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 1. ADMINISTRATION PART III. Office of the Attorney General CHAPTER 55.Child Support Enforcement SUBCHAPTER H.License Suspension 1 TAC sec.55.203 The Office of the Attorney General adopts amended Figure 1: 1 TAC sec.55.203(b) and Figure 2: 1 TAC sec.55.203(f)(2), the amended forms for the petitions in actions to suspend licenses for failure to pay child support, with changes to the proposed text published in the January 2, 1998, issue of the Texas Register (23 TexReg 23, 168-171). The amended forms are adopted to correspond with legislative amendments to Chapter 232 of the Family Code, Suspension of License for Failure to Pay Child Support or Comply with Subpoena. The following changes were made in the Petition to Suspend License forms: a typographical error was corrected in the sixth paragraph of the petitions by changing "this" to "the". The amended forms clarify the Petition to Suspend License and track the new statutory language of Family Code, sec.232.005 including a statement of the total amount of arrearages allegedly owed under a child support order. These forms affect the Family Code, Chapter 232. No comments were received regarding the adoption of the amendment. The amended forms are adopted under the Family Code, Chapter 232, Suspension of License for Failure to Pay Child Support or Comply with Subpoena, sec.232.016, which provides the Office of the Attorney General with the authority to prescribe forms and procedures for the implementation of Chapter 232. sec.55.203. Forms. (a) (No change.) (b) Petition to Suspend License. The petition shall take the form as follows: Figure: 1 TAC sec.55.203(b) (c)-(e) (No change.) (f) The Office of the Attorney General promulgates the following two forms as suggested model forms for use by the courts. (1) (No change.) (2) Petition to Suspend License. The suggested model petition form takes the form as follows: Figure: 1 TAC sec.55.203(f)(2) 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801758 Sarah Shirley Assistant Attorney General Office of the Attorney General Effective date: March 1, 1998 Proposal publication date: December 17, 1997 For further information, please call: (512) 475-4499 PART IV. Office of the Secretary of State CHAPTER 79.Corporations SUBCHAPTER A.General Provisions 1 TAC sec.79.2 The Office of the Secretary of State adopts an amendment to sec.79.2, relating to the manner in which business is conducted with the Corporations Section of the secretary of state. The amendment is adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10841) and will not be republished. The amendment is necessary to revise and clarify the language of the existing rule which presently requires, without exception, that all business with the secretary of state be conducted in writing. The amendment addresses changes brought about by Senate Bill 555, Chapter 375, Acts, 75th Legislature, Regular Session (1997); specifically, the provisions authorizing the submission of documents to the Corporations Section of the secretary of state electronically or by other technological means. No comments were received regarding adoption of the amendment. The amendment is adopted under the authority of Article 9.03, Texas Business Corporation Act, and Article 1396-9.05, Texas Non-Profit Corporation Act, which give the secretary of state the authority to efficiently administer the duties imposed on the secretary under the acts, and Section 20001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801334 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 1 TAC sec.sec.79.13-79.15, 79.17-79.19 The Office of the Secretary of State adopts the repeal of sec.sec.79.13-79.15 and sec.sec.79.17-79.19, concerning the filing requirements, procedures, and effect of certain business entity filings made with the Corporations Section of the secretary of state. The repeal of these sections is adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10842). The text will not be republished. The repeal is necessary to avoid duplication. New rules which incorporate many of the provisions of the existing rules, but which are reorganized into several new subchapters which are being concurrently proposed for adoption. No comments were received regarding the repeal of the sections. The proposed repeal is submitted under the authority of article 9.03, Texas Business Corporation Act, and Article 1396-9.05, Texas Non-Profit Corporation Act, which give the secretary of state the authority to efficiently administer the duties imposed on the secretary under the acts, and Section 20001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801335 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-??? SUBCHAPTER B.Document Review 1 TAC sec.sec.79.21-79.28 The Office of the Secretary of State adopts new subchapter B, Document Review, sec.sec.79.21-79.28, relating to filing procedures, review standards, and the processing of certain documents filed with the Corporations Section of the Office of the Secretary of State. The new rules are adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10843) and will not be republished. The subchapter and rules are necessary for the purpose of clarifying and codifying procedures established by the secretary of state in the review of documents filed in the Corporations Section. Section 79.21 clarifies the ministerial role of the secretary of state by setting forth the level of administrative review of documents submitted on behalf of business organizations for filing with the Corporations Section of the secretary of state. Section 79.22 identifies the factors considered when prioritizing the processing of documents submitted for filing with the Corporations Section of the secretary of state. Section 79.23 clarifies the limits of the secretary of state's authority as it relates to fraudulent filings. Section 79.24 explains the types of corrections that may not be effected by the filing of articles or certificates of correction and clarifies that the secretary of state will not refund any portion of a fee based upon the submission and acceptance of articles of correction correcting the information upon which the fee for the document was based. Sections 79.25 and 79.26 relate to the filing of name reservations, name registrations, and applications for certificate of withdrawal and incorporate the provisions of sec.79.15 and sec.79.17 that are to be repealed for purposes of reorganization of Chapter 79 into subchapters. Section 79.27 explains the procedures relating to the filing of periodic reports by non-profit corporations. Section 79.28 sets forth the requirements for a registered office address for purposes of filing with the secretary of state. No comments were received regarding the adoption of the new subchapter and sections. The adoption of the new subchapter and sections is proposed under the authority of Article 9.03, Texas Business Corporation Act and Article 1396-9.05, Texas Non-Profit Corporation Act which grant the secretary of state the authority to efficiently administer the duties imposed on the secretary of state under the acts, and Section 2001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801336 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER C.Entity Names 1 TAC sec.sec.79.34, 79.43, 79.48, 79.50 The Office of the Secretary of State adopts the amendments to Subchapter C, Entity Names, sec.sec.79.34, 79.43, 79.48, and 79.50 relating to factors and conditions relevant to the secretary of state's determinations regarding entity names. The amendments are adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10844) and will not be republished. The amendments are necessary to revise and clarify the language of the existing rules and to conform the rules to present practice and procedure. Section 79.34 is amended to delete language which created an ambiguity regarding use of the term "companies" as a basis for distinguishing between names. Section 79.43 is amended to include an additional example of a circumstance giving rise to the requirement that a letter of consent be obtained from a previously existing entity when the only difference in the names is the use of the term "companies." Section 79.50 is amended to include professional limited liability companies as a type of professional entity subject to the rule and to provide an exception to the letter of consent requirement when there is sufficient basis for distinguishing between professional entity names. Section 79.48 is amended to clarify that the timing of an applicant's submission of a document relating to an entity name at issue does not determine the secretary of state's final decision regarding the entity name. No comments were received regarding the adoption of the amendments. The amended sections are adopted under the authority of Article 9.03, Texas Business Corporation Act, and Article 1396-9.05, Texas Non-Profit Corporation Act, which give the secretary of state the authority to efficiently administer the duties imposed on the secretary under the acts, and Section 20001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801337 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER E.Delayed Effective Dates 1 TAC sec.sec.79.71-79.73 The Office of the Secretary of State adopts new subchapter E, Delayed Effective Dates, sec.sec.79.71-79.73, relating to filing procedures for documents having a delayed effective date, and the corresponding changes effected to the Corporations Section database upon the filing of such documents. New section 79.71 and sec.79.72 are adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10845) and will not be republished. New section 79.73, which was proposed in the same issue, relates to changes made to the business information of domestic and foreign entities on file with the secretary of state and is adopted with changes to subsection (a)(2) and subsection (b)(1) and (2). The subsections are changed to include the terms "domestic" and "foreign" in order to more clearly distinguish between actions taken with respect to such entities. The new sections renumber and replace sections, sec.sec.79.13, 79.14, and 79.18, and incorporate changes necessary to implement Senate Bill 555, Chapter 375, Acts, 75th Legislature, Regular Session (1997) relating to the filing of conversion transactions. The new subchapter and sections are necessary for the purpose of providing a more clearly ordered structure to Chapter 79 and to incorporate changes relating to conversion transactions implemented by Senate Bill 555 which became effective September 1, 1997. Section 79.71 concerns the calculation of the 90th day following the date of filing of a document for the purposes of filing documents which will become effective upon the occurrence of a future act or event. Section 79.72 sets forth the filing requirements for the filing of a statement regarding the satisfaction or waiver of a condition triggering the effectiveness of a document filing. Section 79.73 outlines the procedures followed by the secretary of state upon the filing of a document with a delayed effective date and specifies the changes made to the business entity information contained in the Corporations Section's database. No comments were received regarding adoption of the new sections. The new subchapter and sections are adopted under the authority of Article 9.03, Texas Business Corporation Act and Article 1396-9.05, Texas Non-Profit Corporation Act which grant the secretary of state the authority to efficiently administer the duties imposed on the secretary of state under the acts, and Section 2001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. sec.79.73.Documents with Delayed Effective Dates. (a) Upon the filing of a document with a delayed effective date, the computer records of the secretary of state will be changed to show the filing of the document, the date of the filing, the future date on which the document will be effective or a code indicating that the effectiveness is based on a future condition, and the name of the surviving entity or entities, if applicable. In addition, at the time of such filing: (1) the status of any domestic entity on file with the secretary of state that is converting, merging out of existence, or dissolving, will be changed from active to inactive, and the status of any foreign entity withdrawing its certificate will be changed from active to inactive; (2) the status of any domestic entity to be created and filed with the secretary of state by the terms of a plan of merger, plan of conversion, articles of incorporation, articles of organization, or a certificate of limited partnership, or the status of any foreign entity obtaining a certificate authorizing the foreign entity to transact business in Texas shall appear in the active records of the secretary of state; and (3) any filings making amendments to articles of incorporation, articles of organization, a certificate of limited partnership, or a certificate authorizing a foreign entity to transact business in Texas will be recorded in the records of the secretary of state. (b) Upon filing of the document: (1) the name of any domestic entity on file with the secretary of state which is converting, merging out of existence, or dissolving, or the name of any foreign entity withdrawing its certificate of authority will not appear in the active records and will not be a bar to reservation or registration of an entity name or creation of an entity under a name which is the same as, deceptively similar to, or similar to the name of the converting, merging, or dissolving domestic entity or the withdrawing foreign entity; (2) the name of any domestic entity to be created and filed with the secretary of state by the terms of a plan of merger, plan of conversion, articles of incorporation, articles of organization, or a certificate of limited partnership, or the name of any foreign entity obtaining a certificate authorizing the foreign entity to transact business in Texas will appear in the active records of the secretary of state and will be a bar to reservation or registration of any entity name or creation of an entity under a name which is the same as, deceptively similar to, or similar to the name of an entity to be created or authorized to transact business in Texas by one of the document filings listed in this section; and (3) if a document filing provides for a change of name of an entity previously on file with the secretary of state, the new name of the entity will appear in the active records of the secretary of state and will be a bar to reservation or registration of any entity name or creation of an entity under a name which is the same as, deceptively similar to, or similar to any new name of the entity as provided in the document filing; (4) if a document filing provides for an amendment to the articles of incorporation, articles of organization, a certificate of limited partnership, or a certificate authorizing a foreign entity to transact business in Texas, the secretary of state will change the computer records to reflect any amendments to information which may be obtained from the computer database (e.g., authorized stock, registered agent/registered office, the name of a general partner). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801338 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER F.Effect of Filings 1 TAC sec.79.81, sec.79.82 The Office of the Secretary of State adopts new Subchapter F, Effect of Filings, sec.79.81 and sec.79.82, relating to the effect of certain filings on the business organization information maintained in the database of the Corporations Section of the secretary of state. New sec.79.81 and sec.79.82 of the new subchapter are adopted with changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10847-10848). The changes in new sec.79.81(b) clarify the procedures followed when processing articles of conversion that convert a foreign qualified entity to a domestic corporation, limited partnership or limited liability company. The section is changed by deletion of the phrase "and the name of the converted entity" in the first sentence of the subsection and by the addition of language specifically stating that the filing of the conversion document does not terminate the entity's certificate of authority. The change in new sec.79.82 is the deletion of the phrase "or a converting qualified entity that converted to a domestic entity" in subparagraph (4) in order to eliminate an inconsistency with the procedures set forth in new sec.79.81. The new rules are being adopted for the purpose of implementing the changes effected by Senate Bill 555, Chapter 375, Acts, 75th Legislature, R.S. (1997); specifically, conversion transactions which allow a domestic or foreign business entity to change its organizational form without an interruption in the entity's existence. Additionally, the new subchapter and sections are part of the secretary of state's reorganization of Chapter 79 into subchapters. Section 79.81 outlines the procedures followed by the secretary of state upon the filing of a conversion transaction and specifies the changes made to the business entity information contained in the Corporations Section's database. The section also informs the public of other statutory filings that may need to be filed with the secretary of state by a foreign business entity that has converted. Section 79.82 replaces Section 79.19, which is being repealed under separate submission. Section 79.82 relates to the abandonment of a document previously filed with the secretary of state and incorporates changes necessary to include the conversion transaction in its procedures. No comments were received regarding the adoption of the new rules. The new subchapter and sections are adopted under the authority of article 9.03, Texas Business Corporation Act, and article 1396-9.05, Texas Non-Profit Corporation Act, which give the secretary of state the authority to efficiently administer the duties imposed on the secretary under the acts, and Section 20001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. sec.79.81. Conversion Filings. (a) Upon filing of a conversion document where the converting entity is a domestic corporation, limited partnership, or limited liability company (i.e., a domestic entity), the computer records of the secretary of state relating to the converting domestic entity will be changed to show the filing of the conversion document, the date of the filing, the future date on which the document will be effective or a code indicating that the effectiveness is based on a future condition, and the name of the converted entity. In addition, at the time of such filing: (1) the status of the converting domestic entity will be changed from active to inactive; and (2) the status of the converted domestic entity to which the converting entity has converted shall appear in the active records of the secretary of state indexed under a charter number and type code applicable to the type of entity to which it converted. (b) Upon filing of a conversion document where the converting entity is a foreign corporation, limited partnership, or limited liability company with an active certificate of authority (i.e., a qualified entity) which is to be converted to a domestic entity, the computer records of the secretary of state relating to the converting qualified entity will be changed to show the filing of the conversion document, the date of the filing, and the future date on which the document will be effective or a code indicating that the effectiveness is based on a future condition, if applicable. In addition, at the time of such filing the status of the converted domestic entity to which the converting qualified entity has converted shall appear in the active records of the secretary of state indexed under a charter number and type code applicable to the type of entity to which it converted. The filing of a conversion document converting a foreign qualified entity to a domestic entity does not terminate the certificate of authority of the foreign qualified entity. The foreign qualified entity may apply to withdraw its certificate of authority prior to the filing of the conversion or file a statement of termination pursuant to article 8.14, Business Corporation Act, article 7.09, Limited Liability Company Act, or section 9.06, Revised Limited Partnership Act, as applicable. (c) A foreign corporation, limited partnership, or limited liability company with an active certificate of authority (i.e., a qualified entity) that is authorized under the laws of its jurisdiction of organization to convert and that converts effecting a change to its jurisdiction of organization without a change to its organizational form, shall file an application to amend its certificate of authority or certificate of registration to reflect the date of the conversion of the qualified entity and the jurisdiction of formation of the converted entity. A certificate from the secretary of state or other proper filing officer of the new jurisdiction of organization that evidences the conversion of the entity's jurisdiction of organization must accompany the application for amended certificate of authority. (d) A foreign corporation, limited partnership, or limited liability company with an active certificate of authority (i.e., a qualified entity) that is authorized under the laws of its jurisdiction of organization to convert and that converts effecting a change to its organizational form shall file a termination of its certificate of authority pursuant to article 8.14, Business Corporation Act, article 7.09, Limited Liability Company Act, or section 9.06, Revised Limited Partnership Act, as applicable. If the converted entity is to transact business in this state, the converted entity must obtain a certificate of authority under the laws applicable to the type of foreign entity to which the entity converted. sec.79.82 .Abandonment of Document. If a document filing is abandoned in accordance with a statutory provision for abandonment, the secretary of state: (1) will change the status of all the entities filed with the secretary of state which would have merged out of existence, dissolved, or withdrawn to active on the computer records of the agency and record the filing of the abandonment. If the names of these entities are not available, the entities must file articles of amendment or take other action to change the entity name or bring the name into compliance with applicable statutory provisions as a condition of acceptance of the abandonment; (2) will change the status of all entities that would have been created and filed or authorized to transact business in Texas with the secretary of state by the terms of the document filing to inactive on the computer records of the agency; (3) will change the status of a converted entity that would have been created and filed in Texas with the secretary of state by the terms of the articles of conversion to inactive on the computer records of the agency; and (4) will change the status of a converting domestic entity filed with the secretary of state to active on the computer records of the secretary of state. If the name of the entity is not available, the entity must file articles of amendment or take other action to change the entity name or bring the entity name into compliance with applicable statutory provisions as a condition of acceptance of the abandonment. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801339 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 CHAPTER 80.Unincorporated Business Entities SUBCHAPTER A.Limited Liability Partnerships 1 TAC sec.sec.80.1-80.4 The Office of the Secretary of State adopts the repeal of sec.sec.80.1-80.4, relating to limited liability partnership filings with the secretary of state without changes to the text as proposed in the November 7, 1997 issue of the Texas Register (22 TexReg 10848). The text will not be republished. The secretary of state adopts the repeal of these sections for the purpose of deleting obsolete provisions and adopting new rules which address filing requirements and procedures for foreign limited liability partnerships as provided by the enactment of Senate Bill 555, Chapter 375, Acts, 75th Legislature, Regular Session(1997). The repeal of these sections deletes redundant provisions which were codified in 1993 with the enactment of the Texas Revised Partnership Act (Article 6132b-1), by the 73rd Legislature. No comments were received regarding the proposed repeal of these sections. The repeal of sec.sec.80.1-80.4 is adopted under the authority of sec.3.08(b)(15) and sec.10.02(n) of the Texas Revised Partnership Act which give the secretary of state the authority to adopt procedural rules on filing domestic and foreign limited liability partnership documents. Section 2001.004, Government Code, requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801340 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 1 TAC sec.sec.80.1-80.7 The Office of the Secretary of State adopts new Subchapter A, Limited Liability Partnerships, sec.sec.80.1-80.7, concerning filing requirements and procedures for the registration of domestic limited liability partnerships and the qualification of out-of-state limited liability partnerships. New sec.80.2 and sec.80.7 are adopted with changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10849). New sec.sec.80.1, 80.3, 80.5, and 80.6, which appeared in the same issue, are adopted without changes to the proposed text and will not be republished. The new subchapter and sections address certain filing issues and concerns not addressed by the existing rules which are being repealed. The new sections are necessary to implement the provisions of Senate Bill 555, Chapter 375, Acts, 75th Legislature, Regular Session (1997); specifically, the provisions requiring the qualification with the secretary of state of out-of-state limited liability partnerships transacting business in Texas. Proposed new sec.80.1 addresses the filing requirements for registration as a domestic limited liability partnership and clarifies what must be done when the partnership has not obtained a federal identification number at the time of registration. Proposed new sec.80.2 sets forth the filing requirements for out- of-state limited liability partnerships qualifying to transact business in Texas and clarifies what must be done when the partnership has not obtained a federal identification number at the time of qualification with the secretary of state. Section 80.3 sets forth the standard of review for limited liability partnership registration and qualification documents. Section 80.4 clarifies the types of documents that may be amended, changed, or corrected and the fee structure for such filings, and explains the ways a qualified foreign limited liability partnership may effect a change to its registered agent or registered office address information. Section 80.5 provides for the termination of a registration when the partnership ceases to exist as a partnership by means of merger or conversion, and establishes the filing requirements for such termination. Section 80.6 explains the procedures followed when the secretary of state revokes the filing of a document when the filing fee for the document was paid by an instrument or credit card that was dishonored when presented for payment. Section 80.7 provides notice to the public that a foreign limited partnership that is registered as a foreign limited liability partnership also must comply with the registration and qualification provisions of the Texas Revised Limited Partnership Act. One comment was received from an out-of-state limited liability partnership on the new sections. The commenter, Richard Dicharry of Phelps Dunbar, LLP, asked whether the secretary of state could define or clarify when a partner of a foreign limited liability partnership would be considered to be "in Texas" for purposes of completing the qualification statement and computing the filing fee. The secretary of state agreed that clarification was needed and has responded by adding subsection (f) to sec.80.2 which will outline the circumstances under which a partner would be considered to be "in Texas" for purposes of completing the qualification statement promulgated by the secretary of state and for computing the filing fee. The new subsection includes such factors as licensing and the duration of a partner's presence in the state. In addition, subsection (e) has been changed to clarify that a foreign limited liability limited partnership is to calculate the filing fee based upon the number of general and not limited partners in Texas. The new sections are adopted under the authority of Article 6132b-3.08(b)(15) and Article 6132b-10.02, Texas Revised Partnership Act, which give the secretary of state authority to adopt procedural rules on filing limited liability partnership documents under those sections, and Section 20001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. sec.80.2.Statement of Foreign Qualification. (a) Initial statement. To transact business in Texas, a foreign limited liability partnership must comply with the Texas Revised Partnership Act, Texas Civil Statutes, Article 6132b, sec.10.02. The secretary of state has promulgated a form for this purpose; however, use of such form is not mandatory. Applications submitted for filing with the secretary of state must be executed by a majority in interest of the partners or by one or more partners authorized by a majority in interest of the partners and must contain the following information: (1) the name of the partnership; (2) the federal tax identification number of the partnership; (3) the state of formation and the date of its initial registration as a limited liability partnership in that state; (4) a statement that the foreign limited liability partnership validly exists as a limited liability partnership under the laws of the state of its formation; (5) the street address of a partnership office in Texas and the street address of the partnership's chief executive office; (6) the street address of its proposed registered office in Texas and the name of its proposed registered agent in Texas at such address; (7) a statement that the partnership appoints the secretary of state as its agent for service of process under the circumstances set forth in Section 10.01(k), Texas Revised Partnership Act; (8) the number of partners in Texas at the date of application; and (9) a brief statement of the business in which the partnership engages. (b) Name of the partnership. The name of the registered limited liability partnership shall contain the words "registered limited liability partnership" or "limited liability partnership" or the abbreviations "R.L.L.P.," "L.L.P.," "RLLP," or "LLP" as the last words or letters of its name. The secretary of state does not review the name of the partnership, or a change of name, to determine whether the name conforms with the entity name availability rules of sec.sec.79.30-79.54 of this title (relating to Corporations). (c) Federal tax identification number. A partnership which has applied for, but not obtained, a federal tax identification number at the time of submission may provide a statement to that effect in its application for registration. Once the partnership has obtained its federal tax identification number, the partnership shall amend its application for registration to provide the identification number required under Section 10.02. (d) Registered Office. The registered office address of the limited liability partnership must include a street or building address for purposes of providing the public with notice of the physical location at which process may be served on the registered agent; a post office box or lock box alone is not a sufficient address for the registered office. The address of a commercial business which provides "private mail box" services is not sufficient as a registered office address, unless the commercial enterprise is the business of the designated registered agent. If the registered office is in a city with a population of less than 5,000, the secretary of state will accept an address other than a street address for the registered office. (e) Fee. The fee for filing a statement of foreign qualification or a renewal of foreign qualification is $200 per partner in Texas, but not less than $200 and not more than $750. In the case of a limited liability limited partnership, calculation of the filing fee would be determined by the number of general, not limited, partners in Texas at the time of submission. (f) Partners in Texas. For purposes of this section, a partner is considered to be in Texas if: (1) the partner is a resident of the state; (2) the partner is domiciled or located in the state; (3) the partner is licensed or otherwise legally authorized to perform the services of the partnership in this state; or (4) the partner, or a representative of the partnership working under the direct supervision or control of the partner, will be providing services or otherwise transacting the business of the partnership within the state for a period of more than 30 days. sec.80.7.Foreign Limited Liability Limited Partnerships. A foreign limited partnership that is subject to registration under the provisions of sec.9.02(a) of the Texas Revised Limited Partnership Act and that has the status of a registered limited liability partnership under the laws of a state other than Texas also must file a statement of foreign qualification under sec.10.02 of the Texas Revised Partnership Act before transacting business in Texas. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801341 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER B.Unincorporated Nonprofit Associations 1 TAC sec.80.29 The Office of the Secretary of State adopts an amendment to sec.80.29, relating to the revocation of the filing of a document when the fee for the document was paid by an instrument or credit card that was dishonored when presented by the secretary of state for payment. The amendment is adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10851) and will not be republished. The amendment to sec.80.29, eliminates the need to provide the nonprofit association 30 days within which to pay the fee bringing the procedures in line with similar revocation provisions found in Article 7.01C(2) of the Texas Business Corporation Act and Article 1396-7.01C(2) of the Texas Non-Profit Corporation Act. In addition, the amended section clarifies where notice of the revocation will be sent. The amendment is necessary to make the rule consistent with procedures followed in the revocation of documents filed by corporate entities. No comments were received regarding the adoption of the amended section. The adoption of the amendment is proposed under the authority of sec.12(g) of the Texas Uniform Unincorporated Nonprofit Association Act (Article 1396-70.01 et. seq.) which gives the secretary of state the authority to adopt procedural rules on filing documents under section 12 of the act. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801342 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 CHAPTER 83.Limited Partnership 1 TAC sec.sec.83.1-83.6 The Office of the Secretary of State adopts the repeal of sec.sec.83.1-83.6, relating to limited partnership documents filed with the secretary of state under the provisions of the Texas Uniform Partnership Act (Article 6132a). The repeal of these sections is adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10852). The text will not be republished. The repeal of these rules is necessary to delete obsolete provisions which have been inapplicable to limited partnership filings since the repeal and expiration of the Texas Uniform Partnership Act on September 1, 1992. The repeal of the rules will make possible the adoption of new rules addressing policies and procedures for limited partnership documents filed pursuant to the Texas Revised Limited Partnership Act (Article 6132a-1). No comments were received regarding the adoption of the repeal of these sections. The adoption of the repeal is submitted under the authority of sec.2001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801343 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER A.General Provisions 1 TAC sec.sec.83.1-83.5 The Office of the Secretary of State adopts new Subchapter A, sec.sec.83.1-83.5, relating to limited partnership documents filed with the secretary of state under the provisions of the Texas Revised Limited Partnership Act (Article 6132a-1.01 et. seq.). The new subchapter and sections are adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10852) and will not be republished. The new sec.sec.83.1-83.5, are necessary to set forth the standards of review for limited partnership filings and to include information regarding specific filing procedures applicable to limited partnership documents filed with the secretary of state under the provisions of the Texas Revised Limited Partnership Act. The new subchapter and sections replace sections, sec.sec.83.1-83.5, which relate to filings under the Texas Uniform Limited Partnership Act (now repealed and expired) and that are being repealed under separate submission. New sec.83.1 allows for the filing of the limited partnership agreement when it contains the information required of a certificate of limited partnership under the Texas Revised Limited Partnership Act; sec.83.2 clarifies the requirements for a registered agent and registered office address; sec.83.3 sets forth the standard of review of limited partnership documents; sec.83.4 relates to the computation of the fee imposed for late registration by a foreign limited partnership and provides for a ten day grace period; and sec.83.5 describes the notice provided to a limited partnership when the secretary of state revokes the filing of a document when the fee for the document was paid by an instrument that was dishonored when presented for payment. No comments were received regarding the adoption of the new sections. The adoption is proposed under the authority of sec.2001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801344 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER B.Periodic Reports 1 TAC sec.sec.83.21-83.24 The Office of the Secretary of State adopts new Subchapter B, sec.sec.83.21- 83.24, relating to the filing of periodic reports for limited partnerships under the provisions of the Texas Revised Limited Partnership Act (Article 6132a-1). The new subchapter and sections are adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10853) and will not be republished. Under the provisions of sec.13.05, Texas Revised Limited Partnership Act, the secretary of state is authorized to require limited partnerships in this state to file a report no more than once every four years. The new subchapter and sections are necessary to clarify and codify the established policies and procedures relating to the filing of the periodic report, and to clarify the consequences for the failure of the limited partnership to file the report when required to do so by the secretary of state. Section 83.21 specifies the content of the periodic report, explains how changes to the report information are to be made, and what changes can be effected by the filing of the periodic report. Section 83.22 specifies the address to which notices relating to the filing of the periodic report are sent and clarifies that the failure of the limited partnership to receive notice does not relieve the partnership from the need to file the report. Section 83.23 provides that the secretary of state will not file an amendment submitted by a limited partnership which has forfeited its right to transact business for its failure to file the periodic report. Section 83.24 allows a limited partnership to file a periodic report when not required to do so by the secretary of state, but clarifies that the voluntary filing does not relieve the partnership from the requirement to file the report when directed to do so by the secretary of state. No comments were received regarding the adoption of the new sections. The adoption of the new subchapter and sections is proposed under the authority of sec.2001.004, Government Code, which requires all state agencies, including the secretary of state, to adopt rules of practice which state the nature and requirements of formal and informal procedures. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801345 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 CHAPTER 93.Trademarks The Office of the Secretary of State adopts amendments to Chapter 93, sec.sec.93.1-93.2, 93.41-93.43, 93.51-93.55, 93.61-93.62, 93.66-93.67, 93.91, 93.93, 93.101, 93.112-93.113, 93.117, 93.131-93.133, 93.153, 93.163, and 93.181- 93.183, relating to trademark registration and renewal filing requirements and examination procedures and policies of the secretary of state. The amendments to the sections are adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10854) and will not be republished. The amended sections are adopted for the purpose of implementing the provisions of House Bill 2569 which was enacted by the 75th Legislature and became effective on September 1, 1997, and for the purposes of redesignating the chapter and reorganizing the chapter into subchapters, clarifying information regarding certain procedures, and for replacing certain terminology used to identify the organizational section responsible for the processing, examination, and registration of trademarks. Chapter 93 is amended to delete references to an organization section identified as the trademark section or trademark office and to replace the terminology with terms that more accurately describe the organizational structure within the context of the rules. Additionally, the undesignated head relating to Assignments of Marks is amended to include reference to the recordation of other instruments as provided by the passage of House Bill 2569. The secretary of state also amends the Chapter by organizing the undesignated heads as subchapters A through N, in conformity with the structure of other chapters within the Code. Section 93.1 is amended to delete references to the phrase trademark office as there is no section of the secretary of state specifically identified as such. Section 93.2 is amended to delete references to the trademark office and to clarify the basis of the written record. Section 93.41 is amended to clarify that an attorney may be used to represent an applicant in matters relating to an application for renewal of a trademark and assignment of a trademark registration, as well as an application to register a trademark. Section 93.42 and sec.93.43 are amended to delete references to the trademark office. Section 93.51 and sec.93.53 are amended to conform the rule with the changes implemented by House Bill 2569; specifically, clarifying that the fee associated with the submission of an application is a processing fee and not a filing fee. Section 93.52 is amended to delete references to the trademark office. Section 93.54 is amended to address changes in procedure and factors considered by the trademark examiners when establishing priority of examination of conflicting pending applications which have the same date of receipt. The amendment to this section is made necessary by the passage of House Bill 2569 which eliminated the verification requirement for applications and which effectively removed a means by which the date of execution of the document could be determined. Section 93.55 is amended to clarify that an application will receive a filing date once the mark is determined to meet the standards of registration under sec.16.08 of the Texas Business & Commerce Code. Section 93.55 also is amended to conform the rule to changes implemented by House Bill 2569; specifically, clarifying that the fee associated with the submission of an application is a fee for processing the application and not a fee for the filing or registration of the application. Section 93.61 and sec.93.62 are amended to reflect changes implemented by House Bill 2569 which amended the provisions regarding the information required in an application to register a trademark and deleted the requirement that an application be verified by the applicant. Section 93.66 and sec.93.67 are amended to delete references to the trademark office and to make other conforming changes. Section 93.91 is amended to clarify that a printer's proof or reproduction of a drawing of the mark or logo is insufficient as an example of the actual use of the mark on the goods or in the advertising of the services. Section 93.93 is amended to incorporate information regarding acceptable specimens or examples of use in connection with computer programs or computer services. Section 93.101 is amended to incorporate changes in classification made to the International Classification of Goods and Services utilized by the United States Patent and Trademark Office and to incorporate information regarding the classification of certain computer services. Section 93.112 and sec.93.113 are amended to delete references to the trademark office and replace the use of the term with more appropriate terminology. Section 93.117 is amended to clarify the time during which an application may be expressly abandoned and to delete references to the trademark office. Section 93.131 and sec.93.132 are amended to implement House Bill 2569 which deleted the requirement that an application for registration be verified by the applicant and to delete references to the trademark office. Section 93.133 is amended for purposes of clarifying the manner in which information in an application is to be amended. Section 93.153 is amended to delete references to the trademark office. Section 93.163 is amended to clarify the information to be provided by a registrant upon renewal when the mark is not in use at the time of renewal and to implement the changes enacted by the passage of House Bill 2569; specifically, the elimination of the verification requirement for an application to renew a trademark registration. Section 93.181, which relates to the voluntary cancellation of a trademark registration by the registrant, is amended to delete the requirement that the registrant provide an affidavit regarding the loss of the original certificate if the original cannot be returned as required by the rule. Section 93.182 is amended to delete reference to a statutory provision that was repealed by the passage of House Bill 2569 and to include a reference to an administrative cancellation upon receipt of evidence of a judicial cancellation. Section 93.183 is amended to delete provisions that are redundant of the statute and to clarify that the secretary of state is not a necessary party to a judicial cancellation of a registration. No comments were received regarding adoption of the amended sections. SUBCHAPTER A.General Information and Correspondence 1 TAC sec.93.1, sec.93.2 The adoption of the amendments is proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802283 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER B.Representation 1 TAC sec.sec.93.41, 93.42, 93.43 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802284 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER C.Application for Registration 1 TAC sec.sec.93.51, 93.52, 93.53, 93.54, 93.55 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802285 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER D.The Written Application 1 TAC sec.sec.93.61, 93.62, 93.66, 93.67 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802286 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER F.Specimens 1 TAC sec.93.91, sec.93.93 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802287 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER G.Classification 1 TAC sec.93.101 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802288 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 1 TAC sec.sec.93.112, 93.113, 93.117 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802289 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER I.Amendments 1 TAC sec.sec.93.131, 93.132, 93.133 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802290 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER K.Certificate 1 TAC sec.93.153 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802291 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER L.Term and Renewal 1 TAC sec.93.163 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802292 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER N.Cancellation of Registration 1 TAC sec.sec.93.181, 93.182, 93.183 The adoption of the amendments are proposed under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802293 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 The Written Application 1 TAC sec.93.63 The Office of the Secretary of State adopts the repeal of sec.sec.93.63; 93.114; 93.152 and 93.154 relating to examination, filing, and recordation requirements and procedures for trademark documents submitted to the secretary of state. The repeal of these sections is adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10858, 10862, and 10864). The text will not be republished. The repeal of sec.sec.93.63, 93.114, and 93.154 is necessary in order to delete provisions that are no longer necessary or are made inapplicable or redundant by the passage of House Bill 2569 by the 75th Legislature, effective September 1, 1997. Section 93.63 outlines the information and material required to complete a trademark application. Section 93.114 relates to the reexamination procedure. Section 93.154 relates to the recording of a change of name of the registrant. The repeal of sec.93.152 is necessary to allow for the adoption of new sec.93.152 which relates to the correction of specific information contained in the trademark records maintained by the secretary of state, as well as the correction of errors contained in a certificate issued by the secretary of state in connection with a trademark registration, renewal, assignment, or transfer of ownership or change of name. No comments were received regarding the adoption of the repeal of these sections. The repeal is submitted under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802294 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 Examination of an Application and Action by Applicants 1 TAC sec.93.114 The repeal is submitted under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802295 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 Certificate 1 TAC sec.93.152, sec.93.154 The repeal is submitted under the authority of section 16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802296 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER D.The Written Application 1 TAC sec.93.63 The Office of the Secretary of State adopts new sections to Chapter 93, sec.sec.93.63, 93.103, 93.114, 93.118, 93.152, 93.154, 93.172, and 93.184, relating to trademark registration and renewal filing requirements and examination procedures and policies of the secretary of state. The new sections are adopted without changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10854) and will not be republished. The new sections are adopted for the purpose of implementing the provisions of House Bill 2569, Chapter 248, Acts, 75th Legislature, Regular Session (1997), effective September 1, 1997, and for the purposes of addressing certain issues and clarifying information regarding certain procedures not previously addressed by rule. New sec.sec.93.63, 93.114, 93.152, and 93.154, replace sections that are being repealed and address issues raised by the passage of House Bill 2569 and clarify existing policy relating to the examination, registration and recordation of trademark documents by the secretary not previously addressed by rule. New sec.sec.93.103, 93.118, 93.172, and 19.184, are proposed new to implement the provisions of House Bill 2569 and to clarify existing policy relating to the examination of trademark applications by the secretary not previously addressed by rule. Section 93.63 provides general criteria for drafting an acceptable description of goods or services in connection with which a mark is sought for registration. Common errors of the type described by the section give rise to technical objections to registration being raised by the trademark examiner. The new section may reduce the incidence of rejection of a trademark application on the basis of an unacceptable description of goods or services. New sec.93.103 is proposed to provide information in relation to the appropriate classification of computer services. The increase in applications for trademarks for computer related goods and services makes it necessary to provide guidelines for the classification of such goods or services, and to require greater specificity in the descriptions for such goods or services for purposes of examination in determining likelihood of confusion with existing registrations. Section 93.114 clarifies the circumstances under which factual information from third parties regarding the registrability of a mark undergoing examination by the secretary of state will be made part of the record by the secretary of state. The section also clarifies that third party objections to registration that are merely adversarial in nature are inappropriate and are to be resolved judicially in a suit between the parties. Section 93.118 clarifies that a final action or final decision of the secretary of state that may be judicially reviewed pursuant to sec.16.24, Business & Commerce Code is limited to a suit by an applicant or registrant seeking judicial review of the refusal of the secretary of state to register or renew the registration of a trademark, and does not include the judicial review of a registration issued by the secretary of state. Section 93.152 relates to the correction of specific information contained in the trademark records maintained by the secretary of state. Section 93.152 is necessary in order to establish a procedure whereby the secretary of state can correct the information in a identification of goods or services to delete from the identification the registered word mark of another party or to correct drafting errors in the identification of the registrant, and in any certificate issued by the secretary of state in connection with a trademark registration, renewal, assignment, or transfer of name. New sec.93.154 and sec.93.172 implement the provisions of House Bill 2569; specifically the provisions providing for the recordation of instruments relating to the transfer of ownership or change of name of the registrant, other than an assignment . Section 93.154 sets forth the requirements for requesting a new certificate of registration in the new name of the registrant or in the name of the transferee. Section 93.172 establishes the filing requirements and procedures for recordation of an instrument relating to the transfer of ownership of a mark, other than an assignment. New sec.93.184 describes the revocation of filing procedures followed by the secretary of state when the fee for the trademark document was paid with an instrument or credit card that was dishonored when presented by the secretary of state for payment. The procedures and notice of revocation provided conform with the revocation of the filing by the secretary of state of corporate documents under similar circumstances. No comments were received regarding the adoption of the new sections. The adoption of the new sections is proposed under the authority of sec.16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802297 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER G.Classification 1 TAC sec.93.103 The adoption of the new sections is proposed under the authority of sec.16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802298 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER H.Examination of an Application and Action by Applicants 1 TAC sec.93.114, sec.93.118 The adoption of the new sections is proposed under the authority of sec.16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802299 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER K.Certificate 1 TAC sec.93.152, sec.93.154 The adoption of the new sections is proposed under the authority of sec.16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802302 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER M.Assignment of Marks and Recordation of Other Instruments 1 TAC sec.93.172 The adoption of the new sections is proposed under the authority of sec.16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802300 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 SUBCHAPTER N.Cancellation of Registration 1 TAC sec.93.184 The adoption of the new sections is proposed under the authority of sec.16.21, Texas Business & Commerce Code which grants the secretary of state the authority to adopt rules relating to the filing of trademark applications, renewals and assignments, and other filings under Subchapter B of Chapter 16, Business & Commerce Code. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9802301 Clark Kent Ervin Assistant Secretary of State Office of the Secretary of State Effective date: February 18, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-5586 PART XII. Advisory Commission on State Emergency Communications CHAPTER 253.Practice and Procedure 1 TAC sec.sec.253.1-253.31 The Advisory Commission on State Emergency Communications (ACSEC) adopts new Chapter 253 concerning general rules of practice and procedures, without changes to the proposed text as published in the October 3, 1997, issue of the Texas Register(22 TexReg 9786). The new sections are being adopted for collection procedures and contested cases before ACSEC relating to the untimely delivery of 9-1-1 emergency service fees and 9-1-1 equalization and poison surcharges and concerning the form of a petition for rulemaking and the procedure for the petition's submission, consideration and disposition. No comments were received regarding the adoption of the new section. Commission staff did have discussions with the staff from the State Office of Administrative Hearings on Senate Bill 331 from the 75th Texas Legislature. The Commission does not make any changes to the proposed rules base on these discussions. The Commission, nevertheless, recognizes that the State Office of Administrative Hearings' new procedural rules as to hearings, pursuant to Senate Bill 331, should apply to all contested cases filed on or after January 1, 1998. The new sections are being adopted under Government code sec. 2001.004, which requires a state agency to adopt rules of practice stating the nature and requirement of all available formal and informal procedures, and Government code, sec.2001.021, which requires a state agency to prescribe the form for a petition by a person requesting the state agency to adopt a rule and the procedure for the petition's submission, consideration and disposition. Texas Health and Safety Code, Chapter 771 is affected by the adopted new rule. 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. Filed with the Office of the Secretary of State on February 6, 1998. TRD-9801677 James D. Goerke Executive Director Advisory Commission on State Emergency Communications Effective date: February 26, 1998 Proposal publication date: October 3, 1997 For further information, please call: (512) 305-6911 TITLE 10. COMMUNITY DEVELOPMENT PART I. Texas Department of Housing and Community Affairs CHAPTER 49.Low-Income Tax Credit Rule-1996 10 TAC sec.sec.49.1-49.15 The Texas Department of Housing and Community Affairs (the Department) adopts the repeals of sec.sec.49.1-49.15, concerning the Low Income Tax Credit Rules without changes. 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. Daisy Stiner, Deputy Executive Director, has determined that for each year of the first five years the repeals are in effect the public benefit anticipated as a result of enforcing the repeals will be to permit the adoption of new rules for the allocation of low income housing tax credit authority within the State of Texas, thereby enhancing the State's ability to provide decent, safe and sanitary housing for Texans through the tax credit program administered by the Department. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the repeals as proposed. No comments have been 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 this adopted repeal. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801836 Larry Paul Manley Executive Director Texas Department of Housing and Community Affairs Effective date: March 1, 1998 Proposal publication date: November 24, 1997 For further information, please call: (512) 475-3726 10 TAC sec.sec.49.1-49.16 The Texas Department of Housing and Community Affairs (the Department) adopts the new sec.sec.49.1-49.16, concerning the Qualification Allocation Plan and Rules (the Rules), with changes to the proposed text as published in the December 5, 1997 issue of the Texas Register (22 TexReg 11880) 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. This adoption is contingent upon the Governor's approval by February 28, 1998 pursuant to sec.2306.671(c) of the Texas Government Code, Title 10. 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. SUMMARY OF COMMENTS RECEIVED UPON PUBLICATION OF THE PROPOSED RULES IN THE TEXAS REGISTER ON DECEMBER 5, 1997, AND COMMENTS MADE AT PUBLIC HEARINGS HELD BY THE DEPARTMENT. On December 5, 1997, the proposed Rules was published in the Texas Register thereby commencing the required 30-day comment period. Said comment period ended on January 5, 1998. The Department received 93 requests for copies of the proposed Rules from the public. During the public comment period the Department held two public hearings. The Department received both oral and written comments. The scope of public comments concerning the Rules pertain to the following issues: Definitions {Sec. 49.2} It was suggested that the TxRD definition be changed. Department's Response - The Department concurs and proposes that the definition be modified as follows: "TxRD - The Rural Development (RD) services of the United States Department of Agriculture (USDA) serving the State of Texas (formerly known as TxFmHA) or its successor." Board's Recommendation - Department's response accepted. Rural Set-Aside {Sec. 49.5(a)} It was suggested that the 25% TxRD apportionment of the Rural Set-aside be increased to 50%. Department's Response - The Department believes that the 25% apportionment adequately meets the concerns of TxRD. It is noted that TxRD projects can also receive credits outside of the 25% TxRD reserve. Board's Recommendation - Department's response accepted. Rural Development Projects One comment was made requesting the compliance and monitoring fee be reduced to $100 for TxRD projects while another requested that the inspections be waived for TxRD projects. Department's Response - The Department's compliance and monitoring staff has numerous duties associated with TxRD projects. The compliance and monitoring fee reflects the costs associated with these compliance and monitoring duties. Inspections by the Department are necessary to gain an understanding of the transactions being proposed, to monitor progress, and to complete the Department's due diligence prior to the issuance of Forms 8609. These inspections are necessary as part of an ongoing monitoring process. Board's Recommendation - Department's response accepted. Prison Community List {Reference Manual} It was suggested that Jefferson County be added to the Prison Community List. Department's Response - We recognize the need for affordable housing in Jefferson County. The current list is specifically comprised of rural areas that were recently awarded a state prison. The Department is not able to add Jefferson County to the list because it does not qualify under the program's Prison Community definition as set forth in the QAP. The Department's program is constantly undergoing change and will take the comment received into future consideration. Board's Recommendation - Department's response accepted. Proposed Additions to Comply with Rider 11(c) to Article VII of the General Appropriation Act Requirements {Sec. 49.6 and Sec. 49.8} The General Appropriation Act, Article VII, Rider 11(c) requires that a general contractor hired by an applicant or an applicant, if the applicant serves as general contractor, must demonstrate a history of constructing similar types of housing without the use of federal tax credits. A member of the Legislature contacted the Department indicating that the language currently proposed in the draft version of the QAP might be read to imply that this requirement pertains to only those projects claiming experience points. Department's Response - To clarify the intent of this law, the Department is proposing the following: 1. Sec. 49.6(b) Threshold Criteria "(14) EXHIBIT 114: must be the original copy of the completed and executed General Contractor Certification Form (EXHIBIT 114) provided as part of the Application Submission Procedures Manual; 2. Sec. 49.6(c)(4)(A) EXHIBIT 210 The criteria and conditions which are specifically related to general contractors as outlined in Section 49.8 of this title (relating to Housing Credit Allocations) must be met in order to receive a final allocation of credits. Therefore, while points may be awarded for experience under this Section 49.6(c)(4)(A) during the application process, if upon review of documents required under Section 49.8 of this title (relating to Housing Credit Allocations), the general contractor is shown not to have the required experience, the conditions of the commitment notice or carryover agreement will not have been met and the final allocation of credits may be denied; and 3. Sec. 49.8. Housing Credit Allocations (c) The General Contractor hired by the Project Owner must meet specific criteria as defined by the Seventy-fifth Legislature. A general contractor hired by an applicant or an applicant, if the applicant serves as general contractor must demonstrate a history of constructing similar types of housing without the use of federal tax credits. Evidence must be submitted to the Department which sufficiently documents that the general contractor has constructed some housing without the use of low income housing credits. This documentation will be required as a condition of the commitment notice or carryover agreement, and must be complied with prior to commencement of construction and at cost certification and final allocation of credits." Board's Recommendation - Department's response accepted. Tenant Populations with Special Housing Needs {Sec. 49.6(c)(6)(A)} It was suggested in one public comment that the Department develop a QAP which promotes the development of affordable housing for seniors. The commentator stated that last year only 8% of the units awarded in the State of Texas under the LIHTC program were targeted for seniors and that there are factors in both the scoring and underwriting criteria that are not conducive to the selection of projects for seniors in this competitive process. Some members of the development community have expressed a concern that the requirements of the elderly provision currently in the draft QAP might violate the Fair Housing Act. Department's Response - The Department appreciates the public comments received on this issue and has given them consideration. While the comments regarding the scoring and underwriting criteria will be considered further, the Department believes the QAP does promote the development of affordable housing for seniors. It is noted that last year 17% of the units awarded under the LIHTC program were targeted for seniors. The QAP seeks to promote multiple housing objectives for a diverse tenant group, including both elderly and non-elderly populations. The Department and the Board, through their discretionary authority, strive to ensure that the allocation reflects this diversity by taking factors other than points into consideration. After discussing the issue with outside counsel and the Department's general counsel, it has been determined that the current language, while more restrictive than federal law with respect to units constructed for, and occupied by at least one person who is 60 years of age or older, it is not a violation of the act. To clarify that developers still may adhere to the "62 years of age and older" alternative exemption of the Fair Housing Act and with respect to the provisions of the Fair Housing Act as to projects intended for, and solely occupied by persons 62 years of age or older, the amended language shown below is being proposed: Sec. 49.6(c) Selection Criteria "(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 in all respects and must be a Project: (i) intended for, and solely occupied by Persons 62 years of age or older; or (ii) in which all Units (excluding those occupied by an employee or owner) are constructed for, and occupied by at least one Person who is 60 years of age or older; and (iii) which 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)" Board's Recommendation - Department's response accepted. Tenant Populations with Special Housing Needs {Sec. 49.6(c)(6)(B)} It was requested that changes to the QAP be made to increase affordable, accessible housing for Texans with disabilities. The changes also included suggestions to increase the financial stability of tax credit projects serving tenants with disabilities and to ensure compliance with the Fair Housing Accessibility Guidelines. Department's Response - The Department appreciates the public comments received on this issue and has created a task force comprised of members of the Department and the development community to address these concerns. The Department will work with the entities who are providing accessible units in meeting the requirements as set forth in the QAP. The task force will work on disseminating information regarding qualified tenants with special needs to the development community and to address other issues prior to program year 1999. It should be noted that electing to claim points for setting aside units for persons with physical or mental disabilities does not preclude compliance with the Fair Housing Accessibility Guidelines or any other applicable federal, state or local laws governing accessibility for such groups. It is recommended that this section remain unchanged at this time. Board's Recommendation - Department's response accepted. 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, V.T.C.A. 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 plan (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.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). 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 shall be the goal of this Department and the Board, 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. The criteria utilized to realize this goal shall include, but are not limited to, evaluation of geographic location within the state of developments applying for tax credits, concentration of tax credit developments and other affordable housing developments within specific markets and submarkets, site conditions of the developments, and a development's impact on and conformance with the goals and objectives as stated in the QAP and the Rules. The foregoing shall be implemented to be 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. Applications for Projects which receive at least 50% of their financing from the proceeds of tax exempt bonds may be submitted at any time during the 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. Appraiser-A real estate professional certified or licensed by the Texas Appraiser Licensing and Certification Board who has satisfied continuing education requirements. The appraiser must have, at a minimum, 5 years appraisal experience, preferably in the geographic area of the property to be appraised. It is desirable, but not required, that the appraiser have a professional designation or be an active member of a professional accredited appraisal institution. 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. (D) 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 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 family 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 described in subparagraphs (A)-(D) of this definition. (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 Projects-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. 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. Intermediary 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 Developmental Disabilities Assistance and Bill of Rights Act (42 U.S.C. 6001- 6007). Prison Community-A city or town which is located outside of a 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 Consultant-Any Person (without ownership interest in the Project) who provides professional services relating to the filing of an Application, Carryover Allocation Document, and/or cost certification documents. 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.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). 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 family income for such year. Qualified Market Analyst-A real estate appraiser certified or licensed by the Texas Appraiser or Licensing and Certification Board or a real estate consultant or other professional currently active in the subject property's market area who demonstrates competency, expertise, and the ability to render a high quality written report. The individual's experience and educational background will provide the general basis for determining competency as a Market Analyst. Such determination will be at the sole discretion of 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 a receiver or conservator of such an institution, or is a property owned by HUD, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (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.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). 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. An existing Rural Project that is federally assisted within the meaning of sec.42(d)(6)(B) of the Code and is under common ownership, management and Control shall not be considered as a Scattered Site Project. For qualifying Rural Projects, construction activity must be rehabilitation only with no expansion to the existing development. Rural Projects purchased from HUD will also qualify as being federally assisted." Any project comprised of single family detached homes of 35 units or less that is located within a city or county with a population of not more than 20,000 or 50,000, respectfully, shall not be considered a Scattered Site Project. Additionally, all the proposed units must be located on contiguous property under common ownership, management and control or dispersed within existing residential subdivisions. 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 Rural Development (RD) services of the United States Department of Agriculture (USDA) serving the State of Texas (formerly known as TxFmHA) 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 in 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 (c) of this section 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 required information. If any of the required information in subparagraghs (A)-(K) is not obtainable, the Market Analyst shall provide a statement to such effect and offer an alternative analysis intended to address the applicable question. (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. (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. Applicants which submit the Application prior to the close of the published Bonus Period will be notified of threshold deficiencies to allow for corrective action. Applicants must submit the documentation required to correct the deficiency within a time period to be determined by the Department. Only one opportunity to supply the required documentation will be granted. Applications with corrected deficiencies will not be eligible for the Selection Criteria points associated with the bonus period. Applications submitted after the close of the Bonus Period that show material deficiencies will be terminated per sec.49.4(c)(3)(e) of this Qualified Allocation Plan and the Project Owners will only have the opportunity to re-apply if the Application Acceptance Period is still open. (e) An Application that does not fulfill the requirements of this Qualified Allocation Plan and Rules and the current Application Submission Procedures Manual will be deemed not to have been timely filed and the Department shall not be deemed to have accepted the Application. While the Application shall be returned to the Applicant, failure to return the Application shall not affect its status. The Department may, at its sole discretion, request supplemental information from an Applicant to clarify information contained in previously submitted documentation. (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 hard copy 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. The Board shall authorize the Department to allocate credits among as many different entities as practicable without diminishing the quality of the housing that is built. (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 or the date for the submission of the Carryover Allocation Document 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) The Department shall give notice of a proposed project to the state representative and state senator representing the area where a project would be located. The state representative or senator may hold a community meeting at which the Department shall provide appropriate representation. (o) 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. The Department will reserve 25% of the 15% Rural Projects/Prison Communities set-aside for projects financed through Rural Development (TxRD) (formerly Farmer's Home). Should there not be sufficient qualified applications submitted for the TxRD set-aside, then the allocations would revert back to the Rural Projects/Prison Communities set-aside pool. 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. (d) The Department may, at any time and without additional administrative process, determine to award credits to projects previously evaluated and awarded credits if it determines that such previously awarded credits are or may be invalid and the owner was not responsible for such invalidity. To the maximum extent feasible, the Department will use credits carried forward from the prior year or recovered during the current year to make awards pursuant to subparagraphs (a)-(d) of this section. 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. (D) 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. (E) 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 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), either: (i) 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; or (ii) a copy of a current title commitment with the proposed insured matching exactly the name of the Applicant or entities which comprise the Applicant and the title of the land/Project vested in the name of the exact name of the seller as indicated on the sales contract. (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), state senator, and state representative of the locality of the development. The pre-Application notification will consist of a letter which at least includes the text described in Exhibit 113. Evidence of such notification shall be a copy of the letter sent to the official and proof of delivery in the form of a certified mail receipt, overnight mail receipt, or confirmation letter from said official. Proof of notification should not be older than one month from the date that the Application is submitted to the Department. (5) EXHIBIT 105: Using Exhibit 105 in the Application Submission Manual, provide a current financial statement for each Applicant (as defined in the QAP). Statement must not be more than 12 months old. If submitting partnership and corporate financials in addition to the individual statements; the Audited Financial Statements must not be older than 12 months and the Certified Statements must not be older than 90 days. (6) EXHIBIT 106: must be the original copy of the completed and executed Previous Participation and Background Certification Form (EXHIBIT 106) which is provided as part of the Application Submission Procedures Manual. This form must be completed with respect to the ownership entity, general partner, general contractor and their principals. (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, for Applicants seeking credits from the Non Profit Set-Aside, documentation that the Applicant is a Qualified Nonprofit Organization pursuant to the Code, sec.42(h)(5)(C), as evidenced by: (A) an IRS determination letter which states that the Qualified Non Profit Organization is a 501(c)(3) or (4) entity, (B) if the project involves a joint-venture between a Qualified Non Profit Organization and a for profit, an 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. (D) a copy of the Articles of Incorporation which specifically states the fostering of affordable housing is one of the entities exempt purposes. (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. (14) EXHIBIT 114: must be the original copy of the completed and executed General Contractor Certification Form (EXHIBIT 114) provided as part of 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) In addition to the number of points scored, the decision to underwrite a Project shall be subject to considerations contained 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. In making its recommendation to the Board, the Department shall enumerate the reason(s) for the Project's selection, including all discretionary factors used in making its determination. 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 and the Board. 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 (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 subject to sec.49.4(h) of this title (relating to Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments). 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. (5 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 which documents 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. (5 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 in clauses (i)-(iv) of this subparagraph 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 subparagraph (A)-(C) of this paragraph, 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 1000 square feet of living space for three bedrooms or 1200 square feet for four bedrooms. 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 (vii) Evaporative cooling system (F) To qualify for these points at least four of the seven items listed in subparagraph (E) must be selected. (3 Points) (G) 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) (H) The proposed development provides low density housing of less than 16 Units per acre or as follows: (i) 16 Units or less per acre (6 points) (ii) 17 to 20 Units per acre (4 points) (I) The subject Project is an existing Residential Development without maximum rent limitations or set-asides for affordable housing seeking rehabilitation credits. (8 points) (J) 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) (K) EXHIBIT 207: Label as EXHIBIT 207, 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) (L) Property Owner will set-aside Units for households with incomes at 50% or less of Area Median Family Income (AMFI) 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% AMFI 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 AMFI. (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 AMFI up to a maximum of four points. (4 points) (M) 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 16 Units per acre. (5 points) (N) EXHIBIT 208: Label as EXHIBIT 208, 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) (O) EXHIBIT 209: Label as EXHIBIT 209, 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, State Low Income Housing Plan, Comprehensive Plan or other planning document and is supported by the local municipal authority. (5 points) (P) 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 210: Label as EXHIBIT 210, evidence that the ownership entity, general partner, general contractor or its principals have a record of successfully constructing or developing residential units or comparable commercial property (i.e., dormitory and hotel/motel). Evidence must be in the form of the AIA Document A111 - Standard Form of Agreement Between Owner & Contractor, the AIA Document G704 - Certificate of Substantial Completion, IRS Form 8609, HUD Form 9822, Development Agreements, Partnership Agreements, or other appropriate documentation verifying that the ownership entity, general partner, general contractor or their principals have the required experience. The criteria and conditions related to a general contractor as outlined in sec.49.8(c) of this title (relating to Housing Credit Allocations) must be met in order to receive a final allocation of credits. Therefore, while points may be awarded for experience under this sec.49.6(c)(4)(A) during the application process, if upon review of documents required pursuant to sec.49.8(c) of this title (relating to Housing Credit Allocations), the general contractor is shown not to have the required experience, the conditions of the commitment notice or carryover agreement will not have been met and the final allocation of credits may be denied. The evidence must clearly indicate: (i) that the project has been completed (i.e. Development Agreements, Partnership Agreements, etc. must be accompanied by certificates of completion.); (ii) that the names on the forms and agreements tie back to the ownership entity, general partner, general contractor and their respective principals as listed in the Application; (iii) the number of units completed or substantially completed. (iv) the term "successfully" is defined as acting in a capacity as the general contractor or developer of; (v) at least 100 multifamily residential units or comparable commercial property; (vi) at least 35 multifamily residential units or comparable commercial property if the project applying for credits is a Rural Project; or (vii) Property Owners in noncompliance with HUD, TxRD, HOME, or LIHTC, 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. (10 points) (B) EXHIBIT 211: Label as EXHIBIT 211, evidence that the HUB has been certified by the General Services Commission and is the Project Owner or Controls the Project Owner. 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 comprises 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. To qualify for these points, in addition to the certification from the General Services Commission, the historically underutilized person or persons whose ownership interest(s) form the basis of the HUB designation must provide the necessary loan and syndication guarantees to develop the Project. The Department's goal is to have substantive participation by those individuals upon whose purported ownership interest(s) and participation form the basis for which the designation as a HUB is claimed. A determination by the Department that there has been a material misrepresentation as to such participation or that insufficient evidence has been provided to substantiate such participation will be final and points awarded for HUB participation will be withdrawn accordingly. (5 points) (5) PARTICIPATION OF LOCAL TAX EXEMPT ORGANIZATIONS. EXHIBIT 212: Label as EXHIBIT 212, 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) which is intended for, and solely occupied by Persons 62 years of age or older; or (ii) in which all Units (excluding those occupied by an employee or owner) are constructed for, and occupied by at least one Person who is 60 years of age or older; and (iii) which 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 213: Label as EXHIBIT 213, 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 - 1992 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. The Department will require a minimum of two years during which set-aside units must either be occupied by tenants who are physically or mentally disabled or held vacant while being marketed to such tenants. If after this two year period, the Project Owner is unable to locate qualified Persons with disabilities following a good-faith effort, the units may be rented to tenants without disabilities, provided that the next available unit (from among those set-aside for Persons with disabilities) shall first be made available to Persons with disabilities. To comply with this provision all Project Owners must maintain a waiting list of qualified tenants with disabilities throughout the Compliance Period. When such Units become available, Project Owners must contact persons on the waiting list and/or provide notice to local service providers that such Units are available. (i) 6.0% to 10% of Units are set-aside for persons with physical or 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 214: Label as EXHIBIT 214, 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 215: Label as EXHIBIT 215, 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 216: Label as EXHIBIT 216, 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 (A) EXHIBIT 217: Label as Exhibit 217, evidence that Sponsor agrees to provide a right of first refusal to purchase the Project upon or following the end of the Compliance Period for the minimum purchase price provided in, and in accordance with the requirements of, sec. 42(i)(7) of the Code (the "Minimum Purchase Price"), to (a) a Qualified Nonprofit Organization, (b) the Department, and (c) an individual tenant with respect to a single family building or a tenant cooperative and/or a resident management corporation in the Project or other association of tenants in the Project with respect to multifamily developments (together, including the tenants of a single family building, a "Tenant Organization"). Sponsor may qualify for this bonus by agreeing that the LURA with respect to the Project will, in substance, contain the following terms: (i) Upon the earlier to occur of: (I) the Sponsor's determination to sell the Project, or (II) the Sponsor's request to the Department, pursuant to sec.42 (h)(6)(I) of the Code, to find a buyer who will purchase the Project pursuant to a "qualified contract" within the meaning of sec.42 (h)(6)(F) of the Code, the Sponsor shall provide a notice of intent to sell the Project ("Notice of Intent") to the Department and to such other parties as the Department may direct at that time. If the Sponsor determines that it will sell the Project at the end of the Compliance Period, the Notice of Intent shall be given no later than two years prior to expiration of the Compliance Period. (ii) During the two years following the giving of Notice of Intent, the Sponsor may enter into an agreement to sell the Project only in accordance with a right of first refusal for sale at the Minimum Purchase Price with parties in the following order of priority: (I) during the first six-month period after the Notice of Intent, only with a Qualified Nonprofit Organization that is also a community housing development organization, as defined for purposes of the federal HOME Investment Partnerships Program at 24 C.F.R. sec.92.1 (a "CHDO") and is approved by the Department; (II) during the second six-month period after the Notice of Intent, only with a Qualified Nonprofit Organization or a Tenant Organization; and during the second year after the Notice of Intent, only with the Department or with a Qualified Nonprofit Organization approved by the Department or a Tenant Organization approved by the Department. (iii) After the later to occur of (I) the end of the Compliance Period or (II) two years from delivery of a Notice of Intent, the Sponsor may sell the Project without regard to any right of first refusal established by the LURA if: (x) no offer to purchase the Project at or above the Minimum Purchase Price has been made by a Qualified Nonprofit Organization, a Tenant Organization or the Department, or (y) a period of 120 days has expired from the date of acceptance of such offer without the sale having occurred, provided that the failure to close within such 120-day period shall not have been caused by the Sponsor or matters related to the title for the Project. (iv) At any time prior to the giving of the Notice of Intent, the Sponsor may enter into an agreement with one or more specific Qualified Nonprofit Organizations and/or Tenant Organizations to provide a right of first refusal to purchase the Project for the Minimum Purchase Price, but any such agreement shall only permit purchase of the Project by such organization in accordance with and subject to the priorities set forth in paragraph (ii) of this section. (v) The Department shall, at the request of the Sponsor, identify in the LURA a Qualified Nonprofit Organization or Tenant Organization which shall hold a limited priority in exercising a right of first refusal to purchase the Project at the Minimum Purchase Price, in accordance with and subject to the priorities set forth in paragraph (ii) of this section. (5 points) (B) Application is received within the first ten working 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 in addition to factors outlined in sec.49.4(h) of this title (relating to Applications; Environmental Assessments; Market Study; Commitments; Extensions; Carryover Allocations; Agreements and Elections; Extended Commitments) 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; (6) which serve low income tenants for the longest period of time, in the form of a longer Compliance Period and/or extended low income use period (as set forth in the Extended Low Income Housing Commitment Agreement); and (7) whose Unit composition provides the highest percentage of three bedrooms or greater sized Units. (e) Past Performance. 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 1996 round and who have not yet finalized the closing of the construction loan as of the close 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. (1) 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. (2) 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. The limitation does not apply: (A) 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), (B) 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), (C) 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, and (D) to a Project Consultant with respect to the provision of consulting services. (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 most recently approved QAP and Rules. Such Projects must also demonstrate consistency with the bond issuer's local Consolidated Plan. The issuer, (if other than the Department) may, at its discretion, enter into a contractual agreement to allow the Department to underwrite the Project. If the Department does not underwrite the Project for feasibility, it will require evidence that such a determination has been made by the issuer of the bonds. If the Department determines that all requirements have been met, the Ad Hoc Tax Credit Committee, without further action, shall authorize the Department to issue an appropriate notice to the Sponsor that the Project satisfies the requirements of the QAP and Rules in accordance with sec.42(m)(1)(D). (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. All such representations are enforceable by the Department, including enforcement by administrative penalties for failure to perform as stated in the representation and enforcement by inclusion in deed restrictions to which the Department is a party. 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. For Rural Projects that are federally assisted or purchased from HUD, the Department shall not authorize the sale of any apportionment of the entire tax credit development. (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) The General Contractor hired by the Project Owner must meet specific criteria as defined by the Seventy-fifth Legislature. A general contractor hired by an applicant or an applicant , if the applicant serves as general contractor must demonstrate a history of constructing similar types of housings without the use of federal tax credits. Evidence must be submitted to the Department which sufficiently documents that the general contractor has constructed some housing without the use of low income housing credits. This documentation will be required as a condition of the commitment notice or carryover agreement, and must be complied with prior to commencement of construction and at cost certification and final allocation of credits. (d) 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 (e) 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. (f) 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. (g) 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). (h) Project inspections shall be required to show that the Project is built or rehabilitated according to required plans and specifications. At a minimum, all Project inspections must include an inspection for quality during the construction process while defects can reasonably be corrected and a final inspection at the time the Project is placed in service. All such Project inspections shall be performed by the Department or by an independent, third party inspector acceptable to the Department. The Project Owner shall pay all fees and costs of said inspections. (i) 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 Seventy-third 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. sec.49.16.Deadlines for Allocation of Low Income Housing Tax Credits. (a) Not later than November 15 of each year, the Department shall prepare and submit to the Board for adoption the draft Qualified Allocation Plan required by federal law for use by the Department in setting criteria and priorities for the allocation of tax credits under the low income housing tax credit program. (b) The Board shall adopt and submit to the governor the Qualified Allocation Plan not later than January 31. (c) The governor shall approve, reject, or modify and approve the Qualified Allocation Plan not later than February 28. (d) An Applicant for a low income housing tax credit to be issued a Commitment Notice during the initial Application Round in a calendar year must submit an Application to the Department not later than May 15. (e) The Board shall authorize the Department to issue a Commitment Notice for allocation for the initial Application Round of low income housing tax credits each year in accordance with the Qualified Allocation Plan not later than July 31. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801837 Larry Paul Manley Executive Director Texas Department of Housing and Community Affairs Effective date: March 1, 1998 Proposal publication date: November 24, 1997 For further information, please call: (512) 475-3726 TITLE 16. ECONOMIC REGULATION PART IV. Texas Department of Licensing and Regulation CHAPTER 65.Boiler Division 16 TAC sec.sec.65.20, 65.60, 65.65, 65.80, 65.100 The Texas Department of Licensing and Regulation adopts amendments to sec.sec.65.20, 65.60, 65.65, 65.80, and 65.100, concerning the certification of boilers. These sections are adopted without changes to the proposed text as published in the December 5, 1997 issue of the Texas Register (22 TexReg 11907) and will not be republished. The amendments to sec.65.20 clarify the intent of subsection (a) by defining the responsibility of inspection by insurance inspection agencies and the state. The amendments to sec.65.60 provide a mandatory indoctrination for inservice boiler inspectors prior to issuance of a commission. The amendment to sec.65.65 revises the previous division name to correspond with the existing division name. The amendments to sec.65.80 provide for a change in power boiler inspection fees due to a change in the American Society of Mechanical Engineers (ASME) Boiler and Pressure Vessel Code, Section I regarding a change from the usage of boiler heating surface to capacity in establishing the system design of a boiler. The amendments in sec.65.100 provide for the use of remote water level indicators in lieu of a direct reading water gage glass on certain unfired steam boilers as shown in Exhibit 5A of the boiler rules, 16 Tex. Admin. Code sec.65 (1996). The amendments will function by increasing program integrity. One comment was received which suggested rewording the amendment to sec.65.100(c)(4) for clarification; however, the department considers that the intent is clear with the current wording. The amendments are adopted under the Texas Health and Safety Code Annotated sec.755 (Vernon 1997), which provides the Texas Department of Licensing and Regulation the authority to promulgate and enforce a code of rules in keeping with standard usage for the construction, inspection, installation, use, maintenance, repair, alteration, and operation of boilers. The Code affected by the amendments is Texas Health & Safety Code Annotated sec.755 (Vernon 1997) . sec.65.20.Licensing/certification/registration requirements. (a) Inspection of all boilers. (1) All boilers not exempted by the Texas Health and Safety Code, Annotated sec.755.022 shall be inspected in accordance with the Texas Health and Safety Code, Annotated sec.755.025 and/or sec.755.026, or with requirements specified under the applicable rules. (2) Boilers shall be inspected by the inspection agency where the boiler is insured. All uninsured boilers shall be inspected by the chief inspector or deputy inspector. (b)-(i) (No change.) sec.65.60.Responsibilities of the department. (a) (No change.) (b) Commissions. (1) (No change.) (2) Authorized inspector. (A)-(E) (No change.) (F) When a request is for new issuance or reinstatement as described in sec.65.20(g)(2)(A)(i) and (ii) of this title (relating to licensing/certification/registration requirements), the inspector will attend a mandatory indoctrination period of one and one-half days prior to issuance of the commission. (c)-(g) (No change.) sec.65.65. Boiler Board. (a) (No change.) (b) Recommendations of the board will be transmitted to the commissioner by the chairman of the board through the director of code review and inspections. (c)-(d) (No change.) sec.65.80. Fees. (a) Certificate/inspection fees. (1) (No change.) (2) Inspection by deputy inspector. The owner or operator shall make payment of the appropriate fee as shown below. (A) The inspection fees for all boilers other than heating boilers shall be $110. (B) (No change.) (3) (No change.) (b)-(f) (No change.) sec.65.100. Technical requirements. (a)-(b) (No change.) (c) Low-water fuel cutoffs and water feeding devices. (1)-(3) (No change.) (4) All newly installed automatically fired hot water heating boilers, when installed in a forced circulation system and not under continuous attendance, shall be equipped in the manner described in this subsection. A coil-type boiler or a water-tube boiler requiring forced circulation to prevent overheating of the coils or tubes shall have a device which is listed by a nationally recognized testing agency to prevent burner operation at a flow rate inadequate to protect the boiler unit against overheating. (5)-(6) (No change.) (d) (No change.) (e) Unfired steam boilers. (1)-(2) (No change.) (3) Requirements for water level indicators for unfired steam boilers as shown in Exhibit 5A are given in sec.65.100(h)(3)(D). (f)-(g) (No change.) (h) Power boilers. (1)-(2) (No change.) (3) Water level indicators. (A)-(C) (No change.) (D) Each steam drum of an unfired steam boiler, irrespective of pressure and temperature, as shown in Exhibit 5A shall be provided with one direct reading water level indicator (water gage glass) or two independent remote level indicators that are maintained in simultaneous operation while the boiler is in service. (E) In all installations where direct visual observations of the water gage glass(es) cannot be made, two remote level indicators shall be provided at operational level. (F) The gage cock connections shall not be less than 1/2 inch pipe size. (G) No outlet connections, except for damper regulator, feedwater regulator, drains, steam gages, or apparatus of such form as does not permit the escape of an appreciable amount of steam or water therefrom, shall be placed on the pipes connecting a water column or gage glass to a boiler. (H) The water column shall be fitted with a drain cock or drain valve of at least 3/4 inch pipe size. The water column blowdown pipe shall not be less than 3/4 inch pipe size and shall be piped to a safe point of discharge. (I) Connections from the boiler to remote level indicators shall be at least 3/4 inch pipe size to, and including the isolation valve and at least 1/2 inch OD tubing from the isolation valve to the remote level indicator. These connections shall be completely independent of other connections for any function other than water level indication. (4)-(6) (No change.) (i)-(l) (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. Filed with the Office of the Secretary of State on February 3, 1998. TRD-9801503 Tommy Smith Executive Director Texas Department of Licensing and Regulation Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 463-7348 TITLE 19. EDUCATION PART I. Texas Higher Education Coordinating Board CHAPTER 12.Proprietary Schools SUBCHAPTER A.Purpose and Authority 19 TAC sec.12.24 The Texas Higher Education Coordinating Board adopts amendments to Chapter 12, Subchapter A, sec.12.24, concerning Purpose and Authority (Definitions) with changes to the proposed text as published in the December 5, 1997 issue of the Texas Register (22 TexReg 11915). The changes were made to the definition of Agent; removing the definition of Private- postsecondary educational institution; and adding the definition of Representative. Comments were received from MTI College of Business and Technology in Houston, Executive Secretarial School in Dallas, and ITT Educational Services, Inc. in Indianapolis, Indiana. The comments were that more clarification was needed to the definitions. The agency agreed with these comments and, in consideration thereof, made the appropriate changes. The amendment is adopted under Texas Education Code, sec.61.027 and sec.132.063 which provides the Texas Higher Education Coordinating Board with the authority to adopt rules concerning Purpose and Authority (Definitions). sec.12.24. Definitions. The following words and terms shall have the following meanings, unless the context clearly indicates otherwise. Agent- A proprietary institution owner, partner, officer, director, administrator, admissions representative, or financial aid administrator who represents the institution in an official capacity. Persons employed in clerical, custodial, or similar positions, or shareholders with no direct relationship to the institution, are not considered agents of an institution. Exempt- A degree-granting institution which is exempt from Texas Education Code, Chapter 132. Representative- see Agent 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. Filed with the Office of the Secretary of State on February 6, 1998. TRD-9801724 James McWhorter Assistant Commissioner for Administration Texas Higher Education Coordinating Board Effective date: February 26, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 483-6162 SUBCHAPTER C.Operational Provisions 19 TAC sec.12.80 sec.12.81 The Texas Higher Education Coordinating Board adopts Chapter 12, Subchapter C, new sec.12.80 and sec.12.81, concerning Operational Provisions with changes to the proposed text as published in the December 5, 1997 issue of the Texas Register (22 TexReg 11915). The changes were made to Section 12.80 and 12.81. There were no comments received concerning the adoption of the new sections. The new sections are adopted under Texas Education Code, sec.61.027 and sec.132.063, which provides the Texas Higher Education Coordinating Board with the authority to adopt rules concerning Purpose and Authority. sec.12.80.Exemption from Texas Education Code, Chapter 132. (a) An institution which requests and is granted exemption from Texas Education Code, Chapter 132, may not operate under the provisions of this chapter. Upon becoming exempt, a degree-granting institution must immediately: (1) apply for a certificate of authority to operate as a private postsecondary educational institution according to the provisions of Chapter 5, Subchapter K, of the Board rules; or (2) cease granting degrees and relinquish degree-granting authorization. (b) If an exempt degree-granting institution relinquishes its exempt status and becomes licensed by the State of Texas to operate as a proprietary school, the institution must apply for degree-granting authorization under the provisions of this chapter. sec.12.81. Withdrawal of Authorization to Grant Degrees by Board Action. (a) An institution is entitled to due process in matters involving withdrawal of authorization to grant degrees. (b) Authorization to grant degrees may be withdrawn by Board action if an agent of an institution with an approved degree program: (1) knowingly violates one or more Board rules; (2) unknowingly violates one or more Board rules and fails to take satisfactory corrective action after being notified of the violation; (3) violates one or more Board rules through deceptive practices, misrepresentation of fact and/or fraud relating to the operation of the institution or in dealing with students or the public; (4) fails to conduct all academic, technical, and administrative matters pertaining to an approved degree program in a manner consistent with Board rules and/or the Guidelines for Instructional Programs in Workforce Education as they apply to proprietary degree programs; (5) is found to have engaged in any deceptive practice, misrepresentation of fact, and/or fraud relating to the operation of the institution or in dealing with students or the public; or (6) is found to have engaged in any activity, conduct, and/or behavior relating to the operation of the institution or in dealing with students which is found by a court of law to be illegal and/or improper. (c) Upon receipt of satisfactory evidence, the Board may withdraw degree- granting authorization for a cause other than those listed above. 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. Filed with the Office of the Secretary of State on February 6, 1998. TRD-9801725 James McWhorter Assistant Commissioner for Administration Texas Higher Education Coordinating Board Effective date: February 26, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 483-6162 CHAPTER 13.Financial Planning SUBCHAPTER D.Procedures and Criteria for Funding of Family Practice Residency Programs 19 TAC sec.13.61 The Texas Higher Education Coordinating Board adopts amendments to Chapter 13, Subchapter D, sec.13.61, concerning Procedures and Criteria for Funding of Family Practice Residency Programs without changes to the proposed text as published in the December 5, 1997 issue of the Texas Register (22 TexReg 11916). There were no comments received concerning the adoption of the amendment. The amendments to the rules are adopted under Texas Education Code, sec.61.503 which provides the Texas Higher Education Coordinating Board with the authority to adopt rules concerning Procedures and Criteria for Funding of Family Practice Residency Programs. 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. Filed with the Office of the Secretary of State on February 6, 1998. TRD-9801726 James McWhorter Assistant Commissioner for Administration Texas Higher Education Coordinating Board Effective date: February 26, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 483-6162 19 TAC sec.13.65, sec.13.66 The Texas Higher Education Coordinating Board adopts the repeal of Chapter 13, Subchapter D, sec.13.65 and sec.13.66, concerning Procedures and Criteria for Funding of Family Practice Residency Programs without changes to the proposed text as published in the December 5, 1997, issue of the Texas Register (22 TexReg 11917). There were no comments received concerning the adoption of the repeals. The repeals are adopted under Texas Education Code, Section 61.503 which provides the Texas Higher Education Coordinating Board with the authority to adopt rules concerning Procedures and Criteria for Funding of Family Practice Residency Programs. 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. Filed with the Office of the Secretary of State on February 6, 1998. TRD-9801728 James McWhorter Assistant Commissioner for Administration Texas Higher Education Coordinating Board Effective date: February 26, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 483-6162 19 TAC sec.sec.13.65-13.67 The Texas Higher Education Coordinating Board adopts Chapter 13, Subchapter D, new sec.sec.13.65-13.67, concerning Procedures and Criteria for Funding of Family Practice Residency Programs without changes to the proposed text as published in the December 5, 1997, issue of the Texas Register (22 TexReg 11917). There were no comments received concerning the adoption of the new sections. The new rules are adopted under Texas Education Code, sec.61.503 which provides the Texas Higher Education Coordinating Board with the authority to adopt rules concerning Procedures and Criteria for Funding of Family Practice Residency Programs. sec.13.65.Requirements for a Public Health Rotation Reimbursement Grant. To be reimbursed for a resident's one-month rotation through a public health setting in Texas, a Texas family practice residency program must: (1) Submit documentation giving evidence that the program sponsored a resident in a public health setting that, at the time of the rotation, conformed to Coordinating Board guidelines concerning family practice residency public health rotations; and (2) Document expenditures for public health rotations to substantiate the request for reimbursement in accordance with Coordinating Board guidelines; and (3) Submit progress reports and financial reports on Public Health Rotation Grants to the Coordinating Board on an annual basis, to be reviewed by the Family Practice Residency Advisory Committee. sec.13.66.Review of Family Practice Residency Operational Grant Applications and Support Grant Applications. Programs applying for Family Practice Operational Grants and Support Grants shall be reviewed by the Family Practice Residency Advisory Committee for their viability and their benefit to the state. Programs must be determined to serve the needs of the State of Texas in improving the distribution of health care delivery. The Committee's review shall include the following: (1) The ability of the program to meet the requirements set out in sec.13.62 or sec.13.63 of this title (relating to Procedures and Criteria for Funding of Family Practice Residency Programs) and all program guidelines; (2) Existing and anticipated costs and funding for currently funded programs and new programs requesting funding; (3) The program's performance in: (A) better distributing family physicians throughout the state; and (B) helping medically underserved areas of Texas; and (C) encouraging residents to practice in underserved areas of the state. sec.13.67.Amount of Family Practice Operational Grants and Support Grants. The amount of funds to be allocated for any Family Practice Residency Operational Grant or Support Grant shall be determined by the Coordinating Board, after receiving the recommendation of the Family Practice Residency Advisory Committee. Grants shall be used for operating expenditures as defined by generally acceptable accounting procedures and Coordinating Board guidelines for the program. 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. Filed with the Office of the Secretary of State on February 6, 1998. TRD-9801727 James McWhorter Assistant Commissioner for Administration Texas Higher Education Coordinating Board Effective date: February 26, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 483-6162 SUBCHAPTER E.Procedures and Criteria for Funding Graduate Medical Education Programs 19 TAC sec.13.81, sec.13.85 The Texas Higher Education Coordinating Board adopts Chapter 13, new Subchapter E, sec.13.81 and sec.13.85, concerning Procedures and Criteria for Funding Graduate Medical Education Programs without changes to the proposed text as published in the December 5, 1997, issue of the Texas Register (22 TexReg 11918). There were no comments received concerning the adoption of the new section. The new sections are adopted under Texas Education Code, sec.61.0594, which provides the Texas Higher Education Coordinating Board with the authority to adopt rules concerning Procedures and Criteria for Funding Graduate Medical Education Programs. 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. Filed with the Office of the Secretary of State on February 6, 1998. TRD-9801729 James McWhorter Assistant Commissioner for Administration Texas Higher Education Coordinating Board Effective date: February 26, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 483-6162 TITLE 22. EXAMINING BOARDS PART XXIII. Texas Real Estate Commission CHAPTER 531.Canons of Professional Ethics and Conduct 22 TAC sec.sec.531.1-531.3 The Texas Real Estate Commission (TREC) adopts amendments to sec.531.1, concerning fidelity of a licensee, sec.531.2, concerning integrity of a licensee, and sec.531.3, concerning competency of a licensee, without changes to the proposed text as published in the December 5, 1997, issue of the Texas Register ( 22 TexReg 11928). The amendments replace the terms "salesman , his and other terms with words which are not gender-specific, such as salesperson and the agent s to comply with House Bill 814, 75th Legislature (1997), which requires TREC to replace the term salesman in all its rules and documents. No comments were received regarding the proposal. The amendments are adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which authorize the Texas Real Estate Commission 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. Filed with the Office of the Secretary of State on February 3, 1998. TRD-9801520 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: February 23, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 465-3900 CHAPTER 533.Pracctice and Procedure 22 TAC sec.sec.533.7, 533.15, 533.16, 533.18, 533.21, 533.22, 533.29, 533.30 The Texas Real Estate Commission (TREC) adopts amendments to sec.533.7, concerning conduct and decorum, sec.533.15, concerning disapproval of an application for a license, sec.533.16, concerning suspension and revocation of a license, sec.533.18, concerning presiding officer, sec.533.21, concerning ex parte consultations, sec.533.22, concerning subpoenas and depositions, sec.533.29, concerning prerequisites for judicial review, and sec.533.30, concerning judicial review, without changes to the proposed text as published in the December 19, 1997, issue of the Texas Register (22 TexReg 12377). The amendments replace the terms salesman, chairman, his, and other gender-specific terms with terms which are not gender-specific, such as salesperson, chairperson and the person s in compliance with House Bill 814, 75th Legislature (1997). Where replacement of a single gender specific term is not possible without significant revision, another gender specific term such as herself has been added. The amendments also replace obsolete references to statutes with their current citations. Adoption of the amendments is necessary for TREC to comply with its enabling legislation and to make its rules consistent with the law. No comments were received regarding the proposal. The amendments are adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which authorize the Texas Real Estate Commission 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. Filed with the Office of the Secretary of State on February 3, 1998. TRD-9801519 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: February 23, 1998 Proposal publication date: December 19, 1997 For further information, please call: (512) 465-3900 CHAPTER 541.Criminal Offense Guidelines 22 TAC sec.541.1 The Texas Real Estate Commission (TREC) adopts an amendment to sec.541.1, concerning criminal offense guidelines, without changes to the proposed text as published in the December 5, 1997, issue of the Texas Register (22 TexReg 11928). The amendment replaced the term salesman with salesperson to comply with House Bill 814, 75th Legislature (1997), which requires TREC to use the term salesperson in all its rules and documents. The amendment also replaced obsolete references to inspector licenses titles with the titles used in the current law. Adoption of the amendment was necessary for TREC to comply with its enabling legislation and to make its rules consistent with the law. No comments were received regarding the proposal. The amendment is adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which authorize the Texas Real Estate Commission 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. Filed with the Office of the Secretary of State on February 3, 1998. TRD-9801518 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: February 23, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 465-3900 TITLE 25. HEALTH SERVICES PART I. Texas Department of Health CHAPTER 73.Laboratories The Texas Department of Health (department), by majority vote of the Texas Board of Health (board) on February 8, 1998, enters this order finally adopting the repeal of existing sec.sec.73.22, 73.31, and 73.41 and new sec.sec.73.22, 73.23, and 73.24, concerning fees for laboratory testing services; the sale of laboratory services; and the certification of drinking water, milk and shellfish laboratories. Fees are adopted for newborn screening; blood lead testing; milk, drinking water and shellfish laboratory certification; radiation control testing; and bottled water analysis. Sections 73.22 and 73.24 are adopted with changes to the proposed text as published in the December 5, 1997, issue of the Texas Register (22 TexReg 11933). Section 73.23 and the repealed sections are adopted without changes, and therefore the section and the repeals will not be republished. The General Appropriations Act of the 75th Legislature requires the department to review all fees within its authority and set fees to recover the cost of providing services to the extent feasible. (Article II, Department of Health, page II-41, Rider 40). In addition to the department's specific directive, Article IX, General Provisions of the General Appropriations Act, directs all agencies to review all fees that each administers and adjust rates as necessary to recover the costs of providing services (page IX-87, Rider 76). State law also requires that fees for public health services, including laboratory services, be established by rule. The repealed sections have not been substantially revised since their initial adoption a number of years ago. Changes in technological capabilities, economic conditions and social expectation required their reevaluation. Repeal of the existing sections allows for reorganization and clarification through adoption of the new sections. Section 73.22 is repealed because the relationship between the department and local public health laboratories has changed over the years and is no longer the relationship described in that section. In addition, such laboratories will now be charged a fee for certification of the laboratory, which was not allowed under repealed sec.73.22. Fees in repealed sec.sec.73.31 and 73.41 are now in adopted new sec.73.22. Certification procedures in repealed sec.73.41 are revised and now in adopted new sec.73.24. The demand for laboratory services is expected to increase in the future. Maintaining state of the art technology to respond to unforeseen circumstances will require continued investment in the infrastructure. The adopted fees may be used to invest in that infrastructure to ensure the department's ability to meet and counter emerging threats to the health of Texans. The adopted fees are only for a limited number of laboratory services. The remaining laboratory services will continue to be provided without adoption of a fee. The adopted fees will not limit public access to services. The department adopts a fee for newborn screening test kits in sec.73.22. These tests are required by state law in the Health and Safety Code, Chapter 33 and by department rules in 25 Texas Administrative Code, Chapter 37, sec.sec.37.51- 37.69 (relating to Newborn Screening Program). The tests analyze blood specimens for treatable disorders, such as phenylketonuria and hypothyroidism. A test kit is the department-designed collection device, demographic information form, and envelope used to submit a newborn's blood specimen for testing by the department's Bureau of Laboratories. Each newborn must have a series of two testing cycles. The department will provide test kits for Medicaid-eligible and charity care newborns at no cost to the provider of services (hospitals, midwives, physicians, clinics, and birthing centers). The department will provide test kits for all other newborns for a fee paid by the provider. The fee shall be determined by the department to be an amount to recover reasonable costs of providing newborn screening testing services and shall not exceed $20 per test kit. At this time the department anticipates setting the fee at $13.75 for fiscal year 1998. Fees for the test kits will be implemented on March 1, 1998; however, use of the test kits will not be required until June 1, 1998. A fee is adopted for blood lead testing in sec.73.22. The department currently provides blood lead testing for children enrolled in the Texas Health Steps program and is paid based on vouchers submitted to that program. This process will continue. Adoption of this fee will allow the department to extend needed low-cost testing services to low-income children and families not currently qualified for the Texas Health Steps or Medicaid programs. In addition, state law requires the department to perform blood lead testing at the request of a physician who suspects that a person has been harmed by exposure to lead. The new blood lead testing fee would be assessed to physicians who request testing. At this time the department anticipates setting the fee at $5.20 for fiscal year 1998. The adopted rules include fees to recover the laboratory testing costs associated with surveillance, investigation, and monitoring of nuclear power plants and other entities which handle radioactive materials. The laboratory currently tests water, soil and other environmental samples for radioactivity to ensure that the public health is not endangered. The adopted rule will place the responsibility for payment of these costs on the regulated industry. The rules set fee caps for these tests. The fee amounts for fiscal year 1998 are available from the Texas Department of Health, Bureau of Laboratories, 1100 West 49th Street, Austin, TX 78756, (512) 458-7318, FAX (512) 458-7294. The department certifies drinking water, milk and shellfish laboratories pursuant to federal and state laws and regulations. Certification of laboratories by the department is intended to ensure that certified laboratories are competent to test drinking water, milk and shellfish samples. The department also performs proficiency testing for certified and non-certified milk laboratories. Proficiency testing is a process designed to introduce unknown samples into a laboratory for analysis, providing a practical way for the laboratory to demonstrate its capability. The rules adopt fees to allow the department to recover certain costs associated with certification of laboratories and proficiency testing. These fees will be paid annually by laboratories receiving certification or proficiency testing services. The rules also adopt procedures for obtaining certification. The department currently tests bottled water and drinking water systems for contaminants specified in the federal Safe Drinking Water Act. Fees for testing drinking water systems are assessed to owners of those systems, individuals submitting drinking water samples, and public agencies requesting testing of sampling. These fees are now adopted in new sec.73.22. In addition, new fees for testing bottled water samples are adopted. These fees will be paid by the bottled water manufacturing industry. The rules set fee caps for these tests. The fee amounts for fiscal year 1998 are available from the Texas Department of Health, Bureau of Laboratories, 1100 West 49th Street, Austin, TX 78756, (512) 458-7318, FAX (512) 458-7294. The Health and Safety Code, sec.12.020 (HB 2389, passed by the 75th Legislature), authorizes the department to enter into a contract for the sale or provision of laboratory services with federal, state, or local governmental entities, or freestanding public health clinics owned or controlled by a nonprofit organization, inside or outside the state, and to establish charges for such services by rule. The adopted rule will allow the department to implement the provisions of HB 2389. Changes made to the proposed text result from comments received. The details of the changes are described in the summary of comments that follow. Following each comment is the department's response and any resulting change(s). Comment: Concerning sec.73.22(c)(1), laboratory certification, one commenter asked that a fee of $100 per day and travel expenses be paid to the department to perform assessment of drinking water chemistry laboratories. Currently drinking water chemistry laboratories are required to retain the services of a third party assessment organization in order to apply for certification from the department. Response. No fee was proposed because the department does not currently perform assessments of drinking water chemistry laboratories. The department performs assessments only for drinking water microbiology laboratories. The cost to perform drinking water chemistry laboratory assessments would be much higher than $100 per day, and the laboratory cannot at this time implement this service due to budget constraints. No change was made because of this comment. Comment: Concerning sec.73.22(c)(1), laboratory certification, one commenter pointed out that there are actually two types of milk antibiotic laboratories, one of which is certified and one which is not. The commenter pointed out that quality assurance and certification requirements by the department are much greater than for the non-certified laboratory, which is not required to perform annual proficiency testing supplied by the department. Response: This rule applies only to certified laboratories. The department has no authority over non-certified laboratories. No change was made because of this comment. Comment: Concerning sec.73.22(c)(1), laboratory certification, one commenter pointed out that both commercial and noncommercial drinking water bacteriology laboratories are certified by the department, but the commercial laboratories are required to undergo third-party assessment. The commenter suggested the fee structure be reassessed to compensate for this difference. Response: The department's fee will help fund program inspection of the laboratories by department personnel on an unannounced basis. Assessments are done by the department for noncommercial drinking water bacteriology laboratories. The department may explore extending its assessment program to commercial drinking water bacteriology laboratories within the State of Texas to alleviate the cost incurred by the laboratories for third-party assessment. No change was made because of this comment. Comment: Concerning sec.73.22(c)(1), laboratory certification, one commenter pointed out that the reference to milk proficiency testing by noncertified laboratories actually means fully certified laboratories outside the state which subscribe to the Texas split milk sample program as a necessary part of their state's certification program, but for which their state offers no split milk sample program. Response: The department's intent is to charge laboratories outside the state for the laboratory split milk sample program. The department did not intend to extend this program to uncertified laboratories, either outside or inside the state, but only used the term noncertified to mean that they were not certified by the Texas milk laboratory certification program. Section 73.22(c)(1)(E) has been changed to clarify that the laboratories are non-Texas certified. Comment: Concerning sec.73.22(c)(1) and sec.73.24(c)(6), one commenter pointed out that the frequency of laboratory certification fee assessment was not stated. Response: Fee assessment is an administration function which is performed on an annual basis. Sections 73.22(c)(1) and 73.24(c)(6) have been clarified to require the fee annually. Comment: Concerning sec.73.22(c)(3) and (d), one commenter suggested administrative location of the department's entire newborn screening program within the laboratory and to include all the program costs in the fee. Response: Administrative relocation of the newborn screening program is not addressed in these rules. The department will examine the advantages and disadvantages of locating the follow-up program within the laboratory. Any subsequent laboratory fee increase associated with such a move will be considered following the department's analysis. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked whether the newborn screening fee would almost totally pay for the new laboratory building and if not, asked what percentage would be paid for by other fees. Response: The department has always planned to fund the new laboratory building from three primary sources: (1) revenues generated from public health service fees; (2) indirect costs recovered from the federal government, and (3) lease cost savings. The legislature has appropriated funds from the first two sources. Lease cost savings will not be appropriated until the new building is completed. It is anticipated that the fees generated by each of the public health service fee sources will fluctuate from year-to-year. Additionally, fees may be adjusted from time-to-time based on costs and new fees implemented as new services are provided. The department anticipates that public health service fees will continue to play an increasingly important role in the daily operation of department programs and services and in the construction of the new laboratory facility. No change was made because of this comment. *Comment: Concerning sec.73.22(c)(3) and (d), one commenter indicated that most of the 41 states that currently charge for newborn screening bill the patient or insurer directly, but the department's rules charge the health care provider attending the newborn. Response: The department disagrees. The department canvassed all 41 programs in 1997, and at least 27 of those states charge the primary health care provider directly. The department reviewed a number of proposals in selecting the current plan, and believes this plan to be the most equitable. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter acknowledged the efforts of the department to encourage third party payers to reimburse for laboratory newborn screening, but pointed out over 50% of insured Texans are covered under the Employee Retirement Income Security Act (ERISA) law, which is exempt from state regulation, and questioned what assurance the department has been offered that the employers using an ERISA plan have agreed to reimburse for the screening test kits. Response: The department believes that newborn laboratory services will be covered under the broad guarantee of maternity and newborn services furnished to most employees by both insurance and ERISA plans. No specific assurances from individual employers have been received although benefit plans which act as insurers and as third party administrators of ERISA plans were contacted and indicated that they expected to cover the costs of the test kits. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter pointed out that in the current managed care marketplace, it is standard practice for health maintenance organizations (HMO) to capitate the cost of primary care services, and asked what assurances have been received from HMO's in Texas that capitation rates will be increased to cover the additional expenses of the newborn screening fees. Response: The department spoke to several HMO medical directors or their staffs regarding this question, and was informed that the responding HMO's would reimburse health care providers as an additional unanticipated expense until such time as capitation contracts were renegotiated. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter indicated that many insurers take 60 to 120 days to reimburse physician claims, and further pointed out that the policy of requiring payment for newborn screening testing kits may force physicians to change their practice behavior for economic reasons, such as by referring patients to public health clinics for the newborn screening, thus having the effect of restricting patient access because of the increased inconvenience to the newborn's parents. Response: The department believes the low cost for this service will not be a deterrent to continued provision of services. In order to provide some flexibility to accommodate the time it takes for insurers to pay claims, the department has revised the requirement that payment is due within 30 days in sec.73.22(d)(8) to read payment is due within 120 days. Based on discussions with the medical community, this will allow providers to order a supply of test kits and receive most insurance reimbursement before payment is due to the department. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked how the department currently monitors compliance, and asked how it would be monitored in the future. Response: The department does not understand the term "compliance" as used by this commenter. If the commenter is discussing monitoring of compliance of payment, the department uses a standard accounts receivable system, with which payment is reconciled against receivables on a monthly basis. If the commenter is questioning monitoring of the second newborn laboratory screening, the current system is a manual system in which second samples are monitored based on aberrant findings of the first sample. It is anticipated that an automated computer monitoring system will be brought on line at the earliest opportunity to facilitate monitoring for second samples. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter urged that as soon as the new laboratory/office facility is paid for, newborn screening fee funds be redirected into the care of children, specifically follow up, treatment, prescriptions and nutritional supplements, because, for example, many families cannot afford low-protein food products, which are necessary to manage a special needs child with phenylketonuria. Response: The department believes that follow up and treatment of special needs children is a worthy use of such funds. Use of fee funds would be contingent upon statutory authority being available at that time and necessary appropriation of the funds. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter suggested the definition of charity care newborn should be based on the lack of insurance coverage or a government reimbursement source for the newborn, and not the health care provider assessment of whether the patient's family can afford to pay for the testing. Response: The department has revised the definition of charity care newborn in sec.73.22(d)(6) to say that a charity care newborn is a patient who is not insured and is not covered or eligible to be covered by Medicaid or any other government program for newborn screening services. Comment: Concerning sec.73.22(c)(3) and (d), one commenter suggested the definition of charity care newborn be changed to include patients who lose their insurance coverage between the first and second laboratory screening. Response: The department has revised the definition of charity care newborn to reference lack of insurance or a government reimbursement source for the newborn. The provider will need to make the assessment of a patient's insurance status at the time the patient is seen. The status may change between the first and second screen. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter suggested, with regard to charity care newborn, the definition be expanded to include newborns with families who are willing to pay minimal amounts for newborn care. Response: The department has revised the definition to reference lack of insurance or a reimbursement source as the criteria. Families willing to pay some amount but without insurance or a reimbursement source will be able to use free test kits. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter pointed out that providers will incur other costs in addition to the newborn laboratory screening fee charged by the department for non-Medicaid and non-charity care newborns, such as income screening, fee collection, and third party billing. Response: The department acknowledges that there are expenses associated with claims to third party payers. However, claims are already made to third party payers for clinical care services, and the department encourages health care providers to consolidate their claims for newborn laboratory screening test kits with claims for well baby clinic visits and other services. The department takes no position regarding the management of the provider's office or the amount the provider will charge the patient or the third party payer. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter pointed out that the demand for newborn screening services at local health departments could increase if private providers decide the administrative burden associated with the rules change is excessive. Response: The department believes the administrative burden associated with implementation of a newborn screening fee in the primary care practitioners office will not significantly affect the public health delivery system. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter, a large public health system, commented that a liberal application of the charity care definition as applied to the newborn screening fee rule would minimize the impact, then pointed out the provision appears broad enough to encompass virtually all their clientele. Response: The department's definition of charity care newborn is not intended to limit access to newborn screening services by any part of the population. The department believes the revised definition, as it stands, is sufficiently broad to encompass certain portions of non-Medicaid newborns. The department understands that some providers will have a larger volume of charity care newborns than other providers due to the nature of their practice. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), several commenters indicated the newborn screening fee to be greater than insurance companies will reimburse. Response: Third party payers with whom the department has spoken have indicated a willingness to reimburse providers for the laboratory service. The department believes that a fee uniformly assessed to health care providers will be more likely to be reimbursed, because it is an actual increment to the cost of service for the health care provider. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), several commenters expressed general support for a newborn screening fee, but were concerned that implementation of a fee to support laboratory testing alone, without consideration of the entire newborn screening program, including follow-up and provision of dietary and pharmaceutical support for families, would lead to the deterioration of the newborn screening program or inadequate follow-up care. One commenter thought that to proceed with the newborn screening fee rules places determination of methods to finance construction of a physical plant (a new laboratory/office building) ahead of any planning or consideration of the medical issues and impact on the newborn screening program and the people affected. The commenter asked that the newborn screening fee be withdrawn until there is a reasonable solution found for implementing a system, identified through a comprehensive assessment and inclusive decision-making process that best serves and protects Texas newborns and their families. Response: The department agrees with support for the fee, but disagrees with the remainder of the comment. The commenters are interested in additional department funding for follow-up care, which is one of a number of service components associated with screening newborns for heritable diseases. Each component has individual fiscal support requirements. Federal and state funding for the laboratory has declined significantly in recent years, necessitating new funding in order to continue the laboratory portion of newborn screening. This fee will provide such funding. However, this fee mechanism cannot currently be used to provide support to parts of the program other than the laboratory, because the state law allows fee rules only for services provided by the department and the current General Appropriations Act limits the use of the new fees to laboratory- related purposes. Because of such limitations, the department did not consider expanding the scope of the new fees beyond the recovery of laboratory-related costs. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter stated that the impact of the newborn screening fee as designed goes beyond raising funds for a new laboratory building; it can seriously impair a family's efforts to raise a special needs child. The commenter acknowledged that funds for universal screening, aggressive follow-up by trained caseworkers and a community of specialists that provides services and consultations throughout the state have diminished. The commenter was concerned that the rules establish fees to build a laboratory facility to diagnose disease but provide no support to use that knowledge to educate and prevent the medical and financial consequences of those disorders. Response: This commenter expressed no objection to the fee itself, but objected because the fee did not cover comprehensive funding of non-laboratory follow-up services. Currently, there exists no authority within state law to assess a fee for services not provided by the department or to create and use a fund for follow-up services. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked how the newborn screening fee applies to Title V newborns. Response: Newborns qualified for Title V services must have a test kit purchased by the provider. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter representing a public health clinic asked if a newborn were Medicaid-eligible, but no application for Medicaid enrollment had been made, would the provider have to pay for the newborn's screening test kit. Response: The free test kit may be used for Medicaid-eligible newborns even if the newborn is not yet enrolled in the Medicaid program. The department's experience is that providers take a very aggressive posture in enrolling newborns for Medicaid in order to recover their costs. Otherwise, if the provider determines that the newborn has no access to a third-party reimbursement plan, the newborn will fit under the definition of charity care. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked if the provider type (i.e., health department clinic) affects the number of charity care kits that provider could order without investigation by the department into the accuracy of the number. Response: The department understands that a larger percentage of charity care newborns will be referred to health department clinics and does not anticipate questioning the higher number of charity care kits. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter from the midwifery community suggested that an explanatory sheet be provided in English and Spanish to explain the fee and the purpose so parents could better understand the need for the testing. Response: The department agrees that it is appropriate to provide educational information for parents to explain the nature and purpose of the testing. This suggestion has been referred to the Bureau of Women's Health. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter calculated that newborn screening fees will cover 70% of the cost to the laboratory for the laboratory portion of the newborn screening program, and asked if the funds currently appropriated to the laboratory by the legislature for newborn screening would be used by the department for other purposes and if those purposes would benefit the laboratory or the newborn screening program. Response: No funds are specifically appropriated by the legislature for newborn screening laboratory services. Laboratory testing has been funded by a blend of state and federal funds. However, both sources of funding have decreased in the previous years and the cost of the program has been borne by shifting appropriated funds from other portions of the laboratory to cover newborn screening costs. This practice can no longer be supported. In addition, any expenditure is subject to appropriation from the state legislature which is already set in this biennium. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter raised a question about whether the newborn screening fee included the cost of bond debt service for the new laboratory/office building, and asked if the cost of debt retirement fit the definition of "reasonable service costs." Response: Bond debt service was included in the calculation of the fee, and is reasonably included in service costs as a portion of overhead. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked if the newborn screening fees will improve access to newborn screening in Texas or will improve the health of the newborns from whose insurance companies providers will be reimbursed. Response: The department believes the implementation of this fee will ensure the continued availability of the laboratory newborn screening program in the state, thus ensuring continued availability of testing to all newborns. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked if the newborn screening fee will decrease the cost of the newborn screening program to the taxpayers of Texas. Response: The total cost to operate the newborn screening program will not be affected by the laboratory fees. Because the laboratory costs of the program will be shifted to those who use the program, the laboratory will not require additional funding. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked if their offices and physician-owned laboratories would be expected to file insurance claims to receive payment for specimen acquisition and test result interpretation. The commenter further asked how many forms to order and what Current Procedural Terminology (CPT codes) to use for filing insurance claims. Response: Providers may file any appropriate insurance claims for newborn screening sampling. Providers should order forms to ensure that they have a sufficient supply, yet not lose inventory due to expiration of the forms (the forms are medical devices and expire in two years). The rules do not govern the use of CPT codes, but the department will provide technical assistance to providers. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter indicated surprise that the laboratory had provided newborn screening and other laboratory expenses for free for so long, and had expected a fee much earlier. The commenter had been pleased with the quality of services for 30 years, and the fact that laboratory personnel had always responded in a professional and very timely way. The commenter requested the CPT codes for newborn screening. Response: The rules do not govern the use of CPT codes which were sent to the commenter. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked if it was fair for parents of newborns or their insurers to bear the burden of cost for the proposed infrastructure improvements. Response: Infrastructure improvements include improvements in diagnostic technology, computer systems and software, skills and physical facilities including a new laboratory/office building. The cost for these improvements has been spread over several areas. Newborn screening represents the single largest segment of the laboratory operational cost and workload, and the amount of overhead this fee bears is proportionate to the workload it generates. Other fees and federal funding sources have borne the cost of newborn screening laboratory operations in the past. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), two commenters pointed out that the sale of laboratory test kits limits the opportunity for privatization of newborn screening laboratory services. The possibility of a fee support system makes this testing attractive to private laboratories. One commenter urged creating this opportunity within the fee structure. The other questioned how the department would justify selling a form if privatization occurred when the commenter believed the actual cost of the test kit to be well below one dollar. Response: Historically, this program has provided an excellent service to the parents and medical community of the state at a very low cost. Currently, all testing is provided by the department, so selling the test kit is a straightforward method of funding the services. It is not known if this fee will have an effect on private laboratories' desire to conduct newborn screening. However, state law requires the department to maintain a newborn screening laboratory, requiring funding for the laboratory whether or not private laboratories choose to seek certification. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked how an approved private laboratory would receive compensation from Medicaid for providing newborn testing services. Response: At this time, there are no approved private laboratories. Medicaid reimbursement calculations are determined in accordance with the applicable federal and state laws and regulations. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked the meaning of "infrastructure improvements" mentioned in the proposed preamble. Response: Laboratory infrastructure improvements include improvements in diagnostic technology, computer systems and software, skills and physical structures, including the new laboratory /office building. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), several commenters asked if the newborn screening fee will result in improved care or service for the target population of newborns. Response: Decreases in funding sources have required the implementation of this fee in order to maintain the newborn screening laboratory program. Because of restrictions in authorization, it was not intended that the fee address improvements in care or services, other than laboratory services, at this time. The department believes that this funding source will allow improved laboratory service through improvements in technology and data management systems and a new facility. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked how an HMO to whom a patient reports for a follow-up screen receives Medicaid reimbursement for specimen collection and result interpretation. Response: HMO providers with Medicaid patients will be furnished free newborn screening test kits by the department for those patients. Specimen collection and result interpretations performed by a Medicaid managed care provider are covered under the managed care capitation rate. The newborn screening fee has no direct effect on this relationship. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked the estimated impact to the private physician or hospital for maintaining appropriate inventories of forms for paying, nonpaying and Medicaid patients, and asked how the health care provider is expected to recover these expenses. Response: The department believes that the health care provider will include the cost of this and similar supply items in overhead and make decisions about how frequently to order test kits based on individual business practices. Managing a practice requires mechanisms to maintain appropriate inventories of supplies and appropriate billing procedures. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked how Medicaid is to be billed and if Medicaid has approved a method of billing. Response: The department will provide test kits free of charge to providers for their Medicaid-eligible newborns, and the department will continue to charge Medicaid. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked the definition of a Medicaid- eligible newborn. The commenter pointed out that a newborn is not a Medicaid recipient at the time of birth, and requested the department rely on the newborn's mother's Medicaid status. Response: The department agrees that the intent of the rule is to assume the Medicaid status of the mother for the newborn. The department has added a definition of a Medicaid-eligible newborn to sec.73.22(d)(6). Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked if the department was working to ensure that full coverage of the newborn screening fee will be allowed under reimbursement plans with private insurers so that families of patients do not incur the additional expense. Response: The department is concerned as well about coverage of laboratory services by private insurers. The department intends to educate insurers about the new fee and the legal requirements for newborn screening. A department survey of private insurers and managed care organizations indicates they will reimburse physicians and hospitals for the cost of the test kits. No change was made because of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked if patients will face additional costs as charges to cover unused inventories of newborn screening test kits are added to hospital and physician administrative expenses. Response: The department anticipates that unused inventory will be minimal, since providers will decide how many test kits to order. No change was made because of the comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked what mechanism the department intends to use to monitor abuse of the ordering system, and if the costs of monitoring for abuse have been included in the proposed fees. Response: The department expects health care professionals will respond based upon their historical and anticipated patient mix. If a disproportionate share of free forms is ordered, laboratory staff will work directly with the health care provider involved. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked what the estimated impact to the department will be of maintaining a payment system for over 650,000 specimens annually. Response: The billing mechanism will result in very little change to the current newborn screening process. The department expects little additional workload as a result of the billing system, since the laboratory already ships newborn screening forms and maintains an active billing system. The only additional work will be invoicing health care providers for test kits. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked how many pay cycles billing records will be maintained by the department. Response: The department will maintain records for a minimum of two years. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked what the penalty will be for providers who do not pay the newborn screening laboratory test kit fee, and what the impact will be of nonpayment to the infants being screened by that provider. Response: The department intends to use standard state billing practices regarding the payment of the fees. Providers will be able to recover costs from third-party payers or receive no-cost forms, which should encourage them to provide the service. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter noted that a number of submitters of newborn screening samples currently use the department's remote data entry system, which the commenter believed reduced costs for clerical services to the department. The commenter believed that other states have shown that by discounting the newborn screening fee for electronic data transfer system users, staff could be reassigned or eliminated as electronic entry efficiency increases. Response: The department believes that while expanded use of a remote data entry system could reduce some costs, additional automated data system support would be required. The current system must be maintained for providers who choose not to use the remote data entry system, and for times when the electronic system is not operational. The department will continue to support benefits of increased automation for all services. Currently, of the 3,500 health care providers who ordered newborn screening forms from the department in 1997, approximately 20 use the electronic system. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked how adherence to the state-mandated second screen will be monitored, and what actions will be taken. Response: The department has begun an extensive educational campaign for health care providers to reinforce the need for the second screen. The department will continue to monitor second screens to ensure they continue to be performed. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter noted that serum and whole blood samples are currently analyzed by the department at no charge as a follow up and monitor for the newborn screening program, and asked if they would continue to be free of charge, or if third party payers and Medicaid would support these metabolic tests. Response: The department has not proposed fees for laboratory services for confirmatory diagnosis and patient management, and intends to continue to fund these services at this time. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), two commenters asked if results of early screenings were inconclusive, such as with children on antibiotics, whether additional tests would incur additional charges, or if followup test kits would be provided free of charge. Response: As with other tests that must be performed repetitively to ensure adequate care for the newborn, the cost of testing does not diminish on repetitive testing. Therefore, second and subsequent test kits will be sold on the same basis as the first test kit. Section 73.22(d)(2) has been revised to recognize that additional screenings may be necessary. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked the difference in the fee assessed to a Medicaid patient versus a full pay patient, whether that same percentage of difference will be incorporated in all laboratory charges, and if not, why not. Response: No fee may be assessed to a Medicaid patient pursuant to federal law. Test kits for Medicaid-eligible newborns will be provided at no cost to the provider. Currently, the department bills Medicaid $7.72 per screen for Medicaid-eligible newborns. Inclusion of capital costs and bond interest will raise the Medicaid reimbursement rate to approximately $13 in 2000 and succeeding years. The department will bill providers for non-Medicaid-eligible, non-charity care newborns at the rate of $13.75. This principle of cost recovery will also apply to other fees for which both Medicaid and third-party reimbursement are appropriate. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked if the newborn screening fee is the only fee assessed prior to the service being rendered. Response: With the exception of laboratory certification fees, this is the only fee assessed prior to the performance of a service. The department reviewed the advantages and disadvantages of billing for test kits versus billing after performance of services, and found the administrative cost to be significantly less when the former mechanism was used. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked what the impact would be if another test were added to the current battery, and if the laboratory recovered its expenses through the laboratory testing fee, how would follow up support costs be covered. Response: The rule allows the laboratory to raise this fee up to $20. If a new test were incorporated into the testing battery, existence of a laboratory fee rule which allows for small increases in funding would streamline the implementation of a new test. For costs greater than $20, the rule would need to be amended. The department would fund approved follow-up support from resources other than the laboratory fee. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter asked what the impact would be of a change by the laboratory to seven-day service when no additional funds are available to support the needed follow-up by the Bureau of Children's Health. Response: The laboratory currently operates on a six-day work week. Emergency needs are addressed on a case by case basis. No proposal has been made to expand the work week to seven days. If the work week were expanded in the laboratory, the Bureau of Children's Health would be on call to handle emergencies as they are now. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), two commenters questioned whether the newborn screening fee would result in better care for newborns in the state. Response: The department does not expect the fee to change the quality of care for newborns. The fee provides a funding mechanism to continue newborn screening by the laboratory. Because of this funding source, it is expected that improvements will be made in newborn screening testing which the laboratory previously has not been able to fund. No change was made as a result of this comment. Comment: Concerning sec.73.22(c)(3) and (d), one commenter felt that to increase the newborn screening cost from a free service to $14 was a dramatic increase, and suggested an incremental increase, starting with $5 or $10. Response: The General Appropriations Act requires the department to set fees to recover the cost of providing services to the extent feasible. No change was made because of this comment. Comment: Concerning sec.73.22(c)(4)(B)(ii), on commenter recommended changing the wording to clarify that the total recoverable metals digestion is required if turbidity equals or exceeds one nephelometric turbidity unit (NTU), since the United States Environmental Protection Agency (EPA) recommends digestion above one NTU, but does not recommend it below one NTU, and does not address the situation where the turbidity is one NTU exactly. Response: The department believes that in the rare circumstance where a drinking water sample turbidity is exactly one NTU, the more conservative scientific approach should be applied. Thus, the language has been changed to say that digestion would be performed only if turbidity equals or exceeds one NTU. Comment: Concerning sec.73.24(b)(2), one commenter requested clarification of the definition of "certification" to indicate that certification does not mean or imply that the department certifies results of analyses produced by the certified laboratory. Response: The department agrees and has changed the language of the rule accordingly. Comment: Concerning sec.73.24(c)(4), one commenter asked if it was the department's intention to accept drinking water samples from individuals for chemical analysis. Response: It is currently the policy of the department not to solicit or encourage submission of drinking water samples from individuals, such as those who have private wells on their property. However, the situation often arises where justification exists for analysis of private samples. In those instances, the rules will allow the department to charge for the cost of analysis. No change was made because of the comment. Comment: Concerning sec.73.24(e), one commenter requested laboratory assessment by the department on a triennial rather than a biennial basis, since the minimum inspection requirement by the EPA is on a triennial basis. Response: The department does not agree with the commenter. The EPA schedule is a minimum standard, and biennial assessment helps to ensure quality services. However, the department agrees with the approach of requiring triennial inspections for third-party assessed laboratories, because it is the department's policy to continue the practice of unannounced visits to laboratories assessed by third parties. No change was made as a result of this comment. Comment: Concerning sec.73.24(e), a commenter asked if the rule limits laboratory assessments by the department to a biennial schedule. Response: The department believes it is in the interest of public health to conduct laboratory assessments on no less than a biennial basis, and to allow unannounced inspections. Therefore the language has been changed to reflect that assessments may be made on at least a biennial basis. Comment: Concerning sec.73.24(f), one commenter suggested mirroring the EPA's position on submission of laboratory analyses on proficiency samples which were not performed in the submitting laboratory by revoking the laboratory's certification for all analysis parameters for three years. Response: The department agrees and has added language to that effect in sec.73.24(f)(5). Comment: Concerning sec.73.24(f)(3), one commenter wished to clarify the 90 day period specified in the rule. Ninety days is the maximum period allowed for correction of major deficiencies under the Safe Drinking Water Act. The Food and Drug Administration allows 45 days for correction for some major deficiencies and 60 days for others. The laboratory certification officer must make the determination using the appropriate guidance at the time the determination of a major deficiency is made. Response: Clarifying language has been added to indicate that corrective action must take place in 90 days or less, depending on the regulatory authority under which the certification takes place. Comment: Concerning sec.73.24(f)(4), one commenter wished to clarify that the term "due process" was confusing. The commenter indicated that a laboratory may continue operation until due process is given even though it was operating in a manner inconsistent with good laboratory practice and may jeopardize public health by doing so. Response: The rule as passed indicates due process will be afforded to a laboratory whose certification is revoked or suspended. Revocation or suspension of the laboratory certification bars the laboratory from processing milk, water or shellfish samples under the federal regulatory authority until the revocation or suspension is removed. No change was made because of this comment. The comments on the proposed rules received by the department during the comment period were submitted by the Texas Genetics Network Newborn Screening Subcommittee, Interagency Council for Genetic Services, Texas Hospital Association, Sickle Cell Disease Association of America, Inc. (Texas State Chapter), University of Texas Southwestern Medical School Department of Pediatrics, and department staff. The commenters were neither for nor against the rules in their entirety; however, they raised questions, offered comments for clarification purposes, objected to portions of the rules, and suggested clarifying language concerning specific provisions in the rules. The effective date of the repeal and new sections is March 1, 1998. Training and Certification 25 TAC sec.73.22 The repeal is adopted under the Health and Safety Code, sec.sec.12.031, 12.032, and 12.034, which provide the board with the authority to adopt rules relating to public health services fees for laboratory services; sec.12.020, which provides the department with the authority to establish charges by rule for the sale of specific laboratory services; sec.sec.33.002 and 33.011, which provide the board and department with authority to adopt rules to carry out the newborn screening program and to prescribe screening test procedures; sec.sec.81.004 and 81.006, which provide the board with the authority to adopt rules and to seek and receive fees for the purpose of identifying communicable diseases; sec.161.101, which provides the department with the authority to charge for certain blood lead tests requested by a physician who suspects that a person has been harmed by exposure to lead; Texas Civil Statutes, Article 4512i, sec.19A, which provides the department with authority to charge a newborn screening fee to midwives; and Health and Safety Code, sec.12.001, which provides the board with the authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801766 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 458-7236 CHAPTER 73.Laboratories 25 TAC sec.sec.73.22, 73.23, 73.24 The new sections are adopted under the Health and Safety Code, sec.sec.12.031, 12.032, and 12.034, which provide the board with the authority to adopt rules relating to public health services fees for laboratory services; sec.12.020, which provides the department with the authority to establish charges by rule for the sale of specific laboratory services; sec.sec.33.002 and 33.011, which provide the board and department with authority to adopt rules to carry out the newborn screening program and to prescribe screening test procedures; sec.sec.81.004 and 81.006, which provide the board with the authority to adopt rules and to seek and receive fees for the purpose of identifying communicable diseases; sec.161.101, which provides the department with the authority to charge for certain blood lead tests requested by a physician who suspects that a person has been harmed by exposure to lead; Texas Civil Statutes, Article 4512i, sec.19A, which provides the department with authority to charge a newborn screening fee to midwives; and Health and Safety Code, sec.12.001, which provides the board with the authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. sec.73.22.Fees. (a) Purpose. This section establishes fees pursuant to the Health and Safety Code, sec.sec.12.031, 12.032, and 12.034 for laboratory services provided by the Bureau of Laboratories (bureau) of the Texas Department of Health (department). The fees will enable the department to offset costs incurred when delivering certain laboratory services. (b) General. Services are offered at the discretion of the department subject to laws and rules in effect at the time of the request for services. (1) The fees assessed are intended to recover the reasonable service costs and shall not exceed the costs of providing the service as determined by the department. (2) Each fee for which a maximum cap is set within this section shall be calculated annually by department staff in accordance with paragraph (1) of this subsection. (3) A schedule of all fees will be available upon request from the Texas Department of Health, Bureau of Laboratories, 1100 West 49th Street, Austin, Texas 78756, (512) 458-7318. (4) The department will determine whether a fee must be paid with submission of the specimen or whether the department will bill later for the fee unless stated otherwise in this section. (5) The submission of specimens to the department shall be in compliance with the bureau's Manual of Reference Services and other written instructions established by the bureau. (A) The manual outlines clinical and scientific standards, procedures and requirements of the department. (B) Failure to submit a specimen as required may result in the department's refusal to perform the requested services. (C) The manual and other written instructions may be obtained upon request from the Texas Department of Health, Bureau of Laboratories, 1100 West 49th Street, Austin, Texas 78756, (512) 458-7318. (6) Failure to pay a fee in a timely manner may result in the department's refusal to accept specimens or samples until the fee is paid. (7) A fee paid is nonrefundable. (c) Fees. (1) The annual fees for certification of milk, drinking water and shellfish laboratories and proficiency testing for milk laboratories are as follows: (A) antibiotic milk laboratories - $250; (B) water bacteriology laboratories - $250; (C) milk industry laboratories - $400; (D) full service milk laboratories - $500; (E) milk proficiency testing (non-Texas certified laboratories) - $250; (F) water chemistry laboratories - $250; and (G) shellfish laboratory - $500. (2) The fee for testing blood for the presence of lead shall not exceed $10 per test. (3) The fee for a newborn screening test kit shall not exceed $20 per test kit. (4) The fees for testing of bottled water, drinking water systems, drinking water fountains in day care centers or schools, or individual home drinking water systems shall not exceed the following amounts: (A) tests for minerals and physical properties: (i) chloride -$22.50; (ii) fluoride -$22.50; (iii) nitrate - $30; (iv) nitrite - $30; (v) sulfate - $22.50; (vi) total dissolved solids - $37.50; (vii) phenols -$66; (viii) turbidity -$24; (ix) color -$30; (x) odor - $37.50; (xi) bromate - $83; (xii) bromide - $35; (xiii) total organic carbon, water - $53; (xiv) chlorate - $75; (xv) chlorite - $75; (xvi) nitrate and nitrite - $27; (xvii) routine water (minerals panel) - $180; and (xviii) UV 254 - $75; (B) tests for trace metals: (i) all metals panel: Al, Sb, As, Ba, Be, Cd, Cr, Cu, Fe, Pb, Mn, Hg, Ni, Se, Ag, Th, Zn- $357; (ii) total recoverable metals digestion (performed only if turbidity equals or exceeds 1 NTU) - $36; (iii) Pb-Cu - $27; (iv) Pb - $22; (v) cadmium - $22; (vi) arsenic - $22; (vii) antimony - $22; (viii) ICP metals panel: Ba, Cr, Cu, Fe, Mn, Ag, Zn, Al, Ni, Be - $165; (ix) mercury - $31; (x) selenium - $22; (xi) single ICP metal - $22; and (xii) thallium - $22; (C) tests for organics: (i) volatile organic compounds, including trihalomethanes - $180; (ii) ethylene dibromide (EDB) and dibromochloropropane (DBCP) - $192; (iii) carbamate insecticides - $246; (iv) chlorophenoxy herbicides - $270; (v) polychlorinated biphenyl and chlorinated insecticides - $280; (vi) polyaromatic hydrocarbons (PHA), phthalates - $354; (vii) diquat - $297; (viii) endothall - $439; (ix) glyphosate - $208; (x) haloacetic acids (EPA method 552) - $370; (xi) haloacetonitriles (EPA method 551) - $231; (xii) insecticides, drinking water (EPA method 505) - $225; (xiii) organophosphate insecticides, drinking water (EPA method 507) - $340; (xiv) polychlorinated biphenyls (PCB), drinking water (EPA method 508A) - $360; and (xv) trihalomethanes, drinking water (EPA method 502.2) - $82; (D) radiochemical testing: (i) gross alpha and beta - $111; (ii) total alpha emitting radium - $87; (iii) radium 226 - $100; (iv) radium 228 - $84; (v) uranium isotopes - $93; and (vi) radon - $81; (E) bacteriological examination for coliforms - $20; and (F) miscellaneous drinking water chemistry procedures - $96 per hour. (5) The fees for testing environmental samples from nuclear power plants and other users or holders of radiation sources shall not exceed the following amounts: (A) miscellaneous (per hour) Nuclear Chemical Branch - $96; (B) gross alpha or beta, water - $99; (C) gross alpha and beta, water - $111; (D) gamma emitting isotopes, water - $91; (E) radium-226, water - $100; (F) alpha spectrum preparation, water- $162; (G) radium-228, water - $84; (H) uranium isotopes, water - $93; (I) thorium isotopes, water - $87; (J) plutonium, water - $88; (K) tritium, water - $61; (L) total alpha emitting radium, water - $87; (M) radon, water - $81; (N) strontium-89 or 90, water - $124; (O) carbon-14, water - $133; (P) gross alpha or beta, soil - $79; (Q) gross alpha and beta, soil - $100; (R) gamma emitting isotopes, soil - $138; (S) alpha spectrum preparation, soil - $151; (T) radium-226, soil- $133; (U) radium-228, soil - $108; (V) uranium isotopes, soil - $84; (W) thorium isotopes, soil - $87; (X) plutonium, soil - $88; (Y) tritium, soil -$98; (Z) strontium-89 or 90, soil - $160; (AA) gross alpha or beta, vegetation/tissue - $79; (BB) gross alpha and beta, vegetation/tissue - $109; (CC) gamma emitting isotopes, vegetation/tissue - $135; (DD) alpha Spectrum preparation, vegetation/tissue - $151; (EE) radium-226, vegetation/tissue - $133; (FF) radium-228, vegetation/tissue - $96; (GG) uranium isotopes, vegetation/tissue - $84; (HH) thorium isotopes, vegetation/tissue - $87; (II) plutonium, vegetation/tissue - $88; (JJ) tritium, vegetation/tissue - $97; (KK) strontium-89 or 90, vegetation/tissue - $160; (LL) gross alpha or beta, wipe/filter/cartridge - $48; (MM) gross alpha and beta, wipe/filter/cartridge - $63; (NN) alpha spectrum preparation, wipe/filter/cartridge - $151; (OO) radium-226, wipe/filter/cartridge - $133; (PP) radium-228, wipe/filter/cartridge - $96; (QQ) uranium isotopes, wipe/filter/cartridge - $84; (RR) thorium isotopes, wipe/filter/cartridge - $87; (SS) plutonium, wipe/filter/cartridge -$88; (TT) tritium, wipe/filter/cartridge - $61; (UU) strontium-89 or 90, wipe/filter/cartridge - $160; (VV) carbon-14, wipe/filter/cartridge - $142; (WW) gamma emitting isotopes, wipe/filter/cartridge - $78; (XX) asbestos identification - $55; (YY) asbestos fiber counting - $46; (ZZ) dust identification - $60; (AAA) organic chemicals, by group, such as insecticides, herbicides, volatile organic compounds, semi-volatile organic compounds in water or soil/sediment, including routine sample preparation procedures - $542 per group per sample; (BBB) metals, per analyte in water or soil/sediment, including routine sample preparation procedures - $77 per analyte per sample; and (CCC) inorganic chemicals, per analyte in water or soil/sediment - $105 per analyte per sample. (d) Newborn screening procedures. (1) Newborn screening is required by the Health and Safety Code, Chapter 33. (2) The department through the bureau will provide newborn screening test kits upon written request from a provider of newborn screening. A test kit is the department-designed collection device, demographic information form and envelope used to submit a newborn's blood specimens for screening by the bureau. A separate test kit is required for each screening panel. Each newborn must have two screening panels performed. Additional screening panels may be necessary under certain circumstances. Testing providers include hospitals, birthing centers, physicians, midwives, and clinics. (3) The department shall accept only its test kit for submission of specimens. (4) The department will provide test kits for Medicaid-eligible or charity care newborns at no cost to the provider. (5) The department will provide test kits for all other newborns at a fee as described in subsection (c)(3) of this section. (6) A Medicaid-eligible newborn is a patient whose mother is a Medicaid recipient or who is otherwise eligible for Medicaid coverage for the newborn- related services. A charity care newborn is a patient who is not insured and is not covered or eligible to be covered for newborn screening services by Medicaid or any other government program. (7) When a provider requests test kits, the provider must identify the number estimated to be needed for Medicaid-eligible newborns, charity care newborns, and other newborns. The provider's estimates shall be based on the provider's newborn screening services provided in the most recent fiscal or calendar year if the provider has previously provided these services. A provider shall provide further information upon request of the department to verify the appropriateness of the number of test kits provided at no cost. (8) The department will bill the requesting provider for test kits when the test kits are sent to the provider. Payment is due within 120 days from the provider's receipt of the test kits. (9) A provider may use the no-cost test kit only for a Medicaid-eligible or charity care newborn. (10) A provider shall ensure that the identifying and demographic information provided with the test kit is complete and accurate when submitted to the department. (11) A provider may use the department's previous newborn screening forms until May 31, 1998. Beginning on June 1, 1998, all providers must use the department's new test kits for newborn specimens. sec.73.24.Certification of Drinking Water, Milk, and Shellfish Laboratories. (a) Purpose. This section establishes the procedures for drinking water, milk, and shellfish laboratories to become certified laboratories under federal or state law. (b) Definitions. The following words and terms, when used in this section, shall have the following meanings unless the text clearly indicates otherwise. (1) Assessment - A fact-finding process performed either by an approved third party or by the Texas Department of Health (department) in which information and observations are collected and evaluated for the purpose of judging the laboratory's conformance with established certification standards. Assessment includes an onsite inspection. (2) Certification - An official and legal approval granted by the department to a laboratory, permitting analysis of drinking water, milk, or shellfish samples in accordance with applicable federal and state laws and rules based on the process outlined in this section. Certification means that a certified laboratory has been judged capable of performing the analyses for which it is certified correctly. Certification does not imply or mean that the department certifies the results produced by the certified laboratory. (c) Certification application. (1) An applicant laboratory must submit an application for certification directly to the department on a form specified by the department. For drinking water laboratories, the application must be accompanied by evidence of assessment by a department-approved assessor in the category for which certification is requested or assessment by the department if the department performs assessments. (2) Payment of the appropriate fee for certification under sec.73.22 of this title (relating to Fees) must accompany the application. (3) Payment may be by check or money order made payable to the Texas Department of Health. (4) A laboratory may apply for certification in a single category or any combination of categories from among the following: chemistry-routine inorganics, chemistry-nitrate and nitrite, chemistry-metals, chemistry-lead and copper, chemistry-trihalomethanes, chemistry-volatile organics, chemistry- insecticides and herbicides, chemistry-carbamate insecticides, chemistry - ethylene dibromide (EDB) and dibromochloropropane (DBCP), chemistry-synthetic organics, chemistry-endothal, chemistry-glyphosate, chemistry-diquat, chemistry- radiochemicals, chemistry-asbestos, chemistry-dioxin, drinking water microbiology, milk analysis - antibiotics, milk analysis - raw, milk analysis - full service, or shellfish analysis - full service. (5) The department shall perform an assessment for each milk and shellfish laboratory applying for certification. (6) Each certified laboratory must reapply for certification every two years and pay the appropriate certification fee. After initial certification, the laboratory will be assessed the certification fee on an annual basis. (d) Standards. (1) The minimum standards for certification are as specified by the United States Environmental Protection Agency (EPA) applying to drinking water and the United States Food and Drug Administration (FDA) applying to milk and shellfish. These specifications are available for review during normal business hours at the department's Bureau of Laboratories, 1100 West 49th Street, Austin, Texas. (2) Each applicant laboratory will be evaluated, at a minimum on the following factors: credentials and experience of staff, quality assurance plan, manuals of procedures, performance on evaluation unknowns, equipment, calibrations and standards, methodology, facilities, sample acceptance policies, sample tracking, record keeping, reporting, and results interpretation. (e) Inspections. The department may conduct inspections of laboratories to ascertain adherence to minimum standards and the effectiveness of the certification system. For laboratories for which the department serves as both the assessing and certification authority, inspections will be conducted on at least a biennial basis. (f) Withdrawal of certification. (1) A laboratory must meet all minimum standards, pass all performance evaluation sets, and pass onsite inspection no less than every two years to be certified. (2) A laboratory that fails to meet requirements by scoring outside the acceptable limits on a set of performance evaluation unknowns, has serious deficiencies at the time of an onsite inspection, fails to notify the department within 30 days of major changes which might impair analytical capability (personnel, equipment, or location), or fails to notify the state or public of certain problems as required by notification regulations may be placed on provisionally certified status. (3) Failure on two consecutive performance evaluation sets or failure to correct major deficiencies following onsite inspection may result in the withdrawal of certification. The correction action must take place within the time frames set by the appropriate federal regulatory authority, which are 90 days or less. (4) Certification may be suspended or revoked immediately if the standards of the EPA or FDA require suspension or revocation, or if continued operation of the laboratory will jeopardize public health. Due process will be afforded to the laboratory whose certification is revoked or suspended. (5) Certification shall be revoked for a laboratory which submits as its own work the results for analysis of any performance evaluation sample which was analyzed by a different laboratory. The laboratory may not reapply for certification for a period of not less than three years. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801769 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 458-7236 Exposure to Lead 25 TAC sec.73.31 The repeal is adopted under the Health and Safety Code, sec.sec.12.031, 12.032, and 12.034, which provide the board with the authority to adopt rules relating to public health services fees for laboratory services; sec.12.020, which provides the department with the authority to establish charges by rule for the sale of specific laboratory services; sec.sec.33.002 and 33.011, which provide the board and department with authority to adopt rules to carry out the newborn screening program and to prescribe screening test procedures; sec.sec.81.004 and 81.006, which provide the board with the authority to adopt rules and to seek and receive fees for the purpose of identifying communicable diseases; sec.161.101, which provides the department with the authority to charge for certain blood lead tests requested by a physician who suspects that a person has been harmed by exposure to lead; Texas Civil Statutes, Article 4512i, sec.19A, which provides the department with authority to charge a newborn screening fee to midwives; and Health and Safety Code, sec.12.001, which provides the board with the authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801767 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 458-7236 Fees for Drinking Water Systems 25 TAC sec.73.41 The repeal is adopted under the Health and Safety Code, sec.sec.12.031, 12.032, and 12.034, which provide the board with the authority to adopt rules relating to public health services fees for laboratory services; sec.12.020, which provides the department with the authority to establish charges by rule for the sale of specific laboratory services; sec.sec.33.002 and 33.011, which provide the board and department with authority to adopt rules to carry out the newborn screening program and to prescribe screening test procedures; sec.sec.81.004 and 81.006, which provide the board with the authority to adopt rules and to seek and receive fees for the purpose of identifying communicable diseases; sec.161.101, which provides the department with the authority to charge for certain blood lead tests requested by a physician who suspects that a person has been harmed by exposure to lead; Texas Civil Statutes, Article 4512i, sec.19A, which provides the department with authority to charge a newborn screening fee to midwives; and Health and Safety Code, sec.12.001, which provides the board with the authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801768 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 458-7236 CHAPTER 99.Occupational Conditions Reporting 25 TAC sec.99.1 The Texas Department of Health (department), by majority vote of the Texas Board of Health (board) on February 8, 1998, enters this order finally adopting an amendment to sec.99.1, concerning occupational condition reporting with changes to the proposed text as published in the September 26, 1997, issue of the Texas Register (22 TexReg 9600), as a result of comments received during the 30 day comment period. This amendment will lower the blood lead reporting level mandated by the Occupational Condition Reporting Act from 40 micrograms of lead per deciliter of blood (40 µg/dL) to 25 µg/dL. This lower level is consistent with the level recommended by the Centers for Disease Control and Prevention's Healthy People 2000: National Health Promotion and Disease Prevention Objectives, and will allow the department to track progress on meeting the Healthy People 2000 objectives for Texas. This amendment replaces the word "disease" with "condition" throughout the rule to be consistent with Chapter 245 (House Bill 2311), adopted by the 75th Legislature (1997). Next, this amendment will lower the blood lead reporting level from 40 micrograms of lead per deciliter of blood (40 µg/dL) to 25 µg/dL. The amendment also adds a division name and a mailing address. The following comments were received concerning the proposed sections. Following each comment is the department's response and any resulting change(s). A minor editorial change was made for clarification purposes. COMMENT: Concerning sec.99.1(b)(5), the definition of occupational conditions, one commenter recommended deleting the word "and" between "diseases" and "abnormal health conditions" and replacing it with a comma. Also, the word "conditions" in the last line of the definition should be replaced with the word "exposures" to be consistent with the statute. RESPONSE: The department agrees with the commenter, and has made the requested changes. COMMENT: Concerning sec.99.1(b)(6), definition of reportable occupational condition, one commenter recommended replacing the "or" between "disease" and "condition" with a comma and to add "or laboratory finding" between "condition" and "for" to more precisely conform to the statute, which defines "reportable condition" in Section 84.002(3) of the Texas Health and Safety Code. RESPONSE: The department agrees with the commenter, and has made the requested changes. COMMENT: Concerning sec.99.1(c)(5), reports from outside the jurisdiction of the local health authority, one commenter recommended deleting the word "disease" in the third line of the paragraph (as published in the Texas Register). Since the definition of "occupational condition" includes diseases the commenter felt the inclusion of the word "disease" would be redundant. RESPONSE: The department agrees with the commenter, and has deleted the work "disease" as requested. Also, the word "or" between condition and [disease] has been deleted for clarification purposes. Comments were received Brown McCarroll & Oaks Hartline. This is a law firm that represents a number of industrial clients that are involved in metal processing and that may have employees who are exposed to lead in the workplace. Their comments dealt with grammar and vocabulary changes in three sections of the proposed rule. The amendment is adopted under the Health and Safety Code, Chapter 84 of the Health and Safety Code sec.84.003, which requires the board to adopt rules necessary to implement the reporting of elevated blood lead levels; and sec.12.001 which allows the board to adopt rules for the performance of every duty imposed by law on the Texas Board of Health, the Texas Department of Health and the Commissioner of Health. sec.99.1.General Provisions. (a) Purpose. This section implements the Texas Occupational Conditions Reporting Act, Health and Safety Code, Chapter 84, House Bill 2091, 69th Legislature, 1985, which authorizes the Texas Board of Health to adopt rules concerning the reporting and control of occupational conditions. (b) Definitions. The following words and terms, when used in these sections, shall have the following meanings unless the context clearly indicates otherwise. (1) Case - A person in whom an occupational condition is diagnosed by a physician based upon clinical evaluation, interpretation of laboratory and/or roentgenographic findings, and an appropriate occupational history. (2)-(4) (No change.) (5) Occupational conditions - Those diseases, abnormal health conditions or laboratory findings that are caused by or are related to exposures in the workplace. (6) Reportable occupational condition - Any occupational disease, condition or laboratory finding for which an official report is required. See subsection (d) of this section. (7) Report of occupational condition - The notification to the appropriate authority of the occurrence of a specific occupational disease in a human, including all information required by the procedures established by the Board of Health. (8) Suspected case - A case in which an occupational condition is suspected, but the final diagnosis is not yet made. (c) Reporting requirements. (1) It is the duty of every physician holding a license to practice in the State of Texas to report promptly to the local health authority each patient she or he shall examine and who has or is suspected of having any reportable occupational condition. The local health authority may authorize a staff member to transmit reports. (2) It is the duty of every person who is in charge of a clinical or hospital laboratory, blood bank, mobile unit, or other facility in which a laboratory examination of any specimen derived from a human body yields microscopical, cultural, serological, chemical, or other evidence suggestive of a reportable condition to report promptly that information to the local health authority. (3) (No change.) (4) The local health authority shall collect the reports and transmit the information at weekly intervals to the Noncommunicable Disease Epidemiology and Toxicology Division, Bureau of Epidemiology, Texas Department of Health, 1100 W. 49th Street, Austin, Texas 78756. Transmission may be made by mail, courier, or electronic transfer. (A) If by mail or courier, the reports shall be placed in a sealed envelope addressed to the attention of the Noncommunicable Disease Epidemiology and Toxicology Division, Bureau of Epidemiology, Texas Department of Health, 1100 W. 49th Street, Austin, Texas 78756, and marked "Confidential Medical Records." (B) (No change.) (5) When an occupational condition is reported to a local health authority, and the person diagnosed as having the condition resides outside his or her area of local health jurisdiction, the local health authority receiving the report shall notify the appropriate local health authority where the person or persons reside. The department shall assist the local health authority in providing such notifications if requested. (d) List of reportable occupational conditions. Occupational conditions reportable by name, address, age, sex, race/ethnicity, method of diagnosis, and relevant occupation(s) and employer(s) of the case, and identity of the reporter, are: asbestosis, silicosis, blood lead levels at or above 25 micrograms lead/100 milliliters of blood in persons 15 years of age or older, and acute occupational pesticide poisoning. (e) General control measures for reportable occupational conditions. The commissioner or his or her duly authorized representative shall, as circumstances may require, proceed as follows: (1)-(3) (No change.) (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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801765 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: September 26, 1997 For further information, please call: (512) 458-7236 CHAPTER 119.Health Maintenance Organizations The Texas Department of Health (department) by majority vote of the Texas Board of Health (board) on February 8, 1998, enters this order finally adopting the repeal of sec.sec.119.1 - 119.4, 119.21 - 119.25, 119.51 - 119.56, and 119.71, concerning the regulation of health maintenance organizations (HMOs), without changes to the proposed text as published in the Texas Register on December 5, 1997 (22 TexReg 11952). Specifically, the sections cover definitions; application, assessments, and fees; examinations; reporting complaints; organization of a health maintenance organization and service area; quality improvement; quality improvement program; quality improvement committee; utilization review; ambulatory health care services; emergency care; inpatient hospital and medical service; diagnostic and therapeutic services; optional services; single health care service; and enforcement. These rules address the quality of health care services furnished by HMOs to its enrollees under the authority given to the department in the Health Maintenance Organization Act, Texas Insurance Code, Chapter 20A (HMO Act). The department and the Texas Department of Insurance (TDI) jointly regulated HMOs under authority of the HMO Act prior to September 1, 1997. Senate Bill (SB) 385, 75th Texas Legislature, 1997, amended the HMO Act by amending the authority for the regulation of the quality of health care services furnished by HMOs from the department to the TDI, effective September 1, 1997. The bill did not provide for the administrative transfer of department rules to TDI, therefore Chapter 119 is being repealed in its entirety to void the sections promulgated by the Texas Board of Health under the HMO Act. Although the formal adoption of the repeal of these sections will not be effective until sometime in March of 1998, these sections became null and void effective September 1, 1997, because of the amendments in SB 385. Adoption of the repeal of these sections will formally void sections which are no longer effective because of the amendments in SB 385. There were no comments received on this proposal during the comment period which ended January 5, 1998. SUBCHAPTER A.General Provisions 25 TAC sec.sec.119.1-119.4 The repeals are adopted under the Health and Safety Code, sec.12.001, which provides the board with the authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801773 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 458-7236 SUBCHAPTER B.Organizations and Functions of a Health Maintenance Organization 25 TAC sec.sec.119.21-119.25 The repeals are adopted under the Health and Safety Code, sec.12.001, which provides the board with the authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801774 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 458-7236 SUBCHAPTER C.Services 25 TAC sec.sec.119.51-119.56 The repeals are adopted under the Health and Safety Code, sec.12.001, which provides the board with the authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801775 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 458-7236 SUBCHAPTER D.Enforcement 25 TAC sec.119.71 The repeal is adopted under the Health and Safety Code, sec.12.001, which provides the board with the authority to adopt rules to implement every duty imposed by law on the board, the department, and the commissioner of health. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801776 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: December 5, 1997 For further information, please call: (512) 458-7236 CHAPTER 229.Food and Drug Seafood Safety 25 TAC sec.sec.229.121-229.129 The Texas Department of Health (department), by majority vote of the Texas Board of Health (board), on February 8, 1998, enters this order finally adopting new sec.sec.229.121 - 229.129, concerning state enforcement of new federal seafood safety regulations. Section 229.124 is adopted with changes to the proposed text as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10881). Sections sec.sec.229.121-229.123 and sec.sec.229.125-229.129 are adopted without changes, and therefore the sections will not be republished. The new sections define terms used in the industry's application of fish and fishery products hazard analysis critical control point principals (HACCP), establish rules on current good manufacturing practices, specify the requirements of a HACCP plan, the corrective actions required, requirements for verification that a HACCP plan is adequate, and the specific requirements for record keeping, training, and sanitation control procedures. In addition, the sections specify requirements for processing smoked and smoke-flavored fishery products. Federal Fish and Fishery Products HACCP regulations contained in Code of Federal Regulations, Title 21, sec.sec.123.3 - 123.16 take effect in December 1997. It is estimated that the rules will affect 150 seafood establishments in Texas. Adoption of HACCP in Texas will create uniformity and consistency of seafood safety throughout the entire seafood industry. It will also benefit Texas consumers by ensuring that all Texas seafood meets the same level of safety as seafood in interstate commerce. No comments were received on the proposal of these rules during the comment period. However, the department is making the following change due to staff comment to clarify the intent and improve the accuracy of the section. CHANGE: Concerning sec.229.124(b), the word "plan" has been inserted between the words "Point" and "in accordance." The new sections are adopted under the Health and Safety Code, sec.431.241, which provides the department with the authority to adopt necessary regulations pursuant to the enforcement of Chapter 431; and sec.12.001, which provides the Texas Board of Health (board) with the authority to adopt rules for the performance of every duty imposed by law on the board, the department, and the commissioner of health. sec.229.124.Corrective Actions. (a) Whenever a deviation from a critical limit occurs, a processor shall take corrective action either by: (1) following a corrective action plan that is appropriate for the particular deviation; or (2) following the procedures in subsection (c) of this section. (b) Processors may develop written corrective action plans, which become part of their Hazard Analysis Critical Control Point plan in accordance with sec.229.123(c)(5) of this title (relating to Hazard Analysis and Hazard Analysis Critical Control Point (HACCP) Plan), by which they predetermine the corrective actions that they will take whenever there is a deviation from a critical limit. A corrective action plan that is appropriate for a particular deviation is one that describes the steps to be taken and assigns responsibility for taking those steps, to ensure that: (1) no product enters commerce that is either injurious to health or is otherwise adulterated as a result of the deviation; and (2) the cause of the deviation is corrected. (c) When a deviation from a critical limit occurs and the processor does not have a corrective action plan that is appropriate for that deviation, the processor shall: (1) segregate and hold the affected product, at least until the requirements of paragraph (2) and (3) of this subsection are met; (2) perform or obtain a review to determine the acceptability of the affected product for distribution. The review shall be performed by an individual or individuals who have adequate training or experience to perform such a review. Adequate training may or may not include training in accordance with sec.229.127 of this title (relating to Training); (3) take corrective action, when necessary, with respect to the affected product to ensure that no product enters commerce that is either injurious to health or is otherwise adulterated as a result of the deviation; (4) take corrective action, when necessary, to correct the cause of the deviation; (5) perform or obtain timely reassessment by an individual or individuals who have been trained in accordance with sec.229.127 of this title, to determine whether the HACCP plan needs to be modified to reduce the risk of recurrence of the deviation, and modify the HACCP plan as necessary. (d) All corrective actions taken in accordance with this section shall be fully documented in records that are subject to verification in accordance with sec.229.125(a)(3)(B) of this title (relating to Verification) and the record keeping requirements of sec.229.126 of this title (relating to Records). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801777 Susan K. Steeg General Counsel Texas Department of Health Effective date: March 1, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 458-7236 TITLE 28. INSURANCE PART I. Texas Department of Insurance CHAPTER 3.Life, Accident and Health Insurance and Annuities SUBCHAPTER B.Individual Life Insurance Policy Form Checklist and Affirmative Requirements 28 TAC sec.3.129 The Commissioner of Insurance adopts the repeal of sec.3.129, concerning Individual Life Insurance Policy Form Checklist and Affirmative Requirements, without changes to the proposed repeal as published in the November 7, 1997, issue of the Texas Register (22 TexReg 10888). The repeal of sec.3.129, which relates to acceleration-of-life-insurance benefits, is necessary because the Commissioner simultaneously has adopted New Subchapter LL (sec.sec.3.12001-12017), which moves rules governing acceleration- of-life-insurance benefits into their own subchapter in Chapter 3. New subchapter LL (sec.sec.3.12001-3.12017), adopted and published elsewhere in this issue of the Texas Register, expands and revises the provisions now contained in sec.3.129, based on the need to implement statutory changes enacted by the 75th Legislature and at the federal level by the Health Insurance Portability and Accountability Act of 1996, the need to clearly delineate acceleration-of-life-insurance standards applicable to all forms of life insurance contracts (both individual and group life insurance policies, group certificates, and riders), and the decision to allow a new method of financing acceleration-of-life-insurance benefits, as requested by industry. Because of these additions and revisions, the rules cannot all be placed efficiently in one section, and do not belong in Subchapter B, which relates only to individual life insurance policies. The Department believes that this reorganization will enhance the clarity and readability of the rules. No comments were received. The repeal of sec.3.129 is adopted pursuant to the Insurance Code, Articles 3.42, 3.50-6 and 1.03A. Article 3.42, relating to life insurance policy form approval, and Article 3.50-6, relating to payment of accelerated life insurance benefits, each authorize the commissioner to adopt reasonable rules to implement the articles. Article 1.03A provides that the commissioner may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by a statute. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801834 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 1, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-6327 SUBCHAPTER LL.Standards for Acceleration of Life Insurance Benefits for Individual and Group Policies and Riders 28 TAC sec.sec.3.12001-3.12017 The Commissioner of Insurance adopts new Subchapter LL, sec.sec.3.12001-3.12017, relating to acceleration-of-life-insurance benefits offered in relation to both individual and group life insurance contracts (including policies, riders and certificates of coverage). The commissioner adopts the subchapter with changes to sec.sec.3.12012, 3.12013, 3.12016 and 3.12017 of the proposed text, which appeared in the November 7, 1997, issue of the Texas Register (22 TexReg 10889). The commissioner adopts sec.sec.3.12001 - 3.12011, 3.12014 and 3.12015 without changes from the proposed text, and these sections will not be republished. Rules relating to acceleration-of-life-insurance benefits previously were contained in 28 TAC sec.3.129 of Subchapter B of this Chapter (relating to Individual Life Insurance Policy Form Checklist and Affirmative Requirements). The commissioner adopts the repeal of sec.3.129, elsewhere in this issue of the Texas Register. Acceleration-of-life-insurance benefits allow a policyholder or certificate holder to obtain payment of all or a part of the death benefit of a life insurance policy, certificate or rider prior to death of the insured, in circumstances in which the insured has a "terminal illness" (life expectancy of two years or less), "long-term care illness" (resulting in the inability to perform activities of daily living without assistance, or in impairment of cognitive ability) or "specified disease" (a disease or condition likely to cause permanent disability or premature death, such as AIDS or a malignant tumor). Rules relating to acceleration-of-life-insurance benefits previously were contained in Subchapter B (relating to Individual Life Insurance Policy Form Checklist and Affirmative Requirements). See 28 TAC sec.3.129. However, based on the need to implement statutory changes enacted by the 75th Legislature in House Bill 1865 ("HB1865") and at the federal level by the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), the need to clearly delineate acceleration-of-life-insurance standards for both individual and group life insurance policies, group certificates, and riders, and requests from industry to allow a new method for financing acceleration-of-life-insurance benefits, the commissioner is adopting these more comprehensive rules in their own subchapter, and is repealing sec.3.129 elsewhere in this issue of the Texas Register. The department believes that this reorganization will enhance the clarity and readability of the rules. The sections are necessary to: (1) expand the circumstances under which insurers, may, at their option, offer acceleration-of-life-insurance benefits, thus enhancing financial choices for insureds facing terminal or life- threatening illnesses or conditions; (2) implement revised statutory requirements for group and individual life insurance policies passed by the 75th Legislature; (3) set uniform standards for offering acceleration-of-life- insurance benefits that will be applicable to all group and individual life insurance plans, creating a level playing field for insurers; (4) allow insurers, with proper disclosures, to offer benefits that will qualify for favorable tax treatment under federal law, as well as benefits that may not qualify for favorable tax treatment, but that are available to a broader class of insureds; and (5) ensure that acceleration-of-life-insurance benefit provisions that fund long-term care expenses conform basic definitions and eligibility triggers to those in rules setting minimum standards for long-term care insurance contracts. Many provisions of Subchapter LL are substantially similar to existing provisions in 28 TAC sec.3.129. The adopted rules expand the types of life insurance contracts covered by the rules; expand and revise the methods that insurers may use to calculate acceleration-of-life-insurance benefits; designate which rules relating to long-term care insurance contracts are applicable to life insurance contracts providing for payment of long-term care expenses through acceleration-of-life-insurance benefits; and set forth requirements for acceleration-of-life-insurance benefits that are marketed as qualified for favorable tax treatment under federal law. The sections as adopted differ in some respects from the proposed sections, based on further study in response to comments. Section 3.12012 and sec.3.12016 have been amended to clarify that notice and disclosures required by the rules must only be provided with the document (for example, a rider) containing the acceleration-of-life-insurance provisions. Section 3.12012 and sec.3.12016 have been revised to state that in regard to certificate holders of group life policies, insurers must provide disclosures related to possible consequences of receiving acceleration-of-life-insurance benefits on taxes and public assistance only to certificate holders obtaining coverage on or after the effective date of these rules. Section 3.12013 has been revised to require that the disclosures and notices described in the section must be provided only with an invitation to contract (as that term is defined in rules related to advertising of life insurance contracts) containing applications that, if accepted, would provide coverage that included acceleration-of-life-insurance provisions. Section 3.12016 has been revised to include a disclosure that receipt of acceleration- of-life-insurance benefits may affect eligibility for public assistance programs. Section 3.12017 has been revised to clarify that the subchapter applies to all life insurance contracts marketed after the effective date of this subchapter (except as provided under the 90-day grace period allowed by sec.3.12017(b)). Section 3.12001 states the purpose of the rules and contains a severability provision. Section 3.12002 delineates the scope of acceleration-of-life- insurance benefits that insurers may offer in Texas. Any group or individual life insurance contract may contain acceleration-of-life-insurance benefits. An insurer may accelerate death benefits of life insurance contracts if the insured has an illness or physical condition that falls within the definitions of a terminal illness, long-term care illness or specified disease, as defined by this section. Section 3.12002 also defines "life insurance contract" to include individual or group policies or riders, and certificates of coverage under a group policy or rider. Section 3.12003 requires life insurance contracts to clearly define the illness, condition, care or confinement necessary to evidence a terminal illness, long-term care illness or specified disease. It also states that conditions which may trigger acceleration-of-life-insurance benefits under this subchapter constitute total and permanent disability for the purpose of meeting statutory standards for allowing acceleration of benefits. Section 3.12004 sets standards for requiring medical diagnoses and documenting care or confinement. Section 3.12005 states that a life insurer may terminate the acceleration-of- life-insurance benefit if the contract is continued under a nonforfeiture option. Section 3.12006 delineates allowed methods for determining benefits and charges and fees. The section retains, with some changes, the two methods contained in previous provisions governing acceleration-of-life-insurance benefits, which allowed either payment for the benefits through an additional premium or charge, or through an actuarial discount and administrative charge which are deducted, along with the amount accelerated, from the death benefit. In addition, sec.3.12006 allows a third option called the "lien method." Under the lien method, in instances where no additional premium or cost-of-insurance charge is payable in advance by the policy or certificate holder, insurers may consider the acceleration-of-life-insurance benefit paid to the insured, any administrative expense charges, any due and unpaid premiums and any accrued interest as a lien against the death benefit of the policy, certificate or rider. At death, the benefit payable is the total remaining death benefit proceeds in excess of the lien. The lien cannot exceed the death benefit. Section 3.12007 contains requirements for limits on reduction of cash values made in conjunction with payment of an acceleration-of-life-insurance benefit (except as otherwise authorized under the lien method allowed by sec.3.12006(3)) and for calculation of minimum cash values. Section 3.12008 allows an insurer to deduct a pro rata portion of any loan on the life insurance contract from the acceleration-of-life-insurance benefit paid to the insured. Section 3.12009 states that an acceleration-of-life-insurance benefit shall be disregarded in ascertaining nonforfeiture benefits under the Insurance Code. Section 3.12010 sets standards for calculating reserves on an acceleration-of-life-insurance benefit provision and the contract containing the provision. Section 3.12011 states that acceleration-of-life-insurance benefit provisions are subject to the Insurance Code provisions prohibiting unfair, discriminatory or deceptive practices. Section 3.12012 sets forth notice and disclosure requirements for life insurance contracts containing acceleration-of-life-insurance benefits. Under sec.3.12012, insurers must clearly label acceleration-of-life-insurance benefit provisions, disclose if death benefits, cash values or loan values will be reduced if acceleration-of-life-insurance benefits are paid and provide the insured with a statement regarding the amount of benefits paid, the effect of such payment on the death benefit, face amount, cash value and other features of the contract and the amount, if any, of benefits that remain available for acceleration. The insurer also must include appropriate disclosures substantially similar to those promulgated under sec.3.12016 of the subchapter. Section 3.12013 requires that invitations to contract used in connection with marketing or selling a life insurance contract offering acceleration-of-life- insurance benefits disclose what illness, condition, care or confinement will trigger eligibility for the benefits and the effect the benefits will have on the death benefit and other values under the contract. Invitations to contract also must make appropriate disclosures substantially similar to those promulgated under sec.3.12016 of this subchapter. Section 3.12014 delineates requirements related to the offer of an acceleration- of-life-insurance benefit designed to fund long-term care expenses. The section makes certain rules applicable to long-term care insurance contracts and applications for such contracts (contained in Chapter 3, Subchapter Y) applicable to long-term care features in acceleration-of-life-insurance benefit provisions. For example, the section requires that terms be defined consistently with the definitions of terms in the long-term care rules and that conditions triggering eligibility for benefits be no more restrictive than eligibility triggers in the long-term care rules. Section 3.12015 contains requirements for acceleration-of-life-insurance benefits that are represented to be tax-qualified under federal law governing such benefits. For insurers to represent that such benefits are tax-qualified under HIPAA, subtitle D, the benefits must be offered to insureds with a "qualified terminal illness," as defined by sec.3.12015(b)(1), or a "qualified long-term care illness," as defined by sec.3.12015(b)(2). To be tax-qualified, benefits paid because of a qualified long-term care illness must be used for the payment of long-term care expenses. While sec.3.12015 is meant to include requirements for tax-qualification contained in HIPAA, Subtitle D, the section also makes clear that insurers must meet any additional requirements promulgated under federal law for offering tax- qualified acceleration-of-life-insurance benefits. The Internal Revenue Service, not the department, determines tax qualification. However, through sec.3.12015, as well as the disclosure provisions of sec.3.12016, the department seeks to make sure that insurers offering acceleration-of-life-insurance benefits in Texas do not make material misrepresentations to applicants or insureds regarding federal tax benefits. Section 3.12016 promulgates two disclosures relating to the tax consequences of receiving acceleration-of-life-insurance benefits and a disclosure regarding the possible consequences of receiving such benefits on eligibility for public assistance. One tax disclosure relates to life insurance contracts intended to offer only federally tax-qualified acceleration-of-life-insurance benefits. The other tax disclosure relates to contracts that offer acceleration-of-life-insurance benefits that may or may not be federally tax-qualified. The appropriate disclosure tax disclosure, and the public assistance disclosure, must be included, in substantially similar form, in or attached to contracts containing acceleration-of-life-insurance provisions and invitations to contract for such provisions. Section 3.12017 states that the subchapter applies to all life insurance contracts marketed, delivered, issued for delivery or renewed in Texas on or after the effective date of the subchapter, but provides for a transitional grace period of 90 days after the effective date. General: A commenter commended the department for timely action in developing these rules to implement HB1865. Another commenter stated that it supported all states' adoption of the NAIC Model Accelerated Benefits Regulation and provisions in the NAIC Long-Term Care Model Act and Regulation relating to life insurance policies which accelerate the death benefit for long-term care expenses. The second commenter supports the rules to the extent that its provisions incorporate requirements from the NAIC's Accelerated Benefits and Long-Term Care Models. Agency Response: The department appreciates the commenters' general support for these rules. Subchapter LL contains many provisions that are similar to those in the NAIC models referenced by the second commenter. However, the department has developed rules to specifically implement HB1865 and other Texas statutes, and it does not believe that the Legislature intended it to mirror the NAIC models exactly. General: Two commenters stated that in some places, the rules did not appear to accommodate providing acceleration-of-life-insurance provisions through riders. For example, provisions in sec.3.12012 require certain notices to be placed on the face page of a life insurance contract, without mentioning anything about riders. The commenters stated that if an acceleration-of-life-insurance provision is in a rider, notices and disclosures relating to the provisions should be placed on or in the rider, not the policy. Agency response. The department disagrees that the rules do not accommodate the use of riders. In sec.3.12002(b)(1), "life insurance contract" is defined as "an individual life insurance policy, a group life insurance policy or certificate of insurance, or a rider to an individual or group life insurance policy or group certificate of insurance." Accordingly, whenever the phrase "life insurance contract" is used, the reference is to an individual or group policy, rider or certificate, as appropriate. The department agrees with the commenters that notices and disclosures relating to acceleration-of-life-insurance provisions should only be placed in or on the document containing the provisions. The department has revised sec.sec.3.12012, 3.12013 and 3.12016 to clarify this. Section 3.12002(b). A commenter stated that the definition of "long-term care illness" in this section was not the same as the definition of "qualified long- term care illness" in sec.3.12014 or the definitions typically used in long-term care polices, and should be changed to comport more closely with these definitions. Another commenter suggested adding the phrase "any two or more" before "activities of daily living" in the definition, because the definition as written does not track requirements of federal law. Agency Response. The department does not agree that the definition, which tracks the definition of "long-term care illness" in HB1865, should be modified. As in the areas of long-term care and viatical settlements, these rules are designed to allow insurers either to offer acceleration-of-life-insurance benefits that fit within the fairly narrow confines necessary for federal tax qualifications (as set forth in sec.3.12014), or to allow more generous benefits that are not tax-qualified. Broad definitions of "long-term care illness" and "specified disease" allow insurers the flexibility to pay acceleration-of-life-insurance benefits to more insureds. Section 3.12002(b). A commenter asked for clarification as to whether the definition of terminal illness (a condition reasonably expected to result in death in two years or less) allowed insurers to limit acceleration-of-life- insurance benefits to persons with, say, only one year or less of life expectancy. Agency Response. Insurers may offer acceleration-of-life-insurance benefits only to those who are reasonably expected to live one year or less, or to no one at all. The phrase "terminal illness" is used to define a category of insureds. It does not limit an insurer's ability to design its own product. Section 3.12002(d). A commenter suggested that insureds, and not insurers, should determine whether payments should be made in lump sums or installments. The commenter noted that some consumers may desire installment payments for tax purposes, and that other very ill insureds may need a lump sum payment. Agency Response. The department disagrees. Subsection (d), in keeping with the rest of Subchapter LL, allows insurers flexibility in product design. The department encourages insurers to design products with the flexibility to meet the circumstances and requests of individual insureds, and it believes that market forces will ensure that this happens. The rules provide for disclosures to applicants which should alert them to explore the tax consequences of the payment options offered in the acceleration-of-life-insurance provisions. The rules thus allow informed choice at the time a consumer purchases a policy or rider containing such provisions. However, should the department receive evidence that payment option issues are presenting problems for insureds, the department will reconsider this issue for future rulemaking. Section 3.12004. A commenter objected to provisions stating that any second opinion of a medical diagnosis required by the insurer must be paid for by the insurer, stating that insurers should not be allowed to ignore the medical opinion of the insured's physician. The commenter stated that allowing such second opinions effectively eliminates the standards for eligibility that insurers must specify pursuant to sec.12.003. Agency Response. The department disagrees. Insurers in Texas have never been prohibited from obtaining a second opinion on the medical condition of an insured who wants to accelerate the benefits of his or her policy. The second opinion does not eliminate the eligibility standards; it allows insurers to confirm that its eligibility standards are met. Acceleration-of-life-insurance provisions also must disclose how insurers will resolve conflicts in diagnoses, which should prevent insurers from arbitrarily ignoring the diagnosis of the insured's physician. Section 3.12006. A commenter objected to provisions in sec.3.12006 that limit administrative fees associated with accelerating benefits, stating that companies should be able to charge any amount consistent with actual costs. For the same reasons, the commenter objected to limits on the maximum percentage discounts that could be applied to benefits paid under the present value and interest only methods to insureds who have a terminal illness. The commenter supported the lien method of calculating benefits, and noted that no percentage limitations were associated with the lien method. Agency Response. The department disagrees that the fee and percentage discount limitations are unreasonable, based on experience in reviewing acceleration-of- life-insurance provisions over the years. The maximum percentage limitations apply only to insureds who are terminally ill (two years or less life expectancy). Because terminally ill insureds have such a short life expectancy, and also are on average the most vulnerable class of insureds that will seek to accelerate benefits, the department believes reasonable limitations are appropriate. The department agrees with the commenter that the lien method of calculating benefits add a desirable payment option. Rather than projecting a discount based on life expectancy up front, the lien method allows insurers to charge a reasonable rate of interest on the amount accelerated and apply it to the remaining death benefit until such benefit is exhausted. Under this method, there is no windfall to the company if the insured dies earlier than expected, and less risk to the company if an insured lives much longer than expected. The department believes that the provisions of sec.3.12006(3)(D), which limit the maximum interest to that set by any one of several national standard rates, provides sufficient protections to insureds whose benefits are accelerated under the lien method. Section 3.12012 and sec.3.12016. A commenter suggested that the department require disclosure that receipt of acceleration-of-life-insurance benefits could affect eligibility for Medicaid and other government benefits or entitlements. Agency Response. The department agrees, and has added a disclosure similar to that used in the viatical settlement rules (See 28 TAC sec.3.10009(a)) promulgated in sec.3.12016 of the rules. Section 3.12012. A commenter suggested that because of the complexity of accelerated benefit payment options, the department should require that insurers provide a 30-day free look period during which an insured could return the policy to the insurer and obtain a full premium refund. Agency Response. The department disagrees that a free look period is necessary, because it believes that the notices and disclosures required in Subchapter LL provide applicants with sufficient information to make informed decisions before they purchase a policy or accelerate benefits. The department acknowledges that acceleration-of-life-insurance benefits can be complex, and in the course of the regulatory process, the department will continue to evaluate whether it should require a free look period, or a short period after acceleration during which a recipient of accelerated benefits could return them to the company to be reapplied to the death benefit. Section 3.12013. Two commenters suggested that it will be overbroad and burdensome for insurers to include or attach the disclosures required by sec.3.12013 to every type of solicitation material relating to acceleration-of- life-insurance provisions, regardless of how generic or preliminary the solicitation. The commenters suggested that disclosures be required only with invitations to contract. Agency Response. The department agrees that the disclosures required in sec.3.12013 are most appropriately limited to invitations to contract (which are defined in 28 TAC sec.21.114 as invitations to inquire further about the product which also include an application or enrollment form), and has revised sec.3.12013 accordingly. If an insurer is inviting consumers to contract, as opposed to merely piquing interest with brief advertisements or flyers, the consumers need full disclosure in order to make informed choices. Requiring all sec.3.12013 disclosures with every piece of marketing information would be overly burdensome to insurers. For clarity, the department has amended sec.3.12017 of this title (relating to Effective Date; Grace Period) to specify that the provisions of this subchapter apply to all life insurance contracts marketed after the effective date of the subchapter (except in regards to the 90-day grace period allowed by sec.3.12017(b)). Section 3.12016. Commenters expressed concern about both the promulgated disclosure in subsection (a) for acceleration-of-life-insurance provision intended to only offer benefits that are tax-qualified under federal law and the one in subsection (b) for benefits that may or may not be tax-qualified. One commenter offered language that would include specific cites to federal statutes and asked if such language would be considered "substantially similar" under the rule. Two other commenters stated that the promulgated disclosure in subsection (b) was too lengthy and offered alternatives. Agency Response. The department agrees that the disclosures should be simpler and more succinct, and has reworded them. An insurer may reword these disclosures, add cites to state or federal law or make other changes it deems necessary, as long as the substance of the disclosures used by the insurer are consistent with the substance of the promulgated language. Section 3.12016. One commenter stated that insurers typically do not send group life certificate holders any materials upon renewal. Accordingly, if the rules require insurers to send the tax-related disclosures to every group certificate holder of group policies or riders with acceleration-of-life-insurance provisions, insurers, particularly large insurers, would incur substantial additional expense just from postage. The commenter suggested that in regards to policies in force as of the last day before the effective date of these rules, insurers be required to send the disclosures to only the group policyholder upon renewal. The commenter suggested that insurers still be required to send the disclosure to any group certificate holders obtaining group life coverage on or after the effective date of these rules. Agency Response. The department agrees with the changes suggested by the commenter. The rules are intended to make acceleration-of-life-insurance provisions more accessible to insureds without adding significant costs to either insurers or insureds. Provisions in sec.sec.3.12012 and 3.12016 related to tax disclosures have been changed to reflect that insurers must provide the disclosures to all individual and group policyholders upon renewal of the policy or rider containing the acceleration-of-life-insurance provisions, and must provide the disclosures to certificate holders of group policies containing such revisions who obtain coverage on or after the effective date of these rules. Section 3.12017. Two commenters commended the department for proposing a 90-day grace period. The commenters further suggested that the department put in place an expedited policy and rider approval process. Agency Response. The department agrees that a 90-day grace period provides an appropriate transition period. Article 3.42 of the Insurance Code provides for appropriate timely approval procedures, and subsection (d) of the article allows insurers to quickly begin using forms under the "file and use" procedures. Accordingly, the department does not believe that further provisions for expedited processing are necessary. Section 3.12017. A commenter noted that many individual life insurance policies do not renew and requested clarification as to whether such policies existing before the effective date of this subchapter would be subject to this subchapter. Agency Response. Subchapter LL is prospective, applying only to policies marketed, issued for delivery, delivered or renewed after the effective date of this subchapter, except that insurers may utilize the 90-day grace period. Policies issued before the effective date of this subchapter that do not renew will not be subject to this subchapter. For, with changes: Allstate Life Insurance Company, American Council of Life Insurance, Golden Rule Insurance Company, Office of Public Insurance Counsel, Texas Association of Life & Health Insurers. Subchapter LL is adopted pursuant to the Insurance Code, Articles 3.28, sec.sec.3(g) and 11; 3.42(i) and (p); 3.44a; 3.45; 3.50-6 (as amended by House Bill 1865 enacted by the 75th Legislature and effective September 1, 1997); 3.70-8; 21.21; and 1.03A. The subchapter is adopted, in part, to coordinate the rules governing acceleration-of-life-insurance benefits in Texas with the federal tax provisions applicable to such benefits under HIPAA, Subtitle D-- Treatment of Accelerated Death Benefits. Article 3.28, sec.3(g) and sec.11 provide that the Commissioner of Insurance may approve reserving tables for special benefits. Article 3.42(i) authorizes the commissioner to disapprove any policy form which is unjust or which does not comply with the Insurance Code. Article 3.42(p) authorizes the commissioner to adopt reasonable rules to implement and accomplish the purposes of Article 3.42 concerning review and approval of policy forms. Article 3.44a provides standards for nonforfeiture values. Article 3.45 prohibits insurers from implementing any mode of settlement at maturity of less value than the amounts insured on the face of the policy, plus dividend additions, if any, less any indebtedness to the company on the policy, and less any premium that may by the terms of the policy be deducted. The proposed subchapter indicates that acceleration-of-life-insurance benefits paid, any related charges, interest, discounts or liens allowed under the subchapter, and the balance of the death benefit of the life insurance contract shall constitute full settlement on maturity of the face amount of the contract. This interpretation of Article 3.45 is supported by Articles 3.50-6 and 3.70-8, both passed subsequently to Article 3.45 and both of which provide for the offer of acceleration-of-life-insurance benefits. Article 3.50-6 allows certain individual and group life insurance policies, certificates or riders to include provisions for paying acceleration-of-life-insurance benefits to persons with terminal or life- threatening illnesses or conditions, or with illnesses or conditions requiring long-term care services. Article 3.70-8 provides an exception from the application of the provisions of the Insurance Code regarding accident and health insurance for life insurance contracts which contain only such provisions relating to accident and sickness insurance as to give a special benefit in the event the insured shall become totally and permanently disabled, as defined in the contract. Article 21.21, relating to unfair competition and unfair practices, authorizes the department to establish fair and reasonable rules, regulations, or limitations for the augmentation and implementation of the article. The Insurance Code, Article 1.03A provides that the commissioner may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance as authorized by statute. HIPAA, Subtitle D--Treatment of Accelerated Death Benefits, makes tax deductible acceleration-of-life-insurance benefits paid to persons certified by a physician to have a life expectancy of two years or less, or, under certain delineated circumstances, to persons who require long-term care services because of their illness or condition and use the acceleration-of-life-insurance benefits to pay for such services. sec.3.12012.Notice and Disclosure Requirements for Life Insurance Contracts Containing Acceleration-of-life-insurance Benefits. (a) Except as otherwise stated in this section, every life insurance contract containing an acceleration-of-life-insurance benefit provision shall be subject to the notice and disclosure requirements in paragraphs (1)-(5) of this section. (1) Except as otherwise provided in this paragraph, the face of every such life insurance contract shall contain a prominent notice printed, over-printed or stamped, as appropriate, substantially as follows: "Death benefits, cash values, and loan values will be reduced if an acceleration-of-life-insurance benefit is paid." This statement shall be appropriately modified for contracts which have no cash or loan values, or in which the cash value is not reduced. (2) The title of any acceleration-of-life-insurance benefit shall be descriptive of the coverage provided and shall use such terms as "acceleration-of-life- insurance benefit," "accelerated benefit" or words of similar import. (3) At the time of the payment of a lump sum acceleration-of-life-insurance benefit, or, if periodic payments are being made, no less frequently than every 12 months, the insurer shall send a statement to the owner or holder of the life insurance contract, specifying: (A) the amount of benefits paid (or the amount of benefits paid since the last report); (B) the effect of the acceleration-of-life-insurance benefit payment on the death benefit, face amount, specified amount, accumulation values, cash values, loan amounts, future charges, and future premiums; and (C) the amount of benefits remaining available for acceleration. (4) Notice that the owner of the life insurance contract will receive the statement described in paragraph (3) of this subsection shall be included in the acceleration-of-life-insurance benefit provisions of the life insurance contract. (5) As appropriate, the disclosures contained in either subsection (a) or (b) of sec.3.12016 of this subchapter (relating to Disclosures Related to Tax Qualification of Benefits and Benefits' Effect on Public Assistance), and the disclosure contained in subsection (c) of sec.3.12016, or disclosures substantially similar to these disclosures, must be included on or attached to the front page of each life insurance contract subject to this subchapter, except as provided in subsection (e) of sec.3.12016. (b) The notice and disclosure requirements in subsection (a) must be provided only with the document actually containing the acceleration-of-life-insurance provisions. For example, if acceleration-of-life insurance benefits are provided through a rider to a life policy, the disclosures must only be provided with the rider, not the policy. sec.3.12013. Notice and Disclosure Requirements for Marketing Materials. (a) Any "invitation to contract," as defined in sec.21.114 of this title (relating to Rules Pertaining Specifically to Life Insurance Advertising), used in the marketing, solicitation or sale of a life insurance contract containing an acceleration-of-life-insurance provision shall clearly and concisely disclose the following: (1) the illness, condition, care, or confinement necessary to trigger eligibility for any acceleration-of-life-insurance benefit; (2) the effect that an acceleration-of-life-insurance benefit provision will have on the death benefit and other values available under the life insurance contract; (3) The tax-related disclosures contained in either subsection (a) or (b) of sec.3.12016 of this subchapter (relating to Disclosures Related to Tax Qualification of Benefits and Benefits' Effect on Public Assistance), as appropriate, and the disclosure contained in subsection (c) of sec.3.12016, or disclosures substantially similar to these disclosures. (b) No insurer or agent, in marketing a life insurance contract which provides acceleration-of-life-insurance benefits, may mention, illustrate, or refer to the contract as an alternative or substitute for catastrophic major medical health insurance. sec.3.12016.Disclosures Related to Tax Qualification of Benefits and Benefits' Effect on Public Assistance. (a) Except as provided in subsection (e) of this section, on or after the effective date of this subchapter, if an insurer markets, delivers, issues for delivery or renews a life insurance contract in Texas that provides only acceleration-of-life-insurance benefits that are intended to qualify for favorable tax treatment under federal law, the contract, and any invitation to contract as provided under sec.3.12013 of this title (relating to Notice and Disclosure Requirements for Marketing Materials), must include a disclosure substantially similar to the disclosure set forth in this subsection. When a series of words are separated by back-slashes (e.g. policy/certificate/rider) the insurer should choose the most appropriate word or words under the circumstances. DISCLOSURE: "The acceleration-of-life-insurance benefits offered under this policy/certificate/rider are intended to qualify for favorable tax treatment under the Internal Revenue Code of 1986. If the acceleration-of-life- insurance benefits qualify for such favorable tax treatment, the benefits will be excludable from your income and not subject to federal taxation. Tax laws relating to acceleration-of-life-insurance benefits are complex. You are advised to consult with a qualified tax advisor about circumstances under which you could receive acceleration-of-life-insurance benefits excludable from income under federal law." (b) Except as provided in subsection (e) of this section, on or after the effective date of this subchapter, if an insurer markets, delivers, issues for delivery or renews a life insurance contract in Texas a life insurance contract that contains an acceleration-of-life-insurance benefits provision that meets the requirements of this subchapter, but that allows benefits to be accelerated in circumstances in which such benefits would not qualify for favorable tax treatment under federal law, the contract, and any invitation to contract as provided under sec.3.12013 of this title (relating to Notice and Disclosure Requirements for Marketing Materials), must include a disclosure substantially similar to the disclosure set forth in this subsection. When a series of words are separated by back-slashes (e.g. policy/certificate/rider) the insurer should choose the most appropriate word or words under the circumstances. DISCLOSURE: "The acceleration-of-life-insurance benefits offered under this policy/certificate/rider may or may not qualify for favorable tax treatment under the Internal Revenue Code of 1986. Whether such benefits qualify depends on factors such as your life expectancy at the time benefits are accelerated or whether you use the benefits to pay for necessary long-term care expenses, such as nursing home care. If the acceleration-of-life-insurance benefits qualify for favorable tax treatment, the benefits will be excludable from your income and not subject to federal taxation. Tax laws relating to acceleration-of-life- insurance benefits are complex. You are advised to consult with a qualified tax advisor about circumstances under which you could receive acceleration-of-life- insurance benefits excludable from income under federal law." (c) Except as provided in subsection (e) of this section, on or after the effective date of this subchapter, if an insurer markets, delivers, issues for delivery or renews a life insurance contract in Texas that provides acceleration-of-life-insurance benefits, the contract, and any invitation to contract as provided under sec.3.12013 of this title (relating to Notice and Disclosure Requirements for Marketing Materials), must include a disclosure substantially similar to the disclosure set forth in this subsection. DISCLOSURE: "Receipt of acceleration-of-life-insurance benefits may affect your, your spouse or your family's eligibility for public assistance programs such as medical assistance (Medicaid), Aid to Families with Dependent Children (AFDC), supplementary social security income (SSI), and drug assistance programs. You are advised to consult with a qualified tax advisor and with social service agencies concerning how receipt of such a payment will affect you, your spouse and your family's eligibility for public assistance." (d) The disclosure requirements of this section must be provided only with the document actually containing the acceleration-of-life-insurance provisions. For example if acceleration-of-life insurance benefits are provided through a rider to a life policy, the disclosures must only be provided with the rider, not the policy. (e) In regards to certificates of coverage for group life insurance policies, the disclosures required by this section must be provided only to certificate holders obtaining group life coverage on or after the effective date of this subchapter. sec.3.12017. Effective Date; Grace Period. (a) Except as otherwise provided in subsection (b) of this section, this subchapter, as adopted by the commissioner, shall apply to all life insurance contracts marketed, delivered, issued for delivery or renewed in Texas on or after the effective date of the subchapter, which shall be 20 days after the date the adopted subchapter is filed with the Office of the Secretary of State. (b) A life insurance contract meeting the requirements of sec.3.129 of this title (relating to Acceleration of Life Insurance Benefits), as effective until the effective date of this subchapter, and the Insurance Code, Article 3.50-6, as amended effective September 1, 1997, may continue to be marketed, delivered, issued for delivery or renewed in this state during a grace period lasting 90 days after the effective date of this subchapter. An insurer delivering, issuing for delivery or renewing such a life insurance contract during the grace period shall, at the option of the insured, replace the contract with a contract meeting the requirements of this subchapter at the next renewal date of the contract, without regard to the health status or medical history of the insured and without raising the insured's premium based solely on the replacement. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801835 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: March 1, 1998 Proposal publication date: November 7, 1997 For further information, please call: (512) 463-6327 CHAPTER 7.Corporate and Financial Regulation SUBCHAPTER D.Risk-Based Capital and Surplus 28 TAC sec.7.410 The commissioner of insurance adopts the repeal of sec.7.410, concerning minimum risk-based capital and surplus requirements for certain property/casualty insurers. The adoption of the repeal of the section is made without changes to the proposed text published in the November 21, 1997, issue of the Texas Register (22TexReg11229). A public hearing on the section was held on January 8, 1998. The repeal of the section is necessary to allow the commissioner of insurance to simultaneously adopt new sec.7.410 which replaces the risk-based capital formula in the repealed section with a new risk-based capital formula for property/casualty insurers. The repeal of this section will eliminate provisions pertaining to risk-based capital for property/casualty insurers which are unnecessary as a result of the adoption of new provisions pertaining to risk-based capital. Notification of the adoption of the section appears elsewhere in this issue of the Texas Register. SUMMARY OF COMMENTS AND AGENCY RESPONSE. No comments were received regarding the adoption of the repeal this section. The repeal is adopted under the Insurance Code, Articles, 2.01, 2.02, 2.20, 1.03A and 1.10. Article 2.01, 2.02 and 2.20 provide that the commissioner may adopt rules to require an insurer to maintain capital and surplus levels in excess of statutory levels to assure financial solvency of insurers for the protection of insurers. Article 1.03A provides the commissioner with the authorization to adopt rules and regulations for the conduct and execution of the duties and functions of the department only as authorized by a statute. Article 1.10, sec.5 addresses the duties of the department when an insurers solvency is impaired. 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. Filed with the Office of the Secretary of State on February 2, 1998. TRD-9801456 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: February 22, 1998 Proposal publication date: November 21, 1997 For further information, please call: (512) 463-6327 The commissioner of insurance adopts new sec.7.410 concerning minimum risk-based capital and surplus requirements for certain property/casualty insurers. The section is adopted with changes to the proposed text published in the December 26, 1997, issue of the Texas Register (22 TexReg 12671). A public hearing on the section was held on January 8, 1998. The new section is necessary to implement an amendment to Insurance Code, Article 2.20 made by the 75th Legislature, 1997. Article 2.20(d) authorizes the commissioner to adopt rules requiring property/casualty insurers to maintain capital and surplus levels in excess of the minimum standards established in Insurance Code, Article 2.02, based on several factors, including premium volume, investment quality, risks insured and reserve adequacy. Capital and surplus required by this new section that is in excess of the minimum standards in Article 2.02 is referred to as "risk-based capital." Prior to the 1997 amendment, all property/casualty insurers which were not required by law to have capital stock were exempt from risk-based capital requirements. The 1997 amendment narrowed this exemption so that only property/casualty insurers that are not required to have capital stock and that only do business in Texas are exempt from Article 2.20(d). The new section has the same applicability as the amended Article 2.20. Also, the new section replaces existing sec.7.410, and the risk-based capital formula on form RBC/PC promulgated in that section, with a new property and casualty risk-based capital formula. The new section adopts by reference the 1997 NAIC Risk-Based Capital Report Including Overview and Instructions for Companies. The new formula is widely used by other state insurance regulators, therefore, the new section will improve the efficiency and uniformity of insurance regulation for those insurers that do business in more than one state. The department repealed the existing sec.7.410 because it believes that a single formula is more efficient and effective than separate formulas for companies that do business in more than one state and companies that only do business in Texas. Notification of the repeal of the existing section appears elsewhere in this issue of the Texas Register. The section was changed to improve consistency by hyphenating "risk-based" throughout the section and changing "rule" to "section" in subsection (g). Subsection (b) was changed to improve clarity by deleting "needed for possible" which was between "in taking" and "corrective action." All property and casualty insurers subject to the new section will calculate their risk-based capital in accordance with the new formula adopted by reference by the new section. This includes filing the risk-based capital report with the NAIC. The new risk-based capital formula will be used by state insurance regulators to identify the minimum amount of capital and surplus appropriate for an insurance company to support its overall business operations in consideration of its size and risk exposure. USAA commented in favor of the adoption of the new section. No other comments were received. The new section is adopted under the Insurance Code, Articles, 2.01, 2.02, 2.20, 21.21, 1.03A and 1.10. Articles 2.01, 2.02 and 2.20 provide that the commissioner may adopt rules to require an insurer to maintain capital and surplus levels in excess of statutory levels to assure financial solvency of insurers for the protection of insurers. Article 21.21, sec.13 authorizes the commissioner to adopt rules necessary to regulate trade practices in the business of insurance. Article 1.10, sec.5 addresses the duties of the department when an insurer's solvency is impaired. Article 1.03A provides the commissioner with the authorization to adopt rules and regulations for the conduct and execution of the duties and functions by the department only as authorized by a statute. sec.7.410. Minimum Risk-Based Capital and Surplus Requirements for Property/Casualty Insurers. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Annual financial statement - The annual statement (association edition) to be used by fire and casualty (property/casualty) insurance companies, as promulgated by the NAIC and as adopted by the commissioner under this chapter. (2) Authorized Control Level - the number determined under the RBC formula in accordance with the RBC instructions. (3) Commissioner - the commissioner of insurance of the Texas Department of Insurance. (4) NAIC - National Association of Insurance Commissioners. (5) RBC formula - NAIC risk-based capital formula. (6) RBC instructions - 1997 NAIC Risk-Based Capital Report including Overview and Instructions for Companies published by the NAIC. (7) Total adjusted capital - an insurer's statutory capital and surplus as determined in accordance with the statutory accounting applicable to the annual financial statements required to be filed pursuant to the Insurance Code, and such other items, if any, as the RBC instructions provide. (b) Scope. This section applies to all domestic, foreign, and alien property/casualty companies subject to the provisions of the Insurance Code, Articles 2.02, 2.20, and 21.44, excluding those insurers that are only authorized to write mortgage guaranty insurance in all states in which they are licensed and excluding those insurers that write business only in this state and are not required by law to have capital stock. (c) Purpose. The purpose of implementing this risk-based capital and surplus provision is to require a minimum level of capital and surplus appropriate to the underwriting, financial, investment risks and other business and relevant risks assumed by an insurer. (d) Adoption of RBC formula by reference and filing requirements. The commissioner adopts by reference the 1997 NAIC Property and Casualty Risk-Based Capital Report including Overview and Instructions for companies which includes the RBC formula and the required diskettes. All companies subject to this section are required to file the diskettes with the NAIC in accordance with and by the due date specified in the RBC instructions. (e) Conflicts. In the event of a conflict between the Insurance Code, any currently existing rule of the department or any specific requirement of this section, and the RBC formula and/or the RBC instructions, the Insurance Code, rule or specific requirement of this section shall take precedence and in all respects control. It is the express intent of this section that the adoption by reference of the RBC instructions not repeal or modify or amend any rule of the department or the Insurance Code. (f) Actions of commissioner. The commissioner may take the following actions against an insurer who fails to maintain, at a minimum, 70% of authorized control level as calculated in accordance with the RBC instructions: (1) order the insurer to cease writing new business; (2) place the insurer in supervision or conservation; (3) determine the insurer to be in hazardous financial condition as provided by the Insurance Code, Article 1.32, and sec.8.3 of this title (relating to Hazardous Conditions); (4) determine the insurer to be impaired as provided by the Insurance Code, Article 1.10, sec.5; or (5) apply any other sanctions provided by the Insurance Code or Title 28 of the Texas Administrative Code. (g) Prohibition on Announcements. Except as otherwise required under the provisions of this section, the making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing an assertion, representation or statement with regard to any component derived in the calculation, by any insurer, agent, broker or the person engaged in any manner in the insurance business would be misleading and is, therefore, prohibited. (h) Prohibition on use in Ratemaking. The RBC instructions and any related filing are intended solely for use by the commissioner in monitoring the solvency of property/casualty insurers subject to this section and in taking corrective action with respect to insurers and shall not be used by the commissioner for ratemaking nor considered or introduced as evidence in any rate proceeding nor used by the commissioner to calculate or derive any elements of an appropriate premium level or rate of return for any line of insurance which an insurer or any affiliate is authorized to write. (i) Limitations. In no event shall the requirements of this section reduce the amount of capital and surplus otherwise required by provisions of the Insurance Code or Texas Administrative Code, or by authority of the commissioner. 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. Filed with the Office of the Secretary of State on February 2, 1998. TRD-9801455 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: February 22, 1998 Proposal publication date: November 21, 1997 For further information, please call: (512) 463-6327 TITLE 31. NATURAL RESOURCES AND CONSERVATION PART XX. Edwards Aquifer Authority CHAPTER 701. Filing and Processing of Permit Applications The Edwards Aquifer Authority (Authority) adopts the repeal of sec.sec.701.1- 701.5, 701.11-701.13, 701.15-701.19, 701.21, 701.22, 701.31-701.35, 701.52- 701.59, 701.77-701.77, 701.91-701.102, 701.121-701.131, 701.141-701.147, 701.171-701.176, 701.191-701.196, and 701.211-701.221, concerning rules for filing and processing of permit applications, without changes to the proposed text as published in the November 21, 1997, issue of the Texas Register (22 TexReg 11239) and will not be republished. The repeals of these sections are necessary to allow the concurrent adoption of new rules providing for a more complete and integrated permit program implementation by the Authority as well as reorganization of its rules to more efficiently accommodate future rulemaking. No comments were received regarding adoption of the repeals. Public hearings were held on December 10, 1997, in San Marcos, December 12, 1997, in New Braunfels, December 16, 1997, in Uvalde, December 17, 1997, in San Antonio, and on December 18, 1997, in Hondo. No oral comments were received concerning the proposed repeals. SUBCHAPTER A. General Provisions 31 TAC sec.sec.701.1-701.5 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801793 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER B. Declarations of Historical Use 31 TAC sec.sec.701.11-701.13, 701.15-701.19, 701.21, 701.22 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801794 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER C. Filing and Notices 31 TAC sec.sec.701.31-701.35 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically undersubsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801795 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER D. Administrative Review of Declarations of Historical Use 31 TAC sec.sec.701.52-701.59 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801796 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER E. Technical Review and Initial Determination of Declarations of Historical Use 31 TAC sec.sec.701.71-701.77 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801797 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER F. Initial Regular Permit Amounts and Terms 31 TAC sec.sec.701.91-701.102 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801798 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER G. Hearings Process 31 TAC sec.sec.701.121-701.131 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801799 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER H. Post Hearing Process 31 TAC sec.sec.701.141-701.147 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801800 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER I. Term Permits 31 TAC sec.sec.701.171-701.176 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801801 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER J. Emergency Permits 31 TAC sec.sec.701.191-701.196 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801802 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 SUBCHAPTER K. Well Construction Permits 31 TAC sec.sec.701.211-701.221 The repeals are adopted under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Sessions Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board of directors of the Authority to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801803 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 31 TAC sec.sec.701.1, 701.3, 701.5 The Edwards Aquifer Authority (Authority) adopts new sec.sec.701.1, 701.3, and 701.5, concerning the purpose of the Authority's rules and other general provisions, without changes to the proposed text as published in the November 21, 1997, issue of the Texas Register (22 TexReg 11245) and will not be republished. Beginning in May, 1997, the Authority undertook a complete review of its rules and rulemaking process. The purpose of the review of the rulemaking process was to ensure that future rulemaking would be efficient and effectively accommodated. The review found that there was no preexisting framework or index for likely future rulemaking. In addition, the bulk of the rules were being lodged in one single chapter, while other rules were located in another chapter without an apparent numerical nexus. The placement of most of the rules in one chapter was over time likely to result in intermixing of multiple unrelated subject matter and the creation of structural problems related to the sequencing of chapters and subchapters. Accordingly, an index of probable future rulemaking was developed as a structural guide to follow. In light of the development of this index, it became necessary to reorganize the rules of the Authority to conform to the index. The adoption of new chapter 701 is in furtherance of this conformance process. Thus, with the adoption of this new chapter 701 the Authority will now have a chapter in place for future rulemaking related to the general rules governing the Authority. The results of the entire rules reorganization process are found in Table 1, Disposition Table, located in the Tables and Graphics section in this issue of the Texas Register. Figure 1: 31 TAC, Chapter 701, Preamble As previously mentioned, the rules themselves were also reviewed. The purpose of the review was to evaluate the rules to compare them against a fully developed, integrated permit program that would be required to be developed and implemented under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Session Laws 2353-2374, as amended (Act). In so doing, the rules were evaluated for completeness as to the scope of issues to be addressed, editorial style and clarity with a special focus on terminology, substantive legal conformance to the Act, the need for augmentation and expansion of discussion relative to issues already addressed in the rules, and the elimination of unnecessary provisions. The review of the rules found that there were additional issues that need to be addressed in order to make the permit program rules integrated and complete. Improvements in terminology were found to be helpful. As for issues already addressed by the rules, agency practice in working with the rules found that additional rulemaking would be helpful to state what the Authority's more fully developed legal positions would be relative to those issues. Finally, rules were identified that could be eliminated for various reasons. The prior permit programs rules of the Authority are found in 31 TAC sec.701 (West 1997) (repealed), 22 TexReg 1393 (1997) (to be codified in 31 TAC Subchapters C-H) (repealed) and 22 TexReg 5263 (1997) (to be codified in 31 TAC Subchapters I-K) (repealed). A summary of the reasons these rules were reorganized and modified are found in Table 2, "Edwards Aquifer Authority Permit Program Rules Revision Analysis", located in the Tables and Graphics section in this issue of the Texas Register. Figure 2: 31 TAC, Chapter 701, Preamble No comments were received regarding adoption of the new rules. The new rules are adopted under the Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Session Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors. 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. Filed with the Office of the Secretary of State on February 9, 1998. TRD-9801804 Gregory M. Ellis General Manager Edwards Aquifer Authority Effective date: March 1, 1998 Proposal publication date: November 21, 1997 For further information, please call: (210) 222-2204 CHAPTER 703. Definitions 31 TAC sec.703.1 The Edwards Aquifer Authority (Authority) adopts new sec.703.1, concerning a consolidated set of definitions for the Authority's rules, with changes to the proposed text as published in the November 21, 1997, issue of the Texas Register (22 TexReg 11245). I. Introduction. A. General Reorganization of Authority Rulemaking. Beginning in May, 1997, the Authority undertook a complete review of its rules and rulemaking process. The purpose of the review was to ensure that future rulemaking would be efficient and effectively accommodated. The review found that there was no preexisting framework or index for likely future rulemaking. In addition, the bulk of the rules were being lodged in one single chapter, while other rules were located in another chapter without an apparent numerical nexus. The placement of most of the rules in one chapter was over time likely to result in intermixing of multiple unrelated subject matters and creation of problems in the sequencing of chapters and subchapters. Accordingly, an index of probable future rulemaking was developed as a structural guide to follow. In light of the development of this index, it became necessary to reorganize the rules of the Authority to conform them to the index. Adopting the new chapter 703 will further this process and provide a chapter in which to place definitions for future rulemaking. The complete results of the reorganization process are found in Table 1, Disposition Table, located in the Tables and Graphics section in this issue of the Texas Register The Disposition Table identifies where the concepts within the Authority's prior permit program rules are now located under these new permit program rules. The prior rules may be found at 31 TAC sec.701 (West 1997) (repealed), 22 TexReg 1393 (1997) (to be codified in 31 TAC Subchapters C-H) (repealed), and 22 TexReg 5263 (1997) (to be codified in 31 TAC Subchapters I-K) (repealed). B. Review of Definitions Within the Authority's Permit Program Rules. 1. In General. As previously stated, the rules themselves were also reviewed. The purpose was to evaluate the rules and compare them against a fully developed, integrated permit program that would be required to be developed and implemented under the Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature, Regular Session, Chapter 626, 1993 Texas Session Laws 2353-2374, as amended (Act). The rules were evaluated for completeness as to the scope of issues to be addressed, editorial style and clarity with a special focus on terminology, substantive legal conformance to the Act, the need for augmentation and expansion of discussion relative to issues already addressed in the rules, and the elimination of unnecessary provisions. 2. Organizational Review. The review found structural problems with how the definitions were being presented. There were multiple sections entitled as containing definitions. Definitions were also found in the form of substantive rules. Finally, definitions were contained within substantive rules. With the adoption of new sec.703.1, all definitions will be collected in one chapter as opposed to being scattered throughout the rules of the Authority. 3. Substantive Review. In addition to the structural concerns, the review found that additional definitions were required in order to make the permit program rules integrated and complete. The definitions were also employed to improve terminology. Some definitions required revision to conform to the substantive legal requirements of the Act. Some definitions were also augmented to more fully develop legal issues that had already been addressed. The prior permit programs rules of the Authority are found in 31 TAC sec.701 (West 1997) (repealed), 22 TexReg 1393 (1997) (to be codified in 31 TAC Subchapters C-H) (repealed) and 22 TexReg 5263 (1997) (to be codified in 31 TAC Subchapters I-K) (repealed). A summary of the reasons these rules were reorganized and modified are found in Table 2, "Edwards Aquifer Authority Permit Program Rules Revision Analysis", located in the Tables and Graphics section in this issue of the Texas Register. II. Written Comments. Written comments were filed by the City of San Marcos, the City of Kirby, Lone Star Growers, Regional Clean Air and Water, Southwest Independent School District, Don McCrary & Assoc., Inc., City of Leon Valley, City of Olmos Park, United States Department of the Air Force, Representative Frank J. Corte, Jr., Aldridge Nursery, Inc., City of Alamo Heights, Guadalupe Blanco River Authority (GBRA), Living Water Artesian Springs, Ltd. (Living Waters), East Central Water Supply Corp., San Antonio Water System (SAWS), City of Terrell Hills, Hyatt Hill Country Resort (Hyatt), City of Garden Ridge, Hutcheson & Grundy, L.L.P., and the City of Schertz, as well as various individuals. Written comments were also filed by the following commenters but were of a general nature and did not address a specific proposed rule such that no response is required or is able to formulated: The Greater San Antonio Chamber of Commerce, Petty Ranch Co., and various individuals. III. Public Hearings. Public hearings were held on December 10, 1997, in San Marcos, December 12, 1997, in New Braunfels, December 16, 1997, in Uvalde, December 17, 1997, in San Antonio, and on December 18, 1997, in Hondo. IV. Oral Comments. Chemical Specialists, Inc. and various individuals gave oral comments. The following commenters gave oral comments but also filed written comments addressing the issues raised in their oral comments: City of San Marcos, Representative Tracy O. King, Aldridge Nursery, Inc., Dan McCrary & Assoc. Inc., Lone Star Growers, East Central Water Supply Corporation, Regional Clean Air & Water Association as well as various individuals. For these commenters, because the substance of the oral and written comments are substantially similar, the Authority will respond to their written comments only. Various individuals made oral comments of a general nature which did not address a specific proposed rule such that no response is required or is able to be formulated. V. Authority Responses to Comments. A. Procedural Background. As previously noted , the Authority conducted public hearings on December 10, 1997, in San Marcos, December 12, 1997, in New Braunfels, December 16, 1997, in Uvalde, December 17, 1997, in San Antonio, and on December 18, 1997, in Hondo. The Authority received oral comments at these hearings. It received written comments from November 21, 1997, through 5:00 p.m. on December 20, 1997. Authority staff compiled the oral and written comments and reviewed them for the purpose of developing recommendations to the Permits Committee of the Board of Directors (Board) of the Authority. On January 5, 1998 and January 12, 1998, the staff presented its recommendations to the Permits Committee. The Permits Committee made its recommendations on January 12, 1998, to the Board. On January 20, 1998, the Board considered the recommendations of the Authority staff, recommendations of the Permits Committee and other recommendations of the members of the Board at its regular Board meeting in Uvalde. These adopted rules reflect the action of the Board after review and consideration of the comments received by the Authority and staff recommendations. B. Authority Response to Comments not Identifying Specific Definitions By Name Within Proposed sec.703.1. Some commenters did not correlate their comments to specific definitions within proposed sec.703.1. When the Authority was able to ascertain that a particular nonspecific comment was related to a particular definition, the Authority interpreted the comment as such and responds as if the comment had identified a particular definition. C. Authority Response to Comments Identifying Specific Definitions by Name Within Proposed sec.703.1. COMMENTS RELATING TO THE DEFINITION OF "ACT": One commenter recommended that the word "Authority" be included. The Authority declines to adopt this recommendation. The Authority's use of the title of the Edwards Aquifer Act is consistent with the terminology used by the Texas Supreme Court in Barshop v. Medina Underground Water Cons. Dist., 925 S.W. 2d 618, 623 (Tex. 1996) (hereinafer Barshop. COMMENTS RELATING TO THE DEFINITION OF "AGRICULTURAL USE": Two commenters recommended that "agricultural use" not be defined. One argues that it should be dealt with in the fee rules. The Authority has not proposed or adopted any fee rules. It currently addresses fees through the administrative process. The Authority agrees with San Marcos that the reason for a definition of "agricultural use" is grounded in the Act, sec.1.29(c), relating to aquifer management fees. The concept of "agricultural use" is not a groundwater withdrawal permit issue in the sense of representing an authorized beneficial use for which a withdrawal may be made. Instead, it is tied to the Authority's aquifer management fee program. The Authority nonetheless disagrees with San Marcos that the definition of "agricultural use" should be in the fee rules because the purpose of new chapter 703 is to consolidate all definitions in one chapter. Four commenters recommended that the definition of "agricultural use" be clarified to include the growing of plants in nurseries. The Authority agrees and has modified the definition accordingly. Another commenter argues that "agricultural use" expands the definition of "irrigation use". The Authority disagrees because the only section in which the term "agricultural use" occurs in the Act is sec.1.29(e) and is specifically related to aquifer management fees. Another commenter proposed that the definition include "fish propagation". The Authority disagrees because fish propagation is included within the scope of aquaculture which is part of the definition. One commenter stated that including aquaculture within the definition of agriculture was inappropriate, and that it should be considered an industrial use. The Authority disagrees with this position. A review of the definition of "agriculture use" found in other statutory law shows that aquaculture is included within the concept of agriculture use. See, Texas Tax Code Annotated sec.23.51(2) (West 1992). COMMENTS RELATING TO PROPOSED DEFINITIONS RELATED TO TRANSFERS: Concurrent with this rulemaking the Authority publishes its notice of withdrawal of proposed 31 TAC, Chapter 705, Subchapter H, (relating to Transfers), proposed 31 TAC, Chapter 707, Subchapter J, (relating to Additional Requirements for Applications to Amend) and other miscellaneous sections concerning transfers of groundwater withdrawal permits. Consistent with this action, the Authority has "withdrawn" or eliminated from the final adoption of new sec.703.1 all definitions related to transfers including: "demonstrated need", "registry", "sell" or "sale", "transfer", "transfer agreement", "transfer period", "transferee", and "transferor". Accordingly, the Authority will not respond to any comments related to these proposed definitions. COMMENTS RELATING TO THE DEFINITION OF "BENEFICIAL USE": One commenter recommended that the definition of "beneficial use" be modified to include "without waste." The Authority disagrees. The definition as proposed is consistent with the Act, sec.1.03(4). The Authority has not deviated from the language of the Act, sec.1.03 relating to definitions, unless required to by other principles of law, such as is the case for "existing user", or when additional clarity is required. The definition of "beneficial use" does not require any modification. COMMENTS RELATING TO THE DEFINITION OF "CAP": One commenter states that the term "cap" should not be used because it is not contained in the Act. The Authority agrees that this term is not used in the Act. However, the Authority responds that it is used by the Court in Barshop, 925 S.W. 2d at 624, from which the Authority has borrowed this terminology. The term "cap" refers to the withdrawal amounts established in the Act, sec.1.14(b) and (c). One commenter noted that establishing the cap at 450,000 acre-feet for each calendar year was appropriate. One commenter noted that the Authority should "go back to the Legislature" and increase the amount of the cap. The Authority responds that in sec.1.14(d) the Legislature has already created a procedure through which the Authority may increase the maximum amount of withdrawals that may be made each calendar year. This procedure is discussed in more detail. One commenter stated that the cap is unfair, unjustifiable, and has no other reasonable basis. The Authority responds that this is an inappropriate inquiry at this stage of the implementation of the permit program and is beyond the scope of these permitting rules. The 450,000 acre-feet withdrawal was established by the Legislature in the Act, sec.1.14(b). It is the view of the Authority that, other than through the Act, sec.1.14(d), any debate on the fairness, reasonableness or justification of this amount must occur through the legislative process. Thirteen commenters (primarily municipalities) recommended that the amount of groundwater authorized to be withdrawn under the definition of "cap" be raised, pursuant to sec.1.14(d), from 450,000 acre-feet for each calendar year to a higher amount. The primary argument is that "average historical recharge" exceeds 450,000 acre-feet per year and that permitted withdrawals should be based thereon. The Authority recognizes that in general it has the authority to raise the cap pursuant to sec.1.14(d). However, sec.1.14(d) contains many substantive and procedural prerequisites that must first be satisfied in order to invoke this authority. First, studies must be performed supporting a determination by the Authority that additional supplies of groundwater are available from the aquifer for withdrawal. Second, the water management strategies are to be implemented This would carry with it the concomitant duty to monitor the hydrologic and environmental impacts associated with the implementation of the water management strategies. Once this data is gathered, reviewed and analyzed, it would need to support a conclusion by the Authority that additional supplies of groundwater are available from the aquifer for withdrawal. Consultation with the appropriate federal agencies, as well as state agencies, would need to occur. Lastly, the Authority, after review of the data and the information derived from the consultation process, could then increase the amount of the cap. While many studies have been conducted, none of these other substantive or procedural steps have yet occurred. Any effort by the Authority to raise the cap at this time would be without the necessary legal predicate established in sec.1.14(d). One commenter (GBRA) states that the definition of "cap" is in error because it only applies to withdrawals made pursuant to regular permits. GBRA believes that the cap applies also to withdrawals made under term and emergency permits. GBRA argues that sec.1.14(b) and (c), which create the cap, apply to withdrawals from all permits. The Authority declines to adopt this interpretation. The Authority acknowledges that sec.1.14(b) and (c) provide that "the amount of permitted withdrawals from the aquifer may not exceed" 450,000 or 400,000 acre- feet for each calendar year of their respective periods of applicability. However, to rely on sec.1.14(b) and (c) for this proposition is insufficient. As an initial matter, the Authority notes that the word "all" is not to be found in sec.1.14(b) or (c). Therefore, one must also consider the application of sec.sec.1.16(e), 1.18(a), 1.19, 1.20 and 1.21(a) and (c). The cap is made applicable to sec.1.16 under subsection (e) where it provides that "(t)o the extent water is available for permitting", then certain permit amounts should be recognized and certain proportional adjustment procedures may need to be invoked. Section 1.16 addresses exclusively the issuance of initial regular permits. Section 1.18(a) also provides that "(t)o the extent water is available for permitting after the issuance of permits to existing users" (i.e. initial regular permits), then the Authority may issue additional regular permits. Neither sec.1.19 nor sec.1.20 concerning term and emergency permits, respectively, contain the introductory proviso "to the extent water is available for permitting". The conclusion is logically derived from this comparison that the cap only applies to initial and additional regular permit, and not to term or emergency permits. Providing additional support is sec.1.19(b) which establishes the aquifer level conditions that must exist for withdrawals to be made under term permits; and sec.1.20(d) which provides that withdrawals under emergency permits may be made "without regard to its effect on other permit holders". The conclusion that the cap does not apply to term or emergency permits is fully supported by a reading of sec.1.21(a) and (c). Section 1.21 concerns the retirement of permits to attain the cap. Under subsection (a) the Authority is to prepare a plan to reduce withdrawals "under regular permits" to meet the cap. Similarly, subsection (c) establishes the process to reduce withdrawals "under regular permits" and to reduce "each regular permit" to meet the cap. In the face of this legislative guidance, the Authority declines to apply the cap to withdrawals made under term or emergency permits. COMMENTS RELATING TO THE DEFINITION OF "CONTRACT USER": Two commenters urge that the Authority should "protect" contract users who purchase their water supply from a third-party purveyor. In essence, they urge that the Authority rules should intercede on behalf of the wholesale contract customer in the contractual relationship governing the relationship between the seller and purchaser. The Authority declines to undertake this responsibility because it is a matter more peculiarly within the jurisdiction of the Texas Natural Resources Conservation Commission. See Texas Water Code, Chapter 13 and 30 TAC, Subchapter I (West 1997) (relating to Wholesale Water or Sewer Service). One commenter urges that the definition of "contract user" be deleted because it is contrary to law. The Authority disagrees. This definition is necessary to implement the discussion of the Court in Barshop, 925 S.W.2d at 630 n. 3 related to the nature of a "user" with no legal ownership interest in a well but with a legal right to withdraw groundwater from the well. COMMENTS RELATING TO THE DEFINITION OF "EXEMPT WELL". One commenter through oral testimony supported the creation of a quantified de minimis amount of groundwater, the withdrawal of which is for a purpose other than domestic or livestock use, or livestock watering, would not result in the change of the status of a well from an "exempt well" to a non-exempt well (i.e. one required to meter and obtain a permit). Sixteen irrigators and three other commenters oppose the de minimis rule as being without statutory authority, although they cite to no authority for this proposition. The Authority disagrees. The Authority was created by the legislature "for the effective control of the (aquifer)." See Act, sec.1.01. In addition, the Authority is the agency that will "provide for the management of the aquifer through the application of management mechanisms consistent with our legal system and appropriate to the aquifer system." Act, sec.1.06. The Authority has "all of the powers, rights, and privileges necessary to manage, conserve,preserve, and protect the aquifer and to increase the recharge of, and prevent the waste or pollution of water in, the aquifer." Act, sec.1.08(a). The Authority also has "the rights, powers, privileges, authority functions, and duties provide(d) by . . . Chapter 50 (now codified at Texas Water Code, Chapter 49), Chapter 51 (largely repealed), and Chapter 52 (now codified at Texas Water Code, Chapter 36), Water Code ", when not in conflict or inconsistent with article 1 of the Act". Act, sec.1.08(a). The Authority is also charged with "manag(ing) withdrawals from the aquifer and . . . all withdrawal points . . . as provided by this Act." Act, sec.1.15(a). The Act, sec.1.33(a) and (c) sets out the requirements to qualify as an "exempt well". Section 1.16(c) sets out an exception to the requirement to file a declaration of historical use when "water (from a well) will be used exclusively for domestic use or water livestock and is exempt under sec.1.33". The uses triggering the exemption under sec.1.16(a) are groundwater used exclusively for "domestic use" and "watering livestock". The Act defines "domestic and livestock use" and "livestock". See Act, sec.1.03(9) and (13), respectively. However, the terms "exclusively", "domestic use" or "watering livestock" referred to in sec.1.16(c) are not defined. Under sec.1.33(c), the uses triggering the exemption are "domestic and livestock use" which is defined in the Act. See Act, sec.1.03(9). Moreover, in order to qualify for the exemption from the duty to file a declaration of historical use under sec.1.16(c) a well must satisfy the requirements of sec.1.16(c) and sec.1.33. Additionally, sec.1.15(b) exempts sec.1.33 wells from the permit requirement with no mention of the sec.1.16(c) requirements. Looking to Texas Water Code, sec.36.117(a)(1), for guidance on this issue, the key criterion for determining the issue of whether a well qualifies for the exemption from obtaining a permit is not the use of the water, but whether the well is rendered incapable of producing more than 25,000 gallons of groundwater per day, a requirement very similar to the Act, sec.1.33(a). Under this circumstance, the Authority believes that it is appropriate to adopt the doctrine of de minimis use if it is coupled with a definition of "produce 25,000 gallons of water a day or less" that adopts the sec.36.117(a)(1) approach of providing the exemption only to wells that are incapable of producing groundwater at a rate in excess of 25,000 gallons per day. Under this doctrine, the use of less than 1,250 gallons of groundwater a day for a use other than "domestic use", "watering livestock", or "domestic or livestock use" that is incidental to these purposes from a well that is otherwise exempt, retains the status as an exempt well. The de minimis rule is not a new concept created in these new rules. Rather, it already exists in the prior permit program rules of the Authority. See 31 TAC sec.701.15 (West 1997) (repealed). Under these new rules, the Authority is merely quantifying the amount of the de minimis use that does not void the status as an exempt well. The Authority originally adopted the de minimis rule as a way of balancing the regulatory and administrative burden on the Authority and the cost effectiveness of any enforcement program that would need to be designed to regulate de minimis non-exempt uses in relation to any likely impact on total withdrawals from the aquifer. One commenter urged that the domestic and livestock use requirement be relaxed to include uses in the nature of domestic uses occurring at a location other than a residence. The Authority disagrees because this would, in essence, convert a commercial or industrial user into an otherwise exempted domestic use. The Authority interprets sec.1.03(9) as limiting domestic uses to residential locations. Cf. Comite Pro Rescate de la Salud v. Puerto Rico Aqueduct & Sewer Auth., 888 F.2d 180, 184-88 (1st Cir. 1989), cert. Denied, 494 U.S. 1029 (1990) (domestic sewage exclusion under the Resource Conservation and Recovery Act refers to sewage coming from residences). COMMENTS RELATING TO THE DEFINITION OF "EXISTING USER": Two commenters argued that the definition of "existing user" should include a contract customer, presumably wholesale, of a supplier of groundwater when the wholesale customer has no ownership interest in the well(s) from which it is supplied. The Authority disagrees. The sine qua non of an "existing user" is ownership of the point(s) of withdrawal (i.e. well(s)) from which the withdrawals are made during the historical period. It is correct that the Court in Barshop, 925 S.W. 2d at 630 n.3, stated as follows: This holding does not necessarily limit the definition of 'user' to individuals owning land. Under some circumstances, an entity that does not own the land or the well may be considered a "user" if the entity had some right to withdraw water. The Authority does not disagree with this dicta of the Court. However, this discussion is not applicable to the definition of "existing user". There is a distinction between an "existing user" and a mere "user" of the aquifer. First, the Court noted that the term "user" was not defined by the Act. The term "existing user" is defined by the Act. See sec.1.03(10). Second, the Court was careful to preserve this distinction in the above-cited footnote. Third, the discussion of "user" in footnote 3 was in relation to the nature of the "use" of groundwater from the aquifer and whether the "use" runs with the landowner personally, or with the land, and did not concern the issue of whether a mere "user" who owned no well could qualify as an "existing user". The Court stated as follows: "The Act does not define 'user' and does not specify whether the use of water runs with the land. It is therefore unclear whether a 'user' includes prior and future owners of the land, or whether a 'user' is only the landowner in possession of the land at the time a permit is requested (i.e. when the declaration of historical use is file on or before December 30, 1996). The State urges that the more reasonable interpretation is that a 'user' would include prior and future landowners. Under this interpretation, historical use could be established through previous landowners' withdrawals from the well, and permit could be transferred to future owners of the land. We agree with the State's interpretation that the 'user' includes at least prior and future landowners. Accordingly, we conclude that the 'use' of water runs with the land and, as such, does not constitute a taking of landowners' property." For purposes of the Authority's permit program rules, this discussion simply means that an "existing user" may rely on the "use" of a "user" who had a right to withdraw groundwater from the well owned by an "existing user" during the historical period to establish the "existing user's" historical use. Mere contract users under the Act cannot be an "existing user" for two reasons. First, under the statutory definition of "existing user" a contract user is not a "person who has withdrawn" under sec.1.03(10). A contract user merely received groundwater as a commodity at an agreed delivery point (e.g. a master meter). On the other hand, the existing user as the owner of the well makes the withdrawal of the groundwater, transports the groundwater to a the delivery point in its transmission system and sells the water to the contract user. A review of the Act also shows that an "existing user" must own the well upon which the declaration for historical use is based. Second, the Act in numerous sections makes reference to the owner of a well having certain rights and duties. See sec.sec.1.0321(E) and (F) (relating to the definition of waste); 1.16(b) (evidentiary obligation of owners of irrigation wells); 1.16(c) (owners of exempt wells not required to filed declarations of historical use); 1.17(a) (owners of producing wells may continue to withdraw under interim authorization); 1.17(d)(2) (interim authorization expires if well owner fails to timely file declaration of historical use); and 1.31(a) (owners of nonexempt wells). COMMENTS RELATING TO THE DEFINITION OF "HISTORICAL USE": One commenter (SAWS) recommends that the definition of "historical use" should be amended to require that the withdrawal be "lawful". The Authority agrees that only withdrawals made during the historical period that were lawfully made should be entitled to an initial regular permit, and has made the appropriate change. COMMENTS RELATING TO THE DEFINITION OF "INITIAL REGULAR PERMIT MINIMUM WITHDRAWAL AMOUNT": De minimis. One commenter through oral testimony requested that the de minimis amount of groundwater applicable to the definition of "exempt well" be incorporated into the definition of "initial regular permit minimum withdrawal amount". The Authority declines to accept this recommendation. The concepts of creating a de minimis withdrawal scenario for an exempt well such that it would not require a permit and the establishment of a minimum permit withdrawal amount for an initial regular permit are entirely unrelated. Ten-Year Rule. One commenter supported the proposed ten-year rule in subparagraph (B). Another commenter opposed the authorization in subparagraph (B) granted to existing users with greater than ten years of operation of a well during the historical period to eliminate up to five consecutive years of use. He argued that this did not constitute a historical "average" for the years a well was in operation. The Authority declines to adopt this reading of the statute. First, the term "average" is not defined by the Act. Second, the term "operate" a well is not defined by the Act. Third, the Texas Legislature intended to differentiate between longer-term v. shorter-term existing users of the aquifer during the historical period. This is evidenced by the three-year operating well cut off for qualifying for the statutory minimum. Failing to allow longer term users to eliminate from their historical average years early in the historical period results in the odd and illogical result that the longer an existing user withdrew groundwater during the historical period, the more, due to a straightforward average calculation, they are prejudiced (in terms of contrasting actual current demand with an authorized withdrawal amount based on historical average) when compared to more recent existing users. This is not a result that the Legislature could have intended. Regulatory Minimum for Existing Users With Less Than Three Years of Operation of a Well During the Historical Period. Eighteen irrigators and one other commenter also opposed subparagraph (D) arguing essentially that there are only two bases for an initial regular permit minimum withdrawal amount, (1) 2.0 acre-feet a year irrigation minimum and (2) historical average minimum for those existing users operating a well for three or more years during the historical period. With regard to subparagraph (D), the commenter proceeded to opine that the Act does grant a minimum to an existing user operating a well for less than three years. The City of San Marcos also generally opposes the creation of a regulatory minimum for less than three year well operators, but stated that it could "live with the compromise arrived at in the present (interpreted by the Authority to mean "proposed") rules." This "compromise" includes a regulatory minimum for less than three-year well operators. The Authority agrees that the Act sets forth only two express statutory basis for the creation of minimums. However, the inquiry does not end there. First, sec.1.16(e) provides that '(t)he board (of directors of the Authority) shall grant an initial regular permit to an existing user who (establishes certain facts)" by convincing evidence. (emphasis added). There may well be existing users who are not irrigators and cannot demonstrate operation of a well for three or more years during the historical period and would not qualify for one of the statutory minimums. This raises the possibility in which an existing user must be granted an initial regular permit under sec.1.16(e), but the permit is subject to proportional adjustment to zero acre-feet, or a very low amount, because it does not qualify for a statutory minimum. The exact amount of proportional adjustment will be a function of the total aggregate amount of groundwater authorized to be withdrawn under initial regular permits compared against the cap. Moreover, the Texas Supreme Court in Barshop, 925 S.W. at 624 n. 3, lends support by way of dicta that the statutory minimums provide an avoidance mechanism to proportional adjustment. Leaving a class of existing users (i.e. those with less than three years operation of a well during the historical period) entitled to an initial regular permit under sec.1.16(d) subject to proportional adjustment to zero acre-feet increases the possibility of an unconstitutional taking. Section 1.11(g) prevents the Authority from acquiring groundwater rights expressly through eminent domain. The Authority construes the Act, sec.1.07 to prevent the Authority from acquiring groundwater rights by inverse condemnation and to create a duty to on the part of the Authority to avoid regulatory programs that result in the unconstitutional taking of private property. Section 1.16(e), without more, leaves a class of existing users who may be entitled to an initial regular permit subject to being proportionally adjusted to the meaningless amount of zero acre-feet and thus possibly the subject of an unconstitutional taking. Accordingly, the Authority, pursuant to sec.1.07 and sec.1.16(d), establishes a regulatory minimum for existing users with less than three years operation for a well during the historical period. Two commenters (Living Waters and Hyatt) argue that the proposed rule should be modified to eliminate dividing by three years because the effect may be to divide by a year in which a well was not operational. The Authority agrees and has modified the rule accordingly to ensure that the average will be calculated by full years or fractions of years that a well was operational. Similarly Living Waters argued that the dividing by three years constitutes a takings. While the Authority expresses no opinion on this point, as mentioned immediately above, the calculation has been modified to reflect an average based on total withdrawals divided by the years or fraction thereof during which the well was operational. Calculation of Historical Average for Existing Users With Three or More Years of Operation of a Well During the Historical Period. One commenter (San Marcos) recommended that the historical average minimum be calculated by dividing by 21 years the total historical use for an existing user with three or more years of operation of a well during the historical period. The Authority disagrees because this could result in dividing the total historical use by a year in which a well that an existing user is relying on for his historical use may not have been operational. The Act, sec.1.16(e) provides guidance that in calculating the historical average the well must have been "operated" for three or more years during the historical period. A well that is not yet in existence cannot under any reasonable construction be considered to be in "operation". Therefore, the Authority declines to adopt this recommendation of dividing by 21 years. Instead, the Authority adopts the view that, in conjunction with the definition of "operate a well" or "operating well", for a year to be an appropriate year by which to divide for purposes of calculating the historical average minimum the well must have been in "operation" as that term is defined herein, as opposed to a year (or part of a year) in which a well may not have been in existence. Establishment of "Health and Safety", "Landscape", or "School" Minimum. Five commenters recommended that the definition of "initial regular permit minimum withdrawal amount" be modified to included a recognized minimum withdrawal amount for municipal users in quantities sufficient for "health and safety" or "landscape" purposes. Another commenter argued for a minimum amount for schools. The Authority disagrees. Section 1.16(e) does establish a minimum based on an identified use for irrigation use. However, all other minimums mentioned in sec.1.16(e) are grounded in an "average amount of water withdrawn annually during the historical period". The essence of this averaging methodology is to identify the appropriate aggregate total volume of groundwater withdrawn during the historical period and divide it by the appropriate number of years. The purpose for which the water was withdrawn is not a consideration in this averaging approach. Thus, the Authority does not interpret sec.1.16(e) as authorizing the creation of a regulatory minimum based solely on purpose of use, other than for irrigators. Recognition of Federal Program Participation. One commenter noted that subparagraph (A)(i) of the definition of "initial regular permit minimum withdrawal amount" did not harmonize well with the definition of "historical use". The minimum definition contains an "actual irrigation" requirement, while the historical use definition recognized the failure to irrigate as a historical use if the failure was due to the participation in a federal program. The Authority agrees that sec.1.16(f) requires the Authority to recognize and give credit to reductions in historical use due to the participation in federal programs. Although, sec.1.16(e) establishes the "actual irrigation" criteria, the Authority's position is that sec.1.16(e) must be read in light of sec.1.16(g). Accordingly, it has made the appropriate change in the definition of "initial regular permit minimum withdrawal amount" to recognize the amount of groundwater that would have been used to actually irrigate lands during the historical period but for the participation in a federal program. Annualization for Partial Year Operational Well. One commenter identified uncertainties in subparagraph (B) relative to the treatment of averaging for partial years use. This problem arises, for example, during the first year in which a well was installed and becomes operational. If a well was installed in October, for example, should the total withdrawals be averaged by one full year or only one-quarter of a year? The Authority agrees that this uncertainty should be resolved. The Act, sec.1.16(e) provides guidance that in calculating the historical average the well must have been in "operation". A well that is not yet in existence cannot under any reasonable construction be considered to be in "operation". Therefore, the Authority agrees that the portions of years that a well was not operational as defined in these rules should not be included as a part of the year for the average calculations. The Authority is of the opinion that this same rationale applies also to subparagraphs (C) and (D). Accordingly, it has modified subparagraphs (B)-(D) to divide by the number of months a well was operational divided by twelve months to account for partial years in which a well may not have been operational. Clarification of Meaning of Year. One commenter recommended that the term "year" be defined as either a calendar year or twelve month period as may be appropriate to clarify the Authority's intention as to the applicable durational period. The Authority agrees. However, rather than create a new definition for year, the Authority has made appropriate modifications and converted all references to years as either calendar year or months as are appropriate for each subparagraph (B)-(D). Distinction Between Categories of Existing Users Seeking a Historical Average Minimum. One commenter (Living Waters) stated that the result of the proposed definition for initial regular permit minimum withdrawal amount was to create three categories of existing users seeking a historical average minimum: those operating a well for more than ten years, three to ten years, and less than three years. The commenter stated that the distinction is arbitrary, and that it is without statutory basis, although it cites to no authority for this proposition. The Authority agrees that three categories are created. It disagrees that the distinction is arbitrary or without statutory basis. The three categories are not arbitrary because they are designed to accommodate at least three considerations: the length of time an existing user has withdrawn from the aquifer during the historical period, the effect of rising demand over time in relation to the amount of groundwater that will be calculated through the historical averaging process, and giving meaning to the legislative standard of three years in the Act, sec.1.16(e). The Authority disagrees there is no statutory basis. The Authority has broad authority to manage withdrawals from the aquifer to accomplish its statutory objectives. The Authority was created by the legislature "for the effective control of the (aquifer)." See Act, sec.1.01. In addition, the Authority is the agency that will "provide for the management of the aquifer through the application of management mechanisms consistent with our legal system and appropriate to the aquifer system." Act, sec.1.06. The Authority has "all of the powers, rights, and privileges necessary to manage, conserve, preserve, and protect the aquifer and to increase the recharge of, and prevent the waste or pollution of water in, the aquifer." Act, sec.1.08(a). The Authority also has "the rights, powers, privileges, authority functions, and duties provides by . . . Chapters 50 (now codified at Texas Water Code, Chapter 49), 51 (largely repealed), and 52 (now codified at Texas Water Code, Chapter 36), Water Code, "when not in conflict or inconsistent with article 1 of the Act", Act, sec.1.08(a). The Authority is also charged with "manag(ing) withdrawals from the aquifer and . . . all withdrawal points . . . as provided by this Act." Act, sec.1.15(a). These sections, among others, provide sufficient authority to create these categories and balance the interests identified above. Living Waters also argues that the classification create a "priority system" based on number of years of actual use without any rational basis. The Authority agrees that the legislature created a distinction between three or more years operation and less than three operation which recognizes a priority for longer- term users of the aquifer. The Authority disagrees as discussed above that there is no rational basis. Creation of Mandatory Minimum. One commenter (Living Waters) argues that the definition of minimums creates a "mandatory minimum withdrawal amount". The Authority disagrees. The definition merely creates the minimums. Other sections (i.e. sec.705.77(d)) give the effect of and consequence to be accorded the minimums. Withdrawals From the Aquifer. One commenter (SAWS) recommended that subparagraph (A)(i) of the definitions for "initial regular permit minimum withdrawal amount" be amended to clarify that the irrigation withdrawals must be from the aquifer. This change is no longer necessary in light of the above-discussed modification related to participation in federal programs. The definition of "historical use" already contains this language. 75% Maximum Adjustment Coefficient. One commenter (Hyatt) recommends that the definition of "initial regular permit minimum withdrawal amount" should establish a maximum adjustment coefficient of 75% of the an existing user's usage during the last twelve months of the historical period to protect against large shortfalls between permitted withdrawal amounts and current actual demand. The Authority disagrees with this recommendation. The standard under sec.1.16(e) is to establish a historical average for irrigator and non-irrigator existing users with three or more years operation of a well. Application of this coefficient would not result in an average. However, for less than three year operators of a well, sec.1.16(e) does not establish the standard for determining the initial regular permit minimum withdrawal amount. The Authority adopts the position that these two approaches should be combined such that a historical average is calculated but that a reduction coefficient is applied at a level that a taking is not likely to occur consistent with sec.1.07 and sec.1.11(g). In so doing, the legislative purpose in sec.1.16(e) of preferring longer-term users (i.e. three years or more) of the aquifer over shorter-term users (less than three years) may be implemented. The Authority has modified subparagraph (D) accordingly. COMMENTS RELATING TO THE DEFINITION OF "INTERRUPTIBLE": One commenter recommended editorial stylistic modifications to the definition of "interruptible". The Authority agrees and has modified the rule accordingly. COMMENTS RELATING TO THE DEFINITION OF "IRRIGATION USE": One commenter (Hyatt) recommends that the definition of "irrigation user" be modified to include the irrigation of golf courses as an irrigation use. The Authority declines to adopt this recommendation because to do so would be inconsistent with the Act, sec.1.03(12) . COMMENTS RELATING TO THE DEFINITION OF "OPERATE A WELL OR OPERATING WELL": One commenter (SAWS) recommends that the definition for "operate a well or operating well" be modified to clarify that the use of the well is required to have been in the historical period. The Authority agrees and has modified the rule accordingly. Another commenter offered other editorial stylistic modifications to the definition which were not adopted by the Authority. COMMENTS RELATING TO THE DEFINITION OF "PERMIT": One commenter offered editorial stylistic changes to the definition of "permit". The Authority agrees with the recommendations and has modified the definition accordingly. COMMENTS RELATING TO THE DEFINITION OF "POLLUTION": One commenter offered editorial stylistic changes to the definition of "pollution". The Authority does not adopt the recommendation because it would be inconsistent with the Act, sec.1.03(17). COMMENTS RELATING TO THE DEFINITION OF "PRODUCES 25,000 GALLONS OF WATER A DAY OR LESS": One commenter urges that the definition of "produces 25,000 gallons of water a day or less" be based on actual use rather than capability of being produced. The Authority disagrees in light of Texas Water Code, sec.36.117(a)(1). Another commenter offered other editorial stylistic modifications to the definition which were not adopted by the Authority. COMMENTS RELATING TO THE LACK OF DEFINITION OF "SAN ANTONIO POOL": Two commenters were unclear where Medina County was in relation to the San Antonio Pool or the Uvalde Pool. In so commenting, they additionally inquired whether a "Medina Pool" had been established by the Authority. SAWS indicated defining San Antonio Pool would clarify sec.705.67(c)(1) of this title (relating to Term Permits). The Authority agrees that it has the authority to establish additional pools. See Act, sec.1.14(g). However, it has not yet done so. The Authority also agrees that any uncertainty about the geographic extent of the San Antonio Pool should be resolved. Accordingly, the Authority has included a definition for the San Antonio Pool as being that part of the aquifer underlying the boundaries of the Authority other than Uvalde County. COMMENTS RELATING TO THE DEFINITION OF "SUBDIVISION REQUIRING PLATTING": One commenter (GBRA) asserts that the definition of "subdivision requiring platting" is an unlawful expansion of the Act, although no authority is cited, or are specific parts of the definition identified as being problematic. The provisions of this definition are basic reiterations of state law related to what is a "subdivision" and when a subdivision is "required to be platted". See e.g., TEXAS LOCAL GOVERNMENT CODE ANNOTATED sec.sec.212.004(a); and 232.001; and 232.022 (Vernon Supp. 1998). The Authority did include a five acre requirement to subdivisions located within counties and outside the extraterritorial jurisdiction of municipal corporations. The purpose of this definition is to create a uniform body of law related to the platting of subdivisions applicable throughout the Authority. The Authority declines to modify this definition. Another commenter offered other editorial stylistic modifications to the definition which were not adopted by the Authority. COMMENTS RELATING TO THE DEFINITION OF "UNDERGROUND WATER": One commenter offered editorial stylistic modifications to the definition which were not adopted by the Authority. COMMENTS RELATING TO THE LACK OF DEFINITION OF "UVALDE POOL": As previously noted , two commenters were unclear where Medina County was in relation to the San Antonio Pool or the Uvalde Pool. In so commenting, they additionally inquired whether a "Medina Pool" had been established by the Authority. SAWS indicated defining Uvalde Pool would clarify sec.705.67(c)(1) of this title (relating to Term Permits). The Authority agrees that it has the authority to establish additional pools. See Act, sec.1.14(g). However, it has not yet done so. The Authority also agrees that any uncertainty about the geographic extent of the Uvalde Pool should be resolved. Accordingly, the Authority has included a definition for the Uvalde Pool as being that part of the aquifer underlying Uvalde County. COMMENTS RELATING TO THE DEFINITION OF "WASTE": One commenter supported the inclusion of an exception for tailwater as not constituting waste if released on to land owned by the owner of the wells or onto adjacent land with the permission of the owner of the adjacent land. The Authority notes that this exception is contained in the Act, sec.1.03(21)(F). COMMENTS RELATING TO THE DEFINITION OF "WELL": One commenter recommended that the definition of "well" be modified to encompass wells that may not have as their primary purpose the withdrawal of groundwater from the aquifer, but would nonetheless be capable of withdrawals from the aquifer. The Authority agrees and has modified the definition accordingly. COMMENTS RELATING TO THE DEFINITION OF "WELL SERVING A SUBDIVISION REQUIRING PLATTING": San Marcos, the GBRA, and sixteen irrigators oppose this proposed definition because it without statutory authority, although they cite to no authority for this proposition. The Authority disagrees. The Act does not define the term "well . . . serving a subdivision requiring platting" as contained in the Act, sec.1.33(c). It is necessary to define this term in order to give guidance to the regulated community and the Authority staff in the implementation of the Act. As discussed in the definition of "exempt well", the Legislature has given the Authority broad authority to manage withdrawals from the aquifer. The Authority has "the rights, powers, privileges, authority functions, and duties provides by . . . Chapters 50 (now codified at Texas Water Code, Chapter 49), 51 (largely repealed), and 52 (now codified at Texas Water Code, Chapter 36) , Water Code, "when not in conflict or inconsistent with article 1 of the Act", Act, sec.1.08(a). Texas Water Code, sec.36.117(a)(2), provides guidance on the meaning of service within this context and establishes an exception for service to ten or fewer households if the households are related. The Authority has adopted this principle for purposes of this definition. COMMENTS RELATING TO THE DEFINITION OF "WELL WITHIN A SUBDIVISION REQUIRING PLATTING": San Marcos, the GBRA, and sixteen irrigators oppose this proposed definition because it is without statutory authority, although they cite to no authority for this proposition. The Authority disagrees. The Act does not define the term "well within . . . a subdivision requiring platting" as contained in the Act, sec.1.33(c). It is necessary to define this term in order to give guidance to the regulated community and the Authority staff in the implementation of the Act. The purpose of sec.1.33(c) in excluding wells within subdivisions requiring platting from being exempt wells is to prevent the establishment of substandard subdivisions without organized water and sewer systems and to prevent the proliferation of wells within a subdivision requiring platting that could otherwise be served by a regional purveyor. As discussed in the definition of "exempt well", the Legislature has given the Authority broad authority to manage withdrawals from the aquifer. The definition of "well within a subdivision requiring platted" as proposed and adopted properly implements the purpose of sec.1.33(c) while at the same time recognizing and protecting the expectation interests of persons owning lots within subdivisions requiring platting. A reasonable grandfather provision for pre-June 28, 1996 (the effective date of the Act) wells is provided for, regardless of when the subdivision in which the well is located was platted. Post-June 28, 1996, wells within subdivisions requiring platting acquire an exempt status only if the subdivision was platted before June 28, 1996, no retail water service has been extended to the subdivision, and sufficient number of lots have already been sold such that it is not likely to be cost-effective to install a conventional, organized water supply system within the subdivision. The additional protective strategy to mitigate any impact on withdrawals from the aquifer is that wells qualifying for these grandfathered exempt well status are limited to withdrawals not to exceed one acre-foot of groundwater per calendar year. Another commenter requests that the grandfathering date be moved from June 28, 1996, to a more recent date. The Authority disagrees and believes the appropriate date to be the date the Act became effective. This same commenter argues that the grandfathering for subdivisions should not be based on a subdivision-by-subdivision basis, but rather should be based on an "overall development plan" or a "master plan" concept to include potential subdivisions not yet platted. The Authority declines to accept this recommendation because sec.1.33(c) is limited to "subdivisions required to be platted" which would not include "master plans" or subdivision part of an overall development plan that has not yet been implemented. While the Authority agrees that a grandfathering approach is a reasonable method to provide notice to the developers of project and provide a transition period, it is of the opinion that it is not reasonable to grandfather subdivisions yet to be platted. Another commenter offered other editorial stylistic modifications to the definition which were not adopted by the Authority. The new rules are adopted under the Act of May 30, 1993, 73rd Legislature Regular Session, Chapter 626, 1993 Texas Session Laws 2353-2374, as amended (Act): sec.1.11 (relating to General Powers and Duties of the Board and Authority), and more specifically under subsection (a), requiring the board to adopt rules necessary to carry out the Authority's powers and duties under the Act, including rules governing procedure of the Authority and its board of directors, and sec.sec.1.03 (relating to Definitions), 1.08 (relating to General Powers), 1.14 (relating to Withdrawals), 1.15 (relating to Permit Required), 1.16 (relating to Declaration of Historical Use; Initial Regular Permits), 1.17 (relating to Interim Authorization), 1.18 (relating to Additional Regular Permits), 1.19 (relating to Term Permits), 1.20 (relating to Emergency Permits), 1.29 (relating to Fees), 1.31 (relating to Measuring Devices), 1.32 (relating to Reports), 1.33 (relating to Well Metering Exception), and 1.34 (relating to Transfers of Rights). sec.703.1. Definitions. The following words and terms, when used in this part, shall have the following meanings, unless the context clearly indicates otherwise: Act--The Edwards Aquifer Act, Act of May 30, 1993, 73rd Legislature Regular Session, Chapter 626, 1993 Texas General Laws 2353, as amended. Additional regular permit--A groundwater withdrawal permit issued by the Authority pursuant to the Act, sec.1.18(a). Affected county--A county as defined in the Local Government Code, sec.232.021(1) that: (A) has a per capita income that averaged 25% below the state average for the most recent three consecutive years for which statistics are available and an unemployment rate that averaged 25% above the state average for the most recent three consecutive years for which statistics are available; and (B) any part of which is within 50 miles of an international border. Uvalde County is the only affected county within the Authority boundaries on the effective date of these rules. Agricultural use - The beneficial use of groundwater for the production of plant or animal products, including irrigation (as defined by the Act, sec.1.03 (12)) to grow plants from seed, cutting or liner; the raising of livestock; and aquaculture. APA--The Administrative Procedures Act, Chapter 2001, Government Code. Application--A form document required by the Authority to initiate the process of obtaining the issuance of a permit, registration, exemption, license or other Authority approval. A declaration of historical use or declaration is an application for an initial regular permit. Applicant--A person who files an application with the Authority. Aquifer--The Edwards Aquifer, which is that portion of an arcuate belt of porous, water-bearing, predominately carbonate rocks known as the Edwards and Associated Limestone in the Balcones Fault Zone extending from west to east to northeast from the hydrologic division near Brackettville in Kinney County that separates underground flow toward the Comal Springs and San Marcos Springs from underground flow to the Rio Grande Basin, through Uvalde, Medina, Atascosa, Bexar, Guadalupe and Comal counties, and in Hays County south of the hydrologic division near Kyle that separates flow toward the San Marcos River from flow to the Colorado River Basin. Authority--The Edwards Aquifer Authority. Authority offices--The Authority's principal offices identified in sec.701.5 of this title (relating to Business Office and Mailing Address of the Authority). Beneficial use--The use of the amount of water that is economically necessary for a purpose authorized by law when reasonable intelligence and reasonable diligence are used in applying the water to that purpose. The beneficial use of groundwater by a contract user inures to the benefit of the well owner. Use of water for irrigating of multiple or successive crops is a beneficial use to the extent it does not constitute waste. Board--The Authority board of directors. Cap--The total amount of groundwater withdrawals that may be legally authorized by the Authority through the issuance of regular permits. Unless adjusted pursuant to sec.1.14(d) of the Act, this amount may not exceed: 450,000 acre- feet per calendar year for the period from June 28, 1996, through December 31, 2007; and 400,000 acre-feet per calendar year for the period beginning January 1, 2008, and continuing thereafter. Conservation--Any measure that would sustain or enhance the quantity of groundwater supply from the aquifer. Contested case hearing--A proceeding governed by the APA, in which the legal rights, duties or privileges of a party are to be determined by the board after an opportunity for an adjudicative hearing. Contract user--A person who, during the historical period, withdrew or purchased groundwater from the aquifer and placed the groundwater to beneficial use pursuant to a legal right obtained from a prior user or an existing user. Groundwater use by a contract user inures to the benefit of the prior user or existing user and may be claimed by an existing user in support of his declaration. Declarant--An existing user who files a declaration of historical use. Declaration of historical use or declaration--The document required to be filed pursuant to sec.1.16(a) of the Act and sec.707.83 of this title (relating to Requirement to File Declaration) and sec.707.87 of this title (relating to Time and Place for Filing) and is deemed to be an application for an initial regular permit. Docket clerk--The Authority's docket clerk designated by the general manager. Domestic or livestock use--Use of water for: (A) drinking, washing, or culinary purposes; (B) irrigation of a family garden or orchard of which the produce is for household consumption only; or (C) watering of animals. Emergency permit--A groundwater withdrawal permit issued by the Authority pursuant to sec.1.20(a) of the Act. Exempt well--A well that produces 25,000 gallons of water a day or less for domestic or livestock use, or livestock watering, that is not within, or serving, a subdivision requiring platting. The withdrawal and beneficial use of less than 1,250 gallons of water a day from an otherwise exempt well for purposes other than domestic or livestock use, or livestock watering, does not void a well's exempt status. Existing well--An operating well drilled before June 1, 1993. Existing user--Either: (A) A person who, on June 1, 1993, owned a well from which groundwater from the aquifer has been withdrawn and placed to beneficial use during the historical period; or (B) The successor in interest of a person owning a well described in subparagraph (A) of this definition. Extraterritorial jurisdiction of a municipality--A municipality's extraterritorial jurisdiction as determined under the Local Government Code, Chapter 42, except that for a municipality that has a population of 5,000 or more and is located in a county bordering the Rio Grande River, it means the area outside the municipal limits but within five miles of those limits. EUWD--The Edwards Underground Water District, the Authority's predecessor agency. General manager--The Authority's executive director and chief administrator hired by the board. Groundwater--Water percolating below the surface of the earth. Groundwater right--A right acquired under State of Texas law to withdraw and place to beneficial use groundwater from the aquifer. Historical period--The period from June 1, 1972, through May 31, 1993. Historical use--The lawful withdrawing and placing to beneficial use of groundwater from the aquifer during the historical period. For a prior user or an existing user whose historic use has been affected by a requirement of, or participation in, a federal program, the Authority shall give credit for the amount that would have been withdrawn and beneficially used during the historical period by such prior user or existing user but for the operation of the federal program. If the use was for irrigation purposes, the credit shall be based upon irrigation use on comparable acres in a similarly situated farm unit that is not in the federal program. If the use was for non-irrigation purposes, the credit shall be based upon the use of a comparable and similarly situated user whose uses were not affected by participation in a federal program. Industrial use--The use of water for, or in connection with, commercial or industrial activities, including manufacturing; bottling; brewing; food processing; scientific research and technology; recycling; production of concrete, asphalt, and cement; commercial uses of water for tourism, entertainment, and hotel or motel lodging; generation of power other than hydroelectric; and other business activities. Initial regular permit--A groundwater withdrawal permit issued by the Authority pursuant to sec.1.16(d) of the Act. Initial regular permit minimum withdrawal amount: (A) for an existing user with irrigation use who files a declaration, not less than two acre-feet a year for each acre of land that the user, his contract user, prior user, or former existing user (i) who had historical use in any one calendar year during the historical period; (ii) owned or leased or otherwise had a legal right to irrigate during the historical period; and (iii) owned a well equipped and capable of irrigating the land; or (B) for an existing user who has operated a well in more than ten calendar years during the historical period, and files a declaration, the average amount of groundwater withdrawn annually during the historical period calculated as follows: total adjusted aggregate withdrawals divided by the adjusted number of years in which the well was operated during the historical period. For the purposes of this subparagraph: (i) the total adjusted aggregate withdrawals equals the total aggregate withdrawals less, if the existing user so elects, an amount equal to the amount of withdrawals for any period of consecutive years during the historical period equal to 50% of the years more than ten that the well was operated during the historical period; and (ii) the adjusted number of years calculated as follows: the number of months during this historical period in which a well was an operating well divided by 12 months; or (C) for an existing user who has operated a well in 36 or more months but not exceeding ten calendar years during the historical period and files a declaration, the average amount of groundwater withdrawn annually during the historical period calculated as follows: total aggregate withdrawals divided by (the number of months during the historical period in which a well was an operating well divided by 12 months); or (D) for an existing user who has operated a well in 35 or fewer months during the historical period, and files a declaration, the average amount of groundwater withdrawn annually during the historical period calculated as follows: total aggregated withdrawals divided by the (number of months during the historical period in which a well was an operating well divided by 12 months) times 0.75. Interruptible--When referring to a groundwater withdrawal permit, the conditioning of the right to withdraw groundwater from the aquifer that makes the right subject to complete cessation, temporary curtailment, or reduction of the amount of groundwater that may be withdrawn from the aquifer based upon the measurement of a water level at an index well, or as otherwise determined by the board. Irrigation use--The use of water for the irrigation of pastures and commercial crops, including orchards. Judge--A SOAH administrative law judge. Livestock--Animals, beasts or poultry collected or raised for pleasure, recreational use, or commercial use. Municipal use--The water use within or outside of a municipality and its environs whether supplied by a person, privately owned utility, political subdivision or other entity for certain purposes specified: (A) the use of water for domestic use, the watering of lawns and family gardens; fighting fires; sprinkling streets; flushing sewers and drains; water parks and parkways; and recreation, including public and private swimming pools; or (B) the use of water in industrial and commercial enterprises supplied by a municipal distribution system without special construction to meet its demands. (C) the application of treated effluent on land under a permit issued under Chapter 26, Water Code, if: (i) the primary purpose of the application is the treatment or necessary disposal of the effluent; (ii) the application site is a park, parkway, golf course, or other landscaped area within the Authority's boundaries; or (iii) the effluent applied to the site is generated within an area for which the TNRCC has adopted a rule that prohibits the discharge of the effluent. New well--A well drilled on or after June 1, 1993. Non-deteriorated well--A well, the condition of which, will not cause or is not likely to cause waste. Operate a well or operating well--A well that is in use or was in use during the historical period. A well is in use, regardless of whether withdrawals are made from the aquifer in a calendar year, if: (A) it is a non-deteriorated well containing the casing, pump and pump column in good operating condition; or (B) it is a non-deteriorated well and is capped. Order--Any written directive of the board carrying out the powers and duties of the Authority. Party--Each person admitted as a party in a contested case hearing. Permit--The written document setting forth the legal authorization issued by the Authority to an applicant to engage in an activity within the Authority's jurisdiction for which the Authority's approval is required including, but not limited to, groundwater withdrawal permits and well construction permits. Permittee--A person to whom the Authority has issued a permit. Person--An individual, corporation, organization, government or governmental subdivision or agency, business trust, estate trust, partnership, association or any other legal entity. Pleadings--Any document filed by parties in a contested case hearing, such as applications, protests, complaints, claims, petitions, preliminary reports, answers, motions and other similar documents. Pollution--The alteration or contamination of the physical, thermal, chemical, or biological quality of groundwater in the aquifer, or any other water in the state, that renders the water harmful, detrimental or injurious to humans, animal life, vegetation, property, or public health, safety, or welfare or that impairs the usefulness of the public enjoyment of the water for any lawful or reasonable purpose. Prior user--A person who owned a well during the historical period and who, during his ownership, withdrew aquifer water from the well and placed it to beneficial use during the historical period, but during the historical period had conveyed his ownership interest in the well to another person. Produces 25,000 gallons of water a day or less--An operating well constructed or equipped so as to be incapable of producing groundwater from the aquifer at a rate in excess of 25,000 gallons per day. Protestant--Any party opposing, in whole or in part, an application. Recharge--Increasing the supply of water to the aquifer by naturally occurring channels or artificial means. Registrant--A person who files a registration with the Authority. Registration--The document required to be filed pursuant to sec.1.33(b) of the Act or sec.707.201 of this title (relating to Requirement to Register). Reuse--Authorized use for one or more beneficial purposes of water that remains unconsumed after the water is used for the original purpose and before the water is discharged or otherwise allowed to flow into a watercourse, lake, or other body of state-owned water. San Antonio Pool -- That part of the aquifer underlying the boundaries of the Authority other than Uvalde County. SOAH--The State Office of Administrative Hearings. Subdivision requiring platting--The division of a tract of land into parts, whether it is made using a metes and bounds description in a deed of conveyance or in a contract for deed, by using a contract of sale or other executory contract to convey, or by using any other method, and: (A) for land located within the corporate limits of a municipality or in the extraterritorial jurisdiction of a municipality, the tract is divided into two or more parts to lay out a subdivision, including an addition to a municipality, to lay out suburbs, buildings or other lots, or to lay out streets, alleys, squares, parks or other parts of the tract intended to be dedicated to public use or for the use of purchasers or owners of lots fronting on or adjacent to the streets, alleys, squares, parks or other parts. A division of land under this subparagraph does not include a division of land into parts greater than five acres, where each part has access and no public improvement is being dedicated; (B) for land located outside the corporate limits of a municipality, and outside the extraterritorial jurisdiction of a municipality, and in other than an affected county, the tract is divided into two or more parts to lay out a subdivision, including an addition to a municipality, to lay out suburbs, building or other lots, and to lay out streets, alleys, squares, parks or other parts of the tract intended to be dedicated to public use or for the use of purchasers or owners of lots fronting on or adjacent to the streets, alleys, squares, parks or other parts. A division of land under this subsection does not include a division into parts greater than five acres, where each part has access and no public improvement is being dedicated; or (C) for land located outside the corporate limits of municipalities, and outside the extraterritorial jurisdiction of a municipality, and in an affected county, the tract is divided into four or more tracts that are intended primarily for residential use, and the subdivision of the tract is not incident to the conveyance of the land as a gift. A lot is rebuttably presumed to be intended for residential use if the lot is five acres or less. Term permit--A groundwater withdrawal permit issued by the Authority pursuant to the Act, sec.1.19(a). TNRCC--The Texas Natural Resource Conservation Commission. Underground water--The meaning of "groundwater" as defined by Water Code, sec.36.001(5) and this section. Uvalde Pool--That part of the Aquifer underlying Uvalde County. U.S.G.S.--The United States Geological Survey. Waste -- (A) Withdrawal of groundwater from the aquifer at a rate and amount that causes or threatens to cause intrusion into the reservoir of water unsuitable for agricultural, gardening, domestic or stock-raising purposes; (B) The flowing or producing of wells from the aquifer if the water produced is not used for a beneficial purpose; (C) Escape of groundwater from the aquifer to any other reservoir that does not contain groundwater; (D) Pollution or harmful alteration of groundwater in the aquifer by salt water or other deleterious matter admitted from another stratum or from the surface of the ground; (E) Willfully or negligently causing, suffering or permitting groundwater from the aquifer to escape into any river, creek, natural watercourse, depression, lake, reservoir, drain, sewer, street, highway, road, or road ditch, or onto any land other than that of the owner of the well unless such discharge is authorized by permit, rule, or order issued by the TNRCC under Chapter 26, Water Code; (F) Groundwater pumped from the aquifer for irrigation that escapes as irrigation tailwater onto land, other than that of the well owner, unless permission has been granted by the occupant of the land receiving the discharge; (G) For water produced from an artesian well, "waste" has the meaning assigned by the Water Code, sec.11.205; or (H) Withdrawal of water that is substantially in excess of the volume or rate reasonably required for a particular use constitutes waste. Irrigation use of two acre-feet of water per irrigated acre is rebuttably presumed not to constitute waste. Well--A bored, drilled, or driven shaft, or an artificial opening, in the ground for the purpose of making or that is capable of making withdrawals from the aquifer made by digging, jetting, or some other method, where the depth of the shaft or opening is greater than its largest surface dimension, but does not include a surface pit, surface excavation, or natural depression. Well construction permit--A permit issued by the Authority pursuant to sec.1.15(b) of the Act for the construction or modification of wells or other works designed for the withdrawal of water from the aquifer. Well J-17--State well number AY-68-37-203 located in Bexar County. Well J-27--State well number YP-69-50-302 located in Uvalde County. Well serving a subdivision requiring platting--A well located within the Authority's boundaries, regardless of whether the well is located inside or outside the boundaries of a subdivision requiring platting, that provides or is to provide, piped water for any use to two or more service connections located within a subdivision requiring platting. A well owned by one person, or jointly by a husband and wife, that provides or is to provide, piped water for domestic or livestock use to 10 or fewer service connections, and a person who is the owner o