Congress has split oversight of the Urban EZ/EC Initiative between the U. S. Department of Housing and Urban Development, the U. S. Department of Health and Human Services, the States and the 89 Designees. Each plays a different, but important role in ensuring program integrity.

By statute, HUD is the designating agency for urban EZ/ECs. HUD is also statutorily responsible for making a periodic progress determination for each of its 89 designees. Funding for the Round I EZ/ECs derives from Title XX, Social Services Block Grants administered by HHS. HHS distributes the EZ/EC SSBG funds to the States, which in turn, pass the EZ/EC SSBG funding along to the localities that have sponsored the EZ or EC. Many times localities have chosen a non-profit 501c(3) corporation to implement the local strategic plan. In these cases, local governments (cities or counties) pass the EZ/EC SSBG funding along to the non-profit corporation.

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


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

HUD'S PROCESS FOR MONITORING URBAN EZ/EC PROGRESS
The EZ/EC Initiative Office within HUD's Office of Community Planning and Development (CPD) has full-time staff devoted to monitor and communicate with each EZ and EC. In addition, to help ensure compliance with applicable laws and regulations, HUD's Assistant Secretary for CPD has assigned a Public Trust Officer (PTO) to monitor and assess the progress of each EZ/EC. The EZ/EC PTO Network works with the EZ/EC Initiative Office at Headquarters to help ensure full compliance with HUD's statutory monitoring responsibilities for Round I and Round II EZs. The PTO's have received extensive training from the EZ/EC Initiative Office within CPD. The EZ/EC Initiative Office will use the PTO assessments and other pertinent information to determine if an EZ/EC will maintain its good standing in the EZ/EC Initiative.

EZ/EC INITIATIVE PERFORMANCE MEASUREMENT SYSTEM (PERMS)
To satisfy its monitoring and evaluation responsibilities under Round I and Round II, the EZ/EC Initiative Office within CPD has instituted an Internet-based performance measurement system called PERMS. The EZ/ECs use PERMS to document the projects and programs they are implementing to achieve their local strategic plan. The PTO's use PERMS to monitor and evaluate the progress of each EZ/EC. Each year the EZ/EC designees use PERMS to submit an annual performance report which identifies progress made in achieving project/program milestones and output measurements and tracks the performance of EZ/EC governance boards. The PTO's use PERMS to evaluate the information contained in the EZ/EC annual reports. PERMS not only cuts down on the paperwork burden facing the EZ/ECs, it provides HUD with a low-cost mechanism for continually monitoring the progress of each EZ/EC.

DEALING WITH PROBLEM EZ/ECS
The EZ/EC Initiative is a 10-year program to help revitalize communities that have been distressed for decades. Accordingly, the EZ/EC Initiative is not meant to be fully evaluated until after the completion of the 10-year period. Only then we will know if the local long-term revitalization strategy was successful. Nonetheless, by statute and regulation, HUD is charged with periodically ensuring that each EZ/EC makes progress in achieving its local strategic plan.

Each of the 89 EZ/EC designees has a unique approach to revitalizing its distressed and underserved neighborhoods and each has experienced various levels of success and failure in implementing their local strategies. While there is no magic solution to EZ/EC implementation problems, the EZ/EC Initiative Office can provide technical assistance. Unfortunately, Congress has not provided a steady source of technical assistance funds. When TA funds are available, the EZ/EC Initiative Office provides technical assistance in the form of experts that are tasked to an EZ/EC to help solve particular implementation problems. Examples of this type of TA include providing a consultant to the St. Louis/East St. Louis EZ to help structure the financing of a new hotel that will create hundreds of jobs or EZ residents. Consultants hired with technical assistance funds have provided struggling governance mechanisms with the focus they need to solve disputes and to ensure that the EZ/EC effort stays focused on implementation. Also, each EZ/EC can consult its HUD Community Builder to help solve problems.

If technical assistance does not improve EZ/EC performance, the EZ/EC Initiative Office meets with the local EZ/EC stakeholders to warn them about inadequate progress. For example, in the last year the EZ/EC Initiative Office has met with the Detroit, Chicago and Atlanta EZs to express concern about their lack of progress in certain areas. If technical assistance and verbal warnings do not improve EZ/EC performance, the EZ/EC Office can issue a letter of warning threatening to revoke an EZ/ECs designation.

EZ/EC statutes and regulations require HUD to make a periodic check of performance to ensure the EZ/ECs are making adequate progress. As a result of the first checks, Newburgh, Pittsburgh, Oakland and Ouachita Parish received warning letters. Each was required to develop a comprehensive strategy to improve its performance. All five showed dramatic improvement within one year as a result of the warning letter.

STATUTORY FRAMEWORK GOVERNING HHS'S LEGAL RESPONSIBILITY FOR MONITORING & AUDITING THE EZ INITIATIVE (Rural)
Section 13761 of the Omnibus Budget Reconciliation Act of 1993 amended title XX of the Social Security Act to provide funds in addition to the existing program of Social Service Block Grants to the States for designated Empowerment Zones and Enterprise Communities pursuant to Round I. Neither the 1993 legislation nor sections 951 and 952 of the Taxpayer Relief Act of 1997, which authorize additional EZ designation by HUD, speak to any monitoring or audit responsibilities of the Department of Health and Human Services. These statutes deal primarily with the designation process, which is HUD's responsibility. Audit and related responsibilities concerning title XX funds to EZs and ECs are subject to the HHS procedures applicable to the parent title XX program. HHS should be consulted as to its role and responsibilities generally in monitoring the expenditure of title XX money.

LEGAL RESPONSIBILITY OF THE STATES REGARDING MONITORING AND AUDITING
In general, under Title XX, HHS has delegated oversight responsibilities for the EZ/EC funds to the States. The States are responsible for ensuring program integrity just like they are with all Title XX, SSBG funds. The States are responsible for monitoring EZ/EC spending to ensure compliance with EZ/EC legal requirements. Regarding HUD and the States, Section 597.400 of the implementing regulations provides that the required periodic reports submitted by designees must include "State actions which have been taken in accordance with the strategic plan," but no further State action is specified. For Round II §598.415(b) specifically provides that the States must submit periodic reports to HUD, demonstrating compliance with the certifications they must submit to HUD pursuant to the statute and regulations. Other than these reporting requirements, progress determinations are left to HUD.

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