rental housing Units in the market area, with special emphasis given to available low income rental housing; (D) an evaluation of the need for affordable housing within the Project market area, which includes an analysis of any existing federal, state and/or locally subsidized rental housing Units in the market area; (E) an evaluation of the appropriateness of the Unit-mix and size in terms of market demand and low income housing demographics; (F) an evaluation of the appropriateness of the location and total development cost of the Project from a market feasibility standpoint; (G) an evaluation of the appropriateness of the anticipated operating costs of the Project for the housing market in which the Project is located, generally, and specifically for low income housing; (H) an evaluation of the appropriateness of the existing or proposed physical amenities and appliance packages at the Project for the low income target population; (I) a summary of qualifications of the individuals who participated in the development of the Market Study; (J) a statement from the Qualified Market Analyst certifying that he/she is not a part of the Development Team, nor Affiliated with any member of the Development Team engaged in the development of the Property; and (K) such other matters as the Department, in its discretion, may determine from time to time to be relevant to the Department's evaluation of the need for the Project and the allocation of the requested Housing Credit Allocation Amount. If any of the required information is not obtainable, the Market Analyst shall provide a statement to such effect and offer an alternative analysis intended to address the applicable question. (2) a written opinion is required from the Qualified Market Analyst who prepared the Market Study required under paragraph (1) of this subsection, stating that: (A) the projected Total Housing Development Costs of the proposed Project do or do not appear to be reasonable. The Qualified Market Analyst must provide the Department with sufficient documentation to support his/her conclusion with regards to the reasonableness of the projected development costs; (B) the projected Total Operating Costs of the proposed Project do or do not appear to be reasonable. The Qualified Market Analyst must provide the Department with sufficient documentation to support his/her conclusions with regards to the reasonableness of the projected operating costs; (C) the proposed Project, in light of the vacancy and absorption rates for the applicable market area and/or any applicable submarket area, is or is not likely to result in an unreasonably high vacancy rate for comparable Units within the market area and/or any applicable submarket area (i.e., standard, well maintained Units within such market area that are reserved for occupancy by low and very low income tenants). The Qualified Market Analyst must provide the Department with sufficient documentation to support his/her conclusion with regard to the effects of the Project's development on the vacancy rates for comparable Units within the market area and/or any applicable submarket area; (D) the projected initial rents for the Project are or are not below the rental range for comparable Projects within the market area. The Qualified Market Analyst must provide the Department with sufficient documentation to support his/her conclusion with respect to the data on comparable rents in the Project's market area; and (E) Project reserves are or are not adequate to cover operating shortfalls until the Project achieves Sustaining Occupancy. The Qualified Market Analyst must provide the Department with sufficient documentation to support his/her conclusions with regards to the adequacy of the Project reserves. (3) All Applicants shall acknowledge by virtue of filing an Application that the Department shall not be bound by any such opinion or the Market Study itself, and may substitute its own analysis and underwriting conclusions for those submitted by the Qualified Market Analyst. (d) A Project Owner may file an Application at any time during the Application Acceptance Period(s), as published from time to time by the Department in the Texas Register. (e) An Application that is incomplete or that is not filed in accordance with the Application Submission Procedures Manual, as amended, unless any such requirement has been waived by the Department, will be deemed not to have been timely filed, will be deemed terminated and will be returned to the Applicant. Failure to return the Application shall not affect its status and the Department shall not be deemed to have accepted any such incomplete Application. (f) The Department will not recommend an Application for funding if it includes a member of the Development Team who has been, or is: (1) barred, suspended, or terminated from procurement in a state or federal program or who is listed in the List of Parties Excluded from Federal Procurement or Nonprocurement Programs, whether in the hardcopy or electronic form; (2) convicted within the past five years, under indictment for or is on probation for a state or federal crime involving fraud, bribery, theft, misrepresentations of material facts, misappropriation of funds, or other similar criminal offenses; (3) subject to enforcement action under state or federal securities law, or is the subject of an enforcement proceeding with a state or federal agency or another governmental entity unless any such action has been concluded and no adverse action or finding (or entry into a consent order) has been taken with respect to such member; or (4) active in the ownership or management of any other low income housing tax credit Property (or any Property pursuant to an affordable housing program administered by a local, state or federal entity) that is or was materially out of compliance with the rules or regulations of the appropriate regulatory authority. (g) After eligible Applications have been evaluated, ranked and underwritten in accordance with the QAP and the Rules the Department shall make its recommendations to the Committee and the Board at their next meeting for the issuance of Commitment Notices. (h) The Board's decisions shall be based upon its evaluation of the Project's consistency with the criteria and requirements set forth in the QAP and the Rules. In making a determination to allocate tax credits, the Department and Board shall be authorized not to rely solely on the number of points scored by an Applicant. They shall in addition, be entitled to take into account, as appropriate, such factors as Project feasibility, underwriting, concentration of low income Projects within specific markets or submarkets, geographic dispersion of multifamily housing in any particular market or submarket, as well as dispersion of the credits on a state-wide basis, site conditions, the experience of the Development Team, the type of housing being proposed and/or the Project's impact on the Low Income Housing Tax Credit Program's goals and objectives as stated in the QAP and the Rules and as otherwise provided under this chapter. (1) If the Board approves the Application, the Department will issue a Commitment Notice to the Project Owner which : (A) shall confirm that the Board has approved the Application; and (B) shall state the Department's commitment to make a Housing Credit Allocation to the Project Owner in a specified amount, subject to the feasibility determination described at sec.49.8(a) of this title (relating to Housing Credit Allocations), compliance by the Project Owner with the remaining requirements of this chapter, and any other conditions set forth therein by the Department. This Commitment Notice shall expire on the date specified therein, unless the commitment has been accepted and the conditions to receipt of an allocation set forth therein shall have been met. (C) the Department shall notify, in writing, the mayor or other equivalent chief executive officer of the municipality in which the Property is located informing him/her of the Boards issuance of a Commitment Notice. (2) If the Board disapproves or fails to act upon the Application, the Department shall issue to the Project Owner a written notice stating the reason(s) for the Board's disapproval or failure to act. (i) A Project Owner may request that the Department extend the expiration date of a Commitment Notice which has not expired by submitting a written request for such action, accompanied by the extension fee specified in sec.49.11 of this title (relating to Program Fees). The request shall specify the term of the extension requested and the reason(s) why the Project Owner has been unable to satisfy the requirements of this chapter prior to the original expiration date. The Department, in its sole discretion, may consider and grant such extension requests; provided, however, that in no event shall the expiration date of a Commitment Notice be extended beyond the last business day of the applicable calendar year. (j) A Project Owner must indicate acceptance of the Department's offer of a commitment of tax credit authority by executing the Commitment Notice and paying the commitment fee specified in sec.49.11 of this title (relating to Program Fees) prior to the expiration date set forth in the notice. Together with or following the Project Owner's acceptance of the commitment, the owner may request the Department to execute an Agreement and Election Statement, in the form prescribed by the Department, for the purpose of fixing the applicable credit percentage for the Project as that for the month in which the commitment was accepted, as provided in the Code, sec.42(b)(2). Upon receipt of a duly dated and executed Agreement and Election Statement and the accepted Commitment Notice, if the Project Owner is in compliance with the Rules of this chapter, the Department shall execute the Agreement and Election Statement and return a copy to the Project Owner. The Agreement and Election Statement shall be executed by the Project Owner no later than five days after the end of the month in which the offer of commitment was accepted. Current Treasury Regulations, sec.1.42-8(a)(1)(v), suggest that in order to permit a Project Owner to make an effective election to fix the applicable credit percentage for a Project, the Commitment Notice must be executed by the Department and the Project Owner in the same month. The Department will cooperate with a Project Owner, as needed, to assure that the Commitment Notice can be so executed. (k) Prior to the expiration of the Commitment Notice a Project Owner who has been issued a Commitment Notice may request the Department to execute a Carryover Allocation Document. The Carryover Allocation must be properly completed, signed, dated and notarized by the Project Owner and delivered to the Department along with any and all other documentation prescribed in the Carryover Allocation Procedures Manual, as amended. The commitment fee as specified in sec.49.11 of this title (relating to Program Fees) must be received by the Department prior to the processing of any Carryover Allocation Documentation. (l) If the entire State Housing Credit Ceiling for the applicable calendar year has been, committed or allocated in accordance with this chapter, the Department shall place all remaining Applications which have satisfied all Threshold Criteria on a waiting list. All such waiting list Applications will be weighed one against the other and a priority list shall be developed by the Department and approved by the Committee. If at any time prior to the end of the Application Round, one or more Commitment Notices expire and a sufficient amount of the State Housing Credit Ceiling becomes available, the Department shall issue a Commitment Notice to Applications on the waiting list in order of priority. In the event that the Department makes a Commitment Notice or offers a commitment within the last month of the calendar year, it will require immediate action by the Applicant to assure that an allocation or Carryover Allocation can be issued before the end of that same calendar year. (m) Within 15 business days of the date an Application is received, the Department shall notify in writing the mayor or other equivalent chief executive officer of the municipality, if the Project or a part thereof is located in a municipality; otherwise the Department shall notify the chief executive officer of the county in which the Project or a part thereof is located, to advise such individual that the Project or a part thereof will be located in his/her jurisdiction and request any comments which such individual may have concerning such Project. Such comments shall be part of the documents required to be reviewed by the Board under this subsection if received by the Department within 30 days after receipt of such certified mail notification to said individual; otherwise, if comments are received by the Department after 30 days, same may be reviewed at the discretion of the Board under this subsection. If the local municipal authority expresses opposition to the Project, the Department will give consideration to the objections raised and will visit the proposed site or Project within 30 days of notification. (n) Prior to the Department's issuance of the IRS Form 8609 declaring that the Project has been placed in service for purposes of the Code, sec.42, Project Owners must date, sign and acknowledge before a notary public a LURA and send the original to the Department for execution. The Project Owner shall then record said LURA, along with any and all exhibits attached thereto, in the real Property records of the county where the Project is located and return the original document, duly certified as to recordation by the appropriate county official, to the Department. If any liens (other than mechanics' or materialmen's liens) shall have been recorded against the Project and/or the Property prior to the recording of the LURA, the Project Owner shall obtain the subordination of the rights of any such lienholder, or other effective consent, to the survival of certain obligations contained in the LURA following the foreclosure of any such lien. Receipt of such certified recorded original LURA by the Department is required prior to issuance of IRS Form 8609. A representative of the Department shall physically inspect the Property for compliance with the Application and the representatives, warranties, covenants, agreements and undertakings contained therein before the IRS Form 8609 is issued. sec.49.5. Set-Asides, Commitments and Preferences. (a) At least 10% of the State Housing Credit Ceiling for each calendar year shall be allocated to Qualified Nonprofit Projects which meet the requirements of the Code, sec.42(h)(5). Such organizations may compete in one of the following set-asides: Non Profit - 10%; Rural Projects/Prison Communities - 15%; General Projects - 75%. (b) The Department may redistribute the credits depending on the level of demand exhibited during the Allocation Round; provided that no more than 90% of the State's Housing Credit Ceiling for the calendar year may go to Projects which are not Qualified Nonprofit Projects. Information concerning the appropriate set-aside for each Application Round will be published in the Texas Register. Applicants may submit only one Application for each site. (c) No Commitment Notice shall be issued with respect to any Project, the total development cost of which, as determined by the Department, or the acquisition, construction or rehabilitation cost of which exceed the limitations established from time to time by the Department and the Board as more specifically provided for within the Reference Manual. The Department will reduce the Applicant's estimate of developer's and/or Contractor fees in instances where these fees are considered excessive, as more specifically provided for within the Application Submission Procedures Manual, as amended. In the instance where the Contractor is an Affiliate of the Project Owner and both parties are claiming fees, Contractor's overhead, profit, and general requirements, the Department will reduce the total fees estimated to a level that it deems appropriate. Further, the Department shall deny or reduce the amount of low income housing tax credits on any portion of costs which it deems excessive or unreasonable. The Department also may require bids in support of the costs proposed by any Applicant. sec.49.6.Threshold Criteria; Evaluation Factors; Selection Criteria; Final Ranking; Credit Amount; Tax Exempt Bond Financed Projects. (a) Threshold Criteria. To have an Application considered for Selection Criteria, a Project Owner must first supply all required information and demonstrate that the Project meets all of the requirements of the Threshold Criteria set forth as follows and as more specifically provided for in the Application Submission Procedures Manual, as amended. Applications not meeting Threshold Criteria may be terminated as otherwise provided under this chapter. No Scattered Site Project will be considered for allocation of tax credits under this QAP and the Rules, and thus Scattered Site Projects do not satisfy Threshold Criteria. Project Owners whose Applications do not meet Threshold Criteria will be so informed in writing. The following are the Threshold Criteria that are mandatory requirements at the time of Application submission: (1) EXHIBIT 101: Label as EXHIBIT 101, the following documents: (A) a letter from the design architect specifying the type of amenities proposed for the development; (B) original photographs of the signage, existing buildings, and interior photographs; and (C) original photographs of the development site and the surrounding area. Property Owners must provide at least four of the following amenities: (i) limited access security fence; (ii) designated playground and equipment; (iii) community laundry room/laundry hook-up in Units; (iv) furnished community room; (v) recreation facilities; (vi) public telephone(s); (vii) on-site day care, Senior Center, or Community meals room; (viii) storage areas; or (ix) covered parking. With respect only to Small Developments (35 Units or less) and Special Housing Projects, the Department will consider requests for waivers of the foregoing amenity requirement. Any such waiver requests shall be submitted in writing at the time of the Application submission, setting forth the reasons for the proposed waiver. All Projects must adhere to the Texas Property Code statute relating to Security Devices and other applicable requirements for Residential Tenancies. (2) EXHIBIT 102: Label as EXHIBIT 102(A) or (B), according to the development type, provide construction costs breakdown associated with the proposed new construction or rehabilitation. Additionally, all rehabilitation Projects must provide a detailed work write-up/physical assessment report with estimated cost which is prepared by a registered architect, professional engineer or bonded general Contractor detailing the scope of work to be performed throughout the rehabilitation process. (3) EXHIBIT 103: There shall exist evidence of readiness to proceed in the form of at least one of the items under each subparagraphs (A)-(E) of this paragraph: (A) Label as EXHIBIT 103(A), evidence of site control through one of the following: (i) A recorded warranty deed in the name of the ownership entity, or entities which comprise the Applicant; (ii) A contract for sale or lease (the minimum term of the lease must be at least 45 years) in the name of the ownership entity, or entities which comprise the Applicant which is valid for the entire period the development is under consideration for tax credits or at least 90 days, whichever is greater; or (iii) An exclusive option to purchase in the name of the ownership entity, or entities which comprise the Applicant which is valid for the entire period the development is under consideration for tax credits or at least 90 days, whichever is greater. (B) Label as EXHIBIT 103(B), evidence of current and appropriate zoning in the form of a letter from the appropriate municipal authority. In lieu of such documentation the Applicant must submit evidence that a rezoning request has been filed with the appropriate municipal authority as of the date of submission of the Application. Any commitment of tax credits to the Applicant will be contingent upon proper rezoning prior to Carryover Allocation. If zoning is not required, the Applicant must submit a letter from the local municipal/county authority so stating. If the Property is currently a non-conforming use as presently zoned, provide the following: (i) a detailed narrative of the nature of non-conformance; (ii) the applicable destruction threshold; (iii) owners rights to reconstruct in the event of damage; and (iv) penalties of noncompliance. (C) Label as EXHIBIT 103(C), evidence of the availability of all necessary utilities/services to the development site. Exhibits must be in the form of a letter from the appropriate municipal provider/local service provider, or in the form of the last monthly bill which must clearly identify the development by name and address. Necessary utilities are GAS/ELECTRIC; TRASH; WATER, and SEWER. (D) Label as EXHIBIT 103(D), evidence of permanent financing in only one of the following forms: (i) Bona Fide permanent financing in place as evidenced by a valid and binding loan agreement and a deed(s) of trust in an amount not less than the projected liens to be placed upon the Project upon completion of construction in the name of the ownership entity which identifies the mortgagor as the Applicant or entities which comprise the general partner; (ii) Bona Fide commitment or term sheet issued by a lending institution or mortgage company that is actively and regularly engaged in the business of lending money which is addressed to the ownership entity, or entities which comprise the Applicant and which has been executed and accepted by both parties (the term of the loan must be for a minimum of 15 years with a 25 year amortization); or (iii) if the development will be financed through owner contributions, provide a letter from an independent CPA verifying the capacity of the Applicant to provide the proposed financing and that funds are committed solely for such purpose with a letter from the Applicant's bank or banks confirming that such funds have been provided for or deposited in a separate account at said bank(s). (E) Label as EXHIBIT 103(E), a copy of the current title policy which shows that the ownership of the land/Project is vested in the exact name of the Applicant, or entities which comprise the Applicant (purchaser) or the entity/Person (seller) with which the Applicant or entities which comprise the Applicant has executed an option to purchase, a purchase and sale agreement, a long-term lease or option to lease. (4) EXHIBIT 104: Label as EXHIBIT 104, evidence of pre-Application notification by the Applicant to the local chief executive officer(s) (i.e., mayor and county judge) of the locality of the development. Such evidence must be in the form of a copy of the certified mail receipt, overnight mail receipt, or confirmation letter from said official. (5) EXHIBIT 105: Provide Applicant's Financial Statements for the current year (as well as the most current) of all Applicants, corporation or general partner(s) and its principal(s) which are not more than 12 months old prepared and submitted in EXHIBIT 105, which is provided as part of this Application Submission Procedures Manual. Audited Financial Statements not more than 12 month old for the general partner(s), or unaudited Financial Statement not more than 90 days old prepared by an independent CPA, may be accepted in lieu of EXHIBIT 105. (6) EXHIBIT 106: must be the original copy of the completed and executed Previous Participation and Background Certification Form (EXHIBIT 106) with respect to each member of the Department Team which is provided as part of the Application Submission Procedures Manual. (7) EXHIBIT 107: Label as EXHIBIT 107, a current rent roll for occupied Projects undergoing rehabilitation. The rent roll must disclose terms and rate of the lease, "street" rents, Unit mix, tenant names or vacancy, dates of first occupancy and expiration of lease. Vacant and proposed new construction Projects will, of course, be exempt from this requirement. (8) EXHIBIT 108: Label as EXHIBIT 108, for rehabilitation developments, historical monthly operating statements of the subject development to date for the past three full calendar years and for the current year to date as of the end of the month occurring not more than 45 days prior to the date of initial Application, or since the date of acquisition of the development and for new construction, submit 15-year proforma estimates of operating expenses and all supporting documentation to support projections. Rehabilitation Projects must also submit a 15-year proforma of operating expenses with appropriate supporting documentation. (9) EXHIBIT 109: Label as EXHIBIT 109 on the cover page only, a Market Study addressing all items listed in sec.49.4(c) of this title (relating to Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments) and/or required by the Reference Manual. (10) EXHIBIT 110: Label as EXHIBIT 110 on the cover page only, a Phase I Environmental Study prepared in accordance with sec.49.4(c) of this title (relating to Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments). (11) EXHIBIT 111: Label as EXHIBIT 111, documentation, as applicable, that the Applicant is a Qualified Nonprofit Organization pursuant to the Code, sec.42(h)(5)(C), as evidenced by: (A) an IRS determination letters, (B) partnership agreement which shows that the nonprofit Controls the Project (directly or indirectly) and will materially participate (within the meaning of the Code sec.469(h) in the development and operation of the Project throughout the Compliance Period, and (C) a current list of all directors and officers of the nonprofit organization, along with information pertaining to their primary occupations and disclosing any relationship; as an Affiliate or otherwise, with other members of the Applicant and/or any members or Affiliate of the Development Team, including any market analyst, CPA, appraiser, or other professional performing any services with respect to the Project and/or the subject Property. (12) EXHIBIT 112: Label as EXHIBIT 112, if applying for acquisition credits or if the Applicant is affiliated with the seller an appraisal of the Property apportioning the value of the land and the improvements where applicable, a valuation report from the local tax appraisal district and a bona fide valid contract verifying the acquisition cost which clearly identifies the selling Persons or entities, and details any relationship with the Applicant or any Affiliation with the Development Team, any Qualified Market Analyst and any other professional or consultant performing services with respect to the Project. (13) EXHIBIT 113: Label as EXHIBIT 113, a copy of the public notice published in a widely circulated newspaper in the area in which the proposed development will be located. Such notice must run at least twice within a two week period, except on holidays, prior to the submission of the Application to the Department. The notice must be prepared in accordance with the guidelines established in the Application Submission Procedures Manual. (b) Evaluation factors. The Department will consider Applications for a housing credit allocation using the evaluation and point system described herein and in the Application Submission Procedures Manual: (1) Applications will be initially evaluated against the Threshold Criteria as they are accepted for filing in the Department during any Application Acceptance Period. Applications not meeting the Threshold Criteria may be terminated and may, at the Department's discretion, be returned to the Applicant without further review. The Department shall not be responsible for the Applicant's failure to meet the Threshold Criteria, and any oversight or failure of the Department's staff to notify the Applicant of such inability to satisfy the Threshold Criteria shall not confer upon the Applicant any rights to which it would not otherwise be entitled. All Applicants may withdraw and subsequently refile an Application, as well as file a new Application before the filing deadline. (2) Applications will then be ranked according to the points scored under the Selection Criteria in accordance with the Rules and the Application Submission Procedures Manual. Applications not scored by the Department's staff shall be deemed to have the points allocated through self-scoring by the Applicants until actually scored. This shall apply only for ranking purposes. (3) Applications which receive the highest number of points, in each set-aside category during the applicable round, and if a sufficient amount of state housing tax credits are available, will be eligible for an evaluation by an Underwriter. As detailed in sec.49.4(h) of this title (relating to Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments) the Department, the Committee and the Board shall evaluate an Application on the basis of additional factors beyond scoring criteria such as underwriting analysis, geographic dispersion of multi-family housing as well as tax credit allocation, site conditions, impact on the Low Income Housing Tax Credit Program's goals and objectives as stated in the QAP and the Rules, and as otherwise provided under this chapter. If such evaluation warrants, the Application will be forwarded to the Committee and to the Board for approval. The Department may have an outside third party perform the underwriting evaluation to the extent it determines appropriate. The expense of any third party underwriting evaluation shall be paid by the Applicant prior to the commencement of the aforementioned evaluation. (4) Applications which have not received a Commitment Notice at the end of the Application Round may be placed on a waiting list to be established by the Department and approved by the Committee At the end of each calendar year, all Applications which have not received a Commitment Notice shall be deemed terminated, unless the Department shall determine to retain or act upon such Applications as provided hereinafter at sec.49.15 of this title (relating to Forward Reservations; Binding Commitments). The Applicant may re-apply to the Department during the next Application Acceptance Period. (c) Selection Criteria. Pursuant to subsection (b)(1)-(4) of this section, Applications receiving the highest number of points in each set aside category, in each Application Acceptance Period, if a sufficient amount of the State Housing Credit Ceiling is available, will be eligible for an evaluation by an Underwriter. All Applications will be ranked according to the Selection Criteria listed in paragraphs (1)-(9) of this subsection. If no additional set-aside credits are available, the Application shall be scored and evaluated in the General Pool using the criteria to which such General Pool Applications are subject, without special set-aside scoring points being considered. (1) DEVELOPMENT LOCATION. (A) EXHIBIT 201: Label as EXHIBIT 201, a copy of the census map (may be obtained from HUD or the local planning department) if the subject Property is located within a Qualified Census Tract (QCT) as defined by the Secretary of HUD and qualifies for the 30% increase in Eligible Basis, pursuant to the Code, sec.42(d)(5)(C). The census map must clearly identify the proposed development to be located within a QCT. Census tract numbers must be clearly marked on the map, and must be identical to the QCT number stated in the Department's Reference Manual. Applicants for Projects in a Difficult Development Area or a Targeted Texas County must indicate this designation in the space provided in the Application Submission Procedures Manual. (10 points) OR (B) EXHIBIT 202: Label as EXHIBIT 202, evidence that the proposed development is located within a city-sponsored neighborhood preservation/redevelopment area or a designated state or federal empowerment/enterprise zone. Such evidence must be in the form of a letter and a map from a city/county official verifying the proposed development to be located within a preservation/redevelopment area or empowerment/enterprise zone. In order to qualify for these points, an Applicant whose Project is located within a city-sponsored redevelopment area must submit a certified copy of the appropriate resolution or documentation from the mayor, local city council, county judge, county commissioners court in support of the Project stating that the designated area was: (i) created by the local city council/county commission; (ii) targets a specific geographic area; and (iii) offers tangible and significant area-specific incentives or benefit over and above those normally provided by the city or county. Public Improvement Districts (PIDs), Tax Increment Financing Zones (TIFs), or similar districts organized under the Texas Local Government Code are prime examples of such redevelopment efforts. (10 points) (2) HOUSING NEEDS CHARACTERISTICS. (A) The proposed development is located in a county in which 10% or more of the households are below the poverty level as set forth in the Department's "County Data Elements Guide" incorporated into the Reference Manual. Utilize the percentages below to assess the appropriate score. (i) 10% to 20% of households are below the poverty level (3 points). (ii) 21% to 31% of households are below the poverty level (5 points). (iii) 32% to 42% of households are below the poverty level (7 points). (iv) 42% + of households are below the poverty level (9 points). (B) The proposed development is located in a county in which 20% or more of the rental units have a cost burden as set forth in the County Data Elements guide. Utilize the following percentages to assess the appropriate score: (i) 20% to 30% of rental units have a cost burden (4 points). (ii) 31% to 41% of rental units have a cost burden (6 points). (iii) 42% + of rental units have a cost burden (8 points). (3) PROJECT CHARACTERISTICS. (A) EXHIBIT 203: Label as Exhibit 203, evidence that the proposed development to be purchased qualifies as a federally assisted building within the meaning of the Code, sec.42(d)(6)(B), and is in danger of having the mortgage assigned to HUD, TxRD, or creating a claim on a federal mortgage insurance fund. Such evidence must be a letter from the institution to which the development is in danger of being assigned. (5 points) (B) EXHIBIT 204: Label as EXHIBIT 204, evidence that the proposed development is a low-income building with mortgage prepayment eligibility as provided for in the Code, sec.42(d)(6)(C). Such evidence must be a copy of the HUD regulatory agreement which evidences the prepayment clause. (5 points) (C) EXHIBIT 205: Label as EXHIBIT 205, evidence that the Applicant is purchasing(ed) a Property (no earlier than 1995) owned by HUD, an insured depository institution in default, or a receiver or conservator of such an institution, or is an REO Property. Such evidence must be in the form of a binding contract to purchase from such federal or other entity as described in this section, closing statements, or recorded warranty deed. (5 points) (D) The proposed development's composition offers a Unit mix which is conducive to housing large families. To qualify for these points, these Units must have at least 1,000 square feet of living space for three bedrooms or 1200 square feet for four bedrooms with at least two baths. Five points will be awarded for the first 15% of the Units in the development that are three bedrooms or larger. An additional point will be awarded in 5% increments for every 5%, up to 30% of Units which are three bedrooms or larger, up to a maximum of three points. In computing qualified Units for this selection item where the Unit Project is a mixed-income development, only tax credit Units should be included. (i) 15% of the Units in the development are three or four bedrooms. (5 points) (ii) An additional point will be awarded for every 5% of Units that are three or four bedrooms up to a maximum of three points. (3 points) (E) EXHIBIT 206: Label as Exhibit 206A, for new Construction, a letter from the architect which certifies that at least four of the following energy saving devices will be utilized in the construction of each tax credit Unit. The devices selected must be certified as included in each tax credit Unit of the Project upon placement in service. (i) Ceiling Fans. (ii) Insulation which exceeds code for walls and ceilings. (iii) Solar Screens. (iv) Gas heating system with a minimum 80% flue efficiency. (v) Energy efficient air conditioning system with a 10 SEER or above. (vi) Dual pane insulating windows To qualify for these points at least four of the six items listed must be selected. (3 points) Label as Exhibit 206B for rehabilitation, an energy audit of 10% of the tax credit Units and common areas, conducted by a local utility servicer or a registered architect. Upon placement in service, another audit will be required of the same Units to certify that the design features and/or construction components installed in each tax credit Unit exceeds local/regional building code with respect to energy efficiency. In the event that an energy audit is unobtainable because the Units are currently vacant and uninhabitable, a certification from a registered architect will suffice. (3 points) (F) EXHIBIT 207: Label as EXHIBIT 207, evidence that the proposed development's financing involves leveraging of resources from a nonprofit private foundation (which is not related to the lender, developer, sponsor, or syndicator) and/or federal, state and/or local governmental entity(s) (that is at or below the Applicable Federal Rate). Such evidence must be a letter of commitment from the entity which states the terms of the permanent loan or grant and all other conditions. To qualify for these points and to retain such funds in basis, the Applicant must demonstrate to the Department's satisfaction that such funds fill a funding gap that is essential for the financial feasibility of the Project. The donation of land, waiver of fees and/or tax abatement(s) will also be considered under this criterion provided that the value of the contribution is quantified and verifiable. (i) 5% of total residential costs are funded by private nonprofit foundation(s) or government resources. (3 points) (ii) One additional point will be awarded for every 2% of total residential costs funded from such contributions up to a maximum of three points. (3 points) (G) The proposed development provides low density housing of less than 10 Units per acre or as follows: (i) 10 Units or less per acre (6 points) (ii) 11 to 15 Units per acre (4 points) (H) The subject Project is an existing Residential Development without maximum rent limitations or set-asides for affordable housing seeking rehabilitation credits. (8 points) (I) The subject Project is a mixed-income development comprised of both market rate Units and qualified tax credit Units. (i) Project's Applicable Fraction is no greater than 75%. (6 points) (ii) Project's Applicable Fraction is no greater than 60%. (10 points) (J) EXHIBIT 208: Label as EXHIBIT 208, evidence that the proposed historic residential development has received an historic property designation by a federal, state or local governmental entity. Such evidence must be in the form of a letter from the designating entity identifying the development by name and address and stating that the project is: (i) listed in the National Register of Historic Places under the U.S. Department of the Interior in accordance with the National Historic Preservation Act of 1966; (ii) located in a registered historic district and certified by the U.S. Department of the Interior as being of historic significance to that district; (iii) identified in a city, county, or state historic preservation list; or (iv) designated as a state landmark. (6 points) (K) Property Owner will set-aside Units for households with incomes at 50% or less of Area Median Gross Income (AMGI) for occupancy of the tax credit Units (TCU's) in the development. The rents for these Units must not be higher than the allowable tax credit rents at the 50% AMGI level. Utilize the percentages below to assess the appropriate score: (i) Four points will be awarded for the first 10% of the Units in the development that are set-aside for tenants with incomes at 50% or less of AMGI. (4 points) (ii) An additional point will be awarded for every 5% of additional Units set- aside for tenants with incomes at 50% or less of AMGI up to a maximum of four points. (4 points) (L) Proposed development is comprised of fourplexes in clusters of four or more on contiguous property under common ownership, management and Control or townhome developments of at least 16 Units. To qualify for these points the development must have a density of no more than 15 Units per acre. (5 points) (M) EXHIBIT 209: Label as EXHIBIT 209, for rehabilitation evidence that a majority of the development's residential Units, as of the end of the Application Acceptance Period, are vacant and uninhabitable. Such evidence must be in the form of a letter and report from the local municipal authority citing substantial code violations. To qualify for these points, the Applicant or its Affiliates must not have owned a significant interest in, or have had Control of the Project during the period in which such Units were rendered uninhabitable. (4 points) (N) EXHIBIT 210: Label as EXHIBIT 210, evidence from the local municipal authority stating that the proposed development fulfills a need for additional affordable rental housing as evidenced in a local Consolidated Plan and is supported by the local municipal authority. (5 points) (O) The Project is a Small Development. A Small Development is defined as a Project consisting of not more than 35 multifamily Units, which is not a part of, or contiguous to, a larger Project. A Project may not receive points for this characteristic if it would otherwise qualify as a Rural Project. (5 points) (4) SPONSOR CHARACTERISTICS. (A) EXHIBIT 211: Label as EXHIBIT 211, evidence that the ownership entity, general partner, or its principals have a record in successfully developing and operating affordable rental housing under a program operated by HUD, TxRD, RTC, HOME, LIHTC or any other verifiable source which provides affordable housing. With respect to the Properties listed as developed and operated, such ownership entity, principals or general partner must be the Project Owner or have the Control of the Project Owner. The term "successful" is defined as developing, operating, and maintaining current Control of at least 100 Units under the tax credit program, or at least 100 Units under all other affordable housing programs except TxRD and Rural Projects. For such Projects, a minimum of 35 Units are required. For the tax credit program, evidence in the form of a copy of the IRS Form 8609 for the first building and a copy of the partnership agreement must be submitted. For HUD subsidized properties, the evidence must include the most recent Housing Quality Standards inspection and the Annual Performance Review (HUD Form 9822). For other affordable housing programs, documentation (including development and partnership agreements) evidencing current ownership and operation of the Project is required. Applicants whose experience in affordable housing was through mortgage revenue bonds, must submit documentation which shows that the ownership entity/general partner and its principals have developed and had or currently maintain Control in the Project Owner. Such evidence should include a copy of the financing and/or regulatory agreements, warranty deed which shows the ownership entity as the grantee, the partnership and development agreements, the name, address and contact Person of the bond trustee, issuer, and compliance agent. Additional information to be provided shall include a schedule of Properties owned, years of ownership, addresses of properties, number of Units in the Properties, and the percentage of direct or indirect ownership of each Property. Property Owners in noncompliance with any of the aforementioned programs, but which are not barred from having an Application recommended by sec.49.4(f), or which have had a continuing pattern of defaults and foreclosures are ineligible to claim the points for this item. (i) Project Owner or general partner has developed and currently maintains Control of at least 100 affordable housing Units under the tax credit or other affordable housing programs. (8 points); or (ii) Project Owner or general partner has developed and had Control of at least 100 affordable housing Units under the tax credit or other affordable housing program for a period of not less than five years. (6 points); or (iii) Project Owner or general partner has developed and had or currently maintains Control of at least 100 market-rate Units for a period of not less than five years. (4 points) (B) EXHIBIT 212: Label as EXHIBIT 212, evidence that the HUB has been certified by the General Services Commission and is the Project Owner or Controls the Project Owner. To qualify for these points, the HUB and its principals must provide the necessary loan and syndication guarantees to develop the Project. (5 points) (5) PARTICIPATION OF LOCAL TAX EXEMPT ORGANIZATIONS EXHIBIT 213: Label as EXHIBIT 213, evidence that the Property owner has an executed agreement with a Local Tax Exempt Organization for the provision of special supportive services that would not otherwise be available to the tenants. The supportive services will be evaluated based upon the following: (A) the duration of the service agreement, (B) the accessibility and appropriateness of the service to the tenants, (C) the experience of the service provider, and (D) the importance of the service in enhancing the tenants standard of living. The supportive service will be included in the LURA. (Up to 5 points) (6) TENANT POPULATIONS WITH SPECIAL HOUSING NEEDS. (A) This criterion applies to elderly Projects which must provide significant facilities and services specifically designed to meet the physical and social needs of the residents. Significant services may include congregate dining facilities, social and recreation programs, continuing education, welfare information and counseling, referral services, transportation and recreation. Other attributes of such Projects include providing hand rails along steps and interior hallways, grab bars in bathrooms, routes that allow for barrier-free lever type doorknobs and single lever faucets, as well as elevators for Projects of over two stories. Elderly Projects must not contain any Units with three or more bedrooms. Such a Project must conform to the Federal Fair Housing Act and must be a Project which: (i) is constructed for, and solely occupied by Persons 60 years of age or older; and (ii) adheres to policies and procedures which demonstrate a firm commitment by the owner and manager to provide housing for Persons 60 years of age or older. (10 points) (B) EXHIBIT 214: Label as EXHIBIT 214, evidence verifying that the subject development provides Units specifically equipped for persons with physical or mental disabilities. Such evidence must be in the form of a certification from an accredited architect stating the number of Units which are/will be designed to meet American National Standards for buildings and facilities providing accessibility and usability for Persons with Disabilities (ANSI A117.1 - 1986 or successor) and will conform to the Fair Housing Act. "Equipped" means that features that make the Units fully usable to such persons are installed in the Units at the time of construction or provisions have been included in construction for easy modification to meet the ANSI A117.1 standards. For Units targeted for tenants with mental disabilities, such evidence must include a referral agreement with an entity that provides on-site supportive services specifically designed for such tenants. (i) 6% to 10% of Units are set-aside for persons with physical disabilities or targeted for persons with mental disabilities. (4 points) (ii) 11% to 15% of Units are set-aside for persons with physical/mental disabilities. (6 points) (iii) 16% + of Units are set-aside for persons with physical/mental disabilities. (8 points) (C) EXHIBIT 215: Label as EXHIBIT 215, evidence that the Project is designed solely for transitional housing for homeless persons on a non-transient basis, with supportive services designed to assist tenants in locating and retaining permanent housing. Such evidence must include a detailed narrative describing the type of proposed housing; a referral agreement with an established organization which provides services to the homeless; and a marketing plan designed to attract qualified tenants and housing providers, as well as a list of supportive services. (15 points) (7) PUBLIC HOUSING WAITING LISTS. EXHIBIT 216: Label as EXHIBIT 216, evidence that the Property owner has committed in writing to the local public housing authority (PHA), the availability of Units which also states that the Property owner agrees to consider as potential tenants, those households on the PHA's waiting list. Property owner's letter to the PHA must be accompanied by a marketing plan outlining how these Units will be marketed to individuals on the waiting list. If no PHA is within the locality of the development PHA, the Property owner must utilize the nearest authority or office responsible for administering Section 8 programs. Such evidence must include a copy of the Property owner's letter to the local PHA; a copy of the marketing plan submitted with letter to the local PHA; verification of receipt by the PHA in the form of certified return receipt or overnight mail receipt; and a letter received from an appropriate municipal authority, or local PHA stating the need for additional affordable housing Units within its jurisdiction. (3 points) (8) SUBSTANTIAL READINESS TO PROCEED. EXHIBIT 217: Label as EXHIBIT 217, evidence of substantial readiness to proceed. Such evidence must be in the form of an enforceable construction financing commitment from a regulated financial institution that is actively and regularly engaged in the business of lending money. Such a commitment must be a written approval of a loan or grant (i.e., preliminary approval by the lender's loan committee) and be subject only to conditions fully under the control of the Applicant to satisfy (excluding the allocation of tax credits). (4 Points) (9) BONUS POINTS: Application is received within the first ten days of the Application Acceptance Period. (2 points) (d) Final Ranking. The Department will evaluate Projects according to the strength of the Project in meeting the Threshold and Selection Criteria. In the event that two or more Applications receive the same number of points in any given set-aside category, the Department will utilize the following factors in the order presented in paragraphs (1)-(7) of this subsection in making a determination as to which Project will receive a preference in consideration for a tax credit commitment: (1) which demonstrates the highest substantial readiness to proceed as evidenced by the Selection Criteria, more specifically provided for in subsection (c)(8) of this section; (2) which provide for the most efficient usage of the low income housing tax credit on a per Unit basis; (3) which have substantial community support as evidenced by the commitment of local public funds toward the construction, rehabilitation and acquisition and subsequent rehabilitation of the Project; (4) Project which is a Special Housing Project as defined in sec.49.2 of this title (relating to Definitions); (5) which serve the lowest income tenants; (7) whose Unit composition provides the highest percentage of three bedrooms or greater sized Units. (e) In reaching the final ranking of an Application, the Department will take into consideration the Project Owner's history in the tax credit program and other affordable housing programs. The Department may disqualify from this allocation round, any Applicant, Project Owner, developer and its partners, principals, and/or Affiliates who have received an allocation of credits in the 1994 or 1995A rounds and who have not yet commenced construction or finalized the closing of the construction loan, respectively, as of the start of this Application Acceptance Period. The Department may deduct up to ten points from the final score of any Applicant (or an Affiliate of which), in the past, has not placed into service developments for which the Department has made an allocation, or if a Property Owner has failed to perform under the obligations of any previous Commitment Notice. The Department may, at its sole discretion disqualify or impose limitation or disabilities upon an Applicant, Project Owner, developer, and its partners, principals and/or Affiliates with respect to the competition for allocations of tax credits as a consequence of material misstatement or omission, noncompliance with any Code requirements, or any of the terms, conditions or obligations of the program for any Project that has received a commitment or allocation, or for failure to place in service buildings for which credits were allocated. The Department will disqualify an Applicant who has been convicted of fraud, theft, misappropriation of funds; who has made misrepresentations to the Department; who is in noncompliance with the LURA or other similar agreement for any other Project monitored by the Department, or who is in noncompliance under this program or another program administered by this Department or other governmental entities. Additionally, Applicants are advised that the Department reserves the right to reject Applications which include principals who have been: (1) Excluded from federal and non federal procurement programs (either debarment or suspension); (2) Convicted of a felony offense; (3) Indicted or subject to enforcement action under state of federal securities law; and (4) Negligent in the physical upkeep of subject Property, or negligent in the operation of the subject Property, as deemed so by another federal or state authority. All such rejections of Applications shall be at the sole discretion of the Department. (f) Credit Amount. The Department shall issue tax credits only in the amount needed for the financial feasibility and viability of a Project throughout the Compliance Period. The issuance of tax credits or the determination of any allocation amount in no way represents or purports to warrant the feasibility or viability of the Project by the Department. The Department will limit the allocation of tax credits to no more than $1.2 million per Project or $2.4 million per Applicant. For these purposes this limitation will apply to all Affiliates of any Applicant, developer, Project Owner, general partner, sponsor or their Affiliates or related entities unless otherwise provided for by the Department. The limitation does not apply to an entity which raises or provides equity for one or more Projects, solely with respect to its actions in raising or providing equity for such Projects (including syndication related activities as agent on behalf of investors), to the provision by an entity of "qualified commercial financing" within the meaning of the Code, sec.49(a)(1)(D)(ii) (without regard to the 80% limitation thereof), and to a Qualified Nonprofit Organization or other not-for-profit entity, to the extent that the participation in a Project by such organization consists of the provision of loan funds or grants. In making determinations with respect to the limitation the Department may take into account such factors as the percentage of interest held by a particular individual or any Affiliate thereof in a Project, the amount of fees or other compensations paid to a particular individual or any Affiliate thereof with respect to a Project, any other financial benefits, either directly or indirectly through Beneficial Ownership received by a particular individual or any Affiliate thereof with respect to a Project. The Committee, in its sole discretion, may allocate credits to a Project Owner in addition to those awarded at the time of the initial Carryover Allocation in instances where there is bona fide substantiation of cost overruns and the Department has made a determination that the allocation is needed to maintain the Project's financial viability as a qualified low income Project. (g) Limitations on the Size of Projects. Rural Projects involving new construction must not exceed 75 Units. All other Projects involving new construction or requesting both rehabilitation and new construction tax credits will be limited to 250 Units. (h) Tax Exempt Bond Financed Projects. Applications for Projects which receive at least 50% of their financing from the proceeds of tax-exempt bonds which are subject to the state volume cap as described in the Code, sec.42(h)(4)(B) are also subject to evaluation under the QAP and Rules. Such Projects must meet all the Threshold Requirements stipulated in the QAP and demonstrate consistency with the bond issuer's local Consolidated Plan. The issuer, at its discretion, may enter into a contractual agreement to allow the Department to underwrite the Project. (i) Adherence to Obligations. All representations, undertakings and commitments made by an Applicant in the applications process for a Project, whether with respect to Threshold Criteria, Selection Criteria or otherwise, shall be deemed to be a condition to any Commitment Notice and/or Carryover Allocation for such Project, the violation of which shall be cause for cancellation of such Commitment Notice or Carryover Allocation by the Department, and if concerning the ongoing features or operation of the Project, shall be reflected in the LURA. sec.49.7. Compliance Monitoring. (a) The Code, sec.42(m)(1)(B)(iii), requires each State Allocating Agency to include in its "Qualified Allocation Plan" a procedure that the agency (or an agent or other private Contractor of such agency) will follow in monitoring Projects for noncompliance with the provisions of the Code, sec.42 and in notifying the Internal Revenue Service (the "Service"), or its successor, of such noncompliance of which such agency becomes aware. This procedure does not address forms and other records that may be required by the Service on examination or audit. (b) The Department will also monitor compliance with any additional covenants made by the Project Owner in the Extended Low Income Housing Commitment Agreement. (c) The owner of a low income housing Project must keep records for each qualified low income building in the Project showing: (1) the total number of residential rental Units in the building (including the number of bedrooms and the size in square feet of each residential rental Unit); (2) the percentage of residential rental Units in the building that are low income Units; (3) the rent charged on each residential rental Unit in the building including documentation to support the utility allowance; (4) the number of occupants in each low income Unit; (5) the low income Unit vacancies in the building and information that shows when, and to whom, the next available Units were rented; (6) the annual income certification of each low income tenant per Unit, in the form designated by the Department in the Compliance Reference Guide, as may be amended; (7) documentation to support each low income tenant's income certification, consistent with the verification procedures required by HUD under sec.8 of the United States Housing Act of 1937 (sec.8). In the case of a tenant receiving housing assistance payments under sec.8, the documentation requirement is satisfied if the public housing authority provides a statement to the Project Owner declaring that the tenant's income does not exceed the applicable income limit under the Code, sec.42(g) as described in the Compliance Reference Guide; (8) the Eligible Basis and Qualified Basis of the building at the end of the first year of the Credit Period; (9) the character and use of the nonresidential portion of the building included in the building's Eligible Basis under the Code, sec.42(d), (e.g. tenant facilities that are available on a comparable basis to all tenants and for which no separate fee is charged for use of the facilities, or facilities reasonably required by the Project); and (10) additional information as required by the Department. (d) Record retention provision. The owner of a low-income housing Project is required to retain the records described in subsection (c) of this section for at least six years after the due date (with extensions) for filing the federal income tax return for that year; however, the records for the first year of the tax Credit Period must be retained for at least six years beyond the due date (with extensions) for filing the federal income tax return for the last year of the Compliance Period of the building. (e) Certification and Review. (1) On or before February 1st of each year, the Department will send each Project Owner of a completed Project an Owner's Certification of Program Compliance to be completed by the Owner and returned to the Department on or before the first day of March of each year in the Compliance Period. Any Project for which the certification is not received by the Department, is received past due, or is incomplete, improperly completed or not signed by the Project Owner, will be considered not in compliance with the provisions of the Code. The Owner Certification of Program Compliance shall cover the proceeding calendar year and shall include the following statements of the Owner: (A) the Project met the minimum set-aside test which was applicable to the Project; (B) there was no change in the Applicable Fraction of any building in the Project, or that there was a change, and a description of the change; (C) the owner has received an annual income certification from each low income tenant and documentation to support that certification; (D) each low income Unit in the Project was rent-restricted under the Code, sec.42(g)(2) and Internal Revenue Service Final Regulation sec.1.42 - 10 regarding utility allowances; (E) all Units in the Project were for use by the general public and used on a non-transient basis (except for transitional housing for the homeless provided under the Code, sec.42(i)(3)(B)(iii)); (F) each building in the Project was suitable for occupancy, taking into account local health, safety, and building codes; (G) either there was no change in the Eligible Basis (as defined in the Code, sec.42(d)) of any building in the Project, or that there has been a change, and the nature of the change; (H) all tenant facilities included in the Eligible Basis under the Code, sec.42(d), of any building in the Project, such as swimming pools, other recreational facilities, and parking areas, were provided on a comparable basis without charge to all tenants in the building; (I) if a low income Unit in the Project became vacant during the year, reasonable attempts were, or are being, made to rent that Unit or the next available Unit of comparable or smaller size to tenants having a qualifying income before any other Units in the Project were, or will be, rented to tenants not having a qualifying income; (J) if the income of tenants of a low income Unit in the Project increased above the limit allowed in the Code, sec.42(g)(2)(D)(ii), the next available Unit of comparable or smaller size in the Project was, or will be, rented to tenants having a qualifying income; (K) a LURA including an extended low income housing commitment agreement as described in the Code, sec.42(h)(6)(B), was in effect for buildings subject to the Revenue Reconciliation Act of 1989, sec.7106(c)(1) (generally any building receiving an allocation after 1989); (L) no change in the ownership of a Project has occurred during the reporting period; (M) the Project Owner has not been notified by the Internal Revenue Service that the Project is no longer "a qualified low income housing project" within the meaning of the Code, sec.42; and (N) the Project met all terms and conditions which were recorded in the LURA, or if no LURA was required to be recorded, the Project met all representations of the Project Owner in the Application for credits. (2) Review. (A) The Department will review each Owner's Certification of Program Compliance for compliance with the requirements of the Code, sec.42. (B) Each year, the Department will perform monitoring reviews of at least 20% of the low income housing Projects. A monitoring review will include an inspection of the income certification, the documentation the Project Owner has received to support that certification, the rent record for each low income tenant, and any additional information that the Department deems necessary, for at least 20% of the low income Units in those Projects. The Department shall give reasonable notice to the Project Owner that an inspection will occur; however, the Projects and records to be reviewed will be selected by the Department in its discretion. Monitoring reviews will be performed at the location of the Project, unless the Project is required to have fewer than ten low income Units. (C) The Department may, at the time and in the form designated by the Department, require the Project Owners to submit for compliance review, information on tenant income and rent for each low income Unit, and may require a Project Owner to submit for compliance review a copy of the income certification, the documentation the Project Owner has received to support that certification and the rent record for any low income tenant. (3) Exception. The Department may, at its discretion, enter into a Memorandum of Understanding with the TxRD, whereby the TxRD agrees to provide to the Department information concerning the income and rent of the tenants in buildings financed by the TxRD under its sec.515 program. Owners of such buildings may be excepted from the review procedures of paragraph (2)(B) or (C) of this subsection or both; however, if the information provided by TxRD is not sufficient for the Department to make a determination that the income limitation and rent restrictions of the Code, sec.42(g)(1) and (2), are met, the Project Owner must provide the Department with additional information. (f) Inspection provision. The Department retains the right to perform an on site inspection of any low income housing Project including all books and record pertaining thereto through either the end of the Compliance Period or the end of the period covered by any Extended Low Income Housing Commitment Agreement, whichever is later. An inspection under this subsection may be in addition to any review under subsection (e)(2) of this section. (g) Notices to Owner. The Department will provide prompt written notice to the owner of a low income housing Project if the Department does not receive the certification described in subsection (e)(1) of this section or discovers through audit, inspection, review or any other manner, that the Project is not in compliance with the provisions of the Code, sec.42. The notice will specify a correction period which will not exceed 90 days, during which the owner may respond to the Department's findings, bring the Property into compliance, or supply any missing certifications. The Department may extend the correction period for up to six months if it determines there is good cause for granting an extension. If any communication to the Project Owner under this section is returned to the Department as unclaimed or undeliverable, the Project may be considered not in compliance without further notice to the Project Owner. (h) Notice to the Internal Revenue Service. (1) Regardless of whether the noncompliance is corrected, the Department is required to file IRS Form 8823, Low Income Housing Credit Agencies Report of Noncompliance, with the Internal Revenue Service. IRS Form 8823 will be filed not later than 45 days after the end of the correction period specified in the Notice to Owner, but will not be filed before the end of the correction period. The Department will explain on IRS Form 8823 the nature of the noncompliance and will indicate whether the Project Owner has corrected the noncompliance or has otherwise responded to the Department's findings. (2) The Department will retain records of noncompliance or failure to certify for six years beyond the Department's filing of the respective IRS Form 8823. In all other cases, the Department will retain the certification and records described in this section for three years from the end of the calendar year the Department receives the certifications and records. (i) Notices to the Department. (1) A Project Owner must notify the Department in writing prior to any sale, transfer, exchange, or renaming of the Project or any portion of the Project, and this notification requirement shall be included in a LURA with respect to each Project. (2) A Project Owner must notify the Department in writing of any change of address to which subsequent notices or communications shall be sent. (j) Liability. Compliance with the requirements of the Code, sec.42 is the sole responsibility of the owner of the building for which the credit is allowable. By monitoring for compliance, the Department in no way assumes any liability whatsoever for any action or failure to act by the owner including the owner's noncompliance with the Code, sec.42. (k) These provisions apply to all buildings for which a low income housing credit is, or has been, allowable at any time. The Department is not required to monitor whether a building or Project was in compliance with the requirements of the Code, sec.42, prior to January 1, 1992. However, if the Department becomes aware of noncompliance that occurred prior to January 1, 1992, the Department is required to notify the Service in a manner consistent with subsection (g) of this section. sec.49.8. Housing Credit Allocations. (a) The Housing Credit Allocation Amount shall not exceed the dollar amount the Department determines is necessary for the financial feasibility and the long term viability of the Project throughout the Compliance Period. Such determination shall be made by the Department at the time of issuance of the Commitment Notice; at the time the Department makes a housing credit allocation; and/or the date the building is placed in service. Any housing credit allocation amount specified in a Commitment Notice, allocation and/or Carryover Allocation Document is subject to change by the Department dependent upon such determination. Such a determination shall be made by the Department based on its evaluation and procedures, considering the items specified in the Code, sec.42(m)(2)(B), AND THE DEPARTMENT IN NO WAY OR MANNER REPRESENTS OR WARRANTS TO ANY PROJECT OWNER, SPONSOR, INVESTOR, LENDER OR OTHER ENTITY THAT THE PROJECT IS, IN FACT, FEASIBLE OR VIABLE. (b) When the Project Owner is in full compliance with the QAP and the Rules in this chapter, the Commitment Notice, the Carryover Allocation Procedures Manual and all fees as specified within sec.49.11 of this title (relating to Program Fees) have been received by the Department, the Department, if requested, shall execute a Carryover Allocation Document which has been properly completed, executed and notarized by the Project Owner. The Department shall return one executed copy to the Project Owner. (c) All Carryover Allocations will be contingent upon the following: (1) The Project Owner's closing of the construction loan shall occur within 150 days from the date of the execution of the Carryover Allocation Document with a one-time 30 day extension. All requests for extensions by Applicants shall be submitted to the Department for review. The Committee may grant extensions, in its sole discretion, on a case-by-case basis. The Committee may, in its sole discretion, waive related fees. Copies of the closing documents must be submitted to the Department within two weeks after the closing. The Carryover Allocation will automatically be revoked if the Project Owner fails to meet the aforementioned closing deadline, and all credits previously allocated to that Project will be returned to the general pool for reallocation. (2) The Project Owner must commence and continue substantial construction activities within a year of the execution of the Carryover Allocation document and evidence such activity in a format prescribed by the Department, (as more fully defined in the Carryover Allocation Procedures Manual), outlining progress towards placing the Project in service in an expeditious manner. All requests for extensions by Applicants shall be submitted to the Department for review, and the Committee may grant extensions, in its sole discretion, on a case-by- case basis The Department shall not allocate additional credits to a developer/Project Owner who is unable to provide evidence, satisfactory to the Department, of progress towards placements in service for a Project(s) that is in carryover. An allocation will be made in the name of the Applicant identified in the related Commitment Notice. If an allocation is made in the name of the party expected to be the general partner in an eventual owner partnership, the Department may, upon request, approve a transfer of allocation to such owner partnership in which such party is the sole general partner. Any other transfer of an allocation will be subject to review and approval by the Department. The approval of any such transfer does not constitute a representation to the effect that such transfer is permissible under the Code or without adverse consequences thereunder, and the Department may condition its approval upon receipt and approval of complete documentation regarding the new owner including all the criteria for scoring, evaluation and underwriting, among others, which were applicable to the original Applicant. (d) The Department shall make a housing credit allocation, either in the form of IRS Form 8609, with respect to current year allocations for buildings placed in service, or in the Carryover Allocation Document, for buildings not yet placed in service, to any Project Owner who holds a Commitment Notice which has not expired, and for which all fees as specified in sec.49.11 of this title (relating to Program Fees), have been received by the Department. In order for an IRS Form 8609 to be issued with respect to a building in a Project, satisfactory evidence must be received by the Department that such building is completed and has been placed in service in accordance with the provisions of the Department's Cost Certification Procedures Manual. The Department shall mail or deliver IRS Form 8609 (or any successor form adopted by the Internal Revenue Service) to the Project Owner, with Part I thereof completed in all respects and signed by an authorized official of the Department. The delivery of the IRS Form 8609 will only occur only after the Project Owner has complied with all procedures and requirements listed within the Cost Certification Procedures Manual. Regardless of the year of Application to the Department for low income housing tax credits, the current year's Cost Certification Procedures Manual must be utilized when filing all cost certification requests. A separate housing credit allocation shall be made with respect to each building within a Project which is eligible for a housing credit; provided, however, that where an allocation is made pursuant to a Carryover Allocation Document on a project basis in accordance with the Code, sec.42(h)(1)(F), a housing credit dollar amount shall not be assigned to particular buildings in the Project until the issuance of IRS Forms 8609 with respect to such buildings. (e) In making a housing credit allocation, the Department shall specify a maximum Applicable Percentage, not to exceed the Applicable Percentage for the building permitted by the Code, sec.42(b), and a maximum Qualified Basis amount. In specifying the maximum applicable percentage and the maximum Qualified Basis amount, the Department shall disregard the first-year conventions described in the Code, sec.42(f)(2)(A) and sec.42(f)(3)(B). The housing credit allocation made by the Department shall not exceed the amount necessary to support the extended low-income housing commitment as required by the Code, sec.42(h)(6)(C)(i). (f) Project inspections shall be required to show that the Project is built or rehabilitated according to required plans, and specifications. Subject to the following requirement contained in this subsection, a copy of all Project inspections required and accepted by the lender financing the Project shall be acceptable to the Department as a certification that the Project is built to plans and specifications if such inspections are required by the lender during the construction of the Project. At a minimum, all Project inspections must include an inspection at the start-up phase and the interim phase, and a final inspection at the time the Project is placed in service. If no Project inspections are required by the lender financing the Project, the Department will require inspections to be made of the Project from time to time as determined at the sole discretion the Department. All such Project inspections shall be performed by an independent, third party inspector acceptable to the Department. The Project Owner shall pay all fees and costs of said inspections. (g) At the time each building in the Project is placed in service, the Project Owner shall be responsible for furnishing the Department with documentation which satisfies the requirements as set forth in the Cost Certification Procedures Manual. The Department may require copies of invoices and receipts and statements for materials and labor utilized for the new construction or rehabilitation and, if applicable, a closing statement for the acquisition of the Project as well as for the closing of all interim and permanent financing for the Project. sec.49.9. Department Records; Certain Required Filings. (a) At all times during each calendar year the Department shall maintain a record of the following: (1) the cumulative amount of the State Housing Credit Ceiling that has been reserved pursuant to reservation notices during such calendar year; (2) the cumulative amount of the State Housing Credit Ceiling that has been committed pursuant to Commitment Notices during such calendar year; (3) the cumulative amount of the State Housing Credit Ceiling that has been committed pursuant to Carryover Allocation Documents during such calendar year; (4) the cumulative amount of housing credit allocations made during such calendar year; and (5) the remaining unused portion of the State Housing Credit Ceiling for such calendar year. (b) Not less frequently than quarterly during each calendar year, the Department shall publish in the Texas Register each of the items of information referred to in subsection (a) of this section. (c) The Department shall mail to the Internal Revenue Service, not later than the 28th day of the second calendar month after the close of each calendar year during which the Department makes housing credit allocations, the original of each completed (as to Part I) IRS Form 8609, a copy of which was mailed or delivered by the Department to a Project Owner during such calendar year, along with a single completed IRS Form 8610, Annual Low-Income Housing Credit Agencies Report. When a Carryover Allocation is made by the Department, a copy of IRS Form 8609 will be mailed or delivered to the Project Owner by the Department in the year in which the building(s) is placed in service, and thereafter the original will be mailed to the Internal Revenue Service in the time sequence above mentioned. The original of the Carryover Allocation Document will be filed by the Department with IRS Form 8610 for the year in which the allocation is made. The original of all executed Agreement and Election Statements shall be filed by the Department with the Department's IRS Form 8610 for the year a housing credit allocation is made as provided in this section. sec.49.10. Department Responsibilities. In making a housing credit allocation under this chapter, the Department shall rely upon information contained in the Project Owner's Application to determine whether a building is eligible for the credit under the Code, sec.42. The Project Owner shall bear full responsibility for claiming the credit and assuring that the Project complies with the requirements of the Code, sec.42. The Department shall have no responsibility for ensuring that a Project Owner who receives a housing credit allocation from the Department will qualify for the housing credit. The Department will reject, and consider barring the Project Owner from future participation in the Department's tax credit program as a consequence thereof, any Application in which fraudulent information, knowingly false documentation or other misrepresentation has been provided. The aforementioned policy will apply at any stage of the evaluation or approval process. sec.49.11. Program Fees. (a) Each Project Owner that submits an Application shall submit to the Department, along with such Application, a non refundable Application fee, as set forth in the Application Submission Procedures Manual. (b) For each Project that is to be evaluated by an independent third party underwriter in accordance with sec.49.6(b)(3) of this title (relating to Threshold Criteria; Evaluation Factors; Selection Criteria; Final Ranking; Credit Amount; Tax Exempt Bond Financed Projects), the Project Owner will be so informed in writing prior to the commencement of any reviews by said underwriter. The cost for the third party underwriting will be set forth in the Application Submission Procedures Manual, and must be received by the Department prior to the engagement of the underwriter. The fees paid by the Project Owner to the Department for the third party underwriting will be credited against the commitment fee established in subsection (c) of this section, in the event that a Commitment Notice is issued by the Department to the Project Owner. (c) Each Project Owner that receives a Commitment Notice shall submit to the Department, not later than the expiration date on the commitment billing notice, a non refundable commitment fee, as set forth in the Application Submission Procedures Manual. The commitment fee shall be paid by cashier's check. Projects located within one of the targeted Texas counties, as indicated in the Reference Manual, will be exempt from the requirement to pay a commitment fee, in the event that Commitment Notice is issued. (d) Each Project Owner that requests an extension of the expiration date of a Commitment Notice, shall submit to the Department, along with such request, a non refundable extension fee, as set forth in the Application Submission Procedures Manual and shall be paid by cashier's check. Such extension shall be granted at the discretion of the Department. (e) Upon the Project being placed in service, the Project Owner will pay a compliance monitoring fee in the form of a cashier's check, as set forth in the Application Submission Procedures Manual. The compliance monitoring fee must be received by the Department prior to the release of the IRS Form 8609 on the Project. (f) Public information requests are processed by the Department in accordance with the provisions of Texas Civil Statutes, Article 6252-17a, codified as Government Code, Chapter 552, and as amended by the Acts during the 73rd Legislature, and as may be amended from time to time. The General Services Commission and the Department determine the cost of copying, and other costs of production. (g) The amounts of the Application fee, commitment fee, compliance monitoring fee, administrative fees, extension fee, and other applicable fees as specified in the Application Submission Procedures Manual will be revised by the Department from time to time as necessary to ensure that such fees compensate the Department for its administrative costs and expenses . sec.49.12. Manner and Place of Filing Applications. (a) All Applications, letters, documents, or other papers filed with the Department will be received only between the hours of 8:00 a.m. and 5:00 p.m. on any day which is not a Saturday, Sunday or a holiday established by law for state employees. (b) All Applications and related documents submitted to the Department shall be mailed or delivered to Low Income Housing Tax Credit Program, Texas Department of Housing and Community Affairs, 507 Sabine, Suite 400, Austin, Texas 78701. sec.49.13. Withdrawals, Cancellations, Amendments. (a) A Project Owner may withdraw an Application prior to receiving a commitment, Carryover Allocation Document or Housing Credit Allocation, or may cancel a Commitment Notice by submitting to the Department a notice, as applicable, of withdrawal or cancellation. (b) The Department may consider an amendment to a Commitment Notice, Carryover Allocation or other requirement with respect to a Project if the revisions: (1) are consistent with the Code and the tax credit program; (2) do not occur while the Project is under consideration for tax credits; (3) do not involve a change in the number of points scored (unless the Project's ranking is adjusted because of such change); (4) do not involve a change in the Project's site; or (5) do not involve a change in the set-aside election. (c) The Department may cancel a Commitment Notice or Carryover Allocation prior to the issuance of IRS Form 8609 with respect to a Project if: (1) the Project Owner or any member of the Development Team, or the Project, as applicable, fails to meet any of the conditions of such Commitment Notice or Carryover Allocation or any of the undertakings and commitments made by the Project Owner in the applications process for the Project; (2) any statement or representation made by the Project Owner or made with respect to the Project Owner, the Development Team or the Project is untrue or misleading; (3) an event occurs with respect to any member of the Development Team which would have made the Project's Application ineligible for funding pursuant to sec.49.4(f) of this title (relating to Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments) if such event had occurred prior to issuance of the Commitment Notice or Carryover Allocation; or (4) the Project Owner, any member of the Development Team, or the Project, as applicable, fails to comply with these Rules or the procedures or requirements of the Department. sec.49.14. Waiver and Amendment of Rules. (a) The Board, in its discretion, may waive any one or more of these Rules in cases of natural disasters such as fires, hurricanes, tornadoes, earthquakes, or other acts of nature as declared by Federal or State authorities. (b) The Department may amend this chapter and the Rules contained herein at any time in accordance with the provisions of Texas Civil Statutes, Article 6252- 13a, codified as Government Code, Chapter 2001, and as amended by the Acts of the 73rd Legislature, and as may be amended from time to time. sec.49.15. Forward Reservations; Binding Commitments. (a) Anything in sec.49.4 of this title (relating to Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments) or elsewhere in this chapter to the contrary notwithstanding, the Department with approval of the Board may determine to issue commitments of tax credit authority with respect to Projects from the State Housing Credit Ceiling for the calendar year following the year of issuance (each a "forward commitment"). The Department may make such forward commitments: (1) with respect to Projects placed on a waiting list in any previous Application Round during the year; or (2) pursuant to an additional Application Round. (b) If the Department determines to make forward commitments pursuant to a new Application Round, it shall provide information concerning such round in the Texas Register. In inviting and evaluating Applications pursuant to an additional Allocation Round, the Department may waive or modify any of the set- asides set forth in sec.49.5(a) and (b) of this title (relating to Set-Asides, Commitments and Preferences) and make such modifications as it determines appropriate in the Threshold Criteria, evaluation factors and Selection Criteria set forth in sec.49.6 of this title (relating to Threshold Criteria, Evaluation Factors; Selection Criteria; Final Ranking; Credit Amount; Tax Exempt Bond Financed Projects) and in the dates and times by which actions are required to be performed under this chapter. The Department may also, in an additional Application Round, include Projects previously evaluated within the calendar year and rank such Projects together with those for which Applications are newly received. (c) Unless otherwise provided in the Commitment Notice with respect to a Project selected to receive a forward commitment or in the announcement of an Application Round for Projects seeking a forward commitment, actions which are required to be performed under this chapter by a particular date within a calendar year shall be performed by such date in the calendar year of the anticipated allocation rather than in the calendar year of the forward commitment. (d) Any forward commitment made pursuant to this section shall be made subject to the availability of State Housing Credit Ceiling in the calendar year with respect to which the forward commitment is made. No more than 15% of the per capita component of State Housing Credit Ceiling anticipated to be available in the State of Texas in a particular year shall be allocated pursuant to forward commitments to Project Applications carried forward without being ranked in the new Application Round pursuant to subsection (f) of this section. If a forward commitment shall be made with respect to a Project placed in service in the year of such commitment, the forward commitment shall be a "binding commitment" to allocate the applicable credit dollar amount within the meaning of the Code, sec.42(h)(1)(C). (e) If tax credit authority shall become available to the Department later in a calendar year in which forward commitments have been awarded, the Department may allocate such tax credit authority to any eligible Project which received a forward commitment, in which event the forward commitment shall be canceled with respect to such Project. (f) In addition to or in lieu of making forward commitments pursuant to subsection (a) of this section, the Department may determine to carry forward Project Applications on a waiting list or otherwise received and ranked in any Application Round within a calendar year to the subsequent calendar year, requiring such additional information, Applications and/or fees, if any, as it determines appropriate. Project Applications carried forward may, within the discretion of the Department, either be awarded credits in a separate allocation round on the basis of rankings previously assigned or may be ranked together with Project Applications invited and received in a new Application Round. The Department may determine in a particular calendar year to carry forward some Project Applications under the authority provided in this subsection, while issuing forward commitments pursuant to subsection (a) of this section with respect to others. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 17, 1996. TRD-9609180 Larry Paul Manley Executive Director Texas Department of Housing and Community Affairs Effective date: July 17, 1996 Proposal publication date: March 19, 1996 For further information, please call: (512) 475-3044 TITLE 16. ECONOMIC REGULATION PART II. Public Utility Commission of Texas CHAPTER 23.Substantive Rules The Public Utility Commission of Texas adopts amendments to Substantive Rules sec.23.3 relating to definitions, and sec.23.21 relating to cost of service, with changes to the proposed text published in the March 19, 1996 issue of the Texas Register, (21 TexReg 2114). A public hearing on the amendments was held on April 24, 1996, at commission offices. Gulf States Utilities ("GSU"); the Office of Public Utility Counsel ("OPC"); Houston Lighting and Power Company ("HLP"); and the Central and South West Corporation companies of Central Power and Light, Southwestern Electric Power Company and West Texas Utilities ("CSW Companies") attended the hearing. The parties' oral comments were largely reflective of their written comments and are summarized below. The amendment to sec.23.3 provides a definition for the term "rate year". The amendment to sec.23.21 delineates the requirements for post test year adjustments related to capital investments. The amendments to both sections should result in a reduction of issues for resolution in rates proceedings, which in turn should result in reduced rate case expenses, and a subsequent reduction in rates. Comments on the proposed rules were received from GSU; OPC; Texas Electric Utilities ("TU"); the Texas Telephone Association ("TTA"); Southwestern Public Service Company ("SPS"); HLP; and the CSW Companies. OPC was in general agreement with the proposed amendments. The CSW Companies believed the current rule should remain in effect. The comments from all parties suggested various changes to the proposed rules. GSU, SPS, HLP, TU and the CSW Companies commented that the proposed rule lacked symmetry because it limited rate base additions but did not have similar limitations on rate base reductions. The Commission finds that a limitation on rate base reductions would be inconsistent with the Public Utility Regulatory Act of 1995 (PURA) and the commission's Substantive Rules. The current "used and useful" language of PURA sec.2.206(a) prohibits the rate base inclusion of plant that is not used and useful in providing service regardless of size. A limitation on rate base reductions would conflict with this section of PURA; therefore, the commission makes no changes to the rule based on these comments. GSU, SPS, HLP, TTA and the CSW Companies stated the proposed definition of "rate year" results in uncertainty regarding when the rate year will begin. Additionally, this uncertainty would hamper the utilities' processing of rate filing packages. The commission disagrees with the parties on this issue. The commission finds that the definition will actually allow for more certainty regarding rate year. Under current practices, the utilities are free to select whatever rate year they choose, which results in time consuming litigation as each utility has a different definition of "rate year". The commission definition standardizes the term "rate year" in order to limit the litigation period; consequently, the commission makes no changes to the rule based on these comments. TU, HLP and TTA stated that the rule should not provide for a threshold dollar amount or rate base percentage before post test-year adjustments are available. The commission rejects this argument because without the percentage limitation, parties to rate proceedings spend inordinate amounts of time and money litigating immaterial post test year adjustments. Therefore, the commission makes no changes to the rule based on these comments. TU and the CSW Companies stated that the definition of rate year should not refer to the exclusion of fuel matters. The parties claim that referring to fuel matters could cause confusion. The commission rejects this argument because the definition of rate year in the context of setting fuel factors does not require the same degree of certainty as in rate proceedings. The same degree of certainty in fuel matters is not necessary because in these cases forecasting errors are subject to reconciliation in subsequent proceedings. In contrast, forecasting errors in rate proceedings are not subject to future reconciliation. Moreover, the adopted definition of rate year for rate proceedings is not generally applicable to fuel proceedings. For example, fuel factors are not subject to bond and generally are not implemented through temporary orders. The commission makes no changes based on these comments. OPC commented that the rule should be amended to specifically require adjustments to recognize, as attendant impacts, customer growth on the utility's system and accumulated depreciation that will occur in the rate year. In the past the commission has routinely rejected accumulated depreciation post test year adjustments because such adjustments result in a rolling test year for rate base. The commission also rejects OPC's customer growth suggestion because it results in adjustments that are not known and measurable, and therefore, makes no changes to the rule based on these comments. TU agrees with the proposed amendment to subsection (d)(2)(G)(iii) of this section, which states that the plant addition should be in-service before the rate year begins. However, TU claimed that a definition of "in-service" should be added to the rule. For purposes of objectivity, TU offered substitute language for subsection (d)(2)(G)(iii). The commission declines to adopt TU's proposed language because it is onerous and unnecessary. TTA expressed concern that the proposed rule does not clearly indicate its application with respect to telephone utilities. The commission agrees and the rule has been amended to address these concerns. HLP suggested that the rule be amended to include specific language addressing post test year adjustments for a functionalized rate base. The commission rejects this proposal because the intent of the proposed rule is to limit litigation by eliminating immaterial post test year adjustments. The 10% of total rate base threshold was established with the utilities' overall financial integrity in mind. Including a 10% post test year adjustment specification for functionalized rate base will subvert the commission's intent to focus on each utility's overall financial integrity, and eliminate litigation related to immaterial adjustments. The commission makes no changes to the rule based on these comments. General Rules 16 TAC sec.23.3 The section is adopted under Texas Civil Statutes, Article 1446-o, sec.1.101, which provides the Public Utility Commission of Texas with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction. Cross Index to Statutes: Texas Civil Statutes Article 1446c-o sec.1.101-- Public Utility Regulatory Act of 1995, 74th Legislative, Regular Session 1995. sec.23.3.Definitions. Rate Year-Except as utilized in sec.23.23(b) of this title, relating to fuel matters, a rate year shall be the 12 month period beginning with the first date that rates related to the current proceeding become effective. The first date that rates become effective includes, but is not limited to, the effective date rates are bonded, the date interim or temporary rates are effective in proceedings initiated pursuant to PURA sec.2.211 or sec.2.212, the beginning date for which a PURA sec.2.211 refund is measured, or as otherwise ordered by the commission. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 28, 1996. TRD-9609286 Paula Mueller Secretary of the Commission Public Utility Commission of Texas Effective date: July 19, 1996 Proposal publication date: March 19, 1996 For further information, please call: (512) 458-0100 Rates 16 TAC sec.23.21 The section is adopted under Texas Civil Statutes, Article 1446-o, sec.1.101, which provides the Public Utility Commission of Texas with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction. Cross Index to Statutes: Texas Civil Statutes Article 1446c-o sec.1.101-- Public Utility Regulatory Act of 1995, 74th Legislative, Regular Session 1995. sec.23.21.Cost of Service. (a) (No change.) (b) Components of cost of service and post test year adjustments. Except as provided for in the Public Utility Regulatory Act of 1995 (PURA 95) , subtitles H and I of Title III, or subsection (d)(2) of this section, relating to Invested capital; rate base, and sec.23.23(b) of this title, relating to Recovery of Fuel and Purchased Power Cost, rates are to be based upon a utility's cost of rendering service to the public during a historical test year, adjusted for known and measurable changes. Post test year adjustments for known and measurable changes to historical test year data (including, but not limited to revenue, expenses, and invested capital) will be considered only where the attendant impacts on all aspects of a utility's operations can be with reasonable certainty identified, quantified, and matched. The two components of cost of service are allowable expenses and return on invested capital. (c) (No change.) (d) Return on invested capital. The return on invested capital is the rate of return times invested capital. (1) (No change.) (2) Invested capital; rate base. The rate of return is applied to the rate base. The rate base, sometimes referred to as invested capital, includes as a major component the original cost of plant, property, and equipment, less accumulated depreciation, used and useful in rendering service to the public. Components to be included in determining the overall rate base are as set out in subparagraphs (A)-(G) of this paragraph. (A)-(F) (No change.) (G) Requirements for post test year adjustments. (i) Post test year adjustments for known and measurable rate base additions (increases) to historical test year data will be considered only as set out in subclauses (I)-(IV) of this clause. (I) Where the addition represents plant which would appropriately be recorded: (-a-) for investor-owned electric utilities in FERC account 101 or 102; (-b-) for telecommunications utilities in USOA account 2001; (-c-) for telecommunications cooperatives, the equivalent of USOA account 2001; or, (-d-) for electric cooperatives, the equivalent of FERC accounts 101 or 102. (II) Where each addition comprises at least 10% of the utility's requested rate base, exclusive of post test year adjustments and construction work in progress (CWIP). (III) Where the plant addition is deemed by this commission to be in-service before the rate year begins. (IV) Where the post test year adjustment criteria of subsection (b) of this section is satisfied. (ii) Each post test year plant adjustment will be included in rate base at: (I) the reasonable test year-end CWIP balance, if the addition is constructed by the utility; or, (II) the reasonable price, if the addition represents a purchase, subject to original cost requirements, as specified in sec.2.206 and sec.3.206 of PURA 95. (iii) Post test year adjustments for known and measurable rate base decreases to historical test year data will be allowed only when the post test year adjustment criteria of subsection (a) of this section, and the criteria described in subclauses (I) and (II) of this clause are satisfied. (I) The decrease represents: (-a-) plant which was appropriately recorded in the accounts set forth in subclause (I) of clause (i) of this subparagraph; (-b-) plant held for future use; (-c-) CWIP (mirror CWIP is not considered CWIP); or (-d-) an attendant impact of another post test year adjustment. (II) Plant that has been removed from service, mothballed, sold, or removed from the utility's books prior to the rate year. (e)-(f) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 28, 1996. TRD-9609287 Paula Mueller Secretary of the Commission Public Utility Commission of Texas Effective date: July 19, 1996 Proposal publication date: March 19, 1996 For further information, please call: (512) 458-0100 16 TAC sec.23.23 The Public Utility Commission of Texas adopts an amendment to Substantive Rule sec.23.23, relating to certification of long-term fuel contracts and the interest calculated on the cumulative under- or over-recovery fuel balance, with changes to the proposed text as published in the January 12, 1996 issue of the Texas Register (21 TexReg 293). The amendment clarifies the language of subsection (a)(7) of the section, relating to certification of long-term fuel contracts; and elaborates on the commission requirements relating to the factoring of interest calculations on an under- or over-recovery balance in subsection (b)(3)(C)(i) of the section, relating to fuel refunds and surcharges. Specifically, the amendment clarifies how the interest should be calculated. A public hearing was held on February 20, 1996 at the commission offices under Texas Government Code, sec.2001.029. Houston Lighting and Power Company ("HL & P"), Texas Utilities Electric Company ("TU"), Central and South West Corporation ("CSW"), and Entergy attended the hearing. The parties' oral comments were largely reflective of written comments received by the commission and are summarized below. A workshop regarding the amendment was held on May 7, 1996. El Paso Electric Company, CSW, HL & P, and TU participated in the workshop. HL & P, TU, and CSW filed comments with the commission. No company opposed the changes to subsection (a)(7) of the section, concerning the effects of certification of a long- term fuel contract. However, there were two divergent opinions concerning the proposed changes to subsection (b)(3)(C)(i). HL & P noted that the amendment to subsection (b)(3)(C)(i) reflected a change in the commission's methodology from the current method of fuel interest calculation. But HL & P did not object to the proposed changes because they paralleled the wording in sec.23.45(h) of this title, relating to overbilling and underbilling, that "All interest shall be compounded annually." HL & P noted that under the current method, interest is calculated using a monthly compounding effect to produce the rate the commission establishes annually in sec.23.45(h). CSW and TU stated that the proposal did not codify current commission practice, but represented an unneeded change from the manner in which interest has been calculated since May 1993. They said that the proposed method was more complex and confusing. CSW argued that the proposal was intending to compound interest on an annual basis, and not monthly, which is the current practice. TU argued that Staff Accountant Sara Coleman testified in Docket Number 13313, Application of Texas Utilities Electric Company for Authority to Surcharge an Undercollection of Fuel Cost Revenues, that "Staff uses an effective monthly interest factor for interest calculations in both fuel cost over-and under- recovery cases and over-and under-billing cases." TU asserted that the proposed changes did not adopt this "effective monthly interest factor" approach, but instead required interest to be calculated on a monthly basis to be added at the end of the 12-month period. TU argued that such an approach made accounting and record- keeping more complicated. The commission agrees with the parties and has modified the rule to more closely reflect current practices. The amendment is adopted under Public Utility Regulatory Act of 1995 sec.1.101, which provides the commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; and specifically, sec.2.212, which provides the commission with the authority to set rates. sec.23.23.Rate Design. (a) Guidelines for certifying long-term fuel contracts. The commission will certify long- term fuel contracts in accordance with the guidelines in this subsection for determining the reasonableness of the terms and conditions of such contracts. This subsection does not require long-term fuel contracts to be submitted for certification, and no adverse inference will result from a utility's decision not to seek certification. (1)-(6) (No change.) (7) Effect of certification. Certification of a long-term fuel contract establishes that the original prices, terms, and conditions of the contract were reasonable at the time the contract was entered into and that it was reasonable to enter into the contract. But certification does not preclude the commission from reviewing whether the utility's actions with respect to the contract are reasonable. Denial of certification establishes that the contract is not eligible for certification, and precludes relitigation of the contract's reasonableness as a whole and precludes relitigation of the ultimate issues of fact that were litigated and upon which the commission relied when it decided not to certify the contract. (b) Recovery of Fuel and Purchased-Power Costs. (1)-(2) (No change). (3) Reconciliation of fuel expenses. Utilities shall file petitions for reconciliation on a periodic basis so that any petition for reconciliation shall contain a maximum of three years and a minimum of one year of reconcilable data and will be filed no later than six months after the end of the period to be reconciled. However, notwithstanding the previous sentence, a reconciliation shall be requested in any general rate proceeding under the Act sec.2.212 and may be performed in any general rate proceeding under the Act sec.2.211. Upon motion and showing of good cause, a fuel reconciliation proceeding may be severed from or consolidated with other proceedings. (A)-(B) (No change.) (C) Refunds. All fuel refunds and surcharges shall be made using the following methods. (i) Interest shall be calculated on the cumulative monthly ending under- or over-recovery balance at the rate established annually by the commission for overbilling and underbilling in sec.23.45(h) of this title. Interest shall be calculated based on principles set out in subclauses (I)-(VI) of this clause. (I) Interest shall be compounded annually by using an effective monthly interest factor. (II) The effective monthly interest factor shall be determined by using the following algebraic calculation: x = (1 + i) (1/12) - 1 where i = commission- approved annual interest rate, and x = effective monthly interest factor. (III) Interest shall accrue monthly. The monthly interest amount shall be calculated by applying the effective monthly interest factor to the previous month's ending cumulative under/over recovery fuel and interest balance. (IV) The monthly interest amount shall be added to the cumulative principal and interest under/over recovery balance. (V) Interest shall be calculated through the end of the month of the refund or surcharge. (VI) This subsection shall apply to fuel reconciliations initiated after the effective date of this subsection. (ii)-(v) (No change.) (D) (No change.) (4)-(8) (No change.) (c)-(e) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 28, 1996. TRD-9609437 Paula Mueller Secretary of the Commission Public Utility Commission of Texas Effective date: July 22, 1996 Proposal publication date: January 12, 1996 For further information, please call: (512) 458-0100 Quality of Service 16 TAC sec.23.61 The Public Utility Commission of Texas adopts an amendment to sec.23.61, concerning depreciation rate changes for telecommunication utilities, with changes to the text as published in the March 5, 1996 issue of the Texas Register (21 TexReg 1730). The amendment is made in consideration of sec.3.151(a) of the Public Utility Regulatory Act of 1995 ("PURA") which requires that the commission fix depreciation rates that promote deployment of new technology and infrastructure. The amendment eliminates the constraint of using only the straight line methodology when fixing depreciation rates for telecommunication utilities which will enable the commission to fix depreciation rates based upon reasonable methods of depreciation. The amendment also enables the commission to consider the depreciation practices of nonregulated telecommunications providers when fixing depreciation rates. The commission conducted a public hearing on the amendment on April 18, 1996, under Texas Government Code, sec.2001.029. The public hearing was attended by Claudio Sanchez, representing the Office of the Attorney General and Mike Bauer and Lynn Liles, representing Southwestern Bell Telephone ("SWB"). The oral comments made by the Office of the Attorney General and SWB were largely reflective of the written comments submitted by SWB and the Texas Telephone Association ("TTA") and are summarized below. Comments submitted in response to the Texas Register publication were received from SWB, and TTA. Generally, the parties support the amendment, but suggested several modifications. TTA suggested that language be added to subsection (h), paragraphs (3) and (4) of the rule to recognize the relationship between new technology and infrastructure deployment and the public interest. The commission believes that the rule clearly sets forth the relationship between the public interest and the directive in PURA sec.3.151(a) which requires the commission to fix depreciation rates that promote deployment of new technology and infrastructure. Accordingly, no change is made to the proposed rule based on this comment. TTA expressed a concern that the rule does not sufficiently clarify whether the commission will continue to allow telecommunications companies to adopt the depreciation rates approved for other similar telecommunications utilities and suggested deleting the word "new," as it relates to classes of property, in subsection (h)(7) of the rule. The commission believes that deletion of the word "new", as it relates to class of property, in subsection (h)(7) may result in numerous indiscriminate depreciation rate adjustments. Accordingly, no change has been made to the proposed rule based on this comment. SWB and TTA stated that the rule does not sufficiently conform to the mandates of PURA sec.3.151(a) because the rule does not explicitly recognize that Subtitle H companies may determine their own depreciation rates and amortization. SWB and TTA suggested adding a provision to the rule to address this concern. The commission agrees with the parties and adds a provision to the rule to clarify that Subtitle H companies may determine their own depreciation rates and amortization, but that they are required to notify the commission of the rates. All comments, including those not specifically referenced herein, were fully considered by the commission. The section is adopted under Texas Civil Statutes, Article 1446-o, sec.1.101, which provides the Public Utility Commission of Texas with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; sec.3.051, which provides that the public interest requires that new rules, policies, and principles be formulated and applied to protect the public interest and to provide equal opportunity to all telecommunications utilities in a competitive marketplace; and specifically, sec.3.151, which establishes methods of depreciation for telecommunication utilities. Cross Index to Statutes: Texas Civil Statutes, Article 1446c-o and sec.3.151(a)- - Public Utility Regulatory Act of 1995, 74th Legislative, Regular Session 1995. sec.23.61.Telephone Utilities. (a)-(g) (No change.) (h) Depreciation rates. DCTUs shall use depreciation rates approved by the commission to determine depreciation expense and provide for accumulated depreciation (also referred to as depreciation reserve). For purposes of this section, depreciation rates used prior to September 1, 1976, and those in effect on September 1, 1976, shall be deemed appropriate for use, unless subsequently modified by the commission. (1) Depreciation rate changes for telecommunications utilities subject to regulation of interstate depreciation rates by the Federal Communications Commission. Telecommunications utilities subject to interstate regulation by the Federal Communications Commission are also required to file for commission approval of intrastate depreciation rates. Filings should be made in the same format and on the same schedule as those required by the federal regulatory body, with the addition of proposed intrastate accrual changes calculated through use of jurisdictional separations procedures. The utility shall have the burden of proof to establish that requested intrastate depreciation rate changes are reasonable and in the public interest in proceedings before the commission. (2) Depreciation rate changes for other dominant carriers. Any DCTU, except as covered in paragraph (1) of this subsection, requesting a change in depreciation rates must request commission approval and include in its request the information set out in subparagraphs (A)-(C) of this paragraph. (A) For each property account or subaccount for which a depreciation rate change is proposed: (i) the plant in service and the accumulated depreciation as of the requested effective date for the proposed depreciation rates; (ii) the total of accruals, additions, retirements, gross salvage, and cost of removal for each of the preceding 4 years; and, (iii) detailed justification for the proposed changes. (B) The requested effective date of the changes. A request for an effective date that is earlier than January 1st of the year in which the request is filed must be fully justified in order to receive consideration. (C) The change in annual depreciation expense that would result from adoption of the proposed depreciation rates, expressed both as a dollar amount and as a percentage of current total depreciation expense. (3) Methods for figuring depreciation rates. On application by a utility, the commission shall fix depreciation rates that promote deployment of new technology and infrastructure. In setting depreciation rates, the commission shall consider depreciation practices of nonregulated telecommunications providers. Depreciation rates must be based on reasonable methods of depreciation; however, the commission reserves the right to specifically consider any and all appropriate methods of depreciation in each case. (4) Burden of proof. A DCTU shall have the burden of proof to show that depreciation or amortization expense is reasonable, necessary and in the public interest. The DCTU shall also be required to show that depreciation rate changes were timely requested in accordance with prudent management practices. The burden of proof shall not be satisfied solely by demonstrating that the depreciation rates or amortization periods used were approved. If the DCTU fails to meet this burden the commission may deny as a cost of service that depreciation or amortization expense. (5) Interim booking. Unless otherwise ordered by the commission, a DCTU may book depreciation and amortization expense on an interim basis based on proposed depreciation rates from the month of filing until interim or final action by the commission. Interim booking shall be adjusted upon final approval of depreciation rates and records must be maintained showing the interim booking and the adjustments, if any, that were made upon final approval of the rates. (6) Special amortization. Where all or a substantial portion of a property account or subaccount is retired earlier than anticipated and the reserve for that account is less than the amount to be retired less salvage, or in other instances when an amortization is appropriate, special amortization may be requested. (A) If the amortization period is two years or less, and the annual amount to be amortized is less than 2.0% of annual revenues, the DCTU shall advise the commission. The commission may review the appropriateness of such amortization during rate cases. (B) If the amortization period is more than two years, or the amount to be amortized is more than 2.0% of annual revenues, commission approval is required. (7) New depreciation rates. When a DCTU determines a need to establish a new depreciation rate for a new class of property, it may adopt a depreciation rate that has been approved by the commission for a similar DCTU for the same property class if similar depreciation parameters and methods are used to determine the rates. The DCTU must notify the commission that it has adopted such rates within 45 days of its adoption. The commission may review and modify such rates upon appropriate motion or in subsequent rate or depreciation proceedings. (8) Subtitle H companies. A company electing under Subtitle H of this title may determine its own depreciation rates and amortizations, but shall notify the commission of any subsequent changes to the rates or amortizations. Such company shall notify the commission using the same format required by the Federal Communications Commission for depreciation and amortization filings. (i)-(j) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 28, 1996. TRD-9609288 Paula Mueller Secretary of the Commission Public Utility Commission of Texas Effective date: July 19, 1996 Proposal publication date: May 5, 1996 For further information, please call: (512) 458-0100 TITLE 22. EXAMINING BOARDS PART VI. Texas State Board of Registration for Professional Engineers CHAPTER 131.Practice and Procedure Application for Registration 22 TAC sec.131.54, sec.131.56 The Texas State Board of Registration for Professional Engineers adopts amendments to sec.131.54 and sec.131.56, concerning application for registration, without changes to the proposed text as published in the May 10, 1996, issue of the Texas Register (21 TexReg 3995). The amendment to sec.131.54 changes the minimum passing score on the Test of Spoken English to 45 because the Educational Testing Service established that the new maximum score is 60. The amendment to sec.131.56 simplifies comity registration by allowing applicants to submit a National Council of Examiners for Engineering and Surveying certification as verification of their educational qualifications, experience, references, and registration in other states. The rules provide clear, concise and correct requirements and standards pertaining to the submission and acceptance of applications for registration. No comments were received regarding adoption of the amendments. The amendments are adopted under Texas Civil Statutes, Article 3271a, sec.8(a), which provide the board with the authority to make and enforce all rules and regulations necessary for the performance of its duties. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 26, 1996. TRD-9609167 John R. Speed, P.E. Executive Director Texas State Board of Registration for Professional Engineers Effective date: July 17, 1996 Proposal publication date: May 10, 1996 For further information, please call: (512) 440-7723 Education 22 TAC sec.131.92 The Texas State Board of Registration for Professional Engineers adopts an amendment to sec.131.92, concerning foreign degrees, without changes to the proposed text as published in the May 10, 1996, issue of the Texas Register (20 TexReg 3996). The amendment reinstates the acceptance of engineering degrees accredited by the Accreditation Board for Engineering and Technology (ABET) counterpart organizations in Australia, Canada, Ireland, New Zealand and the United Kingdom because the board is able to verify the equivalency of these degrees to a United States education from information now available from ABET. The rule simplifies the registration process for applicants who possess degrees which have been approved by the ABET counterpart organizations in Australia, Canada, Ireland, New Zealand and the United Kingdom. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 3271a, sec.8(a), which provide the board with the authority to make and enforce all rules and regulations necessary for the performance of its duties. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 26, 1996. TRD-9609166 John R. Speed, P.E. Executive Director Texas State Board of Registration for Professional Engineers Effective date: July 17, 1996 Proposal publication date: May 10, 1996 For further information, please call: (512) 440-7723 Examinations 22 TAC sec.131.101 The Texas State Board of Registration for Professional Engineers adopts an amendment to sec.131.101, concerning engineering examinations required for registration as a professional engineer, without changes to the proposed text as published in the May 10, 1996, issue of the Texas Register (21 TexReg 3996). The rule specifies that graduate students may take the fundamentals of engineering examination at their school provided they meet the necessary educational requirements and the school administers the examination. The rule also eliminates language which infers that the fundamentals of engineering examination may be taken at any time. The rule clarifies the eligibility and scheduling requirements for the fundamentals of engineering examination. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 3271a, sec.8(a), which provide the board with the authority to make and enforce all rules and regulations necessary for the performance of its duties. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 26, 1996. TRD-9609165 John R. Speed, P.E. Executive Director Texas State Board of Registration for Professional Engineers Effective date: July 17, 1996 Proposal publication date: May 10, 1996 For further information, please call: (512) 440-7723 Registration 22 TAC sec.131.133 The Texas State Board of Registration for Professional Engineers adopts an amendment to sec.131.133, concerning certificates of registration, without changes to the proposed text as published in the May 10, 1996, issue of the Texas Register (21 TexReg 3997). The amendment deletes sanitary engineering from the list of recognized branches of engineering because the National Council of Examiners for Engineering and Surveying (NCEES) combined that discipline with civil engineering and a separate principles and practice examination in sanitary engineering is no longer available. The rule provides the correct list of the branches of engineering which applications for registration will be accepted under because there is a principles and practice examination available from NCEES . No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 3271a, sec.8(a), which provide the board with the authority to make and enforce all rules and regulations necessary for the performance of its duties. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 26, 1996. TRD-9609164 John R. Speed, P.E. Executive Director Texas State Board of Registration for Professional Engineers Effective date: July 17, 1996 Proposal publication date: May 10, 1996 For further information, please call: (512) 440-7723 PART III. Texas Youth Commission CHAPTER 85.Admission and Placement Placement Planning 37 TAC sec.85.21 The Texas Youth Commission (TYC) adopts the repeal of sec.85.21, concerning program assignment system, without changes to the proposed text as published in the May 28, 1996, issue of the Texas Register (21 TexReg 4671). The justification for the repeal is the replacement by a new rule which encourages more efficient agency operation. The repeal will allow for the replacement of the repealed rule by a new rule with changes in format. No comments were received regarding adoption of the repeal. The repeal is adopted under the Human Resources Code, sec.61.034, which provides the Texas Youth Commission with the authority to make rules appropriate to the accomplishment of its functions. The proposed rule implements the Human Resource Code, sec.61.034. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 28, 1996. TRD-9609245 Steve Robinson Executive Director Texas Youth Commission Effective date: July 20, 1996 Proposal publication date: May 28, 1996 For further information, please call: (512) 483-5244 The Texas Youth Commission (TYC) adopts new sec.85.21, concerning program assignment system, with changes to the proposed text as published in the May 28, 1996, issue of the Texas Register (21 TexReg 4671). Changes to the proposed text include minor edits and clarifications designating the director of the centralized placement unit as having responsibility for actual placement assignments rather than the superintendent of the assessment unit. The justification for the new section is increased safety for TYC staff, youth, and the public. The new rule will establish an objective, equitable system of program assignment for youth committed to TYC based on each youth's offense(s) and risk level. No comments were received regarding adoption of the new rule. The new rule is adopted under the Human Resources Code, sec.61.075, which provides the Texas Youth Commission with the authority to determine placement and treatment. The proposed rule implements the Human Resource Code, sec.61.034. sec.85.21.Program Assignment System. (a) Purpose. The purpose of this rule is to establish an objective, equitable system of program assignment for each youth in TYC care. Based on each youth's offense(s), and risk level, TYC has predetermined the most appropriate level of restriction and minimum length of stay requirement for public protection and for promotion of rehabilitation. Youth in coeducational facilities have equal access to agency programs and activities. (b) Applicability. (1) For specifics regarding classification, see GOP.47.03, sec.85.23 of this title (relating to Classification). (2) For specifics regarding minimum length of stay, see GOP.47.05, sec.85.25 of this title (relating to Minimum Length of Stay). (3) For specifics regarding restriction levels, see GOP.47.07, sec.85.27 of this title (relating to Program Restriction Levels). (4) For specifics regarding completion of program and movement to another program, and for specifics on movement of sentenced offender options, see GOP.47.09, sec.85.29 of this title (relating to Program Completion and Movement). (c) Placement System Factors. The program placement system shall incorporate the following factors. (1) Classification shall be determined by the classifying offense and a finding regarding extenuating circumstances. (2) The minimum length of stay shall be designated by the classification. (3) Risk shall be assessed and used as a guideline in designating restriction level. (4) Placements shall be made according to restriction and needs. (A) Initial placements will always be to residential programs, except for some youth classified as violators of CINS probation. (B) A youth's assessed service needs will be considered in the selection of a placement within the required level of restriction. (d) System Description. The determining factors result in the following placement and length of stay determinations for all TYC youth on initial commitment, for youth recommitted for the commission of a felony or high risk offense, and for youth found at an administrative level I hearing to have committed a felony or high risk offense. (1) A sentenced offender shall be sentenced by the court and, regardless of risk level, assigned to a program of high restriction with a fenced perimeter. (2) A type A violent offender shall be assigned a minimum length of stay of 24 months, and with any risk level, assigned to a program of high restriction with a fenced perimeter. (3) A type B violent offender shall be assigned a minimum length of stay of 12 months, and with any risk level, assigned to a program of high restriction. (4) A chronic serious offender, controlled substances dealer, or firearms offender classified on or after January 1, 1996 shall be assigned a minimum length of stay of twelve months and with any risk level, assigned to a program of high restriction. The minimum length of stay for these youth classified before January 1, 1996 is nine months. (5) A general offender classified: (A) before January 1, 1996 shall be assigned a minimum length of stay of six months, and with a: (i) high risk level, assigned to a program of high restriction; (ii) low or medium risk level, assigned to a program of medium restriction. (B) on or after January 1, 1996 and before July 20, 1996 shall be assigned a minimum length of stay of nine months, and with a: (i) high risk level, assigned to a program of high restriction; (ii) low or medium risk level, assigned to a program of medium restriction. (C) on or after July 20, 1996 shall be assigned a minimum length of stay of nine months, and with a: (i) medium or high risk level, assigned to a program of high restriction; (ii) low risk level, assigned to a program of medium restriction. (e) Program Placement Responsibility. The centralized placement unit shall be responsible for all specific program placement selections/assignments. (f) Waivers and Exceptions. Waivers and exceptions may be granted under special circumstances. (1) A restriction level designation, except that of sentenced offender or type A violent offender, may be waived by the director of centralized placement unit or designee when a youth is qualified. A designated restriction may be waived in order to provide specialized treatment not available in the designated restriction when it is determined that a youth is physically/mentally handicapped, has a special medical condition, or is emotionally disturbed, if such condition would prevent the youth from functioning in the designated restriction level. (2) Any placement designation except those of sentenced offenders and type A violent offenders may be waived by the director of the centralized placement unit or designee when population is at or above established capacity. (3) For waiver of classification, see GOP.47.03, sec.85.23 of this title (relating to Classification). (4) For movement for population control see GOP.47.09, sec.85.29 of this title (relating to Program Completion and Movement). (g) Parent Notification. Parents/guardians shall be notified of all placements. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 28, 1996. TRD-9609246 Steve Robinson Executive Director Texas Youth Commission Effective date: July 20, 1996 Proposal publication date: May 28, 1996 For further information, please call: (512) 483-5244