PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION

TITLE 1. ADMINISTRATION PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION CHAPTER 354. MEDICAID HEALTH SERVICES SUBCHAPTER A. PURCHASED HEALTH SERVICES The Texas Health and Human Services Commission (HHSC) adopts amendments to 354.1001, concerning Claim Information Requirements, and 354.1062, concerning Authorized Physician Services. The amendments are adopted with changes to the proposed text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8107). The text of the rules will be republished. Background and Justification The rule amendments require that services performed by an advanced practice registered nurse (APRN) or a physician assistant (PA), but billed by a supervising physician are reimbursed according to the reimbursement rules in 1 Texas Administrative Code (TAC) Chapter 355 that apply to the APRN or PA unless the supervising physician made a decision regarding the patient's care or treatment on the same date of service as the billable medical visit and documented that decision in the patient's record. The term "APRN" includes the following categories of nurses with advanced training: nurse practitioner (NP), clinical nurse specialist (CNS), and certified nurse-midwife (CNM). Certified Registered Nurse Anesthetists (CRNAs) are not addressed in the amendments because CRNAs bill, and are reimbursed, at a different payment rate. Currently, APRNs, under 1 TAC 355.8281, and PAs, under 1 TAC 355.8093, are to be reimbursed at 92 percent of the physician rate for professional services billed under their own provider numbers and 100 percent of the physician rate for laboratory services, x-ray services, and injections. Some physicians bill for services performed by an APRN or a PA under the physician's supervision at the full physician rate, even if the supervising physician did not make a decision regarding the patient's care or treatment. The Texas Legislature, in the 2014-15 General Appropriations Act, directed HHSC to "enforce appropriate payment practices for non-physician services." See General Appropriations Act, 83rd Legislature, Regular Session, Chapter 1411, Article II, at II-101, 2013 Texas General Laws 3743, 3952 (Health and Human Services Section, Health and Human Services Commission, Rider 51(b)(24)). In response, the amendments provide for appropriate payment for services performed by an APRN or a PA, while allowing reimbursement at the full physician's rate when a physician has made a decision in a specific patient's case on the same date of service as a billable medical visit. As adopted, 354.1001 requires a physician billing for supervised services to indicate that supervised services were performed by an APRN or a PA on the physician's claim form unless the supervising physician made a decision regarding the patient's care or treatment on the same date of service as the billable medical visit and documented that decision in the patient's record. Similarly, 354.1062 is adopted to state that the payment rate for the supervised services is set in accordance with the appropriate reimbursement rule and further states that if the physician did not make a decision about the patient's care on the same date of service as the billable medical visit, the physician must note on the claim that the service was performed by the PA or APRN in accordance with amended 354.1001 (relating to Claim Information Requirements). Finally, these rule changes are coordinated with amendments to the corresponding reimbursement rules in TAC Chapter 355 for PAs, NPs, CNSs, and CNMs. Those changes state that services performed by one of the above provider types, while under the supervision of a physician, are to be reimbursed at the 92 percent level appropriate to the supervised practitioner unless the supervising physician made a decision regarding the patient's care or treatment on the same date of service as the billable medical visit and documented that decision in the patient's record. Comments The 30-day comment period for the proposed amendments ended November 16, 2014. During the public comment period, HHSC received four comments from the following entities (listed in alphabetical order): American Congress of Obstetricians and Gynecologists- District XI (Texas Chapter) Cancer Care Centers of South Texas Coalition for Nurses in Advanced Practice Texas Academy of Family Physicians Texas Academy of Physician Assistants Texas Association of Obstetricians and Gynecologists Texas Chapter of the American College of Physicians Texas Medical Association Texas Nurses Association Texas Oncology ADOPTED RULES December 19, 2014 39 TexReg 9881

Texas Osteopathic Medical Association Texas Pediatric Society The commenters all oppose the rule. A summary of the comments and HHSC's responses to the comments follow: Comment: Several commenters oppose the rule language limiting 100 percent reimbursement for the physician-to-physician involvement in patient care decisions made "during the billable medical visit." Two commenters stated the "during the billable medical visit" limitation ignores the fact that many practices have treatment planning meetings or consultations with multiple physicians and caregivers at times other than "during the medical billable visit." Several other commenters elaborated further, indicating the consultations between a physician and an APRN or a PA may occur at a mid- or end-of-day conference. In addition, the commenters stated that a supervising physician may be otherwise engaged when an APRN or a PA is seeing the Medicaid client. The commenters specifically recommend replacing the phrase "during the billable medical visit" with language allowing a 48-hour timeline after the visit to allow for a physician to make a decision related to the client's care. Response: HHSC will revise the rule to lengthen the time period a consultation with a physician may occur, but will not lengthen the time period to 48 hours. HHSC acknowledges the commenters' concern that the supervising physician and APRN or PA in a team-based practice may be unable to discuss all cases immediately. Consequently, HHSC will replace the phrase "during the billable medical visit" with "on the date the service was rendered." Under the rule amendment, services performed by an APRN or a PA will be reimbursed at 100 percent of the physician rate if the physician makes a documented decision related to the client's care or treatment on the same date of service as the billable medical visit. HHSC believes this is a sufficient time period for a consultation to occur. Comment: Commenters state that the proposed amendment's billing requirements will limit access by reducing the effective reimbursement rate. Response: HHSC disagrees and declines to revise the rule in response to the comment. The amendment is intended only to clarify existing reimbursement requirements in accordance with the direction in the 2014-15 General Appropriations Act to "enforce appropriate payment practices for non-physician services." Comment: Commenters stated that the change to billing requirements provided for in the proposed rules would result in an undue administrative burden. Response: HHSC acknowledges that the new change may add minimal administrative requirements, but declines to revise the rule in response to the comment. The change is necessary to comply with the directive in the 2014-15 General Appropriations Act to "enforce appropriate payment practices for non-physician services." Comment: A commenter indicated that the requirement that the physician's decision be documented in writing unnecessarily limits a physician's practice protocols. The commenter did not provide a recommended change to the language. Response: HHSC disagrees and declines to revise the rule in response to the comment. Written documentation is necessary for auditing purposes. Comment: Several commenters requested that when a physician claim is submitted for a service performed by an APRN or a PA, the APRN's or PA's provider number should be required to be on the claim. In the commenters' view, simply requiring the claim to indicate whether the services were performed by an APRN or a PA is insufficient for purposes of detecting fraud and tracking quality of care. Response: HHSC declines to revise the rule as the commenters suggest, but HHSC will consider this revision for a future amendment. DIVISION 1. MEDICAID PROCEDURES FOR PROVIDERS 1 TAC 354.1001 Statutory Authority The amendment is adopted under Texas Government Code 531.033, which provides the Executive Commissioner of HHSC with broad rulemaking authority; Texas Human Resources Code 32.021 and Texas Government Code 531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code 531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements. 354.1001. Claim Information Requirements. (a) Eligible providers are required to provide separate claim information for each eligible recipient. Claims must be complete, accurate, and as specified by the Texas Health and Human Services Commission (HHSC) or its designee. (b) Required information includes the following: (1) name, address, and appropriate Texas provider identification number of the provider of services or supplies or both; (2) the date of the claim; (3) the name, address, identification number, and date of birth of the individual who received services or supplies or both; (4) the type of such services or supplies or both provided; (5) the date(s) each service or supplies or both were provided; (6) the amounts of each charge for the various types of services or supplies or both; (7) the total charge for services or supplies or both; (8) credits for any payments made at the time of submission of the claim, including payments made by private health insurance and under Medicare; (9) indication that the eligible recipient has health, accident, or other insurance policies, or is covered by private or governmental benefit systems, or other third party liability, when reported, known, or suspected; (10) the date of the eligible recipient's death, if applicable; and (11) the name and associated national provider identifier of: (A) the eligible billing provider; (B) the ordering or referring provider or other professional, if services or supplies, or both, are ordered or referred; and 39 TexReg 9882 December 19, 2014 Texas Register

(C) the supervising and supervised provider, except for pharmacy claims, if: (i) the services or supplies, or both, were provided due to a referral or ordered by a provider; (ii) the referring or ordering provider is acting at the direction or under the supervision of another provider; and (iii) the referral or order is based on the supervised provider's evaluation of the recipient or enrollee. (c) If the eligible billing provider is a physician supervising the performance of eligible services by a Physician Assistant or an Advanced Practice Registered Nurse (Nurse Practitioner, Clinical Nurse Specialist, or Certified Nurse-Midwife) and the supervising physician did not make a decision regarding the patient's care or treatment on the same date of service as the billable medical visit, the physician must note on the claim, in accordance with standards set by HHSC, that the services were performed by the supervisee. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405831 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: January 1, 2015 Proposal publication date: October 17, 2014 For further information, please call: (512) 424-6900 DIVISION 5. PHYSICIAN AND PHYSICIAN ASSISTANT SERVICES 1 TAC 354.1062 Statutory Authority The amendment is adopted under Texas Government Code 531.033, which provides the Executive Commissioner of HHSC with broad rulemaking authority; Texas Human Resources Code 32.021 and Texas Government Code 531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code 531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements. 354.1062. Authorized Physician Services. (a) This rule specifies the conditions under which a physician may bill Texas Medicaid for covered services. Such conditions include compliance with this rule as well as compliance with all applicable federal and state laws, rules, regulations and policies relating to covered services. (b) Physician services. A physician may bill for reasonable and medically necessary services that are within the scope of practice of medicine or osteopathy as defined by state law. Except for services provided under subsections (c), (d), and (e) of this section, eligible physician services include those performed by the physician and those medical acts delegated by the physician to qualified and properly trained persons acting under the physician's supervision. Delegation and supervision of medical services must be consistent with this chapter and the rules and laws of the Texas Medical Board, and supervision of the delegated medical act must be appropriately documented in the patient's chart. A physician shall not bill the Texas Medicaid program for services if that billing would result in duplicate payment for the same services. (c) Physician supervising other physicians. A physician supervising other physicians may bill when the supervision and services are performed in the context of an accredited graduate medical education program. Facilities and professional practices do not qualify for reimbursement for services provided by resident physicians in an outpatient setting unless the facility or professional practice is owned by, or affiliated with, an accredited graduate medical education program. (1) For all services billed to the Medicaid program, the supervision must be medically appropriate, as described in this rule, and provided to a resident physician performing a Medicaid-covered service. The supervision must be either personal or direct. To qualify for reimbursement, the medical record must clearly establish: (A) The nature of the supervisory role of the billing physician in the delivery of the services provided by the resident physician; and (B) That the supervision complies with the definition of supervision applicable to the covered service, as defined in 354.1060 of this title (relating to Definitions). (2) Personal supervision is required during the key portions of all major surgeries and the key portions of all other physician services billed to the Medicaid program if the immediate supervision, participation, or intervention of the supervising physician is medically prudent in order to assure the health and safety of the patient. Physician services that require personal supervision may include invasive procedures and evaluation and management services that require complex medical decision making. Situations that require personal supervision include those in which: (A) The clinical condition of the patient is unstable or will likely become unstable during, or as a result of, the planned medical intervention; or (B) The planned medical intervention, even under optimal conditions, will result in medically reasonable risk for significant morbidity or death following the service or procedure; or (C) Deviation from expected technique at the time the procedure or service is performed presents a medically reasonable, causally-related, foreseeable risk to the patient's life or health. (3) For surgical services, the supervising surgeon is responsible for pre-operative, operative, and post-operative care provided to the patient and billed to the Medicaid program. The supervising surgeon, however, may delegate the pre- and post-operative care to a resident if appropriate direct supervision, as defined in 354.1060 of this title, is provided. (4) For all services that do not require personal supervision and are billed to the Medicaid program, the supervising physician must provide direct supervision. The supervising physician may not provide direct supervision for an activity at the same time as providing personal supervision for another activity, with the following exceptions. (A) The supervising physician in the outpatient setting may provide personal and direct supervision concurrently for residents providing evaluation and management services; and (B) A supervising surgeon or supervising anesthesiologist may be involved in two concurrent anesthesia cases with resi- ADOPTED RULES December 19, 2014 39 TexReg 9883

dents. The supervising surgeon or supervising anesthesiologist must be present during all key portions of the procedure if the immediate supervision, participation, or intervention of the supervising physician is medically prudent in order to assure the health and safety of the patient. (5) Supervision in the outpatient setting. A face-to-face encounter between the physician providing direct supervision and the patient is not required in the outpatient setting in the context of a graduate medical education program. All other requirements for personal or direct supervision in this division must be met for the services to qualify for reimbursement. The supervising physician must document that he/she: (A) Reviewed the patient's history and physical examination; (B) Confirmed or revised the patient's diagnosis; (C) Determined the course of treatment to be followed; (D) Assured that any needed supervision of interns or residents was provided; and (E) Confirmed that the documentation in the medical record comports with the level of service billed. (6) Supervision in the inpatient setting. A physician who supervises other physicians in an inpatient setting must comply with documentation requirements of paragraph (5)(A) - (E) of this subsection and must document that he or she has completed a: (A) Personal examination of the patient not later than 36 hours after the patient's admission and before the patient's discharge and, as necessary, based on the patient's condition; and (B) Face-to-face encounter with the patient on the same day as any billed services provided by the resident physician. (d) Services provided by a physician assistant or advanced practice registered nurse. (1) A service performed under a physician's supervision by a physician assistant or an advanced practice registered nurse (excluding a certified registered nurse anesthetist), acting within the scope of the physician assistant's or advanced practice registered nurse's license and consistent with this chapter and the rules and laws of the Texas Medical Board and Texas Board of Nursing, as applicable, are reimbursed according to the reimbursement rule applicable to the supervised practitioner unless the supervising physician made a decision regarding the patient's care or treatment on the same date of service as the billable medical visit and documented that decision in the patient's record. (A) The physician's record of patient care must document the physician's involvement. (B) If the physician did not make a decision about the patient's care on the same date of service as the billable medical visit, the physician must note on the claim that the service was performed by the physician assistant or advanced practice registered nurse in accordance with 354.1001 of this subchapter (relating to Claim Information Requirements). (2) Services provided by a certified registered nurse anesthetist must be billed as described in 354.1301 of this title (relating to Certified Registered Nurse Anesthetists' Services). (e) Substitute physician. A physician may bill for the services of a substitute physician who sees patients in the billing physician's practice under either a reciprocal or locum tenens arrangement. To qualify for reimbursement, the billing physician and substitute physician must comply with the following requirements: (1) The substitute physician's name and address must be documented on the claim. (2) The substitute physician must be licensed to practice in the state of Texas. (3) Consistent with the requirements of 371.1605 and 371.1705 of this title (relating to Provider Responsibility and Mandatory Exclusion, respectively), the substitute physician must be enrolled in Medicaid and not be on the Medicaid or Title XX provider exclusion list. (4) The time period for which a physician may bill for the services of a substitute physician is limited to the following situations: (A) Reciprocal Arrangements. When the substitute physician sees patients in the billing physician's practice under a reciprocal arrangement, the billing physician may bill for services furnished by the substitute physician during a period that does not exceed 14 continuous days. (B) Locum Tenens Arrangements. When the substitute physician sees patients in the billing physician's practice under a locum tenens arrangement, the billing physician may bill for services furnished by the substitute physician during a period that does not exceed 90 continuous days. Except as provided in clause (iii) of this subparagraph, services furnished by the substitute physician after the 90th day must be billed under the substitute physician's own Medicaid provider number. (i) When the billing physician is absent for more than 90 days, the billing physician may bill for services furnished by a different substitute physician for each consecutive continuous 90 day period. (ii) The billing physician may only bill for services furnished by a substitute physician on a temporary basis. Except as provided in clause (iii) of this subparagraph, the billing physician may not bill for services furnished by a substitute physician to address longterm vacancies in a physician practice. (iii) When the billing physician is absent or unavailable due to active duty as a member of a reserve component of the U.S. Armed Forces, the billing physician may bill for the services of a substitute physician for a longer continuous period during all of which the billing physician has been called or ordered to active duty as a member of a reserve component of the Armed Forces. Medicaid may reimburse the billing physician for services provided by the substitute physician until the billing physician is no longer on active duty as a member of a reserve component of the Armed Forces. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405832 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: January 1, 2015 Proposal publication date: October 17, 2014 For further information, please call: (512) 424-6900 CHAPTER 355. REIMBURSEMENT RATES 39 TexReg 9884 December 19, 2014 Texas Register

SUBCHAPTER D. REIMBURSEMENT METHODOLOGY FOR INTERMEDIATE CARE FACILITIES FOR INDIVIDUALS WITH AN INTELLECTUAL DISABILITY OR RELATED CONDITIONS (ICF/IID) 1 TAC 355.456 The Texas Health and Human Services Commission (HHSC) adopts amendments to 355.456, concerning Reimbursement Methodology. The amendments are adopted with changes to the proposed text as published in the October 10, 2014, issue of the Texas Register (39 TexReg 8023). The text of the rule will be republished. Background and Justification This rule establishes the reimbursement methodology for the Intermediate Care Facilities for Individuals with an Intellectual Disability or Related Conditions (ICF/IID) program administered by the Department of Aging and Disability Services (DADS). HHSC, under its authority and responsibility to administer and implement rates, is adopting amendments to this rule to add a reimbursement methodology for services to individuals who have lived in a State-Supported Living Center (SSLC) for at least six months immediately prior to referral to a non-state operated facility; have a level of need (LON) which includes a medical LON increase but not a LON of pervasive plus; and have a Resource Utilization Group (RUG-III) classification in the major RUG-III classification groups of Extensive Services, Rehabilitation, Special Care, or Clinically Complex. The amended reimbursement methodology will calculate an add-on payment for eligible individuals based on the RUG-III classification system. There will be three add-on groups. For each group, HHSC will compute the median direct care staff per diem base rate component for all facilities, as specified in 355.308, relating to the Direct Care Staff Rate Component in Subchapter C, relating to the Reimbursement Methodology for Nursing Facilities. HHSC will then subtract the average nursing portion of the current recommended modeled rates as specified in this ICF/IID Reimbursement Methodology rule. These amendments are being adopted to assist DADS in serving individuals with complex medical needs, who are currently living in an SSLC, in a less restrictive environment. Additionally, HHSC is making minor revisions to incorporate person-first respectful language, insert a needed abbreviation, and delete obsolete language. Comments The 30-day comment period ended November 9, 2014. During this period, staff received three comments from Disability Rights Texas. The first comment was a recommendation relating to the way DADS assigns levels of need for individuals leaving an SSLC. Assignment of levels of need is a program determination and not subject to this rule. The comment was forwarded to DADS for consideration. The second comment related to reimbursements for individuals with significant behavior support needs. These amendments relate to individuals with high medical needs; therefore, the comment was not germane to this rule action. The comment was forwarded to DADS for consideration. The third comment requested that the add-on rate be applied to an individual rather than a facility bed or set of facilities and follow the individual into the Home and Community-based Services (HCS) waiver program or other community-based programs. Due to the limited funds available, DADS intends to limit the availability of the add-on to those facilities with contracts that are awarded on or after December 1, 2014, under the "Notice of Enrollment for Intermediate Care Facility for Individuals with an Intellectual Disability and High Medical Needs Project" posting, with beds in this project specifically allocated to serve individuals who meet the criteria of subsection (d). DADS is reviewing additional options for these individuals in the ICF/IID program and in other community-based programs and will move forward at such time as the Legislature may approve additional funding. Unrelated to the public comments, HHSC has made the following change upon adoption of this amendment. HHSC added the word "immediately" to subsection (d)(6)(c)(ii) to ensure that the add-on is only available to individuals moving directly from an SSLC to a non-state operated facility. Statutory Authority The amendment is adopted under Texas Government Code 531.033, which authorizes the Executive Commissioner of HHSC to adopt rules necessary to carry out the Commission's duties; Texas Human Resources Code 32.021 and Texas Government Code 531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code 531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements. 355.456. Reimbursement Methodology. (a) Types of facilities. There are two types of facilities for purposes of rate setting: state-operated and non-state operated. Facilities are further divided into classes that are determined by the size of the facility. (b) Classes of non-state operated facilities. There is a separate set of reimbursement rates for each class of non-state operated facilities, which are as follows. (1) Large facility--a facility with a Medicaid certified capacity of 14 or more as of the first day of the full month immediately preceding a rate's effective date or, if certified for the first time after a rate's effective date, as of the date of initial certification. (2) Medium facility--a facility with a Medicaid certified capacity of nine through 13 as of the first day of the full month immediately preceding a rate's effective date or, if certified for the first time after a rate's effective date, as of the date of initial certification. (3) Small facility--a facility with a Medicaid certified capacity of eight or fewer as of the first day of the full month immediately preceding a rate's effective date or, if certified for the first time after a rate's effective date, as of the date of initial certification. (c) Classes of state-operated facilities. There is a separate interim rate for each class of state-operated facilities, which are as follows: (1) Large facility--a facility with a Medicaid certified capacity of 17 or more as of the first day of the full month immediately preceding a rate's effective date or, if certified for the first time after a rate's effective date, as of the date of initial certification. (2) Small facility--a facility with a Medicaid certified capacity of 16 or less as of the first day of the full month immediately ADOPTED RULES December 19, 2014 39 TexReg 9885

preceding a rate's effective date or, if certified for the first time after a rate's effective date, as of the date of initial certification. (d) Reimbursement rate determination for non-state operated facilities. HHSC will adopt the reimbursement rates for non-state operated facilities in accordance with 355.101 of this title (relating to Introduction) and this subchapter. (1) Reimbursement rates combine residential and day program services, i.e., payment for the full 24 hours of daily service. (2) Reimbursement rates are differentiated based on the level of need (LON) of the individual receiving the service. The levels of need are intermittent, limited, extensive, pervasive, and pervasive plus. (3) The recommended modeled rates are based on cost components deemed appropriate for economically and efficiently operated services. The determination of these components is based on cost reports submitted by ICF/IID providers. (4) Direct service workers cost area. This cost area includes direct service workers' salaries and wages, benefits, and mileage reimbursement expenses. The reimbursement rate for this cost area is calculated as specified in 355.112 of this title (relating to Attendant Compensation Rate Enhancement). (5) Direct care trainers and job coaches cost area. This cost area includes direct care trainers' and job coaches' salaries and wages, benefits, and mileage reimbursement expenses. The reimbursement rate for this cost area is calculated as specified in 355.112 of this title. (6) Add-on reimbursement rate. There is an available add-on reimbursement rate, in addition to the daily reimbursement rate, for certain individuals. (A) The add-on is based on the Resource Utilization Group (RUG-III) 34 group classification system as described in 355.307 of this title (relating to Reimbursement Setting Methodology). (B) There are three add-on groupings based on certain RUG-III 34 classification groups and the assessed Activities of Daily Living (ADL) score. (i) Group 1 includes Extensive Services 3 (SE3), Extensive Services 2 (SE2), and Rehabilitation with ADL score of 17-18 (RAD). (ii) Group 2 includes Rehabilitation with ADL score of 14-16 (RAC), Rehabilitation with ADL score of 10-13 (RAB), Extensive Services 1 (SE1), Special Care with ADL score of 17-18 (SSC), Special Care with ADL score of 15-16 (SSB), and Special Care with ADL score of 4-14 (SSA). (iii) Group 3 includes Rehabilitation with ADL score of 4-9 (RAA), Clinically Complex with Depression and ADL score of 17-18 (CC2), Clinically Complex with ADL score of 17-18 (CC1), Clinically Complex with Depression and ADL score of 12-16 (CB2), Clinically Complex and ADL score of 12-16 (CB1), Clinically Complex with Depression and ADL score of 4-11 (CA2), and Clinically Complex and ADL score of 4-11 (CA1). (C) An individual must meet the following criteria to be eligible to receive the add-on rate: (i) be assigned a RUG-III 34 classification in Group 1, Group 2, or Group 3; (ii) be a resident of a large state-operated facility for at least six months immediately prior to referral; and (iii) have a LON which includes a medical LON increase as described in 40 TAC 9.241 (relating to Level of Need Criteria), but not be assessed a LON of pervasive plus. (D) The add-on for each Group is determined based on data and costs from the most recent nursing facility cost reports accepted by HHSC. (i) For each Group, compute the median direct care staff per diem base rate component for all facilities as specified in 355.308 of this title (relating to Direct Care Staff Rate Component); and (ii) Subtract the average nursing portion of the current recommended modeled rates as specified in subsection (d)(3) of this section. (e) Reimbursement determination for state-operated facilities. Except as provided in paragraph (2) of this subsection and subsection (f) of this section, state-operated facilities are reimbursed an interim rate with a settlement conducted in accordance with paragraph (1)(B) of this subsection. HHSC will adopt the interim reimbursement rates for state-operated facilities in accordance with 355.101 of this title and this subchapter. (1) State-operated facilities certified prior to January 1, 2001, will be reimbursed using an interim reimbursement rate and settlement process. (A) Interim reimbursement rates for state-operated facilities are based on the most recent cost report accepted by HHSC. (B) Settlement is conducted each state fiscal year by class of facility. If there is a difference between allowable costs and the reimbursement paid under the interim rate, including applied income, for a state fiscal year, federal funds to the state will be adjusted based on that difference. (2) A state-operated facility certified on or after January 1, 2001, will be reimbursed using a pro forma rate determined in accordance with 355.101(c)(2)(B) and 355.105(h) of this title (relating to Introduction and General Reporting and Documentation Requirements). A facility will be reimbursed under the pro forma rate methodology until HHSC receives an acceptable cost report which includes at least 12 months of the facility's cost data and is available to be included in the annual interim rate determination process. (f) HHSC may define experimental classes of service to be used in research and demonstration projects on new reimbursement methods. Demonstration or pilot projects based on experimental classes may be implemented on a statewide basis or may be limited to a specific region of the state or to a selected group of providers. Reimbursement for an experimental class is not implemented, however, unless HHSC and the Centers for Medicare and Medicaid Services (CMS) approve the experimental methodology. (g) Cost Reporting. (1) Providers must follow the cost-reporting guidelines as specified in 355.105 of this title. (2) Providers must follow the guidelines in determining whether a cost is allowable or unallowable as specified in 355.102 and 355.103 of this title (relating to General Principles of Allowable and Unallowable Costs, and Specifications for Allowable and Unallowable Costs). (3) Revenues must be reported on the cost report in accordance with 355.104 of this title (relating to Revenues). 39 TexReg 9886 December 19, 2014 Texas Register

(h) Adjusting costs. Each provider's total reported allowable costs, excluding depreciation and mortgage interest, are projected from the historical cost-reporting period to the prospective reimbursement period as described in 355.108 of this title (relating to Determination of Inflation Indices). HHSC may adjust reimbursement if new legislation, regulations, or economic factors affect costs, according to 355.109 of this title (relating to Adjusting Reimbursement When New Legislation, Regulations, or Economic Factors Affect Costs). (i) Field Audit and Desk Review. Desk reviews or field audits are performed on cost reports for all contracted providers. The frequency and nature of the field audits are determined by HHSC to ensure the fiscal integrity of the program. Desk reviews and field audits will be conducted in accordance with 355.106 of this title (relating to Basic Objectives and Criteria for Audit and Desk Review of Cost Reports), and providers will be notified of the results of a desk review or a field audit in accordance with 355.107 of this title (relating to Notification of Exclusions and Adjustments). Providers may request an informal review and, if necessary, an administrative hearing to dispute an action taken under 355.110 of this title (relating to Informal Reviews and Formal Appeals). The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405833 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: December 28, 2014 Proposal publication date: October 10, 2014 For further information, please call: (512) 424-6900 SUBCHAPTER J. PURCHASED HEALTH SERVICES The Texas Health and Human Services Commission (HHSC) adopts amendments to 355.8093, concerning Physician Assistants, 355.8161, concerning Reimbursement Methodology for Midwife Services, and 355.8281, concerning Reimbursement Methodology. The amendments are adopted with changes to the proposed text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8111). The text of the rules will be republished. Background and Justification The amendments update the Medicaid reimbursement methodology to more accurately reflect the reimbursement methodology for physician assistants (PAs), certified nurse midwives (CNMs), and advanced practice registered nurses (APRNs) by deleting obsolete language and restructuring rule layout. The amendments align the reimbursement methodology rules with the amended HHSC policy rules concerning PAs, CNMs, and APRNs in Chapter 354, Subchapter A, Division 1, 354.1001 (relating to Claim Information Requirements), and Chapter 354, Subchapter A, Division 5, 354.1062 (relating to Authorized Physician Services), adopted elsewhere in this issue of the Texas Register. Comments During the public comment period, HHSC received four comments from the following entities (listed in alphabetical order): American Congress of Obstetricians and Gynecologists- District XI (Texas Chapter) Cancer Care Centers of South Texas Coalition for Nurses in Advanced Practice Texas Academy of Family Physicians Texas Academy of Physician Assistants Texas Association of Obstetricians and Gynecologists Texas Chapter of the American College of Physicians Texas Medical Association Texas Nurses Association Texas Oncology Texas Osteopathic Medical Association Texas Pediatric Society The commenters all oppose the rule. A summary of the comments and HHSC's responses to the comments follow: Comment: Several commenters oppose the rule language limiting 100 percent reimbursement for the physician to physician involvement in patient care decisions made "while the service was being rendered." Two commenters stated that this "during the billable medical visit" limitation ignores the fact that many practices have treatment planning meetings or consultations with multiple physicians and caregivers at times other than "during the medical billable visit." Several other commenters elaborated further, indicating the consultations between a physician and an APRN or PA may occur at a mid- or end-of-day conference. In addition, the commenters state that a supervising physician may be otherwise engaged when and APRN or PA is seeing the Medicaid client. The commenters specifically recommend replacing the phrase "during the billable medical visit" with language allowing a 48-hour timeline after the visit to allow for a physician to make a decision related to the client's care. Response: HHSC will revise the rule to lengthen the time period a consultation with a physician may occur, but will not lengthen the time period to 48 hours. Rather, HHSC will replace the phrase "while the service was being rendered" with "on the date the service was rendered." HHSC believes this is a sufficient time period for a consultation to occur, allowing the physician to bill at the 100 percent rate. Comment: A commenter indicated that the requirement that the physician's decision be documented in writing unnecessarily limits a physician's practice protocols. The commenter did not provide a recommended change to the language. Response: This comment does not relate to the reimbursement rules in chapter 355. HHSC will address it in the preamble for the related rules in chapter 354. Comment: Several commenters requested that when a physician claim is submitted for a service performed by an APRN or PA, the APRN's or PA's provider number be required to be on the claim. Simply requiring the claim to indicate whether the services ADOPTED RULES December 19, 2014 39 TexReg 9887

were performed by an APRN or PA is insufficient for purposes of detecting fraud and tracking quality of care. Response: HHSC will address this recommendation in a future amendment. The rule requires the claim be either billed under the APRN's or PA's provider number or when a physician chooses to bill under their own provider number, the provider number of the APRN or PA providing the service is not required. DIVISION 5. GENERAL ADMINISTRATION 1 TAC 355.8093 Statutory Authority The amendment is adopted under Texas Government Code 531.033, which provides the Executive Commissioner of HHSC with broad rulemaking authority; Texas Human Resources Code 32.021 and Texas Government Code 531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code 531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements. 355.8093. Reimbursement Methodology for Physician Assistants. (a) Covered professional services provided by a physician assistant (PA) are reimbursed the lesser of the PA's billed charges or 92 percent of the reimbursement for the same professional service paid to a physician (M.D. or D.O.). The claim for reimbursement must either be: (1) billed under the PA's provider number; or (2) a physician claim noting that the physician was supervising the activity of the PA and did not, on the date the service was rendered, make a decision about the patient's care. (b) PAs are reimbursed at the same reimbursement level as physicians for laboratory services, x-ray services and injections. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405834 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: December 28, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 424-6900 DIVISION 9. MIDWIVES 1 TAC 355.8161 Statutory Authority The amendment is adopted under Texas Government Code 531.033, which provides the Executive Commissioner of HHSC with broad rulemaking authority; Texas Human Resources Code 32.021 and Texas Government Code 531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code 531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements. 355.8161. Reimbursement Methodology for Midwife Services. (a) Certified Nurse Midwives. Covered professional services provided by a certified nurse midwife (CNM) are reimbursed the lesser of the CNM's billed charges or 92 percent of the reimbursement for the same professional service paid to a physician (M.D. or D.O.). The claim for reimbursement must either be: (1) billed under the CNM's provider number; or (2) a physician claim indicating that the physician was supervising the activity of the CNM and did not, on the date the service was rendered, make a decision about the patient's care. (b) CNMs are reimbursed at the same reimbursement level as physicians for laboratory services, x-ray services, and injections. (c) Licensed Midwives. Effective for services delivered on and after January 1, 2013, covered professional services provided by a licensed midwife (LM) and billed under the LM's provider number are reimbursed the lesser of the LM's billed charges or 70 percent of the reimbursement for the same professional service paid to a physician (M.D. or D.O.). The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405835 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: December 28, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 424-6900 DIVISION 15. NURSE PRACTITIONERS AND CLINICAL NURSE SPECIALISTS 1 TAC 355.8281 Statutory Authority The amendment is adopted under Texas Government Code 531.033, which provides the Executive Commissioner of HHSC with broad rulemaking authority; Texas Human Resources Code 32.021 and Texas Government Code 531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code 531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements. 355.8281. Reimbursement Methodology for Nurse Practitioners and Clinical Nurse Specialists. (a) Covered professional services provided by a nurse practitioner (NP) or a clinical nurse specialist (CNS) are reimbursed the lesser of the NP's or CNS' billed charges or 92 percent of the reimbursement for the same professional service paid to a physician (M.D. or D.O.). The claim for reimbursement must either be: 39 TexReg 9888 December 19, 2014 Texas Register

(1) billed under the NP's or CNS' provider number; or (2) a physician claim noting that the physician was supervising the activity of the NP or CNS and did not, on the date the service was rendered, make a decision about the patient's care. (b) NPs and CNSs are reimbursed at the same reimbursement level as physicians for laboratory services, x-ray services, and injections. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405836 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: December 28, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 424-6900 CHAPTER 370. STATE CHILDREN'S HEALTH INSURANCE PROGRAM The Texas Health and Human Services Commission (HHSC) adopts amendments to 370.4, concerning Definitions, and 370.453, concerning Balance Billing, without changes to the proposed text published in the July 18, 2014, issue of the Texas Register (39 TexReg 5489). Background and Justification Balance billing is the practice of charging managed care plan members for costs of covered services that are in excess of authorized cost-sharing and program reimbursement rates. The existing HHSC rule at 370.453 prohibits providers from balance billing CHIP members. Federal law also limits the amounts providers may charge CHIP members for covered services to the cost sharing amounts authorized in a State Children's Health Insurance Program State Plan (see Sections 2103(e)(1)(A) and 2103(f) of the Social Security Act; and 42 C.F.R. 457, Subpart E). In August 2013, the federal Centers for Medicare and Medicaid Services (CMS) clarified that the practice of balance billing CHIP members by out-of-network providers is impermissible under federal law. The rule amendments clarify current policy by aligning the rules with current federal law. Although the intent of current rule 370.453 is to prohibit all balance billing, the specific wording of the rule has been misinterpreted by some providers, who currently balance bill CHIP members and their families. HHSC amends the balance billing rules to clarify that balance billing is prohibited by any network or non-network provider who provides covered medical or dental services to a CHIP member. The amendment to 370.453 clarifies that a network or non-network provider may only seek reimbursement from a CHIP managed care organization for a covered medical or dental service provided to a CHIP member and prohibits a network or non-network provider from billing a CHIP member, the CHIP member's family, or the CHIP member's guardian for a covered medical or dental service in excess of authorized co-payments. The amendment to 370.453 includes balance billing exceptions for covered CHIP services with a co-payment or capped benefit level and non-covered services. The amendments are intended to prevent the unauthorized billing of CHIP members and their families for covered services. As a result, the amendment will help ensure that CHIP remains affordable for families. Comments The 30-day public comment period ended on August 18, 2014. On September 2, 2014, HHSC held a public hearing to receive comments on the proposed rules. HHSC received comments from the Texas Medical Association, Pediatrix Medical Group, the Texas Urological Society, the Texas Society of Plastic Surgeons, the Texas Society of Anesthesiologists, and the Texas Society of Gastroenterology and Endoscopy. Comment: One commenter asserts that there is a distinction between billing and liability, which implies that one can be billed for an amount for which he or she is not ultimately liable. The commenter notes that CMS guidance implies that CHIP clients may be billed, but not ultimately held liable for payment, because a CHIP MCO is the final guarantor for payment for out-of-network charges. Response: Although there is a distinction between billing and liability, HHSC maintains that CHIP clients may not be balance billed for covered CHIP services. Allowing a provider to bill a CHIP client for a payment for which they are not ultimately liable will serve only to confuse CHIP clients and may result in clients erroneously paying bills for which they are not liable. Comment: A commenter suggests the following substitute rule language, which the commenter believes conforms more closely to CMS guidance: In the event a CHIP member receives services from a provider, including an out-of-network physician, the MCO is liable for payment and shall ensure the CHIP member, the CHIP member's family, or the CHIP member's guardian is held harmless. An out-of-network provider, including an out-of-network physician, may seek additional payment from the state or its contractor MCO, but not from the beneficiary. Response: HHSC appreciates this suggestion for revised rule language. However, the HHSC Balance Billing rule at 1 TAC 370.453 is intended to define the rights of CHIP clients and the responsibilities of CHIP MCOs and providers. It is not intended to define the relationship between CHIP MCOs and CHIP providers, either in-network or out-of-network. It does not fit the subject matter of this rule to describe that relationship here. Standards specific to the relationship between CHIP MCOs and CHIP out-of-network providers are described at 1 TAC 370.604, relating to Managed Care Organization Requirements Concerning Out-of-Network Providers. Comment: One commenter suggests that a complete prohibition on balance billing in CHIP would disrupt the ability of providers to negotiate reimbursement rates with MCOs, which could in turn lead to inadequate access to care. Response: HHSC appreciates and takes seriously this comment. However, the Balance Billing rule at 1 TAC 370.453 is intended to define the rights of CHIP clients and the responsibilities of CHIP MCOs and providers. It is not intended to define the relationship between CHIP MCOs and CHIP providers, either in-network or out-of-network. It does not fit the subject matter of ADOPTED RULES December 19, 2014 39 TexReg 9889

this rule to describe that relationship here. Standards specific to the relationship between CHIP MCOs and CHIP out-of-network providers are described at 1 TAC 370.604. Comment: One commenter notes that while federal law and CMS guidance does not allow providers to balance bill CHIP members, there is no such prohibition on balance billing CHIP MCOs. Response: HHSC acknowledges this comment. The Balance Billing rule at 1 TAC 370.453 addresses balance billing of CHIP members and does not prohibit providers from seeking reimbursement from a CHIP managed care organization for a covered service provided to a CHIP member. SUBCHAPTER A. PROGRAM ADMINISTRA- TION 1 TAC 370.4 Statutory Authority The amendment is adopted under the authority granted to HHSC by Texas Government Code 531.033, which authorizes the Executive Commissioner of HHSC to adopt rules necessary to implement HHSC's duties and Texas Health and Safety Code 62.051(d), which directs HHSC to adopt rules as necessary to implement the Children's Health Insurance Program. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405838 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: January 22, 2015 Proposal publication date: July 18, 2014 For further information, please call: (512) 424-6900 SUBCHAPTER E. PROVIDER REQUIRE- MENTS 1 TAC 370.453 Statutory Authority The amendment is adopted under the authority granted to HHSC by Texas Government Code 531.033, which authorizes the Executive Commissioner of HHSC to adopt rules necessary to implement HHSC's duties and Texas Health and Safety Code 62.051(d), which directs HHSC to adopt rules as necessary to implement the Children's Health Insurance Program. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405839 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: January 22, 2015 Proposal publication date: July 18, 2014 For further information, please call: (512) 424-6900 SUBCHAPTER G. STANDARDS FOR CHIP MANAGED CARE 1 TAC 370.604 The Texas Health and Human Services Commission (HHSC) adopts new 370.604, concerning Managed Care Organization Requirements Concerning Out-of-Network Providers, with changes to the proposed text as published in the August 15, 2014, issue of the Texas Register (39 TexReg 6120). The text of the rule will be republished. Background and Justification HHSC is the state agency responsible for overseeing and monitoring CHIP. An MCO participating in CHIP must offer a network of providers sufficient to meet the needs of the CHIP population, and an MCO is required to provide access and reimbursement to OON providers for emergency or authorized covered services. Prior to the adoption of this rule, there were no CHIP MCO requirements concerning out-of-network providers in the TAC. Aligning CHIP OON provider requirements with the Medicaid managed care program OON provider requirements ensures consistency across managed care programs. It also increases access to CHIP network providers and provides CHIP members with continuity of care. The OON reimbursement standards for CHIP differ from the OON reimbursement standards set forth by the Medicaid managed care rules. The proposed rule clarifies that the Texas Department of Insurance (TDI) sets CHIP OON reimbursement standards, which require CHIP MCOs to pay a reasonable and customary rate when a rate has not already been negotiated for OON emergency services. Comments During the public comment period, HHSC received comments from the Texas Medical Association. A summary of the comments and the responses follow. Comment: The commenter suggests that the CHIP rules proposed in the July 18, 2014, issue of the Texas Register (39 TexReg 5489), which prohibit balance billing in CHIP, and this rule, proposed in the August 15, 2014, issue of the Texas Register (39 TexReg 6120), be adopted at the same time. Response: HHSC agrees and is coordinating the adoption of these two rule packets to have the same effective date. Comment: The commenter recommends that HHSC revise 370.604(e) to state that "a health care or dental MCO providing CHIP OON services must pay for emergency care performed by OON providers at the usual and customary rate or at an agreed rate." As the commenter notes, 370.604(e)(2) requires an MCO providing CHIP OON services to comply with the reimbursement standards set forth by the Texas Department of Insurance (TDI). The commenter suggests that HHSC should specifically require a participating MCO to reimburse an OON provider for emergency services in accordance with Texas 39 TexReg 9890 December 19, 2014 Texas Register

Insurance Code 1271.155, which requires an MCO to pay for emergency care performed by an OON provider "at the usual and customary rate or at an agreed rate." Response: HHSC agrees and will revise 370.604(e) to reference the emergency care reimbursement standards set forth in Texas Insurance Code 1271.155. A CHIP MCO must pay for emergency services performed by OON providers consistently with TDI rules. Comment: The commenter likewise urges HHSC to revise the proposed rules to be consistent with Texas Insurance Code 1271.055(b), which requires an MCO to reimburse an OON provider for services that are not available through network providers "fully... at the usual and customary rate or at an agreed rate." Accordingly, the commenter advises revising the rule to expressly state that if medically necessary covered services are not available through a network provider, the MCO, on the request of a network provider and within a reasonable period, shall: (1) allow referral to an OON provider; and (2) fully reimburse the OON provider at the usual and customary rate or at an agreed rate. The commenter suggests that such a revision is not only consistent with the Texas Insurance Code and TDI regulations, it is also consistent with the CHIP MCO contract with the state, which mandates payment as required by TDI regulations for commercial HMOs. Response: HHSC declines to revise the rule as the commenter suggests. Subsection (b)(1) of the rule already requires an MCO to allow a provider to submit a referral for a member to an OON provider and to timely issue the proper authorization for such a referral consistently with managed care contract requirements for authorization of medically necessary services. The Uniform Managed Care Contract (UMCC) that applies to CHIP MCOs requires an MCO to reimburse an OON provider for authorized services that are not available through network providers "fully... at the usual and customary rate or at an agreed rate." See UMCC 8.1.3 Access to Care. Consequently, the suggested revision is unnecessary. Comment: The commenter further suggests that the rule be revised to make clear that, before denying a request for a referral to an OON provider, a CHIP MCO should provide for a review conducted by a specialist of the same or similar type of specialty as the provider to whom the referral is requested. Response: HHSC declines to revise the rule as the commenter suggests. Texas Insurance Code 1271.055(c) requires an MCO, before denying a request for a referral to an OON provider, to provide for a specialist of the same or a similar type of specialty as the referred provider to review the case. Section 1271.055 applies to CHIP MCOs, and UMCC 8.1.1 expressly requires an MCO to "comply with... all applicable provisions of the state... laws, rules, [and] regulations...." Therefore, HHSC already requires that CHIP MCOs be in compliance with this requirement, and the suggested revision is unnecessary. HHSC will, however, consider clarifying the section of the UMCC related to utilization management. Comment: The commenter also recommends that the rule be revised to clarify that a CHIP member's MCO--not the member- -is liable for paying providers of OON services. The commenter proposes a new paragraph (e)(4) directing an MCO to hold its members harmless for any amounts exceeding the member's cost-sharing obligation. Response: HHSC declines to revise the rule as the commenter suggests. The MCO is contractually required to 1) pay an OON service provider for authorized and covered services, with the exception of emergency services and 2) hold its members harmless for payments related to covered OON services, with the exception of authorized cost sharing. Contractual language to this effect can be found in UMCC 8.1.3. Consequently, the suggested revision is unnecessary. Comment: The commenter suggests that the rule be revised to permit a provider to notify a member when the member's MCO has not paid a claim in a timely manner. The commenter specifically suggests amending the rule to state that: (1) an OON provider must first bill the member's CHIP MCO for covered OON services; and (2) if the MCO has not paid a clean claim for such services within 45 days after receiving the claim, the provider may submit a bill or notice of outstanding balance to the CHIP member. Although the MCO is liable for the payment, the commenter argues, the member should be notified when his or her MCO is out of compliance with its obligation to pay. If a member erroneously pays for OON services after receiving a bill or notice of outstanding balance, the MCO would have to notify the OON provider, and upon receiving notice from the MCO, the provider would have to remit payment to the CHIP member within a reasonable period of time. In the commenter's view, this will ensure that MCOs remain accountable to their members. Response: HHSC disagrees and declines to revise the rule as the commenter suggests. Providers may not seek reimbursement or attempt to obtain payment from a CHIP member or the CHIP legally authorized representative for covered services. See 1 TAC 370.453. As such, any attempt to submit a bill or notice of an outstanding balance for covered services to the CHIP member or the member's guardian would violate this rule. Furthermore, even if the provider merely "notifies" the member that payment from the MCO is late, a member may well construe this as a bill and attempt to pay the outstanding balance to the member's detriment. Consequently, the suggested revision is unnecessary. Of course, an MCO is not responsible for payment for unauthorized, non-emergency services provided to a member by an OON provider, as 1 TAC 370.453 makes clear. Comment: The commenter recommended that HHSC revise 370.604(f)(3) to direct that provider complaints regarding OON CHIP reimbursement or MCO contract compliance be submitted to HHSC, rather than TDI. In the commenter's view, the proposed rules, which require that provider complaints regarding reimbursement rates be submitted to TDI, provide little to no direction or relief because TDI does not have a dispute resolution process expressly for OON providers. Moreover, the commenter suggests, HHSC is responsible for enforcing the rules and contractual provisions with which a CHIP MCO must comply and is therefore the more logical choice for receiving provider complaints. Response: HHSC disagrees and declines to revise the rule as the commenter suggests. At the request of HHSC, TDI is required to adopt rules necessary in the development of CHIP. Tex. Ins. Code 62.054. Because the rule as proposed is consistent with the statute, it is unnecessary to amend the rule as the commenter suggests. CHIP provider complaints or claims payment appeals, including those from OON providers, are subject to disposition by TDI. Any person, including an OON provider, who has attempted to resolve a complaint through the MCO's internal complaint process and is dissatisfied with the resolution may submit a complaint to TDI in accordance with Texas Insurance Code 843.282(a). This includes complaints that allege a violation of chapter 1271 ADOPTED RULES December 19, 2014 39 TexReg 9891

of the Texas Insurance Code, including 1271.055, which governs OON referrals and reimbursement for services provided. See Tex. Ins. Code 843.282(a)(6). Statutory Authority The new rule is adopted under the authority granted to HHSC by Government Code 531.033, which authorizes the Executive Commissioner of HHSC to adopt rules necessary to implement HHSC's duties and Texas Health and Safety Code 62.051(d), which directs HHSC to adopt rules as necessary to implement CHIP. 370.604. Managed Care Organization Requirements Concerning Out-of-Network Providers. (a) Network adequacy. Each MCO participating in CHIP must offer a network of providers that is sufficient to meet the needs of CHIP members enrolled in the MCO. HHSC uses reports from the MCOs and complaints received from providers and members to monitor MCO members' access to an adequate provider network. Subsection (c) of this section describes the reporting requirements with which an MCO must comply. (b) MCO requirements concerning treatment of members by out-of-network providers. (1) An MCO must allow a provider to submit a referral of its member(s) to an out-of-network provider, must timely issue the proper authorization for such referral consistent with managed care contract requirements for authorization of medically necessary services, and must reimburse the out-of-network provider for authorized services provided in accordance with statutory and contractual timeframes when: (A) CHIP covered services are medically necessary, as described in section 370.4(49) of this chapter (relating to Definitions), and these services are not available through an in-network provider; (B) a provider currently providing authorized services to the member requests authorization for such services to be provided to the member by an out-of-network provider; and (C) the authorized services are provided within the time period specified in the MCO's authorization. If the services are not provided within the required time period, the requesting provider must submit a new referral request to the MCO prior to the provision of services. (2) An MCO may not refuse to reimburse an out-of-network provider for emergency services. (3) Health care MCO requirements concerning emergency services. (A) A health care MCO must allow its members to be treated by any emergency services provider for emergency services, and for services to determine if an emergency condition exists. The health care MCO must pay for such services. (B) A health care MCO may not require an authorization for emergency services or for services to determine if an emergency condition exists. (C) A health care MCO may not refuse to reimburse an out-of-network provider for post-stabilization care services provided as a result of the MCO's failure to arrange for and authorize a timely transfer of a member. (4) Dental MCO requirements concerning emergency services. (A) A dental MCO must allow its members to be treated for covered emergency services provided outside of a hospital or ambulatory surgical center setting and for covered services provided outside of such settings to determine if an emergency condition exists. The dental MCO must pay for such services unless subparagraph (C) of this paragraph specifies otherwise. (B) A dental MCO may not require an authorization for the services described in subparagraph (A) of this paragraph. (C) A dental MCO is not responsible for payment of non-capitated emergency services and post-stabilization care provided in a hospital or ambulatory surgical center setting or for devices for craniofacial anomalies. A dental MCO is not responsible for hospital and physician services, anesthesia, drugs related to treatment, and poststabilization care for: (i) a dislocated jaw, traumatic damage to a tooth, or removal of a cyst; (ii) an oral abscess of tooth or gum origin; or (iii) craniofacial anomalies. (D) The services and benefits described in subparagraph (C) of this paragraph are reimbursed through the health care MCO. (5) An MCO may be required by contract with HHSC to allow members to obtain services from out-of-network providers in circumstances other than those described in paragraphs (1) - (4) of this subsection. (c) Reporting requirements. (1) Each MCO that contracts with HHSC to provide health care services or dental services to members in a service area must submit an Out-of-Network quarterly report to HHSC. (2) Each Out-of-Network quarterly report must contain information about members enrolled in CHIP. The report must include the following information: (A) For a health care MCO, the total number of hospital admissions, as well as the number of admissions that occur at each outof-network hospital. Each out-of-network hospital must be identified. (B) For a health care MCO, the total number of emergency room visits, as well as the total number of emergency room visits that occur at each out-of-network hospital. Each out-of-network hospital must be identified. (C) Total dollars billed for services other than those described in subparagraphs (C) and (D) of this paragraph, as well as total dollars billed by out-of-network providers for other services. (D) Any additional information that HHSC requires. (3) HHSC will determine the specific form of the report described in this subsection and will include the report form as part of the CHIP managed care contract between HHSC and the MCOs. (d) Utilization. (1) Upon review of the reports described in subsection (c) of this section, HHSC may determine that an MCO exceeded the maximum out-of-network usage standards HHSC set for out-of-network access to health care services and dental services during the reporting period. (2) Out-of-network usage standards. 39 TexReg 9892 December 19, 2014 Texas Register

(A) Inpatient admissions: No more than 15 percent of a health care MCO's total hospital admissions, by service area, may occur in out-of-network facilities. (B) Emergency room visits: No more than 20 percent of a health care MCO's total emergency room visits, by service area, may occur in out-of-network facilities. (C) Other services: For services that are not included in subparagraph (A) or (B) of this paragraph, no more than 20 percent of total dollars billed to an MCO may be billed by out-of-network providers. (3) Special considerations in calculating a health care MCO's out-of-network usage of inpatient admissions and emergency room visits. (A) In the event that a health care MCO exceeds the maximum out-of-network usage standard set by HHSC for inpatient admissions or emergency room visits, HHSC may modify the calculation of that health care MCO's out-of-network usage for that standard if: (i) the admissions or visits to a single out-of-network facility account for 25 percent or more of the health care MCO's admissions or visits in a reporting period; and (ii) HHSC determines that the health care MCO has made all reasonable efforts to contract with that out-of-network facility as a network provider without success. (B) In determining whether a health care MCO has made all reasonable efforts to contract with the single out-of-network facility described in subparagraph (A) of this paragraph, HHSC will consider at least the following information: (i) How long the health care MCO has been trying to negotiate a contract with the out-of-network facility; (ii) The in-network payment rates the health care MCO has offered to the out-of-network facility; (iii) The other, non-financial contractual terms the health care MCO has offered to the out-of-network facility, particularly those relating to prior authorization and other utilization management policies and procedures; (iv) The health care MCO's history with respect to claims payment timeliness, overturned claims denials, and provider complaints; (v) The health care MCO's solvency status; and (vi) The out-of-network facility's reasons for not contracting with the health care MCO. (C) If the conditions described in subparagraph (A) of this paragraph are met, HHSC may modify the calculation of the health care MCO's out-of-network usage for the relevant reporting period and standard by excluding from the calculation the inpatient admissions or emergency room visits to that single out-of-network facility. (e) Reimbursement rates. (1) HHSC does not set reimbursement rate standards for out-of-network CHIP providers. MCOs are required to reimburse providers for emergency services and assessments in accordance with Texas Insurance Code 1271.155. (2) A health care or dental MCO providing CHIP out-of-network services must comply with the reimbursement standards set forth by the Texas Department of Insurance for out-of-network providers. (f) Provider complaints. (1) HHSC accepts and investigates provider complaints regarding overuse of out-of-network providers. (2) Not later than the 60th day after HHSC receives a provider complaint, HHSC notifies the provider who initiated the complaint of the conclusions of HHSC's investigation into the complaint. The notification to the complaining provider will include a description of the corrective action plan, if required, that HHSC has initiated under subsection (g) of this section. (3) Provider complaints regarding reimbursement rates should be submitted to the Texas Department of Insurance. (g) Corrective action plan. (1) HHSC initiates a corrective action plan with an MCO if HHSC determines through investigation that: (A) the MCO did not comply with the out-of-network utilization standards for health care services and dental services described in subsection (d) of this section; and (B) HHSC has not granted a special consideration under subsection (d)(3). (2) HHSC may impose other contractual remedies as appropriate. (h) Application to Pharmacy Providers. The requirements of this section do not apply to providers of outpatient pharmacy benefits. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405840 Jack Stick Chief Counsel Texas Health and Human Services Commission Effective date: January 22, 2015 Proposal publication date: August 15, 2014 For further information, please call: (512) 424-6900 TITLE 10. COMMUNITY DEVELOPMENT PART 1. TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS CHAPTER 10. UNIFORM MULTIFAMILY RULES SUBCHAPTER A. GENERAL INFORMATION AND DEFINITIONS 10 TAC 10.1-10.4 The Texas Department of Housing and Community Affairs (the "Department") adopts the repeal of 10 TAC Chapter 10, 10.1-10.4, concerning General Information and Definitions, without changes to the proposal as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7395). ADOPTED RULES December 19, 2014 39 TexReg 9893

REASONED JUSTIFICATION. The Department finds that the purpose of the repeal is to replace the sections with new rules that encompass all funding made available to multifamily programs. Accordingly, the repeal provides for consistency and minimizes repetition among the programs. The Department accepted public comments between September 19, 2014, and October 20, 2014. Comments regarding the repeal were accepted in writing and by fax. No comments were received concerning the repeal. The Board approved the final order adopting the repeal on November 13, 2014. STATUTORY AUTHORITY. The repeal is adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the repeal is adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan. The repeal affects Chapter 2306 of the Texas Government Code. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405720 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 10 TAC 10.1-10.4 The Texas Department of Housing and Community Affairs (the "Department") adopts new 10 TAC Chapter 10, 10.1-10.4, concerning General Information and Definitions. Section 10.2 and 10.3 are adopted with changes to the proposed text as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7395). Section 10.1 and 10.4 are adopted without changes and will not be republished. REASONED JUSTIFICATION. The Department finds that the adoption of the sections will result in a more consistent approach to governing multifamily activity and to the awarding of funding or assistance through the Department and to minimize repetition. The comments and responses include both administrative clarifications and corrections to the Uniform Multifamily Rule based on the comments received. After each comment title numbers are shown in parentheses. These numbers refer to the person or entity that made the comment as reflected at the end of the reasoned response. If comment resulted in recommended language changes to the proposed Uniform Multifamily Rule as presented to the Board in September, such changes are indicated. SUMMARY OF PUBLIC COMMENT AND STAFF RECOMMEN- DATIONS. Public comments were accepted through October 20, 2014, with comments received from the following: (10) Motivation Education & Training, Inc. (MET), (17) Coats Rose, (20) Alyssa Carpenter, (24) Cynthia Bast, (26) Sarah Andre, (27) City of Houston, (30) Marque Real Estate Consultants, (33) Foundation Communities, (34) New Hope Housing, (36) S Anderson Consulting, (46) Texas Association of Community Development Corporations (TACDC). Chapter 10 - General Comments - (10) COMMENT SUMMARY: Commenter (10) stated developers of farm worker housing should be encouraged to meet design standards for farmworker housing that would create housing units that meet the HTC program requirements because many of them would be ineligible for HTC funding otherwise. Commenter (10) also recommended the Department consider providing assistance and/or creating incentives to encourage developers to actively market non-farm worker housing to farm workers, especially existing housing stock in rural areas, which would help meet some farm worker housing needs without adding new units to markets. STAFF RESPONSE: Staff agreed that developers of farmworker housing should follow HTC program requirements; however, creating incentives for developers to actively market existing housing stock to farmworkers would represent a significantly new policy directive and would require a republication for public comment. This issue may be taken into consideration in future rulemakings. Staff recommended no change based on this comment. BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Proposed New Definitions (27) COMMENT SUMMARY: Commenter (27) suggested the following new definitions, consistent with their comments on the Qualified Allocation Plan. "Community Revitalization Area (CRA) - The areas defined for deep revitalization by the City of Houston's Disaster Relief Round 2 (DR2) Planning Study. Map is available at: http://www.houstontx.gov/housing/ninepercent/cra_outreach_maps.pdf. CRA Outreach Area - The extended areas defined by the City of Houston's DR2 Planning Study for single family rehabilitation and reconstruction. Map is available at: http://www.houstontx.gov/housing/ninepercent/cra_outreach_maps.pdf. Permanent Supportive Housing (PSH) - An affordable housing development that links a range of services for vulnerable tenants to ensure housing stability. Any unit identified as PSH is one that is deeply affordable and targeted to extremely low income households and coupled with direct, facilitated access to a comprehensive array of services. Services can include, but are not limited to, case management, medical, mental health, substance use treatment, employment and life skills counseling, eviction prevention programs, social and recreational events, and tenant advocacy. The services are voluntary to the tenant, while service and property management staff focuses on housing stability. The unit is tied to a lease and tenants are expected to adhere to the conditions of the lease. Therefore, group housing and transitional housing are not included in this definition." STAFF RESPONSE: In response to Commenter (27) with respect to a definition of Community Revitalization Area, staff understands that the City of Houston is suggesting such a change so that some applications proposing developments located in areas targeted by the CDBG Disaster Recovery plan can qualify for points under 11.9(d)(7) of the Qualified Allocation Plan 39 TexReg 9894 December 19, 2014 Texas Register

(QAP) related to Community Revitalization Plan. Staff believes it is possible that these applications could qualify for these points without such a change, since under 11.9(d)(7)(B), applications that have a commitment of CDBG-DR funds do qualify for points. This provision ( 11.9(d)(7)(B)) was added to the QAP as a result of previous comment from the City of Houston. Therefore, staff recommended no change to either the definitions or the scoring item. With respect to the addition of a definition for Permanent Supportive Housing, staff understands that this comment was made in order to allow those applicants participating in the City of Houston's Permanent Supportive housing program to access the same points that other applicants will access through participation in the Department's Section 811 program. Even if staff or the Board chooses to recommend such a policy change, staff does not find the added definition necessary to implement the rule. Staff did not recommend the addition of the definitions. BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Applicant (24) COMMENT SUMMARY: Commenter (24) articulated that the organizational charts in the application are to identify the proposed development owner, the entities that will be part of the ownership structure and the individuals that will own or control those entities. Commenter (24) questioned whether the inclusion of this new definition would benefit from being tied to the organizational chart and/or the definition of Principal. Commenter (24) stressed that in places where certain terms, Applicant, Affiliate, Principal and Development Team, for example are used in the rules, there needs to be uniformity and consistency to avoid creating unintended burdens or infeasibility issues for the Applicants. STAFF RESPONSE: In general, staff agreed with Commenter (24) and recommended the revisions below. However, with respect to the definitions of Applicant and Control, staff did not recommend any changes. The definition of Applicant was added primarily to address the issue that the applicant entity often listed in the applications is not yet formed, and the term is also used throughout the rules. Should any changes need to be made to the rules with respect to what is required in the organizational charts, previous participation forms, and/or certifications, staff will address those issues in the appropriate sections of the rule. "(6) Applicant-means any individual or a group of individuals and any Affiliates who file an Application for funding or tax credits subject to the requirements of this chapter or 10 TAC Chapters 11 or 12 and who may contemplate the later formation of one or more business entities, such as a limited partnership, that is to be engaged in the ownership of a Development. In administering the application process the Department staff will assume that the applicant will be able to form any such entities and that all necessary rights, powers, and privileges including, but not limited to, site control will be transferable to that entity. The formation of the ownership entity, qualification to do business (if needed), and transfer of such rights, powers, and privileges must be accomplished as required in this Chapter and 10 TAC Chapters 11 and 12, as applicable." BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Colonia (20), (30), (36) COMMENT SUMMARY: Commenter (20), (36) suggested this definition remains too subjective, and as evidenced in the 2014 application round and challenge process, needs to be clarified. Commenter (20), (36) recommended language be adopted that would consider a site to have the "characteristics of a Colonia" if it is located within 50 feet, boundary to boundary, of an existing Colonia as recorded and mapped by the Attorney General's office. Commenter (30) also suggested this definition be more narrowly defined especially given the points that could be achieved. Commenter (30) indicated that lack of access to utilities should be a key distinction when comparing the physical and economic characteristics of a Colonia to the area of the proposed Development and suggested the following modification. "(19) Colonia--A geographic area that is located in a county some part of which is within one-hundred fifty (150) miles of the international border of this state, that consists of eleven (11) or more dwellings that are located in proximity to each other in an area that may be described as a community or neighborhood, and that...: (B) has the physical and economic characteristics of a colonia, as determined by the Department. The factors to be considered by the Department will include the proximity of the Development Site to the existing Colonia communities, and the ability or inability of the Colonia communities to access basic utilities to meet the minimal needs of the residents." STAFF RESPONSE: Staff agreed with Commenter (30) that clarification of the factors to be considered in the Department's evaluation of a geographic area would provide more certainty for applicants. However, staff did not recommend limiting areas considered to be colonias as being only 50 feet from a Colonia as defined by the Texas Water Development Board. Staff recommended the following revision. "(19) Colonia--A geographic area that is located in a county some part of which is within one-hundred fifty (150) miles of the international border of this state, that consists of eleven (11) or more dwellings that are located in proximity to each other in an area that may be described as a community or neighborhood, and that: (A) has a majority population composed of individuals and families of low-income and very low-income, based on the federal Office of Management and Budget poverty index, and meets the qualifications of an economically distressed area under Texas Water Code, 17.921; or (B) has the physical and economic characteristics of a colonia, as determined by the Department, and is a geographic area encompassing no more than two (2) square miles. Factors to be considered by the Department include, but are not limited to, ability to access basic utilities and boundaries that may define communities or neighborhoods. Applicants will be required to define the geographic area to be evaluated by the Department." BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Control (24) COMMENT SUMMARY: Commenter (24) questioned whether the additional language in this definition was appropriate because of the fact that the definition of Control is tied to the definition of Principal and as a result, the new language would make every board member of a non-profit corporation a Principal, when it appears that the Department is trying to get away from such connection in other contexts (e.g. Previous Participation). Commenter (24) articulated that if the concept in the new language needs to be included then it should be included somewhere else so that unintended consequences can be avoided. ADOPTED RULES December 19, 2014 39 TexReg 9895

STAFF RESPONSE: With respect to the added language in the definition of Control, staff still contends that board members, regardless of whether or not they recuse themselves from certain decisions, do exercise some control over the entities on whose board they serve. Staff also believes that this is the best place to address that situation, so that it can apply to any aspect of the rule. Staff also believes that the definition of Principal should in fact include this concept of control. However, staff recommended changes to the rule regarding the Certification of Principal which should address some of the commenter's concerns. BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Developer Services (24) COMMENT SUMMARY: Commenter (24) suggested item (A) and the reference to permanent financing in item (B), as noted below, needs to be removed. Commenter (24) stated the Department's rules should not be at odds with IRS interpretation regarding these items. Specifically, commenter (24) noted the IRS has focused its attention on the services performed by the developer and whether or not those services are tied to eligible basis items. As an illustration, services related to land acquisition would be ineligible as well as those developer services related to obtaining permanent financing. "(B) identifying and negotiating sources of construction, including financing provided by the Department;" STAFF RESPONSE: The definition is not intended to address issues of eligible basis, but to address issues related to fees charges by the developer and then again by another consultant. Staff wants to ensure that those fees are not counted twice. Staff recommended no change to the definition. BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Development Team (24) COMMENT SUMMARY: Commenter (24) recommended the following modification to reflect correct usage of the defined term. "(43) Development Team--All Persons and Affiliates thereof that play a role in the development, construction, rehabilitation, management and/or continuing operation of the subject Development, including any Development Consultant and Guarantor." STAFF RESPONSE: Staff agreed with the commenter and modified the definition accordingly. BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - General Partner (24) COMMENT SUMMARY: Commenter (24) recommended the following changes to this definition on the basis of clarifying the general partner's role, correcting the name of the organizational document, and clarifying that a limited liability company can be controlled by a manager or a managing member and that not all limited liability companies have managers. "(55) General Partner--Any person or entity identified as a general partner in a certificate of formation for the partnership that is the Development Owner and that Controls the partnership. Where a limited liability corporation is the legal structure employed rather than a limited partnership, the manager or managing member of that limited liability corporation is deemed, for the purposes of these rules, to be the functional equivalent of a general partner." STAFF RESPONSE: Staff agreed with the commenter and modified the definition accordingly. BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Managing General Partner (24) COMMENT SUMMARY: Commenter (24) recommended the following modifications to maintain consistency with the proposed revisions to the definition of General Partner. "(74) Managing General Partner--A general partner of a partnership (or, as provided for in paragraph (55) of this subsection, its functional equivalent) that is vested with the authority to take actions that are binding on behalf of the partnership and the other partners. The term Managing General Partner can also refer to a manager or managing member of a limited liability company where so designated to bind the limited liability company and its members under its Agreement or any other person that has such powers in fact, regardless of their organizational title." STAFF RESPONSE: Staff agreed with the commenter and modified the definition accordingly. BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Principal (24) COMMENT SUMMARY: Commenter (24) recommended the following modifications to this definition in order to obtain uniformity and consistency across all multifamily rules where such term, in conjunction with other terms including Applicant, Affiliate and Development Team are used and could create unintended burdens or infeasibility issues for the Applicants. "(98) Principal--Persons that will exercise Control over an entity. In the case of: (A) partnerships, Principals include all General Partners, special limited partners (other than those affiliated with an investor limited partner), and individuals Controlling such partners; (B) for-profit corporations, Principals include any officer authorized by the board of directors, regardless of title, to act on behalf of the corporation, including but not limited to the president, vice president, secretary, treasurer, and all other executive officers, and each stock holder having a 10 percent or more interest in the corporation, and any individual who has Control with respect to such stock holder; (C) non-profit corporations or governmental instrumentalities (such as housing authorities), Principals include any officer authorized by the board, regardless of title, to act on behalf of the corporation, including but not limited to the president, vice president, secretary, treasurer, and all other executive officers, the Audit committee chair, the Board chair, and anyone identified as the Executive Director or equivalent; (D) trusts, Principals include all beneficiaries that have the legal ability to Control the trust who are not just financial beneficiaries; and (E) limited liability companies, Principals include all managers, managing members, members having a 10 percent or more interest in the limited liability company, any individual Controlling such members, or any officer authorized to act on behalf of the limited liability company." STAFF RESPONSE: Staff did not believe the proposed changes are necessary. However, with respect to any recommended changes regarding certifications required, staff will recommend revisions in the appropriate sections. Staff recommended the following revision to this definition: 39 TexReg 9896 December 19, 2014 Texas Register

"(98) Principal-Persons that will exercise Control (which includes voting board members pursuant to 10.3(a)(29) of this chapter) over a partnership, corporation, limited liability company, trust, or any other private entity. In the case of..." BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Right of First Refusal (24) COMMENT SUMMARY: Commenter (24) questioned whether this definition should refer to a Qualified Nonprofit Organization rather than to just a nonprofit. STAFF RESPONSE: Staff agreed with the commenter and modified the definition accordingly. "(116) Right of First Refusal--An Agreement to provide a right to purchase the Property to a Qualified Nonprofit Organization or tenant organization with priority to that of any other buyer at a price whose formula is prescribed in the LURA." BOARD RESPONSE: Accepted staff's recommendation. 10.3 - Subchapter A - Definitions - Supportive Housing (17), (26), (33), (34), (46) COMMENT SUMMARY: Commenters (17), (33), (34), (46) suggested the following modifications to this definition given the additional points allowed for such developments. Commenter (33) further stated that the proposal to strike the debt-free language and just leave debt that is non-foreclosable or non-cash flow contingent is problematic since funding from the City of Austin and Federal Home Loan Bank are foreclosable if affordability restrictions were violated. The proposed changes below, according to commenters (33), (34) catch exceptions of the multiple funding sources used for supportive housing developments. "(125) Supportive Housing--Residential rental developments intended for occupancy by individuals or households in need of specialized and specific non-medical services in order to maintain independent living. Supportive housing developments generally include established funding sources outside of project cash flow that require certain populations be served and/or certain services provided. The developments are expected to be debt free, or have no permanent foreclosable or noncash flow debt. A Supportive Housing Development financed with tax-exempt bonds with a project based rental assistance contract for a majority of the Units may be treated as Supportive Housing under all subchapters of this chapter, except Subchapter D of this chapter (relating to Underwriting and Loan Policy)..." Commenter (26) suggested this definition be revised to include an exclusive focus on a population that has supportive housing needs and not allow an Application to claim points for 5 or 10 units within a larger development. STAFF RESPONSE: Staff agreed with Commenters (17), (33), (34), and (46) and modified the definition accordingly. With respect to Commenter (26), staff believes the definition speaks to the populations served without necessitating any changes. In addition, the nature of the financing of these developments helps to ensure that an appropriate number of units actually function as supportive housing units. BOARD RESPONSE: Accepted staff's recommendation. STATUTORY AUTHORITY. The new sections are adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the new sections are adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan. The adoption affects Chapter 2306 of the Texas Government Code. 10.2. General. (a) This chapter may not contemplate unforeseen situations that may arise, and in that regard the Department staff is to apply a reasonableness standard in the evaluation of Applications for multifamily development funding. Additionally, Direct Loan funds and other non-housing Tax Credit or tax exempt bond resources may be made available through a NOFA or other similar governing document that includes the basic Application and funding requirements: (1) deadlines for filing Applications and other documents; (2) any additional submission requirements that may not be explicitly provided for in this chapter; (3) any applicable Application set-asides and requirements related thereto; (4) award limits per Application or Applicant; (5) any federal or state laws or regulations that may supersede the requirements of this chapter; and (6) other reasonable parameters or requirements necessary to implement a program or administer funding effectively. (b) Due Diligence and Applicant Responsibility. Department staff may, from time to time, make available for use by Applicants information and informal guidance in the form of reports, frequently asked questions, rent and income limits, and responses to specific questions. The Department encourages communication with staff in order to clarify any issues that may not be fully addressed in the multifamily rules or be unclear when applied to specific facts. However, while these resources are offered to help Applicants prepare and submit accurate information, Applicants should also appreciate that this type of guidance is limited by its nature and that staff will apply the multifamily rules to each specific situation as it is presented in the submitted Application. In addition, although the Department may compile data from outside sources in order to assist Applicants in the Application process, it remains the sole responsibility of the Applicant to independently perform the necessary due diligence to research, confirm, and verify any data, opinions, interpretations or other information upon which Applicant bases an Application. (c) Board Standards for Review. Some issues may require or benefit from board review. The Board is not constrained to a particular standard, and while its actions on one matter are not binding as to how it will address another matter, the Board does seek to promote consistency with its policies, including the policies set forth in this chapter. (d) Census Data. Where this chapter requires the use of census or American Community Survey data, the Department shall use the most current data available as of October 1, 2014, unless specifically otherwise provided in federal or state law or in the rules. The availability of more current data shall generally be disregarded. For Rural Area and Urban Area designations, the Department shall use in establishing the designations, the U.S. Census Bureau's Topographically Integrated Geographic Encoding and Referencing ("TIGER") shape files applicable for the population dataset used in making such designations. (e) Public Information Requests. Pursuant to Texas Government Code, 2306.6717, any pre-application and any full Application, including all supporting documents and exhibits, must be made available to the public, in their entirety, on the Department's website. The filing of a pre-application or Application with the Department shall be ADOPTED RULES December 19, 2014 39 TexReg 9897

deemed as consent to the release of any and all information contained therein, including supporting documents and exhibits, and as a waiver of any of the applicable provisions of Texas Government Code, Chapter 552, with the exception of any such provisions that are considered by law as not subject to a waiver. (f) Responsibilities of Municipalities and Counties. In providing resolutions regarding housing de-concentration issues, threshold requirements, or scoring criteria, municipalities and counties should consult their own staff and legal counsel as to whether such resolution will be consistent with Fair Housing laws as they may apply, including, as applicable, consistency with any Fair Housing Activity Statement-Texas ("FHAST") form on file, any current Analysis of Impediments to Fair Housing Choice, or any current plans such as one year action plans or five year consolidated plans for HUD block grant funds, such as HOME or CDBG funds. (g) Deadlines. Where a specific date or deadline is identified in this chapter, the information or documentation subject to the deadline must be submitted on or before 5:00 p.m. Central Time Zone on the day of the deadline. 10.3. Definitions. (a) Terms defined in this chapter apply to the Housing Tax Credit Program, Multifamily Housing Revenue Bond Program, HOME Program and any other programs for the development of affordable rental property administered by the Department and as may be defined in this title. Any capitalized terms not specifically mentioned in this section or any section referenced in this document shall have the meaning as defined in Texas Government Code Chapter 2306, Internal Revenue Code (the "Code") 42, the HOME Final Rule, and other Department rules, as applicable. (1) Adaptive Reuse--The change-in-use of an existing building not, at the time of Application, being used, in whole or in part, for residential purposes (e.g., school, warehouse, office, hospital, hotel, etc.), into a building which will be used, in whole or in part, for residential purposes. Adaptive reuse requires that the exterior walls of the existing building remain in place. All units must be contained within the original exterior walls of the existing building. Porches and patios may protrude beyond the exterior walls. Ancillary non-residential buildings, such as a clubhouse, leasing office and/or amenity center may be newly constructed outside the walls of the existing building or as detached buildings on the Development Site. (2) Administrative Deficiencies--Information requested by Department staff that is required to clarify or correct one or more inconsistencies or to provide non-material missing information in the original Application or to assist staff in evaluating the Application that, in the Department staff's reasonable judgment, may be cured by supplemental information or explanation which will not necessitate a substantial reassessment or re-evaluation of the Application. Administrative Deficiencies may be issued at any time while the Application or Contract is under consideration by the Department, including at any time while reviewing performance under a Contract, processing documentation for a Commitment of Funds, closing of a loan, processing of a disbursement request, close-out of a Contract, or resolution of any issues related to compliance. (3) 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, has Control of, is Controlled by, or is under common Control with any other Person. All entities that share a Principal are Affiliates. (4) Affordability Period--The Affordability Period commences as specified in the Land Use Restriction Agreement (LURA) or federal regulation, or commences on the first day of the Compliance Period as defined by the Code 42(i)(1), and continues through the appropriate program's affordability requirements or termination of the LURA, whichever is earlier. The term of the Affordability Period shall be imposed by the LURA or other deed restriction and may be terminated upon foreclosure or deed in lieu of foreclosure. The Department reserves the right to extend the Affordability Period for HOME or NSP Developments that fail to meet program requirements. During the Affordability Period, the Department shall monitor to ensure compliance with programmatic rules as applicable, regulations, and Application representations. (5) Applicable Percentage--The percentage used to determine the amount of the Housing Tax Credit for any Development, as defined more fully in the Code 42(b). (A) For purposes of the Application, the Applicable Percentage will be projected at: (i) nine percent if such timing is deemed appropriate by the Department or if the ability to claim the full 9 percent credit is extended by the U.S. Congress prior to February 27, 2015; (ii) forty basis points over the current applicable percentage for 70 percent present value credits, pursuant to 42(b) of the Code for the month in which the Application is submitted to the Department; or (iii) fifteen basis points over the current applicable percentage for 30 percent present value credits, unless fixed by Congress, pursuant to 42(b) of the Code for the month in which the Application is submitted to the Department. (B) For purposes of making a credit recommendation at any other time, the Applicable Percentage will be based in order of priority on: (i) the percentage indicated in the Agreement and Election Statement, if executed; or (ii) the actual applicable percentage as determined by the Code 42(b), if all or part of the Development has been placed in service and for any buildings not placed in service the percentage will be the actual percentage as determined by the Code 42(b) for the most current month; or (iii) the percentage as calculated in subparagraph (A) of this paragraph if the Agreement and Election Statement has not been executed and no buildings have been placed in service. (6) Applicant-means any individual or a group of individuals and any Affiliates who file an Application for funding or tax credits subject to the requirements of this chapter or 10 TAC Chapters 11 or 12 and who may contemplate the later formation of one or more business entities, such as a limited partnership, that is to be engaged in the ownership of a Development. In administering the application process the Department staff will assume that the applicant will be able to form any such entities and that all necessary rights, powers, and privileges including, but not limited to, site control will be transferable to that entity. The formation of the ownership entity, qualification to do business (if needed), and transfer of such rights, powers, and privileges must be accomplished as required in this Chapter and 10 TAC Chapters 11 and 12, as applicable. (7) Application Acceptance Period--That period of time during which Applications may be submitted to the Department. (8) Award Letter--A document that may be issued to an awardee of a Direct Loan before the issuance of a Commitment and/or Contract which preliminarily sets forth the terms and conditions under 39 TexReg 9898 December 19, 2014 Texas Register

which the Direct Loan will be made available. An Award Letter will typically be contingent on the awardee satisfying certain requirements prior to executing a Commitment and/or Contract. (9) Bank Trustee--A federally insured bank with the ability to exercise trust powers in the State of Texas. (10) Bedroom--A portion of a Unit which is no less than 100 square feet; has no width or length less than 8 feet; is self contained with a door (or the Unit contains a second level sleeping area of 100 square feet or more); has at least one window that provides exterior access; and has at least one closet that is not less than 2 feet deep and 3 feet wide and high enough to accommodate 5 feet of hanging space. A den, study or other similar space that could reasonably function as a bedroom and meets this definition is considered a bedroom. (11) Breakeven Occupancy--The occupancy level at which rental income plus secondary income is equal to all operating expenses, including replacement reserves and taxes, and mandatory debt service requirements for a Development. (12) Building Costs--Cost of the materials and labor for the vertical construction or rehabilitation of buildings and amenity structures. (13) Carryover Allocation--An allocation of current year tax credit authority by the Department pursuant to the provisions of 42(h)(1)(C) of the Code and U.S. Treasury Regulations, 1.42-6. (14) Carryover Allocation Agreement--A document issued by the Department, and executed by the Development Owner, pursuant to 10.402(f) of this chapter (relating to Housing Tax Credit and Tax Exempt Bond Developments). (15) Cash Flow--The funds available from operations after all expenses and debt service required to be paid have been considered. (16) Certificate of Reservation--The notice given by the Texas Bond Review Board (TBRB) to an issuer reserving a specific amount of the state ceiling for a specific issue of bonds. (17) 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 U.S. Department of the Treasury or the Internal Revenue Service (IRS). (18) Code of Federal Regulations (CFR)--The codification of the general and permanent rules and regulations of the federal government as adopted and published in the Federal Register. (19) Colonia--A geographic area that is located in a county some part of which is within one-hundred fifty (150) miles of the international border of this state, that consists of eleven (11) or more dwellings that are located in proximity to each other in an area that may be described as a community or neighborhood, and that: (A) has a majority population composed of individuals and families of low-income and very low-income, based on the federal Office of Management and Budget poverty index, and meets the qualifications of an economically distressed area under Texas Water Code, 17.921; or (B) has the physical and economic characteristics of a colonia, as determined by the Department, and is a geographic area encompassing no more than two (2) square miles. Factors to be considered by the Department include, but are not limited to, ability to access basic utilities and boundaries that may define communities or neighborhoods. Applicants will be required to define the geographic area to be evaluated by the Department. (20) Commitment (also referred to as Contract)--A legally binding written contract, setting forth the terms and conditions under which housing tax credits, loans, grants or other sources of funds or financial assistance from the Department will be made available. (21) Commitment of Funds--Occurs after the Development is approved by the Board and once a Commitment or Award Letter is executed between the Department and Development Owner. For Direct Loan Programs, this process is distinct from "Committing to a specific local project" as defined in 24 CFR Part 92, which may occur when the activity is set up in the disbursement and information system established by HUD; known as the Integrated Disbursement and Information System (IDIS). The Department's commitment of funds may not align with commitments made by other financing parties. (22) Committee--See Executive Award and Review Advisory Committee. (23) Comparable Unit--A Unit, when compared to the subject Unit, is similar in net rentable square footage, number of bedrooms, number of bathrooms, overall condition, location (with respect to the subject Property based on proximity to employment centers, amenities, services and travel patterns), age, unit amenities, utility structure, and common amenities. (24) Competitive Housing Tax Credits (HTC)--Tax credits available from the State Housing Credit Ceiling. (25) Compliance Period--With respect to a building financed by Housing Tax Credits, the period of fifteen (15) taxable years, beginning with the first taxable year of the credit period pursuant to 42(i)(1) of the Code. (26) Continuously Occupied--The same household has resided in the Unit for at least twelve (12) months. (27) Contract--See Commitment. (28) Contractor--See General Contractor. (29) Control (including the terms "Controlling," "Controlled by," and/or "under common Control with")--the power, ability, or authority, acting alone or in concert with others, directly or indirectly, to manage, direct, superintend, restrict, regulate, govern, administer, or oversee. Controlling entities of a partnership include the general partners, special limited partners when applicable, but not investor limited partners who do not possess other factors or attributes that give them Control. Controlling entities of a limited liability company include but are not limited to the managers, managing members, any members with 10 percent or more ownership of the limited liability company, and any members with authority similar to that of a general partner in a limited partnership, but not investor members who do not possess other factors or attributes that give them Control. Controlling individuals or entities of a corporation, including non-profit corporations, include voting members of the corporation's board, whether or not any one member did not participate in a particular decision due to recusal or absence. Multiple Persons may be deemed to have Control simultaneously. (30) Contract Rent--Net rent based upon current and executed rental assistance contract(s), typically with a federal, state or local governmental agency. (31) Credit Underwriting Analysis Report--Sometimes referred to as the "Report." A decision making tool used by the Department and Board containing a synopsis and reconciliation of the Application information submitted by the Applicant. (32) Debt Coverage Ratio (DCR)--Sometimes referred to as the "Debt Coverage" or "Debt Service Coverage." Calculated as Net ADOPTED RULES December 19, 2014 39 TexReg 9899

Operating Income for any period divided by scheduled debt service required to be paid during the same period. (33) Deferred Developer Fee--The portion of the Developer Fee used as a source of funds to finance the development and construction of the Property. (34) Deobligated Funds--The funds released by the Development Owner or recovered by the Department canceling a Contract or award involving some or all of a contractual financial obligation between the Department and a Development Owner or Applicant. (35) Determination Notice--A notice issued by the Department to the Development Owner of a Tax-Exempt Bond Development which specifies the Department's determination as to the amount of tax credits that the Development may be eligible to claim pursuant to 42(m)(1)(D) of the Code. (36) Developer--Any Person entering into a contractual relationship with the Owner to provide Developer Services with respect to the Development and receiving a fee for such services and any other Person receiving any portion of a developer fee, whether by subcontract or otherwise, except if the Person is acting as a consultant with no Control and receiving less than 10 percent of the total Developer fee. The Developer may or may not be a Related Party or Principal of the Owner. (37) Developer Fee--Compensation in amounts defined in 10.302(e)(7) of this chapter (relating to Underwriting Rules and Guidelines) paid by the Owner to the Developer for Developer Services inclusive of compensation to a Development Consultant(s), Development Team member or any subcontractor that performs Developer Services or provides guaranties on behalf of the Owner will be characterized as Developer Fee. (38) Developer Services--A scope of work relating to the duties, activities and responsibilities for pre-development, development, design coordination, and construction oversight of the Property generally including but not limited to: (A) site selection and purchase or lease contract negotiation; (B) identifying and negotiating sources of construction and permanent financing, including financing provided by the Department; (C) coordination and administration of activities, including the filing of applications to secure such financing; (D) coordination and administration of governmental permits, and approvals required for construction and operation; (E) selection and coordination of development consultants including architect(s), engineer(s), third-party report providers, attorneys, and other design or feasibility consultants; (F) selection and coordination of the General Contractor and construction contract(s); Party; and (G) construction oversight; (H) other consultative services to and for the Owner; (I) guaranties, financial or credit support if a Related (J) any other customary and similar activities determined by the Department to be Developer Services. (39) Development Site--The area, or if scattered site, areas on which the Development is proposed and to be encumbered by a LURA. (40) Development--A residential rental housing project that consists of one or more buildings under common ownership and financed under a common plan which has applied for Department funds. This includes a project consisting of multiple buildings that are located on scattered sites and contain only rent restricted units. ( 2306.6702) (41) Development Consultant or Consultant--Any Person (with or without ownership interest in the Development) who provides professional or consulting services relating to the filing of an Application, or post award documents as required by the program. (42) Development Owner (also referred to as "Owner")-- Any Person, General Partner, or Affiliate of a Person who owns or proposes a Development or expects to acquire Control of a Development under a purchase contract or ground lease approved by the Department and is responsible for performing under the allocation and/or Commitment with the Department. ( 2306.6702) (43) Development Team--All Persons and Affiliates thereof that play a role in the development, construction, rehabilitation, management and/or continuing operation of the subject Development, including any Development Consultant and Guarantor. (44) Direct Loan--Funds provided through the HOME Program, Neighborhood Stabilization Program, or Housing Trust Fund or other program available through the Department for multifamily development. Direct Loans may also include deferred forgivable loans or other similar direct funding by the Department, regardless if it is required to be repaid. The tax-exempt bond program is specifically excluded. (45) Economically Distressed Area--An area that is in a census tract that has a median household income that is 75 percent or less of the statewide median household income and in a municipality or, if not within a municipality, in a county that has been awarded funds under the Economically Distressed Areas Program administered by the Texas Water Development Board within the five (5) years ending at the beginning of the Application Acceptance Period. Notwithstanding all other requirements, for funds awarded to another type of political subdivision (e.g., a water district), the Development Site must be within the jurisdiction of the political subdivision. (46) Effective Gross Income ("EGI")--The sum total of all sources of anticipated or actual income for a rental Development, less vacancy and collection loss, leasing concessions, and rental income from employee-occupied units that is not anticipated to be charged or collected. (47) Efficiency Unit--A Unit without a separately enclosed Bedroom designed principally for use by a single person. (48) Eligible Hard Costs--Hard Costs includable in Eligible Basis for the purposes of determining a Housing Credit Allocation. (49) Environmental Site Assessment ("ESA")--An environmental report that conforms to the Standard Practice for Environmental Site Assessments: Phase I Assessment Process (ASTM Standard Designation: E 1527) and conducted in accordance with 10.305 of this chapter (relating to Environmental Site Assessment Rules and Guidelines) as it relates to a specific Development. (50) Executive Award and Review Advisory Committee (also referred to as the "Committee")--The Department committee created under Texas Government Code 2306.1112. (51) Existing Residential Development--Any Development Site which contains existing residential units at any time after the beginning of the Application Acceptance Period. 39 TexReg 9900 December 19, 2014 Texas Register

(52) Extended Use Period--With respect to an HTC building, the period beginning on the first day of the Compliance Period and ending the later of: (A) the date specified in the Land Use Restriction Agreement or (B) the date which is fifteen (15) years after the close of the Compliance Period. (53) First Lien Lender--A lender whose lien has first priority as a matter of law or by operation of a subordination agreement or other intercreditor agreement. (54) General Contractor (including "Contractor")--One who contracts for the construction or rehabilitation of an entire Development, rather than a portion of the work. The General Contractor hires subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates all work, and is responsible for payment to the subcontractors. A prime subcontractor will also be treated as a General Contractor, and any fees payable to the prime subcontractor will be treated as fees to the General Contractor, in the scenarios described in subparagraphs (A) and (B) of this paragraph: (A) any subcontractor, material supplier, or equipment lessor receiving more than 50 percent of the contract sum in the construction contract will be deemed a prime subcontractor; or (B) if more than 75 percent of the contract sum in the construction contract is subcontracted to three or fewer subcontractors, material suppliers, and equipment lessors, such parties will be deemed prime subcontractors. (55) General Partner--Any person or entity identified as a general partner in a certificate of formation for the partnership that is the Development Owner and that Controls the partnership. Where a limited liability corporation is the legal structure employed rather than a limited partnership, the manager or managing member of that limited liability corporation is deemed, for the purposes of these rules, to be the functional equivalent of a general partner. (56) Governing Body--The elected or appointed body of public or tribal officials, responsible for the enactment, implementation, and enforcement of local rules and the implementation and enforcement of applicable laws for its respective jurisdiction. (57) Governmental Entity--Includes federal, state or local agencies, departments, boards, bureaus, commissions, authorities, and political subdivisions, special districts, tribal governments and other similar entities. (58) Gross Capture Rate--Calculated as the Relevant Supply divided by the Gross Demand. (59) Gross Demand--The sum of Potential Demand from the Primary Market Area ("PMA"), demand from other sources, and Potential Demand from a Secondary Market Area ("SMA") to the extent that SMA demand does not exceed 25 percent of Gross Demand. (60) Gross Program Rent--Maximum rent limits based upon the tables promulgated by the Department's division responsible for compliance, which are developed by program and by county or Metropolitan Statistical Area ("MSA") or Primary Metropolitan Statistical Area ("PMSA") or national non-metro area. (61) Guarantor--Any Person that provides, or is anticipated to provide, a guaranty for all or a portion of the equity or debt financing for the Development. (62) HTC Development (also referred to as "HTC Property")--A Development subject to an active LURA for Housing Tax Credits allocated by the Department. (63) HTC Property--See HTC Development. (64) Hard Costs--The sum total of Building Costs, Site Work costs, Off-Site Construction costs and contingency. (65) Historically Underutilized Businesses ("HUB")--An entity that is certified as such under Texas Government Code, Chapter 2161 by the State of Texas. (66) Housing Contract System ("HCS")--The electronic information system established by the Department for tracking, funding, and reporting Department Contracts and Developments. The HCS is primarily used for Direct Loan Programs administered by the Department. (67) Housing Credit Allocation--An allocation of Housing Tax Credits by the Department to a Development Owner for a specific Application in accordance with the provisions of this chapter and Chapter 11 of this title (relating to Housing Tax Credit Program Qualified Allocation Plan). (68) Housing Credit Allocation Amount--With respect to a Development or a building within a Development, the amount of Housing Tax Credits the Department determines to be necessary for the financial feasibility of the Development and its viability as a Development throughout the Affordability Period and which the Board allocates to the Development. (69) Housing Quality Standards ("HQS")--The property condition standards described in 24 CFR 982.401. (70) Initial Affordability Period--The Compliance Period or such longer period as shall have been elected by the Owner as the minimum period for which Units in the Development shall be retained for low-income tenants and rent restricted, as set forth in the LURA. (71) Integrated Disbursement and Information System ("IDIS")--The electronic grants management information system established by HUD to be used for tracking and reporting HOME funding and progress and which may be used for other sources of funds as established by HUD. (72) Land Use Restriction Agreement ("LURA")--An agreement, regardless of its title, between the Department and the Development Owner which is a binding covenant upon the Development Owner and successors in interest, that, when recorded, encumbers the Development with respect to the requirements of the programs for which it receives funds. ( 2306.6702) (73) Low-Income Unit--A Unit that is intended to be restricted for occupancy by an income eligible household, as defined by the Department utilizing its published income limits. (74) Managing General Partner--A general partner of a partnership (or, as provided for in paragraph (55) of this subsection, its functional equivalent) that is vested with the authority to take actions that are binding on behalf of the partnership and the other partners. The term Managing General Partner can also refer to a manager or managing member of a limited liability company where so designated to bind the limited liability company and its members under its Agreement or any other person that has such powers in fact, regardless of their organizational title. (75) Market Analysis--Sometimes referred to as "Market Study." An evaluation of the economic conditions of supply, demand and rental rates conducted in accordance with 10.303 of this chapter ADOPTED RULES December 19, 2014 39 TexReg 9901

(relating to Market Analysis Rules and Guidelines) as it relates to a specific Development. (76) Market Analyst--A real estate appraiser or other professional familiar with the subject property's market area who prepares a Market Analysis. (77) Market Rent--The achievable rent at the subject Property for a unit without rent and income restrictions determined by the Market Analyst or Underwriter after adjustments are made to actual rents on Comparable Units to account for differences in net rentable square footage, functionality, overall condition, location (with respect to the subject Property based on proximity to primary employment centers, amenities, services and travel patterns), age, unit amenities, utility structure, and common area amenities. The achievable rent conclusion must also consider the proportion of market units to total units proposed in the subject Property. (78) Market Study--See Market Analysis. (79) Material Deficiency--Any deficiency in an Application or other documentation that exceeds the scope of an Administrative Deficiency. May include a group of Administrative Deficiencies that, taken together, create the need for a substantial re-assessment or reevaluation of the Application. (80) Multifamily Programs Procedures Manual--The manual produced and amended from time to time by the Department which reiterates and implements the rules and provides guidance for the filing of multifamily related documents. (81) Net Operating Income ("NOI")--The income remaining after all operating expenses, including replacement reserves and taxes that have been paid. (82) Net Program Rent--Calculated as Gross Program Rent less Utility Allowance. (83) Net Rentable Area ("NRA")--The unit space that is available exclusively to the tenant and is typically heated and cooled by a mechanical HVAC system. NRA is measured to the outside of the studs of a unit or to the middle of walls in common with other units. NRA does not include common hallways, stairwells, elevator shafts, janitor closets, electrical closets, balconies, porches, patios, or other areas not actually available to the tenants for their furnishings, nor does NRA include the enclosing walls of such areas. (84) Non-HTC Development--Sometimes referred to as Non-HTC Property. Any Development not utilizing Housing Tax Credits or Exchange funds. (85) Notice of Funding Availability ("NOFA")--A notice issued by the Department that announces funding availability, usually on a competitive basis, for multifamily rental programs requiring Application submission from potential Applicants. (86) Off-Site Construction--Improvements up to the Development Site such as the cost of roads, water, sewer, and other utilities to provide access to and service the Site. (87) Office of Rural Affairs--An office established within the Texas Department of Agriculture; formerly the Texas Department of Rural Affairs. (88) One Year Period ("1YP")--The period commencing on the date on which the Department and the Owner agree to the Qualified Contract price in writing and continuing for twelve (12) calendar months. (89) Owner--See Development Owner. (90) Person--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 or entity of any nature whatsoever, and shall include any group of Persons acting in concert toward a common goal, including the individual members of the group. (91) Persons with Disabilities--With respect to an individual, means that such person has: (A) a physical or mental impairment that substantially limits one or more major life activities of such individual; (B) a record of such an impairment; or (C) is regarded as having such an impairment, to include persons with severe mental illness and persons with substance abuse disorders. (92) Physical Needs Assessment--See Property Condition Assessment. (93) Place--An area defined as such by the United States Census Bureau, which, in general, includes an incorporated city, town, or village, as well as unincorporated areas know as census designated places. The Department may provide a list of Places for reference. (94) Post Carryover Activities Manual--The manual produced and amended from time to time by the Department which explains the requirements and provides guidance for the filing of post-carryover activities, or for Tax Exempt Bond Developments, the requirements and guidance for post Determination Notice activities. (95) Potential Demand--The number of income-eligible, age-, size-, and tenure-appropriate target households in the designated market area at the proposed placement in service date. (96) Primary Market ("PMA")--Sometimes referred to as "Primary Market Area." The area defined by the Market Analyst as described in 10.303 of this chapter from which a proposed or existing Development is most likely to draw the majority of its prospective tenants or homebuyers. (97) Primary Market Area--See Primary Market. (98) Principal--Persons that will exercise Control (which includes voting board members pursuant to 10.3(a)(29) of this chapter) over a partnership, corporation, limited liability company, trust, or any other private entity. In the case of: (A) partnerships, Principals include all General Partners, special limited partners, and Principals with ownership interest; (B) corporations, Principals include any officer authorized by the board of directors, regardless of title, to act on behalf of the corporation, including but not limited to the president, vice president, secretary, treasurer, and all other executive officers, and each stock holder having a 10 percent or more interest in the corporation, and any individual who has Control with respect to such stock holder; and (C) limited liability companies, Principals include all managers, managing members, members having a 10 percent or more interest in the limited liability company, any individual Controlling such members, or any officer authorized to act on behalf of the limited liability company. (99) Pro Forma Rent--For a restricted Unit, the lesser of the Net Program Rent or the Market Rent. For an unrestricted unit, the Market Rent. Contract Rents, if applicable, will be used as the Pro Forma Rent. 39 TexReg 9902 December 19, 2014 Texas Register

(100) 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. (101) Property Condition Assessment ("PCA")--Sometimes referred to as "Physical Needs Assessment," "Project Capital Needs Assessment," or "Property Condition Report." The PCA provides an evaluation of the physical condition of an existing Property to evaluate the immediate cost to rehabilitate and to determine costs of future capital improvements to maintain the Property. The PCA must be prepared in accordance with 10.306 of this chapter (relating to Property Condition Assessment Guidelines) as it relates to a specific Development. (102) Qualified Contract ("QC")--A bona fide contract to acquire the non-low-income portion of the building for fair market value and the low-income portion of the building for an amount not less than the Applicable Fraction (specified in the LURA) of the calculation as defined within 42(h)(6)(F) of the Code. (103) Qualified Contract Price ("QC Price")--Calculated purchase price of the Development as defined within 42(h)(6)(F) of the Code and as further delineated in 10.408 of this chapter (relating to Qualified Contract Requirements). (104) Qualified Contract Request ("Request")--A request containing all information and items required by the Department relating to a Qualified Contract. (105) Qualified Elderly Development--A Development which is operated with property-wide age restrictions for occupancy and which meets the requirements of "housing for older persons" under the federal Fair Housing Act. The age restrictions associated with or character of such a Development are sometimes referred to as "Qualified Elderly". (106) Qualified Nonprofit Organization--An organization that meets the requirements of 42(h)(5)(C) of the Code for all purposes, and for an allocation in the nonprofit set-aside or subsequent transfer of the property, meets the requirements of Texas Government Code 2306.6706, and 2306.6729, and 42(h)(5) of the Code. (107) Qualified Nonprofit Development--A Development which meets the requirements of 42(h)(5) of the Code, includes the required involvement of a Qualified Nonprofit Organization, and is seeking Competitive Housing Tax Credits. (108) Qualified Purchaser--Proposed purchaser of the Development who meets all eligibility and qualification standards stated in the Qualified Allocation Plan of the year the Request is received, including attending, or assigning another individual to attend, the Department's Property Compliance Training. (109) Reconstruction--The demolition of one or more residential buildings in an Existing Residential Development and the construction of an equal number of units or less on the Development Site. At least one unit must be reconstructed in order to qualify as Reconstruction. (110) Rehabilitation--The improvement or modification of an Existing Residential Development through alteration, incidental addition or enhancement. The term includes the demolition of an Existing Residential Development and the Reconstruction of a Development on the Development Site, but does not include Adaptive Reuse. ( 2306.004(26-a)) More specifically, Rehabilitation is the repair, refurbishment and/or replacement of existing mechanical and structural components, fixtures and finishes. Rehabilitation will correct deferred maintenance, reduce functional obsolescence to the extent possible and may include the addition of: energy efficient components and appliances, life and safety systems; site and resident amenities; and other quality of life improvements typical of new residential Developments. (111) Related Party--As defined in Texas Government Code, 2306.6702. (112) Relevant Supply--The supply of Comparable Units in proposed and Unstabilized Developments targeting the same population including: (A) the proposed subject Units; (B) Comparable Units in another proposed development within the PMA with a priority Application over the subject, based on the Department's evaluation process described in 10.201(6) of this chapter (relating to Procedural Requirements for Application Submission) that may not yet have been presented to the Board for consideration of approval; (C) Comparable Units in previously approved but Unstabilized Developments in the PMA; and (D) Comparable Units in previously approved but Unstabilized Developments in the Secondary Market Area (SMA), in the same proportion as the proportion of Potential Demand from the SMA that is included in Gross Demand. (113) Report--See Credit Underwriting Analysis Report. (114) Request--See Qualified Contract Request. (115) Reserve Account--An individual account: (A) created to fund any necessary repairs for a multifamily rental housing Development; and (B) maintained by a First Lien Lender or Bank Trustee. (116) Right of First Refusal--An Agreement to provide a right to purchase the Property to a Qualified Nonprofit Organization or tenant organization with priority to that of any other buyer at a price whose formula is prescribed in the LURA. (117) Rural Area-- (A) A Place that is located: (i) outside the boundaries of a primary metropolitan statistical area or a metropolitan statistical area; or (ii) within the boundaries of a primary metropolitan statistical area or a metropolitan statistical area, if the statistical area has a population of 25,000 or less and does not share a boundary with an urban area (B) For areas not meeting the definition of a Place, the designation as a Rural Area or Urban Area is assigned in accordance with 10.204(5) of this chapter (relating to Required Documentation for Application Submission). (118) Secondary Market (SMA)--Sometimes referred to as "Secondary Market Area." The area defined by the Qualified Market Analyst as described in 10.303 of this chapter. (119) Secondary Market Area--See Secondary Market. (120) Single Room Occupancy ("SRO")--An Efficiency Unit that meets all the requirements of a Unit except that it may, but is not required, to be rented on a month to month basis to facilitate Transitional Housing. Buildings with SRO Units have extensive living areas in common and are required to be Supportive Housing and include the provision for substantial supports from the Development Owner or its agent on site. ADOPTED RULES December 19, 2014 39 TexReg 9903

(121) Site Control--Ownership or a current contract or series of contracts, that meets the requirements of 10.204(10) of this chapter, that is legally enforceable giving the Applicant the ability, not subject to any legal defense by the owner, to develop a Property and subject it to a LURA reflecting the requirements of any awards of assistance it may receive from the Department. (122) Site Work--Materials and labor for the horizontal construction generally including excavation, grading, paving, underground utilities, and site amenities. (123) State Housing Credit Ceiling--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 applicable federal law, including 42(h)(3)(C) of the Code, and Treasury Regulation 1.42-14. (124) Sub-Market--An area defined by the Underwriter based on general overall market segmentation promulgated by market data tracking and reporting services from which a proposed or existing Development is most likely to draw the majority of its prospective tenants or homebuyers. (125) Supportive Housing--Residential rental developments intended for occupancy by individuals or households in need of specialized and specific non-medical services in order to maintain independent living. Supportive housing developments generally include established funding sources outside of project cash flow that require certain populations be served and/or certain services provided. The developments are expected to be debt free or have no permanent foreclosable or noncash flow debt. A Supportive Housing Development financed with tax-exempt bonds with a project based rental assistance contract for a majority of the Units may be treated as Supportive Housing under all subchapters of this chapter, except Subchapter D of this chapter (relating to Underwriting and Loan Policy). The services offered generally include case management and address special attributes of such populations as Transitional Housing for homeless and at risk of homelessness, persons who have experienced domestic violence or single parents or guardians with minor children. (126) Target Population--The designation of types of housing populations shall include those Developments that are entirely Qualified Elderly and those that are entirely Supportive Housing. All others will be considered to serve general populations without regard to any subpopulations. (127) Tax-Exempt Bond Development--A Development requesting or having been awarded Housing Tax Credits and which receives a portion of its financing from the proceeds of tax-exempt bonds which are subject to the state volume cap as described in 42(h)(4) of the Code, such that the Development does not receive an allocation of tax credit authority from the State Housing Credit Ceiling. (128) Tax-Exempt Bond Process Manual--The manual produced and amended from time to time by the Department which explains the process and provides guidance for the filing of a Housing Tax Credit Application utilizing Tax-Exempt Bonds. (129) TDHCA Operating Database--Sometimes referred to as "TDHCA Database." A consolidation of recent actual income and operating expense information collected through the Department's Annual Owner Financial Certification process, as required and described in Subchapter F of this chapter (relating to Compliance Monitoring), and published on the Department's web site (www.tdhca.state.tx.us). (130) Third Party--A Person who is not: (A) an Applicant, General Partner, Developer, or General Contractor; or (B) an Affiliate to the Applicant, General Partner, Developer or General Contractor; or (C) anyone receiving any portion of the administration, contractor or Developer fees from the Development; or (D) any individual that is an executive officer or member of the governing board or has greater than 10 percent ownership interest in any of the entities are identified in subparagraphs (A) - (C) of this paragraph. (131) Total Housing Development Cost--The sum total of the acquisition cost, Hard Costs, soft costs, Developer fee and General Contractor fee incurred or to be incurred through lease-up by the Development Owner in the acquisition, construction, rehabilitation, and financing of the Development. (132) Transitional Housing--A Supportive Housing development that includes living Units with more limited individual kitchen facilities and is: (A) used exclusively to facilitate the transition of homeless individuals and those at-risk of becoming homeless, to independent living within twenty-four (24) months; and (B) is owned by a Development Owner that includes a governmental entity or a qualified non-profit which provides temporary housing and supportive services to assist such individuals in, among other things, locating and retaining permanent housing. The limited kitchen facilities in individual Units must be appropriately augmented by suitable, accessible shared or common kitchen facilities. (133) Underwriter--The author(s) of the Credit Underwriting Analysis Report. (134) Uniform Physical Condition Standards ("UPCS")- -As developed by the Real Estate Assessment Center of HUD. (135) Unit--Any residential rental unit in a Development consisting of an accommodation, including a single room used as an accommodation on a non-transient basis, that contains complete physical facilities and fixtures for living, sleeping, eating, cooking and sanitation. (136) Unit Type--Units will be considered different Unit Types if there is any variation in the number of bedroom, bathrooms or a square footage difference equal to or more than 120 square feet. For example: A two Bedroom/one bath Unit is considered a different Unit Type than a two Bedroom/two bath Unit. A three Bedroom/two bath Unit with 1,000 square feet is considered a different Unit Type than a three Bedroom/two bath Unit with 1,200 square feet. A one Bedroom/one bath Unit with 700 square feet will be considered an equivalent Unit Type to a one Bedroom/one bath Unit with 800 square feet. (137) Unstabilized Development--A development with Comparable Units that has been approved for funding by the Department's Board of Directors or is currently under construction or has not maintained a 90 percent occupancy level for at least twelve (12) consecutive months following construction completion. A development may be deemed stabilized by the Underwriter based on factors relating to a development's lease-up velocity, Sub-Market rents, Sub-Market occupancy trends and other information available to the Underwriter. The Market Analyst may not consider such development stabilized in the Market Study. (138) Urban Area--A Place that is located within the boundaries of a primary metropolitan statistical area or a metropolitan statistical area other than a Place described by paragraph (116)(A)(ii) 39 TexReg 9904 December 19, 2014 Texas Register

of this subsection. For areas not meeting the definition of a Place, the designation as a Rural Area or Urban Area is assigned in accordance with 10.204(5) of this chapter. (139) U.S. Department of Agriculture ("USDA")--Texas Rural Development Office (TRDO) serving the State of Texas. (140) U.S. Department of Housing and Urban Development (HUD)-regulated Building--A building for which the rents and utility allowances of the building are reviewed by HUD. (141) Utility Allowance--The estimate of tenant-paid utilities made in accordance with Treasury Regulation, 1.42-10 and 10.614 of this chapter (relating to Utility Allowances). (142) Work Out Development--A financially distressed Development for which the Owner and/or a primary financing participant is seeking a change in the terms of Department funding or program restrictions. (b) Request for Staff Determinations. Where the definitions of Development, Development Site, New Construction, Rehabilitation, Reconstruction, Adaptive Reuse, and Target Population fail to account fully for the activities proposed in an Application, an Applicant may request and Department staff may provide a determination to an Applicant explaining how staff will review an Application in relation to these specific terms and their usage within the applicable rules. Such request must be received by the Department prior to submission of the pre-application (if applicable to the program) or Application (if no pre-application was submitted). Staff's determination may take into account the purpose of or policies addressed by a particular rule or requirement, materiality of elements, substantive elements of the development plan that relate to the term or definition, the common usage of the particular term, or other issues relevant to the rule or requirement. All such determinations will be conveyed in writing. If the determination is finalized after submission of the pre-application or Application, the Department may allow corrections to the pre-application or the Application that are directly related to the issues in the determination. It is an Applicant's sole responsibility to request a determination and an Applicant may not rely on any determination for another Application regardless of similarities in a particular fact pattern. For any Application that does not request and subsequently receive a determination, the definitions and applicable rules will be applied as used and defined herein. Such a determination is intended to provide clarity with regard to Applications proposing activities such as: scattered site development or combinations of construction activities (e.g. Rehabilitation with some New Construction). An Applicant may appeal a determination for their Application if the determination provides for a treatment that relies on factors other than the explicit definition. A Board determination or a staff determination not timely appealed cannot be further appealed or challenged. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405727 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 SUBCHAPTER B. SITE AND DEVELOPMENT REQUIREMENTS AND RESTRICTIONS 10 TAC 10.101 The Texas Department of Housing and Community Affairs (the "Department") adopts the repeal of 10 TAC Chapter 10, 10.101, concerning Site and Development Requirements and Restrictions, without changes to the proposal as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7404). REASONED JUSTIFICATION. The Department finds that the purpose of the repeal is to replace the section with a new rule that encompasses all funding made available to multifamily programs. Accordingly, the repeal provides for consistency and minimizes repetition among the programs. The Department accepted public comments between September 19, 2014, and October 20, 2014. Comments regarding the repeal were accepted in writing and by fax. No comments were received concerning the repeal. The Board approved the final order adopting the repeal on November 13, 2014. STATUTORY AUTHORITY. The repeal is adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the repeal is adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan. The repeal affects Chapter 2306 of the Texas Government Code. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405721 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 10 TAC 10.101 The Texas Department of Housing and Community Affairs (the "Department") adopts new 10 TAC Chapter 10, 10.101, concerning Site and Development Restrictions and Requirements, with changes to the proposed text as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7405). REASONED JUSTIFICATION. The Department finds that the adoption of the section will result in a more consistent approach to governing multifamily activity and to the awarding of funding or assistance through the Department and to minimize repetition. The comments and responses include both administrative clarifications and corrections to the Uniform Multifamily Rule based on the comments received. After each comment title, numbers are shown in parentheses. These numbers refer to the person ADOPTED RULES December 19, 2014 39 TexReg 9905

or entity that made the comment as reflected at the end of the reasoned response. If comment resulted in recommended language changes to the Uniform Multifamily Rule as presented to the Board in September, such changes are indicated. SUMMARY OF PUBLIC COMMENT AND STAFF RECOMMEN- DATIONS. Public comments were accepted through October 20, 2014, with comments received from (4) Churchill Residential, (6) City of Fort Worth, (13) Rural Rental Housing Association (RRHA) of Texas, (15) DMA Development Company, LLC, (17) Coats Rose, (18) National Church Residences, (19) Texas Association of Affordable Housing Providers (TAAHP), (20) Alyssa Carpenter, (21) Randy Plitt, (23) Sallie Burchett, (24) Cynthia Bast, (25) Greater East End District, (26) Sarah Andre, (27) City of Houston, (32) Daniel & Beshara, (33) Foundation Communities, (34) New Hope Housing, (36) S Anderson Consulting, (41) Avenue CDC, (42) Local Initiatives Support Coalition (LISC), (45) Houston Housing Authority, (46) Texas Association of Community Development Corporations (TACDC), (47) National Housing Trust, (48) Texas Appleseed and Texas Low Income Housing Information Service, (49) Inclusive Communities Housing Development Corporation, (50) Bonner Carrington, (51) RealTex Development, (52) Roundstone Development. 10.101(a)(1) - Subchapter B - Floodplain (15), (26), (33), (51) COMMENT SUMMARY: Commenters (15), (26), (33), (51) requested clarification to the added language in this section, specifically that only developments located in the floodplain must be able to obtain flood insurance rather than having it be a requirement for all developments. STAFF RESPONSE: Staff recommended removal of the added language regarding developments being able to obtain flood insurance. BOARD RESPONSE: Accepted staff's recommendation. 10.101(a)(2) - Subchapter B - Mandatory Community Assets (15), (33), (34) COMMENT SUMMARY: Commenter (15) expressed support for the addition of proximity to public transportation as a mandatory amenity specific to Supportive Housing Developments, but recommended reducing the required distance to 1/2 of a mile. Commenters (33), (34) also expressed support for the proximity to public transportation; however, did not believe being within a mile of those assets listed under (U) - (Y) as critical. Commenters (33), (34) believed that what is critical for Supportive Housing Developments is access to services, which are mostly delivered on-site by partnerships with qualified providers. In cases where they are not, then a bus stop located within walking distance is what's important because it gives residents easy access to their medical provider. Moreover, commenters (33), (34) stated that a negative implication of the addition of these assets is that while the development may be in proximity to one of those assets listed in (U) - (Y) they may not have public transportation assistance to the other services. STAFF RESPONSE: In response to commenter (15) staff agreed and changed the required distance for proximity to public transportation to 1/2 mile as reflected in the following modification: "(2) Mandatory Community Assets. Development Sites must be located within a one mile radius (two-mile radius for Developments located in a Rural Area), unless otherwise required by the specific asset as noted below, of at least six (6) community assets listed in subparagraphs (A) - (T) of this paragraph. Supportive Housing Developments located in an Urban Area must meet the requirement in subparagraph (T) of this paragraph. Only one community asset of each type listed will count towards the number of assets required. A map must be included identifying the Development Site and the location of each of the community assets by name. All assets must exist or, if under construction, must be under active construction, post pad (e.g. framing the structure) by the date the Application is submitted:...(t) Development Site is located within 1/2 mile of a designated public transportation stop at which public transportation (not including "on demand" transportation) stops on a regular, scheduled basis; a site's eligibility for on demand transportation does not meet this requirement. However, accessible transportation provided at no cost to the tenant when the Property Management Office is open, such as cab vouchers or a specialized van on-site, to a bus or other public transit stop, does qualify." In response to commenters (33), (34) regarding the additional community assets required for Supportive Housing Developments staff believes these assets are better suited under the Tenant Supportive Services and recommended they be added as a 1-point option under 10.101(b)(7). BOARD RESPONSE: Accepted staff's recommendation. 10.101(a)(3) - Subchapter B - Undesirable Site Features (13), (19), (20), (24), (25), (32), (36), (41), (45), (48), (49), (50), (51) COMMENT SUMMARY: Commenter (13) indicated the state offices of Rural Development and HUD may not be able to certify to Fair Housing at the state level which will require a letter from the national office. It may not be possible to get a letter indicating the Rehabilitation of the existing units is consistent with the Fair Housing Act in a timely manner, resulting in the disqualification of the HTC application. Therefore, commenter (13) recommended the changes as noted below. Similarly, commenter (45) expressed concerns with the timing associated with having to obtain such a letter from a federal agency and suggested that because HUD has issued a proposed Affirmatively Furthering Fair Housing rule that enacts certain portions of the Fair Housing Act, the Department should wait until such rule is final to avoid the risk of implementing a provision that could be inconsistent with federal regulations. Moreover, commenter (45) indicated that since addressing impediments to fair housing can vary from locality to locality, if any letter is to be required, then it should come from the local jurisdiction. Commenter (45) also requested the exemption for rehabilitation developments under this section should also be provided to reconstruction developments to eliminate an apparent preference for rehabilitation over reconstruction in the rules and to also prevent the loss of affordable housing inventory. "(3) Undesirable Site Features. Development Sites within the applicable distance of any of the undesirable features identified in subparagraphs (A) - (J) of this paragraph will be considered ineligible. Rehabilitation (excluding Reconstruction) Developments with ongoing and existing federal assistance from HUD or USDA may be granted an exemption by the Board. Such an exemption must be requested at the time of or prior to the filing of an Application. The distances are to be measured from the nearest boundary of the Development Site to the undesirable feature..." Commenter (48) expressed support for the requirement that rehabilitation developments with existing or ongoing federal assistance from HUD or USDA demonstrate they are consistent with the Fair Housing Act before the Board exempts such development from any of applicable undesirable site features. Moreover, 39 TexReg 9906 December 19, 2014 Texas Register

the additional features under (D) and (E) of this section are applauded by commenter (48) since it will make it easier for developers to avoid using resources to propose such developments and ensure the health and safety of the residents. Commenter (19) recommended some modifications to the undesirable site features noted below and commenters (25), (41) agreed with the modification to item (D) regarding the use of a one mile radius. Commenter (45) indicated use of a 2 mile radius seems arbitrary and appears to be double the general HUD standard. "(C) Development Sites located within 300 feet of heavy industrial or dangerous uses such as manufacturing plants, fuel storage facilities (excluding gas stations), refinery blast zones, etc.; (D) Development Sites located within one (1) mile of potentially hazardous uses such as nuclear plants, large refineries (e.g. oil refineries producing more than 100,000 barrels of oil daily);" Commenter (50) agreed with those changes to (C) as proposed by commenters (19), (25) and also suggested "manufacturing plants" be removed as an example of heaving industrial because it is too varied across their trade. Commenter (41) also noted the increased proximity to heavy industrial and expressed concern over the Department's inability to provide a good definition of what constitutes heavy industrial. Handling such proposed sites on a case-by-case basis, according to commenter (41), is time consuming for staff and makes land purchase negotiations difficult. Moreover, commenter (19) recommended the undesirable site feature regarding pipelines be deleted and further suggested the HUD requirements should be used as the standard for what is acceptable with regards to pipelines. Commenters (20), (36) expressed that item (D) under this section regarding sites located in proximity to potentially hazardous uses is very broad and could invite challenges. Commenters (20), (36) also expressed concerns regarding item (I), specifically that any pipeline located on a site would render the site unacceptable due to the "unless the pipeline is a natural gas" language. Commenters (20), (36) question why the Department would completely eliminating such sites if HUD does not consider underground pipelines that transmit hazardous substances to be a hazard if they comply with applicable safety standards. Should this item remain, commenters (20), (36) recommended it only pertain to sites that carry highly volatile liquids (HVLs). Similar concerns regarding pipelines were expressed by commenter (24), specifically, to the extent pipelines are in compliance with published regulations and the depth at which pipelines are placed are permitted in accordance with industry practice, state or local regulations and are therefore considered non-hazardous; the Department should not preclude such sites from being eligible. Commenters (20), (36) requested clarification regarding "fuel storage facilities" stating it could be anything from a gas station to farms to businesses that store propane for their own use on the premises and further stated it would be helpful to describe what type of fuels would be considered dangerous and how much defines a "facility." Moreover, commenters (20), (36) suggested that in cases where a property encompasses many acres but the fuel storage is contained on a small section of the site, this item be revised to measure from the proposed Development Site to the actual fuel storage tanks. Commenter (51) recommended the allowable distance for a Development Site to be located from a railroad remain at 300 feet instead of the proposed 100 feet and commenter (26) requested the Department use 300 feet instead of 500 feet as the standard for undesirable features so that more sites can be eligible. Commenters (32), (49) expressed support for the changes proposed in this section. STAFF RESPONSE: In response to Commenters (13) and (45), staff did not recommend removing the requirement for a letter from HUD or any other federal oversight entity with respect to this rule. This is only required if an applicant is proposing a site that would otherwise be ineligible, so it is not a threshold requirement in general but a threshold for an exemption from the rule. Staff also notes that Commenter (48) is in favor of the requirement. In response to Commenters (19), (25), (41), and (45) regarding subparagraphs (C) and (D) of this section, staff did not recommend decreasing the threshold for proximity to heavy industrial use; staff found that 300 feet often equates to uses directly across the street. Concerning clarifying language, staff may address "heavy industrial use" in the Frequently Asked Questions but did not recommend a change in the rule. In general, staff can look to zoning to determine heavy industrial use, but because there are many scenarios where zoning is not a factor, staff will continue to evaluate on a case-by-case basis. However, staff did recommend implementation of the comments suggesting the exception for gas stations in subparagraph (C) and the deletion of "large oil fields" in subparagraph D. In response to Commenters (20) and (36), staff recommended removing some of the language regarding pipelines carrying hazardous materials. Staff recommended the following revision: "(A) Development Sites located within 300 feet of junkyards; (B) Development Sites located within 100 feet of active railroad tracks, unless the Applicant provides evidence that the city/community has adopted a Railroad Quiet Zone or the railroad in question is commuter or light rail; (C) Development Sites located within 500 feet of heavy industrial or dangerous uses such as manufacturing plants, fuel storage facilities (excluding gas stations), refinery blast zones, etc.; (D) Development Sites located within 2 miles of potentially hazardous uses such as nuclear plants or large refineries (e.g. oil refineries producing more than 100,000 barrels of oil daily); (E) Development Sites located within 300 feet of a solid waste or sanitary landfills; (F) Development Sites in which the buildings are located within the easement of any overhead high voltage transmission line, support structures for high voltage transmission lines, radio antennae, satellite towers, or other similar structures. This does not apply to local service electric lines and poles; (G) Development Sites in which the buildings are located within the accident zones or clear zones for commercial or military airports; (H) Development Sites located within 300 feet of a sexually-oriented business. For purposes of this paragraph, a sexually-oriented business shall be defined as stated in Local Government Code, 243.002; (I) Development Sites that contain one or more pipelines, situated underground or aboveground, which carry highly volatile liquids; or (J) Any other Site deemed unacceptable, which would include, without limitation, those with exposure to an environmental factor that may adversely affect the health and safety of the residents and which cannot be adequately mitigated." BOARD RESPONSE: Accepted staff's recommendation. ADOPTED RULES December 19, 2014 39 TexReg 9907

10.101(a)(4) - Subchapter B - Undesirable Neighborhood Characteristics (6), (13), (15), (17), (19), (20), (21), (24), (25), (26), (32), (34), (36), (41), (42), (45), (46), (48), (49), (50), (52) COMMENT SUMMARY: Commenter (6) stated that by defining neighborhoods as undesirable it further stigmatizes the residents of the area and perpetuates the negative stereotypes associated with people of lesser means. Commenter (6) further noted that many areas of Fort Worth have poverty rates above 35% and would therefore be limited in locations for affordable housing that need it. Commenter (6) also stated that the required disclosure and associated fee creates an additional obstacle for an applicant to overcome in order to receive an award in a revitalization area and recommended that such disclosure and review should also be necessary for developments in a high opportunity area to ensure that all residents will have access to employment and services and that the location is suitable for the residents. Commenter (6) requested the undesirable neighborhood characteristics be removed. Commenters (25), (41), (42), (46) questioned the use of 35% as the appropriate poverty level when HUD's own definition of concentrated poverty is 40%. Commenter (32) expressed support for the eligibility restrictions based on conditions of slum and blight and reflected in (A) - (D) of this section; however, suggested the use of 35% as a poverty indicator needs further review to prevent additional concentration of HTC units in racially concentrated areas of poverty, particularly in the Dallas area. Commenter (32) articulated that 33% of general population HTC units in Dallas are already disproportionately concentrated in census tracts with 35% and higher poverty rates. Commenter (32) further stated that the presence of such units in high poverty tracts has not led to a decrease in poverty or an improvement in the slum and blight in those neighborhoods. Commenter (45) supports the goal to de-concentrate poverty but suggests the goals of preservation and de-concentration should be separate and independent goals, neither of which should be contingent upon a letter from a federal agency. Commenter (45) expressed concerns with the timing associated with having to obtain the letter from a federal agency and suggested that because HUD has issued a proposed Affirmatively Furthering Fair Housing rule that enacts certain portions of the Fair Housing Act, the Department should wait until such rule is final to avoid the risk of implementing a provision that could be inconsistent with federal regulations. Moreover, commenter (45) indicated that since addressing impediments to fair housing can vary from locality to locality, if any letter is to be required, then it should come from the local jurisdiction. Commenter (45) suggested the following revisions to the goals listed in this section: "(i) Preservation of existing occupied affordable housing units that are subject to existing federal rent or income restrictions; (ii) Development of affordable housing units that will achieve the goal of de-concentration of poverty; or" Commenter (45) articulated that 10.101(a)(4)(iii) of this section relating to recent community investment should include proposed future plans for investment in the community because looking only at past investment does not give a clear picture of future commitments that will be coming. Commenters (15), (19), (20), (21), (25), (34), (36), (41), (42), (45), (46), (50), (52) expressed concerns with using Neighborhood Scout because the algorithm used to determine a crime index score is not transparent and cannot be evaluated for accuracy; therefore, commenter (15) suggested another, more transparent methodology that uses only violent crimes be used. Similarly, commenters (19), (21), (26) suggested that a ratio of violent crimes (only) to the population or violent crimes per 1,000 people be used instead. Commenters (20), (36) indicated that use of Neighborhood Scout does not consider differences between urban, rural and border areas and suggested that perhaps a quartile system based on regions or MSA and county areas similar to the opportunity index instead. Commenter (25) suggested the determination of whether a neighborhood is adversely impacted by crime should be handled on a case-by-case basis by the Department. Commenters (20), (36) also requested consideration for any "high opportunity" tracts that might exhibit the characteristics as mentioned under item (B) of this section. Commenter (41) suggested publicly available data should be used and then only those neighborhoods where the crime rate is significantly higher than the city average should be used. Commenter (13) stated that because Neighborhood Scout has not completed reporting of their Texas data it makes it difficult for developers to select a site in a timely manner. Commenters (13), (50) recommend the Department revert to the 2014 language of reporting crime hot spots. "(ii) locally known presence of gang activity, prostitution, drug trafficking, or other significant criminal activity that rises to the level of frequent police reports;" Commenters (17), (19), (34), (45) recommended the Neighborhood Scout crime index score be removed and stated that some of the best neighborhoods in Austin and other cities around the state score very poorly using that scoring system. Commenter (17) further suggested the Department abandon the concept of avoiding neighborhoods because of crime especially since it is under no legal obligation to cling to that definition of "undesirable." Commenter (17) also stated that for a site in a high-crime area, evidence that the development will satisfy the obligation of affirmatively furthering fair housing must be submitted to the Department; however, HUD actually relies on evidence of high crime as an eligibility threshold to participate in the program thus reflecting that high crime is the reason to target a neighborhood with development funding. According to commenter (17), many high crime neighborhoods are places where children are currently living in substandard housing and a prohibition on using HTCs to remedy those substandard living conditions is itself a fair housing issue. Commenter (17) suggested that if crime in neighborhoods remains an eligibility issue, then the HUD definition in the Choice Neighborhood NOFA focusing on Part I violent crime should be used instead of the Neighborhood Scout index. Commenter (52) suggested that as an alternative to using Neighborhood Scout, CityData.com be used because it provides the ability to see how the crime for an area develops over time while Neighborhood Scout fails to show how an area may have decreased crime rates from the past. Commenter (32) expressed support for the use of a crime indicator that would require further review for a site to be eligible and specifically felt the use of Neighborhood Scout is appropriate and, depending on information reported, additional due diligence may be needed on the part of the Department. Commenter (32) suggested use of an indicator lower than 40 in order to mitigate objections to the use of any index or indicator and also suggested high crime rates based on police department reports be used as the need for additional analysis. Commenter (45) suggested instead of using Neighborhood Scout, recent data as provided by the local police department or law enforcement agency be used. If there was a challenge to the site based on crime, it seems administratively easier for the Department to request a letter from local law enforcement if the site is near a hot spot, according to commenter (45). Commenter (49) expressed support to the changes in this section 39 TexReg 9908 December 19, 2014 Texas Register

and stated that such changes establish neighborhood characteristics that would (and should) trigger closer examination by the Department to ensure the use of public resources is consistent with preserving and/or expanding affordable housing in decent and safe neighborhoods with opportunities for educational excellence and employment. Commenter (48) also expressed support for this section in that such characteristics and further review (if triggered) are important and necessary in order for the Department to comply with its fair housing and civil rights obligations and for the Board to determine whether an investment is the best use of funding sources in alignment with the Department's and State's goals. Conversely, commenter (42) expressed that although there appears to be a favoritism of developments in high-income areas, the Department is urged to keep in mind that most of the people in the communities of which they serve are working families looking for quality, affordable housing with a support system which allows them to work, live their lives, and care for their families. The access to people and organizations willing and able to support the families may not always equate high income areas with high opportunity, as further articulated by commenter (42). Commenter (32) supported the environmental indicators listed in (B)(iii) of this section and suggested the Department also include the database of TCEQ voluntary cleanup sites because many hazardous areas avoid listing on the federal databases by entering the TCEQ Voluntary Cleanup program. Commenter (32) also expressed that there is no reason not to subject sites located within.5 mile from such hazardous areas to the heightened review provided in 10.101(a)(4)(C) and (D) of this section. Commenter (41) noted that in many neighborhoods in Houston it will be common for the Phase I ESA to uncover one or more of the listings under (B)(iii) of this section and further suggested the discovery of a listing within the ASTM-required search distances from the approximate site boundaries does not mean the site has any environmental issues at all. Commenter (41) further stated that any of the issues in this section will trigger an extensive review by the Department without sufficient time and resources to properly conduct such review. Commenter (24) recommended the following modification to clarify the intent of this section: "(A) If the Development Site has any of the characteristics described in subparagraph (B) of this paragraph, the Application may be determined ineligible and the Applicant must disclose the presence of such characteristics to the Department. Disclosure of undesirable characteristics must be made at the time the Application is submitted to the Department. Alternatively, an Applicant may choose to disclose the presence of such characteristics at the time the pre-application (if applicable) is submitted to the Department or after inducement (for Tax-Exempt Bond Developments).Disclosure must be accompanied by the Undesirable Neighborhood Characteristic Disclosure Fee pursuant to 10.901(21) of this chapter (relating to Fee Schedule)." STAFF RESPONSE: In response to Commenter (6), staff believes this is an important aspect of the rule and did not recommend deleting it. While location in census tracts with a high level of poverty does trigger a requirement for disclosure, it does not equate to automatic ineligibility. Development sites that are found to be part of a comprehensive community revitalization may be found eligible. In addition, the rule was restructured so that staff can focus site visits on potentially ineligible sites; sites located in high opportunity areas are generally encouraged by the Department and must already meet the requirements of 10.101(a)(2) related to Mandatory Community Assets. In response to Commenters (25), (41), (42), and (46), staff agreed that a 40% poverty rate in the census tracts is an appropriate threshold for disclosure and is recommending the change. Staff appreciated the support expressed by Commenter (32) regarding use of the threshold and the rule in general. In response to Commenter (45), as with the Undesirable Site Features rule, staff did not recommend deleting the requirement for a letter from HUD or any other federal oversight entity with respect to this rule. This is only required if an applicant is proposing a site that would otherwise be ineligible, so it is not a threshold requirement in general but a threshold for the Board to consider should staff recommend a site be found ineligible. With respect to the consideration of planned community investment, the Board could consider such factors as well; however, the rule is written to encourage rehabilitation in areas that have already seen some investment and are not dependent upon the proposed transaction to act as a catalyst to that investment. In response to the many comments related to the use of the crime index, staff recommended a revision to the rule consistent with the suggestions of Commenters (17), (19), (21), and (26) to rely on violent crimes per 1,000 persons and provide various options for documenting compliance with this measure. Although Commenter (17) prefers elimination of a crime measure altogether, the commenter suggests an alternative is based on a threshold used in a HUD program. Staff's recommended change is based on this suggestion. This change is also responsive to many other commenters (including (15), (19), (20), (21), (25), (34), (36), (41), (42), (45), (46), (50), and (52)) in that it provides additional flexibility in the data source, removes the crime index, only incorporates violent crime, and applies only to Urban Areas where data is more readily available. Staff feels it is important for applicants to perform an initial evaluation of their sites with respect to crime, and this rule encourages that evaluation. Staff also wants to provide some relatively objective benchmarks and examples of evidence since there was significant comment during the previous application cycle regarding the subjectivity of the language last year. Applicants are also encouraged to talk with local officials and utilize research data. If the results of that research indicate crime below the applicable threshold, then no disclosure is necessary. To the extent crime is higher than the threshold, other mitigating factors may be considered. The crime rate threshold does not result in an application being ineligible but triggers a more substantive review of relevant information concerning the neighborhood. Staff appreciated those commenters that support the rule. In response to Commenter (42), staff recognizes that there is a need for preserving affordable housing, and the overall allocation of tax credits does still address that need, particularly through the At-Risk Set-Aside. In response to Commenter (32) regarding an additional environmental factor related to sites in proximity to those that participate in the TCEQ voluntary cleanup program, staff agreed and recommended the addition to the rule. In response to Commenter (41), staff finds the environmental factors appropriate and did not recommend any changes. In addition, even without the reconstructed rule, staff was able to visit a number of proposed sites in the Houston area last year and is confident in the capacity to perform such evaluations again. In response to Commenter (24), staff does not want to give the impression that sites will be found ineligible based solely on poverty rates, criminal activity, and/or environmental factors; therefore, staff is not in favor of adding the suggested language. Staff emphasizes that disclosure of these features is only a tool for staff to be able to focus site visits and subsequently make determinations regarding eligibility. However, staff did recommend a slight revision to clarify when disclosure should occur. Staff did recommend the following revision to 10.101(a)(4) Undesirable Neigh- ADOPTED RULES December 19, 2014 39 TexReg 9909

borhood Characteristics, which incorporated the comments and suggestions of many of the commenters: "(A) If the Development Site has any of the characteristics described in subparagraph (B) of this paragraph, the Applicant must disclose the presence of such characteristics to the Department. Disclosure of undesirable characteristics must be made at the time the Application is submitted to the Department. Alternatively, an Applicant may choose to disclose the presence of such characteristics at the time the pre-application (if applicable) is submitted to the Department or after inducement (for Tax-Exempt Bond Developments) but must be accompanied by the Undesirable Neighborhood Characteristic Disclosure Fee pursuant to 10.901(21) of this chapter (relating to Fee Schedule). Should staff determine that the Development Site has any of the characteristics described in subparagraph (B) of this paragraph and such characteristics were not disclosed, the Application may be subject to termination. Termination due to non-disclosure may be appealed pursuant to 10.902 of this chapter (relating to Appeals Process ( 2306.0321; 2306.6715)). The presence of any characteristics listed in subparagraph (B) of this paragraph will prompt staff to perform an assessment of the Development Site and neighborhood, which may include a site visit, and which will include, where applicable, a review as described in subparagraph (C) of this paragraph. The assessment of the Development Site and neighborhood will be presented to the Board in a report, with a recommendation with respect to the eligibility of the Development Site. Should the Board uphold staff's recommendation or make a determination that a Development Site is ineligible based on staff's report, the termination of the Application resulting from such Board action is not subject to appeal. In order for the Development Site to be found eligible by the Board, despite the existence of undesirable neighborhood characteristics, the use of Department funds at the Development Site must be consistent with achieving at least one of the goals in clauses (i) - (iii) of this subparagraph. (i) Preservation of existing occupied affordable housing units that are subject to existing federal rent or income restrictions, that will not result in a further concentration of poverty and the Application includes a letter from the fair housing or civil rights office of the existing federal oversight entity indicating that the Rehabilitation of the existing units is consistent with the Fair Housing Act; (ii) Improvement of housing opportunities for low income households and members of protected classes in areas that do not have high concentrations of existing affordable housing; or (iii) Provision of affordable housing in areas where there has been significant recent community investment and evidence of new private sector investment; and (iv) The Board may consider whether or not funding sources requested for the Development Site would otherwise be available for activities that would more closely align with the Department's and state's goals. (B) The existence of any one of the three undesirable neighborhood characteristics in clauses (i) - (iii) of this subparagraph must be disclosed by the Applicant and will prompt further review as outlined in subparagraph (C) of this paragraph: (i) The Development Site is located within a census tract that has a poverty rate above 40 percent for individuals (or 55 percent for Developments in regions 11 and 13). (ii) The Development Site is located in an Urban Area and the rate of Part I violent crimes is greater than 18 per 1,000 persons (annually) for the immediately surrounding area. "Immediately surrounding area" for the purposes of this provision is defined as the census tract within which the Development Site is located, the police beat within which the Development Site is located for a city's police department, or within a one half mile radius of the Development Site. The data used must include incidents recorded during the entire 2013 or 2014 calendar year but may include up to 36 consecutive months of data. Sources such as the written statement from a local police department or data from neighborhoodscout.com may be used to document compliance with this provision; (iii) The Environmental Site Assessment for the Development Site indicates any facilities listings within the ASTM-required search distances from the approximate site boundaries on any one of the following databases: (I) U.S. Environmental Protection Agency ("USEPA") National Priority List ("NPL"); Comprehensive Environmental Response, Compensation, and Liability Information System ("CERCLIS"); (II) Federal Engineering and/or Institutional Controls Registries ("EC"); Resource Conservation and Recovery Act ("RCRA") facilities associated with treatment, storage, and disposal of hazardous materials that are undergoing corrective action ("RCRA COR- RACTS"); (III) RCRA Generators/Handlers of hazardous waste; or (IV) State voluntary cleanup program." BOARD RESPONSE: Accepted staff's recommendation. 10.101(b)(4) - Subchapter B - Mandatory Development Amenities (4), (18) COMMENT SUMMARY: Commenter (4) recommended the requirement for one parking space per unit for elderly developments be reduced to.75 per unit which is more realistic considering that at least 25% of these tenants do not have cars and space is needed to add garages and carports in order to meet resident demand. Commenter (18) recommended central air not be required for rehabilitation developments for all efficiency and one-bedroom units with less than 600 square feet that do not currently have central air. According to commenter (18), a packaged terminal air conditioned (PTAC) unit is sufficient to adequately and comfortably heat and cool a 600 square foot unit and can be adapted successfully for both efficiency and one-bedroom units and further stated the cost to replace a PTAC system with central air is cost prohibitive in an existing project when such funds could be spent more effectively and have greater impact elsewhere. STAFF RESPONSE: In response to Commenter (4), staff did not recommend a change to the parking requirement. The commenter implied that garages and carports are in high demand, suggesting that the residents do use the parking spaces. The Department wants to ensure that this needed parking is not adding to the tenants' overall living costs whether provided as garages, carports, or open spaces. In response to Commenter (18), staff does not believe that PTAC units are an appropriate solution to the concerns raised by the Commenter. While PTAC units may be less expensive to install, they tend to cost more to operate, and those costs are often passed on the tenants. Staff believes that central air conditioning should remain a requirement for rehabilitation developments; however, should 39 TexReg 9910 December 19, 2014 Texas Register

the Board choose to offer some relief to Applicant's proposing rehabilitation, staff believes that mini-split systems could be an appropriate alternative. Mini-split systems are far superior to PTAC units. In addition to being much more efficient, they also offer quieter operation. Staff recommended no change based on these comments. BOARD RESPONSE: Accepted staff's recommendation. 10.101(b)(5) - Subchapter B - Common Amenities (23) COMMENT SUMMARY: Commenter (23) suggested closing off developments with a full perimeter fence should be prohibited rather than worth one point. Blocking pedestrian access inhibits walking to the nearby community assets and, according to commenter (23), developments need to be primed to encourage walking with sidewalks, building orientation, etc including no perimeter fencing. STAFF RESPONSE: Full perimeter fencing is one of many amenities listed in this section that a developer can select from based on what they feel is appropriate or desirable at their particular property. It is not a requirement that all developments have full perimeter fencing; therefore, developers have the discretion to design the property in a way that could take into account those concerns noted by commenter (23). Staff recommended no change based on this comment. BOARD RESPONSE: Accepted staff's recommendation. 10.101(b)(5)(C)(xxxi) - Subchapter B - Green Building Features (19), (20), (36), (47) COMMENT SUMMARY: Commenter (19) recommended adding the following options for Green Building: "(-m-) locate water fixtures within 20 feet of hot water heater; (-n-) implement a construction waste program; (-o-) drip irrigate at non-turf areas; (-p-) over 75% of property Xeriscape; (-q-) radiant barrier decking on new construction or "cool" roof materials; (-r-) shading devices for windows with solar orientation; (-s-) energy star certified insulation products; (-t-) spray foam insulation full cavity in walls; (-u-) energy star rated windows; (-v-) Merv 8 or better ac filters; (-w-) floor score certified flooring; (-x-) HVAC duct sealing with mastic sealant; (-y-) granite countertops; (-z-) sprinkler system with rain sensors; (-aa-) polished concrete floors in community laundry rooms; (-bb-) NAUF (No Added Urea Formaldehyde) cabinets." Commenters (20), (36) recommended the following changes to the Limited Green Amenities in this section and further suggested a percentage, such as 75% for all landscaping installed on the property be specified: "(-b-) native and adaptive trees and plants;" Commenter (47) expressed support for the green building incentives and further suggested the Department partner with Texas' utilities to make energy-efficiency programs more accessible to affordable, multifamily developments. STAFF RESPONSE: In response to Commenter (19), staff added most (but not all) of the features suggested. Staff believes that some (granite countertops, concrete floors in laundry rooms, A/C filters, construction waste program) do not provide as much long-term benefit to the tenants as some of the other suggested features. In addition, staff believes that the concept of xeriscaping is already captured in another part of the rule. Staff appreciated the suggestions as well as the support expressed by Commenter (47) and will continue to work towards making energy-efficiency programs accessible to low-income Texans. Staff recommended the following additions to the section: "(-m-) locate water fixtures within 20 feet of hot water heater; (-n-) drop irrigate at non-turf areas; (-o-) radiant barrier decking for new Construction developments or "cool" roofing materials; (-p-) permanent shading devices for windows with solar orientation; (-q-) energy star certified insulation products; (-r-) full cavity spray foam insulation in walls; (-s-) energy star rated windows; (-t-) floor score certified flooring; (-u-) sprinkler system with rain sensors; (-v-) NAUF (No Added Urea Formaldehyde) cabinets." Staff also recommended clarifying language in this section, specifically replacing "National Green Building Standard" with "ICC 700 National Green Building Standard." BOARD RESPONSE: Accepted staff's recommendation. 10.101(b)(6)(B) - Subchapter B - Unit and Development Features (15), (19), (20), (21), (23), (33), (34), (36) COMMENT SUMMARY: Commenters (15), (19), (20), (21), (23), (33), (34), (36) recommended the amenity options that were deleted in the draft be added back because all amenities that improve the quality of construction and long-term viability of the development ultimately benefit the residents. Commenters (15), (20), (36) further suggested that more, not fewer, options for unit and development amenities should be available to developers. Commenter (23) noted that removing the 30-year shingle, metal roofing and masonry requirements as options is at odds with the high opportunity requirements because many municipalities are embracing such design standards and their removal only penalizes the developments that are required to build this way. Commenter (21) recommended the items noted below, which are available as options for new construction, reconstruction and adaptive reuse developments, should be available to rehabilitation developments under this section. "(A) All Units must be wired with RG-6/U COAX or better and CAT3 phone cable or better, wired to each bedroom, dining room and living room; (B) Laundry Connections; (C) Exhaust/vent fans (vented to the outside) in the bathrooms;" ADOPTED RULES December 19, 2014 39 TexReg 9911

STAFF RESPONSE: Staff agreed with commenters (15), (19), (20), (21), (23), (33), (34), (36) regarding the reinstatement of the amenity options that were deleted and recommended the following modification to this section: "(xiv) Thirty (30) year shingle or metal roofing (0.5 point); and (xv) Greater than 30 percent stucco or masonry (includes stone, cultured stone, and brick but excludes cementitious siding) on all building exteriors; the percentage calculation may exclude exterior glass entirely (2 points)." In response to commenter (21), there is nothing in the rule that precludes rehabilitation developments from including those amenities listed in the comment. However, staff received previous comment that these amenities can be particularly difficult to install if not already in place in the existing property and therefore does not require them. BOARD RESPONSE: Accepted staff's recommendation. 10.101(b)(7) - Subchapter B - Tenant Supportive Services (6), (33), (34) COMMENT SUMMARY: Commenter (6) recommended the following changes to the point values associated with the tenant supportive services: "(A) joint use library center, as evidenced by a written agreement with the local school district (1 point); (B) weekday character building program (shall include at least on a monthly basis a curriculum based character building presentation on relevant topics, for example teen dating violence, drug prevention, teambuilding, internet dangers, stranger danger, etc.) (1 point); (C) daily transportation such as bus passes, cab vouchers, specialized van on-site (2 points); (D) Food pantry/common household items accessible to residents at least on a monthly basis (1/2 point; 1 point if at least semi-monthly); (E) GED preparation classes (shall include an instructor providing on-site coursework and exam) (1 point); (F) English as a second language classes (shall include an instructor providing on-site coursework and exam) (1/2 point); (G) quarterly financial planning courses (i.e. homebuyer education, credit counseling, investing advice, retirement plans, etc.). Courses must be offered through an on-site instructor; a CD-ROM or online course is not acceptable (1/2 point); (H) annual health fair (1/2 point); (I) quarterly health and nutritional courses (1/2 point; 1 point if monthly); (J) organized youth programs offered by the Development (1/2 point); (K) scholastic tutoring (shall include weekday homework help or other focus on academics) (2 points); (L) Notary Services during regular business hours ( 2306.6710(b)(3)) (1/2 point); (M) weekly exercise classes (1 point); (N) twice monthly arts, crafts, and other recreational activities such as Book Clubs and creative writing classes (1 point); (O) annual income tax preparation (offered by an income tax prep service) (1/2 point); (P) monthly transportation to community/social events such as mall trips, community theatre, bowling, organized tours, etc. (1/2 point); (Q) twice monthly on-site social events (i.e. potluck dinners, game night, sing-a-longs, movie nights, birthday parties, etc.) (1/2 point); (R) specific case management services offered through external, contracted parties for seniors, Persons with Disabilities or Supportive Housing (1/2 point); (S) weekly home chore services (such as valet trash removal, assistance with recycling, furniture movement, etc., and quarterly preventative maintenance including light bulb replacement) for seniors and Persons with Disabilities (1 point); (T) any of the programs described under Title IV-A of the Social Security Act (42 U.S.C. 601, et seq.) which enables children to be cared for in their homes or the homes of relatives; ends the dependence of needy families on government benefits by promoting job preparation, work and marriage; prevents and reduces the incidence of unplanned pregnancies; and encourages the formation and maintenance of two-parent families (1/2 point); (U) contracted career training and placement partnerships with local worksource offices, culinary programs, or vocational counseling services; also resident training programs that train and hire residents for job opportunities inside the development in areas like leasing, tenant services, maintenance, landscaping, or food and beverage operation (1 1/2 points); (V) external partnerships for provision of weekly AA or NA meetings at the Development Site (1 point); (W) contracted onsite occupational or physical therapy services for seniors and Persons with Disabilities (1 point); (X) a full-time resident services coordinator with a dedicated office space at the development (1 point); and (Y) a resident-run pea patch or community garden (1/2 point)." Commenters (33), (34) expressed support for some of the new additions in the list of tenant services and suggested the following revision to case management due to licensed social workers on staff at some Supportive Housing Developments who are the primary case manager. The proposed changes by the Department to this section would preclude these case managers from being counted. Commenter (33) further noted that third-party case management does not have any benefit to the actual residents nor does it further define the service. "(R) specific case management services offered by a qualified Owner or Developer or through external, contracted parties for seniors, Persons with Disabilities or Supportive Housing (1 point);" STAFF RESPONSE: In response to commenter (6) staff does not believe a reduction in the point values is warranted and that with the point thresholds required to be met there are still an adequate amount of tenant services provided at each development. In response to commenters (33), (34) staff appreciated the expressed support regarding the new options and agrees with the proposed modification to allow qualified owners or developers to provide such case management services. Moreover, in response to comment on a previous section staff recommended the following revisions to the list of possible services: 39 TexReg 9912 December 19, 2014 Texas Register

"(A) joint use library center, as evidenced by a written agreement with the local school district (2 points); (B) weekday character building program (shall include at least on a monthly basis a curriculum based character building presentation on relevant topics, for example teen dating violence, drug prevention, teambuilding, internet dangers, stranger danger, etc.) (2 points); (C) daily transportation such as bus passes, cab vouchers, specialized van on-site (4 points); (D) Food pantry/common household items accessible to residents at least on a monthly basis (1 point); (E) GED preparation classes (shall include an instructor providing on-site coursework and exam) (1 point); (F) English as a second language classes (shall include an instructor providing on-site coursework and exam) (1 point); (G) quarterly financial planning courses (i.e. homebuyer education, credit counseling, investing advice, retirement plans, etc.). Courses must be offered through an on-site instructor; a CD-ROM or online course is not acceptable (1 point); (H) annual health fair (1 point); (I) quarterly health and nutritional courses (1 point); (J) organized youth programs offered by the Development (1 point); (K) scholastic tutoring (shall include weekday homework help or other focus on academics) (3 points); (L) Notary Services during regular business hours ( 2306.6710(b)(3)) (1 point); (M) weekly exercise classes (2 points); (N) twice monthly arts, crafts, and other recreational activities such as Book Clubs and creative writing classes (2 points); (O) annual income tax preparation (offered by an income tax prep service) (1 point); (P) monthly transportation to community/social events such as mall trips, community theatre, bowling, organized tours, etc. (1 point); (Q) twice monthly on-site social events (i.e. potluck dinners, game night, sing-a-longs, movie nights, birthday parties, etc.) (1 point); (R) specific case management services offered by a qualified Owner or Developer or through external, contracted parties for seniors, Persons with Disabilities or Supportive Housing (1 point); (S) weekly home chore services (such as valet trash removal, assistance with recycling, furniture movement, etc., and quarterly preventative maintenance including light bulb replacement) for seniors and Persons with Disabilities (2 points); (T) any of the programs described under Title IV-A of the Social Security Act (42 U.S.C. 601, et seq.) which enables children to be cared for in their homes or the homes of relatives; ends the dependence of needy families on government benefits by promoting job preparation, work and marriage; prevents and reduces the incidence of unplanned pregnancies; and encourages the formation and maintenance of two-parent families (1 point); (U) contracted career training and placement partnerships with local worksource offices, culinary programs, or vocational counseling services; also resident training programs that train and hire residents for job opportunities inside the development in areas like leasing, tenant services, maintenance, landscaping, or food and beverage operation (2 points); (V) external partnerships for provision of weekly AA or NA meetings at the Development Site (2 points); (W) contracted onsite occupational or physical therapy services for seniors and Persons with Disabilities (2 points); (X) a full-time resident services coordinator with a dedicated office space at the Development (2 points); (Y) a resident-run pea patch or community garden (1 point);and (Z) Development Sites located within a one mile radius of one of the following can also qualify for one (1) point: (i) Facility for treatment of alcohol and/or drug dependency; (ii) Facility for treatment of PTSD and other significant psychiatric or psychological conditions; (iii) Facility providing therapeutic and/or rehabilitative services relating to mobility, sight, speech, cognitive, or hearing impairments; or (iv) Facility providing medical and/or psychological and/or psychiatric assistance for persons of limited financial means. BOARD RESPONSE: Accepted staff's recommendation. STATUTORY AUTHORITY. The new section is adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the new section is adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan. The adoption affects Chapter 2306 of the Texas Government Code. 10.101. Site and Development Requirements and Restrictions. (a) Site Requirements and Restrictions. The purpose of this section is to identify specific requirements and restrictions related to a Development Site seeking multifamily funding or assistance from the Department. (1) Floodplain. New Construction or Reconstruction Developments located within a one-hundred (100) year floodplain as identified by the Federal Emergency Management Agency (FEMA) Flood Insurance Rate Maps must develop the site in full compliance with the National Flood Protection Act and all applicable federal and state statutory and regulatory requirements. Even if not required by such provisions, the Site must be developed so that all finished ground floor elevations are at least one foot above the floodplain and parking and drive areas are no lower than six inches below the floodplain. If there are more stringent local requirements they must also be met. If no FEMA Flood Insurance Rate Maps are available for the proposed Development Site, flood zone documentation must be provided from the local government with jurisdiction identifying the one-hundred (100) year floodplain. Rehabilitation (excluding Reconstruction) Developments with existing and ongoing federal funding assistance from the U.S. Department of Housing and Urban Development (HUD) or U.S. Department of Agriculture (USDA) are exempt from this requirement. However, where existing and ongoing federal assistance is not applicable such Rehabilitation (excluding Reconstruction) Developments will be allowed in the one-hundred (100) year floodplain provided the state ADOPTED RULES December 19, 2014 39 TexReg 9913

or local government has undertaken and can substantiate sufficient mitigation efforts and such documentation is submitted in the Application or the existing structures meet the requirements that are applicable for New Construction or Reconstruction Developments. (2) Mandatory Community Assets. Development Sites must be located within a one mile radius (two-mile radius for Developments located in a Rural Area), unless otherwise required by the specific asset as noted below, of at least six (6) community assets listed in subparagraphs (A) - (T) of this paragraph. Supportive Housing Developments located in an Urban Area must meet the requirement in subparagraph (T) of this paragraph. Only one community asset of each type listed will count towards the number of assets required. A map must be included identifying the Development Site and the location of each of the community assets by name. All assets must exist or, if under construction, must be under active construction, post pad (e.g. framing the structure) by the date the Application is submitted: (A) full service grocery store; (B) pharmacy; (C) convenience store/mini-market; (D) department or retail merchandise store; (E) bank/credit union; (F) restaurant (including fast food, but not including establishments that are primarily bars and serve food as an incidental item); (G) indoor public recreation facilities, such as, community centers and libraries accessible to the general public; (H) outdoor public recreation facilities such as parks, golf courses, and swimming pools accessible to the general public; (I) medical office (physician, dentistry, optometry) or hospital/medical clinic; (J) public schools (only eligible for Developments that are not Qualified Elderly Developments); (K) senior center accessible to the general public; (L) religious institutions; (M) community, civic or service organizations, such as Kiwanis or Rotary Club; (N) child care center (must be licensed - only eligible for Developments that are not Qualified Elderly Developments); (O) post office; (P) city hall; (Q) county courthouse; (R) fire station; (S) police station; (T) Development Site is located within 1/2 mile of a designated public transportation stop at which public transportation (not including "on demand" transportation) stops on a regular, scheduled basis; a site's eligibility for on demand transportation does not meet this requirement. However, accessible transportation provided at no cost to the tenant when the Property Management Office is open, such as cab vouchers or a specialized van on-site, to a bus or other public transit stop, does qualify. (3) Undesirable Site Features. Development Sites within the applicable distance of any of the undesirable features identified in subparagraphs (A) - (J) of this paragraph will be considered ineligible. Rehabilitation (excluding Reconstruction) Developments with ongoing and existing federal assistance from HUD or USDA may be granted an exemption by the Board. Such an exemption must be requested at the time of or prior to the filing of an Application and must include a letter from the fair housing or civil rights office of the existing federal oversight entity indicating that the Rehabilitation of the existing units is consistent with the Fair Housing Act. The distances are to be measured from the nearest boundary of the Development Site to the undesirable feature. If Department staff identifies what it believes would constitute an undesirable site feature not listed in this paragraph or covered under subparagraph (J) of this paragraph, staff may request a determination from the Board as to whether such feature is acceptable or not. If the Board determines such feature is not acceptable and that, accordingly, the Site is ineligible, the Application shall be terminated and such determination of Site ineligibility and termination of the Application cannot be appealed. Development Sites located within 300 feet of junkyards; (A) (B) Development Sites located within 100 feet of active railroad tracks, unless the Applicant provides evidence that the city/community has adopted a Railroad Quiet Zone or the railroad in question is commuter or light rail; (C) Development Sites located within 500 feet of heavy industrial or dangerous uses such as manufacturing plants, fuel storage facilities (excluding gas stations), refinery blast zones, etc.; (D) Development Sites located within 2 miles of potentially hazardous uses such as nuclear plants or large refineries (e.g. oil refineries producing more than 100,000 barrels of oil daily); (E) Development Sites located within 300 feet of a solid waste or sanitary landfills; (F) Development Sites in which the buildings are located within the easement of any overhead high voltage transmission line, support structures for high voltage transmission lines, radio antennae, satellite towers, or other similar structures. This does not apply to local service electric lines and poles; (G) Development Sites in which the buildings are located within the accident zones or clear zones for commercial or military airports; (H) Development Sites located within 300 feet of a sexually-oriented business. For purposes of this paragraph, a sexually-oriented business shall be defined as stated in Local Government Code, 243.002; (I) Development Sites that contain one or more pipelines, situated underground or aboveground, which carry highly volatile liquids; or (J) Any other Site deemed unacceptable, which would include, without limitation, those with exposure to an environmental factor that may adversely affect the health and safety of the residents and which cannot be adequately mitigated. (4) Undesirable Neighborhood Characteristics. (A) If the Development Site has any of the characteristics described in subparagraph (B) of this paragraph, the Applicant must disclose the presence of such characteristics to the Department. Disclosure of undesirable characteristics must be made at the time the Application is submitted to the Department. Alternatively, an Applicant may choose to disclose the presence of such characteristics at the time the pre-application (if applicable) is submitted to the Department 39 TexReg 9914 December 19, 2014 Texas Register

or after inducement (for Tax-Exempt Bond Developments) but must be accompanied by the Undesirable Neighborhood Characteristic Disclosure Fee pursuant to 10.901(21) of this chapter (relating to Fee Schedule). Should staff determine that the Development Site has any of the characteristics described in subparagraph (B) of this paragraph and such characteristics were not disclosed, the Application may be subject to termination. Termination due to non-disclosure may be appealed pursuant to 10.902 of this chapter (relating to Appeals Process ( 2306.0321; 2306.6715)). The presence of any characteristics listed in subparagraph (B) of this paragraph will prompt staff to perform an assessment of the Development Site and neighborhood, which may include a site visit, and which will include, where applicable, a review as described in subparagraph (C) of this paragraph. The assessment of the Development Site and neighborhood will be presented to the Board in a report, with a recommendation with respect to the eligibility of the Development Site. Should the Board uphold staff's recommendation or make a determination that a Development Site is ineligible based on staff's report, the termination of the Application resulting from such Board action is not subject to appeal. In order for the Development Site to be found eligible by the Board, despite the existence of undesirable neighborhood characteristics, the use of Department funds at the Development Site must be consistent with achieving at least one of the goals in clauses (i) - (iii) of this subparagraph. (i) Preservation of existing occupied affordable housing units that are subject to existing federal rent or income restrictions, that will not result in a further concentration of poverty and the Application includes a letter from the fair housing or civil rights office of the existing federal oversight entity indicating that the Rehabilitation of the existing units is consistent with the Fair Housing Act; (ii) Improvement of housing opportunities for low income households and members of protected classes in areas that do not have high concentrations of existing affordable housing; or (iii) Provision of affordable housing in areas where there has been significant recent community investment and evidence of new private sector investment; and (iv) The Board may consider whether or not funding sources requested for the Development Site would otherwise be available for activities that would more closely align with the Department's and state's goals. (B) The existence of any one of the three undesirable neighborhood characteristics in clauses (i) - (iii) of this subparagraph must be disclosed by the Applicant and will prompt further review as outlined in subparagraph (C) of this paragraph: (i) The Development Site is located within a census tract that has a poverty rate above 40 percent for individuals (or 55 percent for Developments in regions 11 and 13). (ii) The Development Site is located in an Urban Area and the rate of Part I violent crimes is greater than 18 per 1,000 persons (annually) for the immediately surrounding area. "Immediately surrounding area" for the purposes of this provision is defined as the census tract within which the Development Site is located, the police beat within which the Development Site is located for a city's police department, or within a one half mile radius of the Development Site. The data used must include incidents recorded during the entire 2013 or 2014 calendar year but may include up to 36 consecutive months of data. Sources such as the written statement from a local police department or data from neighborhoodscout.com may be used to document compliance with this provision; (iii) The Environmental Site Assessment for the Development Site indicates any facilities listings within the ASTM-required search distances from the approximate site boundaries on any one of the following databases: (I) U.S. Environmental Protection Agency ("USEPA") National Priority List ("NPL"); Comprehensive Environmental Response, Compensation, and Liability Information System ("CERCLIS"); (II) Federal Engineering and/or Institutional Controls Registries ("EC"); Resource Conservation and Recovery Act ("RCRA") facilities associated with treatment, storage, and disposal of hazardous materials that are undergoing corrective action ("RCRA CORRACTS"); (III) RCRA Generators/Handlers of hazardous waste; or (IV) State voluntary cleanup program. (C) Should any one of the undesirable neighborhood characteristics described in subparagraph (B) of this paragraph exist, staff will conduct a further Development Site and neighborhood review which will include assessments of those items identified in clauses (i) - (viii) of this paragraph. (i) A determination regarding neighborhood boundaries, which will be based on the review of a combination of natural and manmade physical features (rivers, highways, etc.), apparent changes in land use, the Primary Market Area as defined in the Market Analysis, census tract or municipal boundaries, and information obtained from any Site visits; (ii) An assessment of blight in the neighborhood, evidenced by boarded up or abandoned residential and/or commercial businesses and/or the visible physical decline of property or properties; (iii) An assessment of general land use in the neighborhood, including comment on the prevalence of residential uses; (iv) An assessment concerning any of the features reflected in paragraph (3) of this subsection if they are present in the neighborhood, regardless of whether they are within the specified distances referenced in paragraph (3). (v) An assessment of the number of existing affordable rental units (generally includes rental properties subject to TD- HCA, HUD, or USDA restrictions) in the neighborhood, including comment on concentration based on neighborhood size; (vi) An assessment of the percentage of households residing in the census tract that have household incomes equal to or greater than the median household income for the MSA or county where the Development Site is located; (vii) An assessment of the number of market rate multifamily units in the neighborhood and their current rents and levels of occupancy; and (viii) An assessment of the number and/or strength of mitigating factors for otherwise undesirable neighborhood characteristics, including but not limited to community revitalization plans, demographic data that suggests increasing socio-economic diversity, crime statistics evidencing trends that crime rates are decreasing, new construction in the area, and any other evidence of public and/or private investment in the neighborhood. (D) During or after staff's review of the Development Site, the Department may request additional information from the Ap- ADOPTED RULES December 19, 2014 39 TexReg 9915

plicant. This information is not required to be submitted with the initial disclosure but must be made available at the Department's request. Information regarding mitigation of undesirable characteristics should be relevant to the undesirable characteristics that are present in the neighborhood. For instance, a plan to clean up an environmental hazard is an appropriate response to disclosure of a facility listed in the environmental site assessment, while a management plan and/or efforts of the local police department are appropriate to address issues of crime. Mitigation of undesirable characteristics should also include timelines that evidence a reasonable expectation that the issue(s) being addressed will be resolved or at least improved by the time the proposed Development is placed in service. Information likely to be requested may include but is not limited to those items in clauses (i) - (iv) of this subparagraph. (i) Community revitalization plans (whether or not submitted for points under 11.9(d)(7) of this title); (ii) Evidence of public and/or private plans to develop or redevelop in the neighborhood, whether residential or commercial; (iii) Mitigation plans for any adverse environmental features; and/or (iv) Statements from appropriate local elected officials regarding how the development will accomplish objectives in meeting obligations to affirmatively further fair housing and will address the goals set forth in the Analysis of Impediments and Consolidated Plan(s) of the local government and/or the state. (b) Development Requirements and Restrictions. The purpose of this section is to identify specific restrictions on a proposed Development submitted for multifamily funding by the Department. (1) Ineligible Developments. A Development shall be ineligible if any of the criteria in subparagraphs (A) and (B) of this paragraph are deemed to apply. (A) General Ineligibility Criteria. (i) Developments comprised of hospitals, nursing homes, trailer parks, dormitories (or other buildings that will be predominantly occupied by students) or other facilities which are usually classified as transient housing (as provided in the 42(i)(3)(B)(iii) and (iv) of the Code); (ii) Any Development with any building(s) with four or more stories that does not include an elevator; (iii) A Housing Tax Credit Development that provides on-site continual or frequent nursing, medical, or psychiatric services. Refer to IRS Revenue Ruling 98-47 for clarification of assisted living; (iv) A Development that violates 1.15 of this title (relating to Integrated Housing Rule); (v) A Development seeking Housing Tax Credits that will not meet the general public use requirement under Treasury Regulation, 1.42-9 or a documented exception thereto; or (vi) A Development utilizing a Direct Loan that is subject to the Housing and Community Development Act, 104(d) requirements and proposing Rehabilitation or Reconstruction, if the Applicant is not proposing the one-for-one replacement of the existing unit mix. Adding additional units would not violate this provision. (B) Ineligibility of Qualified Elderly Developments. (i) Any Qualified Elderly Development of two stories or more that does not include elevator service for any Units or living space above the first floor; (ii) Any Qualified Elderly Development with any Units having more than two bedrooms with the exception of up to three employee Units reserved for the use of the manager, maintenance, and/or security officer. These employee Units must be specifically designated as such; or (iii) Any Qualified Elderly Development (including Qualified Elderly in a Rural Area) proposing more than 70 percent twobedroom Units. (2) Development Size Limitations. The minimum Development size is 16 Units. New Construction or Adaptive Reuse Developments in Rural Areas are limited to a maximum of 80 Units. Other Developments do not have a limitation as to the maximum number of Units. (3) Rehabilitation Costs. Developments involving Rehabilitation must establish a scope of work that will substantially improve the interiors of all units and exterior deferred maintenance. The following minimum Rehabilitation amounts must be maintained through the issuance of IRS Forms 8609 or at the time of the close-out documentation, as applicable: (A) For Housing Tax Credit Developments under the USDA Set-Aside the minimum Rehabilitation will involve at least $19,000 per Unit in Building Costs and Site Work; (B) For Tax-Exempt Bond Developments, less than twenty (20) years old, the minimum Rehabilitation will involve at least $15,000 per Unit in Building Costs and Site Work. If such Developments are greater than twenty (20) years old, the minimum Rehabilitation will involve at least $25,000 per Unit in Building Costs and Site Work; (C) For all other Developments, the minimum Rehabilitation will involve at least $25,000 per Unit in Building Costs and Site Work; or (D) Rehabilitation Developments financed with Direct Loans provided through the HOME program (or any other program subject to 24 CFR 92) that triggers the rehabilitation requirements of 24 CFR 92 will be required to meet all applicable state and local codes, ordinances, and standards; the 2012 International Existing Building Code ("IEBC"); and the requirements in clauses (i) - (iv) of this subparagraph. (i) recommendations made in the Environmental Assessment and Physical Conditions Assessment with respect to health and safety issues, major systems (structural support; roofing; cladding and weatherproofing; plumbing; electrical; and heating, ventilation, and air conditioning), and lead based paint must be implemented; (ii) all accessibility requirements pursuant to 10 TAC 1.206 (relating to Applicability of the Construction Standards for Compliance with 504 of the Rehabilitation Act of 1973) and 1.209 (relating to Substantial Alteration of Multifamily Developments) must be met; (iii) properties located in the designated catastrophe areas specified in 28 TAC 5.4008 must comply with 28 TAC 5.4011 (relating to Applicable Building Code Standards in Designated Catastrophe Areas for Structures Constructed, Repaired or to Which Additions Are Made On and After January 1, 2008); and (iv) should IEBC be more restrictive than local codes, or should local codes not exist, then the Development must meet the requirements imposed by IEBC. (4) Mandatory Development Amenities. ( 2306.187) New Construction, Reconstruction or Adaptive Reuse Units must include all 39 TexReg 9916 December 19, 2014 Texas Register

of the amenities in subparagraphs (A) - (M) of this paragraph. Reha- (vi) Developments with 200 or more Units must bilitation (excluding Reconstruction) Developments must provide the qualify for twenty-two (22) points. amenities in subparagraphs (D) - (M) of this paragraph unless stated (B) These points are not associated with any selection otherwise. Supportive Housing Developments are not required to provide the amenities in subparagraph (B), (E), (F), (G), (I), or (M) of this criteria points. The amenities must be for the benefit of all tenants and made available throughout normal business hours and maintained paragraph; however, access must be provided to a comparable amenity throughout the Compliance Period. Tenants must be provided written in a common area. These amenities must be at no charge to the tenants. notice of the elections made by the Development Owner. If fees in addition to rent are charged for amenities, then the amenity may not be Tenants must be provided written notice of the elections made by the Development Owner. included among those provided to satisfy the requirement. All amenities (A) All Units must be wired with RG-6/U COAX or better and CAT3 phone cable or better, wired to each bedroom, dining room and living room; (B) Laundry Connections; must meet accessibility standards and spaces for activities must be sized appropriately to serve the proposed Target Population. Applications for non-contiguous scattered site housing, excluding non-contiguous single family sites, will have the test applied based on the number of Units per individual site. bathrooms; (C) Exhaust/vent fans (vented to the outside) in the (D) Screens on all operable windows; (E) Disposal and Energy-Star rated dishwasher (not required for USDA; Rehabilitation Developments exempt from dishwasher if one was not originally in the Unit); (F) Energy-Star rated refrigerator; (G) Oven/Range; (H) Blinds or window coverings for all windows; (I) At least one Energy-Star rated ceiling fan per Unit; (J) Energy-Star rated lighting in all Units which may include compact fluorescent or LED light bulbs; (K) Plumbing fixtures (toilets and faucets) must meet design standards at 30 TAC 290.252 (relating to Design Standards); (L) All Units must have central heating and air-conditioning (Packaged Terminal Air Conditioners meet this requirement for SRO or Efficiency Units only); and (M) Adequate parking spaces consistent with local code, unless there is no local code, in which case the requirement would be one and a half (1.5) spaces per Unit for non-qualified Elderly Developments and one (1) space per Unit for Qualified Elderly Developments. The minimum number of required spaces must be available to the tenants at no cost. (5) Common Amenities. (A) All Developments must include sufficient common amenities as described in subparagraph (C) of this paragraph to qualify for at least the minimum number of points required in accordance with clauses (i) - (vi) of this subparagraph. For Developments with 41 Units or more, at least two (2) of the required threshold points must come from subparagraph (C)(xxxi) of this paragraph. (i) for four (4) points; Developments with 16 to 40 Units must qualify (ii) Developments with 41 to 76 Units must qualify for seven (7) points; (iii) Developments with 77 to 99 Units must qualify for ten (10) points; (iv) Developments with 100 to 149 Units must qualify for fourteen (14) points; (v) Developments with 150 to 199 Units must qualify for eighteen (18) points; or (C) The common amenities and respective point values are set out in clauses (i) - (xxxi) of this subparagraph. Some amenities may be restricted for Applicants proposing a specific Target Population. An Applicant can only count an amenity once; therefore combined functions (a library which is part of a community room) will only qualify for points under one category: (i) (ii) (iii) Full perimeter fencing (2 points); Controlled gate access (2 points); Gazebo w/sitting area (1 point); (iv) Accessible walking/jogging path separate from a sidewalk and in addition to required accessible routes to Units or other amenities (1 point); (v) Community laundry room with at least one washer and dryer for every 40 Units (3 points); (vi) Barbecue grill and picnic table with at least one of each for every 50 Units (1 point); (vii) Covered pavilion that includes barbecue grills and tables with at least one grill and table for every 50 Units (2 points); (viii) Swimming pool (3 points); (ix) Splash pad/water feature play area (1 point); (x) Furnished fitness center. Equipped with fitness equipment options with at least one option per every 40 Units or partial increment of 40 Units: stationary bicycle, elliptical trainer, treadmill, rowing machine, universal gym, multi-functional weight bench, sauna, stair-climber, or other similar equipment. Equipment shall be commercial use grade or quality. All Developments must have at least two equipment options but are not required to have more than five equipment options regardless of number of Units (2 points); (xi) Equipped and functioning business center or equipped computer learning center. Must be equipped with 1 computer for every 30 Units loaded with basic programs, 1 laser printer for every 3 computers (minimum of one printer) and at least one scanner which may be integrated with printer (2 points); (xii) Furnished Community room (2 points); (xiii) Library with an accessible sitting area (separate from the community room) (1 point); (xiv) Enclosed community sun porch or covered community porch/patio (1 point); (xv) Service coordinator office in addition to leasing offices (1 point); ADOPTED RULES December 19, 2014 39 TexReg 9917

(xvi) Senior Activity Room stocked with supplies (Arts and Crafts, etc.) (2 points); (xvii) Health Screening Room (1 point); (xviii) Secured Entry (applicable only if all Unit entries are within the building's interior) (1 point); (xix) Horseshoe pit; putting green; shuffleboard court; video game console(s) with a variety of games and a dedicated location accessible to all tenants to play such games (1 point); (xx) Community Dining Room with full or warming kitchen furnished with adequate tables and seating (3 points); (xxi) One Children's Playscape Equipped for 5 to 12 year olds, or one Tot Lot (1 point). Can only select this item if clause (xxii) of this subparagraph is not selected; or (xxii) Two Children's Playscapes Equipped for 5 to 12 year olds, two Tot Lots, or one of each (2 points). Can only select this item if clause (xxi) of this subparagraph is not selected; (xxiii) Sport Court (Tennis, Basketball or Volley- ball) (2 points); (xxiv) Furnished and staffed Children's Activity Center that must have age appropriate furnishings and equipment. Appropriate levels of staffing must be provided during after-school hours and during school vacations (3 points); (xxv) Community Theater Room equipped with a 52 inch or larger screen with surround sound equipment; DVD player; and theater seating (3 points); (xxvi) Dog Park area that is fully enclosed and intended for tenant owned dogs to run off leash or a dog wash station with plumbing for hot and cold water connections and tub drainage (requires that the Development allow dogs) (1 point); (xxvii) Common area Wi-Fi (1 point); (xxviii) Twenty-four hour live monitored camera/security system in each building (3 points); (xxix) Secured bicycle parking (1 point); (xxx) Rooftop viewing deck (2 points); or (xxxi) Green Building Features. Points under this item are intended to promote energy and water conservation, operational savings and sustainable building practices. Points may be selected from only one of four categories: Limited Green Amenities, Enterprise Green Communities, Leadership in Energy and Environmental Design (LEED), and ICC 700 National Green Building Standard. A Development may qualify for no more than four (4) points total under this clause. (I) Limited Green Amenities (2 points). The items listed in subclauses (I) - (IV) of this clause constitute the minimum requirements for demonstrating green building of multifamily Developments. Six (6) of the twenty-two (22) items listed under items (-a-) - (-v-) of this subclause must be met in order to qualify for the maximum number of two (2) points under this subclause; (-a-) a rain water harvesting/collection system and/or locally approved greywater collection system; (-b-) native trees and plants installed that reduce irrigation requirements and are appropriate to the Development Site's soil and microclimate to allow for shading in the summer and heat gain in the winter; (-c-) water-conserving fixtures that meet the EPA's WaterSense Label. Such fixtures must include low-flow or high efficiency toilets, bathroom lavatory faucets, showerheads, and kitchen faucets. Rehabilitation Developments may install compliant faucet aerators instead of replacing the entire faucets; (-d-) all of the HVAC condenser units located so they are fully shaded 75 percent of the time during summer months (i.e. May through August) as certified by the design team at cost certification; (-e-) Energy-Star qualified hot water heaters or install those that are part of an overall Energy-Star efficient system; (-f-) install individual or sub-metered utility meters. Rehabilitation Developments may claim sub-meter only if not already sub-metered at the time of Application; (-g-) healthy finish materials including the use of paints, stains, adhesives, and sealants consistent with the Green Seal 11 standard or other applicable Green Seal standard; (-h-) install daylight sensor, motion sensors or timers on all exterior lighting and install fixtures that include automatic switching on timers or photocell controls for all lighting not intended for 24-hour operation or required for security; (-i-) recycling service provided throughout the Compliance Period; (-j-) for Rehabilitation Developments or Developments with 41 units or less, construction waste management system provided by contractor that meets LEEDs minimum standards; (-k-) for Rehabilitation Developments or Developments with 41 units or less, clothes dryers vented to the outside; (-l-) for Developments with 41 units or less, at least 25% by cost FSC certified salvaged wood products; (-m-) locate water fixtures within 20 feet of hot water heater; (-n-) drop irrigate at non-turf areas; (-o-) radiant barrier decking for New Construction Developments or "cool" roofing materials; (-p-) permanent shading devices for windows with solar orientation; (-q-) Energy-Star certified insulation products; (-r-) full cavity spray foam insulation in walls; (-s-) Energy-Star rated windows; (-t-) floor score certified flooring; (-u-) sprinkler system with rain sensors; (-v-) NAUF (No Added Urea Formaldehyde) cabinets. (II) Enterprise Green Communities (4 points). The Development must incorporate all mandatory and optional items applicable to the construction type (i.e. New Construction, Rehabilitation, etc.) as provided in the most recent version of the Enterprise Green Communities Criteria found at http://www.greencommunitiesonline.org. (III) LEED (4 points). The Development must incorporate, at a minimum, all of the applicable criteria necessary to obtain a LEED Certification, regardless of the rating level achieved (i.e., Certified, Silver, Gold or Platinum). (IV) ICC 700 National Green Building Standard (4 points). The Development must incorporate, at a minimum, all of the applicable criteria necessary to obtain a NAHB Green Certification, regardless of the rating level achieved (i.e. Bronze, Silver, Gold, or Emerald). (6) Unit Requirements. (A) Unit Sizes. Developments proposing New Construction or Reconstruction will be required to meet the minimum sizes 39 TexReg 9918 December 19, 2014 Texas Register

of Units as provided in clauses (i) - (v) of this subparagraph. These minimum requirements are not associated with any selection criteria. Developments proposing Rehabilitation (excluding Reconstruction) or Supportive Housing Developments will not be subject to the requirements of this subparagraph. Unit; Unit; (iii) eight hundred (800) square feet for a two Bedroom Unit; (i) one thousand (1,000) square feet for a three Bed- (iv) room Unit; and five hundred (500) square feet for an Efficiency (ii) six hundred (600) square feet for a one Bedroom (v) one thousand, two-hundred (1,200) square feet for a four Bedroom Unit. (B) Unit and Development Features. Housing Tax Credit Applicants may select amenities for the score of an Application under this section, but must maintain the points associated with those amenities by maintaining the amenity selected or providing substitute amenities with equal or higher point values. Tax-Exempt Bond Developments must include enough amenities to meet a minimum of seven (7) points. Applications not funded with Housing Tax Credits (e.g. Direct Loan Applications) must include enough amenities to meet a minimum of four (4) points. The amenity shall be for every Unit at no extra charge to the tenant. The points selected at Application and corresponding list of amenities will be required to be identified in the LURA, and the points selected at Application must be maintained throughout the Compliance Period. Applications involving scattered site Developments must have a specific amenity located within each Unit to count for points. Rehabilitation Developments will start with a base score of three (3) points and Supportive Housing Developments will start with a base score of five (5) points. (i) Covered entries (0.5 point); (ii) Nine foot ceilings in living room and all bedrooms (at minimum) (0.5 point); point); (iii) Microwave ovens (0.5 point); (iv) Self-cleaning or continuous cleaning ovens (0.5 (v) Refrigerator with icemaker (0.5 point); (vi) Storage room or closet, of approximately 9 square feet or greater, separate from and in addition to bedroom, entryway or linen closets and which does not need to be in the Unit but must be on the property site (0.5 point); (vii) Energy-Star qualified laundry equipment (washers and dryers) for each individual Unit; must be front loading washer and dryer in required accessible Units (1.5 points); point); (viii) Covered patios or covered balconies (0.5 (ix) Covered parking (including garages) of at least one covered space per Unit (1.5 points); (x) R-15 Walls / R-30 Ceilings (rating of wall/ceiling system) (1.5 points); (xi) 14 SEER HVAC (or greater) for New Construction, Adaptive Reuse, and Reconstruction or radiant barrier in the attic for Rehabilitation (excluding Reconstruction) (1.5 points); (xii) High Speed Internet service to all Units (can be wired or wireless; required equipment for either must be provided) (1 point); (xiii) Desk or computer nook (0.5 point); (xiv) Thirty (30) year shingle or metal roofing (0.5 point); and (xv) Greater than 30 percent stucco or masonry (includes stone, cultured stone, and brick but excludes cementitious siding) on all building exteriors; the percentage calculation may exclude exterior glass entirely (2 points). (7) Tenant Supportive Services. The supportive services include those listed in subparagraphs (A) - (T) of this paragraph. Tax Exempt Bond Developments must select a minimum of eight (8) points; Applications not funded with Housing Tax Credits (e.g. HOME Program or other Direct Loans) must include enough services to meet a minimum of four (4) points. The points selected and complete list of supportive services will be included in the LURA and the timeframe by which services are offered must be in accordance with 10.619 of this chapter (relating to Monitoring for Social Services) and maintained throughout the Compliance Period. The Owner may change, from time to time, the services offered; however, the overall points as selected at Application must remain the same. Tenants must be provided written notice of the elections made by the Development Owner. No fees may be charged to the tenants for any of the services and there must be adequate space for the intended services. Services must be provided on-site or transportation to those off-site services identified on the list must be provided. The same service may not be used for more than one scoring item. (A) joint use library center, as evidenced by a written agreement with the local school district (2 points); (B) weekday character building program (shall include at least on a monthly basis a curriculum based character building presentation on relevant topics, for example teen dating violence, drug prevention, teambuilding, internet dangers, stranger danger, etc.) (2 points); (C) daily transportation such as bus passes, cab vouchers, specialized van on-site (4 points); (D) Food pantry/common household items accessible to residents at least on a monthly basis (1 point); (E) GED preparation classes (shall include an instructor providing on-site coursework and exam) (1 point); (F) English as a second language classes (shall include an instructor providing on-site coursework and exam) (1 point); (G) quarterly financial planning courses (i.e. homebuyer education, credit counseling, investing advice, retirement plans, etc.). Courses must be offered through an on-site instructor; a CD-ROM or online course is not acceptable (1 point); (H) annual health fair (1 point); (I) quarterly health and nutritional courses (1 point); (J) organized youth programs offered by the Development (1 point); (K) scholastic tutoring (shall include weekday homework help or other focus on academics) (3 points); (L) Notary Services during regular business hours ( 2306.6710(b)(3)) (1 point); (M) weekly exercise classes (2 points); ADOPTED RULES December 19, 2014 39 TexReg 9919

(N) twice monthly arts, crafts, and other recreational activities such as Book Clubs and creative writing classes (2 points); (O) annual income tax preparation (offered by an income tax prep service) (1 point); (P) monthly transportation to community/social events such as mall trips, community theatre, bowling, organized tours, etc. (1 point); (Q) twice monthly on-site social events (i.e. potluck dinners, game night, sing-a-longs, movie nights, birthday parties, etc.) (1 point); (R) specific case management services offered by a qualified Owner or Developer or through external, contracted parties for seniors, Persons with Disabilities or Supportive Housing (1 point); (S) weekly home chore services (such as valet trash removal, assistance with recycling, furniture movement, etc., and quarterly preventative maintenance including light bulb replacement) for seniors and Persons with Disabilities (2 points); (T) any of the programs described under Title IV-A of the Social Security Act (42 U.S.C. 601, et seq.) which enables children to be cared for in their homes or the homes of relatives; ends the dependence of needy families on government benefits by promoting job preparation, work and marriage; prevents and reduces the incidence of unplanned pregnancies; and encourages the formation and maintenance of two-parent families (1 point); (U) contracted career training and placement partnerships with local worksource offices, culinary programs, or vocational counseling services; also resident training programs that train and hire residents for job opportunities inside the development in areas like leasing, tenant services, maintenance, landscaping, or food and beverage operation (2 points); (V) external partnerships for provision of weekly AA or NA meetings at the Development Site (2 points); (W) contracted onsite occupational or physical therapy services for seniors and Persons with Disabilities (2 points); (X) a full-time resident services coordinator with a dedicated office space at the Development (2 points); point); and (Y) a resident-run pea patch or community garden (1 (Z) Development Sites located within a one mile radius of one of the following can also qualify for one (1) point: (i) Facility for treatment of alcohol and/or drug dependency; (ii) Facility for treatment of PTSD and other significant psychiatric or psychological conditions; (iii) Facility providing therapeutic and/or rehabilitative services relating to mobility, sight, speech, cognitive, or hearing impairments; or (iv) Facility providing medical and/or psychological and/or psychiatric assistance for persons of limited financial means. (8) Development Accessibility Requirements. All Developments must meet all specifications and accessibility requirements as identified in subparagraphs (A) - (C) of this paragraph and any other applicable state or federal rules and requirements. The accessibility requirements are further identified in the Certification of Development Owner as provided in the Application. (A) The Development shall comply with the accessibility requirements under 504, Rehabilitation Act of 1973 (29 U.S.C. 794), as specified under 24 C.F.R. Part 8, Subpart C, and as further defined in Chapter 1, Subchapter B of this title (relating to Accessibility Requirements). (B) New Construction (excluding New Construction of non-residential buildings) Developments where some Units are normally exempt from Fair Housing accessibility requirements, a minimum of 20% of each unit type of otherwise exempt units (i.e., one bedroom one bath, two bedroom one bath, two bedroom two bath, three bedroom two bath) must provide an accessible entry level and all common-use facilities in compliance with the Fair Housing Guidelines, and include a minimum of one bedroom and one bathroom or powder room at the entry level. (C) The Development Owner is and will remain in compliance with state and federal laws, including but not limited to, fair housing laws, including Chapter 301, Property Code, Title VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601 et seq.), the Fair Housing Amendments Act of 1988 (42 U.S.C. 3601 et seq.); the Civil Rights Act of 1964 (42 U.S.C. 2000a et seq.); the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et seq.); the Rehabilitation Act of 1973 (29 U.S.C. 701 et seq.); Fair Housing Accessibility; the Texas Fair Housing Act; and that the Development is designed consistent with the Fair Housing Act Design Manual produced by HUD, the Code Requirements for Housing Accessibility 2000 (or as amended from time to time) produced by the International Code Council and the Texas Accessibility Standards. ( 2306.257; 2306.6705(7)) (D) All Applications proposing Rehabilitation (including Reconstruction) will be treated as Substantial Alteration, in accordance with 1.205 of this title. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405729 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 SUBCHAPTER C. APPLICATION SUBMIS- SION REQUIREMENTS, INELIGIBILITY CRITERIA, BOARD DECISIONS AND WAIVER OF RULES OR PRE-CLEARANCE FOR APPLICATIONS 10 TAC 10.201-10.207 The Texas Department of Housing and Community Affairs (the "Department") adopts the repeal of 10 TAC Chapter 10, 10.201-10.207, concerning Application Submission Requirements, Ineligibility Criteria, Board Decisions and Waiver of Rules, or Pre-Clearance for Applications, without changes to 39 TexReg 9920 December 19, 2014 Texas Register

the proposal as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7412). REASONED JUSTIFICATION. The Department finds that the purpose of the repeal is to replace the sections with new rules that encompass all funding made available to multifamily programs. Accordingly, the repeal provides for consistency and minimizes repetition among the programs. The Department accepted public comments between September 19, 2014, and October 20, 2014. Comments regarding the repeal were accepted in writing and by fax. No comments were received concerning the repeal. The Board approved the final order adopting the repeal on November 13, 2014. STATUTORY AUTHORITY. The repeal is adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the repeal is adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan. The repeal affects Chapter 2306 of the Texas Government Code. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405722 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 10 TAC 10.201-10.207 The Texas Department of Housing and Community Affairs (the "Department") adopts new 10 TAC Chapter 10, 10.201-10.207, concerning Application Submission Requirements, Ineligibility Criteria, Board Decisions and Waiver of Rules for Applications. Sections 10.202-10.205 and 10.207 are adopted with changes to the proposed text as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7413). Section 10.201 and 10.206 are adopted without changes and will not be republished. REASONED JUSTIFICATION. The Department finds that the adoption of the rules will result in a more consistent approach to governing multifamily activity and to the awarding of funding or assistance through the Department and to minimize repetition. The comments and responses include both administrative clarifications and corrections to the Uniform Multifamily Rule based on the comments received. After each comment title, numbers are shown in parentheses. These numbers refer to the person or entity that made the comment as reflected at the end of the reasoned response. If comment resulted in recommended language changes to the Draft Uniform Multifamily Rule as presented to the Board in September, such changes are indicated. SUMMARY OF PUBLIC COMMENT AND STAFF RECOMMEN- DATIONS. Public comments were accepted through October 20, 2014 with comments received from (19) Texas Association of Affordable Housing Providers (TAAHP), (20) Alyssa Carpenter, (24) Cynthia Bast, (36) S Anderson Consulting, (40) Cleopatra Investments, Inc., (43) Star - Equities, LLC, (51) RealTex Development. 10.202(1)(D) - Subchapter C - Ineligible Applicants (24) COMMENT SUMMARY: Commenter (24) indicated that some contractual breaches are not capable of cure and the language that has been added to this item might imply that every contractual breach should be entitled to cure; therefore, the following modification was suggested: "(D) has breached a contract with a public agency, and, if such breach is permitted to be cured under the contract, has been given notice of the breach and a reasonable opportunity to cure, and failed to cure that breach within the time specified in the notice of breach;" Commenter (24) suggested that the following item needs to tie to the Department's Previous Participation rule, as revised. Specifically, that it does not apply to certain members of the Development Team, to the extent they are board members of a non-profit organization; that the Previous Participation rule identifies both uncured noncompliance and noncompliance that was not cured during the corrective action period; and that the Previous Participation rule measures more than just noncompliance. "(F) has been found by the Board to be ineligible based upon a previous participation review performed in accordance with 1.5 of this title;" Commenter (24) suggested a clarification to the item below that would give the Executive Director 30 days to make a determination, rather than the current language which could be interpreted to require the matter be brought to the Board within 30 days. "(M) fails to disclose, in the Application, any Principal or any entity or Person in the Development ownership structure who was or is involved as a Principal in any other affordable housing transaction, voluntarily or involuntarily, that has terminated within the past ten (10) years or plans to or is negotiating to terminate their relationship with any other affordable housing development... The Executive Director shall make an initial determination whether the person or persons should be involved in the Application within thirty (30) days after the date on which the Applicant has made full disclosure, including providing information responsive to any supplemental Department requests. The decision of the Executive Director may be appealed in accordance with 10.902 of this chapter..." Commenter (24) proposed the following modification to the following item in this section: "(N) is found to have participated in the dissemination of misinformation about affordable housing and the persons it serves or about a competing Applicant that would likely have the effect of fomenting opposition to an Application where such opposition is not based in substantive and legitimate concerns that do not implicate potential violations of fair housing laws." STAFF RESPONSE: Staff agreed with the commenter and recommend all of the suggested revisions. BOARD RESPONSE: Accepted staff's recommendation. 10.203 - Subchapter C - Public Notifications (19), (20), (36), (51) ADOPTED RULES December 19, 2014 39 TexReg 9921

COMMENT SUMMARY: Commenter (19) suggested the following modifications regarding the public notification requirement: "...A certification, as provided in the Application, that the Applicant met the requirements and deadlines identified in paragraphs (1) - (3) of this section must be submitted with the Application...If evidence of these notifications was submitted with the pre-application (if applicable to the program) for the same Application and satisfied the Department's review of the pre-application threshold, then no additional notification is required at Application, even if additional Neighborhood Organizations have become of record between the beginning of the Application Acceptance Period and 30 days prior to the Full Application Delivery Deadline. However, re-notification is required by all Applicants who have submitted a change in the Application, whether from pre-application to Application or as a result of an Administrative Deficiency that reflects a total Unit increase of greater than 10 percent or a 5 percent change in density (calculated as units per acre) as a result of a change in the size of the Development Site..." Commenters (20), (36) requested a change to this section that would require re-notification only if there is an increase in density and further stated that a decrease is not something that would concern the community and rise to the level of necessitating additional notification. "...However, re-notification is required by all Applicants who have submitted a change in the Application, whether from pre-application to Application or as a result of an Administrative Deficiency that reflects a total Unit increase of greater than 10 percent or a 5 percent increase in density (calculated as units per acre) as a result of a change in the size of the Development Site..." Commenter (51) recommended removing the language requiring Applicants to re-notify if there is a 5% change in density. STAFF RESPONSE: In response to Commenter (51), staff disagreed with removal of the requirement to re-notify if there is an increase in density as staff believes this is important to those who may comment on an application. However, staff agreed with commenters (20) and (36) regarding re-notification only if density increases, and the section has been modified accordingly. In response to commenter (19), staff did not recommend the change. Applicants will be responsible for notifying any neighborhood organizations that are on record with the county or state as of 30 days prior to the Full Application Delivery Date, whether or not those organizations were on record with the county or state at the time the pre-application was filed. This timing gives developers enough opportunity to research what organizations should be notified while ensuring that statutory requirements regarding notifications are met. Staff recommended the following clarifying language with respect to notification requirements: " 10.203.Public Notifications ( 2306.6705(9)). A certification, as provided in the Application, that the Applicant met the requirements and deadlines identified in paragraphs (1) - (3) of this section must be submitted with the Application. For Applications utilizing Competitive Housing Tax Credits, notifications must not be older than three (3) months from the first day of the Application Acceptance Period. For Tax-Exempt Bond Developments notifications and proof thereof must not be older than three (3) months prior to the date Parts 5 and 6 of the Application are submitted, and for all other Applications no older than three (3) months prior to the date the Application is submitted. If notifications were made in order to satisfy requirements of pre-application submission (if applicable to the program) for the same Application, then no additional notification is required at Application. However, re-notification is required by all Applicants who have submitted a change from pre-application to Application that reflects a total Unit increase of greater than 10 percent or a 5 percent increase in density (calculated as units per acre) as a result of a change in the size of the Development Site. In addition, should a change in elected official occur between the submission of a pre-application and the submission of an Application, Applicants are required to notify the newly elected (or appointed) official." BOARD RESPONSE: Accepted staff's recommendation. 10.204(9) - Subchapter C - Architectural Drawings (51) COMMENT SUMMARY: Commenter (51) supported the additional language in this section that excludes rehabilitation developments from having to submit the building floor plans when the floor plans will not be changing. STAFF RESPONSE: Staff appreciated the expression of support. BOARD RESPONSE: Accepted staff's recommendation. 10.204(13)(A) - Subchapter C - Ownership Structure (24) COMMENT SUMMARY: Commenter (24) suggested the following modification to this section, consistent with those modifications proposed to the definition of Principal and the belief that the organizational charts should identify the proposed development owner, the entities that will be part of the ownership structure and the individuals that will own or control those entities. "(A) Organizational Charts. A chart must be submitted that clearly illustrates the complete organizational structure of the final proposed Development Owner and of any Developer or Guarantor, identifying all Principals thereof and providing the names and ownership percentages of all Persons having an ownership interest in the Development Owner or the Developer or Guarantor, as applicable, whether directly or through one or more subsidiaries." Commenter (24) with comments proposed along the same lines as those indicated above, proposed the following modification to ensure consistency with the Previous Participation rule as well. "(B) Previous Participation. Evidence must be submitted that each entity shown on the organizational chart described in subparagraph (A) of this paragraph that has ownership interest in the Development Owner, Developer or Guarantor, has provided a copy of the completed and executed Previous Participation and Background Certification Form to the Department. Individual Principals of such entities identified on the organizational chart must provide the Previous Participation and Background Certification Form, unless excluded from such requirement pursuant to 1.5 of this title. Any Person (regardless of any Ownership interest or lack thereof) receiving more than 10 percent of the Developer fee is also required to submit this document. The form must include a list of all developments that are, or were, previously under ownership or Control of the Applicant and/or each Principal, including any Person providing the required experience. All participation in any Department funded or monitored activity, including non-housing activities, as well as Housing Tax Credit developments or other programs administered by other states using state or federal programs must be disclosed. The Previous Participation and Background Certification Form will authorize the parties overseeing such assistance to release previous participation information to the Department." 39 TexReg 9922 December 19, 2014 Texas Register

STAFF RESPONSE: Staff agreed with the commenter and recommended the suggested revisions. However, staff did not recommend any change to the definition of Principal as suggested by the same commenter, and all board members of corporations are considered Principals. Staff recommended the following revision to 10.204(2), related to Certification of Principal: "(2) Applicant Eligibility Certification. This form, as provided in the Application, must be executed by any individuals required to be listed on the organizational chart and also identified in subparagraphs (A) - (D) below. The form identifies the various criteria relating to eligibility requirements associated with multifamily funding from the Department, including but not limited to the criteria identified under 10.202 of this chapter (relating to Ineligible Applicants and Applications). (A) for for-profit corporations, any officer authorized by the board of directors, regardless of title, to act on behalf of the corporation, including but not limited to the president, vice president, secretary, treasurer, and all other executive officers, and each stock holder having a 10 percent or more interest in the corporation, and any individual who has Control with respect to such stock holder; (B) for non-profit corporations or governmental instrumentalities (such as housing authorities), any officer authorized by the board, regardless of title, to act on behalf of the corporation, including but not limited to the president, vice president, secretary, treasurer, and all other executive officers, the Audit committee chair, the Board chair, and anyone identified as the Executive Director or equivalent; (C) for trusts, all beneficiaries that have the legal ability to Control the trust who are not just financial beneficiaries; and (D) for limited liability companies, all managers, managing members, members having a 10 percent or more interest in the limited liability company, any individual Controlling such members, or any officer authorized to act on behalf of the limited liability company." BOARD RESPONSE: Accepted staff's recommendation. 10.204(14) - Subchapter C - Nonprofit Ownership (43) COMMENT SUMMARY: Commenter (43) suggested the requirement that the majority of the nonprofit's Board of Directors either principally reside in the state (if the development is located in a Rural Area) or not more than 90 miles (if not in a Rural Area) be removed. Commenter (43) believed this requirement unnecessarily eliminates numerous nonprofit entities which have a national development footprint, but which have a majority of its Directors principally located in other states from competing under the Nonprofit Set-Aside and further pointed out that such requirement is not contained in 42(h)(5)(c) of the IRS Code. STAFF RESPONSE: While the requirement that applications competing in the Nonprofit Set-Aside include a certification that the majority of the nonprofit's Board of Directors principally reside in the state (if in a Rural Area) or not more than 90 miles from the site (if not in a Rural Area) is not a requirement of 42 of the IRS Code; it is a requirement of the Department's Governing Statute, Texas Government Code 2306.6706. As a result the Department does not have the authority to remove. Staff recommended no change based on this comment. BOARD RESPONSE: Accepted staff's recommendation. 10.205(5)(B) - Subchapter C - Site Design and Development Feasibility Report (19) COMMENT SUMMARY: Commenter (19) proposed the following modification to the requirement of this third party report: "(B) Survey or current plat as defined by the Texas Society of Professional Surveyors in their Manual of Practice for Land Surveying in Texas (Category 1A - Land Title Survey or Category 1B - Standard Land Boundary Survey). Surveys may not be older than twelve (12) months from the beginning of the Application Acceptance Period. Plats must include evidence that it has been recorded with the appropriate local entity, as of the date of submission, and is the most current plat..." STAFF RESPONSE: Staff agreed with the commenter and modified the section accordingly. BOARD RESPONSE: Accepted staff's recommendation. 10.207(a)(1) - Subchapter C - Waiver of Rules for Applications (40) COMMENT SUMMARY: Commenter (40) stated the waiver process allows waivers for rehabilitation developments but not adaptive reuse and suggested the following modification on the basis that adaptive reuse, especially where historic structures are involved, can make it impossible for an applicant to fulfill all of the Department's rules and requirements. "(1) The waiver request must establish good cause for the Board to grant the waiver which may include limitations of local building or zoning codes, limitations of existing building structural elements for Rehabilitation or Adaptive Reuse (excluding Reconstruction) Developments, required amenities or design elements in buildings designated as historic structures that would conflict with retaining the historic nature of the building(s), or provisions of the design element or amenity that would not benefit the tenants due to limitations of the existing layout or design of the units for Rehabilitation or Adaptive Reuse (excluding Reconstruction) Developments. Staff may recommend the Board's approval for such a waiver if the Executive Director, the Deputy Executive Director with oversight of multifamily programs, and Deputy Executive Director with oversight of asset management find that the Applicant has established good cause for the waiver..." STAFF RESPONSE: Staff agreed with the commenter and modified the section accordingly. BOARD RESPONSE: Accepted staff's recommendation. 10.901(18) - Subchapter G - Unused Credit and Penalty Fees (15) COMMENT SUMMARY: Commenter (15) suggested the following modification to this item: "Development Owners who have more tax credits allocated to them than they can substantiate through Cost Certification will return those excess tax credits prior to issuance of IRS Form 8609...If an Applicant returns a full credit allocation after the Carryover Allocation deadline required for that allocation, the Executive Director will recommend to the Board the imposition of a penalty on the score for any Competitive Housing Tax Credit Applications submitted by that Applicant or any Affiliate for any Application in an Application Round occurring concurrent to the return of credits or if no Application Round is pending, the Application Round immediately following the return of credits, unless the Applicant has demonstrated by a preponderance of the evidence that the Applicant returned the full credit amount due to ADOPTED RULES December 19, 2014 39 TexReg 9923

circumstances that were beyond the Applicant's or any Affiliate's control in which case penalties will not be assessed. Such circumstances excepting an Applicant from penalties include, but are not limited to: acts of God, such as fire, tornado, flooding, significant and unusual rainfall or subfreezing temperatures; loss of access to necessary water or utilities as a direct result of significant weather events; explosion; vandalism; orders or acts of military authority; litigation; material delay cause by governmental agency action or inaction; changes in law, rules or regulations; national emergency or insurrection; riot, acts of terrorism; supplier failures or material and/or labor shortages. If any such point penalty is recommended to be assessed and presented for final determination by the Board, it must include notice from the Department to the affected party not less than fourteen (14) calendar days prior to the scheduled Board meeting..." STAFF RESPONSE: Staff disagreed with the proposed change. The proposed language appears to attempt to mirror the Force Majeure Event language being contemplated in 11.6(5) of the QAP but is not entirely consistent with that language. Staff believes that if the proposed Force Majeure Event language is approved and such an event occurs, the issues that define such an event could also be considered in the application of any penalties provided for in this section. Staff recommended no change based on this comment. BOARD RESPONSE: Accepted staff's recommendation. STATUTORY AUTHORITY. The new sections are adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the new sections are adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan. The adoption affects Chapter 2306 of the Texas Government Code. 10.202. Ineligible Applicants and Applications. The purpose of this section is to identify those situations in which an Application or Applicant may be considered ineligible for Department funding and subsequently terminated. If such ineligibility is determined by staff to exist, then prior to termination the Department may send a notice to the Applicant and provide them the opportunity to explain how they believe they or their Application is eligible. The items listed in this section include those requirements in 42 of the Code, Texas Government Code, Chapter 2306, and other criteria considered important by the Department, and does not represent an exhaustive list of ineligibility criteria that may otherwise be identified in applicable rules or a NOFA specific to the programmatic funding. (1) Applicants. An Applicant shall be considered ineligible if any of the criteria in subparagraphs (A) - (N) of this paragraph apply to the Applicant. If any of the criteria apply to any other member of the Development Team, the Applicant will also be deemed ineligible unless a substitution of that Development Team member is specifically allowable under the Department's rules and sought by the Applicant or appropriate corrective action has been accepted and approved by the Department. An Applicant is ineligible if the Applicant: (A) has been or is barred, suspended, or terminated from procurement in a state or Federal program or listed in HUD's System for Award Management (SAM); ( 2306.0504) (B) has been convicted of a state or federal felony crime involving fraud, bribery, theft, misrepresentation of material fact, misappropriation of funds, or other similar criminal offenses within fifteen (15) years preceding the Application submission; (C) is, at the time of Application, subject to an enforcement or disciplinary action under state or federal securities law or by the NASD; subject to a federal tax lien; or the subject of a proceeding in which a Governmental Entity has issued an order to impose penalties, suspend funding, or take adverse action based on an allegation of financial misconduct or uncured violation of material laws, rules, or other legal requirements governing activities considered relevant by the Governmental Entity; (D) has breached a contract with a public agency, and, if such breach is permitted to be cured under the contract, has been given notice of the breach and a reasonable opportunity to cure, and failed to cure that breach within the time specified in the notice of breach; (E) has misrepresented to a subcontractor the extent to which the Developer has benefited from contracts or financial assistance that has been awarded by a public agency, including the scope of the Developer's participation in contracts with the agency, and the amount of financial assistance awarded to the Developer by the agency; (F) has been found by the Board to be ineligible based on a previous participation review performed in accordance with 1.5 of this title; (G) is delinquent in any loan, fee, or escrow payments to the Department in accordance with the terms of the loan, as amended, or is otherwise in default with any provisions of such loans; (H) has failed to cure any past due fees owed to the Department at least ten (10) days prior to the Board meeting at which the decision for an award is to be made; (I) is in violation of a state revolving door or other standard of conduct or conflict of interest statute, including Texas Government Code, 2306.6733, or a provision of Texas Government Code, Chapter 572, in making, advancing, or supporting the Application; (J) has previous contracts or commitments that have been partially or fully deobligated during the twelve (12) months prior to the submission of the Application, and through the date of final allocation due to a failure to meet contractual obligations, and the Party is on notice that such deobligation results in ineligibility under this chapter; (K) has provided fraudulent information, knowingly falsified documentation, or other intentional or negligent material misrepresentation or omission in an Application or Commitment, as part of a challenge to another Application or any other information provided to the Department for any reason. The conduct described in this subparagraph is also a violation of this chapter and will subject the Applicant to the assessment of administrative penalties under Texas Government Code, Chapter 2306 and this title; (L) was the owner or Affiliate of the owner of a Department HOME-assisted rental development for which the federal affordability requirements were prematurely terminated and the affordability requirements have not re-affirmed or HOME funds repaid; (M) fails to disclose, in the Application, any Principal or any entity or Person in the Development ownership structure who was or is involved as a Principal in any other affordable housing transaction, voluntarily or involuntarily, that has terminated within the past ten (10) years or plans to or is negotiating to terminate their relationship with any other affordable housing development. Failure to disclose is grounds for termination. The disclosure must identify the person or persons and development involved, the identity of each other development, and contact information for the other Principals of each such development, a narrative description of the facts and circumstances of the termination or proposed termination, and any appropriate support- 39 TexReg 9924 December 19, 2014 Texas Register

ing documents. An Application may be terminated based upon factors in the disclosure. The Executive Director shall make an initial determination whether the person or persons should be involved in the Application within thirty (30) days after the date on which the Applicant has made full disclosure, including providing information responsive to any supplemental Department requests. The decision of the Executive Director may be appealed in accordance with 10.902 of this chapter. If the Executive Director has not made and issued such an initial determination on or before the day thirty (30) days after the date on which the Applicant has made full disclosure, including providing information responsive to any supplemental Department staff requests, the person or persons made the subject of the disclosure shall be presumptively fit to proceed in their current role or roles. Such presumption in no way affects or limits the ability of the Department staff to initiate debarment proceedings under the Department's debarment rules at a future time if it finds that facts and circumstances warranting debarment exist. In the Executive Director's making an initial determination or the Board's making a final determination as to a person's fitness to be involved as a principal with respect to an Application, the factors described in clauses (i) - (v) of this subparagraph shall be considered: (i) the amount of resources in a development and the amount of the benefit received from the development; (ii) the legal and practical ability to address issues that may have precipitated the termination or proposed termination of the relationship; (iii) the role of the person in causing or materially contributing to any problems with the success of the development; (iv) the person's compliance history, including compliance history on other developments; and (v) any other facts or circumstances that have a material bearing on the question of the person's ability to be a compliant and effective participant in their proposed role as described in the Application; or (N) is found to have participated in the dissemination of misinformation about affordable housing and the persons it serves or about a competing Applicant that would likely have the effect of fomenting opposition to an Application where such opposition is not based in substantive and legitimate concerns that do not implicate potential violations of fair housing laws. Nothing herein shall be construed or effectuated in a manner to deprive a person of their right of free speech, but it is a requirement of those who voluntarily choose to participate in this program that they refrain from participating in the above-described inappropriate behaviors. Applicants may inform Department staff about activities potentially prohibited by this provision outside of the challenge process described in 11.10 of this title (relating to Challenges of Competitive HTC Applications). An Applicant submitting documentation of a potential violation may not appeal any decision that is made with regard to another competing Applicant's application. (2) Applications. An Application shall be ineligible if any of the criteria in subparagraphs (A) - (C) of this paragraph apply to the Application: (A) a violation of Texas Government Code, 2306.1113, exists relating to Ex Parte Communication. An ex parte communication occurs when an Applicant or Person representing an Applicant initiates substantive contact (other than permitted social contact) with a board member, or vice versa, in a setting other than a duly posted and convened public meeting, in any manner not specifically permitted by Texas Government Code, 2306.1113(b). Such action is prohibited. For Applicants seeking funding after initial awards have been made, such as waiting list Applicants, the ex parte communication prohibition remains in effect so long as the Application remains eligible for funding. The ex parte provision does not prohibit the Board from participating in social events at which a Person with whom communications are prohibited may, or will be present; provided that no matters related to any Application being considered by the Board may be discussed. An attempted but unsuccessful prohibited ex parte communication, such as a letter sent to one or more board members but not opened, may be cured by full disclosure in a public meeting, and the Board may reinstate the Application and establish appropriate consequences for cured actions, such as denial of the matters made the subject to the communication. (B) the Application is submitted after the Application submission deadline (time or date); is missing multiple parts of the Application; or has a Material Deficiency; or (C) for any Development utilizing Housing Tax Credits or Tax-Exempt Bonds: (i) at the time of Application or at any time during the two-year period preceding the date the Application Round begins (or for Tax-Exempt Bond Developments any time during the two-year period preceding the date the Application is submitted to the Department), the Applicant or a Related Party is or has been a member of the Board or employed by the Department as the Executive Director, Chief of Staff, General Counsel, a Deputy Executive Director, the Director of Multifamily Finance, the Chief of Compliance, the Director of Real Estate Analysis, a manager over the program for which an Application has been submitted, or any person exercising such responsibilities regardless of job title; or ( 2306.6703(a)(1)) (ii) the Applicant proposes to replace in less than fifteen (15) years any private activity bond financing of the Development described by the Application, unless the exceptions in 2306.6703(a)(2) of the Texas Government Code are met. 10.203. Public Notifications ( 2306.6705(9)). A certification, as provided in the Application, that the Applicant met the requirements and deadlines identified in paragraphs (1) - (3) of this section must be submitted with the Application. For Applications utilizing Competitive Housing Tax Credits, notifications must not be older than three (3) months from the first day of the Application Acceptance Period. For Tax-Exempt Bond Developments notifications and proof thereof must not be older than three (3) months prior to the date Parts 5 and 6 of the Application are submitted, and for all other Applications no older than three (3) months prior to the date the Application is submitted. If notifications were made in order to satisfy requirements of pre-application submission (if applicable to the program) for the same Application, then no additional notification is required at Application. However, re-notification is required by all Applicants who have submitted a change from pre-application to Application that reflects a total Unit increase of greater than 10 percent or a 5 percent increase in density (calculated as units per acre) as a result of a change in the size of the Development Site. In addition, should a change in elected official occur between the submission of a pre-application and the submission of an Application, Applicants are required to notify the newly elected (or appointed) official. (1) Neighborhood Organization Notifications. (A) The Applicant must identify and notify all Neighborhood Organizations on record with the county or the state as of 30 days prior to the Full Application Delivery Date and whose boundaries include the proposed Development Site. (B) The Applicant must list, in the certification form provided in the Application, all Neighborhood Organizations on record ADOPTED RULES December 19, 2014 39 TexReg 9925

with the county or state as of 30 days prior to the Full Application Delivery Date and whose boundaries include the proposed Development Site as of the submission of the Application. (2) Notification Recipients. No later than the date the Application is submitted, notification must be sent to all of the persons or entities identified in subparagraphs (A) - (H) of this paragraph. Developments located in an Extra Territorial Jurisdiction (ETJ) of a city are required to notify both city and county officials. The notifications may be sent by e-mail, fax or mail with return receipt requested or similar tracking mechanism in the format required in the Application Notification Template provided in the Application. Evidence of notification is required in the form of a certification provided in the Application. The Applicant is encouraged to retain proof of delivery in the event it is requested by the Department. Evidence of proof of delivery is demonstrated by a signed receipt for mail or courier delivery and confirmation of receipt by recipient for fax and e-mail. Officials to be notified are those officials in office at the time the Application is submitted. Note that between the time of pre-application (if made) and full Application, such officials may change and the boundaries of their jurisdictions may change. By way of example and not by way of limitation, events such as redistricting may cause changes which will necessitate additional notifications at full Application. Meetings and discussions do not constitute notification. Only a timely and compliant written notification to the correct person constitutes notification. (A) Neighborhood Organizations on record with the state or county as of 30 days prior to the Full Application Delivery Date whose boundaries include the Development Site; (B) Superintendent of the school district in which the Development Site is located; (C) Presiding officer of the board of trustees of the school district in which the Development Site is located; (D) Mayor of the municipality (if the Development Site is within a municipality or its extraterritorial jurisdiction); (E) All elected members of the Governing Body of the municipality (if the Development Site is within a municipality or its extraterritorial jurisdiction); (F) Presiding officer of the Governing Body of the county in which the Development Site is located; (G) All elected members of the Governing Body of the county in which the Development Site is located; and (H) State Senator and State Representative of the districts whose boundaries include the Development Site. (3) Contents of Notification. (A) The notification must include, at a minimum, all information described in clauses (i) - (vi) of this subparagraph. (i) the Applicant's name, address, individual contact name, and phone number; county; (ii) the Development name, address, city and (iii) a statement indicating the program(s) to which the Applicant is applying with the Texas Department of Housing and Community Affairs; (iv) whether the Development proposes New Construction, Reconstruction, Adaptive Reuse or Rehabilitation; (v) the physical type of Development being proposed (e.g. single family homes, duplex, apartments, townhomes, high-rise etc.); and (vi) the total number of Units proposed and total number of low-income Units proposed. (B) The notification may not contain any false or misleading statements. Without limiting the generality of the foregoing, the notification may not create the impression that the proposed Development will serve the elderly unless 100 percent of the Units will be for Qualified Elderly, and it may not imply or indicate that it will target or prefer any subpopulation unless such targeting or preference is in full compliance with all applicable state and federal laws, including state and federal fair housing laws. 10.204. Required Documentation for Application Submission. The purpose of this section is to identify the documentation that is required at the time of Application submission, unless specifically indicated or otherwise required by Department rule. If any of the documentation indicated in this section is not resolved, clarified or corrected to the satisfaction of the Department through either original Application submission or the Administrative Deficiency process, the Application will be terminated. Unless stated otherwise, all documentation identified in this section must not be dated more than six (6) months prior to the close of the Application Acceptance Period or the date of Application submission as applicable to the program. The Application may include, or Department staff may request, documentation or verification of compliance with any requirements related to the eligibility of an Applicant, Application, Development Site, or Development. (1) Certification of Development Owner. This form, as provided in the Application, must be executed by the Development Owner and address the specific requirements associated with the Development. The Person executing the certification is responsible for ensuring all individuals referenced therein are in compliance with the certification, that they have given it with all required authority and with actual knowledge of the matters certified. Applicants must read the certification carefully as it contains certain construction and Development specifications that each Development must meet. (A) The Development will adhere to the Texas Property Code relating to security devices and other applicable requirements for residential tenancies, and will adhere to local building codes or, if no local building codes are in place, then to the most recent version of the International Building Code. (B) This Application and all materials submitted to the Department constitute records of the Department subject to Texas Government Code, Chapter 552, and the Texas Public Information Act. (C) All representations, undertakings and commitments made by Applicant in the Application process for Development assistance expressly constitute conditions to any Commitment, Determination Notice, Carryover Allocation, or Direct Loan Commitment for such Development which the Department may issue or award, and the violation of any such condition shall be sufficient cause for the cancellation and rescission of such Commitment, Determination Notice, Carryover Allocation, or Direct Loan Commitment by the Department. If any such representations, undertakings and commitments concern or relate to the ongoing features or operation of the Development, they shall each and all shall be enforceable even if not reflected in the Land Use Restriction Agreement. All such representations, undertakings and commitments are also enforceable by the Department and the tenants of the Development, including enforcement by administrative penalties for failure to perform, in accordance with the Land Use Restriction Agreement. 39 TexReg 9926 December 19, 2014 Texas Register

(D) The Development Owner has read and understands the Department's fair housing educational materials posted on the Department's website as of the beginning of the Application Acceptance Period. (E) The Development Owner agrees to implement a plan to use Historically Underutilized Businesses (HUB) in the development process consistent with the Historically Underutilized Business Guidelines for contracting with the State of Texas. The Development Owner will be required to submit a report of the success of the plan as part of the cost certification documentation, in order to receive IRS Forms 8609 or, if the Development does not have Housing Tax Credits, release of retainage. (F) The Applicant will attempt to ensure that at least 30 percent of the construction and management businesses with which the Applicant contracts in connection with the Development are Minority Owned Businesses as further described in Texas Government Code, 2306.6734. (G) The Development Owner will affirmatively market to veterans through direct marketing or contracts with veteran's organizations. The Development Owner will be required to identify how they will affirmatively market to veterans and report to the Department in the annual housing report on the results of the marketing efforts to veterans. Exceptions to this requirement must be approved by the Department. (H) The Development Owner will comply with any and all notices required by the Department. (2) Applicant Eligibility Certification. This form, as provided in the Application, must be executed by any individuals required to be listed on the organizational chart and also identified in subparagraphs (A) - (D) below. The form identifies the various criteria relating to eligibility requirements associated with multifamily funding from the Department, including but not limited to the criteria identified under 10.202 of this chapter (relating to Ineligible Applicants and Applications). (A) for for-profit corporations, any officer authorized by the board of directors, regardless of title, to act on behalf of the corporation, including but not limited to the president, vice president, secretary, treasurer, and all other executive officers, and each stock holder having a 10 percent or more interest in the corporation, and any individual who has Control with respect to such stock holder; (B) for non-profit corporations or governmental instrumentalities (such as housing authorities), any officer authorized by the board, regardless of title, to act on behalf of the corporation, including but not limited to the president, vice president, secretary, treasurer, and all other executive officers, the Audit committee chair, the Board chair, and anyone identified as the Executive Director or equivalent; (C) for trusts, all beneficiaries that have the legal ability to Control the trust who are not just financial beneficiaries; and (D) for limited liability companies, all managers, managing members, members having a 10 percent or more interest in the limited liability company, any individual Controlling such members, or any officer authorized to act on behalf of the limited liability company. (3) Architect Certification Form. This form, as provided in the Application, must be executed by the Development engineer, an accredited architect or Department-approved Third Party accessibility specialist. ( 2306.6722 and 2306.6730) (4) Notice, Hearing, and Resolution for Tax-Exempt Bond Developments. In accordance with Texas Government Code, 2306.67071, the following actions must take place with respect to the filing of an Application and any Department awards for a Tax-Exempt Bond Development. (A) Prior to submission of an Application to the Department, an Applicant must provide notice of the intent to file the Application in accordance with 10.203 of this chapter (relating to Public Notifications ( 2306.6705(9))). (B) The Governing Body of a municipality must hold a hearing if the Development Site is located within a municipality or the extra territorial jurisdiction (ETJ) of a municipality. The Governing Body of a county must hold a hearing unless the Development Site is located within a municipality. For Development Sites located in an ETJ the county and municipality must hold hearings; however, the county and municipality may arrange for a joint hearing. The purpose of the hearing(s) must be to solicit public input concerning the Application or Development and the hearing(s) must provide the public with such an opportunity. The Applicant may be asked to substantively address the concerns of the public or local government officials. (C) An Applicant must submit to the Department a resolution of no objection from the applicable Governing Body. Such resolution(s) must specifically identify the Development whether by legal description, address, Development name, Application number or other verifiable method. In providing a resolution, a municipality or county should consult its own staff and legal counsel as to whether such resolution will be consistent with Fair Housing laws as they may apply, including, as applicable, consistency with any FHAST form on file, any current Analysis of Impediments to Fair Housing Choice, or any current plans such as one year action plans or five year consolidated plans for HUD block grant funds, HOME or CDBG funds. For an Application with a Development Site that is: (i) Within a municipality, the Applicant must submit a resolution from the Governing Body of that municipality; (ii) Within the extraterritorial jurisdiction (ETJ) of a municipality, the Applicant must submit both: municipality; and county; or (I) (II) a resolution from the Governing Body of that a resolution from the Governing Body of the (iii) Within a county and not within a municipality or the ETJ of a municipality, a resolution from the Governing Body of the county. (D) For purposes of meeting the requirements of subparagraph (C) of this paragraph, the resolution(s) must be submitted no later than the Resolutions Delivery Date described in 10.4 of this chapter (relating to Program Dates). An acceptable, but not required, form of resolution may be obtained in the Multifamily Programs Procedures Manual. Applicants should ensure that the resolutions all have the appropriate references and certifications or the Application may be terminated. The resolution(s) must certify that: (i) Notice has been provided to the Governing Body in accordance with Texas Government Code, 2306.67071(a) and subparagraph (A) of this paragraph; (ii) The Governing Body has had sufficient opportunity to obtain a response from the Applicant regarding any questions or concerns about the proposed Development; (iii) The Governing Body has held a hearing at which public comment may be made on the proposed Development in accordance with Texas Government Code, 2306.67071(b) and subparagraph (B) of this paragraph; and ADOPTED RULES December 19, 2014 39 TexReg 9927

(iv) After due consideration of the information provided by the Applicant and public comment, the Governing Body does not object to the proposed Application. (5) Designation as Rural or Urban. Each Application must identify whether the Development Site is located in an Urban Area or Rural Area of a Uniform State Service Region. The Department shall make available a list of Places meeting the requirements of Texas Government Code, 2306.004(28-a)(A) and (B), for designation as a Rural Area and those that are an Urban Area in the Site Demographics Characteristics Report. Some Places are municipalities. For any Development Site located in the ETJ of a municipality and not in a Place, the Application shall have the Rural Area or Urban Area designation of the municipality whose ETJ within which the Development Site is located. For any Development Site not located within the boundaries of a Place or the ETJ of a municipality, the applicable designation is that of the closest Place. (6) Experience Requirement. Evidence that meets the criteria as stated in subparagraph (A) of this paragraph must be provided in the Application, unless an experience certificate was issued by the Department in 2014 which may be submitted as acceptable evidence of this requirement. Experience of multiple parties may not be aggregated to meet this requirement. (A) A Principal of the Developer, Development Owner, or General Partner must establish that they have experience in the development and placement in service of 150 units or more. Acceptable documentation to meet this requirement shall include any of the items in clauses (i) - (ix) of this subparagraph: (i) American Institute of Architects (AIA) Document (A102) or (A103) 2007 - Standard Form of Agreement between Owner and Contractor; Completion; (ii) AIA Document G704--Certificate of Substantial (iii) AIA Document G702--Application and Certificate for Payment; required); (iv) Certificate of Occupancy; (v) IRS Form 8609, (only one per development is (vi) HUD Form 9822; (vii) Development agreements; (viii) Partnership agreements; or (ix) other documentation satisfactory to the Department verifying that a Principal of the Development Owner, General Partner, or Developer has the required experience. (B) The names on the forms and agreements in subparagraph (A)(i) - (ix) of this paragraph must reflect that the individual seeking to provide experience is a Principal of the Development Owner, General Partner, or Developer as listed in the Application. For purposes of this requirement any individual attempting to use the experience of another individual or entity must demonstrate they had the authority to act on their behalf that substantiates the minimum 150 unit requirement. (C) Experience may not be established for a Person who at any time within the preceding three years has been involved with affordable housing in another state in which the Person or Affiliate has been the subject of issued IRS Form 8823 citing non-compliance that has not been or is not being corrected with reasonable due diligence. (D) If a Principal is determined by the Department to not have the required experience, an acceptable replacement for that Principal must be identified prior to the date the award is made by the Board. (E) Notwithstanding the foregoing, no person may be used to establish such required experience if that Person or an Affiliate of that Person would not be eligible to be an Applicant themselves. (7) Financing Requirements. (A) Non-Department Debt Financing. Interim and permanent financing sufficient to fund the proposed Total Housing Development Cost less any other funds requested from the Department must be included in the Application. For any Development that is a part of a larger development plan on the same site, the Department may request and evaluate information related to the other components of the development plan in instances in which the financial viability of the Development is in whole or in part dependent upon the other portions of the development plan. Any local, state or federal financing identified in this section which restricts household incomes at any level that is lower than restrictions required pursuant to this chapter or elected in accordance with Chapter 11 of this title (relating to Housing Tax Credit Program Qualified Allocation Plan) must be identified in the rent schedule and the local, state or federal income restrictions must include corresponding rent levels in accordance with 42(g) of the Code. The income and corresponding rent restrictions will be imposed by the LURA and monitored for compliance. Financing amounts must be consistent throughout the Application and acceptable documentation shall include those described in clauses (i) and (ii) of this subparagraph. (i) (I) Financing is in place as evidenced by: a valid and binding loan agreement; and (II) a valid recorded deed(s) of trust lien on the Development in the name of the Development Owner as grantor covered by a lender's policy of title insurance; (ii) Term sheets for interim and permanent loans issued by a lending institution or mortgage company that is actively and regularly engaged in the business of lending money must: Affiliate; (I) (II) have been signed by the lender; be addressed to the Development Owner or (III) for the permanent loan, include a minimum loan term of fifteen (15) years with at least a thirty (30) year amortization; (IV) include anticipated interest rate, including the mechanism for determining the interest rate; (V) (VI) include any required Guarantors, if known; include the principal amount of the loan; and (VII) include and address any other terms and conditions applicable to the financing. The term sheet may be conditional upon the completion of specified due diligence by the lender and upon the award of tax credits, if applicable; or (iii) For Developments proposing to refinance an existing USDA Section 515 loan, a letter from the USDA confirming receipt of the loan transfer application. (B) Gap Financing. Any anticipated federal, state, local or private gap financing, whether soft or hard debt, must be identified in the Application. Applicants must provide evidence that an application for such gap financing has been made. Acceptable documentation may 39 TexReg 9928 December 19, 2014 Texas Register

include a letter from the funding entity confirming receipt of an application or a term sheet from the lending agency which clearly describes the amount and terms of the financing. Other Department funding requested with Housing Tax Credit Applications must be on a concurrent funding period with the Housing Tax Credit Application, and no term sheet is required for such a request. Permanent loans must include a minimum loan term of fifteen (15) years with at least a thirty (30) year amortization or for non-amortizing loan structures a term of not less than thirty (30) years. (C) Owner Contributions. If the Development will be financed in part by a capital contribution by the General Partner, Managing General Partner, any other partner that is not a partner providing the syndication equity, a guarantor or a Principal in an amount that exceeds 5 percent of the Total Housing Development Cost, a letter from a Third Party CPA must be submitted that verifies the capacity of the contributor to provide the capital from funds that are not otherwise committed or pledged. Additionally, a letter from the contributor's bank(s) or repository(ies) must be submitted confirming sufficient funds are readily available to the contributor. The contributor must certify that the funds remain readily available at Commitment. Regardless of the amount, all capital contributions other than syndication equity will be added to the Deferred Developer Fee for feasibility purposes under 10.302(i)(2) of this chapter (relating to Underwriting Rules and Guidelines) or where scoring is concerned, unless the Development is a Supportive Housing Development, the Development is not supported with Housing Tax Credits, or the ownership structure includes a nonprofit organization with a history of fundraising to support the development of affordable housing. (D) Equity Financing. ( 2306.6705(2) and (3)) If applicable to the program, the Application must include a term sheet from a syndicator that, at a minimum, includes: (i) an estimate of the amount of equity dollars expected to be raised for the Development; (ii) the amount of Housing Tax Credits requested for allocation to the Development Owner; (iv) anticipated developer fees paid during construction; and (iii) pay-in schedules; (v) syndicator consulting fees and other syndication costs. No syndication costs should be included in the Eligible Basis. (E) Financing Narrative. ( 2306.6705(1)) A narrative must be submitted that describes the complete financing plan for the Development, including but not limited to, the sources and uses of funds; construction, permanent and bridge loans, rents, operating subsidies, and replacement reserves; and the status of commitments for all funding sources. For applicants requesting HOME funds, Match in the amount of at least 5 percent of the HOME funds requested must be documented with a letter from the anticipated provider of Match indicating the provider's willingness and ability to make a financial commitment should the Development receive an award of HOME funds. The information provided must be consistent with all other documentation in the Application. (8) Operating and Development Cost Documentation. (A) 15-year Pro forma. All Applications must include a 15-year pro forma estimate of operating expenses, in the form provided by the Department. Any "other" debt service included in the pro forma must include a description. (B) Utility Allowances. This exhibit, as provided in the Application, must be submitted along with documentation from the source of the utility allowance estimate used in completing the Rent Schedule provided in the Application. This exhibit must clearly indicate which utility costs are included in the estimate and must comply with the requirements of 10.614 of this chapter (relating to Utility Allowances). Where the Applicant uses any method that requires Department review, such review must have been requested prior to submission of the Application. (C) Operating Expenses. This exhibit, as provided in the Application, must be submitted indicating the anticipated operating expenses associated with the Development. Any expenses noted as "other" in any of the categories must be identified. "Miscellaneous" or other nondescript designations are not acceptable. (D) Rent Schedule. This exhibit, as provided in the Application, must indicate the type of Unit designation based on the Unit's rent and income restrictions. The rent and utility limits available at the time the Application is submitted should be used to complete this exhibit. Gross rents cannot exceed the maximum rent limits unless documentation of project-based rental assistance is provided. The unit mix and net rentable square footages must be consistent with the site plan and architectural drawings. For Units restricted in connection with Direct Loans, the restricted Units will generally be designated "floating" unless specifically disallowed under the program specific rules. For Applications that propose utilizing HOME funds, at least 90 percent of the Units restricted in connection with the HOME program must be available to families whose incomes do not exceed 60 percent of the Area Median Income. (E) Development Costs. This exhibit, as provided in the Application, must include the contact information for the person providing the cost estimate and must meet the requirements of clauses (i) and (ii) of this subparagraph. (i) Applicants must provide a detailed cost breakdown of projected Site Work costs (excluding site amenities), if any, prepared by a Third Party engineer or cost estimator. If Site Work costs (excluding site amenities) exceed $15,000 per Unit and are included in Eligible Basis, a letter must be provided from a certified public accountant allocating which portions of those site costs should be included in Eligible Basis. (ii) If costs for Off-Site Construction are included in the budget as a line item, or embedded in the site acquisition contract, or referenced in the utility provider letters, then the Off-Site Cost Breakdown prepared by a Third Party engineer must be provided. The certification from a Third Party engineer must describe the necessity of the off-site improvements, including the relevant requirements of the local jurisdiction with authority over building codes. If any Off-Site Construction costs are included in Eligible Basis, a letter must be provided from a certified public accountant allocating which portions of those costs should be included in Eligible Basis. If off-site costs are included in Eligible Basis based on PLR 200916007, a statement of findings from a CPA must be provided which describes the facts relevant to the Development and affirmatively certifies that the fact pattern of the Development matches the fact pattern in PLR 200916007. (F) Rental Assistance/Subsidy. ( 2306.6705(4)) If rental assistance, an operating subsidy, an annuity, or an interest rate reduction payment is proposed to exist or continue for the Development, any related contract or other agreement securing those funds or proof of application for such funds must be provided. Such documentation shall, at a minimum, identify the source and annual amount of the funds, the number of units receiving the funds, and the term and expiration date of the contract or other agreement. (G) Occupied Developments. The items identified in clauses (i) - (vi) of this subparagraph must be submitted with any Ap- ADOPTED RULES December 19, 2014 39 TexReg 9929

plication where any structure on the Development Site is occupied at any time after the Application Acceptance Period begins or if the Application proposes the demolition of any housing occupied at any time after the Application Acceptance Period begins. If the current property owner is unwilling to provide the required documentation then a signed statement from the Applicant attesting to that fact must be submitted. If one or more of the items described in clauses (i) - (vi) of this subparagraph is not applicable based upon the type of occupied structures on the Development Site, the Applicant must provide an explanation of such non-applicability. Applicant must submit: (i) at least one of the items identified in subclauses (I) - (IV) of this clause: (I) historical monthly operating statements of the Existing Residential Development for twelve (12) consecutive months ending not more than three (3) months from the first day of the Application Acceptance Period; (II) the two (2) most recent consecutive annual operating statement summaries; (III) the most recent consecutive six (6) months of operating statements and the most recent available annual operating summary; or available; and (IV) all monthly or annual operating summaries (ii) a rent roll not more than six (6) months old as of the first day the Application Acceptance Period that discloses the terms and rate of the lease, rental rates offered at the date of the rent roll, Unit mix, and tenant names or vacancy; (iii) a written explanation of the process used to notify and consult with the tenants in preparing the Application; ( 2306.6705(6)) (iv) a relocation plan outlining relocation requirements and a budget with an identified funding source; ( 2306.6705(6)) (v) any documentation necessary for the Department to facilitate, or advise an Applicant with respect to or to ensure compliance with the Uniform Relocation Act and any other relocation laws or regulations as may be applicable; and (vi) if applicable, evidence that the relocation plan has been submitted to the appropriate legal or governmental agency. ( 2306.6705(6)) (9) Architectural Drawings. All Applications must include the items identified in subparagraphs (A) - (D) of this paragraph, unless specifically stated otherwise, and must be consistent with all applicable exhibits throughout the Application. The drawings must have a legible scale and show the dimensions of each perimeter wall and floor heights. (A) A site plan which: (i) includes a unit and building type table matrix that is consistent with the Rent Schedule and Building/Unit Configuration forms provided in the Application; (ii) identifies all residential and common buildings; (iii) clearly delineates the flood plain boundary lines and shows all easements; (iv) if applicable, indicates possible placement of detention/retention pond(s); and (v) indicates the location of the parking spaces; (B) Building floor plans must be submitted for each building type. Applications for Rehabilitation (excluding Reconstruction) are not required to submit building floor plans unless the floor plan changes. Applications for Adaptive Reuse are only required to include building plans delineating each Unit by number and type. Building floor plans must include square footage calculations for balconies, breezeways, corridors and any other areas not included in net rentable area; (C) Unit floor plans for each type of Unit must be included in the Application and must include the square footage for each type of Unit. Applications for Adaptive Reuse are only required to include Unit floor plans for each distinct typical Unit type such as one-bedroom, two-bedroom and for all Unit types that vary in Net Rentable Area by 10 percent from the typical Unit; and (D) Elevations must be submitted for each building type and include a percentage estimate of the exterior composition and proposed roof pitch. Applications for Rehabilitation and Adaptive Reuse may submit photographs if the Unit configurations are not being altered and post-renovation drawings must be submitted if Unit configurations are proposed to be altered. (10) Site Control. (A) Evidence that the Development Owner has Site Control must be submitted. If the evidence is not in the name of the Development Owner, then an Affiliate of the Development Owner must have Site Control that does not expressly preclude an ability to assign the Site Control to the Development Owner or another party. All of the sellers of the proposed Property for the thirty-six (36) months prior to the first day of the Application Acceptance Period and their relationship, if any, to members of the Development Team must be identified at the time of Application. The Department may request documentation at any time after submission of an Application of the Development Owner's ability to compel title and the Development Owner must be able to promptly provide such documentation or the Application, award, or Commitment may be terminated. The Department acknowledges and understands that the Property may have one or more encumbrances at the time of Application submission and the Department will use a reasonableness standard in determining whether such encumbrance is likely to impede an Applicant's ability to meet the program's requirements. Tax-Exempt Bond Lottery Applications must have Site Control valid through December 1 of the prior program year with the option to extend through March 1 of the current program year. (B) In order to establish Site Control, one of the items described in clauses (i) - (iii) of this subparagraph must be provided. In the case of land donations, Applicants must demonstrate that the entity donating the land has Site Control as evidenced through one of the items described in clauses (i) - (iii) of this subparagraph or other documentation acceptable to the Department. (i) a recorded warranty deed with corresponding executed settlement statement (or functional equivalent for an existing lease with at least forty-five (45) years remaining); or (ii) a contract or option for lease with a minimum term of forty-five (45) years that includes a price; address and/or legal description; proof of consideration in the form specified in the contract; and expiration date; or (iii) a contract for sale or an option to purchase that includes a price; address and/or legal description; proof of consideration in the form specified in the contract; and expiration date; (C) If the acquisition can be characterized as an identity of interest transaction, as described in 10.302 of this chapter, then 39 TexReg 9930 December 19, 2014 Texas Register

the documentation as further described therein must be submitted in addition to that of subparagraph (B) of this paragraph. (11) Zoning. ( 2306.6705(5)) Acceptable evidence of zoning for all Developments must include one of subparagraphs (A) - (D) of this paragraph. (A) No Zoning Ordinance in Effect. The Application must include a letter from a local government official with appropriate jurisdiction stating that the Development is located within the boundaries of a political subdivision that has no zoning. (B) Zoning Ordinance in Effect. The Application must include a letter from a local government official with appropriate jurisdiction stating the Development is permitted under the provisions of the zoning ordinance that applies to the location of the Development. (C) Requesting a Zoning Change. The Application must include evidence in the form of a letter from a local government official with jurisdiction over zoning matters that the Applicant or Affiliate is in the process of seeking a zoning change, that a zoning application was received by the political subdivision, and that the jurisdiction received a release agreeing to hold the political subdivision and all other parties harmless in the event the appropriate zoning is denied. Documentation of final approval of appropriate zoning must be submitted to the Department with the Commitment or Determination Notice. (D) Zoning for Rehabilitation Developments. The Application must include documentation of current zoning. If the Property is currently conforming but with an overlay that would make it a non-conforming use as presently zoned, the Application must include a letter from a local government official with appropriate jurisdiction which addresses the items in clauses (i) - (iv) of this subparagraph: (i) a detailed narrative of the nature of non-conformance; (ii) the applicable destruction threshold; (iii) Owner's rights to reconstruct in the event of damage; and (iv) penalties for noncompliance. (12) Title Commitment/Policy. A title commitment or title policy must be submitted that includes a legal description that is consistent with the Site Control. If the title commitment or policy is dated more than six (6) months prior to the beginning of the Application Acceptance Period, then a letter from the title company indicating that nothing further has transpired during the six-month period on the commitment or policy must be submitted. (A) The title commitment must list the name of the Development Owner as the proposed insured and lists the seller or lessor as the current owner of the Development Site. (B) The title policy must show that the ownership (or leasehold) of the Development Site is vested in the name of the Development Owner. (13) Ownership Structure. (A) Organizational Charts. A chart must be submitted that clearly illustrates the complete organizational structure of the final proposed Development Owner and of any Developer or Guarantor, identifying all Principals thereof and providing the names and ownership percentages of all Persons having an ownership interest in the Development Owner or the Developer or Guarantor, as applicable, whether directly or through one or more subsidiaries. Nonprofit entities, public housing authorities, publicly traded corporations, individual board members, and executive directors must be included in this exhibit and trusts must list all beneficiaries that have the legal ability to control or direct activities of the trust and are not just financial beneficiaries. (B) Previous Participation. Evidence must be submitted that each entity shown on the organizational chart described in subparagraph (A) of this paragraph that has ownership interest in the Development Owner, Developer or Guarantor, has provided a copy of the completed and executed Previous Participation and Background Certification Form to the Department. Individual Principals of such entities identified on the organizational chart must provide the Previous Participation and Background Certification Form, unless excluded from such requirement pursuant to 1.5 of this title. Any Person (regardless of any Ownership interest or lack thereof) receiving more than 10 percent of the Developer fee is also required to submit this document. The form must include a list of all developments that are, or were, previously under ownership or Control of the Applicant and/or each Principal, including any Person providing the required experience. All participation in any Department funded or monitored activity, including non-housing activities, as well as Housing Tax Credit developments or other programs administered by other states using state or federal programs must be disclosed. The Previous Participation and Background Certification Form will authorize the parties overseeing such assistance to release compliance histories to the Department. (14) Nonprofit Ownership. Applications that involve a 501(c)(3) or (4) nonprofit General Partner or Owner shall submit the documentation identified in subparagraph (A) or (B) of this paragraph as applicable. (A) Competitive HTC Applications. Applications for Competitive Housing Tax Credits involving a 501(c)(3) or (4) nonprofit General Partner and which meet the Nonprofit Set-Aside requirements, must submit all of the documents described in this subparagraph and indicate the nonprofit status on the carryover documentation and IRS Forms 8609. ( 2306.6706) Applications that include an affirmative election to not be treated under the set-aside and a certification that they do not expect to receive a benefit in the allocation of tax credits as a result of being affiliated with a nonprofit only need to submit the documentation in subparagraph (B) of this paragraph. (i) An IRS determination letter which states that the nonprofit organization is a 501(c)(3) or (4) entity; (ii) The Nonprofit Participation exhibit as provided in the Application, including a list of the names and contact information for all board members, directors, and officers; (iii) A Third Party legal opinion stating: (I) that the nonprofit organization is not affiliated with or Controlled by a for-profit organization and the basis for that opinion; (II) that the nonprofit organization is eligible, as further described, for a Housing Credit Allocation from the Nonprofit Set-Aside pursuant to 42(h)(5) of the Code and the basis for that opinion; (III) that one of the exempt purposes of the nonprofit organization is to provide low-income housing; (IV) that the nonprofit organization prohibits a member of its board of directors, other than a chief staff member serving concurrently as a member of the board, from receiving material compensation for service on the board; (V) that the Qualified Nonprofit Development will have the nonprofit entity or its nonprofit Affiliate or subsidiary ADOPTED RULES December 19, 2014 39 TexReg 9931

be the Developer or co-developer as evidenced in the development agreement; (iv) a copy of the nonprofit organization's most recent financial statement as prepared by a Certified Public Accountant; and (v) evidence in the form of a certification that a majority of the members of the nonprofit organization's board of directors principally reside: a Rural Area; or (I) in this state, if the Development is located in (II) not more than ninety (90) miles from the Development, if the Development is not located in a Rural Area. (B) All Other Applications. Applications that involve a 501(c)(3) or (4) nonprofit General Partner or Owner must submit an IRS determination letter which states that the nonprofit organization is a 501(c)(3) or (4) entity and the Nonprofit Participation exhibit as provided in the Application. If the Application involves a nonprofit that is not a 501(c)(3) or (4), then they must disclose in the Application the basis of their nonprofit status. 10.205. Required Third Party Reports. The Environmental Site Assessment, Property Condition Assessment, Appraisal (if applicable), Market Analysis, and the Site Design and Development Feasibility Report must be submitted no later than the Third Party Report Delivery Date as identified in 10.4 of this chapter (relating to Program Dates). For Competitive HTC Applications, the Environmental Site Assessment, Property Condition Assessment, Appraisal (if applicable), the Site Design and Development Feasibility Report, and the Primary Market Area map (with definition based on census tracts, zip codes or census place in electronic format) must be submitted no later than the Full Application Delivery Date as identified in 11.2 of this title (relating to Program Calendar for Competitive Housing Tax Credits) and the Market Analysis must be submitted no later than the Market Analysis Delivery Date as identified in 11.2 of this title. For Competitive HTC Applications, if the reports, in their entirety, are not received by the deadline, the Application will be terminated. An electronic copy of the report in the format of a single file containing all information and exhibits clearly labeled with the report type, Development name and Development location are required. All Third Party reports must be prepared in accordance with Subchapter D of this chapter (relating to Underwriting and Loan Policy). The Department may request additional information from the report provider or revisions to the report as needed. In instances of non-response by the report provider, the Department may substitute in-house analysis. The Department is not bound by any opinions expressed in the report. (1) Environmental Site Assessment. This report, required for all Developments and prepared in accordance with the requirements of 10.305 of this chapter (relating to Environmental Site Assessment Rules and Guidelines), must not be dated more than twelve (12) months prior to the first day of the Application Acceptance Period. If this timeframe is exceeded, then a letter or updated report must be submitted, dated not more than three (3) months prior to the first day of the Application Acceptance Period from the Person or organization which prepared the initial assessment confirming that the site has been re-inspected and reaffirming the conclusions of the initial report or identifying the changes since the initial report. (A) Developments funded by USDA will not be required to supply this information; however, it is the Applicant's responsibility to ensure that the Development is maintained in compliance with all state and federal environmental hazard requirements. (B) If the report includes a recommendation that an additional assessment be performed, then a statement from the Applicant must be submitted with the Application indicating those additional assessments and recommendations will be performed prior to closing. If the assessments require further mitigating recommendations, then evidence indicating the mitigating recommendations have been carried out must be submitted at cost certification. (2) Market Analysis. The Market Analysis, required for all Developments and prepared in accordance with the requirements of 10.303 of this chapter (relating to Market Analysis Rules and Guidelines), must not be dated more than six (6) months prior to the first day of the Application Acceptance Period. If the report is older than six (6) months, but not more than twelve (12) months prior to the first day of the Application Acceptance Period, the Qualified Market Analyst that prepared the report may provide a statement that reaffirms the findings of the original Market Analysis. The statement may not be dated more than six (6) months prior to the first day of the Application Acceptance Period and must be accompanied by the original Market Analysis. (A) The report must be prepared by a Qualified Market Analyst approved by the Department in accordance with the approval process outlined in 10.303 of this chapter; (B) Applications in the USDA Set-Aside proposing Rehabilitation with residential structures at or above 80 percent occupancy at the time of Application submission, the appraisal, required for Rehabilitation Developments and Identity of Interest transactions prepared in accordance with 10.304 of this chapter (relating to Appraisal Rules and Guidelines), will satisfy the requirement for a Market Analysis; however, the Department may request additional information as needed. ( 2306.67055; 42(m)(1)(A)(iii)) (C) It is the responsibility of the Applicant to ensure that this analysis forms a sufficient basis for the Applicant to be able to use the information obtained to ensure that the Development will comply with fair housing laws. (3) Property Condition Assessment (PCA). This report, required for Rehabilitation (excluding Reconstruction) and Adaptive Reuse Developments and prepared in accordance with the requirements of 10.306 of this chapter (relating to Property Condition Assessment Guidelines), must not be dated more than six (6) months prior to the first day of the Application Acceptance Period. If the report is older than six (6) months, but not more than twelve (12) months prior to the first day of the Application Acceptance Period, the report provider may provide a statement that reaffirms the findings of the original PCA. The statement may not be dated more than six (6) months prior to the first day of the Application Acceptance Period and must be accompanied by the original PCA. For Developments which require a capital needs assessment from USDA the capital needs assessment may be substituted and may be more than six (6) months old, as long as USDA has confirmed in writing that the existing capital needs assessment is still acceptable and it meets the requirements of 10.306 of this chapter. All Rehabilitation Developments financed with Direct Loans must also submit a capital needs assessment estimating the useful life of each major system. This assessment must include a comparison between the local building code and the International Existing Building Code of the International Code Council. (4) Appraisal. This report, required for all Rehabilitation Developments and prepared in accordance with the requirements of 10.304 of this chapter, is required for any Application claiming any portion of the building acquisition in Eligible Basis, and Identity of Interest transactions pursuant to Subchapter D of this chapter, must not be dated more than six (6) months prior to the first day of the Application Acceptance Period. For Developments that require an appraisal from 39 TexReg 9932 December 19, 2014 Texas Register

USDA, the appraisal may be more than six (6) months old, as long as USDA has confirmed in writing that the existing appraisal is still acceptable. (5) Site Design and Development Feasibility Report. This report, compiled by the Applicant or Third Party Consultant, and prepared in accordance with this paragraph, which reviews site conditions and development requirements of the Development and Development Site, is required for any New Construction or Reconstruction Development. (A) Executive Summary as a narrative overview of the Development in sufficient detail that would help a reviewer of the Application better understand the site, the site plan, off site requirements (including discussion of any seller contributions or reimbursements), any other unique development requirements, and their impact on Site Work and Off Site Construction costs. The summary should contain a general statement regarding the level of due diligence that has been done relating to site development (including discussions with local government development offices). Additionally, the overview should contain a summary of zoning requirements, subdivision requirements, property identification number(s) and millage rates for all taxing jurisdictions, development ordinances, fire department requirements, site ingress and egress requirements, building codes, and local design requirements impacting the Development (include website links but do not attach copies of ordinances). Careful focus and attention should be made regarding any atypical items materially impacting costs. (B) Survey or current plat as defined by the Texas Society of Professional Surveyors in their Manual of Practice for Land Surveying in Texas (Category 1A - Land Title Survey or Category 1B - Standard Land Boundary Survey). Surveys may not be older than twelve (12) months from the beginning of the Application Acceptance Period. Plats must include evidence that it has been recorded with the appropriate local entity and that, as of the date of submission, it is the most current plat. Applications proposing noncontiguous single family scattered sites are not required to submit surveys or plats at Application, but this information may be requested during the Real Estate Analysis review. (C) Preliminary site plan prepared by the civil engineer with a statement that the plan materially adheres to all applicable zoning, site development, and building code ordinances. The site plan must identify all structures, site amenities, parking spaces (include handicap spaces and ramps) and driveways, topography (using either existing seller topographic survey or U.S. Geological Survey (USGS)/other database topography), site drainage and detention, water and waste water utility tie-ins, general placement of retaining walls, set-back requirements, and any other typical or locally required items. Off-site improvements required for utilities, detention, access or other requirement must be shown on the site plan or ancillary drawings. (D) Architect or civil engineer prepared statement describing the entitlement, site development permitting process and timing, building permitting process and timing, and an itemization specific to the Development of total anticipated impact, site development permit, building permit, and other required fees. 10.207. Waiver of Rules for Applications. (a) General Waiver Process. This waiver section is applicable only to Subchapter B of this chapter (relating to Site and Development Requirements and Restrictions), Subchapter C of this chapter (relating to Application Submission Requirements, Ineligibility Criteria, Board Decisions, and Waiver of Rules or Pre-clearance for Applications), Subchapter E of this chapter (relating to Post Award and Asset Management Requirements), and Subchapter G of this chapter (relating to Fee Schedule, Appeals, and Other Provisions), Chapter 11 of this title (relating to Housing Tax Credit Program Qualified Allocation Plan), and Chapter 12 of this title (relating to Multifamily Housing Revenue Bond Rules). An Applicant may request a waiver in writing at or prior to the submission of the pre-application (if applicable) or the Application or subsequent to an award. Waiver requests will not be accepted between submission of the Application and any award for the Application. Where appropriate, the Applicant is encouraged to submit with the requested waiver any plans for mitigation or alternative solutions. Any such request for waiver must be specific to the unique facts and circumstances of an actual proposed Development and must be submitted to the Department in the format required in the Multifamily Programs Procedures Manual. Any waiver, if granted, shall apply solely to the Application and shall not constitute a general modification or waiver of the rule involved. Waiver requests that are limited to Development design and construction elements not specifically required in Texas Government Code, Chapter 2306 must meet the requirements of paragraph (1) of this subsection. All other waiver requests must meet the requirements of paragraph (2) of this subsection. (1) The waiver request must establish good cause for the Board to grant the waiver which may include limitations of local building or zoning codes, limitations of existing building structural elements for Adaptive Reuse or Rehabilitation (excluding Reconstruction) Developments, required amenities or design elements in buildings designated as historic structures that would conflict with retaining the historic nature of the building(s), or provisions of the design element or amenity that would not benefit the tenants due to limitations of the existing layout or design of the units for Adaptive Reuse or Rehabilitation (excluding Reconstruction) Developments. Staff may recommend the Board's approval for such a waiver if the Executive Director, the Deputy Executive Director with oversight of multifamily programs, and Deputy Executive Director with oversight of asset management find that the Applicant has established good cause for the waiver. A recommendation for a waiver may be subject to the Applicant's provision of alternative design elements or amenities of a similar nature or that serve a similar purpose. Waiver requests for items that were elected to meet scoring criteria or where the Applicant was provided a menu of options to meet the requirement will not be considered under this paragraph. (2) The waiver request must establish how it is necessary to address circumstances beyond the Applicant's control and how, if the waiver is not granted, the Department will not fulfill some specific requirement of law. In this regard, the policies and purposes articulated in Texas Government Code, 2306.001, 2306.002, 2306.359, and 2306.6701, are general in nature and apply to the role of the Department and its programs, including the Housing Tax Credit program. (b) Waivers Granted by the Executive Director. The Executive Director may waive requirements as provided in this rule. Even if this rule grants the Executive Director authority to waive a given item, the Executive Director may present the matter to the Board for consideration and action. Neither the Executive Director nor the Board shall grant any waiver to the extent such requirement is mandated by statute. Denial of a waiver by the Executive Director may be appealed to the Board in accordance with 10.902 of this chapter (relating to Appeals Process ( 2306.0321; 2306.6715)). Applicants should expect that waivers granted by the Executive Director will generally be very limited. The Executive Director's decision to defer to the Board will not automatically be deemed an adverse staff position with regard to the waiver request as public vetting of such requests is generally appropriate and preferred. However, this does not preclude a staff recommendation to approve or deny any specific request for a waiver. (c) Waivers Granted by the Board. The Board, in its discretion, may waive any one or more of the rules in Subchapters B, C, E, ADOPTED RULES December 19, 2014 39 TexReg 9933

and G of this chapter except no waiver shall be granted to provide forward commitments or if the requested waiver is prohibited by statute (i.e., statutory requirements may not be waived). The Board, in its discretion, may grant a waiver that is in response to a natural, federally declared disaster that occurs after the adoption of the multifamily rules. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405730 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 SUBCHAPTER G. FEE SCHEDULE, APPEALS AND OTHER PROVISIONS 10 TAC 10.901-10.904 The Texas Department of Housing and Community Affairs (the "Department") adopts the repeal of 10 TAC Chapter 10, 10.901-10.904, concerning Fee Schedule, Appeals and Other Provisions, without changes to the proposal as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7470). REASONED JUSTIFICATION. The Department finds that the purpose of the repeal is to replace the sections with new rules that encompass all funding made available to multifamily programs. Accordingly, the repeal provides for consistency and minimizes repetition among the programs. The Department accepted public comments between September 19, 2014, and October 20, 2014. Comments regarding the repeal were accepted in writing and by fax. No comments were received concerning the repeal. The Board approved the final order adopting the repeal on November 13, 2014. STATUTORY AUTHORITY. The repeal is adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the repeal is adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan. The repeal affects Chapter 2306 of the Texas Government Code. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405724 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 10 TAC 10.901-10.904 The Texas Department of Housing and Community Affairs (the "Department") adopts new 10 TAC Chapter 10, 10.901-10.904, concerning Fee Schedule, Appeals and Other Provisions. Sections 10.901-10.904 are adopted without changes to the proposed text as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7470) and will not be republished. REASONED JUSTIFICATION. The Department finds that the adoption of the sections will result in a more consistent approach to governing multifamily activity and to the awarding of funding or assistance through the Department and to minimize repetition. The comments and responses include both administrative clarifications and corrections to the Uniform Multifamily Rule based on the comments received. After each comment title numbers are shown in parentheses. These numbers refer to the person or entity that made the comment as reflected at the end of the reasoned response. If comment resulted in recommended language changes to the proposed Uniform Multifamily Rule as presented to the Board in September, such changes are indicated. SUMMARY OF PUBLIC COMMENT AND STAFF RECOMMEN- DATIONS. Public comments were accepted through October 20, 2014 with comments received from (15) DMA Development Company, LLC, (24) Cynthia Bast, (48) Texas Appleseed and Texas Low Income Housing Information Service. 10.901(21) - Subchapter G - Fee Schedule (24), (48) COMMENT SUMMARY: With regards to the Undesirable Neighborhood Characteristic Disclosure Fee, commenter (24) suggested the second sentence of this fee is in conflict with the language under 10.101(a)(4) because it contemplates a credit if an application is submitted subsequent to paying such fee while 10.101 states the disclosure must be submitted concurrently with an application. Commenter (48) stated the $500 challenge processing fee is prohibitive for low-income community residents or tenants of assisted properties and further noted the waiver language that allows the Executive Director the ability to grant a waiver for extenuating and extraordinary circumstances is not encouraging since poverty is not considered extraordinary. Commenter (48) recommended fee waivers for indigent challengers be available either under 10.901 or by Board waiver under 10.207(d) and further stated the families and communities most affected by a HTC application should have access to the process that determines whether the application is eligible and are likely to have access to information that may not be readily available to the Department. STAFF RESPONSE: To clarify the concerns of commenter (24), if the disclosure fee and application fee are submitted simultaneously, the credit will still apply; in other words, the total application fee is the same for those with and without disclosures. The disclosure fee is calculated separately in order to give potential applicants the ability to have staff review a site 39 TexReg 9934 December 19, 2014 Texas Register

before submitting a full application. In response to Commenter (48), the fees related to challenges are necessary in order cover agency expenses and to prevent frivolous challenges, which history has shown will be submitted if no fee is associated with them. In addition, while there is not specific language to address the waiver of these specific fees, the Executive Director and the Board can give consideration to such waivers, particularly in instances when those in the community wish to challenge an application. Staff recommended no change based on these comments. BOARD RESPONSE: Accepted staff's recommendation. STATUTORY AUTHORITY. The new sections are adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the new sections are adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan, and Texas Government Code, 2306.144, 2306.147, and 2306.6716. The adoption affects Chapter 2306 of the Texas Government Code. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405732 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 CHAPTER 11. HOUSING TAX CREDIT PROGRAM QUALIFIED ALLOCATION PLAN 10 TAC 11.1-11.3, 11.5-11.10 The Texas Department of Housing and Community Affairs (the "Department") adopts amendments to 10 TAC Chapter 11, 11.1-11.3 and 11.5-11.10, concerning the Housing Tax Credit Program Qualified Allocation Plan, with changes to the proposed text as published in the September 19, 2014, issue of the Texas Register (39 TexReg 7474). The amendments affect 11.1(e), 11.2, 11.3(e) and (f), 11.5, 11.6, 11.7, 11.8(b), 11.9(c)(4), (5) and (7), (d)(1) and (4), and (e)(3) and (7), and 11.10. REASONED JUSTIFICATION. The Department finds that the adoption of the rules will result in a more consistent approach to governing multifamily activity and to the awarding of multifamily funding or assistance through the Department while minimizing repetition among the programs. The comments and responses include both administrative clarifications and revisions to the Housing Tax Credit Program Qualified Allocation Plan based on the comments received. After each comment title, numbers are shown in parentheses. These numbers refer to the person or entity that made the comment as reflected at the end of the reasoned response. If comment resulted in recommended language changes to the Draft Housing Tax Credit Program Qualified Allocation Plan as presented to the Board in September, such changes are indicated. SUMMARY OF PUBLIC COMMENT AND STAFF RECOMMEN- DATIONS Public comments were accepted through October 20, 2014, with comments received from (1) StoneLeaf Companies, (2) Bridgette Wallis, (3) Community Development Corporation of Brownsville, (4) Churchill Residential, (5) City of Beaumont, (6) City of Fort Worth, (7) Claire Palmer, (8) MHMRA of Harris County, (9) Les Kilday, (10) Motivation Education & Training, Inc. (MET), (11) Michael Wallis, (12) Fountainhead Management, Inc., (13) Rural Rental Housing Association (RRHA) of Texas, (14) Terri Anderson, (15) DMA Development Company, LLC, (16) Communities for Veterans, (17) Coats Rose, (18) National Church Residences, (19) Texas Association of Affordable Housing Providers (TAAHP), (20) Alyssa Carpenter, (21) Randy Plitt, (22) Housing Authority of the City of El Paso, (23) Sallie Burchett, (25) Greater East End District, (26) Sarah Andre, (27) City of Houston, (28) Sonoma Advisors, (29) Hettig Kahn, (30) Marque Real Estate Consultants, (31) South Texas Collaborative for Housing Development, (32) Daniel & Beshara, (33) Foundation Communities, (34) New Hope Housing, (35) Cheryl Worth, (36) S Anderson Consulting, (37) Versa Development, (38) Hogg Foundation for Mental Health, (39) Texas Council for Developmental Disabilities, (41) Avenue CDC, (42) Local Initiatives Support Coalition (LISC), (43) Star - Equities, LLC, (44) Mark-Dana Corporation, (46) Texas Association of Community Development Corporations (TACDC), (47) National Housing Trust, (48) Texas Appleseed and Texas Low Income Housing Information Service, (49) Inclusive Communities Housing Development Corporation, (50) Bonner Carrington, (51) RealTex Development, (52) Roundstone Development, (53) Accessible Housing Austin, Inc., (54) Promoting Independence Advisory Committee Chapter 11 - General Comment (5), (19), (28), (33), (35), (41) COMMENT SUMMARY: Commenter (5) suggested the QAP appears to give favor to maximizing the number of affordable units and fails to provide any incentive for the development of a truly mixed-income development. Commenter (5) recommended there be a significant point award for developers that include a certain percentage (15% - 20%) of their units offered as market rate which would promote a more diverse development and community based on income. Commenter (5) believed that such change is consistent with the direction of HUD to promote a healthier development for both the residents and the community. Commenter (41) suggested language be added to the QAP that encourages development in communities that have access to mass transit and recommended that developments located within one mile (or half-mile) radius of an existing light rail stop (or other mass transit) be given extra points in the scoring process. Commenter (33) also stated that urban developments built in proximity to public transit should be incentivized with an additional point and further suggested that such point be available if located in a Transit Oriented District (TOD) within Dallas, Fort Worth, San Antonio, Houston and Austin. Furthermore, the TODs, according to commenter (33), should be designated by the local political subdivision and have a regulating plan (or something similar) that should outline the area and have specific development guidelines to facilitate TOD development. Commenter (33) recommended the rules be modified to limit the number of developments in small communities, ADOPTED RULES December 19, 2014 39 TexReg 9935

such as Alton, Liberty Hill, Buda, etc. Commenter (28) stressed the importance of separate rules for 4% HTC applications and stated such credits are an unlimited resource that aren't allocated as they are under the 9% HTC program. According to commenter (28) Section 142 of the IRC entitles access to the 4% credits and the Department should be clear that feasibility is performed solely to protect the private activity bond volume cap available to multifamily applications. Commenter (28) believed that if the concern over approving certain developments is due to fair housing then 4% applications should be required to ask HUD for a determination or approval of their fair housing affirmative marketing plans which would shift the burden to HUD and allow the use of private activity bond volume cap. Further along the lines of fair housing, commenter (28) suggested that if 4% applications were intended to further fair housing then the Department could use all of its HOME funds exclusively for 4% developments since 9% developments rarely need them given the current pricing and debt cost. Commenter (35) provided comments regarding the Uniform Relocation Act (URA), and recommended that any development receiving HTC should be made by law to comply with the federal URA. Commenter (35) believes that since compliance with URA is not required, it creates a domino effect in which those low income households are financially harmed due to the displacement and consequently seek out federal assistance which adds unnecessary stress on programs that have finite means. Commenter (19) expressed the need to bring parity between general population and elderly developments and, while supportive of the removal of the elderly prohibition in certain areas of the state, would like to see the scoring criteria not put elderly developments at a disadvantage statewide. STAFF RESPONSE: In response to Commenter (5), while staff agreed with the idea of encouraging mixed-income development, staff did not recommend the addition of another scoring item, in part because it would not constitute a logical outgrowth of any other part of the rule and would be a significant change to the overall scoring criteria. In addition, staff previously received informal comment that 11.9(e)(4), related to Leveraging of Private, State, and Federal Resources actually does encourage this type of development, although indirectly by providing an incentive to limit the Housing Tax Credit request with respect to the Total Development Costs. In response to Commenters (41) and (33), staff again did not recommend the addition of another scoring item related to proximity to transportation, in part because it would not constitute a logical outgrowth of any other part of the rule and would be a significant change to the overall scoring criteria. In addition, staff does not have evidence of a direct correlation between proximity to public transportation and high opportunity areas as Commenter (41) suggests. In response to Commenter (33), while staff did not recommend an incentive for all developments located in an urban area to be located near transit, staff did recommend in 10.101(a)(2) relating to Mandatory Community Assets, that Supportive Housing developments in urban areas be required to be located within 1/2 mile of public transportation or to provide, at no cost to the tenant, accessible transportation when the Property Management Office is open, such as cab vouchers or a specialized van on-site, to a bus or other public transit stop. In response to Commenter (33) regarding limiting the number of awards made in smaller communities, staff did not recommend such a change as it would not be consistent with 2306.6711(f) of the Texas Government Code. Should the market not be able to bear the additional development, the Real Estate Analysis division has the ability to recommend denial of the award. In response to Commenter (28), staff did not recommend separate sets of rules governing the 4% credits and 9% credits. Staff believes that threshold criteria and housing de-concentration factors should apply to all types of housing tax credit developments as that application (of those criteria) will result in greater housing choice for low-income Texans. In addition, this is consistent with other statutory requirements such as the "Twice the State Average Per Capita" and "One Mile Three Year Rule" which apply to both programs. With respect to the Department's HOME funds and TCAP Program Income funds, staff may recommend set-asides and/or priorities for tax exempt bond developments in future NOFAs. In response to Commenter (35), staff did not recommend a requirement that housing tax credit development owners comply with the Uniform Relocation Act. Of course, where tax credits are layered with federal funding sources, the Act will apply in accordance with its terms. Regarding cases where lower income tenants are displaced because they do not meet the selection criteria of the new development owner, staff recommended changes to Subchapter F, Section 10.610, "Tenant Selection Criteria" which will prohibit Owners from retroactively applying tenant selection criteria to tenants who already reside in the development at the time new or revised leasing criteria are applied and who are otherwise in good standing under the lease. However, as a program that provides affordable rental housing through private market development, the IRS allows Owners of Housing Tax Credit developments to establish their own criminal, credit, and residential screening criteria in accordance with applicable law. In response to Commenter (19), staff did not recommend any changes to the scoring criteria that affords applications proposing Qualified Elderly developments the ability to achieve additional points. Staff believes that the rules and the scoring criteria as a whole provide for the ability for Qualified Elderly developments to be competitive and that there are already ample incentives for applicants to propose Qualified Elderly developments. Staff recommended no changes based on these comments. BOARD RESPONSE: Accepted staff's recommendation. 11.2 - Program Calendar (50) COMMENT SUMMARY: Commenter (50) recommended the pre-application final delivery date be changed from January 13, 2015 to January 8, 2015 to allow more time between pre-application and full application and also recommended the due date for the Site Design and Development Feasibility Report along with all resolutions for the housing de-concentration factors be due April 1, 2015 instead of February 27, 2015. Commenter (50) suggested the additional time will allow developers to better analyze the application logs and determine whether or not to move forward. Moreover, commenter (50) indicated that the April 1 deadline should not delay underwriting since local government support resolutions and State Representative letters are not due until April 1 and they are the primary determinants on whether an application will ultimately be competitive. STAFF RESPONSE: In response to Commenter (50), staff recommended that the pre-application final delivery date be changed to January 8, 2015. Staff believes this will still afford the development community enough time to obtain site control and submit the pre-application. However, staff recommended the Site Design and Feasibility Report continue to be due with the full application. This is an important tool not only for staff's evaluation but for the applicants in preparing that application and so it is appropriately due at the same time. The support 39 TexReg 9936 December 19, 2014 Texas Register

letters and resolutions are not due until April 1 in order to give those elected officials time to evaluate the application themselves, including the information contained in the Site Design and Feasibility Report. BOARD RESPONSE: Accepted staff's recommendation. 11.3 - Housing De-concentration Factors (32), (48), (49), (50) COMMENT SUMMARY: Commenters (48), (50) expressed objection to the removal of the prohibition of qualified elderly developments in certain sub-regions and counties. According to commenter (48), given the limited resources available to fund affordable housing and the overwhelming need in Texas, it is not the most efficient or effective use of state resources to overbuild elderly developments, even if it is the more politically palatable type of affordable housing in many jurisdictions. Commenter (48) requested this prohibition be reinstated and re-evaluated each tax credit cycle to determine which areas are ineligible for such developments. Commenter (48) further asserted that overbuilding elderly developments while underserving families discriminates on the basis of familial status in violation of the Fair Housing Act and may discriminate on the basis of race, color and national origin considering the composition of the population of Texas based on data provided by commenter (48). Moreover, commenter (48) noted that while elderly households can live in family developments, families are by definition precluded from residing in qualified elderly developments. Commenter (32) also expressed opposition to lifting the eligibility restriction against qualified elderly developments, specifically in Collin and Denton counties. According to commenter (32) the prohibition against such developments in 2014 did not produce a balance between elderly and family developments in Collin and Denton counties as well as in the Dallas area. Commenter (32) asserted that lifting the restriction will continue the perpetuation of racial segregation and give rise to an inference that the Department has intentionally discriminated on the basis of race. Commenter (32) provided data that the commenter believes supports their assertions. Commenter (32) suggested that if the Department maintains its position on lifting the restriction then it should also eliminate points for the Opportunity Index, Educational Excellence, and the Opportunity Index basis boost for qualified elderly developments in Collin and Denton counties. Commenter (49) recommended reinstating the eligibility restriction against qualified elderly developments in Collin, Denton, Ellis and Johnson counties because, they assert, the proportion of elderly HTC units continues to exceed those available for the general population. Commenter (50) stated that in 2013, elderly developments comprised 25.02% of the Department's overall portfolio and they comprised 31.85% of the developments in those areas that were prohibited in 2014, as opposed to 21.04% of the developments in all other areas. According to commenter (50), after the 2014 cycle elderly developments still made up 31.20% of the developments in the ineligible areas (a decrease of only 0.65%), compared to 20.84% of the developments in all other areas. STAFF RESPONSE: Staff believes that allowing or limiting elderly developments in certain areas is far more complex than Commenters (32), (49), and (50) portray. For example, some of the comments put forth by Commenter (32) rely on rent burdened households to suggest a need based approach should be used. However, the rent burden data used is likely reflecting households already residing in existing tax credit housing as rent burdened. This is because "rent burdened" is defined, in the particular data used by Commenter, as those expending more than 30% of household income on housing costs. Because tax credit rents are based on the maximum income household spending 30% of household income on housing costs, it is frequently the case that eligible households with incomes below the income limits will ultimately expend more than 30% of their household income on housing costs. These conclusions are well documented in many studies of the tax credit program, and the development of tax credit housing is unlikely to dramatically affect rent burdened figures based on the particular definition used by Commenter. In response to all commenters, Staff does not think that there is any one lens through which these issues can be viewed, but rather that it is incumbent on the State to pursue multiple lines of research and review. The analysis used to develop the 2014 limitations, for example, was a snapshot calculation of the proportion of elderly developments in the Department's portfolio as compared with their estimated representation in the income qualified population. This methodology obviously has limitations. Moreover, that methodology alone should not, in Staff's opinion, be used to support a multi-year restriction on the development of elderly restricted housing. In considering the removal of the restriction Staff considered population growth, for example, in light of the fact that the proposed developments will not place in service for about two years from their award dates and they will serve their locales for thirty years or more. Trend data from the State Demographer shows a strong movement towards a larger elderly population and this developing need should be considered, especially as this elderly population overwhelmingly lives on fixed incomes. In Collin County, for example, data projections from the State Demographer reflect that the population of individuals age 65 and older will increase 10% from 2015 to 2017, while the population of individuals in all other age groups are projected to decline 1% over the same period. In the same county over the period from 2015 to 2025, the population of individuals age 65 and older will increase 65% from 2015 to 2025, while the population of individuals in all other age groups are projected to decline 2% over the same period. Data projections in other counties, such as Denton County, reflect similar trends. Additionally, in reviewing data concerning persons with disabilities, it is clear that households qualifying for elderly restricted housing is much higher than in all other age groups. For example, according to the 2013 5-year American Community Survey the percentage of persons with disabilities amongst the Texas population of individuals age 65 and older is 39% as compared with 9% for all other age groups. Elderly housing is designed to serve this population (e.g. elevator requirements for multi-story structures). Lastly, in response to all commenters, there are other incentives that are recommended in the proposed QAP to facilitate the development of affordable housing in a broadly dispersed and nondiscriminatory manner. In fact, while not currently under a court ordered remedial plan, the QAP as proposed reflects a framework very similar to that which was approved and ordered by a federal judge for the same counties cited by Commenter (32). The 2013 court ordered remedial plan reflected no such restrictions on elderly housing and produced a compliant allocation in the eyes of the federal judge. However, Staff will continue to review data on an ongoing basis to ensure the Department's programs are serving a range of households and operating in a legally compliant and nondiscriminatory manner. Staff recommended no changes based on these comments. BOARD RESPONSE: Accepted staff's recommendation. 11.5(3) - Competitive HTC Set-Asides (10), (17), (18), (22), (47) COMMENT SUMMARY: Commenter (10) recommended a setaside be established for farm workers in units beyond those tar- ADOPTED RULES December 19, 2014 39 TexReg 9937

geted for special needs when a housing facility will be located in areas with a strong agricultural economy that relies on human labor. Moreover, commenter (10) recommended establishing an incentive for combining HTC's with USDA 514 funding in order to include farm worker units within larger mixed population facilities. When USDA 514 funding is present, commenter (10) also suggested developments in urban areas be allowed to compete in the rural set-aside. Also proposed by commenter (10) is the following change regarding the USDA set-aside: "(2) USDA Set-Aside. ( 2306.111(d-2)) At least 6 percent of the State Housing Credit Ceiling for each calendar year shall be allocated to Rural Developments which are financed through USDA. If an Application in this set-aside involves Rehabilitation it will be attributed to and come from the At-Risk Development Set-Aside; if an Application in this set-aside involves New Construction it will be attributed to and come from the applicable Uniform State Service Region and will compete within the applicable sub-region unless the New Construction is a USDA Section 514 project. Commitments of Competitive Housing Tax Credits issued by the Board in the current program year will be applied to each set-aside, Rural Regional Allocation, Urban Regional Allocation and/or USDA Set-Aside for the current Application Round as appropriate. Applications must also meet all requirements of Texas Government Code, 2306.111(d-2)." In addition to the set-aside for farm workers, commenter (10) recommended additional points be given for projects in which units are designated for farm workers. Commenters (17), (18) requested a clarification under the At-Risk Set-Aside that would include Section 202 loans. Commenters (17), (18) indicated that the Regulatory Agreements associated with such loans require affordability but only so long as the loan is outstanding and that the Mortgage Note allows prepayment with HUD approval and upon such prepayment the affordability restrictions terminate. To be considered an "At-Risk Development" it must be subject to maintaining affordability in the contract granting the subsidy and be nearing expiration or the federally insured mortgage on the development is eligible for prepayment or is nearing the end of its term. According to commenters (17), (18) a Section 202 loan would satisfy the requirements of At-Risk because the Regulatory Agreement which is the stipulation to maintain affordability is nearing expiration because its affordability restrictions expire upon prepayment of the loan. To demonstrate the pending expiration of the Regulatory Agreement, the applicant should be allowed to provide prepayment approval at the time of the HTC Commitment. Commenters (17), (18) further stated that the Section 202 loan can be construed as federally insured because upon default HUD is obligated to cover losses in the program and the HUD Handbook categorizes such loans as the equivalent to a mortgage insurance program. The recommended revision by commenters (17), (18) includes the following: "(B) An At-Risk Development must meet all the requirements of Texas Government Code, 2306.6702(a)(5). For purposes of this subparagraph, any stipulation to maintain affordability in the contract granting the subsidy, or any federally insured mortgage will be considered to be nearing expiration or nearing the end of its term if expiration will occur or the term will end within two (2) years of July 31 of the year the Application is submitted. Developments with HUD-insured mortgages (including loans under Section 202 of the Housing Act of 1959) qualifying as At-Risk under 2306.6702(a)(5) may be eligible if the HUD-insured mortgage is eligible for prepayment without penalty. To the extent that an Application is eligible under 2306.6705(a)(5)(B)(ii)(b) and the units being reconstructed were demolished prior to the beginning of the Application Acceptance Period, the Application will be categorized as New Construction." Commenter (22) recommended the following modification to the At-Risk Set-Aside: "(D) Developments must be at risk of losing affordability from the financial benefits available to the Development and must retain or renew the existing financial benefits and affordability unless regulatory barriers necessitate elimination of a portion of that benefit for the Development. For Developments qualifying under 2306.6702(a)(5)(B), only a portion of the subsidy must be retained for the proposed Development, a fair and reasonable portion of the proposed Units must be public housing units supported by public housing operating subsidy. ( 2306.6714(a-1))" Commenter (47) expressed support for the 15% set-aside for at-risk developments and urged the Department to continue to prioritize developments that involve preservation and rehabilitation. STAFF RESPONSE: In response to Commenter (10), staff believes that implementing the suggested change related to the amount of credits in the USDA Set-Aside or allowing Urban USDA Set-Aside Applications to compete in Rural Sub-regions would be inconsistent with statutory requirements for set-asides in 2306.111(d), (d-1), (d-2), and 2306.6714, Texas Government Code. In addition, the suggestion that applications in an urban area that are proposing the utilization of Section 514/516 funding should compete in the rural set-aside may also violate statute. Even if not a violation, staff did not recommend such a change since those applications are already essentially competing in the USDA set-aside, and it is difficult to predict whether or not competing against other urban or rural applications would give any advantage to those applications. Staff did not recommend an additional scoring item to incentivize farmworker housing, in part because it would not constitute a logical outgrowth of any other part of the rule and would be a significant change to the overall scoring criteria. Should the Board direct staff to incentivize this type of occupancy preference in the future, staff could consider such a change. In response to Commenters (17) and (18), staff disagreed with the assertion that a regulatory agreement is nearing expiration because the owner has an ability to pre-pay the loan. Section 2306.6702(5)(A)(ii)(b), Texas Government Code, provides the means by which an application can qualify to compete in the At-Risk Set-Aside and specifically refers to pre-payment of federally insured mortgages. A HUD 202 Direct Loan, in some cases, is not a federally insured mortgage. Therefore, the ability to prepay a HUD Direct Loan does not qualify a development as At-Risk. Staff's reading of the HUD handbooks indicates a clear distinction between HUD-insured mortgages and HUD-held mortgages (Direct Loans) in several places (e.g. Chapter 1 of 4350.3 and section 1-14 of 4350.4, which lists HUD's mortgage insurance programs and does not include Section 202), including in the specific section that was referenced in the comment. In response to Commenter (22), staff believes that 25% is a "fair and reasonable" portion of the units that are required to be retained as public housing in order for an application to qualify to compete in the At-Risk Set-aside under this provision of the rule and statute. In addition, the commenter's proposed change would result in unnecessary ambiguity in the rule. Staff suggests that if there is a compelling reason for a particular applicant to retain fewer than the required number of units that a waiver could be requested. Staff appreciated the support of Commenter (47). 39 TexReg 9938 December 19, 2014 Texas Register

Staff recommended no change based on these comments. BOARD RESPONSE: Accepted staff's recommendation. 11.6(5) - Competitive HTC Allocation Process - Force Majeure Events (16), (19), (37), (48) COMMENT SUMMARY: Commenter (16) recommended the following revisions to this section which will provide the Department with sufficient discretion to address unexpected delays to developments which otherwise comply with the terms of Carryover. Commenter (16) further stated that the lack of a mechanism to allow for the forward allocation of HTC's when extraordinary delays arise outside the control of the applicant leaves the Department without the administrative tools necessary to preserve and ensure completion by the placed in service deadline. "(5) Credit Returns Resulting from Force Majeure Events. In the event that the Department receives a return of Competitive HTCs during the current program year from an Application that received a Competitive Housing Tax Credit award during any of the preceding three years, such returned credit will, if all of the requirements of this paragraph are met, be allocated separately from the current year's tax credit allocation, and shall not be subject to the requirements of paragraph (2) of this section. Requests to separately allocate returned credit where all of the requirements of this paragraph have not been met or requests for waivers of any part of this paragraph will be considered within the discretion of the Executive Director. For purposes of this paragraph, credits returned after September 30 of the preceding program year may be considered to have been returned on January 1 of the current year in accordance with the treatment described in (b)(2)(c)(iii) of Treasury Regulation 1.42-14. The Department's Governing Board may approve the execution of a current program year Carryover Agreement regarding the returned credits with the Development Owner that returned such credits only if: (A) The credits were returned as a result of "Force Majeure" events that occurred after the execution of a Carryover Allocation Agreement and before issuance of Forms 8609. Force Majeure events are sudden and unforeseen civil unrest, shortages of labor or material, financial difficulties caused by temporary shutdown, sequestration, or administrative delays by an instrumentality of the government of the United States, fire, tornado, flooding, significant and unusual rainfall or subfreezing temperatures, or loss of access to necessary water or utilities as a direct result of significant weather events, or any other catastrophic natural, social, political, or economic event that, in the discretion of the Executive Director, unforeseeably prevents the Development from reaching completion within the time prescribed at Carryover. Force Majeure events must delay a closing of debt or equity finance or make construction activity impossible or materially impede its progress ; (B) Acts or events caused by the willful negligence or willful act of the Development Owner, Affiliate or a Related Party shall under no circumstance be considered to be caused by Force Majeure;..." Commenters (19), (29), (37) recommended the following revisions in order to be consistent with the already defined term in the Department's HOME Loan documents: "(A) The credits were returned as a result of "Force Majeure" events that occurred after the start of construction and before issuance of Forms 8609. Force Majeure events are the following sudden and unforeseen circumstances outside the control of the Development Owner; acts of God such as fire, tornado, flooding, significant and unusual rainfall or subfreezing temperatures, or loss of access to necessary water or utilities as a direct result of significant weather events; explosion; vandalism; orders or acts of military authority; litigation; changes in law, rules, or regulations, national emergency or insurrection; riot; acts of terrorism; supplier failures; or materials or labor shortages. Force Majeure events must make construction activity impossible or materially impede its progress..." Moreover, commenters (29), (37) also recommended the following sentence be added to paragraph (A): "Additionally, for a Development using HOME or CDBG funds subject to Section 3, delays resulting from governmental administration or failure to act." Commenter (48) expressed support for this provision and stated it reflects lessons learned about disaster recovery and further indicated it will help ensure that more affordable units are constructed more quickly when they are most needed. STAFF RESPONSE: In response to Commenter (16), staff's proposed language is intentionally narrow in order to address only those most unusual and unforeseen situations. Staff does not believe that Chapter 2306 authorizes the broad discretion to allocate credits outside of the statutory framework provided for the evaluation and award of tax credit applications. In response to Commenters (19), (29), and (37), staff agreed with the suggested revision with the exception of the addition of provisions related to delays in closing. Staff recommended the following change to the section. "(A) The credits were returned as a result of "Force Majeure" events that occurred after the start of construction and before issuance of Forms 8609. Force Majeure events are the following sudden and unforeseen circumstances outside the control of the Development Owner: acts of God such as fire, tornado, flooding, significant and unusual rainfall or subfreezing temperatures, or loss of access to necessary water or utilities as a direct result of significant weather events; explosion; vandalism; orders or acts of military authority; litigation; changes in law, rules, or regulations; national emergency or insurrection; riot; acts of terrorism; supplier failures; or materials or labor shortages. Force Majeure events must make construction activity impossible or materially impede its progress..." BOARD RESPONSE: Accepted staff's recommendation. 11.7 - Tie Breaker Factors (30) COMMENT SUMMARY: Commenter (30) suggested that if the intent of the tie breaker factors is to de-concentrate the location of affordable housing then it should be unique to the type of housing proposed and; therefore, recommended the following modification: "(2) Applications proposed to be located the greatest distance from the nearest Housing Tax Credit assisted Development, serving the same Tenant Population." STAFF RESPONSE: Staff agreed with Commenter (30) and incorporated the suggested change into the rule. BOARD RESPONSE: The Board did not accept staff's recommendation and removed the additional language "serving the same Target Population" for this tie breaker. 11.8 - Pre-Application Requirements (19), (20), (30), (36) ADOPTED RULES December 19, 2014 39 TexReg 9939

COMMENT SUMMARY: Commenter (19) recommended the following modification to 11.8(b): "(2) Evidence in the form of a certification provided in the pre-application, that all of the notifications required under this paragraph have been made. ( 2306.6704) (A) The Applicant must list in the pre-application all Neighborhood Organizations on record with the county or state whose boundaries include the proposed Development Site as provided by the local elected officials as of the beginning of the Application Acceptance Period or that the Applicant has knowledge of as of the date of pre-application submission. It is the responsibility of the Applicant to identify all such Neighborhood Organizations." Commenters (20), (30), (36) recommended the language "as provided by the local elected officials, or that the Applicant has knowledge of as of the date of pre-application submission" be deleted since the requirement to request a list of the local officials was deleted prior to 2014 and the governing statute only requires notification of entities on record with the county or state, not whether the applicant has knowledge of any. Commenters (20), (36) further added that the question of whether an applicant had knowledge of a specific neighborhood organization was the subject of a 2014 challenge and staff's determination was ultimately decided on whether the organization was "on record" per statute. STAFF RESPONSE: Staff agreed with the Commenters and recommended the following revision to 11.8(b): "(2) Evidence in the form of a certification provided in the pre-application, that all of the notifications required under this paragraph have been made. ( 2306.6704) (A) The Applicant must list in the pre-application all Neighborhood Organizations on record with the county or state whose boundaries include the proposed Development Site as of the beginning of the Application Acceptance Period. BOARD RESPONSE: Accepted staff's recommendation. 11.9(c)(4) - Selection Criteria - Opportunity Index (1), (4), (12), (13), (15), (18), (19), (20), (23), (25), (28), (36), (42), (46), (47), (48), (50) COMMENT SUMMARY: Commenter (1) suggested developments located in rural areas be given an allowable proximity of 2 miles to community assets and further indicated that such distance allowance would be consistent with the threshold requirement under 10.101(a)(2) of the Uniform Multifamily Rules. Commenter (1) stated that it is not uncommon for residents in rural areas to drive up to 2 miles to these community assets. Commenter (4) provided comment that there are a few school districts that have district wide enrollment with no specific attendance zones and stated that some of these districts are quite large in geographic area and have certain areas within those districts that have very good schools. Commenter (4) further expressed that the ICP litigation mandates that neighborhoods such as these be included and suggested the following modification to this scoring item: "(C) The elementary school attendance zone for Development Sites contained in school districts with district wide enrollment will be a 3 mile radius. Within this 3 mile radius, at least 75% of the elementary schools must have achieved a 77 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency. The applicable school rating will be the 2014 accountability rating assigned by the Texas Education Agency..." Commenters (13), (19) recommended the following change which would allow more potential locations for housing and further noted that a one point reduction will not materially impact the quality of the education received. "(B) For Developments located in a Rural Area, an Application may qualify to receive up to seven (7) cumulative points based on median income of the area and/or proximity to the essential community assets as reflected in clauses (i) - (v) of this subparagraph if the Development Site is located within a census tract that has a poverty rate below 15 percent for Individuals (35 percent for regions 11 and 13) or within a census tract with income in the top or second quartile of median household income for the county or MSA as applicable or within the attendance zone of an elementary school that has a Met Standard rating and has achieved a 76 or greater on index 1 of the performance index, related to student achievement." Commenters (13), (19) suggested the following changes since rural communities are often served by one set of amenities for the entire town and that driving distances are measured more by time and less by miles. Moreover, due to the difficulty in finding a licensed childcare provider for infants, toddlers and pre-kindergarten in a rural area commenter (13) recommended changes to this portion of the item as well. "(i) The Development Site is located within the attendance zone and within one linear mile of an elementary, middle, or high school with a Met Standard rating (For purposes of this clause only, any school, regardless of the number of grades served, can count towards points. However, schools without ratings, unless paired with another appropriately rated school, or schools with a Met Alternative Standard rating, will not be considered.) (3 points); (ii) The Development Site is within two linear miles of a center that is licensed by the Department of Family and Protective Services specifically to provide a school-age program (2 points); (iii) The Development Site is located within two linear miles of a full service grocery store (2 points); (iv) The Development Site is located within two linear miles of a center that is licensed by the Department of Family and Protective Services to provide a child care program for infants, toddlers, and/or pre-kindergarten, at a minimum (2 points); (v) The Development is a Qualified Elderly Development and the Development Site is located within two linear miles of a senior center (2 points); and/or (vi) The Development Site is located within two linear miles of a health related facility (1 point)." Commenter (15) suggested this item be modified to allow elementary schools that meet or exceed the lower of the statewide average or the regional average in order to qualify for points. In doing so, commenter (15) believed the anomaly in Region 11 that occurred in the 2014 application round where three developments were awarded in one small city would not have occurred. Commenter (15) recommended Qualified Elderly Developments located in first quartile census tracts with qualifying schools receive 5 points and in second quartile census tracts with qualifying schools receive 3 points. Such a change would be consistent with scoring that was available under the 2013 application round and will allow elderly developments to be competitive un- 39 TexReg 9940 December 19, 2014 Texas Register

der the program. Commenter (50) provided similar comments as reflected in their suggested language below and further stated that general population communities already have a two point scoring advantage when in the first quartile. "(iii) any Development, regardless of population served, if the Development Site is located in a census tract with income in the top quartile of median household income for the county or MSA as applicable and the Development Site is in the attendance zone of an elementary school that has a Met Standard rating and has achieved a 77 or greater on Index 1 of the performance index, related to student achievement (5 points);..." Commenter (18) provided comment that stated reasons why high opportunity areas exclude existing elderly developments, specifically, that high performing schools do not impact the quality of life for seniors, rehabilitation properties do not increase the concentration of affordable housing in the area, current tenants in a rural area are part of the poverty rate so setting the rate below 15% results in their own community being disqualified, and lastly, that these properties do not have the ability to be re-located. Commenter (18) recommended rehabilitation developments under this scoring item be eligible for up to 7 points if there is a service coordinator onsite for 15 hours a week or if there are health care services within 1 mile. Commenter (26) suggested that qualified elderly developments should also be able to achieve 7 or 5 points for high opportunity if they are a first or second quartile census tract. Commenter (26) further stated that there is no evidence to support that family deals are preferable in all markets and this essentially blocks elderly developments from several markets even with the prohibition against elderly developments lifted, as currently proposed. Commenter (18) expressed concerns as it relates to permanent supportive housing, specifically, high performing schools do not affect this population because they are mostly single adult individuals, supportive housing developments in areas of lower income typically provides for better employment opportunities for such low-skilled residents, and lastly, that developments located near services and public transportation are characteristics considered to be a priority as opposed to a high income area. For these reasons, commenter (18) recommended for permanent supportive housing developments that target homeless adults, they be eligible to receive 7 points, provided there is a full time case manager onsite for 35 hours a week or that there are health care services within 1 mile. Commenter (42) suggested the following addition to this scoring item which will encourage development supported by public transit, which is an essential element for families earning as little as 30% of AMGI. Commenter (46) similarly agreed indicating that this would be a crucial step as larger cities in Texas create and expand new development opportunities around transit lines and mobility centers. "(v) any Development, regardless of population served, if the Development site is located within one linear mile of a designated public transportation stop at which public transportation (not including "on demand" transportation) stops on a regular, scheduled basis. A site's eligibility for on demand transportation or transportation provided directly or indirectly by the Development Owner does not meet this requirement (2 points)." Commenters (3), (46) stated that while they agree with the Department in providing housing in areas of opportunity, the current scoring structure relating to the student achievement index drives funding away from the poorest minority communities and that an index score of 77 has inadvertently disqualified the overwhelming majority of locations in the Rio Grande Valley. Specifically, commenter (3) stated that of the 28 school districts where they do most of their work, only 2 districts had the required three schools (elementary, middle and high school) that scored a 77 or better. As a result, Harlingen, San Benito, Kingsville, southern Corpus Christi and 98% of Brownsville will never be able to build another HTC property. Commenters (3), (46) recommended this scoring item be changed so that just one school in the feeder zone of a development meet the score of 77. Commenter (47) stated that although they are encouraged at the distinctions in this scoring item between new construction/adaptive re-use and preservation projects, they emphasized that expanding opportunity housing must not be at the expense of existing low-income communities. Moreover, commenter (47) urged the Department to balance the allocation of tax credits between new construction and preservation developments, particularly where existing housing is principally occupied by low income minority households. Commenters (20), (36) expressed support for the use of the rating of 77 or greater for certain point selections since it is based on current TEA averages and feels that use of any other number would be arbitrary. Commenter (28) indicated this scoring item is a redline disaster happening, at least in Region 3, and further stated the Department must be flexible on the definition of the poverty percentage within the margin of error. In using the highest number available, commenter (28) believed real high opportunity areas are being excluded. Commenter (28) suggested this scoring item be modified based on school ranking criteria and quartile and ignore the poverty percentage. Moreover, commenter (28) recommended that for districts with district wide enrollment, the district wide rating or the school rating closest to the development site needs to be used and not the lowest available. Commenter (28) also stated that the ability to put housing in areas with good schools is being hindered with use of the lowest scoring school approach. Commenter (28) further added that the average rating for school performance should be related to their MSA and not every area of the state. Commenter (50) recommended that in districts that have open enrollment, the overall district rating should be used rather than the lowest ranking school in the entire district, since most students will not attend the lowest ranking school. Commenter (23) suggested the Department should round up rather than down when calculating the various quartiles so that it opens up several more census tracts for High Opportunity points. Commenter (25) indicated that while legal requirements in the Dallas area require use of the Opportunity Index, they do not believe it should be applied across the state. With the intent of this scoring item to advantage developments not located in socioeconomically challenged areas, commenter (25) stated that a map of census tracts with individual poverty rates in excess of 15% shows more than two-thirds of the City of Houston to be "low" opportunity areas. Commenter (25) referenced HUD's Moving to Opportunity program which showed no differences between the study's groups with respect to adult employment or student educational outcomes. What this scoring item fails to address, according to commenter (25), is what happens to the neighborhoods and schools the relocated people leave behind which seems to be at odds with numerous state-sponsored efforts to revitalize those very same areas. Commenter (12) stated the intent of this scoring item is to locate housing in non-hispanic Caucasian neighborhoods while making it nearly impossible to locate an HTC development in predominately minority neighborhoods, which according to Commenter (12), is a violation of the Fair Housing Act. Commenter (12) suggested the Department remove this scoring item until it has been determined that it is not a violation of intentional dis- ADOPTED RULES December 19, 2014 39 TexReg 9941

crimination. Commenter (48) expressed that continued emphasis on locating developments in high opportunity areas is central to carrying out civil rights obligations as well as the purpose of the HTC and other multifamily programs. With a portfolio of developments that are concentrated in racially and ethnically segregated and low income areas, the Department's commitment to balancing the current distribution with investments in high opportunity areas is necessary and important, according to commenter (48). Commenter (15) expressed support for this scoring item for rural developments and believes that a similar standard for urban developments would provide a better measure of the desirability of sites than does the current language. As a consideration for the 2016 QAP, commenter (15) recommended putting first and second quartile sites on equal footing, and then focus on the proximity of amenities to distinguish the scoring of sites from one another. In doing so, it would provide a better gauge of the relative quality of sites and would open more areas, still of high quality, for affordable housing. STAFF RESPONSE: In response to Commenters (1), (13) and (19) with respect to the requirement to be within one mile of amenities in order to qualify for points if located in a rural area, staff believes that because there is already a threshold requirement for developments to be located within two miles of certain amenities that it is appropriate that any distances to these same amenities that are associated with a scoring item be shorter. Otherwise, almost all rural developments that meet the basic threshold requirement would also be eligible for points. However, staff did recommend more flexibility with respect to the ages served by licensed centers that provide child care. The recommended revision is included below. Staff appreciated the support expressed by Commenter (15) for the Opportunity Index for rural developments. In response to Commenter (28) with respect to the poverty rate threshold required to achieve points on the Opportunity Index, the percentage used is consistent with the percentage used in several studies associated fair housing and effectively narrows the eligible tracts to those with relatively low poverty. Staff recommended no change to this threshold. In addition, staff generally disagreed with the assertion from Commenters (12) and (25) that the use of the Opportunity Index to evaluate applications equates to redlining. Staff appreciated the support expressed by Commenter (48) for the continued use of the Opportunity Index. In response to Commenter (23), staff did not recommend their proposed revision since "rounding up" would defeat the purpose of using the term "quartiles." Staff found no reason to make this revision other than to include more census tracts as possibly eligible for points. In response to Commenter (4) and (50), while staff did recommend some revisions related to Choice School Programs, staff did not recommend changes in relation to district-wide enrollment. While Choice Programs allow tenants some ability to choose the school at which their children will attend, district-wide enrollment can easily result in students having to travel past highly rated schools to attend less highly rated schools, especially if any of the factors used by the district to determine where a child will attend school involves the overall population of the school and/or other demographic data. In response to Commenters (13), (19), and (28) with respect to the threshold of a score of 77 on Index 1 of the performance index, staff did not recommend any revision because the threshold is based on the state average, as published by the TEA. In response to Commenter (28), because school districts do not align well with MSAs, it is impractical to use a threshold based on the MSAs performance, and while the TEA also published regional averages, staff found that the most significant outlier from the state average was in region 11. Staff addressed this discrepancy below. Staff appreciated the support expressed by Commenters (20) and (36) utilizing 77 as the threshold. In response to Commenters (3), (15), and (46) staff agreed that some adjustment should be made for region 11 with respect to the index 1 score threshold for schools to qualify an application for points. Staff found, through an analysis of the data provided by the TEA, that the average index 1 score for elementary schools in region 11 is approximately 75, and the average index 1 score for middle and high schools (combined) is approximately 68. Therefore, in order to address the concerns of the commenters, staff did not recommend a change to the Opportunity Index but to 11.9(c)(5) related to Educational Excellence. Staff believes that it was the search for sites that scored these Educational Excellence points that resulted in the concentration of applications in particular cities in region 11 during the 2014 tax credit round. In response to Commenter (15), (26), and (50) with respect to increasing the number of points available for applications proposing Qualified Elderly developments, staff did not recommend such a change. As stated previously, staff recognizes that there are still areas of the state where the percentage of qualified elderly households residing in rent restricted tax credit assisted units exceeds the percentage of the total qualified elderly eligible low income population, even if the results of the recent Competitive 9% HTC application cycles did have the effect of reducing these differences. Staff believes that the rules and the scoring criteria as a whole provide for the ability for Qualified Elderly developments to be competitive and that there are already ample incentives for applicants to propose Qualified Elderly developments, particularly the likelihood that the applications will garner support and the exemption from participation in the Section 811 program in order to achieve points on the application. In addition, with respect to comments regarding specific features that are typically included in an Elderly development, there is nothing in the rules which prohibits owners from building developments that target the general population and still provide features such as lever style handles on doors and accessible electric controls and switches. Staff appreciates the comments with respect to potential changes in the 2016 QAP, particularly those that suggest giving equal weight to first and second quartile tracts and adding focus to proximity to amenities. Staff will continue to work with stakeholders in consideration of these suggestions. In response to Commenter (18), staff disagreed with the idea that the choice to live in proximity to good schools and in areas of low poverty and high income are not of importance to elderly populations. The overall concept of encouraging development in high opportunity areas is about giving low-income Texans a choice not just to live in safe, decent housing but to live in safe, decent neighborhoods, which oftentimes means those "suburbs and exurbs of metropolitan areas," which, according to the Joint Center for Housing Study at Harvard publication referenced by Commenter (15), is where almost half of households over 50 actually choose to live. Staff makes the same assertion with respect to the tenants of supportive housing, that they too should be given the choice to live in good neighborhoods. However, staff does recognize the unique needs of populations served by supportive housing, which is why those applications are afforded the opportunity to achieve more points in other scoring categories. With respect to rehabilitation in rural areas, while staff agreed with both Commenters (18) and (47) that this is a much needed activity in the state, the USDA and At-Risk Set-Asides address a good portion of that need each year. However, while not recommending any change to the 2015 QAP, staff is working closely with rural and preservation developers to establish a mechanism by which to prioritize 39 TexReg 9942 December 19, 2014 Texas Register

these transactions. In the absence of another clear priority, however, staff recommended that rehabilitation activities, just as new construction activities, be encouraged in high opportunity areas or areas of significant community revitalization. In response to Commenters (42) and (46), staff did not recommend a change to the Opportunity Index to include an incentive for development in proximity to public transportation. First, the suggested language by Commenter (42) could trigger a violation of statute, as it would make the Opportunity Index score worth more than one of the "top 11" scoring items in 2306.6710, Texas Government Code. Secondly, staff finds proximity to public transportation is not always consistent with the concept of high opportunity areas, as the placement of public transportation does not necessarily have any direct correlation with any other relevant attributes of a neighborhood besides potential ridership. In addition, not all public planning efforts involve directing public transportation into areas that may show promise in the future; those efforts may instead be reactions to private development. Therefore, it is not unreasonable to assume that such public transportation would be built in high opportunity areas after affordable housing is built there. In response to Commenter (25), while staff appreciated that there are a number of census tracts that do not qualify an application for points on the Opportunity Index, particularly in some larger cities, and that there always lies the possibility of problems associated with abandoned neighborhoods, it does not change the objectives of providing fair housing choice and encouraging development in areas of either high opportunity or significant community revitalization - in all areas of the state. Moreover, it is staff's understanding that the City of Houston has a comprehensive revitalization effort in place which should afford applicants the opportunity to achieve points in that scoring category. In light of all the comments received, staff recommended the following revision to 11.9(c)(4): "(C) An elementary school attendance zone for the Development Site does not include schools with district-wide possibility of enrollment or no defined attendance zones, sometimes known as magnet schools. However, in districts with district-wide enrollment an Applicant may use the lowest rating of all elementary schools that may possibly be attended by the tenants. In districts with "choice" programs, where students can select one or more schools in the district that they wish to attend, an Applicant may use the district rating. The applicable school rating will be the 2014 accountability rating assigned by the Texas Education Agency. School ratings will be determined by the school number, so that in the case where a new school is formed or named or consolidated with another school but is considered to have the same number that rating will be used. A school that has never been rated by the Texas Education Agency will use the district rating. If a school is configured to serve grades that do not align with the Texas Education Agency's conventions for defining elementary schools (typically grades K-5 or K-6), the school will be considered to have the lower of the ratings of the schools that would be combined to meet those conventions." BOARD RESPONSE: The Board accepted staff's recommendation. Moreover, the Board approved a modification to developments in Rural Areas, specifically, that they be located within 1.5 miles of the community assets noted under (B)(i) - (vi) of this scoring item. 11.9(c)(5) - Selection Criteria - Educational Excellence (3), (4), (6), (9), (12), (13), (14), (15), (18), (19), (20), (25), (28), (30), (31), (36), (49), (50) COMMENT SUMMARY: Commenter (3) stated that while they agree with the Department in providing housing in areas of opportunity, the current scoring structure relating to the student achievement index under this scoring item drives funding away from the poorest minority communities and that an index score of 77 has inadvertently disqualified the overwhelming majority of locations in the Rio Grande Valley. Specifically, commenter (3) stated that of the 28 school districts where they do most of their work, only 2 districts had the required three schools (elementary, middle and high school) that scored a 77 or better. As a result, Harlingen, San Benito, Kingsville, southern Corpus Christi and 98% of Brownsville will never be able to build another HTC property. Commenter (3) recommended this scoring item be changed so that just one school in the feeder zone of a development meets the score of 77. Commenter (31) noted that the average performance index score in Region 11 is 68 and historically the Board has taken special conditions existing in this region into consideration to address the unique poverty level in the area. Given the fact that poverty level has a direct effect on the achievement of the students and resulting scores, commenter (31) recommended this scoring item be modified to qualify a development in urban areas to receive 3 points provided that at least two of the schools achieve a 74 or greater on the index 1 and for rural areas a score of 67 or greater. Commenter (4) provided comment that there are a few school districts that have district wide enrollment with no specific attendance zones and stated that some of these districts are quite large in geographic area and have certain areas within those districts that have very good schools. Commenter (4) further expressed that the ICP litigation mandates that neighborhoods such as these be included and suggested the following modification: "The middle and high school attendance zones for Development Sites contained in school districts with district wide enrollment will be a 3 mile radius. In the case where no middle and high schools are within a 3 mile radius, the closest schools will be considered. Within this radius, at least 75% of the middle and high schools must have achieved a 77 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency. The applicable school rating will be the 2014 accountability rating assigned by the Texas Education Agency." Commenters (9), (50) proposed this scoring item be modified to allow 1 point for each school that has achieved a 77 or greater for index 1, provided the schools also have a Met Standard rating. Commenter (9), (50) expressed that points under this item should not be based entirely on the elementary school scoring 77 or greater, but in instances where the middle and/or high school achieve the desired score then points should be available. Moreover, as an alternative to this recommendation should staff not agree, commenter (9) suggested that the following be added as an option under this scoring item: "(5) Educational Excellence. An Application may qualify to receive up to three (3) points for a Development Site located within the attendance zones of public schools that have achieved a 77 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency, provided that the schools also have a Met Standard rating. Points will be awarded as described in subparagraphs (A) - (C) of this paragraph... (A) The Development Site is within the attendance zone of an elementary school, a middle school and a high school with the appropriate rating (3 points); ADOPTED RULES December 19, 2014 39 TexReg 9943

(B) The Development Site is within the attendance zone of an elementary school and either a middle school or high school with the appropriate rating (1 point); or (C) The Development Site is within the attendance zone of a middle school and a high school with the appropriate rating (1 point)." Commenter (14) suggested this item be modified to allow for the school to have the Met Standard rating and be the lesser of the proposed minimum score (77) or the average for the county. Commenter (19) recommended the performance index score of 77 be lowered to use either 77 or the average per region, whichever is lower. Similar to that of commenter (9), commenter (19) recommended awarding 1 point for each school that achieves the appropriate rating as reflected in the following "(A) The Development Site is within the attendance zone of a middle school or high school with the appropriate rating then 1 point for each (2 points); (B) The Development Site is within the attendance zone of an elementary school with the appropriate rating (1 point)." Commenter (50) recommended that in districts that have open enrollment, the overall district rating should be used rather than the lowest ranking school in the entire district, since most students will not attend the lowest ranking school as reflected in their proposed modification: "(5) Educational Excellence. An Application may qualify to receive up to three (3) points for a Development Site located within the attendance zones of public schools that have achieved a 77 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency, provided that the schools also have a Met Standard rating. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. An attendance zone does not include schools with district-wide possibility of enrollment or no defined attendance zones, sometimes known as magnet schools. However, in districts with district-wide enrollment an Applicant may use the rating of the school district in lieu of the elementary, middle, and/or high schools, respectively, which may possibly be attended by the tenants." Commenter (15) suggested a modification to allow elementary schools that meet or exceed the lower of the statewide average or the regional average in order to qualify for points. In doing so, commenter (15) believed the anomaly in Region 11 that occurred in the 2014 application round where three developments were awarded in one small city would not have occurred. Commenter (13) recommended the following changes which would allow more potential locations and alleviate subjectivity from one year to the next and further noted that a one point reduction will not materially impact the quality of the education received. "(5) Educational Excellence. An Application may qualify to receive up to three (3) points for a Development Site located within the attendance zones of public schools that have achieved a 76 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency, provided that the schools also have a Met Standard rating. For Applications in the USDA set-aside, the Property must be located within the attendance zones of public schools that have achieved a MET Standard (55) or Met Alternative Standard (30) rating on Index 1 of the performance index. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. An attendance zone does not include schools with district-wide possibility of enrollment or no defined attendance zones, sometimes known as magnet schools. However, in districts with district-wide enrollment an Applicant may use the lowest rating of all elementary, middle, or high schools, respectively, which may possibly be attended by the tenants. The applicable school rating will be the 2013 or 2014 accountability rating assigned by the Texas Education Agency. School ratings will be determined by the school number, so that in the case where a new school is formed or named or consolidated with another school but is considered to have the same number that rating will be used..." Commenter (19) suggested that qualified elderly developments combined with rehabilitation and supportive housing should be excluded from this scoring item and additional options for scoring should be provided. Commenter (18) stated that for elderly developments, educational excellence does not directly impact their quality of life and believed existing elderly developments should be allowed to qualify for these points. Commenter (18) suggested the following recommended language: "An Application proposing Qualified Elderly combined with Rehabilitation may qualify to receive up to three (3) points for a Development Site that: (A) The Development has on on-site care coordinator or service coordinator on site for a minimum of 15 hours per week (3 points); or (B) The Development Site is within 1 mile of a Senior Center (2 points)." Commenter (49) recommended that only general population developments should be eligible to receive points under this scoring item and stated that elderly developments do not provide access to education excellence for its residents because such developments exclude families with children. According to commenter (49) awarding superficial points to elderly developments in areas of high opportunity hinders the development of housing for families with children because local governments reacting to NIMBY are more likely to support the elderly developments. Commenter (12) stated the intent of this scoring item is to locate housing in non-hispanic Caucasian neighborhoods while making it nearly impossible to locate an HTC development in predominately minority neighborhoods, which according to Commenter (12), is a violation of the Fair Housing Act. Commenter (12) suggested the Department remove this scoring item until it has been determined that it is not a violation of intentional discrimination. Commenter (25) expressed concern over this scoring item because it awards points on the basis of TEA ratings which compounds the effects of utilizing poverty rates to disadvantage and penalize poor neighborhoods. Similar to their comments on the Opportunity Index, commenter (25) believes that thought needs to be given to the impact on origin and destination schools when schools close as enrollment declines which further compound the challenges in turning these communities around. Commenter (30) recommended the following modifications to this scoring item: "(5) Educational Excellence. An Application may qualify to receive up to three (3) points for a Development Site located within the attendance zones of a school district (ISD) or public schools (whichever is higher) that have achieved a 76 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency (or 73 or greater for Developments in Region 11), provided that the ISD or the schools also have a Met Standard rating. If the ISD includes schools with district wide possibility of enrollment or no defined attendance zones (commonly known as school choice programs), an Applicant may use 39 TexReg 9944 December 19, 2014 Texas Register

the rating of the ISD or the public schools (whichever is higher). In districts with district-wide enrollment, if the Applicant elects to use the rating of the public schools (elementary, middle and high schools), such schools must be those located nearest to or within 1 mile of the Development Site and the ISD must provide confirmation that the children of the Development will be able to either select or automatically attend such schools. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. The applicable ISD or school rating will be the 2014 accountability rating assigned by the Texas Education Agency... (A) The Development Site is within the ISD or the attendance zone of an elementary school, a middle school and a high school with the appropriate rating (3 points); or..." Commenter (28) recommended that for districts with district wide enrollment, the district wide rating or the school rating closest to the development site needs to be used and not the lowest available. Commenter (28) also stated that the ability to put housing in areas with good schools is being hindered with use of the lowest scoring school approach. Commenter (28) further added that the average rating for school performance should be related to their MSA and not every area of the state. Commenter (6) requested free public charter schools that are within one mile of the proposed development should be included as an alternative to independent school systems and suggested the following revision: "(5) Educational Excellence. An Application may qualify to receive up to three (3) points for a Development Site located within the attendance zones of public schools (including free public charter schools) that have achieved a 77 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency, provided that the schools also have a Met Standard rating. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph." Commenters (20), (36), (49) expressed support for the use of the rating of 77 or greater for certain point selections since it is based on current TEA averages and feels that use of any other number would be arbitrary. STAFF RESPONSE: In response to Commenter (4), (28), (30), and (50), while staff did recommend some revisions related to Choice School Programs, staff did not recommend changes in relation to district-wide enrollment. While Choice Programs allow tenants some ability to choose the school at which their children will attend, district-wide enrollment can easily result in students having to travel past highly rated schools to attend less highly rated schools, especially if any of the factors used by the district to determine where a child will attend school involves the overall population of the school and/or other demographic data. Furthermore, the use of the lowest rating of the schools instead of the district rating is even more appropriate with respect to Educational Excellence, since this scoring item focuses on distinguishing between elementary, middle, and high schools. In response to Commenter (30) with respect to the threshold of a score of 77 on Index 1 of the performance index, staff did not recommend any revision because the threshold is based on the state average, as published by the TEA. Staff appreciated the support for the threshold expressed by Commenters (20), (36), and (49). In response to Commenter (14), (15), and (28), not only did staff analyze the regional averages published by the TEA and found them to be relatively similar across the state (with the exception of Region 11), but staff believes it is impractical to use a threshold based on MSA, county or regional averages. (In addition, although TEA calculated regional averages, those regions do not align with the Department's regions. Although staff was able to analyze the data provided by TEA, it is difficult to calculate averages of the Department's regions with great accuracy.) Staff appreciated the support expressed by Commenters (20) and (36) for 77 as the threshold with respect to the Opportunity Index. In response to Commenter (6), while staff would be willing to consider free public charter schools, it would only be under the circumstance that the tenants of the proposed development would be guaranteed attendance at such schools. If the school is unavailable to the tenant, its proximity loses some of its value to the tenant. In response to Commenter (13), while staff appreciates the unique circumstances faced by those applying under the USDA Set-Aside, in general staff did not recommend changes to the threshold related to evaluating schools, with the exception of those in Region 11. Staff continues to work closely with stakeholders to establish an alternate way to prioritize these rural rehabilitation developments. In response to Commenter (18), staff disagreed that Qualified Elderly developments should be able to achieve these points through another mechanism not related to proximity to highly rated schools. Staff notes that Commenter (49) suggested the opposite, that Qualified Elderly developments should not be able to access these points at all. Staff believes that while quality schools may not directly impact the elderly population, they do speak (at least in part) to the overall character of a neighborhood, and this is important to any vulnerable population, whether that vulnerability comes from age, disability, low-income status, or any number of other situations. Therefore, staff did not recommend any changes with respect to Qualified Elderly developments. To further respond to Commenter (18) with respect to applications proposing rehabilitation, while this and other scoring items might inadvertently incentivize new construction over rehabilitation activities in the regional allocation, 15% of the total allocation goes directly to the At-Risk Set-Aside, ensuring that preservation is accomplished each year. Staff disagreed with the assertion from Commenters (12) and (25) that the use of the Educational Excellence scoring item to evaluate applications equates to redlining. In response to Commenter (25), while staff appreciated that there always lies the possibility of problems associated with "origin" schools losing attendance and closing, it does not change the objectives of providing fair housing choice and encouraging development in areas of either high opportunity (including areas of educational excellence) or significant community revitalization - in all areas of the state - and providing overall diversity in housing options to low income Texans. In response to Commenters (9) and (19) with respect to awarding one point for each school that is highly rated, staff believes this only allows Applicants to "double count" a highly rated elementary school. This essentially makes the Opportunity Index (in urban areas) worth up to 8 points instead of 7, since the elementary school is already counting toward points in that scoring category. In response to Commenters (3), and (31), staff agreed that some adjustment should be made for region 11 with respect to the index 1 score threshold for schools to qualify an application for points. Staff found, through an analysis of the data provided by the TEA, that the average index 1 score for elementary schools in region 11 is approximately 75, and the average index 1 score for middle and high schools (combined) is approximately 68. Staff did not calculate averages for rural and urban communities separately since school districts do not necessarily align with the Department's definitions of urban and rural, and staff did not recommend different thresholds for urban and rural communities. In response to Commenters (9), (19), and (50), staff agreed and recommended a change to allow for 1 point under this scoring item if both a middle school and high ADOPTED RULES December 19, 2014 39 TexReg 9945

school are highly rated but where the elementary school does not meet the required threshold. In light of all comments received, staff recommended the following revision to 11.9(c)(5): "Educational Excellence. An Application may qualify to receive up to three (3) points for a Development Site located within the attendance zones of public schools that have achieved a 77 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency, provided that the schools also have a Met Standard rating. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. An attendance zone does not include schools with district-wide possibility of enrollment or no defined attendance zones, sometimes known as magnet schools. However, in districts with district-wide enrollment an Applicant may use the lowest rating of all elementary, middle, or high schools, respectively, which may possibly be attended by the tenants. In districts with "choice" programs, where students can select one or more schools in the district that they wish to attend, an Applicant may use the district rating. The applicable school rating will be the 2014 accountability rating assigned by the Texas Education Agency. School ratings will be determined by the school number, so that in the case where a new school is formed or named or consolidated with another school but is considered to have the same number that rating will be used. A school that has never been rated by the Texas Education Agency will use the district rating. If a school is configured to serve grades that do not align with the Texas Education Agency's conventions for defining elementary schools (typically grades K-5 or K-6), middle schools (typically grades 6-8 or 7-8) and high schools (typically grades 9-12), the school will be considered to have the lower of the ratings of the schools that would be combined to meet those conventions. In determining the ratings for all three levels of schools, ratings for all grades K-12 must be included, meaning that two or more schools' ratings may be combined. For example, in the case of an elementary school which serves grades K-4 and an intermediate school that serves grades 5-6, the elementary school rating will be the lower of those two schools' ratings. Also, in the case of a 9th grade center and a high school that serves grades 10-12, the high school rating will be considered the lower of those two schools' ratings. Sixth grade centers will be considered as part of the middle school rating. (A) The Development Site is within the attendance zone of an elementary school, a middle school and a high school with the appropriate rating. For Developments in Region 11, the middle school and high school must achieve an Index 1 score of at least 70 to be eligible for these points (3 points); or (B) The Development Site is within the attendance zone of an elementary school and either a middle school or high school with the appropriate rating. For Developments in Region 11, the middle school or high school must achieve an Index 1 score of at least 70 to be eligible for these points (1 point); or (C) The Development Site is within the attendance zone of a middle school and high school with the appropriate rating. For Developments in Region 11, the middle school and high school must achieve an Index 1 score of at least 70 to be eligible for these points (1 point)." BOARD RESPONSE: Accepted staff's recommendation. 11.9(c)(7) - Selection Criteria - Tenant Populations with Special Housing Needs (8), (10), (13), (15), (18), (19), (20), (27), (30), (33), (34), (36), (38), (39), (41), (44), (48), (50), (53), (54) COMMENT SUMMARY: Commenter (8) expressed support for the inclusion of the Section 811 Rental Assistance Demonstration Program and suggested the following considerations be given with regards to this scoring item: The Development is not located in an area of high criminal activity; Each Development has adequate security procedures and equipment in place to safeguard this vulnerable population; The Development is in proximity or readily accessible to needed service providers; Public transportation is available in front of or on the property with other transportation options such as Metro Lift and State of Texas' medical transportation being readily available as well; Property owners and staff have experience or agree to obtain training in understanding the conditions as well as best practices to interact with people with disabilities; The units designated as part of the program should be dispersed throughout the property and should be equivalent in size, quality and desirable locations within the development; and The number of available points under this scoring item should be increased from two (2) to five (5) with points being assigned based on the number of units designated for the disability program. Commenter (38) also expressed support for the inclusion of the Section 811 Program for owners that choose to participate through application on an existing property and further noted that this scoring item will support the targeted population in accessing affordable housing in their communities, including individuals with serious mental illness that are engaged in services but face challenges due to housing instability. Similarly, commenters (48), (53), (54) voiced support by stating it creates the opportunity for persons with disabilities to live as independently as possible through the coordination of voluntary services and the provision of a choice of subsidized, integrated rental housing options. Commenter (39) expressed that Department staff, through multiple meetings and roundtable discussions, considered how to incentivize use of the 811 Program in conjunction with the HTC program and indicated that developers held misconceptions in the provision of long term services, myths about the people that will benefit and concerns with the burdensome requirements for a provider of project rental assistance. Commenter (39) further expressed support for this scoring item and specifically for incentivizing the participation of HTC developers. Commenter (13) recommended the following modification stating the grandfathering rule should apply in urban rim areas where rural projects were built long ago and the city limits have grown out to meet the once rural locations. According to commenter (13), USDA properties are accepting the 811 population in their projects currently, the Section 515 properties will be competing in the USDA set-aside, not in urban sub-regions and the scoring should remain consistent within the set-aside. "(7) Tenant Populations with Special Housing Needs. ( 42(m)(1)(C)(v)) An Application may qualify to receive two (2) points by serving Tenants with Special Housing Needs. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. (A) Applications meeting all of the requirements in clauses (i) - (iv) of this subparagraph are eligible to receive two (2) points by 39 TexReg 9946 December 19, 2014 Texas Register

committing to participate in the Department's Section 811 Project Rental Assistance Demonstration Program ("Section 811 Program")... In order to be eligible for these points, an Application is required to participate in the Section 811 Program, unless any one of the following provisions under clauses (i) - (iv) of this subparagraph are not met... (iv) The Development Site must be located in one of the following areas: Austin-Round Rock MSA, Brownsville-Harlingen MSA, Dallas-Fort Worth MSA; El Paso MSA; Houston-The Woodlands- Sugar Land MSA; McAllen-Edinburg-Mission MSA; or San Antonio-New Braunfels MSA. For purposes of this subsection, the definition of a rural area includes existing USDA projects retaining USDA financing." Commenters (15), (34), (44), (50) expressed opposition to the inclusion of a point incentive for participation in the 811 program and recommended such participation be deleted from the QAP. According to commenter (15), (50) the population that the 811 program is intended to serve require more extensive services than are provided at a typical HTC property. Commenters (15), (34), (44), (50) believed the 811 program would be more successful if an RFP process was created whereby developers with the necessary experience in serving this type of population can voluntarily apply. Moreover, commenter (15) offered that should the RFP process be undersubscribed after two RFP rounds then the Department could consider incentivizing participation through the HTC program. As an alternative to completely removing participation in the 2015 QAP, commenter (15) suggested limiting those applications that qualify for subparagraph (A) to those applications in the city limits of Dallas, Fort Worth, Houston, Austin and San Antonio and reduce the points from 2 points to 1 point for both subparagraphs (A) and (B). Similarly, commenter (19) recommended the 811 program be removed as a scoring item and be administered through a separate process. However, should the program remain in the QAP, commenter (19) suggested it apply very narrowly to those large cities within each of the MSA's which would address the needs of the residents to remain near public transportation and services. Commenter (19) also recommended that supportive housing be removed from the requirement because the index would violate the Department's Integrated Housing Rule of not allowing more than 25% of the total units to be set aside or have an occupancy preference for persons with disabilities, including Section 811 PRA units. Commenters (33), (34) requested Supportive Housing be removed from this requirement to provide units under the 811 program. Commenters (33), (34) indicated that while some may argue that Supportive Housing may have an advantage under this provision, it is not the case as many of the developments in this commenter's portfolio would not qualify due to violation of the 25% Integrated Housing maximum that will be placed on Supportive Housing for purposes of the 811 program. Based on the Department's Integrated Housing rule, supportive housing designed for special needs populations is exempt; the HUD rule does not allow such exemption. Moreover, commenters (33), (34) stated it is critical for supportive housing developments to seek sources of gap financing in order to be financially feasible and many of the gap funding sources requires their own set-asides in order to be competitive for the funding. Commenters (33), (34) recommended this section be modified to add the following: "(7) Tenant Populations with Special Housing Needs. ( 42(m)(1)(C)(v)) An Application may qualify to receive two (2) points by serving Tenants with Special Housing Needs. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. (A) Applications meeting all of the requirements in clauses (i) - (v) of this subparagraph are eligible to receive two (2) points by committing to participate in the Department's Section 811 Project Rental Assistance Demonstration Program ("Section 811 Program)... In order to be eligible for these points, an Application is required to participate in the Section 811 Program, unless any one of the following provisions under clauses (i) - (v) of this subparagraph are not met. (i) The Development must not be a Qualified Elderly Development; (ii) The Development must not be originally constructed before 1978; (iii) The units committed to the Section 811 Program in the Development must not have any other sources of project-based rental or operating assistance; (iv) The Development Site must be located in one of the following areas: Austin-Round Rock MSA, Brownsville-Harlingen MSA, Dallas-Fort Worth MSA; El Paso MSA; Houston-The Woodlands- Sugar Land MSA; McAllen-Edinburg-Mission MSA; or San Antonio-New Braunfels MSA; and (v) The Development must not be a Supportive Housing Development." In addition to the request to include supportive housing under the 811 program, commenter (33) requested clarification regarding the Draft Property Management Agreement Provisions. Specifically, the language to "make the first initial vacancies available to Section 811 applicants"; commenter (33) indicated that with HTC developments the goal during lease-up is to get units tagged for credits as soon as possible and that for Section 811 the requirement is for the units to only be made available as opposed to set-aside for such prospective tenants. Moreover, commenter (33) recommended vacancy payments be a part of the 811 program and stressed that with most of their voucher programs such payment is essential to keep the property revenue positive; holding units vacant without payment would be a fiscal blow to a property. Commenter (30) recommended this scoring item be modified to give applicants the option of qualifying for points under subparagraph (A) or (B) or that subparagraph (A) be removed. According to commenter (30), imposing the uncertainty of the 811 program, both short and long-term on applicants, many of whom do not have the expertise necessary to support this specialized population, is unfair. Commenter (30) suggested the 811 program first be made available to those non-profits and housing authorities with existing or proposed developments in Houston, Dallas, San Antonio, Fort Worth and Austin through an RFP process. Commenter (30) indicated that such awards could be based, at a minimum on, (i) the experience of the applicant/sponsor in housing, and in providing services unique to a special needs population, and (ii) the location of the development to transportation that will allow the tenant to access medical services and other required resources, not otherwise provided by the applicant/sponsor. Commenter (50) suggested that should the Section 811 program remain in the QAP it should be optional or be required for Supportive Housing Developments since such developments will be more suitable for such residents and the developers and property managers of supportive housing properties will be better equipped to work with and will have more access to the resources necessary to properly serve Section 811 residents. Commenter (50) further asserted the 811 program ADOPTED RULES December 19, 2014 39 TexReg 9947

puts an unequal burden on developers in the MSAs selected because they will have to compete with others in their same sub-region that do not qualify for Section 811 because of their county or other reason, and they can get the two points without having to participate in this new and unproven program. Commenter (50) echoed the concerns noted by other commenters regarding the additional expenses to properties in connection with the 811 program and further added that in making this program a requirement the Department is requiring owners who desire to build in certain MSAs to work with HUD even though it is not in their original plan to do so. While commenter (50) prefers the Department remove the Section 811 language from this scoring item for 2015, other recommended changes were suggested in the event the requirement remains which include: Option 1: "(7) Tenant Populations with Special Housing Needs. ( 42(m)(1)(C)(v)) An Application may qualify to receive two (2) points by serving Tenants with Special Housing Needs. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. (A)... In order to be eligible for these points, an Application may choose to participate in the Section 811 Program, unless any one of the following provisions under clauses (i) - (iv) of this subparagraph are not met... (B) Applications proposing Developments that do not meet the requirements of subparagraph (A) of this paragraph or choose not to participate in Section 811 may qualify for two (2) points for meeting the requirements of this subparagraph..." Option 2: "(7) Tenant Populations with Special Housing Needs. ( 42(m)(1)(C)(v)) An Application may qualify to receive two (2) points by serving Tenants with Special Housing Needs. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. (A)... In order to be eligible for these points, an Application is required to participate in the Section 811 Program, unless any one of the following provisions under clauses (i) - (iv) of this subparagraph are not met. (i) The Development must not be a Qualified Elderly Development; (ii) The Development is Supportive Housing; (iii) The Development must not be originally constructed before 1978; (iv) The units committed to the Section 811 Program in the Development must not have any other sources of project-based rental or operating assistance; and (v) The Development Site must be located in one of the following areas: Austin-Round Rock MSA, Brownsville-Harlingen MSA, Dallas-Fort Worth MSA; El Paso MSA; Houston-The Woodlands- Sugar Land MSA; McAllen-Edinburg-Mission MSA; or San Antonio-New Braunfels MSA." Commenter (18) expressed concern over the supportive services that are required for residents with special needs and recommended developments that receive additional points under this scoring item be required to provide adequate services on-site for these tenants and have sufficient service experience or have an MOU with a service provider to deliver these services. Commenter (44) stated that while staff has worked hard on the 811 program with HUD, there remains a lot of work to define and establish a working 811 program. Specifically, commenter (44) identified several areas of this program that remain unresolved: the robust services that will be needed for the residents will only be available through the third party providers during business hours, developments in the 500 year floodplain are ineligible, the Cooperative Agreement, which will serve for the rules and guidelines for the program has yet to be finalized and executed, in addition to the Program Manuals, the parameters under which existing HTC properties can be eligible for such populations remains unclear and an uneven playing field will exist because not all applicants will have existing properties that are eligible. Moreover, commenter (44) expressed concern over the increased construction and development costs, increased time to complete development and construction, higher management and operating expenses (due to having to use HUD's Tenant Rental Assistance Certification System, Enterprise Income Verification and Section 811 Model Lease) for the life of the property that will be associated with this 811 program. Commenters (20), (36) requested that any unit requirements for the 811 program be at a level that does not require Davis-Bacon, such as 8 units. Commenters (20), (36) believed that including Davis-Bacon will have a profound impact on construction costs and require more tax credits, thus leading to fewer awards and less geographical distribution of credits. Commenter (27) recommended that developments participating in Houston's PSH program receive the same points as the Section 811 Program with the only criteria for these points being participation in the City of Houston's/Harris County's PSH program. Commenter (27) indicated the Department's 811 program is in direct conflict with the structure of the PSH program which is designed to have a critical mass of qualified residents in order to provide intensive supportive services on site and in most cases about 20 residents is the critical number for on-site services. Moreover, PSH developers are specifically offered vouchers to guarantee that rents will be available for these tenants. Commenter (27) requested the PSH program be a third option offering the same points as the 811 program as reflected in their proposed modification to this scoring item: "(7) Tenant Populations with Special Housing Needs. ( 42(m)(1)(C)(v)) An Application may qualify to receive two (2) points by serving Tenants with Special Housing Needs. Points will be awarded as described in subparagraphs (A) (B) and (C) of this paragraph. (A) Application may qualify to receive two (2) points to meet the needs of the chronically homeless in Region 6 if the developer is a participant in the City of Houston's Permanent Supportive Housing program. Applications meeting all of the requirements in clauses (i) - (iv) of this subparagraph are eligible to receive two (2) points by committing to participate in the City of Houston's Permanent Supportive Housing program. Applicants must commit the specified number of units in the proposed Development. Participation in the PSH Program will require execution of a PSH Loan Agreement with the City of Houston and other required documents on or before HTC Commitment. Applicants who have applied to participate under the 2014 PSH Program RFP prior to the Application submission and receive an award prior to July 1, 2015 may use units identified in that PSH application to qualify for points under this paragraph with the same number of units as would be required for the new Application. The same units cannot be used to qualify for points in more than one HTC Application. Once elected in the Application, Applicants may not withdraw their commitment to participate in the 39 TexReg 9948 December 19, 2014 Texas Register

PSH Program. If commitment is withdrawn, these points shall be forfeited. Should an Applicant receive an award of HTC's, the Department may allow Applicants to substitute alternate units in an existing Development in the Applicant's or Affiliates' portfolio, consistent with the City's PSH program: such properties require approval by the Department to commit the same number of units in an existing Development in the Applicant's or an Affiliate's portfolio that will qualify as PSH Program participating units. Applicants must commit at least 10 Units for participation in the PSH Program. (i)the Development may be a Qualified Elderly Development; (ii)the Development must not be originally constructed before 1978; (iii)the units committed to the PSH Program in the Development may have other sources of project-based or operating assistance; and (iv)the Development Site must be located in Houston-The Woodlands-Sugar Land MSA." Commenter (41) indicated the inclusion of the 811 program will encourage applicants to submit applications for elderly developments since they can receive just as many points without participating instead of general population. Commenter (10) suggested the term migrant farmworker in this section be changed to migrant and seasonal farmworker or simply farmworker to be consistent with sources quoted in the discussion of farmworkers in the State of Texas Analysis of Impediments to Fair Housing Choice as well as other federal program documents. STAFF RESPONSE: Staff appreciated the general comments and support for the Section 811 PRA Program's inclusion the 2015 QAP expressed by Commenters (38), (39), (48), (53), and (54). In response to Commenter (8) regarding suggestions related to Development siting, the Section 811 Program inclusion in the 2015 QAP allows for units to be located in a wide variety of locations. In order to maximize tenant choice, staff recommended no change based on these recommendations. In response to the suggestions related to on-site security and staff training, the Department does not anticipate a need for additional security procedures and equipment for Developments that are hosting Section 811 units. In addition, the Department will be providing training for Property Management staff. With respect to the 811 units being dispersed throughout the Property and equivalent in size, quality, and desirable locations within the development, the Section 811 units are required by federal regulations to be dispersed throughout the property and this clarification is included in the program requirements. The Property will be required to place households in units that are appropriate to the bedroom size and of the same type, quality, and location as non-811 units. Therefore, staff recommended no change based on these comments. In response to Commenter (8) regarding increasing the number of points for this scoring item, staff believed that 2 points is adequate to incentivize participation in the program and recommended no change based on this comment. In addition, staff received comment to the contrary, suggesting that the scoring item be reduced to a 1-point item and/or the incentive to participate in the program be removed entirely. In response to Commenter (39) regarding possible misconceptions about the program and the population it serves, staff intends to provide training for Owners and Property Managers and; therefore, recommended no change based on this comment. In response to Commenter (13) regarding USDA properties being exempt from participation in the 811 program, staff believes that USDA properties, if located in the MSAs, could be a good resource for Section 811 tenants and provide more housing choice. Staff recommended no change based on this comment. In response to Commenters (15), (19), (34), (44), and (50) suggesting that the incentive be removed completely, staff did not recommend such a change. Considering that the program is supported by those with a particular interest in serving these populations but opposed by the potential applicants, and based on several conversations with those in the development community, staff believes that the most effective way to achieve the goals of the Section 811 Program is through this incentive. In response to Commenters (15), (44), and (50) regarding extensive services required by individuals living in Section 811 units, the Section 811 program is designed to only serve individuals who already have access to community-based services and supports. Therefore, staff recommended no change. In response to Commenters (15), (19), (30), (34), (44) and (50) regarding an RFP process in place of this incentive, staff believes that releasing an RFP (or NOFA) without incentives for participation will result in very few responses and a substantial delay of the implementation of the program. This would unnecessarily contribute to the ongoing institutionalization of persons with disabilities who could otherwise live in the community if they had access to affordable housing. Additionally, persons with severe mental illness and youth and young adults aging out of the foster care system have a current demonstrated high need for more affordable, integrated housing options. Staff received prior board approval to publish a Notice of Funding Availability (NOFA) for the Section 811 Program but does not anticipate doing so until staff can analyze the Section 811 units in the program as a result of the 2015 Competitive HTC cycle. Staff may release a NOFA to fill in location gaps or to expend more 811 funds in general. Therefore, staff recommended no change. In response to Commenters (15) and (19) regarding limiting the Section 811 program to those developments located within the city limits of the larger cities within the MSAs, staff believes this would eliminate hundreds of qualified beneficiaries from the program. This is evidenced by the data provided by the Texas Health and Human Services agencies on the locations of people who are members of the Section 811 program's Target Population. In addition, this geographic change would limit a large number of potential properties who could qualify for the program that would reduce tenant choice. Therefore, staff recommended no change. In response to Commenter (15) regarding the point value being reduced from 2 points to 1 point, staff believed that 2 points is appropriate in order to incentivize the program adequately. In addition, staff received comment to the contrary, suggesting that the incentive be increased. Staff recommended no change. In response to Commenter (19) regarding proximity to services and transportation within the MSAs, staff does not find that there is a compelling need to further limit the housing choice of potential beneficiaries. The seven MSAs were chosen through an extensive public process to ensure geographic dispersion and because the Texas Health and Human Services Commission, through the Inter-Agency Partnership Agreement, has indicated that adequate community-based services and supports are available in these areas. In addition, not all Section 811 tenants may need close access to public transportation. Having a wide variety of location choices for Section 811 tenants will promote tenant choice. Therefore, staff recommended no change. Staff supported the suggestion of Commenters (19), (33), and (34) that supportive housing be exempted from the requirements of 11.9(c)(7)(A). Due to the potential conflicts in the integrated housing rule required by HUD and the business model of supportive housing ADOPTED RULES December 19, 2014 39 TexReg 9949

developments, staff supported this change and recommended revising the scoring item accordingly. In response to Commenter (33) regarding the Draft Property Agreement, a document to be signed by the Owner and the Department after award of Section 811 units, and regarding vacancy payments, staff appreciated these comments and will consider them. However, they are not relevant to the scoring item in the QAP, but are Section 811 Program considerations. In response to Commenter (50) regarding the suggestion that participation in the Section 811 Program be required for only for Supportive Housing Developments, staff did not recommend such a change. Staff actually received comment to the contrary, pointing out that there are relatively few qualified Supportive Housing Developments that participate in the Housing Tax Credit Program and that there are potential conflicts between HUD's integrated housing requirements and the model currently used in supportive housing developments. Therefore, staff instead recommended that Supportive Housing developments not be required to participate in the program in order to achieve points. With respect to making participation in the program optional in order to achieve points, staff believes that making the Section 811 program optional would take away the incentive provided by the point item; therefore staff did not recommend this change. In response to Commenters (19), (44), and (50) regarding the point structure creating undue burdens on developers in MSAs competing with those outside of a qualifying MSA, staff suggested that developers have many options when preparing applications. While staff appreciates the competitive nature of the process and that the vast majority of applicants will be tempted to request the points on the application, it is still a business decision on the part of the owner as to whether or not to participate in the Section 811 program. Should developers find that it is too burdensome, they can choose not to elect the points. There are many instances in which applicants make similar decisions, for example in choosing whether or not to partner with a HUB or non-profit, requesting more or less credit in order to maximize either equity or leverage, etc. Staff has awarded several applications that did not achieve maximum points in every scoring category. Therefore, staff did not recommend removing the incentive based on these comments. In response to Commenter (18), staff agreed with the idea in general that developments could benefit from additional onsite services and service coordinators. However, staff did not recommend that any additional requirements be added to the rules with respect to services provided. Regarding those services as it relates directly to Section 811 Program units, the tenants in those units will be provided services from local service providers, so participation in the program ideally would not cause the development owner to need additional onsite services. In response to Commenter (44) with respect to the third party service providers, staff is working with HHSC staff to identify resources, when available, for after hours support for Section 811 tenants, but does not believe this is necessary for the program to be successful. Regarding developments that may potentially be ineligible due to location in the 500 year flood plain, staff recommended language in the rule that will exempt developments from participating should they be unable to meet all of the program requirements, including any related to location in a floodplain that cannot be reasonably mitigated. With respect to the final version of the Cooperative Agreement, staff does not anticipate anything in the final negations to impact program design. In the unlikely event that happens, the Board has the authority to either waive the 811 requirements or to determine that a Development is not required to participate in the program (and possibly instead serve other special needs populations) in order to retain points elected on the HTC application, and staff would recommend granting such a waiver. Regarding the concern that the Program Manuals are not finalized, the Department has contracted with the Technical Assistance Collaborative, a national expert on the Section 811 PRA Program, to create the implementation manuals. These manuals are on track to be finalized by the end of 2014, far before a Property or Tenant will be in place for the Program. Therefore, staff did not recommend any changes based on these comments. In response to Commenter (44) regarding concern that the parameters under which existing development may be eligible to participate in the Section 811 Program is unclear, staff presented a draft of the Program Criteria at a September 30, 2014 roundtable discussion and made it available on the TDHCA website. In addition, TDHCA published an on-line discussion forum to receive feedback on the criteria, in addition to other program design elements. Staff received no comments on the on-line forum regarding the Program Criteria. However, staff has heard from the development community that they would prefer to have the option to place Section 811 units in an existing Development and agrees with this concept as it will make units available sooner for Section 811 tenants. In addition, this Program Criteria was presented to the Board at the November 13, 2014 meeting for consideration. In response to Commenters (20) and (36) concerning requirements to use Davis Bacon standards, those standards are set by HUD, and can be viewed in the Section 811 Program Guidelines, under PRA.213, available on the TDHCA website. In general, Davis Bacon standards will only be a requirement for Properties that have more 12 or more units under one construction contract assisted by 811 or because other funding in the Development triggers the requirement. The QAP only requires that Applicants select 10 units for participation in the 811 Program in order to qualify for points. In response to Commenter (27) regarding the City of Houston/Harris County's PSH program, while staff is supportive of the program itself (and incentivizes participation in it via another scoring item), that program serves a different population (the chronically homeless) than the Section 811 PRA program and; therefore, should be compatible with the Section 811 PRA program. Staff did not recommend any change based on these comments. In response to Commenter (41) regarding the idea that applicants will be encouraged to submit applications for elderly developments since they are not required to participate in the section 811 Program, staff has considered the same. However, this is only speculation, and there is not a clear remedy for the situation if that proves to be the case. The Section 811 Program serves households with an eligible person with a disability at least 18 years of age and under the age of 62, so it is impractical to require Qualified Elderly developments to participate. While staff recommended lifting the 2014 restriction against elderly developments in some sub-regions and counties, staff did not recommend any changes to scoring items that would afford Qualified Elderly applications the ability to achieve additional points. This could work to balance incentives between general population and Qualified Elderly applications. In response to Commenter (10), the term has been changed to farm worker. Staff recommended the following revisions to clarify the rule and to address some of the concerns of the commenters. "(7) Tenant Populations with Special Housing Needs. ( 42(m)(1)(C)(v)) An Application may qualify to receive two (2) points by serving Tenants with Special Housing Needs. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. 39 TexReg 9950 December 19, 2014 Texas Register

(A) Applications meeting all of the requirements in clauses (i) - (iv) of this subparagraph are eligible to receive two (2) points by committing to participate in the Department's Section 811 Project Rental Assistance Demonstration Program ("Section 811 Program"). In order to be eligible for points, Applicants must commit at least 10 Units in the proposed Development for participation in the Section 811 Program unless the Integrated Housing Rule (10 TAC 1.15) or Section 811 Program guidelines and program requirements limits the proposed Development to fewer than 10 Units. Alternatively, Applications may qualify for points if evidence is submitted in the Application that indicates approval by the Department to commit the same number of units (as would be required in the proposed Development) in an existing Development in the Applicant's or an Affiliate's portfolio. Participation in the Section 811 Program will require execution of a Section 811 property agreement and other required documents on or before HTC Commitment. The same units cannot be used to qualify for points in more than one HTC Application. Once elected in the Application, Applicants may not withdraw their commitment to participate in the Section 811 Program unless the Department determines that the Development cannot meet all of the Section 811 program criteria. In this case, staff may allow the Application to qualify for points by meeting the requirements of subparagraph (B) of this paragraph. Should an Applicant receive an award of HTCs, the Department may allow Applicants to substitute alternate units in an existing Development in the Applicant's or Affiliates' portfolio; such properties require approval by the Department to commit the same number of units in the existing Development as were committed in the Application. It is the Applicant's responsibility to familiarize themselves with the Section 811 Program guidelines and program requirements, including the 30-year use restriction for the 811 units, before selecting points. (i) The Development must not be a Qualified Elderly Development or Supportive Housing; (ii) The Development must not be originally constructed before 1978; (iii) The Development has units available to be committed to the Section 811 Program in the Development, meaning that those units do not have any other sources of project-based rental or long-term operating assistance within 6 months of receiving 811 assistance and cannot have an existing restriction for persons with disabilities; and (iv) The Development Site must be located in one of the following areas: Austin-Round Rock MSA, Brownsville-Harlingen MSA, Dallas-Fort Worth-Arlington MSA; El Paso MSA; Houston-The Woodlands-Sugar Land MSA; McAllen-Edinburg-Mission MSA; or San Antonio-New Braunfels MSA. (B) Applications proposing Developments that do not meet all of the requirements of clauses (i) - (iv) of subparagraph (A) of this paragraph may qualify for two (2) points for meeting the requirements of this subparagraph. In order to qualify for points, Applicants must agree to set-aside at least 5 percent of the total Units for Persons with Special Needs. For purposes of this subparagraph, Persons with Special Needs is defined as households where one individual has alcohol and/or drug addictions, Colonia resident, Persons with Disabilities, Violence Against Women Act Protections (domestic violence, dating violence, sexual assault, and stalking), persons with HIV/AIDS, homeless populations, veterans, wounded warriors (as defined by the Caring for Wounded Warriors Act of 2008), and farmworkers. Throughout the Compliance Period, unless otherwise permitted by the Department, the Development Owner agrees to affirmatively market Units to Persons with Special Needs. In addition, the Department will require an initial minimum twelve-month period during which Units must either be occupied by Persons with Special Needs or held vacant. After the initial twelve-month period, the Development Owner will no longer be required to hold Units vacant for Persons with Special Needs, but will be required to continue to affirmatively market Units to Persons with Special Needs." BOARD RESPONSE: Accepted staff's recommendation. 11.9(d)(1) - Selection Criteria - Local Government Support (2), (6), (11), (30) COMMENT SUMMARY: Commenters (2), (11) recommended this scoring item be modified to require all local governments to hold a public hearing and/or public comment period before they vote on a resolution in support of an application and further stated that citizens deserve a voice in what happens in their state and local areas. These commenters expressed concern over the lack of transparency in the HTC program administered by the Department. Commenter (6) articulated that in order to achieve the maximum number of points under this scoring item, such resolutions should be accompanied by direct monetary support by the municipality for the development. While commenter (6) recognizes financial support from the municipality is addressed in another scoring item, they believe the points associated with local support from the elected officials of the municipality should also be tied to funding received from that municipality. Commenter (6) recommended the following changes: "(A) Within a municipality, the Application will receive: (i) seventeen (17) points for a resolution from the Governing Body of that municipality expressly setting forth that the munic- ipality supports the Application or Development and the munici- the pality provides at least $1,100,000 of local funding directly to development; or (ii) sixteen (16) points for a resolution from the Governing Body of that municipality expressly setting forth that the municipality sup- ports the Application or Development and the municipality pro- directly to the development; or vides at least $700,000 but less than $1,100,000 of local funding (iii) fifteen (15) points for a resolution from the Governing Body of that municipality expressly setting forth that the municipality supports the Application or Development and the municipality provides at least $350,000 but less than $700,000 of local funding directly to the development; or (iv) fourteen (14) points for a resolution from the Governing Body of that municipality expressly setting forth that the municipality supports the Application or Development and the municipality provides less than $350,000 of local funding directly to the development; or (v) thirteen (13) points for a resolution from the Governing Body of that municipality expressly setting forth that the municipality has no objection to the Application or Development. Commenter (30) suggested that if the Department is striving to de-concentrate housing in those counties with less than one milsuch lion in population, then this scoring item should be adjusted that the maximum points remain at seventeen (17) but then albody low for one additional point to be obtained if the governing of the municipality or county (as applicable) explicitly identifies a specific application as one of significant importance to that mu- ADOPTED RULES December 19, 2014 39 TexReg 9951

nicipality or county. Commenter (30) further added that similar to revitalization, a municipality or county may only identify one single application during each application round and should multiple applications submit resolutions under this item then none of those particular applications will be eligible for the additional point. STAFF RESPONSE: In response to Commenters (2) and (11), the QAP reflects the statutory requirements of this scoring item without much elaboration. Statute specifically requires a public hearing for eligibility with respect to tax-exempt bond applications, but that requirement is left out of the statute with respect to competitive 9% applications. In addition, the Department's application requirements are based in statute with some practical considerations for staff review. All of the application materials are available to the public on the website, and all correspondence with respect to the reviews of those applications is available via open records requests. Staff makes every effort to be fair and transparent in the process, from rule-making through application acceptance, review, and award. In response to Commenter (6), again, the QAP reflects the statutory requirement without much elaboration. Additionally, as recognized by the commenter, financial support is addressed in another scoring item. Therefore, staff feels that tying financial support to this scoring item is unnecessary, redundant, and inconsistent with the statute. While staff appreciated the idea of further differentiation as suggested by Commenter (30), staff hesitated to recommend such a change without weigh-in from other stakeholders, including local municipalities and/or the Board. Staff recommended no change based on these comments. BOARD RESPONSE: Accepted staff's recommendation. 11.9(d)(4) - Selection Criteria - Quantifiable Community Participation (17), (48), (50) COMMENT SUMMARY: Commenter (17) expressed concern over the change in the deadline for neighborhood organizations to submit documents to the Department, specifically, that such deadline was changed from the full application delivery date to the beginning of the application acceptance period. Commenter (17) indicated that this timing is problematic given all the discussions that need to take place with neighborhood organizations to explain the QCP process, not to mention the new deadline is immediately after the holiday season. Commenter (48) articulated concerns in awarding additional points for support from neighborhood organizations that have previously opposed HTC developments because it encourages discrimination against families with children and other protected classes under the Fair Housing Act. Specifically, commenter (48) indicated that it incentivizes developers to propose elderly developments or developments that exclude supportive housing that would tend to trigger less NIMBYism. Commenter (48) affirmed that the breadth and fairness of local participation in many neighborhood organizations can be difficult to evaluate, and the framework for local input must ensure the process is not a barrier to furthering the fair housing goals of the state. Commenter (48) noted that this scoring item lacks a clear process for challenging QCP on the basis of unlawful discrimination under the Fair Housing Act, nor is it clear that all forms of community participation will be evaluated for evidence of unlawful discrimination. Commenter (48) pointed out that 11.9(d)(6)(D) - Input from Community Organizations scoring item states that "input that evidences unlawful discrimination against classes of persons protected by Fair Housing law or the scoring of which the Department determines to be contrary to the Department's efforts to affirmatively further fair housing will not be considered." However, the QCP scoring item states "if such statement is contrary to findings or determinations, including zoning determinations, of a municipality, county, school district, or other local Government Entity...the fact finder will not make determinations as to the accuracy of statements presented." Commenter (48) urged the Department to make clear that all forms of QCP, including written statements from neighborhood organizations, will be evaluated for evidence of unlawful discrimination and opposition motivated by a discriminatory bias and further urged that there be a process to challenge such opposition. Commenter (50) recommended the following modifications to this scoring item on the basis that neighborhood organizations have the right to form and govern their organizations as they see fit and further stated that as long as support or opposition is given in accordance with the HOA or POA meeting rules it should be allowed. "(A) Statement Requirements. If an organization cannot make the following affirmative certifications or statements then the organization will not be considered a Neighborhood Organization for purposes of this paragraph. (i) the Neighborhood Organization's name, a written description and map of the organization's boundaries, signatures and contact information (phone, email and mailing address) of at least two individual members with authority to sign on behalf of the organization; ( ii) certification that the boundaries of the Neighborhood Organi- contain the Development Site and that the Neighborhood zation Organization meets the definition pursuant to Texas Government Code, 2306.004(23-a) and includes at least two separate resi- households; dential ( iii) certification that support, opposition, or neutrality was given at a public meeting in accordance with the organization's gov- documents; erning ( iv) an explicit expression of support, opposition, or neutrality. Any expression of opposition must be accompanied with at least one reason forming the basis of that opposition. A Neighborhood Organization is encouraged to be prepared to provide additional information with regard to opposition." STAFF RESPONSE: In response to Commenter (17), staff suggested allowing Neighborhood Organizations to become on record with the state by registering with the Department up to 30 days prior to the Final Application Delivery Date. This coincides with the date by which neighborhood organizations must be on record with the state in order to require notification from applicants. Staff noted that neighborhood organizations might become on record with the county or through another state agency (Secretary of State, for example) at any time and still potentially qualify an application for points. In response to Commenter (48), while the language in this scoring does not explicitly mention unlawful discrimination (as mentioned in the other scoring item), staff does still review for such statements and will treat them accordingly, with possible referral to the Texas Workforce Commission. However, the role of the fact finder with respect to challenges to statements is only to evaluate them as compared to the findings of the local jurisdictions. In response to Commenter (50), while staff agreed that neighborhood organizations can and should form and function as they best see fit, the restrictions on the qualifying neighborhood organizations are in place to discourage developers from forming neighborhood organizations solely for purposes of scoring points on a particular application. The Department is seeking input from 39 TexReg 9952 December 19, 2014 Texas Register

people who actually live in the neighborhood, as mandated by statute, and has found that these types of restrictions are necessary in accomplishing that goal. Without them, staff has found that statements from the developers themselves and/or one or two parties that are otherwise financially invested in the proposed development have qualified for points, which is not in keeping with the spirit of the rule. Staff recommended the following revision to 11.9(d)(4). "Quantifiable Community Participation. ( 2306.6710(b)(1)(B); 2306.6725(a)(2)) An Application may qualify for up to nine (9) points for written statements from a Neighborhood Organization. In order for the statement to qualify for review, the Neighborhood Organization must have been in existence prior to the Pre-Application Final Delivery Date, and its boundaries must contain the Development Site. In addition, the Neighborhood Organization must be on record with the state (includes the Department) or county in which the Development Site is located. Neighborhood Organizations may request to be on record with the Department for the current Application Round with the Department by submitting documentation (such as evidence of board meetings, bylaws, etc.) by 30 days prior to the Full Application Delivery Date. The written statement must meet the requirements in subparagraph (A) of this paragraph." BOARD RESPONSE: Accepted staff's recommendation. INDEX OF COMMENTERS (1) StoneLeaf Companies (2) Bridgette Wallis (3) Community Development Corporation of Brownsville (4) Churchill Residential (5) City of Beaumont (6) City of Fort Worth (7) Claire Palmer (8) MHMRA of Harris County (9) Les Kilday (10) Motivation Education & Training, Inc. (MET) (11) Michael Wallis (12) Fountainhead Management, Inc. (13) RRHA of Texas (14) Terri Anderson (15) DMA Development Company, LLC (16) Communities for Veterans (17) Coats Rose (18) National Church Residences (19) Texas Association of Affordable Housing Providers (TAAHP) (20) Alyssa Carpenter (21) Randy Plitt (22) Housing Authority of the City of El Paso (23) Sallie Burchett (25) Greater East End District (26) Sarah Andre (27) City of Houston (28) Sonoma Advisors (29) Hettig Kahn (30) Marque Real Estate Consultants (31) South Texas Collaborative for Housing Development (32) Daniel & Beshara (33) Foundation Communities (34) New Hope Housing (35) Cheryl Worth (36) S Anderson Consulting (37) Versa Development (38) Hogg Foundation for Mental Health (39) Texas Council for Developmental Disabilities (41) Avenue CDC (42) Local Initiatives Support Coalition (LISC) (43) Star - Equities, LLC (44) Mark-Dana Corporation (46) Texas Association of Community Development Corporations (TACDC) (47) National Housing Trust (48) Texas Appleseed and Texas Low Income Housing Information Service (49) Inclusive Communities Housing Development Corporation (50) Bonner Carrington (51) RealTex Development (52) Roundstone Development (53) Accessible Housing Austin, Inc. (54) Promoting Independence Advisory Committee STATUTORY AUTHORITY. The amendments are adopted pursuant to Texas Government Code 2306.053, which authorizes the Department to adopt rules. Additionally, the amendments are adopted pursuant to Texas Government Code 2306.67022, which specifically authorizes the Department to adopt a qualified allocation plan. The adoption affects Chapter 2306 of the Texas Government Code. 11.1. General. (a) Authority. This chapter applies to the awarding and allocation by the Texas Department of Housing and Community Affairs (the "Department") of Housing Tax Credits. The federal laws providing for the awarding and allocation of Housing Tax Credits require states to adopt a qualified allocation plan. Pursuant to Texas Government Code, Chapter 2306, Subchapter DD, the Department is assigned responsibility for this activity. As required by Internal Revenue Code (the "Code"), 42(m)(1), the Department has developed this Qualified Allocation Plan (QAP) and it has been duly approved to establish the procedures and requirements relating to an award and allocation of Housing Tax Credits. All requirements herein and all those applicable to a Housing Tax Credit Development or an Application under Chapter 10 of this title (relating to Uniform Multifamily Rules), or otherwise ADOPTED RULES December 19, 2014 39 TexReg 9953

incorporated by reference herein collectively constitute the QAP required by Texas Government Code, 2306.67022. (b) Due Diligence and Applicant Responsibility. Department staff may, from time to time, make available for use by Applicants information and informal guidance in the form of reports, frequently asked questions, and responses to specific questions. The Department encourages communication with staff in order to clarify any issues that may not be fully addressed in the QAP or be unclear when applied to specific facts. However, while these resources are offered to help Applicants prepare and submit accurate information, Applicants should also appreciate that this type of guidance is limited by its nature and that staff will apply the rules of the QAP to each specific situation as it is presented in the submitted Application. Moreover, after the time that an issue is initially presented and guidance is provided, additional information may be identified and/or the issue itself may continue to develop based upon additional research and guidance. Thus, until confirmed through final action of the Board, staff guidance must be considered merely as an aid and an Applicant continues to assume full responsibility for any actions Applicant takes regarding an Application. In addition, although the Department may compile data from outside sources in order to assist Applicants in the Application process, it remains the sole responsibility of the Applicant to perform independently the necessary due diligence to research, confirm, and verify any data, opinions, interpretations, or other information upon which an Applicant bases an Application or includes in any submittal in connection with an Application. These rules may need to be applied to facts and circumstances not contemplated at the time of their creation and adoption. When and if such situations arise the Board will use a reasonableness standard in evaluating and addressing Applications for Housing Tax Credits. (c) Competitive Nature of Program. Applying for competitive housing tax credits is a technical process that must be followed completely. As a result of the highly competitive nature of applying for tax credits, an Applicant should proceed on the assumption that deadlines are fixed and firm with respect to both date and time and cannot be waived except where authorized and for truly extraordinary circumstances, such as the occurrence of a significant natural disaster that makes timely adherence impossible. If an Applicant chooses to submit by delivering an item physically to the Department, it is the Applicant's responsibility to be within the Department's doors by the appointed deadline. Applicants should further ensure that all required documents are included, legible, properly organized, and tabbed, and that materials in required formats involving digital media are complete and fully readable. Applicants are strongly encouraged to submit the required items well in advance of established deadlines. Staff, when accepting Applications, may conduct limited reviews at the time of intake as a courtesy only. If staff misses an issue in such a limited review, the fact that the Application was accepted by staff or that the issue was not identified does not operate to waive the requirement or validate the completeness, readability, or any other aspect of the Application. (d) Definitions. The capitalized terms or phrases used herein are defined in 10.3 of this title (relating to Definitions), unless the context clearly indicates otherwise. Any capitalized terms that are defined in Texas Government Code, Chapter 2306, 42 of the Code, or other Department rules have, when capitalized, the meanings ascribed to them therein. Defined terms when not capitalized, are to be read in context and construed according to common usage. (e) Census Data. Where this chapter requires the use of census or American Community Survey data, the Department shall use the most current data available as of October 1, 2014, unless specifically otherwise provided in federal or state law or in the rules. The availability of more current data shall generally be disregarded. (f) Deadlines. Where a specific date or deadline is identified in this chapter, the information or documentation subject to the deadline must be submitted on or before 5:00 p.m. Central Time Zone on the day of the deadline. 11.2. Program Calendar for Competitive Housing Tax Credits. Non-statutory deadlines specifically listed in the Program Calendar may be extended for good cause by the Executive Director for a period of not more than five (5) business days provided that the Applicant has, in writing, requested an extension prior to the date of the original deadline. Extensions relating to Administrative Deficiency deadlines may only be extended if documentation needed to resolve the item is needed from a Third Party. Figure: 10 TAC 11.2 11.3. Housing De-Concentration Factors. (a) Two Mile Same Year Rule (Competitive HTC Only). As required by Texas Government Code, 2306.6711(f), staff will not recommend for award, and the Board will not make an award to an Application that proposes a Development Site located in a county with a population that exceeds one million if the proposed Development Site is also located less than two linear miles from the proposed Development Site of another Application within said county that is awarded in the same calendar year. (b) Twice the State Average Per Capita. As provided for in Texas Government Code, 2306.6703(a)(4), if a proposed Development is located in a municipality, or if located completely outside a municipality, a county, that has more than twice the state average of units per capita supported by Housing Tax Credits or private activity bonds at the time the Application Round begins (or for Tax-Exempt Bond Developments at the time the Certificate of Reservation is issued by the Texas Bond Review Board), the Applicant must obtain prior approval of the Development from the Governing Body of the appropriate municipality or county containing the Development. Such approval must include a resolution adopted by the Governing Body of the municipality or county, as applicable, setting forth a written statement of support, specifically citing Texas Government Code, 2306.6703(a)(4) in the text of the actual adopted resolution, and authorizing an allocation of Housing Tax Credits for the Development. An acceptable, but not required, form of resolution may be obtained in the Multifamily Programs Procedures Manual. Required documentation must be submitted by the Full Application Delivery Date as identified in 11.2 of this chapter (relating to Program Calendar for Competitive Housing Tax Credits) or Resolutions Delivery Date in 10.4 of this title (relating to Program Dates), as applicable. (c) One Mile Three Year Rule. ( 2306.6703(a)(3)) (1) An Application that proposes the New Construction or Adaptive Reuse of a Development that is located one linear mile or less (measured between closest boundaries by a straight line on a map) from another development that meets all of the criteria in subparagraphs (A) - (C) of this paragraph shall be considered ineligible. (A) The development serves the same type of household as the proposed Development, regardless of whether the Development serves families, elderly individuals, or another type of household; and (B) The development has received an allocation of Housing Tax Credits or private activity bonds for any New Construction at any time during the three-year period preceding the date the Application Round begins (or for Tax-Exempt Bond Developments the three-year period preceding the date the Certificate of Reservation is issued); and 39 TexReg 9954 December 19, 2014 Texas Register

(C) The development has not been withdrawn or terminated from the Housing Tax Credit Program. (2) Paragraph (1) of this subsection does not apply to a Development: (A) that is using federal HOPE VI (or successor program) funds received through HUD; (B) that is using locally approved funds received from a public improvement district or a tax increment financing district; (C) that is using funds provided to the state under the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12701 et seq.); (D) that is using funds provided to the state and participating jurisdictions under the Housing and Community Development Act of 1974 (42 U.S.C. 5301 et seq.); (E) that is located in a county with a population of less than one million; area; or (F) that is located outside of a metropolitan statistical (G) that the Governing Body of the appropriate municipality or county where the Development is to be located has by vote specifically allowed the construction of a new Development located within one linear mile or less from a Development described under paragraph (1)(A) of this subsection. An acceptable, but not required, form of resolution may be obtained in the Multifamily Programs Procedures Manual. Required documentation must be submitted by the Full Application Delivery Date as identified in 11.2 of this chapter or Resolutions Delivery Date in 10.4 of this title, as applicable. (3) Where a specific source of funding is referenced in paragraph (2)(A) - (D) of this subsection, a commitment or resolution documenting a commitment of the funds must be provided in the Application or prior to the Full Application Delivery Date as identified in 11.2 of this chapter or Resolutions Delivery Date in 10.4 of this title, as applicable. (d) Limitations on Developments in Certain Census Tracts. An Application that proposes the New Construction or Adaptive Reuse of a Development proposed to be located in a census tract that has more than 20 percent Housing Tax Credit Units per total households as established by the 5-year American Community Survey shall be considered ineligible unless: (1) the Development is in a Place that has a population is less than 100,000; or (2) the Governing Body of the appropriate municipality or county containing the Development has by vote specifically allowed the construction of the new Development and submits to the Department a resolution referencing this rule. In providing a resolution a municipality or county should consult its own staff and legal counsel as to whether such resolution will be consistent with Fair Housing laws as they may apply, including, as applicable, consistency with any FHAST form on file, any current Analysis of Impediments to Fair Housing Choice, or any current plans such as one year action plans or five year consolidated plans for HUD block grant funds, such as HOME or CDBG funds. An acceptable, but not required, form of resolution may be obtained in the Multifamily Programs Procedures Manual. Required documentation must be submitted by the Full Application Delivery Date as identified in 11.2 of this chapter or Resolutions Delivery Date in 10.4 of this title, as applicable. (e) Additional Phase. Applications proposing an additional phase of an existing tax credit Development serving the same Target Population, or Applications proposing Developments that are adjacent to an existing tax credit Development serving the same Target Population, or Applications that are proposing a Development serving the same Target Population on a contiguous site to another Application awarded in the same program year, shall be considered ineligible unless the other Developments or phase(s) of the Development have been completed and have maintained occupancy of at least 90 percent for a minimum six (6) month period as reflected in the submitted rent roll. If the Application proposes the Rehabilitation or replacement of existing federally-assisted affordable housing units or federally-assisted affordable housing units demolished on the same site within two years of the beginning of the Application Acceptance Period, this provision does not apply. 11.5. Competitive HTC Set-Asides ( 2306.111(d)). This section identifies the statutorily-mandated set-asides which the Department is required to administer. An Applicant may elect to compete in each of the set-asides for which the proposed Development qualifies. In order to be eligible to compete in the Set-Aside, the Application must meet the requirements of the Set-Aside as of the Full Application Delivery Date. Election to compete in a Set-Aside does not constitute eligibility to compete in the Set-Aside, and Applicants who are ultimately deemed not to qualify to compete in the Set-Aside will be considered not to be participating in the Set-Aside for purposes of qualifying for points under 11.9(3) of this chapter (related to Pre-Application Participation). (1) Nonprofit Set-Aside. ( 2306.6729 and 2306.6706(b)) At least 10 percent of the State Housing Credit Ceiling for each calendar year shall be allocated to Qualified Nonprofit Developments which meet the requirements of 42(h)(5) of the Code and Texas Government Code, 2306.6729 and 2306.6706(b). Qualified Nonprofit Organizations must have the controlling interest in the Development Owner applying for this set-aside (e.g., greater than 50 percent ownership in the General Partner). If the Application is filed on behalf of a limited partnership, the Qualified Nonprofit Organization must be the Managing General Partner. If the Application is filed on behalf of a limited liability company, the Qualified Nonprofit Organization must be the controlling Managing Member. Additionally, for Qualified Nonprofit Development in the Nonprofit Set-Aside the nonprofit entity or its nonprofit Affiliate or subsidiary must be the Developer or a co-developer as evidenced in the development agreement. An Applicant that meets the requirements to be in the Qualified Nonprofit Set-Aside is deemed to be applying under that set-aside unless their Application specifically includes an affirmative election to not be treated under that set-aside and a certification that they do not expect to receive a benefit in the allocation of tax credits as a result of being affiliated with a nonprofit. The Department reserves the right to request a change in this election and/or not recommend credits for those unwilling to change elections if insufficient Applications in the Nonprofit Set-Aside are received. Applicants may not use different organizations to satisfy the state and federal requirements of the set-aside. (2) USDA Set-Aside. ( 2306.111(d-2)) At least 5 percent of the State Housing Credit Ceiling for each calendar year shall be allocated to Rural Developments which are financed through USDA. If an Application in this set-aside involves Rehabilitation it will be attributed to and come from the At-Risk Development Set-Aside; if an Application in this set-aside involves New Construction it will be attributed to and come from the applicable Uniform State Service Region and will compete within the applicable sub-region. Commitments of Competitive Housing Tax Credits issued by the Board in the current program year will be applied to each set-aside, Rural Regional Allocation, Urban Regional Allocation and/or USDA Set-Aside for the current Application Round as appropriate. Applications must also meet all requirements of Texas Government Code, 2306.111(d-2). ADOPTED RULES December 19, 2014 39 TexReg 9955

(3) At-Risk Set-Aside. ( 2306.6714; 2306.6702) (A) At least 15 percent of the State Housing Credit Ceiling for each calendar year will be allocated under the At-Risk Development Set-Aside and will be deducted from the State Housing Credit Ceiling prior to the application of the regional allocation formula required under 11.6 of this chapter (relating to Competitive HTC Allocation Process). Through this set-aside, the Department, to the extent possible, shall allocate credits to Applications involving the preservation of Developments identified as At-Risk Developments. ( 2306.6714) Up to 5 percent of the State Housing Credit Ceiling associated with this set-aside may be given priority to Rehabilitation Developments under the USDA Set-Aside. (B) An At-Risk Development must meet all the requirements of Texas Government Code, 2306.6702(a)(5). For purposes of this subparagraph, any stipulation to maintain affordability in the contract granting the subsidy, or any federally insured mortgage will be considered to be nearing expiration or nearing the end of its term if expiration will occur or the term will end within two (2) years of July 31 of the year the Application is submitted. Developments with HUD-insured mortgages qualifying as At-Risk under 2306.6702(a)(5) may be eligible if the HUD-insured mortgage is eligible for prepayment without penalty. To the extent that an Application is eligible under 2306.6705(a)(5)(B)(ii)(b) and the units being reconstructed were demolished prior to the beginning of the Application Acceptance Period, the Application will be categorized as New Construction. (C) An Application for a Development that includes the demolition of the existing Units which have received the financial benefit described in Texas Government Code, 2306.6702(a)(5) will not qualify as an At-Risk Development unless the redevelopment will include at least a portion of the same site. Alternatively, an Applicant may propose relocation of the existing units in an otherwise qualifying At-Risk Development if: (i) the affordability restrictions and any At-Risk eligible subsidies are approved to be transferred to the Development Site (i.e. the site proposed in the tax credit Application) prior to the tax credit Commitment deadline; (ii) the Applicant seeking tax credits must propose the same number of restricted units (e.g. the Applicant may add market rate units); and (iii) the new Development Site must qualify for points on the Opportunity Index under 11.9(c)(4) of this chapter (relating to Competitive HTC Selection Criteria). (D) Developments must be at risk of losing affordability from the financial benefits available to the Development and must retain or renew the existing financial benefits and affordability unless regulatory barriers necessitate elimination of a portion of that benefit for the Development. For Developments qualifying under 2306.6702(a)(5)(B), only a portion of the subsidy must be retained for the proposed Development, but no less than 25 percent of the proposed Units must be public housing units supported by public housing operating subsidy. ( 2306.6714(a-1)) (E) Nearing expiration on a requirement to maintain affordability includes Developments eligible to request a Qualified Contract under 42 of the Code. Evidence must be provided in the form of a copy of the recorded LURA, the first years' IRS Forms 8609 for all buildings showing Part II of the form completed and, if applicable, documentation from the original application regarding the right of first refusal. (F) An amendment to any aspect of the existing tax credit property sought to enable the Development to qualify as an At-Risk Development, that is submitted to the Department after the Application has been filed and is under review will not be accepted. 11.6. Competitive HTC Allocation Process. This section identifies the general allocation process and the methodology by which awards are made. (1) Regional Allocation Formula. The Department shall initially make available in each Rural Area and Urban Area of each Uniform State Service Region ("sub-region") Housing Tax Credits in an amount consistent with the Regional Allocation Formula developed in compliance with Texas Government Code, 2306.1115. The process of awarding the funds made available within each sub-region shall follow the process described in this section. Where a particular situation that is not contemplated and addressed explicitly by the process described herein, Department staff shall formulate a recommendation for the Board's consideration based on the objectives of regional allocation together with other policies and purposes set out in Texas Government Code, Chapter 2306 and the Department shall provide Applicants the opportunity to comment on and propose alternatives to such a recommendation. In general, such a recommendation shall not involve broad reductions in the funding request amounts solely to accommodate regional allocation and shall not involve rearranging the priority of Applications within a particular sub-region or set-aside except as described herein. If the Department determines that an allocation recommendation would cause a violation of the $3 million credit limit per Applicant, the Department will make its recommendation by selecting the Development(s) that most effectively satisfy the Department's goals in meeting set-aside and regional allocation goals. Where sufficient credit becomes available to award an application on the waiting list late in the calendar year, staff may allow flexibility in meeting the Carryover Allocation submission deadline to ensure to the fullest extent feasible that available resources are allocated by December 31. (2) Credits Returned and National Pool Allocated After January 1. For any credits returned after January 1 and eligible for reallocation, the Department shall first return the credits to the sub-region or set-aside from which the original allocation was made. The credits will be treated in a manner consistent with the allocation process described in this section and may ultimately flow from the sub-region and be awarded in the collapse process to an Application in another region, sub-region or set-aside. For any credit received from the "national pool" after the initial approval of awards in late July, the credits will be added to and awarded to the next Application on the waiting list for the state collapse. (3) Award Recommendation Methodology. ( 2306.6710(a) - (f); 2306.111) The Department will assign, as described herein, Developments for review by the program and underwriting divisions. In general, Applications will be prioritized for assignment, with highest priority given to those identified as most competitive based upon the Applicant self-score and an initial program review. The procedure identified in subparagraphs (A) - (F) of this paragraph will also be used in making recommendations to the Board. (A) USDA Set-Aside Application Selection (Step 1). The first level of priority review will be those Applications with the highest scores in the USDA Set-Aside until the minimum requirements stated in 11.5(2) of this chapter (relating to Competitive HTC Set- Asides. ( 2306.111(d))) are attained. The minimum requirement may be exceeded in order to award the full credit request or underwritten amount of the last Application selected to meet the At-Risk Set-Aside requirement; 39 TexReg 9956 December 19, 2014 Texas Register

(B) At-Risk Set-Aside Application Selection (Step 2). The second level of priority review will be those Applications with the highest scores in the At-Risk Set-Aside statewide until the minimum requirements stated in 11.5(3) of this chapter are attained. This may require the minimum requirement to be exceeded to award the full credit request or underwritten amount of the last Application selected to meet the At-Risk Set-Aside requirement. This step may leave less than originally anticipated in the 26 sub-regions to award under the remaining steps, but these funds would generally come from the statewide collapse; (C) Initial Application Selection in Each Sub-Region (Step 3). The highest scoring Applications within each of the 26 sub-regions will then be selected provided there are sufficient funds within the sub-region to fully award the Application. Applications electing the At-Risk or USDA Set-Asides will not be eligible to receive an award from funds made generally available within each of the sub-regions; (D) Rural Collapse (Step 4). If there are any tax credits set-aside for Developments in a Rural Area in a specific Uniform State Service Region ("Rural sub-region") that remain after award under subparagraph (C) of this paragraph, those tax credits shall be combined into one "pool" and then be made available in any other Rural Area in the state to the Application in the most underserved Rural sub-region as compared to the sub-region's allocation. This rural redistribution will continue until all of the tax credits in the "pool" are allocated to Rural Applications and at least 20 percent of the funds available to the State are allocated to Applications in Rural Areas. ( 2306.111(d)(3)) In the event that more than one sub-region is underserved by the same percentage, the priorities described in clauses (i) - (ii) of this subparagraph will be used to select the next most underserved sub-region: (i) the sub-region with no recommended At-Risk Applications from the same Application Round; and (ii) the sub-region that was the most underserved during the Application Round during the year immediately preceding the current Application Round. (E) Statewide Collapse (Step 5). Any credits remaining after the Rural Collapse, including those in any sub-region in the State, will be combined into one "pool." The funds will be used to award the highest scoring Application (not selected in a prior step) in the most underserved sub-region in the State compared to the amount originally made available in each sub-region. This process will continue until the funds remaining are insufficient to award the next highest scoring Application in the next most underserved sub-region. In the event that more than one sub-region is underserved by the same percentage, the priorities described in clauses (i) and (ii) of this subparagraph will be used to select the next most underserved sub-region: (i) the sub-region with no recommended At-Risk Applications from the same Application Round; and (ii) the sub-region that was the most underserved during the Application Round during the year immediately preceding the current Application Round. (F) Contingent Qualified Nonprofit Set-Aside Step (Step 6). If an insufficient number of Applications participating in the Nonprofit Set-Aside are selected after implementing the criteria described in subparagraphs (A) - (E) of this paragraph to meet the requirements of the 10 percent Nonprofit Set-Aside, action must be taken to modify the criteria described in subparagraphs (A) - (E) of this paragraph to ensure the set-aside requirements are met. Therefore, the criteria described in subparagraphs (C) - (E) of this paragraph will be repeated after selection of the highest scoring Application(s) under the Nonprofit Set-Aside statewide are selected to meet the minimum requirements of the Nonprofit Set-Aside. This step may cause some lower scoring Applications in a sub-region to be selected instead of a higher scoring Application not participating in the Nonprofit Set-Aside. (4) Waiting List. The Applications that do not receive an award by July 31 and remain active and eligible will be recommended for placement on the waiting list. The waiting list is not static. The allocation process will be used in determining the Application to award. For example, if credits are returned, those credits will first be made available in the set-aside or sub-region from which they were originally awarded. This means that the first Application on the waiting list is in part contingent on the nature of the credits that became available for award. The Department shall hold all credit available after the late-july awards until September 30 in order to collect credit that may become available when tax credit Commitments are submitted. Credit confirmed to be available, as of September 30, may be awarded to Applications on the waiting list unless insufficient credits are available to fund the next Application on the waiting list. For credit returned after September 30, awards from the waiting list will be made when the remaining balance is sufficient to award the next Application on the waiting list based on the date(s) of returned credit. Notwithstanding the foregoing, if decisions related to any returns or rescissions of tax credits are under appeal or are otherwise contested, the Department may delay awards until resolution of such issues. ( 2306.6710(a) - (f); 2306.111) (5) Credit Returns Resulting from Force Majeure Events. In the event that the Department receives a return of Competitive HTCs during the current program year from an Application that received a Competitive Housing Tax Credit award during any of the preceding three years, such returned credit will, if all of the requirements of this paragraph are met, be allocated separately from the current year's tax credit allocation, and shall not be subject to the requirements of paragraph (2) of this section. Requests to separately allocate returned credit where all of the requirements of this paragraph have not been met or requests for waivers of any part of this paragraph will not be considered. For purposes of this paragraph, credits returned after September 30 of the preceding program year may be considered to have been returned on January 1 of the current year in accordance with the treatment described in (b)(2)(c)(iii) of Treasury Regulation 1.42-14. The Department's Governing Board may approve the execution of a current program year Carryover Agreement regarding the returned credits with the Development Owner that returned such credits only if: (A) The credits were returned as a result of "Force Majeure" events that occurred after the start of construction and before issuance of Forms 8609. Force Majeure events are the following sudden and unforeseen circumstances outside the control of the Development Owner: acts of God such as fire, tornado, flooding, significant and unusual rainfall or subfreezing temperatures, or loss of access to necessary water or utilities as a direct result of significant weather events; explosion; vandalism; orders or acts of military authority; litigation; changes in law, rules, or regulations; national emergency or insurrection; riot; acts of terrorism; supplier failures; or materials or labor shortages. Force Majeure events must make construction activity impossible or materially impede its progress; (B) Acts or events caused by the willful negligence or willful act of the Development Owner, Affiliate or a Related Party shall under no circumstance be considered to be caused by Force Majeure; (C) A Development Owner claiming Force Majeure must provide evidence of the type of event, as described in subparagraph (A) of this paragraph, when the event occurred, and that the loss was a direct result of the event; ADOPTED RULES December 19, 2014 39 TexReg 9957

(D) The Development Owner must prove that reasonable steps were taken to minimize or mitigate any delay or damages, that the Development Owner substantially fulfilled all obligations not impeded by the event, that the Development and Development Owner was properly insured and that the Department was timely notified of the likelihood or actual occurrence of an event described in subparagraph (A) of this paragraph; (E) The event prevents the Development Owner from meeting the placement in service requirements of the original allocation; (F) The requested current year Carryover Agreement allocates the same amount of credit as that which was returned; (G) The Department's Real Estate Analysis Division determines that the Development continues to be financially viable in accordance with the Department's underwriting rules after taking into account any insurance proceeds related to the event; and (H) The Development Owner submits a signed written request for a new Carryover Agreement concurrently with the voluntary return of the HTCs. 11.7. Tie Breaker Factors. In the event there are Competitive HTC Applications that receive the same number of points in any given set-aside category, rural regional allocation or urban regional allocation, or rural or statewide collapse, the Department will utilize the factors in this section, in the order they are presented, to determine which Development will receive preference in consideration for an award. The tie breaker factors are not intended to specifically address a tie between equally underserved sub-regions in the rural or statewide collapse. (1) Applications scoring higher on the Opportunity Index under 11.9(c)(4) of this chapter (relating to Competitive HTC Selection Criteria) as compared to another Application with the same score. (2) Applications proposed to be located the greatest linear distance from the nearest Housing Tax Credit assisted Development. Developments awarded Housing Tax Credits but do not yet have a Land Use Restriction Agreement in place will be considered Housing Tax Credit assisted Developments for purposes of this paragraph. The linear measurement will be performed from closest boundary to closest boundary. 11.8. Pre-Application Requirements (Competitive HTC Only). (a) General Submission Requirements. The pre-application process allows Applicants interested in pursuing an Application to assess potential competition across the thirteen (13) state service regions, sub-regions and set-asides. Based on an understanding of the potential competition they can make a more informed decision whether they wish to proceed to prepare and submit an Application. A complete pre-application is a pre-application that meets all of the Department's criteria, as outlined in subsections (a) and (b) of this section, with all required information and exhibits provided pursuant to the Multifamily Programs Procedures Manual. (1) The pre-application must be submitted, along with the required pre-application fee as described in 10.901 of this title (relating to Fee Schedule), no later than the Pre-application Final Delivery Date as identified in 11.2 of this chapter (relating to Program Calendar for Competitive Housing Tax Credits). If such pre-application and corresponding fee are not submitted on or before this deadline the Applicant will be deemed to have not made a pre-application. (2) The pre-application shall consist of one (1) CD-R containing a PDF copy and Excel copy submitted to the Department in the form of single files as required in the Multifamily Programs Procedures Manual. (3) Only one pre-application may be submitted by an Applicant for each Development Site. (4) Department review at this stage is limited, and not all issues of eligibility and threshold are reviewed or addressed at pre-application. Acceptance by staff of a pre-application does not ensure that an Applicant satisfies all Application eligibility, threshold or documentation requirements. While the pre-application is more limited in scope than an Application, pre-applications are subject to the same limitations, restrictions, or causes for disqualification or termination as a full Application, and pre-applications will thus be subject to the same consequences for violation, including but not limited to loss of points and termination of the pre-application. (b) Pre-Application Threshold Criteria. Pursuant to Texas Government Code, 2306.6704(c) pre-applications will be terminated unless they meet the threshold criteria described in subsection (a) of this section and paragraphs (1) and (2) of this subsection: (1) Submission of the competitive HTC pre-application in the form prescribed by the Department which identifies at a minimum: (A) Site Control meeting the requirements of 10.204(10) of this title (relating to Required Documentation for Application Submission). For purposes of meeting this specific requirement related to pre-application threshold criteria, proof of consideration and any documentation required for identity of interest transactions is not required at the time of pre-application submission but will be required at the time of full application submission; (B) Funding request; (C) Target Population; (D) Requested set-asides (At-Risk, USDA, Nonprofit, and/or Rural); (E) Total Number of Units proposed; (F) Census tract number in which the Development Site is located; (G) Expected score for each of the scoring items identified in the pre-application materials; and (H) Proposed name of ownership entity. (2) Evidence in the form of a certification provided in the pre-application, that all of the notifications required under this paragraph have been made. ( 2306.6704) (A) The Applicant must list in the pre-application all Neighborhood Organizations on record with the county or state whose boundaries include the proposed Development Site as of the beginning of the Application Acceptance Period. (B) Notification Recipients. No later than the date the pre-application is submitted, notification must be sent to all of the persons or entities prescribed in clauses (i) - (viii) of this subparagraph. Developments located in an ETJ of a city are required to notify both city and county officials. The notifications may be sent by e-mail, fax or mail with registered return receipt or similar tracking mechanism in the format required in the Pre-application Notification Template provided in the pre-application. The Applicant is encouraged to retain proof of delivery in the event the Department requires proof of notification. Acceptable evidence of such delivery is demonstrated by signed receipt for mail or courier delivery and confirmation of delivery for fax and e-mail. Officials to be notified are those officials in office at the time the pre-application is submitted. Note that between the time of pre-ap- 39 TexReg 9958 December 19, 2014 Texas Register

plication (if made) and full Application, such officials may change and the boundaries of their jurisdictions may change. By way of example and not by way of limitation, events such as redistricting may cause changes which will necessitate additional notifications at full Application. Meetings and discussions do not constitute notification. Only a timely and compliant written notification to the correct person constitutes notification. (i) Neighborhood Organizations on record with the state or county as of the beginning of the Application Acceptance Period whose boundaries include the proposed Development Site; (ii) Superintendent of the school district in which the Development Site is located; (iii) Presiding officer of the board of trustees of the school district in which the Development Site is located; (iv) Mayor of the municipality (if the Development Site is within a municipality or its extraterritorial jurisdiction); (v) All elected members of the Governing Body of the municipality (if the Development Site is within a municipality or its extraterritorial jurisdiction); (vi) Presiding officer of the Governing Body of the county in which the Development Site is located; (vii) All elected members of the Governing Body of the county in which the Development Site is located; and (viii) State Senator and State Representative of the districts whose boundaries include the proposed Development Site; (C) Contents of Notification. (i) The notification must include, at a minimum, all of the information described in subclauses (I) - (VI) of this clause. (I) the Applicant's name, address, an individual contact name and phone number; county; (II) the Development name, address, city and (III) a statement informing the entity or individual being notified that the Applicant is submitting a request for Housing Tax Credits with the Texas Department of Housing and Community Affairs; (IV) whether the Development proposes New Construction, Reconstruction, Adaptive Reuse, or Rehabilitation; (V) the physical type of Development being proposed (e.g. single family homes, duplex, apartments, townhomes, high-rise etc.); and (VI) the approximate total number of Units and approximate total number of low-income Units. (ii) The notification may not contain any false or misleading statements. Without limiting the generality of the foregoing, the notification may not create the impression that the proposed Development will serve the elderly unless 100 percent of the Units will be for Qualified Elderly and it may not indicate that it will target or prefer any subpopulation unless such targeting or preference is in full compliance with all applicable state and federal laws, including state and federal fair housing laws. (c) Pre-application Results. Only pre-applications which have satisfied all of the pre-application requirements, including those in 11.9(e)(3) of this chapter, will be eligible for pre-application points. The order and scores of those Developments released on the Pre-application Submission Log do not represent a Commitment on the part of the Department or the Board to allocate tax credits to any Development and the Department bears no liability for decisions made by Applicants based on the results of the Pre-application Submission Log. Inclusion of a pre-application on the Pre-application Submission Log does not ensure that an Applicant will receive points for a pre-application. 11.9. Competitive HTC Selection Criteria. (a) General Information. This section identifies the scoring criteria used in evaluating and ranking Applications. The criteria identified in subsections (b) - (e) of this section include those items required under Texas Government Code, Chapter 2306, 42 of the Code, and other criteria established in a manner consistent with Chapter 2306 and 42 of the Code. There is no rounding of numbers in this section for any of the calculations in order to achieve the desired requirement or limitation, unless rounding is explicitly stated as allowed for that particular calculation or criteria. Due to the highly competitive nature of the program, Applicants that elect points where supporting documentation is required but fail to provide any supporting documentation will not be allowed to cure the issue through an Administrative Deficiency. However, Department staff may provide the Applicant an opportunity to explain how they believe the Application, as submitted, meets the requirements for points or otherwise satisfies the requirements. (b) Criteria promoting development of high quality housing. (1) Size and Quality of the Units. ( 2306.6710(b)(1)(D); 42(m)(1)(C)(iii)) An Application may qualify for up to fifteen (15) points under subparagraphs (A) and (B) of this paragraph. (A) Unit Sizes (8 points). The Development must meet the minimum requirements identified in this subparagraph to qualify for points. Points for this item will be automatically granted for Applications involving Rehabilitation (excluding Reconstruction), for Developments receiving funding from USDA, or for Supportive Housing Developments without meeting these square footage minimums only if requested in the Self Scoring Form. five-hundred fifty (550) square feet for an Efficiency Unit; six-hundred fifty (650) square feet for a one Bedroom Unit; Bedroom Unit; (i) (ii) (iv) Bedroom Unit; and (iii) eight-hundred fifty (850) square feet for a two one-thousand fifty (1,050) square feet for a three (v) one-thousand two-hundred fifty (1,250) square feet for a four Bedroom Unit. (B) Unit and Development Features (7 points). Applicants that elect in an Application to provide specific amenity and quality features in every Unit at no extra charge to the tenant will be awarded points based on the point structure provided in 10.101(b)(6)(B) of this title (relating to Site and Development Requirements and Restrictions) and as certified to in the Application. The amenities will be required to be identified in the LURA. Rehabilitation Developments will start with a base score of three (3) points and Supportive Housing Developments will start with a base score of five (5) points. (2) Sponsor Characteristics. ( 42(m)(1)(C)(iv)) (1 point). An Application may qualify to receive one (1) point provided the ownership structure contains a HUB certified by the Texas Comptroller of Public Accounts by the Full Application Delivery Date, or Qualified Nonprofit Organization provided the Application is under the Nonprofit Set-Aside. The HUB or Qualified Nonprofit Organization must have ADOPTED RULES December 19, 2014 39 TexReg 9959

some combination of ownership interest in the General Partner of the Applicant, cash flow from operations, and developer fee which taken together equal at least 80 percent and no less than 5 percent for any category. For example, a HUB or Qualified Nonprofit Organization may have 20 percent ownership interest, 30 percent of the developer fee, and 30 percent of cash flow from operations. The HUB or Qualified Nonprofit Organization must also materially participate in the Development and operation of the Development throughout the Compliance Period and must have experience directly related to the housing industry, which may include experience with property management, construction, development, financing, or compliance. A Principal of the HUB or Qualified Nonprofit Organization cannot be a Related Party to any other Principal of the Applicant or Developer (excluding another Principal of said HUB or Qualified Nonprofit Organization). (c) Criteria to serve and support Texans most in need. (1) Income Levels of Tenants. ( 2306.111(g)(3)(B) and (E); 2306.6710(b)(1)(C) and (e); and 42(m)(1)(B)(ii)(I)) An Application may qualify for up to sixteen (16) points for rent and income restricting a Development for the entire Affordability Period at the levels identified in subparagraph (A) or (B) of this paragraph. (A) For any Development located within a non-rural Area of the Dallas, Fort Worth, Houston, San Antonio, or Austin MSAs: (i) At least 40 percent of all low-income Units at 50 percent or less of AMGI (16 points); (ii) At least 30 percent of all low income Units at 50 percent or less of AMGI (14 points); or (iii) At least 20 percent of all low-income Units at 50 percent or less of AMGI (12 points). (B) For Developments proposed to be located in areas other than those listed in subparagraph (A) of this paragraph: (i) At least 20 percent of all low-income Units at 50 percent or less of AMGI (16 points); (ii) At least 15 percent of all low-income Units at 50 percent or less of AMGI (14 points); or (iii) At least 10 percent of all low-income Units at 50 percent or less of AMGI (12 points). (2) Rent Levels of Tenants. ( 2306.6710(b)(1)(G)) An Application may qualify to receive up to thirteen (13) points for rent and income restricting a Development for the entire Affordability Period. These levels are in addition to those committed under paragraph (1) of this subsection. (A) At least 20 percent of all low-income Units at 30 percent or less of AMGI for Supportive Housing Developments qualifying under the Nonprofit Set-Aside or for Developments participating in the City of Houston's Permanent Supportive Housing ("PSH") program. A Development participating in the PSH program and electing points under this subparagraph must have applied for PSH funds by the Full Application Delivery Date, must have a commitment of PSH funds by Commitment, must qualify for five (5) or seven (7) points under paragraph (4) of this subsection (relating to the Opportunity Index), and must not have more than 18 percent of the total Units restricted for Persons with Special Needs as defined under paragraph (7) of this subsection (relating to Tenant Populations with Special Housing Needs) (13 points); (B) At least 10 percent of all low-income Units at 30 percent or less of AMGI or, for a Development located in a Rural Area, 7.5 percent of all low-income Units at 30 percent or less of AMGI (11 points); or (C) At least 5 percent of all low-income Units at 30 percent or less of AMGI (7 points). (3) Tenant Services. ( 2306.6710(b)(1)(I) and 2306.6725(a)(1)) A Supportive Housing Development qualifying under the Nonprofit Set-Aside or Developments participating in the City of Houston's Permanent Supportive Housing ("PSH") program may qualify to receive up to eleven (11) points and all other Developments may receive up to ten (10) points. A Development participating in the PSH program and electing eleven (11) points under this paragraph must have applied for PSH funds by the Full Application Delivery Date, must have a commitment of PSH funds by Commitment, must qualify for five (5) or seven (7) points under paragraph (4) of this subsection, and must not have more than 18 percent of the total Units restricted for Persons with Special Needs as defined under paragraph (7) of this subsection. By electing points, the Applicant certifies that the Development will provide a combination of supportive services, which are listed in 10.101(b)(7) of this title, appropriate for the proposed tenants and that there is adequate space for the intended services. The provision and complete list of supportive services will be included in the LURA. The Owner may change, from time to time, the services offered; however, the overall points as selected at Application will remain the minimum. No fees may be charged to the tenants for any of the services. Services must be provided on-site or transportation to those off-site services identified on the list must be provided. The same service may not be used for more than one scoring item. (4) Opportunity Index. The Department may refer to locations qualifying for points under this scoring item as high opportunity areas in some materials. (A) For Developments located in an Urban Area, if the proposed Development Site is located within a census tract that has a poverty rate below 15 percent for Individuals (or 35 percent for Developments in Regions 11 and 13), an Application may qualify to receive up to seven (7) points upon meeting the additional requirements in clauses (i) - (iv) of this subparagraph. The Department will base poverty rate on data from the five (5) year American Community Survey. (i) the Development targets the general population or Supportive Housing, the Development Site is located in a census tract with income in the top quartile of median household income for the county or MSA as applicable, and the Development Site is in the attendance zone of an elementary school that has a Met Standard rating and has achieved a 77 or greater on index 1 of the performance index, related to student achievement (7 points); (ii) the Development targets the general population or Supportive Housing, the Development Site is located in a census tract with income in the second quartile of median household income for the county or MSA as applicable, and the Development Site is in the attendance zone of an elementary school that has a Met Standard rating and has achieved a 77 or greater on index 1 of the performance index, related to student achievement (5 points); (iii) any Development, regardless of population served, if the Development Site is located in a census tract with income in the top quartile of median household income for the county or MSA as applicable (3 points); or (iv) any Development, regardless of population served, if the Development Site is located in a census tract with income 39 TexReg 9960 December 19, 2014 Texas Register

in the top two quartiles of median household income for the county or MSA as applicable (1 point). (B) For Developments located in a Rural Area, an Application may qualify to receive up to seven (7) cumulative points based on median income of the area and/or proximity to the essential community assets as reflected in clauses (i) - (vi) of this subparagraph if the Development Site is located within a census tract that has a poverty rate below 15 percent for Individuals (35 percent for regions 11 and 13) or within a census tract with income in the top or second quartile of median household income for the county or MSA as applicable or within the attendance zone of an elementary school that has a Met Standard rating and has achieved a 77 or greater on index 1 of the performance index, related to student achievement. (i) The Development Site is located within the attendance zone and within 1.5 linear miles of an elementary, middle, or high school with a Met Standard rating (For purposes of this clause only, any school, regardless of the number of grades served, can count towards points. However, schools without ratings, unless paired with another appropriately rated school, or schools with a Met Alternative Standard rating, will not be considered.) (3 points); (ii) The Development Site is within 1.5 linear miles of a center that is licensed by the Department of Family and Protective Services specifically to provide a school-age program (2 points); (iii) The Development Site is located within 1.5 linear miles of a full service grocery store (2 points); (iv) The Development Site is located within 1.5 linear miles of a center that is licensed by the Department of Family and Protective Services to provide a child care program for infants, toddlers, and/or pre-kindergarten, at a minimum (2 points); (v) The Development is a Qualified Elderly Development and the Development Site is located within 1.5 linear miles of a senior center (2 points); and/or (vi) The Development Site is located within 1.5 linear miles of a health related facility (1 point). (C) An elementary school attendance zone for the Development Site does not include schools with district-wide possibility of enrollment or no defined attendance zones, sometimes known as magnet schools. However, in districts with district-wide enrollment an Applicant may use the lowest rating of all elementary schools that may possibly be attended by the tenants. In districts with "choice" programs, where students can select one or more schools in the district that they wish to attend, an Applicant may use the district rating. The applicable school rating will be the 2014 accountability rating assigned by the Texas Education Agency. School ratings will be determined by the school number, so that in the case where a new school is formed or named or consolidated with another school but is considered to have the same number that rating will be used. A school that has never been rated by the Texas Education Agency will use the district rating. If a school is configured to serve grades that do not align with the Texas Education Agency's conventions for defining elementary schools (typically grades K-5 or K-6), the school will be considered to have the lower of the ratings of the schools that would be combined to meet those conventions. (5) Educational Excellence. An Application may qualify to receive up to three (3) points for a Development Site located within the attendance zones of public schools that have achieved a 77 or greater on index 1 of the performance index, related to student achievement, by the Texas Education Agency, provided that the schools also have a Met Standard rating. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. An attendance zone does not include schools with district-wide possibility of enrollment or no defined attendance zones, sometimes known as magnet schools. However, in districts with district-wide enrollment an Applicant may use the lowest rating of all elementary, middle, or high schools, respectively, which may possibly be attended by the tenants. In districts with "choice" programs, where students can select one or more schools in the district that they wish to attend, an Applicant may use the district rating. The applicable school rating will be the 2014 accountability rating assigned by the Texas Education Agency. School ratings will be determined by the school number, so that in the case where a new school is formed or named or consolidated with another school but is considered to have the same number that rating will be used. A school that has never been rated by the Texas Education Agency will use the district rating. If a school is configured to serve grades that do not align with the Texas Education Agency's conventions for defining elementary schools (typically grades K-5 or K-6), middle schools (typically grades 6-8 or 7-8) and high schools (typically grades 9-12), the school will be considered to have the lower of the ratings of the schools that would be combined to meet those conventions. In determining the ratings for all three levels of schools, ratings for all grades K-12 must be included, meaning that two or more schools' ratings may be combined. For example, in the case of an elementary school which serves grades K-4 and an intermediate school that serves grades 5-6, the elementary school rating will be the lower of those two schools' ratings. Also, in the case of a 9th grade center and a high school that serves grades 10-12, the high school rating will be considered the lower of those two schools' ratings. Sixth grade centers will be considered as part of the middle school rating. (A) The Development Site is within the attendance zone of an elementary school, a middle school and a high school with the appropriate rating. For Developments in Region 11, the middle school and high school must achieve an Index 1 score of at least 70 to be eligible for these points (3 points); or (B) The Development Site is within the attendance zone of an elementary school and either a middle school or high school with the appropriate rating. For Developments in Region 11, the middle school or high school must achieve an Index 1 score of at least 70 to be eligible for these points (1 point); or (C) The Development Site is within the attendance zone of a middle school and high school with the appropriate rating. For Developments in Region 11, the middle school and high school must achieve an Index 1 score of at least 70 to be eligible for these points (1 point). (6) Underserved Area. ( 2306.6725(b)(2); 2306.127, 42(m)(1)(C)(ii)) An Application may qualify to receive two (2) points for general population or Supportive Housing Developments if the Development Site is located in one of the areas described in subparagraphs (A) - (D) of this paragraph. (A) A Colonia; (B) An Economically Distressed Area; (C) A Place, or if outside of the boundaries of any Place, a county that has never received a competitive tax credit allocation or a 4 percent non-competitive tax credit allocation for a Development that remains an active tax credit development; or (D) For Rural Areas only, a census tract that has never received a competitive tax credit allocation or a 4 percent non-competitive tax credit allocation for a Development that remains an active tax credit development serving the same Target Population. (7) Tenant Populations with Special Housing Needs. ( 42(m)(1)(C)(v)) An Application may qualify to receive two (2) ADOPTED RULES December 19, 2014 39 TexReg 9961

points by serving Tenants with Special Housing Needs. Points will be awarded as described in subparagraphs (A) and (B) of this paragraph. (A) Applications meeting all of the requirements in clauses (i) - (iv) of this subparagraph are eligible to receive two (2) points by committing to participate in the Department's Section 811 Project Rental Assistance Demonstration Program ("Section 811 Program"). In order to be eligible for points, Applicants must commit at least 10 Units in the proposed Development for participation in the Section 811 Program unless the Integrated Housing Rule (10 TAC 1.15) or Section 811 Program guidelines and program requirements limits the proposed Development to fewer than 10 Units. Alternatively, Applications may qualify for points if evidence is submitted in the Application that indicates approval by the Department to commit the same number of units (as would be required in the proposed Development) in an existing Development in the Applicant's or an Affiliate's portfolio. Participation in the Section 811 Program will require execution of a Section 811 property agreement and other required documents on or before HTC Commitment. The same units cannot be used to qualify for points in more than one HTC Application. Once elected in the Application, Applicants may not withdraw their commitment to participate in the Section 811 Program unless the Department determines that the Development cannot meet all of the Section 811 program criteria. In this case, staff may allow the Application to qualify for points by meeting the requirements of subparagraph (B) of this paragraph. Should an Applicant receive an award of HTCs, the Department may allow Applicants to substitute alternate units in an existing Development in the Applicant's or Affiliates' portfolio; such properties require approval by the Department to commit the same number of units in the existing Development as were committed in the Application. It is the Applicant's responsibility to familiarize themselves with the Section 811 Program guidelines and program requirements, including the 30-year use restriction for the 811 units, before selecting points. (i) The Development must not be a Qualified Elderly Development or Supportive Housing; (ii) The Development must not be originally constructed before 1978; (iii) The Development has units available to be committed to the Section 811 Program in the Development, meaning that those units do not have any other sources of project-based rental or long-term operating assistance within 6 months of receiving 811 assistance and cannot have an existing restriction for persons with disabilities; and (iv) The Development Site must be located in one of the following areas: Austin-Round Rock MSA, Brownsville-Harlingen MSA, Dallas-Fort Worth-Arlington MSA; El Paso MSA; Houston-The Woodlands-Sugar Land MSA; McAllen-Edinburg-Mission MSA; or San Antonio-New Braunfels MSA. (B) Applications proposing Developments that do not meet all of the requirements of clauses (i) - (iv) of subparagraph (A) of this paragraph may qualify for two (2) points for meeting the requirements of this subparagraph. In order to qualify for points, Applicants must agree to set-aside at least 5 percent of the total Units for Persons with Special Needs. For purposes of this subparagraph, Persons with Special Needs is defined as households where one individual has alcohol and/or drug addictions, Colonia resident, Persons with Disabilities, Violence Against Women Act Protections (domestic violence, dating violence, sexual assault, and stalking), persons with HIV/AIDS, homeless populations, veterans, wounded warriors (as defined by the Caring for Wounded Warriors Act of 2008), and farmworkers. Throughout the Compliance Period, unless otherwise permitted by the Department, the Development Owner agrees to affirmatively market Units to Persons with Special Needs. In addition, the Department will require an initial minimum twelve-month period during which Units must either be occupied by Persons with Special Needs or held vacant. After the initial twelve-month period, the Development Owner will no longer be required to hold Units vacant for Persons with Special Needs, but will be required to continue to affirmatively market Units to Persons with Special Needs. (d) Criteria promoting community support and engagement. (1) Local Government Support. An Application may qualify for up to seventeen (17) points for a resolution or resolutions voted on and adopted by the bodies reflected in subparagraphs (A) - (C) of this paragraph, as applicable. The resolution(s) must be dated prior to Final Input from Elected Officials Delivery Date and must be submitted to the Department no later than the Final Input from Elected Officials Delivery Date as identified in 11.2 of this chapter. Such resolution(s) must specifically identify the Development whether by legal description, address, Development name, Application number or other verifiable method. In providing a resolution a municipality or county should consult its own staff and legal counsel as to whether such resolution will be consistent with Fair Housing laws as they may apply, including, as applicable, consistency with any FHAST form on file, any current Analysis of Impediments to Fair Housing Choice, or any current plans such as one year action plans or five year consolidated plans for HUD block grant funds, such as HOME or CDBG funds. For an Application with a proposed Development Site that, at the time of the initial filing of the Application, is: (A) Within a municipality, the Application will receive: (i) seventeen (17) points for a resolution from the Governing Body of that municipality expressly setting forth that the municipality supports the Application or Development; or (ii) fourteen (14) points for a resolution from the Governing Body of that municipality expressly setting forth that the municipality has no objection to the Application or Development. (B) Within the extraterritorial jurisdiction of a municipality, the Application may receive points under clause (i) or (ii) of this subparagraph and under clause (iii) or (iv) of this subparagraph: (i) eight and one-half (8.5) points for a resolution from the Governing Body of that municipality expressly setting forth that the municipality supports the Application or Development; or (ii) seven (7) points for a resolution from the Governing Body of that municipality expressly setting forth that the municipality has no objection to the Application or Development; and (iii) eight and one-half (8.5) points for a resolution from the Governing Body of that county expressly setting forth that the county supports the Application or Development; or (iv) seven (7) points for a resolution from the Governing Body of that county expressly setting forth that the county has no objection to the Application or Development. (C) Within a county and not within a municipality or the extraterritorial jurisdiction of a municipality: (i) seventeen (17) points for a resolution from the Governing Body of that county expressly setting forth that the county supports the Application or Development; or (ii) fourteen (14) points for a resolution from the Governing Body of that county expressly setting forth that the county has no objection to the Application or Development. 39 TexReg 9962 December 19, 2014 Texas Register

(2) Commitment of Development Funding by Local Political Subdivision. ( 2306.6710(b)(1)(E)) An Application may receive up to fourteen (14) points for a commitment of Development funding from the city (if located in a city) or county in which the Development Site is located. Development funding from instrumentalities of a city or county will not qualify for points under this scoring item unless such instrumentalities first award the funds to the city or county for their administration, at least 60 percent of the governing board of the instrumentality consists of city council members from the city in which the Development Site is located (if located in a city) or county commissioners from the county in which the Development Site is located, or 100 percent of the governing board of the instrumentality is appointed by the elected officials of the city in which the Development Site is located (if located within a city) or county in which the Development Site is located. The government instrumentality providing Development funding under this scoring item may not be a Related Party to the Applicant. Development funding must be provided in the form of a construction and/or permanent loan with an interest rate no higher than 3 percent per annum and term of at least 5 years, a grant, an in-kind contribution, a contribution which will support the Development, such as vouchers, or combination thereof. Funds cannot have been provided to the Local Political Subdivision by the Applicant or a Related Party. Should the Local Political Subdivision borrow funds in order to commit funding to the Development, the Applicant or a Related Party to the Applicant can provide collateral or guarantees for the loan only to the Local Political Subdivision. HOME Investment Partnership Program or Community Development Block Grant funds administered by the State of Texas cannot be utilized for points under this scoring item except where the city, county, or instrumentality is an actual applicant for and subrecipient of such funds for use in providing financial support to the proposed Development. The Applicant must provide evidence in the Application that an application or request for the development funds has been submitted in the form of an acknowledgement from the applicable city or county. The acknowledgement must also state that a final decision with regard to the awards of such funding is expected to occur no later than September 1. A firm commitment of funds is required by Commitment or points will be lost (except for Applicants electing the point under subparagraph (C) of this paragraph). While the specific source can change, the funding secured must have been eligible at the time the Application was submitted. (A) Option for Development Sites located in the ETJ of a municipality. For an Application with a Development Site located in the ETJ of a municipality, whether located in an unincorporated Place or not, the Applicant may seek Development funding from the municipality or a qualifying instrumentality of the municipality, provided the Applicant uses the population of said municipality as the basis for determining the Application's eligible points under subparagraph (B) of this paragraph. Applicants are encouraged to contact Department staff where an Applicant is uncertain of how to determine the correct Development funding amounts or qualifying Local Political Subdivisions. (B) Applications will qualify for points based on the amount of funds at the levels described in clauses (i) - (v) of this subparagraph. For the purpose of this calculation, the Department will use the population of the Place from which the Development Site's Rural or Urban Area designation is derived. (i) eleven (11) points for a commitment by a Local Political Subdivision of the lesser of the population of the Place multiplied by a factor of 0.15 in funding per Low Income Unit or $15,000 in funding per Low Income Unit; (ii) ten (10) points for a commitment by a Local Political Subdivision of the lesser of the population of the Place multiplied by a factor of 0.10 in funding per Low Income Unit or $10,000 in funding per Low Income Unit; (iii) nine (9) points for a commitment by a Local Political Subdivision of the lesser of population of the Place multiplied by a factor of 0.05 in funding per Low Income Unit or $5,000 in funding per Low Income Unit; (iv) eight (8) points for a commitment by a Local Political Subdivision of the lesser of the population of the Place multiplied by a factor of 0.025 in funding per Low Income Unit or $1,000 in funding per Low Income Unit; or (v) seven (7) points for a commitment by a Local Political Subdivision of the lesser of the population of the Place multiplied by a factor of 0.01 in funding per Low Income Unit or $500 in funding per Low Income Unit. (C) Two (2) points may be added to the points in subparagraph (B)(i) - (v) of this paragraph and subparagraph (D) of this paragraph if the Applicant provides a firm commitment for funds in the form of a resolution from the Local Political Subdivision and provides a commitment for the same source(s) at Commitment. The resolution must reflect terms that are consistent with the requirements of this paragraph. (D) One (1) point may be added to the points in subparagraph (B)(i) - (v) of this paragraph and subparagraph (C) of this paragraph if the financing to be provided is in the form of a grant or in-kind contribution meeting the requirements of this paragraph or a permanent loan with a minimum term of fifteen (15) years, minimum amortization period of thirty (30) years, and interest rate no higher than 3 percent per annum. An Applicant must certify that they intend to maintain the Development funding for the full term of the funding, barring unanticipated events. For Applicants electing this additional point that have not yet received an award or commitment, the structure of the funds will be reviewed at Commitment for compliance with this provision. (3) Declared Disaster Area. ( 2306.6710(b)(1)) An Application may receive ten (10) points if at the time of Application submission or at any time within the two-year period preceding the date of submission, the Development Site is located in an area declared to be a disaster area under the Texas Government Code, 418.014. (4) Quantifiable Community Participation. ( 2306.6710(b)(1)(B); 2306.6725(a)(2)) An Application may qualify for up to nine (9) points for written statements from a Neighborhood Organization. In order for the statement to qualify for review, the Neighborhood Organization must have been in existence prior to the Pre-Application Final Delivery Date, and its boundaries must contain the Development Site. In addition, the Neighborhood Organization must be on record with the state (includes the Department) or county in which the Development Site is located. Neighborhood Organizations may request to be on record with the Department for the current Application Round with the Department by submitting documentation (such as evidence of board meetings, bylaws, etc.) by 30 days prior to the Full Application Delivery Date. The written statement must meet the requirements in subparagraph (A) of this paragraph. (A) Statement Requirements. If an organization cannot make the following affirmative certifications or statements then the organization will not be considered a Neighborhood Organization for purposes of this paragraph. (i) the Neighborhood Organization's name, a written description and map of the organization's boundaries, signatures and contact information (phone, email and mailing address) of at least two ADOPTED RULES December 19, 2014 39 TexReg 9963

individual members with authority to sign on behalf of the organization; (ii) certification that the boundaries of the Neighborhood Organization contain the Development Site and that the Neighborhood Organization meets the definition pursuant to Texas Government Code, 2306.004(23-a) and includes at least two separate residential households; (iii) certification that no person required to be listed in accordance with Texas Government Code 2306.6707 with respect to the Development to which the Application requiring their listing relates participated in any way in the deliberations of the Neighborhood Organization, including any votes taken; (iv) certification that at least 80 percent of the current membership of the Neighborhood Organization consists of persons residing or owning real property within the boundaries of the Neighborhood Organization; and (v) an explicit expression of support, opposition, or neutrality. Any expression of opposition must be accompanied with at least one reason forming the basis of that opposition. A Neighborhood Organization is encouraged to be prepared to provide additional information with regard to opposition. (B) Technical Assistance. For purposes of this section, if and only if there is no Neighborhood Organization already in existence or on record, the Applicant, Development Owner, or Developer is allowed to provide technical assistance in the creation of and/or placing on record of a Neighborhood Organization. Technical assistance is limited to: (i) the use of a facsimile, copy machine/copying, email and accommodations at public meetings; (ii) assistance in completing the QCP Neighborhood Information Packet, providing boundary maps and assisting in the Administrative Deficiency process; and (iii) presentation of information and response to questions at duly held meetings where such matter is considered. (C) Point Values for Quantifiable Community Participation. An Application may receive points based on the values in clauses (i) - (vi) of this subparagraph. Points will not be cumulative. Where more than one written statement is received for an Application, the average of all statements received in accordance with this subparagraph will be assessed and awarded. (i) nine (9) points for explicit support from a Neighborhood Organization that, during at least one of the three prior Application Rounds, provided a written statement that qualified as Quantifiable Community Participation opposing any Competitive Housing Tax Credit Application and whose boundaries remain unchanged; (ii) eight (8) points for explicitly stated support from a Neighborhood Organization; (iii) six (6) points for explicit neutrality from a Neighborhood Organization that, during at least one of the three prior Application Rounds provided a written statement, that qualified as Quantifiable Community Participation opposing any Competitive Housing Tax Credit Application and whose boundaries remain unchanged; (iv) four (4) points for statements of neutrality from a Neighborhood Organization or statements not explicitly stating support or opposition, or an existing Neighborhood Organization provides no statement of either support, opposition or neutrality, which will be viewed as the equivalent of neutrality or lack of objection; (v) four (4) points for areas where no Neighborhood Organization is in existence, equating to neutrality or lack of objection, or where the Neighborhood Organization did not meet the explicit requirements of this section; or (vi) zero (0) points for statements of opposition meeting the requirements of this subsection. (D) Challenges to opposition. Any written statement from a Neighborhood Organization expressing opposition to an Application may be challenged if it is contrary to findings or determinations, including zoning determinations, of a municipality, county, school district, or other local Governmental Entity having jurisdiction or oversight over the finding or determination. If any such statement is challenged, the challenger must declare the basis for the challenge and submit such challenge by the Challenges to Neighborhood Organization Opposition Delivery Date as identified in 11.2 of this chapter. The Neighborhood Organization expressing opposition will be given seven (7) calendar days to provide any information related to the issue of whether their assertions are contrary to the findings or determinations of a local Governmental Entity. All such materials and the analysis of the Department's staff will be provided to a fact finder, chosen by the Department, for review and a determination of the issue presented by this subsection. The fact finder will not make determinations as to the accuracy of the statements presented, but only with regard to whether the statements are contrary to findings or determinations of a local Governmental Entity. The fact finder's determination will be final and may not be waived or appealed. (5) Community Support from State Representative. ( 2306.6710(b)(1)(F); 2306.6725(a)(2)) Applications may receive up to eight (8) points or have deducted up to eight (8) points for this scoring item. To qualify under this paragraph letters must be on the State Representative's letterhead, be signed by the State Representative, identify the specific Development and clearly state support for or opposition to the specific Development. This documentation will be accepted with the Application or through delivery to the Department from the Applicant or the State Representative and must be submitted no later than the Final Input from Elected Officials Delivery Date as identified in 11.2 of this chapter. Once a letter is submitted to the Department it may not be changed or withdrawn. Therefore, it is encouraged that letters not be submitted well in advance of the specified deadline in order to facilitate consideration of all constituent comment and other relevant input on the proposed Development. State Representatives to be considered are those in office at the time the letter is submitted and whose district boundaries include the Development Site. Neutral letters or letters that do not specifically refer to the Development or specifically express support or opposition will receive zero (0) points. A letter that does not directly express support but expresses it indirectly by inference (e.g. "the local jurisdiction supports the Development and I support the local jurisdiction") will be treated as a neutral letter. (6) Input from Community Organizations. Where the Development Site does not fall within the boundaries of any qualifying Neighborhood Organization, then, in order to ascertain if there is community support, an Application may receive up to four (4) points for letters that qualify for points under subparagraphs (A), (B), and/or (C) of this paragraph. No more than four (4) points will be awarded under this point item under any circumstances. All letters must be submitted within the Application. Should an Applicant elect this option and the Application receives letters in opposition, then one (1) point will be subtracted from the score under this paragraph for each letter in opposition, provided that the letter is from an organization that would otherwise qualify under this paragraph. However, at no time will the Application receive a score lower than zero (0) for this item. 39 TexReg 9964 December 19, 2014 Texas Register

(A) An Application may receive two (2) points for each letter of support submitted from a community or civic organization that serves the community in which the Development Site is located. Letters of support must identify the specific Development and must state support of the specific Development at the proposed location. To qualify, the organization must be qualified as tax exempt and have as a primary (not ancillary or secondary) purpose of the overall betterment, development, or improvement of the community as a whole or of a major aspect of the community such as improvement of schools, fire protection, law enforcement, city-wide transit, flood mitigation, or the like. The community or civic organization must provide some documentation of its tax exempt status and its existence and participation in the community in which the Development Site is located including, but not limited to, a listing of services and/or members, brochures, annual reports, etc. Letters of support from organizations that cannot provide reasonable evidence that they are active in the area that includes the location of the Development Site will not be awarded points. For purposes of this subparagraph, community and civic organizations do not include neighborhood organizations, governmental entities (excluding Special Management Districts), or taxing entities. (B) An Application may receive two (2) points for a letter of support from a property owners association created for a master planned community whose boundaries include the Development Site and that does not meet the requirements of a Neighborhood Organization for the purpose of awarding points under paragraph (4) of this subsection. (C) An Application may receive two (2) points for a letter of support from a Special Management District whose boundaries, as of the Full Application Delivery Date as identified in 11.2 of this chapter (relating to Program Calendar for Competitive Housing Tax Credits), include the Development Site. (D) Input that evidences unlawful discrimination against classes of persons protected by Fair Housing law or the scoring of which the Department determines to be contrary to the Department's efforts to affirmatively further fair housing will not be considered. If the Department receives input that could reasonably be suspected to implicate issues of non-compliance under the Fair Housing Act, staff will refer the matter to the Texas Workforce Commission for investigation, but such referral will not, standing alone, cause staff or the Department to terminate the Application. Staff will report all such referrals to the Board and summarize the status of any such referrals in any recommendations. (7) Community Revitalization Plan. An Application may qualify for points under this paragraph only if no points are elected under subsection (c)(4) of this section, related to Opportunity Index. (A) For Developments located in an Urban Area of Region 3. (i) An Application may qualify to receive up to six (6) points if the Development Site is located in an area targeted for revitalization in a community revitalization plan that meets the criteria described in subclauses (I) - (VI) of this clause: (I) The community revitalization plan must have been adopted by the municipality or county in which the Development Site is located. (II) The adopting municipality or county must have performed, in a process providing for public input, an assessment of the factors in need of being addressed as a part of such community revitalization plan. Factors assessed must include at least five (5) of the following eight (8) factors: (-a-) adverse environmental conditions, natural or manmade, that are material in nature and are inconsistent with the general quality of life in typical average income neighborhoods. By way of example, such conditions might include significant and recurring flooding, presence of hazardous waste sites or ongoing localized emissions not under appropriate remediation, nearby heavy industrial uses, or uses presenting significant safety or noise concerns such as major thoroughfares, nearby active railways (other than commuter trains), or landing strips; significant and widespread (e.g. not localized to a small number of businesses or other buildings) rodent or vermin infestation acknowledged to present health risks requiring a concerted effort; or fire hazards; (-b-) presence of blight, which may include excessive vacancy, obsolete land use, significant decline in property value, or other similar conditions that impede growth; (-c-) presence of inadequate transportation or infrastructure; (-d-) lack of accessibility to and/or presence of inadequate health care facilities, law enforcement and fire fighting facilities, social and recreational facilities, and other public facilities comparable to those typically found in neighborhoods containing comparable but unassisted housing; (-e-) the presence of significant crime; (-f-) the lack of or poor condition and/or performance of public education; (-g-) the lack of local business providing employment opportunities; or (-h-) efforts to promote diversity, including multigenerational diversity, economic diversity, etcetera, where it has been identified in the planning process as lacking. (III) The target area must be larger than the assisted housing footprint and should be limited in size along the lines of specific neighborhoods rather than encompassing large areas of a city or county. Staff will review the target areas for presence of the factors identified in subclause (II) of this clause. (IV) The adopted plan, taken as a whole, must be a plan that can reasonably be expected to revitalize the neighborhood and address in a substantive and meaningful way the material factors identified in subclause (II) of this clause. Generally, because revitalization must identify specific matters needing to be addressed by revitalization and provide a plan and budget specifically directed to those identified issues, revitalization will be considered distinct and separate from broader economic development efforts. (V) The adopted plan must describe the planned budget and uses of funds to accomplish its purposes within the applicable target area. To the extent that expenditures, incurred within four (4) years prior to the beginning of the Application Acceptance Period, have already occurred in the applicable target area, a statement from a city or county official concerning the amount of the expenditure and purpose of the expenditure may be submitted. (VI) To be eligible for points under this item, the community revitalization plan must already be in place as of the Full Application Final Delivery Date pursuant to 11.2 of this chapter evidenced by a letter from the appropriate local official stating that: (-a-) the plan was duly adopted with the required public input processes followed; (-b-) the funding and activity under the plan has already commenced; and (-c-) the adopting municipality or county has no reason to believe that the overall funding for the full and timely implementation of the plan will be unavailable. (ii) Points will be awarded based on: ADOPTED RULES December 19, 2014 39 TexReg 9965

(I) Applications will receive four (4) points if the applicable target area of the community revitalization plan has a total budget or projected economic value of $6,000,000 or greater; or (II) Applications will receive two (2) points if the applicable target area of the community revitalization plan has a total budget or projected economic value of at least $4,000,000; and (III) Applications may receive (2) points in addition to those under subclause (I) or (II) of this clause if the Development is explicitly identified by the city or county as contributing most significantly to the concerted revitalization efforts of the city or county (as applicable). A city or county may only identify one single Development during each Application Round for the additional points under this subclause. A resolution from the Governing Body of the city or county that approved the plan is required to be submitted in the Application (this resolution is not required at pre-application). If multiple Applications submit resolutions under this subclause from the same Governing Body, none of the Applications shall be eligible for the additional points. A city or county may, but is not required, to identify a particular Application as contributing most significantly to concerted revitalization efforts. (B) For Developments located in Urban Areas outside of Region 3. (i) An Application may qualify for up to six (6) points for meeting the criteria under subparagraph (A) of this paragraph (with the exception of being located in Region 3); or (ii) An Application will qualify for four (4) points if the city or county has an existing plan for Community Development Block Grant - Disaster Relief Program (CDBG-DR) funds that meets the requirements of subclauses (I) - (V) of this clause. To qualify for points, the Development Site must be located in the target area defined by the plan, and the Application must have a commitment of CDBG-DR funds. The plan (in its entirety) and a letter from a local government official with specific knowledge and oversight of implementing the plan are included in the Application and must: (I) define specific target areas for redevelopment of housing that do not encompass the entire jurisdiction; (II) be subject to administration in a manner consistent with an approved Fair Housing Activity Statement-Texas (FHAST); (III) be subject to administration in a manner consistent with the findings of an Analysis of Impediments approved or accepted by HUD within the last three (3) calendar years or an approved Fair Housing Activity Statement-Texas (FHAST), approved by the Texas General Land Office; (IV) certify that the plan and the Application are consistent with the adopting municipality or county's plan to affirmatively further fair housing under the Fair Housing Act; and Delivery Date. (V) be in place prior to the Full Application Final (C) For Developments located in a Rural Area. (i) An Application may qualify for up to four (4) points for meeting the criteria under subparagraph (B) of this paragraph if located outside of Region 3 (with the exception of being located in an Urban Area); or (ii) The requirements for community revitalization in a Rural Area are distinct and separate from the requirements related to community revitalization in an Urban Area in that the requirements in a Rural Area relate primarily to growth and expansion indicators. An Application may qualify for up to four (4) points if the city, county, state, or federal government has approved expansion of basic infrastructure or projects, as described in this paragraph. Approval cannot be conditioned upon the award of tax credits or on any other event (zoning, permitting, construction start of another development, etc.) not directly associated with the particular infrastructure expansion. The Applicant, Related Party, or seller of the Development Site cannot contribute funds for or finance the project or infrastructure, except through the normal and customary payment of property taxes, franchise taxes, sales taxes, impact fees and/or any other taxes or fees traditionally used to pay for or finance such infrastructure by cities, counties, state or federal governments or their related subsidiaries. The project or expansion must have been completed no more than twelve (12) months prior to the beginning of the Application Acceptance Period or have been approved and is projected to be completed within twelve (12) months from the beginning of the Application Acceptance Period. An Application is eligible for two (2) points for one of the items described in subclauses (I) - (V) of this clause or four (4) points for at least two (2) of the items described in subclauses (I) - (V) of this clause: (I) New paved roadway (may include paving an existing non-paved road but excludes overlays or other limited improvements) or expansion of existing paved roadways by at least one lane (excluding very limited improvements such as new turn lanes or restriping), in which a portion of the new road or expansion is within one half (1/2) mile of the Development Site; (II) New water service line (or new extension) of at least 500 feet, in which a portion of the new line is within one half (1/2) mile of the Development Site; (III) New wastewater service line (or new extension) of at least 500 feet, in which a portion of the new line is within one half (1/2) mile of the Development Site; (IV) Construction of a new law enforcement or emergency services station within one (1) mile of the Development Site that has a service area that includes the Development Site; and (V) Construction of a new hospital or expansion of an existing hospital's capacity by at least 25 percent within a five (5) mile radius of the Development Site and ambulance service to and from the hospital is available at the Development Site. Capacity is defined as total number of beds, total number of rooms or total square footage of the hospital. (iii) To qualify under clause (ii) of this subparagraph, the Applicant must provide a letter from a government official with specific knowledge of the project (or from an official with a private utility company, if applicable) which must include: (I) (II) (III) (IV) the nature and scope of the project; the date completed or projected completion; source of funding for the project; proximity to the Development Site; and (V) the date of any applicable city, county, state, or federal approvals, if not already completed. (e) Criteria promoting the efficient use of limited resources and applicant accountability. (1) Financial Feasibility. ( 2306.6710(b)(1)(A)) An Application may qualify to receive a maximum of eighteen (18) points for this item. To qualify for points, a 15-year pro forma itemizing all projected income including Unit rental rate assumptions, operating expenses and debt service, and specifying the underlying growth assumptions and reflecting a minimum must-pay debt coverage ratio of 1.15 39 TexReg 9966 December 19, 2014 Texas Register

for each year must be submitted. The pro forma must include the signature and contact information evidencing that it has been reviewed and found to be acceptable by an authorized representative of a proposed Third Party construction or permanent lender. An acceptable form of lender approval letter is found in the application. If the letter evidences review of the Development alone it will receive sixteen (16) points. If the letter evidences review of the Development and the Principals, it will receive eighteen (18) points. (2) Cost of Development per Square Foot. ( 2306.6710(b)(1)(H); 42(m)(1)(C)(iii)) An Application may qualify to receive up to twelve (12) points based on either the Building Cost or the Hard Costs per square foot of the proposed Development, as originally submitted in the Application. For purposes of this paragraph, Building Costs will exclude structured parking or commercial space that is not included in Eligible Basis, and Hard Costs will include general contractor overhead, profit, and general requirements. Structured parking or commercial space costs must be supported by a cost estimate from a Third Party General Contractor or subcontractor with experience in structured parking or commercial construction, as applicable. The square footage used will be the Net Rentable Area (NRA). The calculations will be based on the cost listed in the Development Cost Schedule and NRA shown in the Rent Schedule. (A) A high cost development is a Development that meets one of the following conditions: (i) the Development is elevator served, meaning it is either a Qualified Elderly Development with an elevator or a Development with one or more buildings any of which have elevators serving four or more floors; family design; (ii) the Development is more than 75 percent single (iii) the Development is Supportive Housing; or (iv) the Development Site qualifies for five (5) or seven (7) points under subsection (c)(4) of this section, related to Opportunity Index, and is located in an Urban Area. (B) Applications proposing New Construction or Reconstruction will be eligible for twelve (12) points if one of the following conditions is met: (i) The Building Cost per square foot is less than $70 per square foot; (ii) The Building Cost per square foot is less than $75 per square foot, and the Development meets the definition of a high cost development; (iii) The Hard Cost per square foot is less than $90 per square foot; or (iv) The Hard Cost per square foot is less than $100 per square foot, and the Development meets the definition of high cost development. (C) Applications proposing New Construction or Reconstruction will be eligible for eleven (11) points if one of the following conditions is met: (i) The Building Cost per square foot is less than $75 per square foot; (ii) The Building Cost per square foot is less than $80 per square foot, and the Development meets the definition of a high cost development; (iii) The Hard Cost per square foot is less than $95 per square foot; or (iv) The Hard Cost per square foot is less than $105 per square foot, and the Development meets the definition of high cost development. (D) Applications proposing New Construction or Reconstruction will be eligible for ten (10) points if one of the following conditions is met: foot; or (i) (ii) The Building Cost is less than $90 per square The Hard Cost is less than $110 per square foot. (E) Applications proposing Adaptive Reuse or Rehabilitation (excluding Reconstruction) will be eligible for points if one of the following conditions is met: (i) Twelve (12) points for Applications which include Hard Costs plus acquisition costs included in Eligible Basis that are less than $100 per square foot; (ii) Twelve (12) points for Applications which include Hard Costs plus acquisition costs included in Eligible Basis that are less than $130 per square foot, located in an Urban Area, and that qualify for 5 or 7 points under subsection (c)(4) of this section, related to Opportunity Index; or (iii) Eleven (11) points for Applications which include Hard Costs plus acquisition costs included in Eligible Basis that are less than $130 per square foot. (3) Pre-application Participation. ( 2306.6704) An Application may qualify to receive up to six (6) points provided a pre-application was submitted during the Pre-Application Acceptance Period. Applications that meet the requirements described in subparagraphs (A) - (G) of this paragraph will qualify for six (6) points: (A) The total number of Units does not increase by more than ten (10) percent from pre-application to Application; (B) The designation of the proposed Development as Rural or Urban remains the same; Population; (C) The proposed Development serves the same Target (D) The pre-application and Application are participating in the same set-asides (At-Risk, USDA, Non-Profit, and/or Rural); (E) The Application final score (inclusive of only scoring items reflected on the self score form) does not vary by more than six (6) points from what was reflected in the pre-application self score; (F) The Development Site at Application is at least in part the Development Site at pre-application, and the census tract number listed at pre-application is the same at Application; and The pre-application met all applicable requirements. (G) (4) Leveraging of Private, State, and Federal Resources. ( 2306.6725(a)(3)) (A) An Application may qualify to receive up to three (3) points if at least five (5) percent of the total Units are restricted to serve households at or below 30 percent of AMGI (restrictions elected under other point items may count) and the Housing Tax Credit funding request for the proposed Development meet one of the levels described in clauses (i) - (iv) of this subparagraph: ADOPTED RULES December 19, 2014 39 TexReg 9967

(i) the Development leverages CDBG Disaster Recovery, HOPE VI, RAD, or Choice Neighborhoods funding and the Housing Tax Credit Funding Request is less than 9 percent of the Total Housing Development Cost (3 points). The Application must include a commitment of such funding; or (ii) If the Housing Tax Credit funding request is less than 8 percent of the Total Housing Development Cost (3 points); or (iii) If the Housing Tax Credit funding request is less than 9 percent of the Total Housing Development Cost (2 points); or (iv) If the Housing Tax Credit funding request is less than 10 percent of the Total Housing Development Cost (1 point). (B) The calculation of the percentages stated in subparagraph (A) of this paragraph will be based strictly on the figures listed in the Funding Request and Development Cost Schedule. Should staff issue an Administrative Deficiency that requires a change in either form, then the calculation will be performed again and the score adjusted, as necessary. However, points may not increase based on changes to the Application. In order to be eligible for points, no more than 50 percent of the developer fee can be deferred. Where costs or financing change after completion of underwriting or award (whichever occurs later), the points attributed to an Application under this scoring item will not be reassessed unless there is clear evidence that the information in the Application was intentionally misleading or incorrect. (5) Extended Affordability or Historic Preservation. ( 2306.6725(a)(5); 2306.111(g)(3)(C); 2306.185(a)(1) and (c); 2306.6710(e)(2); and 42(m)(1)(B)(ii)(II)) An Application may qualify to receive up to four (4) points for this scoring item. (A) In accordance with the Code, each Development is required to maintain its affordability for a 15-year compliance period and, subject to certain exceptions, an additional 15-year extended use period. Development Owners that agree to extend the affordability period for a Development to thirty-five (35) years total may receive two (2) points; or (B) An Application includes a tax credit request amounting to less than or equal to $7,000 per HTC unit, that has received a letter from the Texas Historical Commission determining preliminary eligibility for historic (rehabilitation) tax credits and is proposing the use of historic (rehabilitation) tax credits (whether federal or state credits). At least one existing building that will be part of the Development must reasonably be expected to qualify to receive and document receipt of historic tax credits by issuance of Forms 8609. An Application may qualify to receive four (4) points under this provision. (6) Right of First Refusal. ( 2306.6725(b)(1); 42(m)(1)(C)(viii)) An Application may qualify to receive (1 point) for Development Owners that will agree to provide a right of first refusal to purchase the Development upon or following the end of the Compliance Period in accordance with Texas Government Code, 2306.6726 and the Department's rules including 10.407 of this title (relating to Right of First Refusal) and 10.408 of this title (relating to Qualified Contract Requirements). (7) Funding Request Amount. An Application may qualify to receive one (1) point if the Application reflects a Funding Request of Housing Tax Credits, as identified in the original Application submission, of no more than 100% of the amount available within the sub-region or set-aside as estimated by the Department as of December 1, 2014. (f) Point Adjustments. Staff will recommend to the Board and the Board may make a deduction of up to five (5) points for any of the items listed in paragraph (1) of this subsection, unless the person approving the extension (the Board or Executive Director, as applicable) makes an affirmative finding setting forth that the facts which gave rise to the need for the extension were beyond the reasonable control of the Applicant and could not have been reasonably anticipated. Any such matter to be presented for final determination of deduction by the Board must include notice from the Department to the affected party not less than fourteen (14) days prior to the scheduled Board meeting. The Executive Director may, but is not required, to issue a formal notice after disclosure if it is determined that the matter does not warrant point deductions. ( 2306.6710(b)(2)) (1) If the Applicant or Affiliate failed to meet the original Carryover submission or 10 percent Test deadline(s) or has requested an extension of the Carryover submission deadline, the 10 percent Test deadline (relating to either submission or expenditure). (2) If the Developer or Principal of the Applicant violates the Adherence to Obligations. (3) Any deductions assessed by the Board for paragraph (1) or (2) of this subsection based on a Housing Tax Credit Commitment from the preceding Application Round will be attributable to the Applicant or Affiliate of an Application submitted in the current Application Round. 11.10. Challenges of Competitive HTC Applications. The Department will address challenges received from unrelated entities to a specific active Application. The Department will utilize a preponderance of the evidence standard, and determinations made by the Department concerning challenges cannot be appealed by a party unrelated to the Applicant that is the subject of the challenge. The challenge process is reflected in paragraphs (1) - (13) of this section. A matter, even if raised as a challenge, that staff determines should be treated as an Administrative Deficiency will be treated and handled as an Administrative Deficiency, not as a challenge. (1) Challenges to Applications (excluding Site Challenges) must be received by the Department no later than the Application Challenges Deadline as identified in 11.2 of this chapter (relating to Program Calendar for Competitive Housing Tax Credits) and must be accompanied by the corresponding non-refundable challenge processing fee as described in 10.901 of this title (relating to Fee Schedule). Challenges related to Undesirable Site Features and Undesirable Neighborhood Characteristics are due no later than the Site Challenges Delivery Date as identified in 11.2 of this chapter (relating to Program Calendar for Competitive Housing Tax Credits). Unless the required fee is received with the challenge, no challenge will be deemed to have been submitted, and the challenge fee must be paid for each Application challenged by a challenger. (2) A challenge must be clearly identified as such, and it must state the specific identity of and contact information for the person making the challenge and, if they are acting on behalf of anyone else, on whose behalf they are acting. (3) Challengers must provide, at the time of filing the challenge, all briefings, documentation, and other information that the challenger offers in support of the challenge. Challengers must provide sufficient credible evidence that, if confirmed, would substantiate the challenge. Assertions not accompanied by supporting documentation susceptible to confirmation will not be considered. (4) Challenges to the financial feasibility of the proposed Development are premature unless final underwriting reports on the challenged Application have been posted to the Department's website. (5) Challenges relating to undesirable site features and undesirable neighborhood characteristics as described in 10.101(a)(3) 39 TexReg 9968 December 19, 2014 Texas Register

and (4) of this title (relating to Site and Development Requirements and Restrictions) are due by the Site Challenges Delivery Date and may relate to a failure to disclose characteristics described in 10.101(a)(4)(B) of this title or the presence of other characteristics that may deem the Site ineligible. (6) Challengers are encouraged to be prudent in identifying issues to challenge, realizing that most issues will be identified and addressed through the routine review and Administrative Deficiency process; (7) Once a challenge to an Application has been submitted, subsequent challenges on the same Application from the same challenger will not be accepted; (8) The Department shall promptly post all items received and purporting to be challenges and any pertinent information to its website; (9) The Department shall notify the Applicant that a challenge was received within seven (7) days of receipt of the challenge; (10) Where, upon review by staff, an issue is not clearly resolved, staff may send an Applicant an Administrative Deficiency notice to provide the Applicant with a specific issue in need of clarification and time to address the matter in need of clarification as allowed by the rules related to Administrative Deficiencies; (11) The Applicant may provide a response regarding the challenge and any such response must be provided within fourteen (14) days of their receipt of the challenge; (12) The Department shall promptly post its determinations of all matters submitted as challenges. Because of statutory requirements regarding the posting of materials to be considered by the Board, staff may be required to provide information on late received items relating to challenges as handouts at a Board meeting; and (13) Staff determinations regarding all challenges will be reported to the Board. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405735 Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs Effective date: December 22, 2014 Proposal publication date: September 19, 2014 For further information, please call: (512) 475-3344 TITLE 16. ECONOMIC REGULATION PART 1. RAILROAD COMMISSION OF TEXAS CHAPTER 3. OIL AND GAS DIVISION 16 TAC 3.70 The Railroad Commission of Texas (Commission) adopts amendments to 3.70, relating to Pipeline Permits Required, with changes from the proposed text published in the July 25, 2014, issue of the Texas Register (39 TexReg 5705). The Commission adopts these amendments with an effective date of March 1, 2015. The Commission received numerous comments on the proposed amendments, including a request for a public hearing regarding the proposed amendments, which was held September 22, 2014. The Commission appreciates the interest shown by the public in this rulemaking effort. The Commission received timely-filed comments from 11 groups or associations: Gas Processors Association (GPA); Public Citizen; Sierra Club, Lone Star Chapter (Sierra Club); South Texans' Property Rights Association (STPRA); Texas Alliance of Energy Producers (TAEP); Texas Farm Bureau (Farm Bureau); Texas Oil and Gas Association (TXOGA); Texas Pipeline Association (TPA); Texas Pipeline Watch (TPW); Texas and Southwestern Cattle Raisers Association (TSCRA); and the League of Independent Voters of Texas (Independent Voters), on behalf of which 230 individuals submitted comments. The Commission received timely-filed comments from three elected officials or governmental entities: the Honorable Wendy R. Davis (Senator Davis); Presidio Municipal Development District (Presidio); and City of Southlake (Southlake). The Commission received timely-filed comments from four companies: CenterPoint Energy (CenterPoint); Resource Analytical and Management Group, LLC (Resource Analytical); Clayton Williams Energy, Inc. (Williams); and Valero. The Commission received 42 comments from individuals before the comment deadline. The Commission received one comment at the public hearing held September 22, 2014, from Texas Association of Manufacturers (TAM), as well as additional comments from Public Citizen, Sierra Club, STPRA, TXOGA, TPA, TPW, Williams, and two individuals. The Commission also received numerous late-filed comments after the August 25, 2014, comment deadline. Late-filed comments were filed by one association (League of Women Voters of Texas (Women Voters)); one elected official (the Honorable David Simpson); three individuals; and an additional 35 comments on behalf of Independent Voters. Before addressing the comments, the Commission provides this general background information to explain several issues which generated a number of comments; many of these issues are beyond the scope of this rulemaking or contemplate activities beyond the reach of the Commission's authority. A T-4 Permit to Operate an intrastate pipeline in Texas is literally and specifically a permit to operate a pipeline. It is not a permit to construct a pipeline, nor is it authorization for a pipeline operator to exercise eminent domain in the acquisition of pipeline rightof-way. In Texas, pipelines are not required to be permitted before being built except for sour gas pipelines under 3.106 of this title (relating to Sour Gas Pipeline Facility Construction Permit). There is no statutory or regulatory requirement that a pipeline operator seek or receive from the Commission either a determination that there is a need for the pipeline capacity or prior approval to construct a pipeline and related facilities. It is the Commission's responsibility to apply the applicable statutory provisions to pipelines which operate under the Commission's jurisdiction and classify those lines as private lines, gas ADOPTED RULES December 19, 2014 39 TexReg 9969

utilities, or common carriers. Some of the Commission's regulatory programs apply to all pipelines under its jurisdiction, including "private" lines, while other statutes, rules and regulations are specific to gas utilities or common carriers. Such classification is necessary so that the Commission can exercise the specific statutory authority applicable to each pipeline within its jurisdiction. The route does not determine the regulatory classification and the regulatory classification does not determine the route. The permitting process simply determines which regulatory classification is to be applied to a pipeline; it does not determine the route a pipeline must or should take. The permitting process does not determine property rights. The Commission has neither the power to require, approve, or deny the building of a pipeline along a particular route nor the power to determine what rights the landowners along that route might or might not have. The Commission's duty is to determine the proper classification of a pipeline and thereafter to apply its rules and regulations to that pipeline. Litigation over the rights of a property owner or a pipeline's easement is not a Commission matter; it is a courthouse matter. The Commission requires pipeline operators to comply with the regulatory requirements for pipe material, design of the pipeline and pipeline components, welding and joining, and general construction and environmental requirements, but has no authority to determine the routing or siting of a pipeline. A pipeline operator or construction company must notify the Commission's Pipeline Safety Division before beginning construction on a pipeline when the construction involves an intrastate pipeline that is longer than one mile and is subject to safety regulation. Commission rule, 8.115 of this title (relating to New Construction Commencement Report), requires the operator to file a new construction report 30 days prior to the commencement of construction. However, operators of natural gas distribution or master meter systems of less than five miles are not required to file a new construction report, nor are operators constructing non-jurisdictional gathering pipelines (Class 1 and rural) and operators constructing transmission lines less than one mile in length. Some operators file new construction reports much earlier than 30 days prior to initiating construction activities. In Texas, all pipelines, whether common carrier, gas utility, or private line, must have a T-4 Permit to Operate, with two exceptions: pipelines that never leave the production lease (production and flow lines) and distribution lines that are part of a gas distribution system or a master meter system are not required to have a T-4 Permit to Operate. One comment (TSCRA) pointed to the opinion set forth by the Texas Supreme Court in Texas Rice Partners, Ltd. v. Denbury Green Pipeline, 363 S.W. 3d 192 (Tex. 2012) to support its assertion that the Commission's process does not provide any meaningful review of a pipeline's eminent domain authority. The Commission disagrees with assertions made by TSCRA and other commenters that the Court in Denbury suggested the Commission should expand its processing of applications for T-4 permits to encompass investigation and adversarial testing of, particularly, the common carrier assertions made by T-4 applicants. In fact, the Court stated, "the parties point to no regulation or enabling legislation directing the Commission to investigate and determine whether a pipeline will in fact serve the public." (Id., at 200; emphasis added.) For these reasons, the Commission declines to make most of the changes proffered by the commenters, but addresses the comments and certain changes being adopted in more detail as follows. Many commenters suggested that the Commission: (1) establish standards for proof of common carrier status (Independent Voters, Women Voters, STPRA, Farm Bureau, Public Citizen, Sierra Club, TAEP, several individuals) to include documentation of third-party customers via contracts or similar (Public Citizen); (2) provide a definition of common carrier that either excludes or includes affiliates (Senator Davis); (3) establish a methodology to vet third-party status (two individuals); (4) add a sworn statement from the applicant regarding compliance with applicable State law on classification (one individual); and (5) require annual reporting of percentage of throughput of third-party product (one individual). In response to these five subjects, and for the reasons set forth above, the Commission disagrees that the rule should include these changes. The new permitting process requires a pipeline operator to substantiate the basis for the classification sought. That classification depends on the statutory definitions of each type of pipeline and it is the definitions in the statutes that the Commission must apply. Requiring a pipeline operator to submit a sworn statement providing the purpose of a pipeline and setting forth a factual basis in support of that purpose provides greater transparency within the limits of the Commission's jurisdiction. Property owners will know the basis on which a pipeline operator claims common carrier status much earlier in the permitting process. In a related comment, the Farm Bureau suggested adding an attestation to knowledge of the eminent domain provisions under Texas Property Code, Chapter 21, and the Texas Landowner's Bill of Rights. The Commission agrees that this clarification is helpful in referring pipeline operators and citizens to the appropriate authority for this matter. The Commission adopts the suggestion in subsection (b)(3). The requirements of subsection (b)(3) apply to those pipelines which claim the right of eminent domain. Such pipelines must attest that they are aware that the eminent domain provisions of Texas Property Code, Chapter 21, and the Texas Landowner's Bill of Rights apply to the exercise of eminent domain. Another topic suggested by an individual stated that common carrier status should include independently conducted environmental and other reviews. The Commission disagrees with this comment. Because the Commission does not have routing or siting authority for transmission pipelines, nor does the Commission have the statutory authority to require such review, it is not appropriate to conduct such reviews prior to issuing a T-4 Permit to Operate a Pipeline in Texas. One commenter (TXOGA) generally supported the proposed revisions, characterizing them as a straightforward mechanism for classification determination. Moreover, the commenter supported the proposed rule's approach of not including a definitive list of supporting information required to accompany the sworn statement. TXOGA pointed out that the type of supporting information will vary not only by the classification sought by the applicant, but also from applicant to applicant. The Commission agrees with TXOGA's assertion and makes no changes to the rule. 39 TexReg 9970 December 19, 2014 Texas Register

Other commenters (TPA, GPA, TXOGA) suggested adding exclusionary language for local distribution companies and flow lines. As previously discussed in the preamble, the Commission agrees that local distribution systems and production or flow lines that do not leave a lease are excluded from this rule, as well as operators excluded under 8.1(b)(4) of this title (relating to General Applicability and Standards) which include master metered systems and distribution systems. The Commission adopts a clarifying change in subsection (a) in response to these comments. Some commenters suggested the Commission: (1) establish standards for revocation of common carrier status (Independent Voters, Public Citizen, Sierra Club, several individuals); (2) address penalties for making false statements to the Commission (TPW, three individuals); and (3) specify that improper statement of classification or annual reporting will initiate a due process hearing (one individual). The Commission disagrees with these comments. The provisions in subsection (h) for revocation of a permit refer to those laws of the State and the rules and regulations that the Commission has authority to administer and enforce. That a court might disagree with a pipeline operator's assertion that it is a common carrier does not necessarily make the operator's assertion a falsehood or a false filing within the meaning and intent of Texas Natural Resources Code, 91.143. Some commenters suggested that the rule: (1) provide for notice of an application to the neighbors (Independent Voters, Women Voters, Resource Analytical, Public Citizen, Sierra Club, TSCRA, several individuals) or to persons within two miles as well as applicable first responders (Public Citizen); (2) require regional or county public hearings and comments similar to the PUC's process (Independent Voters, TPW, Public Citizen, several individuals); (3) require public comments to be considered prior to issuance of a permit (Independent Voters, Public Citizen, Sierra Club, several individuals); (4) assure that affected parties can request hearings at SOAH before litigation is required (Independent Voters, Women Voters, Public Citizen, Sierra Club, several individuals); (5) require notice and a hearing, including ample time for such notice (Southlake, STPRA, Representative Simpson, one individual); (6) and state that the permit review and approval should not be a closed agency process (Women Voters, several individuals). The Commission disagrees with comments suggesting that there should be notice, comment, and hearings at the Commission or at SOAH. The Railroad Commission has no authority to determine transmission pipeline routing or siting. There is no prohibition in changing a route as the pipeline is constructed. Pipeline routes often change during construction. Neither the route taken nor the ownership along the route affects the classification of the pipeline. Since the permit does not determine where the pipeline will be built nor the legal rights of any persons along the final route, there is no Commission action which requires individual notice to any particular person at the time the permit application is filed. One comment (Public Citizen, Representative Simpson, TPW, two individuals) suggested the rule include notifications related to changes in the material being transported through the pipeline, as well as a sworn statement as to the type and toxicity of the product being transported. The Commission disagrees with this comment. Any change in pipeline service from liquids to gas or vice versa must be achieved based on compliance with pipeline safety regulations as well as permit amendments. Moreover, under Texas Natural Resources Code, 111.019(c), upon written request by a resident or owner of land crossed by a common carrier pipeline, the common carrier must disclose material data safety sheets concerning the commodities transported by the common carrier required by the commission and the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001, et seq.). Such disclosure must be in writing and must be mailed or delivered to the resident or landowner within 30 days of receipt of the request. Another comment (Independent Voters, Women Voters, TPW, Public Citizen, Sierra Club) stated that applicants should be assessed a fee to assure staff resources are available to review and rigorously enforce the rule. The Commission disagrees with this comment; the Commission has no statutory authority to impose such a fee. In addition the Commission anticipates that no additional staff will be needed to review and process applications. A similar comment (two individuals) stated that Commission staff should have additional time to verify applications. Again, the Commission disagrees; additional information that applicants for a T-4 Permit to Operate a Pipeline in Texas must supply will not require more time than has been set out in the proposed rule language. The Commission does not anticipate that additional staffing will be needed. One comment (Senator Davis, Women Voters, Valero, several individuals) stated that the proposed rule amendments are too vague. The Commission disagrees with this suggestion for those reasons stated in the previous discussion of the TXOGA comments. The proposed changes to this rule require documentation that an operator must furnish with an application, and establishes time lines for both the applicant and the Commission. These changes are within the jurisdiction granted to the Commission. One comment (one individual) suggested revising the rule to call this activity a "registration" as opposed to a "permit." The Commission disagrees that a rule change is necessary. A permit's revocation must include the minimum due process requirements of notice and an opportunity for hearing. One comment (TXOGA) suggested changes in subsection (b)(1) and (c) to add mailing address, phone number, and email address to the contact information required to facilitate timely communication between the Commission and the pipeline operators. The Commission agrees that effective communication with operators is essential and notes that specific contact information is requested on the form and therefore declines to make these changes in the rule. TXOGA requested that subsection (e) be amended to allow applicants to decline the Commission's decision regarding issuance of a pipeline permit within 10 days after receipt of notice, and without prejudice to an applicant's ability to re-file the application at a later time. In support of this request, TXOGA commented that "there could be circumstances where an applicant did not provide the Commission with information necessary to result in a decision and permit in the form anticipated by the applicant." ADOPTED RULES December 19, 2014 39 TexReg 9971

The Commission disagrees that these suggested changes are necessary. Subsection (d) of the rule provides a mechanism for the Commission to notify an applicant if the Commission determines that an application is incomplete prior to a final determination. Further, the rule does not prohibit an operator from seeking to obtain an amended permit on the basis of a change in classification. For these reasons, the Commission makes no changes to the rule in response to this comment. TXOGA also suggested that the current wording of subsection (h) be retained because the current standards are appropriate. The Commission's proposed amendments in subsection (h) accurately restate the Commission's authority regarding permit revocation standards. As required by Texas Government Code, 2001.024 and 2001.033, the Commission included with the published notice of the proposed rulemaking, a statement of the specific statutory authority under which the proposed amendments are to be adopted. The Commission restated those particular statutory provisions in this adoption preamble, together with an explanation of how the agency interprets those provisions as authorizing the rule. Therefore, the Commission declines to retain the current wording of subsection (h). TPA suggested a change to wording in subsection (h) to provide that a hearing would be held "not less than 10 calendar days after receipt by the permit holder of notice of said hearing." The Commission disagrees with this comment. The requirement for giving "10 days' notice" of a hearing is found in 1.45 of this title (relating to Notice of Hearing in Nonrulemaking Proceedings), as well as in Texas Government Code, 2001.051. In addition, Commission hearing notices are routinely sent with at least 14 days' notice and typically about 30 days' notice. Therefore, permit holders and any other person notified of a Commission hearing would already receive more than 10 days' notice in most cases. In addition, the Commission would not know when a permit holder receives a notice; hearings notices are not sent by certified mail. Adding TPA's wording "after receipt by the permit holder" would require the Commission to send hearing notices by certified mail or another confirmed delivery method, which would greatly increase Commission costs. One comment (TPW, two individuals) stated that the Commission should not delegate authority to staff to issue these permits administratively. The Commission disagrees. The delegation of authority to staff to issue permits administratively is necessary to ensure that applications are complete, and that review and issuance meet the specified time lines. Another comment (Public Citizen, TPW, Southlake, two individuals) questioned that the rule does not include a mechanism to contest a Commission decision and stated that Commission decisions must be challengeable in court. Another comment (TAEP) questioned the type of review that will be given to T-4 applications and renewals, and whether producers will be given an opportunity to participate in the process if they believe a common carrier or a gas utility has not complied with applicable statutory requirements. The Commission agrees in part with these comments. The rule as adopted states that once an application is determined to be complete and sufficient, the Commission shall issue, amend, or cancel the pipeline permit or deny the pipeline permit as filed. It is correct that the rule does not provide a mechanism by which to challenge the classification of a pipeline operator as a common carrier, and the Commission agrees that those who may disagree with that classification or who believe that an entity has not complied with applicable statutory requirements should be able to challenge it in court. The Commission disagrees that the rule should provide that mechanism, because it exists whether the rule states it or not. That remedy is a court challenge, and nothing in the rule as proposed or adopted prevents that. One comment (STPRA, Resource Analytical, TSCRA, one individual) stated that an approved permit is not a determination by the Commission that the operator has the power of eminent domain. TSCRA suggested, in order to clarify the Commission's intent, that the following acknowledgment from the applicant be added to the T-4 application form: "Applicant understands and agrees that this permit is not determinative of Applicant's authority to utilize the power of eminent domain to acquire right of way for the pipeline referenced herein." TSCRA also asked for the following language to be added to the final permit form: "The RRC is not, by the granting of this permit, making any determination regarding Applicant's authority to utilize the power of eminent domain to acquire right of way for the pipeline referenced herein." An individual requested that any application and permit issued by the Commission contain in clear, bold and underlined language the following: "The issuance of a T-4 permit DOES NOT determine or establish whether an oil pipeline is a common carrier pipeline in which the owner or operator may use the Texas eminent domain process to seize private property." The Commission agrees in part with these comments. The Commission reiterates that those who may disagree with the classification reviewed and determined by the Commission, or who believe that an entity has not complied with applicable statutory requirements, are able to challenge the pipeline's classification in court. The Commission disagrees that further clarification is necessary in the rule, however, and makes no change as a result of these comments. Comments regarding contents of Commission forms are outside the scope of this rulemaking. The Commission may consider changes to this form or to the permit at a later date. One comment (Senator Davis, three individuals) requested that the rule include an affirmative statement that the Commission's decision does not preempt a court challenge. The Commission agrees in part with this comment. It is correct that a Railroad Commission Permit to Operate a Pipeline in Texas does not preempt a court challenge. However, the Commission disagrees that it is necessary to include this statement in the rule, because the Commission does not have any discretion to determine who may properly bring suit in court. In other words, an indiscriminate statement regarding the availability of a court challenge to a Commission classification could be misleading. Not all potential plaintiffs will have the necessary standing to bring suit; not every court may have jurisdiction over such claims. Those determinations are properly within the purview of the courts, not the Commission. Another comment (STPRA, one individual) stated that renewals should be held to the same standard to support their classification. The Commission disagrees. It is not the intent of the proposed rule that the renewal of an existing permit would include revisiting the status of existing pipeline permits issued prior to the effective date of the proposed amendments. However, a pipeline operator seeking to change its classification would have to comply with the requirements of the amended rule. 39 TexReg 9972 December 19, 2014 Texas Register

One comment (an individual) offered several wording changes and additions to the rule "in order to comply" with the Denbury decision. The Commission disagrees that these changes or additions are necessary; the Court in Denbury did not direct the Commission to take any required action, and therefore the rule changes offered by this commenter are beyond the scope of this rulemaking. Further, the Commission notes that many of the changes suggested by the individual would have the effect of expanding the scope of application of the proposed rule amendments, as well as the burden imposed by them to a larger group than that originally contemplated by the amendments as proposed (namely, operators seeking to renew or amend an existing permit for any reason other than a change in classification). The Commission makes no changes in response to this comment. One comment (Resource Analytical, TSCRA) requested the addition of a provision allowing landowners to have input on the pipeline route, as well as requiring each line to have its own permit. The Commission disagrees with these comments; as explained in the opening paragraphs of this preamble, the Commission has no routing or siting authority with respect to pipelines. With respect to having one permit per pipeline, the Commission observes that, for current pipeline operators, the decision to seek a new pipeline permit or to amend an existing permit is generally determined by the purpose, nature, and location of the pipeline, and is left to the applicant to decide. One comment (TXOGA) suggested adding a default of granting the application to the rule if the Commission does not act in time. The Commission disagrees with this comment. The Commission has determined that the timing provisions in proposed 3.70(d) and (e) are sufficient for both the applicant and staff to submit and review the application and any attachments. The Commission will address any failure to meet the deadlines on a case-by-case basis, considering the circumstances involved. Another comment (GPA, TPA) suggested shortening the review period for a "complete application," and shortening the review period for permit approval, and one individual questioned whether the 15- and 45-day deadlines would be a burden on staff. Another comment (Sierra Club) suggested extending staff's review time from 45 days to 75 days. The Commission disagrees with these comments; however, the Commission anticipates that processing most applications will not require the full time authorized by the rule as proposed. On occasion, the Commission will need the times specified in the rule in order to process all applications within the time parameters without additional staff. One comment (an individual) suggested problems with the proposal preamble's justifications and lack of impact statements; specifically, the comments mentioned whether the proposed rule meets the definition of a major environmental rule set forth in Texas Government Code, 2001.0225(a), thereby requiring a regulatory analysis, and whether "the rule will affect the local economy; therefore the Commission must prepare a local employment impact statement pursuant to Texas Government Code 2001.022." The Commission disagrees with these comments. The proposed rule does not meet the definition "major environmental rule" as set out in Texas Government Code, 2001.0225(a), because the rule does not apply to the acquisition of pipeline right-of-way or to the construction of a pipeline. This rule pertains to issuing permits to operate pipelines in Texas. The result of this rule does not exceed a standard set by federal law; does not exceed an express requirement of state law; does not exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal government to implement a state and federal program; nor is the rule adopted solely under the general powers of the agency instead of under a specific state law. The Commission also disagrees that this rule affects a local economy. Again, the rule does not apply to the acquisition of pipeline right-of-way or to the construction of a pipeline. This rule pertains to issuing permits to operate pipelines in Texas. The Commission also notes that failure to comply with Texas Government Code, 2001.022, does not impair the legal effect of a rule adopted under Texas Government Code, Chapter 2001. Another comment (GPA, TXOGA) suggested that the rule include language to protect information designated confidential or proprietary by the applicant from public disclosure. The Commission has procedures concerning proprietary information and will address these concerns on a case-by-case basis. The issue of whether potentially sensitive information related to trade secrets, financial information, or confidential geological or geophysical information should be disclosed will be ultimately decided by the Office of the Attorney General. Another comment (GPA, TPA) stated the language of subsection (e) should address the ability of a pipeline operator to extend its system to supply sources and customers, as well as to adjust its system as needed to perform replacements and relocations. TPA further stated that such extensions, replacements and relocations do not change the classification of a pipeline. TPA suggested language be added to subsection (e): "Subject to annual renewals, a pipeline permit issued by the Commission will allow extensions, replacements and relocations of segments of the pipeline system in the operator's normal course of business." A similar comment (GPA) requested clarification that, under the proposed amendments, gas utilities will not be subjected to additional classification reviews for any new or amended pipeline permits, provided that the company is already classified as a gas utility and is not seeking a change in its classification. Moreover, GPA requested the addition of language in subsection (f) stating that "renewals of permits for pipelines shall not alter the classification previously accorded to the existing pipeline except upon application of the applicant." The Commission agrees with the comment that a pipeline that has already been classified as a gas utility and which is not seeking a change in its classification, but rather an amended permit (for purposes including extensions, replacements, or relocations) will not be subject to additional classification reviews, but will continue to maintain its gas utility classification. Likewise, a pipeline classified as a common carrier will not be subject to additional classification reviews solely on the basis of performing any extensions, replacements, or relocations. However, a pipeline classified as a non-utility under Texas Utilities Code, 121.005, must continue to satisfy all the requirements of Texas Utilities Code, 121.005. A natural gas pipeline that has not previously been classified as a gas utility must reassert to the Commission its non-utility status following any extension, replacement, or relocation of any part of the pipeline system. Generally speaking, if the Commission determines that ADOPTED RULES December 19, 2014 39 TexReg 9973

a natural gas pipeline holding itself out to be a private line no longer meets the requirements of Texas Utilities Code, 121.005, the Commission will designate that pipeline as a gas utility. The classification currently assigned to a pipeline permit will remain in place unless it is changed using the mechanism set forth in the rule or by court ruling. The Commission adds a clarifying change in subsection (f) with regard to these comments. One comment (CenterPoint) supported the proposed amendments, but stated that the common carrier standards should not be blended into the "gas utility" process. The Commission disagrees. The Commission recognizes that the statutory standards for common carrier status and gas utility status are different. The permitting process is and will remain sufficiently flexible that the classifications will be distinguishable. Another comment (Williams, TAEP) was opposed to amending the rule, stating that the proposed amendments are not necessary and may result in delays, additional costs to pipelines, producers, and the Commission, or other problems. TAM commented that while it appreciates the need to clarify the rule and more properly classify pipelines, it encouraged the Commission to avoid any unnecessary hurdles or steps in making a regulatory determination, as delays in the construction of critical infrastructure can significantly harm the state's economy. The Commission disagrees that the amendments are not necessary. While 3.70 in its present form has served the Commission well over the years, the proposed amendments will add to the transparency and completeness of the permitting process by requiring pipelines to substantiate the basis for the requested classification. The time requirements placed on both the applicant and the Commission are reasonable and should not result in any undue delays in obtaining a permit to operate. Further, as stated in the proposal, the Commission has determined that there are no anticipated fiscal implications to the state as a result of administering the amendments, nor will there be any expected significant economic costs for persons required to comply with the amendments as adopted. One comment (Women Voters, several individuals) requested that the Commission exercise authority to monitor interstate pipelines. The Commission disagrees with this comment. While some interstate pipeline operators voluntarily secure and renew T-4 Permits to Operate a Pipeline in Texas, the Commission lacks statutory authority to require them to do so. The Commission is not an interstate agent and has no authority to regulate interstate pipelines. Presidio commented that it has been working to bring a natural gas pipeline to the city and encouraged the Commission to adopt best practices rules to facilitate construction of this pipeline between the city of Presidio and Mexico. The Commission thanks Presidio for the comment and finds that no changes to the rule are necessary. Several individuals filed comments that did not address specific provisions in the rule, but concerned eminent domain provisions, federal regulations, and other subjects previously discussed in this preamble or that are outside the scope of this rulemaking or the Commission's authority. The Commission acknowledges receipt of these comments and thanks the commenters for participating in the rulemaking process. The Commission adopts the amendments in order to clarify and more specifically prescribe the procedure by which a pipeline operator may be classified by the Commission as a common carrier, gas utility, or private line operator when applying for a new T-4 permit to operate a pipeline or when renewing, amending, or cancelling an existing T-4 permit. The Commission adopts amendments in subsection (a), including a change previously discussed to exclude production or flow lines that do not leave a lease, and operators excluded under 8.1(b)(4) of this title, to reword the requirement that certain pipeline operators must obtain a T-4 permit, renewable annually, as provided in this rule. The Commission adopts amendments in subsection (b) to state the application requirements for obtaining a new pipeline permit or for amending a permit because of a change of a pipeline's classification. Operators must use the form approved by the Commission and must include certain additional information. More specifically, pipeline operators must provide contact information; state the requested classification and purpose of the pipeline or pipeline system as a common carrier, a gas utility, or private line; and submit a sworn statement from the pipeline applicant providing the operator's factual basis supporting the classification and purpose being sought for the pipeline. In addition, if applicable, the pipeline operator must submit documentation to provide support for the classification and purpose being sought for the pipeline together with any other information requested by the Commission. The Commission adopts a minor clarifying change in subsection (b), as previously discussed. In new subsection (c), the Commission adopts a new provision to state the application requirements for renewing an existing permit, amending an existing permit for any reason other than a change in classification, or cancelling an existing permit. In each of those instances, an operator must use the form approved by the Commission and must include certain additional information. More specifically, pipeline operators must provide contact information; a statement from the pipeline operator confirming the current classification and purpose of the pipeline or pipeline system as a common carrier, a gas utility, or a private line, if applicable; and any other information requested by the Commission. In new subsection (d), the Commission adopts a new provision stating that the Commission will determine if the application is complete within 15 calendar days following the date of filing of an application and shall notify the operator either that the application is complete or that the application is incomplete. The notice of an incomplete application will specify the additional information needed to complete the application. In new subsection (e), the Commission adopts wording to state that, once an application is determined to be complete and sufficient, the Commission shall either issue, amend, or cancel the pipeline permit or deny the pipeline permit as filed. If the Commission is satisfied from the application and the documentation in support thereof, and its own review, that the proposed line is, or will be, laid, equipped, managed and operated in accordance with the laws of the state and the rules and regulations of the Commission, the permit may be granted. Further, new wording in subsection (e) provides that the pipeline permit, if granted, shall classify the pipeline as a common carrier, a gas utility, or a private pipeline based upon the information and documentation submitted by the applicant and the Commission's review of the application. The Commission's decision on issuance of a pipeline permit shall be completed within 45 calendar days 39 TexReg 9974 December 19, 2014 Texas Register

following the Commission's determination that an application is complete. The Commission adopts new subsection (f), which states that this rule applies to new pipeline permits and to amendments, renewals, and cancellations of existing pipeline permits which are submitted to the Commission on or after the effective date of this rule, including a change previously discussed to clarify that the classification assigned applies to extensions, replacements, and relocations on that pipeline. New subsection (g) provides that the Commission may delegate the authority to administratively issue pipeline permits. New subsection (h) states that the pipeline permit, if granted, shall be revocable at any time after a hearing held after 10 days' notice, if the Commission finds that the pipeline is not being operated in accordance with the laws of the state and the rules and regulations of the Commission. The Commission adopts the amendments to 3.70 pursuant to Texas Natural Resources Code 81.051 and 81.052, which provide the Commission with jurisdiction over all persons owning or operating pipelines in Texas and the authority to adopt all necessary rules for governing and regulating persons and their operations under the jurisdiction of the Commission; Texas Natural Resources Code 85.202, which authorizes the Commission to promulgate rules requiring records to be kept and reports made, and providing for the issuance of permits, tenders, and other evidences of permission when the issuance of the permits, tenders, or permission is necessary or incident to the enforcement of the Commission's rules for the prevention of waste; Texas Natural Resources Code 86.041 and 86.042, which allow the Commission broad discretion in adopting rules to prevent waste in the piping and distribution of gas, require records to be kept and reports made, and provide for the issuance of permits and other evidences of permission when the issuance of the permit or permission is necessary or incident to the enforcement of its blanket grant of authority to make any rules necessary to effectuate the law; Texas Natural Resources Code 111.131 and 111.132, and Texas Business Organizations Code, 2.105, which authorize the Commission to promulgate rules for the government and control of common carriers and public utilities; Texas Natural Resources Code 117.001-117.101, which give the Commission jurisdiction over all pipeline transportation of hazardous liquids or carbon dioxide and over all hazardous liquid or carbon dioxide pipeline facilities as provided by 49 U.S.C. 60101, et seq.; and Texas Utilities Code 121.201-121.210, which authorize the Commission to adopt safety standards and practices applicable to the transportation of gas and associated pipeline facilities within Texas to the maximum degree permissible under, and to take any other requisite action in accordance with, 49 United States Code Annotated, 60101, et seq. Texas Natural Resources Code 81.051, 81.052, 85.202, 86.041, 86.042, 111.131, 111.132, and 117.001-117.101; Texas Business Organizations Code, 2.105; Texas Utilities Code 121.201-121.210; and 49 United States Code Annotated, 60101, et seq., are affected by the adopted amendments. Statutory authority: Texas Natural Resources Code 81.051, 81.052, 85.202, 86.041, 86.042, 111.131, 111.132, and 117.001-117.101; Texas Business Organizations Code, 2.105; Texas Utilities Code, 121.201-121.210; and 49 United States Code Annotated, 60101, et seq. Cross-reference to statute: Texas Natural Resources Code, Chapter 81, Chapter 111, and Chapter 117; Texas Business Organizations Code, 2.105; Texas Utilities Code, Chapter 121; and 49 United States Code Annotated, Chapter 601. Issued in Austin, Texas, on December 2, 2014. 3.70. Pipeline Permits Required. (a) Each operator of a pipeline or gathering system, other than a production or flow line that does not leave a lease or an operator excluded under 8.1(b)(4) of this title (relating to General Applicability and Standards, subject to the jurisdiction of the Commission, shall obtain a pipeline permit, renewable annually, from the Commission as provided in this rule. (b) To obtain a new pipeline permit or to amend a permit because of a change of classification, an operator shall file an application for a pipeline permit on a form approved by the Commission which includes or is accompanied by the following documentation and information: (1) the contact information for the individual who can respond to any questions concerning the pipeline's construction, operation or maintenance; (2) the requested classification and purpose of the pipeline or pipeline system as a common carrier, a gas utility or a private line; (3) a sworn statement from the pipeline applicant providing the operator's factual basis supporting the classification and purpose being sought for the pipeline, including, if applicable, an attestation to the applicant's knowledge of the eminent domain provisions in Texas Property Code, Chapter 21, and the Texas Landowner's Bill of Rights as published by the Office of the Attorney General of Texas; and (4) documentation to provide support for the classification and purpose being sought for the pipeline, if applicable, and any other information requested by the Commission. (c) To renew an existing permit, to amend an existing permit for any reason other than a change in classification, or to cancel an existing permit, an operator shall file an application for a pipeline permit on a form approved by the Commission which includes or is accompanied by: (1) the contact information for the individual who can respond to any questions concerning the pipeline's construction, operation, or maintenance; change in operator or ownership; or other change including operator cessation of pipeline operation; (2) a statement from the pipeline operator confirming the current classification and purpose of the pipeline or pipeline system as a common carrier, a gas utility or a private line, if applicable; and (3) any other information requested by the Commission. (d) The Commission shall determine if the application is complete within 15 calendar days following the date of filing of an application and shall notify the operator either that the application is complete or that the application is incomplete. The notice of an incomplete application shall specify the additional information needed to complete the application. (e) Once an application is determined to be complete and sufficient, the Commission shall issue, amend, or cancel the pipeline permit or deny the pipeline permit as filed. If the Commission is satisfied from the application and the documentation and information provided in support thereof, and its own review, that the proposed line is, or will be laid, equipped, managed and operated in accordance with the laws of the state and the rules and regulations of the Commission, the permit may be granted. The pipeline permit, if granted, shall classify the ADOPTED RULES December 19, 2014 39 TexReg 9975

pipeline as a common carrier, a gas utility, or a private pipeline based upon the information and documentation submitted by the applicant and the Commission's review of the application. The Commission's decision on issuance of a pipeline permit shall be completed within 45 calendar days following the Commission's determination that an application is complete. (f) This rule applies to applications made for new pipeline permits and to amendments, renewals, and cancellations of existing pipeline permits which are submitted to the Commission on or after the effective date of this rule. The classification of a pipeline under this rule applies to extensions, replacements, and relocations of that pipeline. (g) The Commission may delegate the authority to administratively issue pipeline permits. (h) The pipeline permit, if granted, shall be revocable at any time after a hearing, held after 10 days' notice, if the Commission finds that the pipeline is not being operated in accordance with the laws of the state and the rules and regulations of the Commission. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405705 Haley Cochran Attorney, Office of General Counsel Railroad Commission of Texas Effective date: March 1, 2015 Proposal publication date: July 25, 2014 For further information, please call: (512) 475-1295 PART 2. PUBLIC UTILITY COMMISSION OF TEXAS CHAPTER 26. SUBSTANTIVE RULES APPLICABLE TO TELECOMMUNICATIONS SERVICE PROVIDERS SUBCHAPTER P. TEXAS UNIVERSAL SERVICE FUND 16 TAC 26.403-26.405 The Public Utility Commission of Texas (commission) adopts an amendment to 26.403, relating to the Texas High Cost Universal Service Plan (THCUSP), and to 26.404, relating to the Small and Rural Incumbent Local Exchange Company (ILEC) Universal Service Plan, and a new 25.405, relating to Financial Need for Continued Support, with changes to the proposed text as published in the June 20, 2014, issue of the Texas Register (39 TexReg 4728). The amendments and new rule will conform the commission's Substantive Rules to Senate Bill 583 of the 83rd Legislature, Regular Session, enacted in 2013, which requires the commission to reduce the support from the Texas Universal Service Fund (TUSF) available to certain incumbent local exchange companies (ILECs) that are eligible telecommunication providers (ETPs) from the Texas High Cost Universal Service Plan (THCUSP) and the Small and Rural ILEC Universal Service Plan (SRILEC USP) over a three-year period and establish a procedure for affected ILECs to petition the commission in order to show financial need for continued support from the TUSF. This new section and amendments are adopted under Project Number 41608. The commission received comments on the proposed amendments and new section from AMA TechTel Communications (AMA TechTel); the CenturyLink ILECs (CenturyLink); Consolidated Communications or Texas Company and Consolidated Communications of Fort Bend Company (Consolidated); Guadalupe Valley Telephone Cooperative, Inc. (GVTC); the Office of Public Utility Counsel (OPUC); Sprint Communications Company, L.P., tw telecom of Texas, llc, and the Texas Cable Association (collectively, the USF Reform Coalition or the Coalition); TEXALTEL; Texas Statewide Telephone Cooperative, Inc. (TSTCI); and Windstream Communications Southwest, Windstream Communications Kerrville, LP, Windstream Sugar Land, Inc., Texas Windstream, Inc., each d/b/a Windstream Communications (Windstream). No party requested that a public hearing be held regarding the proposed rules. General Comments Windstream noted that the proposed rules are of critical importance to Windstream in light of the fact that Windstream will have realized an almost 30% reduction in its overall TUSF support as a result of Docket No. 40521, Commission Staff's Petition to Establish a Reasonable Rate for Basic Local Telecommunications Service Pursuant to P.U.C. Subst. R. 26.403, and in Docket No. 41097, Commission Staff's Petition to Establish a Reasonable Rate for Basic Local Telecommunications Service Pursuant to P.U.C. Subst. R. 26.404, even before the proposed rules will be implemented. Windstream commented that the proposed rules accomplish the mandate in PURA 56.023 in a manner that is consistent with the policy goal that TUSF disbursements are intended to assist telecommunications providers in providing basic local telecommunications service (BLTS) at reasonable rates in high-cost rural areas. Windstream commented that the process created by the proposed rules provide for an efficient, objective two-step process by which the commission will establish ongoing monthly per-line support (MPLS) amounts for exchanges with service supported by the TUSF. Windstream also commented that the proposed rules are the result of numerous discussions over the past year among stakeholders and are consistent with the requirements of PURA Chapter 56. Accordingly, Windstream supports the adoption of the proposed rule amendments without change but subject to certain clarifications. Windstream stated that, if the commission desires to significantly modify the proposed rules relative to the published versions, then the commission should adopt a forward-looking cost model method of determining financial need. CenturyLink commented that it supports adoption of the proposed rules with minor amendments but without significant changes. CenturyLink asked the commission to consider certain facts that support adoption of proposed rule: First, the proposed rules are the product of extensive negotiations over many months between the stakeholders and reflect compromise and concession by the ILEC ETPs that are directly affected by these rules. Second, establishing where TUSF support is needed and the appropriate amount of support can be extremely complex and time consuming, as was experienced in Docket No. 18515, Compliance Proceeding for the Implementation 39 TexReg 9976 December 19, 2014 Texas Register

of the Texas High Cost Universal Service Plan and in Docket No. 34723, Petition for Review of Monthly Per Line Support Amounts from the Texas High Cost Universal Plan Pursuant to PURA 56.031 and P.U.C. Subst. R. 26.403. CenturyLink further commented that the commission's recent reforms to the TUSF, including in Docket No. 40521 and in Docket No. 41097, have the effect of shifting more of the cost of providing BLTS to the rates paid by end users. By the time these reforms are completed in 2016, over $300 million in TUSF support will have been eliminated from the THCUSP and SRILEC USP compared to 2008 levels. CenturyLink noted that these reforms have eliminated support in multiple exchanges that had been determined to be less costly to serve in Docket No. 18515, meaning that only the highest cost exchanges continue to have supported service. CenturyLink commented that, in light of these facts, complex, time consuming mechanisms to determine financial need may provide not much benefit relative to the effort expended to implement them. CenturyLink commented that the proposed rule's use of a straightforward competitor test, which can be implemented in a relatively simple case and relies on publicly-available data, reflects these realities, which should be part of the commission's reasoned justification for the rule as a whole. CenturyLink stated that the proposed rule is imperfect and that CenturyLink would prefer the use of a forward-looking cost model, which allows much more granular calculations of cost and targeting of support. CenturyLink stated that, despite its reservations, it supports the proposed rule and believes it is a reasonable balance of administrative efficiency with realistic and reasonable results. GVTC supports adoption of the proposed rules and commented that the proposed rules reasonably balance the interests of the stakeholders. However, GVTC also commented that rate-of-return-regulated ILECs, such as GVTC, should not be subject to the financial need test in an exchange demonstrated by the presence of an unsubsidized wireline voice provider competitor and the limitation of support to 80% of certain expenses attributable to supported exchanges in addition to the other regulations that are only applicable to rate-of-return-regulated ILECs. In part because the proposed rule excludes a return on capital from the expenses that are attributed to each exchange, GVTC commented that the proposed rule would subject GVTC to an unfairly high level of scrutiny that is not applicable to other affected ILECs and would put at risk GVTC's ability to meet its provider of last resort (POLR) obligations. The Coalition responded to GVTC's proposal that rate-of-returnregulated ILECs should not be subject to the 80% limitation, stating that the Coalition does not agree that the proposed rule imposes enhanced regulatory obligations on a rate-of-return-regulated ILEC. The Coalition stated that GVTC's current support amounts were not set in a general rate case but instead were originally established in Docket No. 18516, Compliance Proceeding for the Implementation of the Small and Rural Incumbent Local Exchange Carrier Universal Service Plan, at levels reflecting revenues lost due to statutorily mandated reductions in switched access charges. OPUC commented that it supports the proposed amendments and new rule because the proposals further the legislative goals of assisting telecommunications providers in providing BLTS at a reasonable rate in high-cost rural areas while also maintaining the financial stability of the TUSF through rational reductions in TUSF support and strategic targeting of support. AMA TechTel noted that the communities it serves are extremely rural and that, without high-cost support from the THCUSP, there would not be a viable business model to serve these communities. AMA TechTel stated that its ability to serve customers as a competitive ETP is also affected by the adjustments to support received by ILECs. AMA TechTel further commented that there appeared to be consensus among the Legislature, the commission, and the stakeholders that the TUSF should continue to provide support in the most rural and high-cost areas of Texas. AMA TechTel encouraged the commission to design additional reductions in support for these areas with great care to ensure the continued availability of communications service to all of Texas. AMA TechTel further noted that the revenue requirement showing advocated by the Coalition is unnecessary because the proposed rule complies with statutory requirements. AMA Tech- Tel agreed generally with CenturyLink's, Windstream's, and with OPUC's general comments and noted that, unlike many commenters, OPUC does not have a financial interest in the outcome of the rulemaking. Finally, AMA TechTel urged the commission to recognize the level of compromise and support already present for the proposed rule. The Coalition stated that, on July 28, 2014, Windstream issued a public announcement that it is transferring certain telecommunications assets, including fiber, copper, and other fixed assets into an independent publicly traded real estate investment trust (REIT) and that a long-term master lease will be executed between Windstream and the REIT with Windstream leasing the assets used to operate and maintain its network throughout the United States. The Coalition stated that the ramifications of this transaction are potentially significant and urged the commission to require that Windstream provide additional details in order to permit other parties to this proceeding to understand the financial and operational interplay between Texas ILECs and the REIT. The Coalition stated that the TUSF is not structured to contemplate providing support to tenant lessees but instead is based on an assumption that every ETP funds all or nearly all of its own network. The Coalition stated that this issue is particularly important with respect to Windstream because Windstream receives approximately 76% of the total support that is subject to the financial need provisions of PURA 56.023. The Coalition also stated that, although the ILECs and AMA TechTel argue that it would be administratively efficient to adopt the procedures set out in the rule as proposed, administrative efficiency may only be considered when an agency chooses between two valid alternatives for fulfilling a statutory mandate. Because the Coalition does not believe that the rule as proposed satisfies the mandate of PURA 56.023, the Coalition stated that administrative efficiency does not support adoption of the proposed rule. TEXALTEL commented that proxies and surrogates, such as measuring 75% of a geographic area or 80% of certain expenses, are guaranteed to be imprecise. TEXALTEL stated that the debate in this rulemaking is whether there are proxies that are acceptably accurate to meet the objectives of the proceeding. TEXALTEL stated that, due to the diverse circumstances of the ILECs affected by the proposed rule, it is highly unlikely that any proxy is going to produce the right answer for all companies and that there is no evidence in the record that any of the proxies under consideration produce an accurate answer for any of the ILECs involved. TEXALTEL stated that, without access to additional information such as the level of support reductions that would cause ILECs to no longer be able ADOPTED RULES December 19, 2014 39 TexReg 9977

to meet their statutory obligations, TEXALTEL does not support the proposed rule. TSTCI commented that, while the processes and definitions established in the proposed rules may be appropriate for the specific service areas and companies affected by the proposed rules, these processes and definitions would likely not be appropriately applied to TSTCI's members and could work against the principles of universal service. TSTCI asks that the commission note in the adoption of the proposed rules that the application of the processes and definitions set out in the proposed rule are explicitly limited to the companies affected by the proposed rules in this project. Commission response PURA 56.023(j) authorizes the commission to establish the standards and criteria for an ILEC to demonstrate that it has a financial need for continued support from the THCUSP and the SRILEC USP. PURA 56.023(g) and (i) further require that the commission set the amount of TUSF support for the petitioning ILEC in the same proceeding if the commission determines that the ILEC has demonstrated a financial need for continued support. The rule, as adopted, is the product of extensive discussions between the stakeholders and reflects compromise on the part of the parties affected by the rule. There are a variety of approaches that could be used to establish financial need and to determine the amount of support. The commission finds that long-run incremental cost models or "rate case" methods are not the only means to consider an ILEC's revenues or operations. The rule adopts a proxy that achieves the legislative goal of limiting the amount of the TUSF support provided to areas in Texas in situations which, without such support, Texans would not have access to basic telecommunications service. While the proposed rule does not examine the specific revenues of an ILEC to establish financial need, it does use a proxy of revenues and expenses in the form of the financial need test. The commission adopts a two-step process to accomplish the mandate to establish the criteria to determine TUSF support. In the first step, the financial need test, the commission will determine whether a petitioning ILEC has a financial need for continued support in each exchange identified in the petition. This implementation of the financial need test is codified in 26.405(d). The commission's financial need test identifies whether there is an unsubsidized wireline voice provider competitor within a market. Regarding exchanges in which an unsubsidized wireline voice provider competitor offers basic local service-a product that the commission finds is comparable to the BLTS offered by ILECs-in census blocks that exceed 75% of the square miles of an exchange, the commission finds that there exists a business case for the provision of BLTS without TUSF support. Where such a business case exists, there is no financial need for TUSF support in order to accomplish the universal service goals set forth in PURA 56.021. On the other hand, if an unsubsidized wireline voice provider competitor does not offer basic local service in census blocks that exceed 75% of the square miles of an exchange, the commission finds that it is appropriate to continue TUSF support in order to ensure the availability of BLTS at reasonable rates in these exchanges. The commission finds that this financial need test will eliminate support for those exchanges, such as increasingly urban and suburban exchanges, in which there exists robust competition, while retaining support for high-cost rural areas in which the absence of TUSF support will likely result in customers being unable to obtain BLTS at reasonable rates. This straightforward examination relies on publicly-available information and provides a valid measure of whether BLTS can be expected to be offered throughout a market at reasonable rates without the support from the TUSF. The second step, codified in 26.405(e), provides for the adjustment of the support available to a petitioning ILEC in light of the financial need test described above. Specifically, 26.405(e) first eliminates all support in exchanges in which the ILEC has not demonstrated financial need. For those exchanges in which the ILEC has demonstrated financial need, 26.405(e) sets the amount of support for an ILEC by ensuring that the support available to the ILEC does not exceed 80% of certain expenses attributable to providing regulated telecommunications service in the exchanges for which the ILEC has a financial need for continued support. This means that the ILEC must obtain revenues for at least 20% of its expenses. By ensuring that the ILEC's expenses attributable to supported exchanges exceed the support available to the ILEC, it follows that the support provided to the ILEC will be used to assist in the provision of BLTS in high-cost rural areas and will not be used to support the ILEC's commercial efforts in exchanges in which the ILEC does not have a financial need for continued support. As discussed in more detail below, the commission agrees with several commenters that stated that this two-step process presents a straightforward mechanism to implement a financial need test that complies with the mandate of PURA 56.023. As indicated by AMA TechTel, the commission finds that the adopted rules are tailored to ensure the continued availability of communications service throughout Texas, and the commission finds that the adopted rules are consistent with the purpose of the TUSF, which is to assist ETPs in the provision of BLTS in high-cost rural areas (PURA 56.021(1)). The commission notes that several commenters, including CenturyLink, Windstream, and GVTC have stated that the rule, as proposed, is the product of extensive discussions between the stakeholders and reflects compromise and concession on the part of the ILECs affected by the rule. However, these ILECs also expressed concerns with respect to specific provisions of the rule. For the reasons discussed below, the commission disagrees with CenturyLink and Windstream that a forward-looking cost model would be preferable to a competitor test for determining an ILEC's financial need for continued support. The commission finds that a forward-looking cost model is inconsistent with the adoption of a straightforward test that relies on publicly-available information and is unnecessary to establish an ILEC's financial need for continued TUSF support. Regarding TEXALTEL's argument that a proxy will be imprecise, as discussed in further detail below, the commission finds that the proxies adopted establish valid criteria for determining financial need and for setting ILECs' MPLS amounts in compliance with PURA 56.023. Further, although several parties have argued that the use of proxy methodologies is supported by consideration of administrative efficiency, the Coalition stated that administrative efficiency may only be considered by an agency when it chooses between two valid alternatives for fulfilling a statutory mandate. Because the Coalition does not believe that the proxies adopted in this proceeding satisfy the mandate of PURA 56.023, the Coalition contends that it is improper to consider administrative efficiency in the reasoned justification for their adoption. Be- 39 TexReg 9978 December 19, 2014 Texas Register

cause the commission finds that the proxies adopted in this proceeding establish valid criteria for determining financial need and for setting MPLS amounts, it is appropriate for the consideration of administrative efficiency to add weight to the commission's reasoned justification for the adoption of the rules. Further, the commission disagrees with GVTC regarding the applicability of the two-step process to a rate-of-return-regulated ILEC in addition to other regulations that are only applicable to rate-of-return-regulated ILECs. The commission agrees with the Coalition that the rule does not impose enhanced regulatory obligations on a rate-of-return-regulated ILEC because the commission adopts a single test for financial need that is applicable equally to all of the affected ILECs. The commission also notes that, unlike the other affected ILECs, GVTC is permitted to apply for Additional Financial Assistance, as specified in 26.405(i) of the adopted rule, compensating for any additional burden to which GVTC claims it is subject. In light of this remedy and the absence of any enhanced regulatory obligations specifically tied to GVTC's continued TUSF support, the commission finds that the adopted rule does not subject GVTC to an unfair level of regulatory oversight. The commission finds that it is not necessary to delay adoption of the rule or to require additional information from Windstream regarding the transfer of certain of its telecommunications assets into a REIT, especially in light of the mandate in SB 583 that this rulemaking be completed by December 1, 2014. Instead, the commission clarifies in this Order that nothing in the rule shall be construed to prevent a party from contesting the accuracy of the summary of expenses and property categories that will be presented by any petitioning ILEC pursuant to 26.405(f) if an ILEC elects to file a petition to show financial need. The commission further clarifies that parties will have the opportunity to conduct discovery to determine the accuracy of the summary of expenses filed by any ILEC, but the commission reiterates that the new support amounts set for a petitioning ILEC will be calculated by limiting the ILEC's total support to 80% of the total expenses that are shown by the ILEC to be attributable to the exchanges in which the ILEC has a continued need for financial support. Finally, the commission agrees that the proposed rule applies only to the ILECs affected by PURA 56.023(g) and (i). The commission will consider all appropriate criteria if, in the future, the commission conducts a rulemaking that would affect the support amounts available to TSTCI's members. The commission also makes non-substantive changes in 26.405(d)(1), (d)(2)(b) and (C), (g)(1) and (2). Comments relating to the published notice of the proposed rules. The Coalition commented that it supports the proposed amendments to 26.403 and 26.404 but that it does not support the proposed new 26.405 because the proposed rule fails to implement the recent changes to PURA 56.023 and because the proposed rule fails to comply with the Administrative Procedures Act, Tex. Gov't Code Ann. 2001.001-.902 (Vernon 2008 & Supp. 2014) (APA). Specifically, the Coalition commented that APA 2001.023 and 2001.024 require publication of notice in the Texas Register at least 30 days before adoption of a rule and that APA 2001.029(a) requires that an interested person be provided a reasonable opportunity to submit comments. Citing Unified Loans, Inc. v. Pettijohn, 955 S.W.2d 649 (Tex. App.-Austin 1997, no pet.) (Pettijohn) and Chemical Mfrs. Ass'n v. Environmental Protection Agency, 870 F.2d 177 (5th Cir. 1989) (Chemical Manufacturers), the Coalition stated that notice is adequate only if interested persons can confront the agency's factual suppositions and policy preconceptions and if the agency provides interested parties the opportunity to challenge the underlying factual data relied upon by the agency. The Coalition commented that nothing in the commission's publication of the proposed rule (Publication) identifies the methodology used to develop the proposal to limit the support awarded to a petitioning ILEC to 80% of the expenses attributable to the ILEC's supported exchanges. The Coalition acknowledges that PURA 56.021(1) states that the TUSF is intended to provide assistance in the provision of BLTS, but the Coalition claimed that the Publication does not provide sufficient notice supporting the 80% limitation as a reasonable interpretation of PURA 56.021(1). Further, the Coalition commented that no publicly-available current information is available that enables interested parties to comment on whether it is appropriate to provide TUSF support at a level up to 80% of an ILEC's reported expenses. The Coalition noted that some relevant information was provided in Project No. 41505, Compliance Proceeding for Eligible Telecommunications Carriers to Submit Five-Year Plans Pursuant to P.U.C. Subst. R. 26.402, but that this information was submitted confidentially and is not available for the Coalition to review. The Coalition argued that, without access to ILECs' current expense data, it would not be possible for interested parties to provide meaningful comments either in support of or against the specific 80% number or regarding any other number. The Coalition stated that, as a result, it is unable to provide detailed comments on the development of the 80% limitation and that the APA's requirements that interested parties be permitted to provide comments is therefore violated. The Coalition stated that these flaws can only be corrected if the proposed rule is modified to specify that an ILEC's revenues as well as its expenses will be examined in a contested case initiated by the ILEC and that the support awarded to the ILEC will be based on record evidence as to that ILEC's financial need. The Coalition also claimed that the provision to de-average support awarded to ILECs from the SRILEC USP in the proposed rule did not comply with the APA on the grounds that it is arbitrary, that there is no publicly-available data supporting this portion of the rule, and that there is no explanation for how the proposal was calculated. The Coalition stated that it is impossible for any interested party to provide meaningful comment on the de-averaging methodology. For the same reasons as discussed above with respect to the 80% limitation, the Coalition claimed that the Publication did not comply with APA's notice provisions with respect to the de-averaging provision. The Coalition further argued that the adoption of the proposed rule as published would be vulnerable to legal challenge on the grounds that the commission's action would be arbitrary and capricious. APA 2001.033 requires that, as part of a rule's adoption, the commission must set forth the reasoned justification for the rule, demonstrating that it considered the stakeholders' comments. The Coalition, relying on Gulf Coast Coal. of Cities v. Public Utility Commission, 161 S.W.3d 706 (Tex. App.-Austin 2005, no pet.) (Gulf Coast) and Lambright v. Texas Parks and Wildlife Dep't, 157 S.W.3d 499 (Tex. App.-Austin 2005, no pet.) (Lambright), argued that an agency's action is arbitrary and capricious if, in making its decision to adopt a rule, it (1) failed to consider the relevant factors the Legislature intended the agency to consider, (2) considered an irrelevant factor, or (3) ADOPTED RULES December 19, 2014 39 TexReg 9979

reached a completely unreasonable result after weighing the relevant factors. Further, relying on a case involving the Federal Communications Commission (FCC), Texas Office of Pub. Util. Counsel v. Federal Commc'ns Comm'n, 265 F.3d 313 (5th Cir. 2001), the Coalition claimed that an agency must adequately disclose data it used to reach its conclusions because otherwise the agency will not have considered all relevant factors in adopting the rule. The Coalition claimed that, if the rule is challenged, it will not be sufficient that the commission has access to data that support the 80% limitation while the public does not. The Coalition relied on several cases involving federal agencies, including Portland Cement Ass'n v. Rickelshaus, 486 F.2d 375 (D.C. Cir. 1973) (Portland Cement), regarding a situation in which an Environmental Protection Agency (EPA) rule was invalidated because the agency had not made relevant information available to affected manufacturers in a timely fashion when that information formed a basis for a rule. The Coalition stated that the 80% figure set out in 26.405(e)(2)(B) appears to have no basis, as no information provided in the published notice sets out a basis for this provision and that the Publication is flawed and fails to substantially comply with the APA. TEXALTEL agreed with the Coalition regarding the adequacy of the notice provided in the Publication. In response to the Coalition's comments, GVTC noted that, while the TUSF is designed to provide universal service for all of Texas by having all Texans share in the cost of supporting service in high-cost rural areas, it is in the Coalition's members' best interests if support is reduced for ILECs with POLR obligations while Coalition members are permitted to compete without fulfilling POLR obligations. In response to the Coalition's comments, CenturyLink noted that an agency's rule is presumed to be valid, and the challenging party bears the burden to demonstrate its invalidity. To the extent that the Coalition challenges the facial validity of the rule if adopted as proposed, CenturyLink stated that the burden would rest with the Coalition to demonstrate that the rule as adopted contravenes specific statutory language, runs counter to the general objectives of the statute, or imposes additional burdens, conditions, or restrictions in excess of, or inconsistent with, the relevant statutory provisions. Windstream and CenturyLink stated that the Publication complied with all notice requirements of the APA and that nothing in the Publication prevents the Coalition from providing meaningful comments regarding the proposed rule. CenturyLink noted that the Coalition does not appear to argue that the commission has failed to provide any of the specific elements of notice required by APA 2001.024. Windstream and CenturyLink stated that, contrary to the Coalition's arguments, there is no statutory requirement that the published notice of a proposed rule contain the factual basis or justification for the proposed rule. These ILECs cited Texas Bd. of Chiropractic Exam'rs v. Texas Medical Ass'n, 137 S.W.3d 342 (Tex. App.-Austin 2012, no. pet.) (Texas Medical Association), in which the Third Court of Appeals stated that no statute requires an agency to provide the factual basis for a rule in the public notice of the proposed rulemaking. GVTC and Consolidated also stated that this factual basis requirement does not exist with respect to publication of proposed rules. Windstream also commented that the Coalition's alternative to the proposed rule lacks any valid standards or criteria for determining financial need in a future contested case and fail to provide sufficient regulatory direction in contravention of the Legislature's unambiguous mandate in PURA 56.023(j), which requires the commission to establish standards and criteria for an ILEC to demonstrate financial need. Windstream also commented that the proposed rule as published satisfies all legal standards under the APA. Further, Windstream, CenturyLink GVTC, and Consolidated also noted that Pettijohn, which the Coalition relies on, was not a case regarding notice required pursuant to APA 2001.024(a)(1), but rather discussed an agency's failure to prepare an analysis regarding the impact of a proposed rule on small businesses, which is required by Tex. Gov't Code 2006.002(c) and incorporated into the APA by APA 2001.024(a)(8). Tex. Gov't Code 2006.002(c) requires the creation and publication of an economic impact statement when adopting a rule that may have an adverse impact on small businesses. Consolidated noted that, in Pettijohn, an agency, when adopting a rule applicable to all pawn shops, had failed to produce an economic impact statement. Consolidated stated that, therefore, Pettijohn does not stand for a general principle that all of an agency's support for a proposed rule be included in the notice of the rule but rather interprets a specific provision applicable to rules affecting small businesses. CenturyLink also stated that, even if some reasoned justification requirement did apply, it is not clear that the commission would be required to provide a factual basis for its proposed use of a specific number, in this case the 80% limitation as the standard for setting new MPLS amounts. Citing Chrysler Motors Corp. v. Texas Motor Vehicle Comm'n, 846 S.W.2d 139 (Tex. App.-Austin 1993, no writ) (Chrysler), CenturyLink stated that the reasoned justification requirement applicable to orders adopting a rule was not intended to be applied clause by clause but rather to the rule as a whole and that to hold otherwise would impose a requirement for detailed findings of fact and conclusions of law supporting the adoption of each rule. GVTC also noted that the proposed de-averaging provisions comply with the APA because they are the result of a collaborative process to evaluate publicly-available information. First, data was gathered regarding the MPLS amounts determined for each exchange included in the commission's order in Docket No. 18515. As these MPLS amounts were developed through systematic, uniform, and data driven processes, GVTC commented that these MPLS amounts are the most accurate representation of costs. Second, the most accurate housing unit density data from the time period examined in Docket No. 18515 was decided for each exchange from the 1997 BLR boundary information and the 2000 census for household data. Because cell phones were not as prevalent in that period, GVTC commented that it is reasonable to equate this housing unit density information to residential line density. The MPLS amounts awarded in Docket No. 18515 were correlated to the housing unit density information for each exchange. Next, the weighted average of the MPLS for each of the density bands was determined. These weighted average MPLS amounts correspond to the proxy MPLS amounts in the proposed rule. GVTC stated that reviewing the data for each band shows that each one contains approximately 50 or more data points, which allows for a reasonable basis for the calculation of the weighted average. GVTC commented that, absent the development of company-specific cost models, the commission's proxy MPLS amounts are reasonable and appropriate. Consolidated further replied to the Coalition's comments, stating that it appears that the Coalition have either proposed new tests based on language not found in SB 583, stricken entire subsec- 39 TexReg 9980 December 19, 2014 Texas Register

tions of the proposed 26.405 with no meaningful alternative, or proposed to simply delay decisions regarding the criteria to determine financial need by suggesting that the commission address certain matters in the contested case proceedings to be filed at a later time and which must be processed in 330 days or fewer. Consolidated stated that the Coalition's comments are neither consistent with the SB 583's mandate nor constructive in guiding the commission in the development of standards consistent with SB 583's mandate. AMA TechTel stated that, contrary to the Coalition's concerns regarding adequate notice, that additional notice and comments may be required for the commission to implement many of the Coalition's proposals. Commission response Contrary to the Coalition's assertions, the commission finds that its Publication provided notice and opportunity for comment as required by the APA. The commission also disagrees with the Coalition that the commission's action would be arbitrary and capricious. Citing APA 2001.024, the Third Court of Appeals held in Texas Medical Association that, although a statement of factual basis is necessary in an order adopting a rule, "no statute requires the Commission to include that statement of the factual basis for the rule in the public notice of proposed rulemaking." Texas Medical Association, 137 S.W.3d at 355. The commission notes that the Coalition did not cite a case that contradicts the interpretation of APA 2001.024 stated in Texas Medical Association, but instead relied largely on cases involving statements required by other laws or notice required under federal administrative procedure. As such, the commission finds that Texas Medical Association and the plain text of APA 2001.024 indicate clearly that the commission provided all notice in its Publication that is required by law. The commission notes that all of the stakeholders, including the Coalition and TEXALTEL, have provided meaningful comments regarding the sections of the proposed rule for which the Coalition claimed meaningful comments are not possible. As discussed in further detail below, the Coalition noted correctly that the proposed methodologies for setting ongoing MPLS amounts and for de-averaging support provided by the SRILEC USP do not require explicit findings of financial need but instead rely on the application of proxy formulas to relevant information. Additionally, the other stakeholders have provided meaningful comments in support or in opposition to these provisions, including several ILECs' proposals to increase the 80% limitation to a higher proportion of an ILEC's reported expenses. For example, GVTC provided an analysis of the results of Docket No. 18515 in combination with other publicly-available information in order to provide a reasonable factual basis for the proxy MPLS amounts in the de-averaging methodology. These comments are addressed in further detail below. The Coalition relied principally on Pettijohn and Chemical Manufacturers to support its contention that the APA requires that the commission disclose the factual basis for proposed rules as part of the notice-and-comment process. The commission disagrees. APA 2001.024 sets out the required contents of a notice of rulemaking and states that the notice must include any other statement required by law. In Pettijohn, the Court found that the Consumer Credit Commissioner (CCC) failed to comply with Tex. Gov't Code Ann. 2006.002(c)-and consequently, failed to comply with APA 2001.024, which implicitly incorporates 2006.002(c)-because the CCC's notice did not contain a detailed analysis as required by Tex. Gov't Code Ann. 2006.002(c). Pettijohn, 955 S.W.2d at 653-4. Tex. Gov't. Code Ann. 2006.002(c) states that, before adopting a rule that would have an adverse economic effect on small businesses, a state agency must prepare a statement of the effect of the rule on small businesses, including an analysis of the cost of compliance with the rule and a comparison of the cost of compliance for small businesses with the cost of compliance for the largest businesses affected by the rule. The notice at issue in Pettijohn contained only a general statement that the rule would have no effect on small businesses even though the revised rule increased costs for some pawnbrokers. Id. As indicated by several commenters and unlike the Coalition's concerns in this proceeding, the Pettijohn case involved the CCC's failure to provide a detailed analysis when such analysis was required by a provision found outside the APA. As such, in Pettijohn, the CCC's rule was invalidated because of the CCC's failure to provide specific, detailed information explicitly required by Tex. Gov't Code Ann. 2006.002(c). By contrast, the only APA provisions the Coalition could be interpreted to rely on are APA 2001.024(1), which requires a brief explanation of the proposed rule, and APA 2001.024(5), which requires a note about the public benefits and costs of the proposed rule. The commission notes that a summary of the rule and an explanation of the rule's benefits were provided in the Publication. Accordingly, the basis of the outcome in Pettijohn is distinguishable from the facts of this rulemaking. Similarly, the Coalition claimed that Chemical Manufacturers stands for the principle that fairness requires that an agency afford interested parties an opportunity to challenge the underlying factual data relied on by the agency. While the commission supports this principle, the commission does not find in Chemical Manufacturers any holding that would support the contention that the Publication was deficient in this proceeding. In Chemical Manufacturers, among other issues, the Fifth Circuit Court of Appeals rejected the petitioner's claim that the EPA failed to provide an opportunity to provide meaningful comments on the basis that the petitioner had in fact filed meaningful comments. Chemical Manufacturers, 870 F.2d at 200-202. In this proceeding, the commission notes that several parties, including the Coalition, have provided meaningful comments regarding the proposed rule. Analogizing from the Court's holding in Chemical Manufacturers, because the Coalition has been afforded the opportunity to provide meaningful comments (and has in fact done so), it has no claim that the adopted rule should be overturned for lack of notice. To the extent that the Coalition's comments can be interpreted to apply to the adoption stage of the commission's rulemaking process, the commission notes the Coalition attempts to apply a standard that is a more stringent one than is actually applied by Texas courts. The order adopting a rule must only set forth some factual basis that supports adoption of the rule, but is not required to contain every fact considered by the commission. The commission agrees with CenturyLink that the APA does not require detailed findings of fact and conclusions of law regarding every substantive provision. In Chrysler, the Third Court of Appeals analyzed an identical "reasoned justification and factual basis" requirement found in the predecessor statute to the APA and held that "a statement of the basis of the entire rule" satisfied the reasoned justification requirement because the requirement is applied to the rule as a whole, not clause by clause. Chrysler, 846 S.W.2d at 143; see also, Reliant Energy Inc. v. Public Utility Commission of Texas, 62 S.W.3d 833, 843 (Tex. App.-Austin ADOPTED RULES December 19, 2014 39 TexReg 9981

2001, no pet.) (Reliant) (affirming the holding of Chrysler with respect to the presently-effective APA). Similarly, in Gulf Coast, the Third Court of Appeals considered petitioners' contention that the commission had failed to include an adequate summary of the factual basis of an adopted rule because the commission's order adopting the rule referred to uncorroborated events not supported by anything in the rulemaking record and not fully developed within the four corners of its order. Gulf Coast, 161 S.W.3d at 714. The Court held that, even if the petitioners' factual assertions were correct, they "had not shown the Commission failed to include a summary of the factual basis of the amendment." Id. Accordingly, in Gulf Coast, the Court found that even the order adopting a rule is not required to contain the entire factual record supporting adoption of a rule, but merely must contain some factual basis sufficient to show that the rule is not arbitrary. The commission again notes that these requirements apply to the adoption of a proposed rule, not to the publication of a rule. The commission disagrees with the contention that adoption of the proposed rule without the provision of additional notice would be arbitrary and capricious or that the validity of the adopted rule is impaired because the Publication did not state a factual basis or reasoned justification for the adopted rule. The commission further finds that this Order complies with APA 2001.033 and is consistent with the standard applied in Gulf Coast in that it provides a factual basis and reasoned justification for the adoption of the proposed rule and demonstrates that it fully considered the stakeholders' comments. The commission notes that AMA TechTel observed that additional notice and comments may be required for the commission to implement many of the Coalition's proposals involving the use of ILECs' revenues and earnings to determine their financial need for continued support, as discussed in further detail below. Because the commission does not adopt the Coalition's proposals on these issues, it is not necessary to address whether their adoption would require an additional notice and comment period. In determining the ILEC's financial need for continued support from the TUSF, to what extent should the commission consider both the expenses incurred by the ILEC, as well as the revenues received by the ILEC? In its Initial Comments, the Coalition argued that the commission cannot adopt a rule that does not give effect to the term "financial need." The Coalition admits that the statute does not define "financial need" but rather instructs the commission to adopt rules establishing the criteria and standard for financial need. However, the Coalition asserted that the term "financial need" should be interpreted to require more than just an examination of an ILEC's expenses and that the commission should adopt a rule that requires an examination of an ILEC's revenues as well as expenses. The Coalition stated that it appears that the commission intends to implement the statute by: (1) eliminating support for exchanges where an unsubsidized wireline competitor offers service, and (2) for all remaining exchanges, reaffirming that support will continue at existing levels so long as it is no greater than 80% of the ILECs aggregate expenses. However, the proposed rule deviates from the requirements of PURA 56.023 with respect to the remaining exchanges because it only requires an examination of an ILEC's expenses but not its revenues and therefore fails to examine an ILEC's financial need for continued support. The Coalition stated that, if the commission does not examine both expenses and revenues, then it will not know if a company has a financial need for ongoing TUSF support or if that company's costs are being fully recovered from customers. The Coalition stated that, when administering other programs of public assistance, agencies frequently require a showing of "financial hardship" or "financial need" before such assistance is made available to that person or entity. The Coalition cited a number of examples in which the FCC, Federal Energy Regulatory Commission and other agencies denied a party's requests for financial assistance because the party failed to submit specific factual information such as a balance sheet, profit and loss statement, and cash flow projections. The Coalition admitted that CenturyLink and Windstream's statements that revenues are being considered in the proposed rule is true. However, the revenue benchmark referred to by CenturyLink and Windstream included state-wide revenues for only certain ILECs, and Docket No. 18515 was processed using 1997 data. Moreover, Docket No. 18515 was processed before the Internet and broadband were the primary focus for network design and business plans. Contrary to the Initial Comments of Windstream, CenturyLink, and AMA TechTel, the Coalition asserted that examining the ILEC's revenues would not be burdensome. The Coalition stated that the proposed rule already requires ILEC's expenses to be allocated among exchanges, including revenue from bundled services. An additional requirement for ILECs to submit revenue information would not be burdensome because the ILECs' customer billing records should be able to be used to determine revenues attributable to a specific exchange and identify revenues associated with an affiliate's bundled service. The Coalition further stated that an ILEC would not need to do a comparison of its expenses and revenues by each of the ILEC's services but would only have to perform a comparison of its expenses and revenues on an exchange basis. Additionally, the Coalition asserted that because no ILEC will file a petition prior to 2016, they would have enough time to determine how to allocate their expenses and revenues to comply with the commission's requirements. The Coalition claimed that it is possible to perform a comparison of intrastate revenues and expenses and that such a task is not as complex, convoluted, and daunting as the other commenters have stated. In the 1980s, the commission conducted over 60 "mini rate cases" for over 60 ILECs in approximately six months. The Coalition stated that it is not acceptable to excuse an ILEC from its burden of demonstrating financial need because the ILECs have commented that the task is complicated. AMA TechTel stated that PURA does not specify the standards or criteria for an ILEC to demonstrate a financial need for continued support but rather instructs the commission to adopt rules to administer the TUSF. AMA TechTel further stated that considering revenues will complicate this rulemaking and subsequent contested cases beyond any benefit that might be derived from the consideration of revenues and that the added complexity and analysis is not necessary. AMA TechTel commented that the elimination of support in an exchange where there is an unsubsidized competitor is reasonable and appears to have broad support. AMA TechTel also commented that it supports the methodology for determining new MPLS amounts contained in the proposed rule. Windstream commented that, regardless of whether PURA authorizes the commission to consider revenue in its determination of whether an ILEC has financial need for continued support, the commission should not do so because the standards included 39 TexReg 9982 December 19, 2014 Texas Register

in the proposed rule make consideration of revenue unnecessary. Windstream noted that the proposed rule establishes the standards and criteria that demonstrate financial need without unnecessarily implicating a conflict with other PURA provisions or unnecessarily complicating the contested case proceedings. Additionally, Windstream commented that its current support amount from the THCUSP, as calculated in Docket No. 18515 and as reduced through rate-rebalancing, originally reflected statewide average revenue data. Windstream commented that these benchmark revenue data are conservative because much of the revenue (comprised of intralata toll, intrastate access and interstate access) no longer exists and, as such, represent a conservative total amount of support. Lastly, the 80% limitation included in the proposed rule recognizes a reasonable offset to expenses and provides a reasonable and efficient approach to ensure that ongoing TUSF support amounts will only serve to assist in the provision of BLTS in high-cost rural exchanges. Windstream commented that further consideration of revenues will add complicated issues to the contested cases, including debates over allocation of revenues to various jurisdictions. Moreover, deriving information regarding the revenues assigned to particular services would involve complex cost-of-service studies which could not be completed to meet the statutorily defined 330-day timeline for the contested cases. Because many services are provided using bundles that include services by affiliated entities, Windstream argued that the introduction of revenues into this process has the potential to create a mismatch of revenues and expenses that are reviewed. Windstream also stated that the Coalition inappropriately tries to twist the "financial need" standard in the statute into a "financial hardship" standard. Windstream argued that the Coalition did not present any examples based on prior commission precedent to support its argument and the examples that it did present involved a waiver or delay of payment of fees. Additionally, the examples from Texas and federal law prove the exact opposite of their argument because the information required to demonstrate financial need only involved "one side of the ledger." Consolidated stated that given the regulatory construct in proposed new rule 26.405 and Consolidated's comments for other sections of the rule, it is not necessary to examine expenses and revenues of the ILEC. In its Reply Comments, Consolidated disagreed with the Coalition's interpretation of the statute relating to examining expenses and revenues to determine financial need. Consolidated stated that had the Legislature intended for the commission to examine revenues to determine financial need, it would have included that requirement in S.B. 583. Consolidated also asserted that a key element of the rule, the "wireline competitor" test, is a reasonable proxy for determining an ILEC's continued financial need for TUSF support in certain exchanges because it presents a reasonable approach to identify those areas that are subject to competition. Consolidated pointed out that the Coalition's complaint about the competitor test appears wanting, given their position in previous cases that "a competitor test is the best proxy for need." Consolidated stated that the commission developed the competitor test as a reasonable proxy to determine whether the ILEC would still be entitled to continued TUSF support whereas the Coalition's suggestions would turn the contested case required under PURA 56.023(i) into either a protracted TELRIC cost study docket or a rate case type proceeding. Consolidated stated that the Coalition asks that the commission commit a double fault, first, by reading "revenues" into S.B. 583 where it doesn't exist and, second, by creating a rate case type process to determine financial need. CenturyLink stated that the proposed rule is valid and can be legally adopted. CenturyLink asserted that an objective of the proposed rule is to find a reasonable and efficient proxy that would avoid a lengthy and complex contested case to determine the appropriate costs and revenues associated with providing BLTS at a reasonable rate in high-cost areas. CenturyLink stated that ILECs' revenues are implicitly reflected in the commission's determination because the proposed rule modifies the existing TUSF support amounts set in Docket No. 18515, as reduced by Docket Nos. 40521 and 41097, which were set using forward-looking costs and statewide average revenue data. Although the revenue figures used in that proceeding are now dated, they likely overstate ILECs' current revenue because 45% of the revenue benchmark determined in Docket No. 18515 is comprised of intralata toll charges, intrastate access charges, and interstate access charges, all of which have declined since 1999. CenturyLink also noted that, although some ILECs' BLTS rates have increased since 1999, these increases were mostly used to offset decreases in TUSF support and do not compensate for declines in other revenues. CenturyLink also asserted that the 80% limitation in the proposed rule constitutes a reasonable offset to expenses from end user revenues. Because revenues are included in the calculation of current support amounts and because of the commission's policy of reducing TUSF support through imputed rate increases, revenues are adequately accounted for as an element of the proposed rule. CenturyLink also stated that any attempts to incorporate an ILEC's revenues beyond what is stated in the proposed rule would undermine the balance between administrative efficiency, a reasonable test of financial need, and a reasonable screen for adjusting support. Furthermore, determining what revenues would be appropriate to include in the calculation of TUSF support is a contentious and complicated issue that would require consideration of policy, jurisdictional, network components, and network costs issues in order to assign or allocate revenues appropriately. CenturyLink argued that attempting to answer such questions would be problematic to meet the 330-day statutory timeline for conducting a contested case and issuing a final order. CenturyLink concluded that a deeper examination of revenues is not needed to lawfully implement PURA 56.023(g), (i), or (j). In addition to its comments concerning administrative efficiency, CenturyLink stated that there is no practical reason to consider an ILEC's revenues unless the consideration of revenues and expenses would be used as a way to look at something similar to the ILEC's earnings. For the commission to examine an ILEC's earnings on a per-exchange basis would be unprecedented, whereas the examination of an ILEC's earnings at a broader level would suggest that the commission endorses cross-subsidization between exchanges. CenturyLink stated that an examination at this broader level would not be in the public interest with the respect to the TUSF or with respect to the competitive nature of the telecommunications market. According to CenturyLink, a commission determination that CenturyLink's TUSF support should be reduced based on the extent of its earnings would first require a proceeding similar to a rate case in order to determine its earnings. CenturyLink commented that this would be problematic in light of the 330-day deadline to conduct a contested case to determine financial need. ADOPTED RULES December 19, 2014 39 TexReg 9983

In its Reply Comments CenturyLink stated that it disagrees with the Coalition that the commission acted arbitrarily and exceeded its authority by interpreting the requirements to develop a test of "financial need" such that the test does not examine the ILEC's revenues. CenturyLink noted that even the Coalition concedes that the term "financial need" is not defined in the statute and that the commission was required to establish "standards and criteria for an ILEC to demonstrate" a financial need for continued support. CenturyLink asserted that the terms "financial" and "financial need" are ambiguous terms that do not require the commission to specifically examine an ILECs revenues. Furthermore, CenturyLink argued that nothing in PURA requires the commission to examine both the ILECs revenues and expenses. An examination of just an ILECs expenses or costs can be used to determine that an ILEC "needs money." CenturyLink stated that the FCC's two main high-cost support mechanisms have never factored in any consideration of actual revenues in determining support for high-cost areas. The High Cost Loop and the High Cost Model mechanisms only consider the costs to provide service in high-cost areas and do not factor in revenues. These high-cost support programs instead calculate needed support based on a comparison of the ILEC's costs to national average cost to determine the level of support. CenturyLink pointed out that the fact that the FCC uses cost-based tests of need for universal service support should be more persuasive than what other agencies do to implement a test of financial need. Additionally, when the Legislature intends for revenues (or expenses) to be considered by an administrative agency, the Legislature is capable of making that intent clear with specific references to "revenue" or "expenses." Because the Legislature did not specify an examination of revenues or of expenses, but instead directed the commission the task of developing standards and criteria, then the decision as to what that test should include would be determined by the commission. GVTC stated that, in light of the methodology in the proposed rule, it is not necessary for the commission to examine GVTC's expenses and revenues. GVTC is subject to rate of return regulation under PURA Chapters 52 and 53, which provides authority to the commission to examine GVTC's revenues, expenses, and rate of return. GVTC asserted that any review of its expenses, revenues, or rate of return should be performed in the context of PURA Chapters 52 and 53 or in a filing by GVTC under section 26.408 of the commission's rules, relating to Additional Financial Assistance. GVTC also noted that the commission is prohibited from considering the revenues or earnings of an ILEC that has elected to be regulated under PURA Chapters 58, 59, or 65. GVTC also stated that the Legislature enacts statutes with full knowledge of existing law and that a statute is to be construed in connection with and in harmony with existing law. Had the Legislature wanted the practical equivalent of a rate case, it could have required that but instead left the decision to the commission as to how to determine an ILEC's financial need. GVTC argued that the Coalition's interpretation, which is in direct opposition of the Code Construction Act, Tex. Gov't Code 311.011 and common law principles of statutory construction, sets up an irreconcilable difference within PURA. Additionally, GVTC noted that the Coalition has argued in the past for a simple and bright-lined indicator for whether there is a continued financial need for TUSF support and whether an unsubsidized competitor exists is now what the Coalition opposes. TEXALTEL stated that, without an examination of an ILEC's revenues, the commission must rely on a proxy to determine the appropriate amount of support for a petitioning ILEC or else must guess. TEXALTEL commented that, because of the stark differences between the ILECs affected by SB 583, the adoption of a single methodology to examine all petitions would inevitably lead to undesirable results. TEXALTEL commented that an examination of each ILEC's revenues presents a clear and precise answer to this concern. Commission response The authority to determine an appropriate test to determine financial need is expressly delegated to the commission in PURA 56.023. The commission needs to establish by rule a process that strikes a balance between administrative efficiency and the appropriate level of review. The rule does this by applying proxies to both the determination of whether competition exists within an exchange and the appropriate support amounts in exchanges without competition. In view of the commission's authority to determine appropriate standards and criteria to ascertain an ILEC's financial need for continued support, the commission finds that the presence of an unsubsidized wireline voice provider competitor, as established by the standards set forth in the adopted rule, provides compelling evidence of the ability to offer BLTS in an exchange at reasonable rates without public support. As such, the test supports a finding that there is no financial need for continued TUSF support as required under PURA 56.023(j). The existence of an unsubsidized wireline voice provider in more than 75% of the square miles of an exchange as the threshold for competition is an appropriate proxy for determining whether competition exists in an exchange and further granularity is unnecessary in this rule. At the same time, by setting the amount of support an ILEC receives at 80% of its expenses in a supported exchange, the commission can ensure that ILECs continue to receive appropriate support in exchanges lacking competition without conducting an examination of an ILEC's revenues and expenses. Thus, an ILEC faces a similar level of scrutiny in establishing the existence of competition in an exchange and setting the amount of support in exchanges where competition does not exist. The commission agrees with CenturyLink that the term "financial need" as used in PURA 56.023 is susceptible to more than one interpretation. However, the commission finds that the adopted rule addresses the requirement that the commission establish standards for the determination of an ILEC's financial need for continued support. As indicated by CenturyLink and Windstream, the commission notes that exchanges with robust competition are likely those densely populated markets that were once rural but are now suburban or urban markets. In these exchanges, where a business case exists, the commission finds that both the ILEC and a competitive provider are likely to continue to offer basic local service. With respect to those exchanges for which there is no competitor, the commission finds that it is appropriate to continue the availability of TUSF support in order to ensure that customers in those exchanges will be able to obtain BLTS at reasonable rates. The commission finds that a comprehensive rate case or a forward-looking cost model is not necessary in order to achieve the goals of PURA 56.023. The commission finds, contrary to the comments of the Coalition, that the proposed rule establishes a valid process to examine financial need without the need for conducting a rate case in every exchange for which support will be provided. The adopted rule limits the support available to a petitioning ILEC to 80% of certain expenses attributable to those 39 TexReg 9984 December 19, 2014 Texas Register

supported exchanges for which the ILEC has demonstrated a financial need for continued support. This means that the ILEC must obtain revenues for at least 20% of its expenses. In setting the support amount at no more than 80% of an ILEC's expenses (and further subject to SB 583's requirement that ILECs can receive no higher support than they are receiving prior to the commission's financial need proceedings), the commission is considering an ILEC's revenues through the proxy. As noted by CenturyLink, ILECs' revenues will be implicitly reflected in the commission's determination because the proposed rule modifies the existing TUSF support amounts set in Docket No. 18515, which were set using forward-looking costs and statewide average revenue data and reduced in Docket Nos. 40521 and 41097. The ratio of at least 20% of revenues from customers and 80% from high-cost support is consistent with the commission's findings in those dockets. The limitation of support amounts to 80% of expenses also furthers the overall goal of ensuring robust competition in the state by capping the amount of continuing support for ILECs in supported exchanges at a level that precludes ILECs from using public subsidies from supported exchanges to support their operations in competitive markets. In this way, the commission finds, the rule ensures that the public will only assist ILECs that invest in exchanges in which there is no competition and no business case to operate otherwise. Finally, the commission agrees with Windstream that the Coalition attempts to conflate the financial need test in PURA 56.023(j) with a "financial hardship" standard applicable to unrelated programs administered by other agencies. The commission acknowledges that several other federal and Texas agencies have adopted tests for financial need or hardship for certain forms of support, some of which directly consider revenues. The commission notes that the FCC's tests for the administration of the Federal Universal Service Fund (FUSF) do not incorporate an ILEC's revenues. In light of the commission's and other agencies' historical use of valid proxies to determine appropriate support amounts and the commission's finding that the presence or absence of an unsubsidized wireline voice provider competitor provides compelling evidence of an ILEC's financial need for continued support in a specific exchange, the commission finds that the proposed rule as modified by this Order establishes appropriate standards and criteria for an ILEC to demonstrate financial need as required under PURA 56.023(j), including by considering a petitioning ILEC's revenues and expenses through the use of the proxy methodologies in both the test for financial need and the determination of the amount of TUSF support. To what extent does PURA allow the commission to consider the revenue received by the ILEC in a contested case to determine the ILEC's financial need for continued support from the highcost programs of the TUSF? CenturyLink stated that there are potential legal issues associated with attempting to examine a Chapter 58 or 59 ILEC's revenues or earnings. PURA 58.025 and 59.026 prohibit any hearing, complaint, or determination under any circumstances regarding the reasonableness of the revenues, return on invested capital, or net income of an ILEC electing under PURA Chapters 58 and 59 and consequently prohibit the commission from examining the ILEC's overall revenues or earnings as part of a proceeding to implement PURA 56.023 The Coalition commented that the commission has the authority to consider the revenue received by an ILEC in a contested case to determine the ILEC's financial need for continued support. The Coalition stated that, when the Legislature enacted SB 583, PURA 58.025(a) and 59.026(a) were already included in PURA, and the Legislature knew that some of the ILECs affected by SB 583 were electing ILECs under PURA Chapter 58 or 59. The Coalition stated that the commission cannot choose to elevate the pre-existing prohibitions of PURA 58.025 and 59.026 over the directive of SB 583. The Coalition noted that SB 583 also removed the prohibition against requiring a revenue requirement showing when determining disbursements from the TUSF and argued that this indicates that it was the intent of the Legislature that an ILEC's revenues be considered. Further, the Coalition noted that PURA 56.002 states that, if some other provision of PURA conflicts with PURA Chapter 56, that PURA Chapter 56's provisions shall prevail. The Coalition claimed that the term "financial need" clearly requires an examination of an ILEC's revenues and that PURA Chapters 58 and 59 cannot be read to prohibit the commission form implementing PURA 56.023. The Coalition stated that no legal precedent prevents the commission from considering revenues to determine financial need. The Coalition stated all cases that have examined the scope of PURA 58.025(a) or PURA 59.026 predate the adoption of SB 583. The Coalition claimed that AT&T Commc'ns of Texas v. Southwestern Bell Tel. Co., 186 S.W.3d 517 (Tex. 2006) (AT&T) stands for the principle that PURA Chapters 58 and 59 do not prevent the commission from implementing any of its lawful obligations but only prevented the commission from adjusting the rates of an electing ILEC. Further, the Coalition stated that, in In re Southwestern Bell Tel. Co., 235 S.W.3d 619 (Tex. 2007) (In re SWBT), the Supreme Court of Texas considered the interplay of PURA Chapters 56 and 58. The Coalition claimed, based on the holdings of that proceeding, that PURA 56.002 demonstrates a Legislative intent to treat the TUSF and the commission's obligations set out in Chapter 56 as superior to and unencumbered by any conflicting provisions, including PURA 58.025 and 59.026. The Coalition claimed that, if the commission fails to consider a relevant statutory provision or relies upon an irrelevant legal basis or factor, then its rule should be overturned by the courts. The Coalition stated that the commission cannot adhere to these requirements by adopting a rule that does not give effect to the term "financial need." The Coalition stated that the proposed rule does not examine financial need with respect to all of an affected ILEC's markets. The Coalition stated that if the commission adopts the proposed rule, then it will reflect that the commission has only considered PURA Chapters 58 and 59, but not the changes to the statutory scheme enacted in SB 583. The Coalition concluded that the commission cannot elevate PURA Chapters 58 and 59 in this manner, which would be contrary to PURA 56.002's provision that Chapter 56 must prevail. CenturyLink stated that the Coalition's argument that an ILEC's revenues or earnings should be examined in the implementation of PURA 56.023 directly contradicts the provisions of PURA Chapters 58 and 59. CenturyLink commented that, regardless of the commission's findings regarding its authority to consider an ILEC's revenues or earnings, there is no need for the commission to perform such an examination and risk the possibility of litigation over the issue because the commission's proposed rule is valid and can be legally adopted. CenturyLink disagrees with the Coalition's assertion that there exists a direct conflict between PURA 56.023 and 58.025(a). CenturyLink stated that there is no clear and unavoidable conflict between "financial need" provisions of PURA 56.023(g),(i) ADOPTED RULES December 19, 2014 39 TexReg 9985

and (j) and 58.025(a) because "financial need" does not need to be read to require an examination of a PURA Chapter 58 or 59 ILEC's rates, revenues, or earnings. CenturyLink stated that the two cases that the Coalition cited to support its argument that PURA 58.025(a) does not prohibit the commission from examining an electing ILEC's revenues, AT&T and In re SWBT, are distinguishable from the instant case and do not provide the commission a clear path towards the authority to examine an electing ILECs rates or overall revenues. In AT&T, the Supreme Court of Texas examined a claim that the commission lacked the authority to examine whether an electing ILEC's switched access rates were anticompetitive. The Supreme Court of Texas held that an inquiry into whether certain rates imposed an anticompetitive effect on the market did not require an inquiry into the reasonableness of the ILEC's rates in the sense involved in traditional rate-making. However, the commission was enjoined against even considering the reasonableness of an ILEC's rates when evaluating anticompetitive conduct. With respect to the Coalition's claims regarding the holding of In re SWBT, CenturyLink noted that that proceeding involved an inquiry regarding a rate that was explicitly excluded from the provisions of PURA Chapter 58. Specifically, CenturyLink noted that PURA 58.061 states that PURA Chapter 58's protections do not apply to a charge permitted under PURA Chapter 56, meaning that an inquiry regarding the TUSF assessment, which is permitted pursuant to PURA 56.022, does not implicate PURA 58.025. CenturyLink stated that, in In re SWBT, the Court did not decide the extent of PURA Chapter 58's prohibitions. Accordingly, CenturyLink claimed that both precedents are distinguishable from the facts of this rulemaking. Lastly, CenturyLink stated that the commission's authority to examine an ILEC's revenue under PURA 56.023 is questionable and contested, and should the commission pursue an examination of revenues it is possible and likely, depending on how the commission attempted to examine and use revenue data, that ILECs would file suit to enjoin the commission from enforcing its rules. Windstream asserted that the Coalition violates the tenets of statutory construction by arguing that the commission should ignore the protections afforded to ILECs electing pursuant to PURA Chapters 58 and 59. Windstream stated that nothing in SB 583 repealed the protections outlined in PURA 58.025(a). Windstream stated that statutory construction requires a basic assumption that the Legislature intended that the commission devise a rule that does not contravene other provisions of the overall statutory scheme. Windstream stated that it is therefore reasonable and optimal for an agency to adopt a regulation that achieves the aims of a statutory provision without frustrating the intent of other provisions in the same statutory scheme. As such, Windstream stated that an examination of its revenues as part of the determination of its financial need would be improper under PURA. Windstream noted that the proposed rule implements PURA 56.023 without implicating a potential conflict between PURA Chapter 56 and Chapters 58 and 59. However, the manner in which the Coalition has suggested that PURA 58.023(g) and (i) be implemented to include revenues would create a direct conflict with existing law that would not otherwise exist and should be rejected. AMA TechTel stated that it is plausible that PURA Chapters 58 and 59 prohibit an examination of an electing ILEC's revenues under any circumstances and that PURA does not state any positive authority for the commission to consider an ILEC's revenues in light of PURA Chapters 58 and 59. Consolidated agreed that the commission may not consider the revenues or earnings of an ILEC that has elected to be regulated under PURA Chapter 58 or 59. GVTC stated that the commission has the authority under PURA Chapters 52 and 53 to examine GVTC's revenue, expenses, and rate of return. However, GVTC stated that the commission does not have the authority to examine the revenues or earnings of an ILEC that has elected to be regulated under PURA Chapters 58, 59, or 65. Commission response The commission agrees with GVTC that the commission has the authority under PURA Chapters 52 and 53 to examine GVTC's revenue, expenses, and rate of return, as GVTC has not made an election under PURA Chapter 58 or 59, but the commission's authority to consider an ILEC's revenues or earnings when implementing PURA 56.023 is not clear. The commission agrees with CenturyLink that there are potential legal issues associated with examining an electing ILEC's revenues or earnings directly. PURA 58.025 and 59.026 prohibit any hearing, complaint, or determination under any circumstances regarding the reasonableness of the revenues, return on invested capital, or net income of an ILEC electing under PURA Chapters 58 and 59. CenturyLink, Windstream, Consolidated, GVTC, and AMA TechTel interpret this provision to prohibit the consideration of an electing ILEC's revenues or earnings when determining the ILEC's financial need for continued TUSF support under PURA Chapter 56. By contrast, the Coalition claimed that the commission has the authority to consider the revenue received by an ILEC in a contested case to determine the ILEC's financial need for continued support. To the extent that these provisions appear to conflict, the commission finds that it is not necessary to provide a definitive answer in this proceeding. Because the commission finds that the examination of the level of competition in a market appropriately addresses the legislative purpose for the adoption of PURA 56.023, the commission finds that it may appropriately and fully implement PURA 56.023 by using a competitor test that examines whether there is an independent business case to offer BLTS in a particular exchange and by using a reasonable proxy for establishing a petitioning ILEC's ongoing MPLS amounts. As such, the commission adopts standards and criteria for the financial need test that do not implicate the prohibitions of PURA Chapters 58 and 59. The commission reserves its authority to review these issues in a later proceeding and may at a later time reach an ultimate conclusion regarding the extent of the authority granted by PURA Chapter 56, which relates to the administration of the TUSF. Amendments to 26.403(f) and 26.404(g) CenturyLink commented that the proposed amendments to 26.403(f) and 26.404(g) were nearly identical other than changes in the relevant dates. CenturyLink stated that both sections would call for automatic and incremental reductions in TUSF support for an ILEC that does not file a petition to demonstrate financial need for continued support, and, as such, the reductions are contingent on whether the ILEC does or does not file a petition. CenturyLink commented that the proposed subsections do not clearly reflect this contingency, and the introductory language of both subsections reads as if there is no contingency or qualification to the mandated support reductions. 39 TexReg 9986 December 19, 2014 Texas Register

CenturyLink requested that the commission add language to the introduction in both subsections that would clarify that the automatic reductions do not apply to an ILEC that has filed a petition. The Coalition stated that it agrees that this clarification is appropriate. AMA TechTel commented that the proposed rule should be modified to allocate the company-wide reduction of support among the ILEC ETP's supported exchanges based on occupied household density so that support will be reduced for the most densely populated areas more than it is reduced in smaller, more sparsely populated areas, which are more likely to require continued support. AMA TechTel requested that this modification apply to company-wide reductions of support that would result from the implementation of 26.403(f) and 26.404(g) as well as the company-wide reductions of support that would result from the application of the 80% limitation found in 26.405(e). AMA TechTel stated that this approach is necessary to mitigate the effect that flat percentage reductions have on exchanges with small populations. For example, if support for two exchanges with the same MPLS amount is reduced by the same percentage, an ETP's total revenue-comprising both rates and TUSF disbursements-would decline by a larger percentage in the exchange with fewer customers. AMA TechTel stated that these small exchanges are more likely to require more, not less, less support. AMA TechTel stated that its proposal could be accomplished by three means: (1) by using an allocation formula to eliminate support in the most dense exchanges until the appropriate total reduction is obtained, (2) by allocating the reduction in support based on relative line density of each exchange, or (3) by stating that support reductions would not be imposed with respect to exchanges with populations under a threshold of 1,000 but would be distributed to other exchanges. AMA TechTel noted that its proposal is consistent with recent commission proceedings, including Docket No. 40521. Regarding AMA TechTel's recommendation, CenturyLink stated that it would be important to understand where information regarding an exchange's occupied household density would be derived and to understand exactly how support reductions would be weighted this factor. CenturyLink recommended that occupied households should not be considered in any capacity as part of the test to determine financial need. The Coalition opposed AMA TechTel's proposal, stating that there is no reason to determine as part of the rulemaking that an allocation of support reductions is appropriate. The Coalition stated instead that, if an ILEC considers such an allocation to be essential, then it can file a petition that includes all of its exchanges and demonstrate its financial need for support by exchange. Commission response The commission agrees with CenturyLink's proposal to clarify 26.403(f)(1) and 26.404(g)(1) and adds the phrase "Subject to the provisions of 26.405(f)(3) of this title," to these subsections. The commission finds that this change clarifies the commission's intent that the automatic support reductions will not apply to a petitioning ILEC after the commission issues a final order regarding the ILEC's petition to show financial need, which is consistent with SB 583. The commission declines to adopt AMA TechTel's proposal with respect to the allocation of reductions of support that result from the implementation of 26.403(f) and 26.404(g). These subsections, as proposed, stated that the MPLS amount available in each supported exchange will be reduced by 25% each year for three years unless an ILEC files a petition to show financial need for continued support. The commission acknowledges AMA TechTel's concerns that a flat percentage reduction in MPLS amounts across an ILEC's service territory reduces the total revenue earned by an ETP in a smaller exchange by a larger proportion than for one in a larger exchange. However, the commission finds that these reductions are imposed as an incentive for an ILEC to file a petition to show financial need. As such, the commission declines to adopt an allocation methodology on the basis that it may reduce the weight of this incentive for an ILEC to file a petition and may reduce administrative efficiency. 26.405(d): Determination of financial need Issues relating to the appropriate test to determine financial need CenturyLink noted PURA 56.023(g), (i), and (j) require the creation of standards for an ILEC to show a financial need for continued support and require that an ILEC meet this showing in order to continue receiving support. CenturyLink commented that the proposed competitor test accomplishes the specific mandate of PURA 56.023(g), (i), and (j) in a manner that is consistent with the universal service requirements of PURA 56.021(1) and consistent with the policy objectives of PURA 51.001. CenturyLink commented that, by the time any ILEC files a petition using the new rule, the Texas local exchange market will have been fully open to competition for twenty years and that the developments over this time can be used to demonstrate where a business case can be made for providing local exchange service without the need for support. Accordingly, CenturyLink stated that the commission can reasonably conclude that, in an exchange where no wireline voice provider competitor provides service throughout 75% of the exchange, the exchange is a high-cost area where there is a need for continued support. CenturyLink noted that the proposed rule's 75% threshold correlates with data that demonstrate that unsubsidized wireline voice providers are mostly found in CenturyLink's most dense, least costly exchanges. Because a lack of density is a significant driver of cost, it is reasonable to assume that the highest-density exchanges are the least costly to serve on a per-subscriber basis, while lower-density exchanges are more costly to serve. CenturyLink noted that the presence of an unsubsidized wireline voice provider competitor reasonably correlates with CenturyLink's own data indicating which of its exchanges are relatively high-cost to serve. For example, CenturyLink stated that the average density of CenturyLink's exchanges with service supported by the TUSF is 273.02 housing units per square mile, but the average density of CenturyLink's supported exchanges without an unsubsidized wireline voice provider competitor is only 12.86 housing units per square mile. Similarly, in exchanges served by an unsubsidized wireline voice provider competitor in more than 75% of its area, the unsubsidized wireline voice provider competitor serves on average 87.77% of the exchange, but in supported exchanges that do not have an unsubsidized wireline voice provider competitor throughout the exchange, the unsubsidized wireline voice provider competitor serves on average 12.43% of the exchange. Based on this data, CenturyLink concludes that using the presence of an unsubsidized wireline voice provider competitor represents a reasonable demarcation between exchanges that are on average low cost and that are on average high cost and in which the ILEC has a financial need for continued support. As such, the proposed competitor test is consistent with PURA 56.023(g) and (i). CenturyLink also noted that, since the proposed rule eliminates an ILEC's support in areas where it competes with unsubsidized carriers but allows ADOPTED RULES December 19, 2014 39 TexReg 9987

support where there is little competition, the proposed test also achieves the goal of PURA 51.001(c)(1), which encourages the guaranteeing of affordability of service in a competitively neutral manner. For example, the proposed rule would eliminate all support in CenturyLink's San Marcos exchange, but 94% of that exchange is served by an unsubsidized wireline voice provider competitor. Competitors in exchanges in which the ILEC ETP continues to receive support may apply to become an ETP and receive support on a per-line basis, further demonstrating the competitive neutrality of the process. Windstream also supports a test for financial need that is based on the presence of an unsubsidized wireline voice provider competitor. Windstream commented that the proposed rules' emphasis on the presence of an unsubsidized wireline voice provider competitor comports with PURA 51.001(c), which states that the policy goals set forth in subsection (b) of that section are best achieved by guaranteeing the affordability of basic telephone service in a competitively neutral manner. Windstream agreed with CenturyLink that the proposed rule uses a competitively neutral test. Further, Windstream noted that the proposed rule would establish an administratively efficient process that relies on publicly-available data and that is consistent with the 330-day deadline for the consideration of a petition filed pursuant to PURA 56.023(g). Windstream and CenturyLink both indicated that, if the commission does not adopt the competitor test as proposed, it would be preferable for the commission to instead adopt a forward-looking cost model to determine financial need. CenturyLink stated that it would prefer the use of a forward-looking cost model because it allows much more granular calculations of cost and targeting of support. CenturyLink stated that, given the improvement over time in modeling technology, cost models represent an even sounder policy choice than when the commission originally used them in Docket No. 18515. Further, CenturyLink stated that, unlike the use of simplistic proxies that produce counter-intuitive results, cost models provide a truly in-depth analysis of appropriate factors. CenturyLink stated that, despite its reservations, it supports the proposed rule and believes it is a reasonable balance of administrative efficiency with realistic and reasonable results. OPUC commented that PURA 56.023 does not mandate what must be considered with regard to determining financial need but, rather, leaves the standards and criteria to the discretion of the commission. OPUC noted that stakeholders and commission staff have considered several alternative ways to discern financial need, including the use of proxies, the use of cost models or benchmarks, the use of competitive business case models, and the use of financial records. OPUC commented that, after considering the merits of each approach, the proposed methodology for determining financial need incorporates the best aspects of all of the approaches considered. OPUC agreed that, if a competitor can offer a similar service throughout most of an exchange without the need for financial assistance, then a utility should be able to provide service without TUSF support as well. The Coalition agreed in principle with the idea of eliminating support in exchanges where an unsubsidized wireline voice provider competitor provides voice services, but disagreed that the support should therefore continue in the remaining exchanges. The Coalition commented that the proposed rule does not establish a valid process to examine financial need because it does not examine ILECs' revenues or earnings with respect to exchanges for which support will be continued. For the same reasons as discussed above, the Coalition commented that, although it is not specified in PURA, the term "financial," as it is used in PURA 56.023, should be understood to require consideration of an ILEC's revenues as well as expenses and that this is the common and ordinary meaning of the term "financial." Consequently, the Coalition states that a test that does not measure these factors does not actually measure financial need. The Coalition, citing the Code Construction Act, Tex. Gov't Code 311.011, Crosstex Energy Serv's., L.P. v. Pro Plus, Inc., 430 S.W.3d 384, 390 (Tex. 2014), and City of Round Rock v. Rodriguez, 399 S.W.3d 130, 139 (Tex. 2013), claimed that the commission is required to but has failed to give effect to the plain meaning of the statute's use of the phrase "financial need" and that it must adopt a rule that considers ILECs' revenues as well as expenses. The Coalition stated that if the Legislature had intended for the commission's determination to be limited to a review only of expenses, the Legislature would have written so instead of requiring a determination of financial need. The Coalition analogized TUSF support to other forms of government support, including programs administered by the FCC, the Texas Department of Agriculture, and the Texas Commissioner of Insurance, which require examination of a recipient's income or revenues. The Coalition stated that, in these programs, the method of determining financial need varied but never relied on only expenses and other proxy factors. The Coalition stated that, without this examination, it would not be possible to determine whether the ILEC's ongoing costs were fully recovered through its rates, meaning that there would be no financial need for continued support. The Coalition also stated that the proposed rule does not establish a test tailored to each ILEC but instead imposes the same standards on all affected ILECs. The Coalition also disagreed with other parties that stated that a test that does not consider ILECs' revenues or earnings is supported by the goal of administrative efficiency. The Coalition proposed modifying the proposed rule so that the commission would be required to make a determination of financial need after considering a petitioning ILEC's revenues and expenses. CenturyLink stated that the commission's rule merely has to be reasonable and not contrary to the statute in order to validly implement PURA 56.023 and, citing Railroad Comm'n of Texas v. Texas Citizens for a Safe Future and Clean Water, 336 S.W.3d 619 (Tex. 2011), stated that an agency's interpretation of a statute it is charged with enforcing is entitled to serious consideration as long as the construction is reasonable and does not conflict with the statute. Citing Reliant, CenturyLink stated that, in reviewing a challenge to the commission's reasoned justification for the adoption of a rule, the courts will use an "arbitrary and capricious" standard, with no presumption that facts exist to support the agency's order. Further, CenturyLink stated that an agency's rule is supported by a reasoned justification if the court is able to find some legitimate reason underpinning the adoption of the rule, even if the court does not believe that the agency's reason is best or even wise. Citing Chrysler, CenturyLink commented that even administrative convenience is a proper justification for a rule. CenturyLink commented that, when examining an agency's reasoned justification, the court examines whether the agency's explanation of the facts and policy concerns it relied on when it adopted the rule demonstrates that the agency considered all the factors relevant to the objectives of the agency's delegated rulemaking authority and engaged in reasoned decision making. CenturyLink stated that, under this standard, an agency acts arbitrarily or capriciously if it commits any of the following errors: 39 TexReg 9988 December 19, 2014 Texas Register

(1) omits from it's a consideration a factor that the Legislature intended the agency to consider in the circumstances, (2) includes in its consideration an irrelevant factor, or (3) reaches a completely unreasonable result after weighing only relevant factors. CenturyLink stated that the proposed rule reflects that the commission appears to have considered all relevant factors, has not considered any unreasonable or irrelevant factors, and has proposed a rule that is in harmony with the objectives of PURA. Windstream and CenturyLink also commented that the proposed rule examines an ILEC's revenues to the extent it is required by PURA 56.023. Windstream commented that its current support amounts already reflect a consideration of its revenues because they were originally set in Docket No. 18515, in which the commission considered benchmark revenues for each participating ILEC, and were modified in subsequent cases by considering imputed revenue derived from reasonable rate increases. CenturyLink stated that the term "financial need," as used in PURA 56.023, is ambiguous because it is susceptible to more than one reasonable interpretation, especially because the Legislature has specified elsewhere in PURA where revenues or expenses must be examined but has not done so in PURA 56.023. CenturyLink commented that, in determining legislative intent, neither the commission nor a reviewing court will look only to any one phrase, but must look to the entire act itself. A single word or sentence is not construed in isolation. CenturyLink commented that, because the phrase "financial need" standing on its own does not have a plain meaning that can be applied out of context, the commission could reach several reasonable interpretations of the statute. CenturyLink stated that, as a result, as long as the commission adopts a test that provides some reasonable basis for determining if an ILEC needs TUSF support to provide service, then the commission has crafted a test to determine financial need. Windstream and CenturyLink stated that the Legislature left to the commission's discretion the creation of a test to show financial need and that the proposed rule, even though it does not explicitly examine ILECs' earnings, is reasonable and in harmony with PURA. Windstream and CenturyLink argued that the Coalition inappropriately twists the term financial need into a "financial hardship" standard and presents a number of irrelevant examples of other agencies' actions and which can be distinguished from the instant rulemaking. For example, Windstream and CenturyLink stated that the FCC orders relied on as examples by the Coalition prove the opposite of the Coalition's contentions because the two main FCC support mechanisms have never factored in any consideration of revenues in determining support for high-cost areas but instead rely on an analysis of providers' costs, much like the proposed rule. Windstream further argued that the Coalition does not provide an example of prior commission precedent to support its argument. Windstream replied that the Coalition advocated for rule amendments that would result in the elimination of support in exchanges in which carriers cannot justify providing unsupported service. Windstream and CenturyLink commented that it is appropriate for the proposed rule to recognize that support should continue in areas where there is no unsubsidized wireline voice provider competitor in recognition that this absence is proof that the provision of basic voice service requires support. CenturyLink further commented that, because the unsubsidized wireline voice provider competitor test is essentially a proxy for revenues and expenses, the test provided in the proposed rule arguably does consider revenues and expenses and therefore is consistent with PURA 56.023, even if the Coalition's interpretation is adopted. CenturyLink commented that the absence of an unsubsidized wireline voice provider competitor is used to determine in which areas voice service revenues do not sufficiently offset expenses to economically justify providing service in the area. That is, in areas where it would be economical to provide voice service, one would expect an unsubsidized wireline voice provider competitor would be present. Even though this data is a proxy and not the ILEC's own data, the proposed rule requires the use of publicly-available data which the ILEC must marshal if it chooses to file a petition for continued support in order for the ILEC to demonstrate where continued support is needed. Consolidated, GVTC, and CenturyLink also responded to the Coalition's comments, stating that the proposed rule contains reasonable standards to address a determination of financial need. GVTC and CenturyLink stated that the Coalition provided no substantive changes to the rule other than to argue that the only satisfactory standard is no standard at all other than a contested case in which all issues are open to discovery and adjudication. GVTC and CenturyLink stated that the Coalition's proposal amounted to requiring a rate case, which is inconsistent with the Legislature's intention. GTVC and Consolidated noted that the word "revenues" appears over 100 times throughout PURA and that, if the Legislature had intended to require a showing regarding revenues, the statute would have stated so explicitly. Instead, the statute is open ended and only requires that the commission use its discretion to approach the requirements of PURA 56.023. GVTC commented that the proposed rule effectively implements PURA 56.023 while avoiding any potential conflict with PURA Chapters 58 and 59, which prohibit proceedings regarding electing ILECs' revenues. GVTC also noted that the Coalition commented in Project No. 40342, Rulemaking Proceeding to Amend P.U.C. Subst. R. 26.403 Relating to the Texas High Cost Universal Service Plan, that the presence of unsubsidized competition is the proper filter for identifying those Texas exchanges where a financial need for support does not exist because the presence of such a provider is direct evidence of a private-sector business case does, in fact, exist. In response to comments filed by various ILECs, the Coalition stated that there is no empirical basis for determining that financial need exists in areas where an unsubsidized wireline voice provider competitor is not present throughout the exchange. The Coalition analogized this determination to assuming that, if a town has a Dairy Queen but no McDonalds, then the Dairy Queen must be operating at a loss. The Coalition stated that the arguments provided by the ILECs, including CenturyLink, relate to low residential density in areas without an unsubsidized wireline voice provider competitor but do not actually relate to financial information. The Coalition stated that the commission has not been tasked with determining in which areas construction costs are likely to be high but is directed to adopt standards for determining financial need. The absence of a new entrant does not mean a mature firm necessarily needs support. The Coalition also noted that, for any exchange in which an ILEC's POLR obligation becomes burdensome, that exchange could likely be deregulated. The Coalition also disagreed that the proposed rule implicitly accounts for ILECs' revenues by evaluating support amounts set in Docket No. 18515 because the relationship between current support amounts and the cost model and benchmark revenues in Docket No. 18515 is dated and because no such determination was ever reached for ILECs that receive support from the SRILEC USP. ADOPTED RULES December 19, 2014 39 TexReg 9989

TEXALTEL stated that it did not support using proxies or models to determine financial need and commented that the process of developing proxies or a model to apply to only four ILECs may involve more trouble than applying a direct examination of each ILEC's financial information. TEXALTEL commented that it may be preferable to instead permit the ILECs to file a rate filing package in order to demonstrate that further reductions in TUSF support would destroy their financial integrity. Since there is no opportunity for other affected parties to initiate a proceeding if they believe that the proxies provide higher income to one or more ILECs than is necessary to provide basic services, TEXALTEL urges that the most conservative proxies be selected. TEXAL- TEL stated that it agrees with the Coalition that, if a competitor test is adopted, it should be the first point of screening, but that further examination of financial information is necessary. Commission response The commission finds that the adopted rule fully and validly implements the authority granted to the commission in PURA 56.023(g), (i), and (j). As discussed previously, the commission agrees with Windstream and CenturyLink that the adopted rule, as a whole, considers a petitioning ILEC's revenues because revenues are a component of current support amounts. As such, the commission disagrees with the Coalition that the competitor test and 80% cap of support based on expenses do not adequately address a petitioning ILEC's revenues in light of the Legislature's use of the term "financial need" in PURA 56.023. As stated in earlier sections, in view of the commission's authority granted by the Legislature to determine appropriate standards and criteria to ascertain an ILEC's financial need for continued support, the commission finds that the disbursement of TUSF support should be ceased with respect to an exchange in which an unsubsidized wireline voice provider competitor offers service in more than 75% of the square miles in an exchange. As a result, the commission finds that the presence of an unsubsidized wireline voice provider competitor in a market is a clear indicator that there is a business case to offer basic local service without the need for support from the TUSF. The implementation of the adopted rule will eliminate support for those exchanges, while retaining support for high-cost rural areas in which the absence of TUSF support will affect a customer's ability to obtain BLTS at reasonable rates. As such, the commission adopts the test to determine financial need as set out in the proposed rule and as modified in this Order. As discussed above, the commission also agrees with Windstream that the competitor test to show financial need establishes an administratively efficient process that relies on publicly-available data. The commission notes that it is preferable, where possible, to adopt efficient procedures for the administration of the TUSF, which often provide savings to stakeholders and ratepayers. The commission concludes that its definition of criteria for an ILEC to demonstrate financial need is reasonable, administratively efficient, does not conflict with the restrictions on the commission's oversight of electing companies under Chapters 58 and 59, and is consistent with the policy of this state favoring a wide availability of high-quality telecommunications services at reasonable rates. The commission finds that it is reasonable to presume that the areas unserved by an unsubsidized wireline voice provider competitor are the highest-cost areas to serve and represent markets in which no business case exists to offer basic local service without TUSF support. In accordance with PURA 51.001(b)(3), the commission endeavors to maintain a wide availability of telecommunications service at reasonable rates throughout Texas, particularly in high-cost rural areas that are unserved by an unsubsidized wireline voice provider competitor. Accordingly, the commission agrees with those commenters that stated that the proposed rule accomplishes the specific mandate of PURA 56.032(g), (i), and (j) in a manner that is consistent with the universal service requirements of PURA 56.021(1) and with the policy objectives of PURA 51.001. As discussed in further detail above, the commission acknowledges that several other federal and Texas agencies have adopted tests for financial hardship or need for certain forms of support that do consider revenues, but, as stated by several ILECs, the FCC has also implemented tests for the administration of the FUSF that do not incorporate an ILEC's revenues. The commission declines to adopt the Coalition's and TEXAL- TEL's proposed revisions to require the commission to reach a determination regarding a petitioning ILEC's financial need for continued support after reviewing information regarding an ILEC's revenues and expenses or to require ILECs to file a rate-filing package. As stated before, the adopted rule's proxies incorporate revenues as a component of current support amounts. As described above, current support amounts were set in Docket No. 18515 using revenue benchmarks and were subsequently modified by accounting for imputed revenues derived from reasonable rate increases. As such, the commission disagrees with the Coalition that the competitor test and cap of support of 80% of expenses do not adequately address a petitioning ILEC's revenues in light of the Legislature's use of the term "financial need" in PURA 56.023. As stated before, the commission also declines to adopt a forward-looking cost model method of determining financial need as proposed by Windstream and CenturyLink. The commission finds that a cost model would likely yield little additional benefit relative to implementation of the proposed rule, but would yield additional costs. Furthermore, CenturyLink and Windstream stated that, despite their clear preference for the use of a forward-looking cost model, they would support the proposed rule and believe it is a reasonable balance of administrative efficiency with realistic and reasonable results. The commission acknowledges the spirit of compromise that underpins these ILECs' support for the adopted rule, which presents a reasonable resolution of all of the issues in this proceeding. Issues relating to the 75% threshold GVTC and Consolidated commented that an unsubsidized wireline voice provider competitor should serve census blocks covering as much as 90% of an exchange before support should be eliminated for an exchange but also stated that the proposed rule's 75% threshold is the minimum acceptable threshold. GVTC stated that a higher threshold would better ensure that affordable service is available throughout an exchange, instead of cutting off support in rural areas just because an unsubsidized wireline voice provider competitor serves in the denser portions of that area's exchange. Consolidated stated that the 75% threshold would capture the relative dense areas in its service territory but would eliminate support entirely for 66% of Consolidated's exchanges, some of which represent a significant rural population outside of the denser city centers. GVTC and Consolidated commented that, ultimately, the 75% threshold would capture the relatively dense areas in GVTC's service territories. 39 TexReg 9990 December 19, 2014 Texas Register

Similarly, CenturyLink and Windstream commented that it would be preferable to require that competition be present throughout 100% of the exchange but that the proposed rule reflects a compromise of different perspectives on how much competition must be present in order to determine that no support is necessary to ensure that BLTS is provided at reasonable rates throughout the exchange. CenturyLink commented that the use of a 75% threshold is reasonable because it is large enough to suggest that an unsubsidized wireline voice provider competitor may eventually be able to profitably extend its network throughout all of the remainder of the exchange. However, at the same time, setting the threshold at 75% means that the ILEC ETP may be the only provider operating in as much as 25% of an exchange with obligations to serve all customers without the aid of TUSF support. Further, this remaining 25% is likely the most expensive portion of the exchange to serve. CenturyLink commented that, consequently, while a 100% threshold is preferable, setting the threshold lower than 75% presents an unacceptable risk of eliminating support to the ILEC ETP yet leaving the ILEC ETP with too much of the higher cost portion of the exchange to serve. Based on the data presented by CenturyLink discussed above, CenturyLink recommended that the 75% threshold represents a reasonable demarcation between exchanges that are on average low cost and that are on average high cost and in which the ILEC has a financial need for continued support. Commission response The commission agrees with CenturyLink, Windstream, GVTC, and Consolidated that the 75% threshold is an acceptable threshold for the purposes of implementing the financial need test. The commission also agrees with CenturyLink that the 75% threshold is consistent with the mandate in PURA 51.021(1), which requires that the TUSF assist in the provision of BLTS at reasonable rates in high-cost rural areas, and in PURA 51.001, which states that it is the Legislature's policy goals that there be wide availability of telecommunications services at affordable rates, that markets that are not competitive remain protected, and that customers in all regions, including high-cost areas, have access to telecommunications services at reasonable rates. The commission disagrees with the suggestion of certain ILECs that the threshold should be increased to require coverage of an even larger part of an exchange. The commission finds that the 75% threshold strikes the correct balance, by removing support in areas where there is significant, unsubsidized competition but allowing support to continue where necessary to ensure that Texans in rural areas have access to reasonably priced BLTS. Issues relating to the determination of area served by an unsubsidized wireline voice provider competitor CenturyLink supported the use of the National Broadband Map to establish the areas in which unsubsidized wireline voice provider competitors operate. In particular, CenturyLink commented that it also supports the adoption of 26.405(d)(2)(B), which states that the National Broadband Map creates a rebuttable presumption and which explicitly states that nothing in the rule is intended to preclude a party from providing evidence as to the accuracy of the National Broadband Map's data with regard to the presence of an unsubsidized wireline voice provider competitor within a particular census block. The Coalition commented that the proposed rule should be modified to measure competition using the percentage of homes passed instead of using square miles. The Coalition commented that the rule, as proposed, ignores the most relevant information about what providers seek to serve, which is homes, not geographic space. The Coalition stated that a wireline provider installs facilities along roads and highways in recognition that most service is received at addresses relatively close to a road. The Coalition stated that focusing on square miles includes lakes, ponds, and other empty spaces in which there are no customers and that are irrelevant. The Coalition stated that cable providers, which will likely comprise most unsubsidized wireline voice provider competitors, have historically measured their market penetration by counting percentages of homes and businesses passed, which the Coalition claimed is a more accurate indicator of the extent to which a competitive alternative is available, is measured by the FCC for certain purposes, and can be calculated from the National Broadband Map. The Coalition proposed modifying 26.405(d)(2) so that the coverage of an unsubsidized wireline voice provider competitor is determined using the percentage of households passed. TEXALTEL agreed that the proposed rule, by relying on the existence or absence of a competitor in a large, sparse census block, may not be a good indicator as to the level of competition that exists for the vast majority of households in that exchange. The Coalition also commented that it is not clear what methodology is used in the development of the National Broadband Map to determine the square mileage served by an unsubsidized wireline voice provider competitor and whether that methodology is the same methodology that would be used to measure the areas served by both the competitor and the ILEC. The Coalition commented that methodological differences for determining areas served could give rise to discrepancies in the implementation of the rule or overstate the area served by the ILEC. Windstream, CenturyLink, and AMA TechTel urged rejection of the Coalition's proposal to rely on households passed, stating that publicly-available and recognized data is available regarding the presence of unsubsidized wireline voice provider competitor by census block and the square mileage represented by each census block. These providers stated that, contrary to the Coalition's assertions, there are no public, recognized data sources that are generally available to ILECs regarding the houses passed by an unsubsidized wireline voice provider competitor. AMA TechTel noted that the Coalition did not provide any data sources, FCC rules, or other sources to substantiate the Coalition's claims and stated that, without better access to data and the ability to analyze the Coalition's proposal, the commission should reject the Coalition's proposal. Consideration of square mileage is fairer because of its reliance on public sources of data, such as the National Broadband Map, and better addresses the "doughnut" effect, which refers to a situation in which competitors serve the dense area in the center of a market but not the outlying higher cost areas. Regarding this phenomenon, Windstream and CenturyLink stated that the proposed rule better reflects the reality that serving a large number of customers in the dense center of an exchange is often cheaper than serving the smaller number of customers in areas outside of the center, meaning that an unsubsidized wireline voice provider competitor could serve 75% of an exchange's customers without serving any truly high-cost customers. Windstream stated that the Coalition's proposal would overstate the penetration of an unsubsidized wireline voice provider competitor that serves only in the small, dense portion of an exchange, ignoring the low density areas where no viable business case exists to serve customers without support. Windstream stated that the average residential density ADOPTED RULES December 19, 2014 39 TexReg 9991

for all of its supported exchanges after rate-rebalancing is 11.1 housing units per square mile, which is much lower than the average residential density of 671 housing units per square mile in areas served by the Coalition's members. Windstream and CenturyLink also noted that the proposed rule contains certain assumptions against the ILECs' favor that counterweight any potential issues resulting from relying on square mileage. In particular, an unsubsidized wireline voice provider competitor is presumed to serve an entire census block, even if it only serves one customer in the census block, and it is presumed that support should be eliminated in exchanges throughout 25% of which Windstream could potentially be the only BLTS provider without a commission determination regarding whether Windstream is providing stand-alone BLTS at a reasonable rate. CenturyLink stated that a valid test based on homes passed by an unsubsidized wireline voice provider competitor would need a threshold of nearly 100% in order to provide confidence that the competitor's cost of providing service in the exchange is comparable to the ILEC's, thus showing that support is not necessary to serve the majority of the exchange. GVTC replied to the Coalition's comments, stating that relying on homes passed instead of square mileage would result in the elimination of support in exchanges in which an unsubsidized wireline voice provider competitor only serves the least costly, most dense areas, a strategy commonly referred to as "cherry picking" or "cream skimming." GVTC stated that, if the coverage of any group of providers is overstated, it is the coverage areas of competitive providers, since an unsubsidized wireline voice provider competitor is considered to serve an entire census block if it serves even a single customer in the census block. Consolidated also replied to the Coalition's comments, noting that using square mileage more accurately reflects ILECs' service obligations to cover the entire geographic area of the exchange and noting that unsubsidized wireline voice provider competitors do not have POLR obligations. GVTC and Consolidated expressed concern because some census blocks can cover large proportions of an exchange, meaning that an unsubsidized wireline voice provider competitor serving a very small proportion of an exchange can still meet the 75% threshold. GVTC and Consolidated proposed the addition of a requirement that the penetration threshold is not met unless an unsubsidized wireline voice provider competitor serves the same percentage of each census block as the overall penetration threshold. For example, since the proposed rule sets the penetration threshold at 75%, a census block should only count toward meeting the threshold if the unsubsidized wireline voice provider competitor serves 75% of the square miles in the census block. As an alternative solution, Consolidated proposed applying a different test with respect to outlier census blocks, meaning that a census block covering a high proportion of an exchange should only be considered to be served by an unsubsidized wireline voice provider competitor if the competitor serves a high proportion of the census block. GVTC and Consolidated also commented that, rather than permit an ILEC to challenge the National Broadband Map's showing of the presence or non-presence of an unsubsidized wireline voice provider competitor in a census block, an ILEC should also be permitted to challenge the National Broadband Map's data regarding the proportion of the census block served by an unsubsidized wireline voice provider competitor or whether the unsubsidized wireline voice provider competitor provides sufficient coverage of a particular census block. Consolidated also stated that the National Broadband Map may be interpreted to overstate the availability of service in an exchange because the National Broadband Map's indication of the presence of broadband service does not indicate whether standalone basic local service is available in the census block. Consolidated proposed that an ILEC be permitted to challenge the adequacy of the National Broadband Map's data on this ground. In response to the concerns raised by Consolidated and GVTC regarding accounting for very large census blocks or census blocks in which the unsubsidized wireline voice provider competitor serves a very small proportion of the customers, the Coalition stated that these concerns would be addressed by modifying the proposed rule to consider households passed rather than continue to rely on square mileage because this is a more relevant indicator of the extent to which a competitive alternative is available and is a standard metric. The Coalition provided an estimate of the number of exchanges served by each ILEC for which support would be eliminated and stated that using households passed as the metric is easily implemented. Commission response The commission finds that the presence of an unsubsidized wireline voice provider competitor establishes a business case for the provision of basic local service in an exchange without TUSF support if the unsubsidized wireline voice provider competitor offers service to a customer in census blocks that exceed 75% of the total square miles in an exchange. The commission declines to adopt the Coalition's proposal that the penetration of an unsubsidized wireline voice provider competitor should be measured by the proportion of homes passed by the unsubsidized wireline voice provider competitor. The commission agrees with Windstream, CenturyLink, and AMA TechTel that there are no public, recognized data sources that are generally available to ILECs regarding the houses passed by an unsubsidized wireline voice provider competitor. The commission notes that a determination based on square miles relies on two pieces of information that can be derived with relatively little controversy. Specifically, this determination depends on ascertaining the census blocks in which the unsubsidized wireline voice provider competitor offers service, as shown on the National Broadband Map, and on the square miles covered by those census blocks. The commission also agrees with Windstream, CenturyLink, and GVTC that the consideration of square miles better addresses the "doughnut" effect, which refers to a situation in which competitors serve the dense area in the center of a market, but not the outlying higher cost areas. ILECs' POLR obligations are tied to geographic areas, and the commission finds that a business case to serve throughout the majority of the geographic area without TUSF support cannot necessarily be inferred from the presence of an unsubsidized wireline voice provider competitor serving a large number of customers in a relatively small geographic area. As such, the commission finds that the use of square miles in the adopted rule allows the commission to appropriately address the level of competition in an exchange. The commission disagrees with TEXALTEL that relying on the existence or absence of a competitor in a large, sparse census block may not be a good indicator as to the level of competition that exists for the vast majority of households in that exchange. The commission agrees with Windstream and CenturyLink that the proposed rule contains certain assumptions that mitigate any potential issues resulting from relying on square miles. In particular, an unsubsidized wireline voice provider competitor is pre- 39 TexReg 9992 December 19, 2014 Texas Register

sumed to serve an entire census block if it offers service in the census block. Further, as discussed below, the commission addresses the Coalition's concerns by establishing an area threshold that is fewer than 100% of the square miles in an exchange, acknowledging that it may be appropriate to eliminate TUSF support in an exchange even if a large section of the exchange is not served by an unsubsidized wireline voice provider competitor. This consideration lends further weight to the commission's decision not to adopt a test for financial need that relies on homes passed instead of area served by an unsubsidized wireline voice provider competitor. The commission disagrees with the Coalition's assertions regarding the determination of the square mileage served by an unsubsidized wireline voice provider competitor. The service areas of the ILEC and the unsubsidized wireline voice provider competitor are not compared pursuant to the adopted rule and, as such, it is not relevant whether the area served by the ILEC is overstated. Rather, the total area of an exchange is compared to the area represented by the census blocks in which an unsubsidized wireline voice provider competitor offers service according to the National Broadband Map. The commission finds that 26.405(d), as adopted, sets out this procedure clearly. The commission further notes that 26.405(d)(2)(C) states that the data provided by the National Broadband Map creates a rebuttable presumption but that nothing in the adopted rule is intended to preclude a party from conducting discovery and/or providing evidence as to the accuracy of individual census block data within the National Broadband Map with regard to the presence of an unsubsidized wireline voice provider competitor within a particular census block. The commission finds that no change to the proposed rule is necessary to address the concerns of GVTC and Consolidated regarding the cases where some census blocks cover large proportions of an exchange, meaning that an unsubsidized wireline voice provider competitor serving a very small proportion of an exchange can still meet the 75% threshold. The commission finds that the 75% threshold is appropriate, representing a high bar that must be met before the commission will find that a business case exists to offer service in an exchange without TUSF support. The commission also notes that determining the area served by an unsubsidized wireline voice provider competitor at a level more granular than by census block unnecessarily complicates what is designed to be a straightforward process. Rather, the commission finds that the rule as adopted represents an appropriate balance of specificity and administrative efficiency and provides a valid determination of whether an ILEC has a financial need for continued support. If their recommendations regarding outlier census blocks are adopted, GVTC and Consolidated also proposed amendments to permit parties to challenge the proportion of a census block in which the competitor offers service, rather than only being able to challenge the presence or non-presence of the competitor. Because the commission does not adopt GVTC's and Consolidated's recommendations regarding outlier census blocks, it is not necessary to permit parties to challenge the presumption created by the National Broadband Map regarding the proportion of a census block in which the unsubsidized wireline voice provider competitor offers service. Because, for the purposes of 26.405(d), the commission considers an entire census block to be served by an unsubsidized wireline voice provider competitor if the unsubsidized wireline voice provider competitor offers service in that census block, it is only necessary for parties to contest the presence or non-presence of the unsubsidized wireline voice provider competitor in a particular census block. Consolidated also noted that the National Broadband Map indicates the presence of broadband service but does not indicate whether stand-alone basic local service is provided by certain competitors in a census block. Consolidated proposed that an ILEC be permitted to challenge the adequacy of the National Broadband Map's data on this ground. The commission again notes that nothing in the adopted rule prevents a party from conducting discovery or presenting evidence as to whether a particular provider meets the definition of an unsubsidized wireline voice provider competitor for the purposes of 26.405(d). To meet this definition under the adopted rule, a competitor must offer basic local service, which entails voice service, to be considered an unsubsidized wireline voice provider competitor. At the same time, it is not necessary for the competitor to offer stand-alone voice service. As discussed below, the commission modifies the definition of an unsubsidized wireline voice provider competitor to indicate the presumption that voice service is offered by a provider if it offers broadband service with at least 3 megabits per second down and 768 kilobits per second up. Accordingly, no modification to the proposed rule is necessary to accommodate Consolidated's proposal. Issues relating to the definition of an unsubsidized wireline voice provider competitor GVTC and Consolidated commented that a competitive provider should not be considered to be an unsubsidized wireline voice provider competitor if it provides service at a rate greater than 150% of the BLTS rate charged by the exchange's ILEC. GVTC commented that a competitor offering service at more than double the ILEC's BLTS rate would be nonsensical because a rational consumer would not pay twice the price for the same service. Consolidated agreed with GVTC's proposal and, based on the same reasoning, further recommended that a provider should only be considered an unsubsidized wireline voice provider competitor if it provides stand-alone basic local service. AMA TechTel commented that the definition of unsubsidized wireline voice provider competitor should be modified to add the criterion that a provider is an unsubsidized wireline voice provider competitor only if it provides BLTS and uses its own switching and local loop facilities to provide service. AMA Tech- Tel stated that using the term BLTS would better track provisions found in PURA Chapter 56 and would refer to a specific bundle of services that a provider should have to provide in order to qualify as an unsubsidized wireline voice provider competitor. AMA TechTel further stated that, in order to provide a valid demonstration of viable competition, the commission should not allow a provider that relies entirely on resale to qualify as an unsubsidized wireline voice provider competitor. CenturyLink commented that it does not necessarily oppose AMA TechTel's recommendation that a provider should not be considered an unsubsidized wireline voice provider competitor unless it provides service using its own switching and local loop facilities. The Coalition responded to GVTC and Consolidated, stating that the Coalition opposes any proposal to specify that a provider is not an unsubsidized wireline voice provider competitor unless it provides service at a rate not more than 150% of the ILEC's tariffed rate. The Coalition noted that PURA has never required that competitors mirror the technology, operations, service operations, or pricing of ILECs for certain services, and, in fact, ADOPTED RULES December 19, 2014 39 TexReg 9993

PURA Chapter 65 permits the deregulation of an exchange if two competitors are present without regard to the delivery technology they use or the rates they charge. The Coalition is only aware of one instance in which the commission has considered the rates of competitive carriers in this context, and that is the limitation of the rates charged by competitive carriers that wish to become ETPs. The Coalition also stated that a pricing limitation that is tied to an ILEC's rates, which have been kept low using disbursements from the TUSF, would likely understate the presence of legitimate unsubsidized wireline voice provider competitors. The Coalition further commented that the rates charged by the unsubsidized wireline voice provider competitor are irrelevant to the central question answered by the presence of the unsubsidized wireline voice provider competitor, which is whether there is a business case for the provision of voice service in an area without TUSF support. Regardless of the rates charged by the unsubsidized wireline voice provider competitor, the presence of the unsubsidized wireline voice provider competitor indicates that a business case exists to provide service at that price without the need for TUSF support. The Coalition also responded to AMA TechTel's comments, stating that the Coalition opposes the insertion of the term "basic local telecommunications service" into the definition of an unsubsidized wireline voice provider competitor, as proposed by AMA TechTel. "Basic local telecommunications service" has a specific meaning provided by PURA 51.002(1). The Coalition stated that neither the FCC nor the commission has ruled on whether Voice over Internet Protocol (VoIP) technology is a telecommunications service, meaning that an ILEC could argue that a competitor providing basic local service using VoIP may not be providing basic local telecommunications service even though the competitor is offering basic local service that is substantially comparable to the ILEC's own offerings. The Coalition noted that VoIP providers are subject to many of the same important regulatory obligations that apply to conventional telephone service providers, including FUSF obligations and 9-1-1 requirements. The Coalition further commented that it agrees that a competitor should not be considered an unsubsidized wireline voice provider competitor if it provides service entirely through resale. However, the Coalition stated that it did not agree with the language proposed by AMA TechTel to be inserted. Specifically, the Coalition disagreed with the insertion of language referring to switches and loops because the term "switch" presupposes that certain technologies are employed by the unsubsidized wireline voice provider competitor which may not be in use. The Coalition also commented that the National Broadband Map provides information about broadband penetration that must be translated into information regarding the availability of voice service and proposed specifying that a wireline provider offering broadband service of 3 megabits per second down and 768 kilobits per second up shall be presumed to be offering voice service. The Coalition proposed inserting this modification in 26.405(d)(2)(B). TEXALTEL commented that failure to consider the presence of quality wireless service in an exchange is a factor overlooked in the proposed rule. Commission response The commission finds that the definition of an unsubsidized wireline voice provider competitor should be tailored to include competitors offering service that is comparable to the service offered by the petitioning ILECs. Accordingly, the commission agrees with the Coalition that the definition of an unsubsidized wireline voice provider competitor should not be modified to include references to BLTS or to consider the rates of the unsubsidized wireline voice provider competitor in relation to the exchange's ILEC's rates. The commission declines to adopt proposals by GVTC, Consolidated, and AMA TechTel on these issues. With respect to AMA TechTel's comments that a provider should not be considered an unsubsidized wireline voice provider competitor unless it provides BLTS, the commission finds that the proposed definition is too restrictive. The commission agrees with the Coalition that many providers offer service comparable to ILECs' offerings that may not necessarily be labeled as BLTS. The commission notes that "basic local service" is a term that is used in PURA and the commission's rules and represents service, including VoIP, which is comparable to the service offered by ILECs for the purposes of implementing the financial need test adopted in this proceeding. Accordingly, it is appropriate to retain the use of the term "basic local service" in the definition of an unsubsidized wireline voice provider competitor. Further, the commission agrees with the Coalition that the rates charged by the unsubsidized wireline voice provider competitor are irrelevant to the central question answered by the presence of the unsubsidized wireline voice provider competitor, which is whether there is a business case for the provision of voice service in an area without TUSF support. The commission finds that the presence of an unsubsidized wireline voice provider competitor throughout more than 75% of the census blocks of an exchange indicates that there is a business case to offer service at the rate charged by the unsubsidized wireline voice provider competitor without the need for TUSF support. The commission declines to adopt GVTC's proposal to consider the rates of the unsubsidized wireline voice provider competitor in relation to the exchange's ILEC's rates. In addition, the commission disagrees with TEXALTEL that the proposed rule fails to consider the availability of wireless service. The commission has considered the availability of wireless service as part of its determination in this proceeding and concludes that the adopted rule, including the 75% threshold, sets forth an appropriate test to determine whether the extent of competition within a market warrants the discontinuation of support from the TUSF. The commission finds that the adopted rule, including the emphasis on the measuring of wireline service, strikes an appropriate balance between the concerns of the affected ILECs regarding their obligations with respect to exchanges for which support is no longer available and the comments filed by other market participants. The commission agrees with AMA TechTel that the proposed rule should be modified to add the criterion that a provider is an unsubsidized wireline voice provider competitor only if it offers service in part using its own facilities. The commission agrees that a competitor that offers service entirely through resale does not offer comparable service to the service offered by the ILEC because the ILEC is responsible for maintaining physical facilities throughout the exchange. A competitor offering service entirely through resale implicitly benefits from other providers' existing networks, many of which are maintained using assistance from the TUSF. The commission agrees with the Coalition that the proposed rule should be modified to state a presumption that broadband providers offering broadband service at 3 megabits per second down and 768 kilobits per second up should be presumed to also 39 TexReg 9994 December 19, 2014 Texas Register

be offering voice service. The commission also finds that this clarification assists in the translation of the National Broadband Map's data regarding broadband availability into information that relates to voice availability, which is the central consideration in the test to determining the presence of an unsubsidized wireline voice provider competitor. The commission finds that it is appropriate to presume that service that is comparable to the service offered by ILECs if the competitor offers basic local service or broadband service of 3 megabits per second down and 768 kilobits per second up using a wireline-based technology. Although the Coalition proposed modifying 26.405(d)(2)(B), the commission finds that clarity is enhanced by implementing this modification in 26.405(d)(2)(A)(ii), which is the subsection that discusses the services that comprise the definition of an unsubsidized wireline voice provider competitor. Accordingly, the commission revises the rule to state "offers basic local service or broadband service of 3 megabits per second down and 768 kilobits per second up using a wireline-based technology" in that subsection. The commission notes that the Coalition suggested implementing its proposal by inserting a new sentence into 26.405(d)(2)(B) that would read: "A wire-line provider offering broadband service of 3 mbps down and 768 kbps up shall be presumed to be offering voice service." The language of the Coalition's proposed insertion concerns whether the unsubsidized wireline voice provider competitor offers, rather than provides, service in an area. The commission finds that the rule as proposed is not clear regarding this distinction and, accordingly, clarifies that an unsubsidized wireline voice provider competitor is considered to serve a census block if it offers service in that area, rather than requiring the actual provision of service. As the adopted rule states, no party is precluded from providing evidence to rebut the presumption created by the National Broadband Map with regard to whether an unsubsidized wireline voice provider competitor does or does not offer service in a particular census block. The commission expects that a party attempting to rebut this presumption and establish the presence of an unsubsidized wireline voice provider competitor that is not shown on the National Broadband Map will be required to introduce particularized evidence demonstrating that the putative unsubsidized wireline voice provider competitor is capable of providing service upon the receipt of a reasonable request for service from a potential customer. Conclusory evidence will not be sufficient to rebut the presumption indicated in 26.405(d)(2)(C). Consistent with this clarification, the commission modifies 26.405(d)(2)(C) to state that parties are permitted to challenge whether an unsubsidized wireline voice provider competitor offers service in a particular census block. 26.405(e): Criteria for determining amount of continued support Issues relating to the appropriate test to determine the amount of continued support OPUC commented that, because the determination of the need for support and the actual calculation of specific support amounts would both occur in the same proceeding, the proposed rule complies with the statutory requirement that the amount of support be set in the same proceeding as the petition to determine financial need. Similarly, AMA TechTel commented that the proposed rule's method for determining the amount of continued support is reasonable and prevents the ILEC from receiving support amounts sufficient to cover all of its costs to provide service in a market. CenturyLink commented that PURA 56.023(g) and (i) require that the commission set the amount of support for an ILEC in the same proceeding as the determination regarding financial need. CenturyLink stated that PURA does not explicitly require that the amount of support be set at the exchange level, but noted that the proposed rule implements the statutory mandate at the exchange level by setting the MPLS amount to zero for exchanges in which the ILEC does not have a financial need for continued support and reducing the MPLS in the remaining supported exchanges by the extent to which the ILEC's support exceeds 80% of certain expenses attributable to the remaining exchanges. CenturyLink and Windstream noted that the method in the proposed rule for determining the new MPLS amounts, including the 80% limitation, ensures that an ILEC will have to use revenues other than TUSF disbursements in order to provide BLTS at reasonable rates in high-cost rural areas, which is consistent with the mandate in PURA 56.021 that the TUSF is intended to assist in the provision of BLTS at reasonable rates in high-cost rural areas. CenturyLink commented that the 80% limitation is a conservative check on the ILEC's financial need for support, meaning that it helps to implement PURA 56.023(g) and (i). Windstream commented that the proposed rule, including the use of a comparison to a group of expenses, creates an appropriate mechanism for setting ongoing MPLS amounts. Windstream commented that the 80% limitation implicitly accounts for ILECs' revenues already. Specifically, if one were to subtract the $23.50 reasonable rate for BLTS that the commission established for Windstream in Docket No. 40521 from the commission-determined average per-line cost in the final order in Docket No. 18515 for the Windstream exchanges that will remain supported after the end of rate-rebalancing, the resulting implied average support level would be less than 80% of the operating expenses, which in turn do not take into account capital expenses required to operate and maintain the network. Windstream stated that this comparison illustrates that ILECs' revenues are actually considered when making appropriate determinations of ongoing MPLS amounts and that the TUSF support will be used to assist in the provision of BLTS in high-cost rural areas. CenturyLink and Windstream suggested that, because supported exchanges have particularly low density, the 80% limitation should be raised to an even higher proportion of expenses. CenturyLink commented that the 80% limitation may appear to be a high threshold but that other factors suggest the 80% limitation is conservative and reasonable. Windstream commented that the 80% limitation is reasonable in the context of the rulemaking as a whole and is acceptable to Windstream. Consolidated commented that the 80% limitation is a reasonable proxy and was comparable to the results determined after extensive analysis in Docket No. 18515, the commission's last comprehensive examination of universal service support. Consolidated noted that most of the ILECs that will be affected by the proposed rule have elected to be regulated pursuant to PURA Chapters 58 or 59 and whose earnings are not subject to commission inquiry. Consolidated also noted that the 80% limitation is comparable to policy adopted by the FCC regarding certain FUSF policies. Consolidated stated that the FCC has previously limited FUSF support for certain carriers to 80% of certain denominated amounts. Consolidated further commented that the FCC has previously stated, when setting certain benchmarks, that a voice rate will be presumed to be reasonable if it falls within two standard deviations of the national average and ADOPTED RULES December 19, 2014 39 TexReg 9995

that the 80% limitation represents a figure that is between one and two standard deviations of the ILEC's reported costs. Similarly, Windstream commented that the 80% limitation is set at an appropriate level because, if Windstream's reasonable rate of $23.50 calculated in Docket No. 40521 is added to the MPLS amounts calculated in that proceeding, the resulting sum is less than 80% of the operating expenses attributable to supported exchanges as calculated in Docket No. 18515. Thus, ILECs' revenues are actually considered when making appropriate determinations of ongoing MPLS amounts, and TUSF support will actually be used to assist in the provision of BLTS in high-cost rural areas. CenturyLink also commented that the 80% limitation, viewed in conjunction with the reasonable rates set Docket Nos. 40521 and 41097 and in conjunction with the commission's findings in Docket No. 18515, shows that it would be appropriate to permit ILECs to recover support set at 80% of the examined expenses in addition to revenues earned from charging the ILECs' reasonable rates for BLTS. Consolidated also commented that, when setting new MPLS amounts, only the portion of the exchange that is actually served by an unsubsidized wireline voice provider competitor should no longer be eligible for support. Consolidated stated that this modification would remedy the issue of the fact that all of the square miles covered by a partially-served census block count toward meeting the 75% threshold. The Coalition commented that the imposition of an 80% limitation across exchanges does not consider any measure of whether the exchanges are high-cost rural areas or whether the ILEC has a financial need for support at this level because the rule applies regardless of whether or not the expenses attributed to the exchange are particularly low or high. The Coalition stated that the proposed rule imposes an arbitrary standard for determining the amount of continued support. The Coalition proposed, as an alternative method to determine the amount of continued support, eliminating the 80% limitation from 26.405(e)(2)(B) and, instead of tying the new MPLS amounts to an ILEC's reported expenses, provide that the ILEC's support will be determined by the commission and be consistent with its findings regarding the ILEC's financial need. The Coalition also commented that the 80% limitation is a standard that creates an appearance of scrutiny but would preserve the status quo of any support that was not eliminated by the financial need tests. The Coalition estimated based on historical information that TUSF support amounts for the affected ILECseven in periods during which the Coalition estimates these ILECs were earning significant returns-ranged from 27% to 64% of operating expenses, meaning that the 80% limitation is not likely to result in any reductions to an ILEC's MPLS in exchanges that remain supported after the application of the financial need test. The Coalition stated that the Publication and the comments filed by the ILECs do not address how the 80% limitation is an indicator of financial need or why it will result in support in accordance with financial need. The Coalition stated that the 80% threshold, which could result in the majority of an ILECs' reported expenses being recovered through TUSF support does not square with the objective of providing assistance only where there is proven financial need, as it does not identify areas that are high cost and does not identify the level of assistance that should be provided. The Coalition disagreed that any publicly-available data shows that the 80% limitation provides results comparable to the results of Docket No. 18515. In response to the Coalition's comments, Consolidated agreed that the purpose of the TUSF is not to subsidize all of an ILEC's expenses and stated that that fact explains why the proposed rule limits TUSF support to a proportion of a specific category of expenses. In response, CenturyLink stated that it is not clear that the commission would be required to provide a factual basis for its proposed use of a specific number, in this case the 80% limitation as the standard for setting new MPLS amounts. Citing Chrysler, CenturyLink stated that the reasoned justification requirement applicable to orders adopting a rule was not intended to be applied clause by clause but rather to the rule as a whole and that to hold otherwise would impose a requirement for detailed findings of fact and conclusions of law supporting the adoption of each rule. CenturyLink stated that the proposed method of comparison is reasonable as long as the limitation on support is set at 100% or lower because the statute requires that the TUSF be used to assist in the provision of BLTS, meaning that TUSF disbursements would be providing a portion of the ILEC's cost of service. CenturyLink commented that even setting the limitation at 100% would accomplish this requirement because the list of expenses to be compared does not include all of the ILEC's expenses attributable to its supported exchanges. Under Chrysler, it is not necessary for the commission to explain precisely how it came up with the 80% limitation as the precise level of assistance, but it would be sufficient merely for the commission's reasoned justification to state that the commission chose to devise a simple formula for ensuring that TUSF support serves only to assist in providing BLTS at reasonable rates but that it did not want to set the screen too low and risk eliminating support in exchanges where there is a financial need for continued support in which the ILEC has a POLR obligation. CenturyLink commented that as long as the commission chooses a plausible limitation that accomplishes these goals, the commission does not have to justify choosing, for example, 80% as opposed to 70% or 90%. TEXALTEL commented that it is unaware of the basis for the selection of the 80% figure as opposed to some other number and urged the commission to provide information as to the basis for that figure and allow an additional comment period. As part of its comments suggesting that rate-of-return-regulated ILECs should not be subject to the financial need test in addition to the 80% limitation and in light of the fact that a return on capital is not included in the expenses to be compared, GVTC suggested limiting the applicability of 26.405(e)(2)(B) to only ILECs regulated under PURA 58, 59, or 65. Commission response The commission adopts the methodology of determining the amount of continued support stated in the proposed rule. As discussed above, the commission disagrees with the Coalition that the adopted methodology provides no linkage to the ILEC's financial need for continued support. The commission finds that the determination of the amount of continued support is inextricably linked to the commission's findings regarding a petitioning ILEC's financial need for continued support. Pursuant to 26.405(e)(1), the MPLS amount will be reduced to zero for exchanges for which the ILEC has not demonstrated a financial need for continued support. Further, for exchanges in which the ILEC has demonstrated a financial need for continued support, the commission has provided for the reduction of the ILEC's overall support by comparing the disbursements received by an ILEC to the expenses in- 39 TexReg 9996 December 19, 2014 Texas Register

curred by the ILEC during a 12-month period prior to the filing of a petition to show financial need. Specifically, the commission will reduce the support available to the ILEC by the extent to which its historical support exceeded 80% of its reported expenses. This methodology ensures that the ILEC's support does not exceed the cost of providing service in the exchange, fulfilling the statutory purpose of assisting in the provision of BLTS in high-cost rural areas while also requiring that an ILEC's other revenues be used to defray a portion of the cost to operate in a supported exchange. This methodology fully complies in an administratively efficient fashion with the requirements of PURA 56.023, which requires the commission to adjust the amount of support available to a petitioning ILEC and authorizes the commission to determine an appropriate methodology to determine the amount of continued support. The Coalition stated that the adopted method for determining the amount of continued support does not consider any measure of whether the expenses attributable to the supported exchanges are particularly high or whether the ILEC has a financial need for support. The Coalition proposed, instead of tying the new MPLS amounts to an ILEC's reporting expenses, to provide that the ILEC's continued MPLS amounts will be determined by the commission and be consistent with its findings regarding the ILEC's financial need. The commission notes that the Coalition did not propose any criteria to guide the commission's decision making in this regard. The commission also finds that it is in the public interest to determine in this proceeding a specific methodology to determine the amount of continued support. TUSF support will be eliminated in exchanges for which there is not a financial need for continued support, including increasingly dense suburban exchanges. Further, as discussed above, the commission finds that the adopted methodology is consistent with the specific requirements of PURA 56.023. When PURA 56.026 contained a prohibition on a revenue requirement showing to determine the amount of TUSF disbursements, the commission successfully used several proxy methodologies to determine the appropriate amount of support for various ILECs. The commission finds that it is reasonable to verify the expenses attributable to an ILEC's supported exchanges and ensure that the ILEC's ongoing support in exchanges for which there is a financial need for continued support does not exceed 80% of those expenses. The commission also declines to adopt the proposal submitted by Consolidated to eliminate from TUSF support eligibility only the portion of the exchange that is actually served by an unsubsidized wireline voice provider when setting new MPLS amounts. Consolidated provided this proposal to serve to remedy the issue that all of the square miles covered by a partially-served census block count toward meeting the 75% threshold. The commission does not intend to set separate MPLS amounts for different areas within an exchange. Further, as discussed above, the commission notes that, in response to the concerns raised by Consolidated, the 75% threshold is set conservatively high so as to only capture those exchanges in which there is not a financial need for continued support. Accordingly, the commission declines to adopt Consolidated's proposal in order to address these issues. The commission declines to adopt GVTC's proposal to limit the applicability of 26.405(e)(2)(B) to only ILECs regulated under PURA 58, 59, or 65. As discussed in further detail above, the commission finds that GVTC is not unduly burdened by the adopted rule, that it is appropriate to adopt a consistent test applicable to all affected ILECs, and that GVTC may file a petition to receive Additional Financial Assistance, which is a remedy not available to ILECs electing under PURA Chapters 58 and 59. The commission agrees with several parties that stated that 80% is a reasonable limitation for the purpose of applying the adopted method to determine the amount of continued support. In particular, the commission agrees with Windstream that the 80% limitation roughly corresponds to the results of similar commission proceedings. As noted by Windstream, the combination of the MPLS amounts and reasonable rates determined for Windstream as part of Docket No. 40521 in total is less than 80% of the expenses attributable to its supported exchanges as calculated in Docket No. 18515. CenturyLink also commented that the 80% limitation is reasonable if the reasonable rates set in Docket Nos. 40521 and 41097 are viewed in conjunction with the commission's findings in Docket No. 18515. Further, Consolidated noted that the 80% limitation is comparable to policy adopted by the FCC regarding certain FUSF policies and that the FCC has previously limited FUSF support for certain carriers to 80% of certain denominated amounts. Accordingly, the commission finds that the 80% falls within the same zone of reasonableness as previous commission and FCC decisions. The Coalition commented that the 80% limitation is a standard that would not likely result in any further reductions in support beyond the support eliminated as a result of the presence of an unsubsidized wireline voice provider competitor. The Coalition appears to imply that a test to determine the amount of continued support is not valid unless its application results in further reductions in the amount of TUSF support available to an ILEC. As discussed above, the commission notes that PURA 56.023(g) and (i) require that an affected ILEC's eligibility for continued support with respect to particular exchanges be linked to a showing of financial need, but these sections do not provide guidance regarding how to set the amount of continued support as part of the same contested case. The commission finds that a limitation set at any level that does not exceed 100% of the expenses attributable to an ILEC's supported exchanges satisfies the mandate of PURA 56.021(1), which only requires that the TUSF be used to assist in the provision of BLTS at reasonable rates in high-cost rural areas. The commission finds that the 80% limitation is a simple formula for ensuring that TUSF support serves to assist in providing BLTS at reasonable rates at a cap that is not so low that it would risk eliminating support in exchanges where there is a financial need for continued support. The commission similarly disagrees with CenturyLink, which stated that although 80% may be reasonable, a higher limitation would be preferable. The commission finds that the 80% threshold is an appropriate check on the support available to a petitioning ILEC to ensure that excess TUSF support is not available to the ILEC to support commercial efforts in markets in which the ILEC does not have a continued need for support. The commission also finds that an award of support not to exceed 80% of the ILEC's expenses attributable to its supported exchanges provides reasonable assistance in the provision of BLTS in high-cost rural areas, as is required by PURA 56.021(1). The commission notes that Consolidated commented that the 80% limitation would be comparable to similar limitations on the amount of FUSF support awarded by the FCC and that an 80% limitation will likely cause results comparable to the commission's findings in Docket No. 18515. The commission agrees with CenturyLink's comment that according to the holding in Chrysler, as long as the commission chooses a plausible limitation, the commission is not required to justify choosing, for example, 80% as opposed to 70% or 90%. The commission notes that the holding in Chrysler was affirmed in 2005 by the Third Court of Appeals in Lambright, which agreed ADOPTED RULES December 19, 2014 39 TexReg 9997

that courts will uphold "administrative rules if they are reasonable." Lambright, 157 S.W.3d at 510-511. The commission finds that the 80% limitation falls within a range of reasonable values that are within the commission's authority to adopt and that the adopted rule is supported by a reasoned justification. The commission disagrees with TEXALTEL, which urged the commission to provide further information as to the basis for proposing the 80% limitation and to allow an additional comment period. For the reasons discussed above, the commission finds that the 80% limitation has been the subject of meaningful comments, is supported by a reasoned justification, and comports with PURA 56.023. Accordingly, the commission finds that no additional comment period is necessary or required by the APA. Other issues relating to the determination of continued support amounts GVTC and Consolidated commented that the first sentence of 26.405(e)(1) should be clarified to read "For each exchange that is served by an ILEC ETP that has filed a petition pursuant to 26.405(f)(1) of this section and for which the commission has determined that the ILEC ETP does not have a financial need for continued support, the commission shall reduce the monthly per-line support amount to zero." GVTC and Consolidated commented that the phrase "for which the commission has not determined that the ILEC ETP has a financial need for continued support" could be read to apply to the ILEC and that this proposal was intended to clarify that the MPLS will not be adjusted while the petition is still pending. CenturyLink, Windstream, Consolidated, and GVTC proposed to amend 26.405(e)(2)(B) and (f)(1)(c) so that the test to determine the amount of continued support will compare support received by an ILEC with 12-months of expense data concluding with a recently completed quarter. These ILECs commented that ILEC ETPs should be allowed to file 12-months of expense data concluding with the most recently completed calendar quarter because books are kept on a quarterly basis. Accordingly, this modification would ensure that the rule would not require the submission of information for which final accounting data is not available. GVTC proposed, as an alternative solution, that the ILEC be permitted to select an ending date for the 12-month period so long as the filing is made no later than two quarters after the last quarter included in the 12-month period. The Coalition stated that it agrees that this proposal is appropriate. As discussed above, AMA TechTel commented that the proposed rule should be modified to allocate the company-wide reduction of support among the ILEC ETP's supported exchanges based on occupied household density so that support will be reduced for the most densely populated areas more than it is reduced for smaller, more sparsely populated areas, which are more likely to require continued support. AMA TechTel requested that this modification apply to company-wide reductions of support that would result from the implementation of 26.403(f) and 26.404(g) as well as the company-wide reductions of support that would result in the application of the 80% limitation found in 26.405(e). AMA TechTel stated that this approach is necessary to mitigate the effect that flat percentage reductions have on exchanges with small populations. AMA TechTel stated that its proposal could be accomplished by three means: (1) by using an allocation formula to eliminate support in the most dense exchanges until the appropriate total reduction is obtained, (2) by allocating the reduction in support based on relative line density of each exchange, or (3) by stating that support reductions would not be imposed with respect to exchanges with populations under a threshold of 1,000 but would be distributed to other exchanges. AMA TechTel noted that its proposal is consistent with recent commission proceedings, including Docket No. 40521. CenturyLink responded that it does not necessarily oppose AMA TechTel's recommendation but that AMA TechTel's recommendation is not sufficiently clear for CenturyLink to provide unqualified support. CenturyLink stated that it would be important to understand where information regarding an exchange's occupied household density would be derived and to understand exactly how support reductions would be weighted this factor. CenturyLink recommended that occupied households should not be considered in any capacity as part of the test to determine financial need. The Coalition opposed AMA TechTel's proposal, stating that there is no reason to determine as part of the rulemaking that an allocation of support reductions is appropriate. The Coalition stated instead that, if an ILEC considers such an allocation to be essential, then it can file a petition that includes all of its exchanges and demonstrate its financial need for support by exchange. Subsections 26.405(e)(2)(C) and (D) provide limits on the maximum amount of support available from the THCUSP based on the MPLS amounts which the ILEC ETP is eligible to receive when it files its petition to show financial need. AMA TechTel commented that this section does not reflect the statutory language that caps the maximum amount of support based on the support that the ILEC ETP is eligible to receive. AMA TechTel stated that support reductions should be calculated based on the ILEC ETP's total support, not the per-line support awarded for each exchange. Commission response The commission disagrees with AMA TechTel that the caps on an ILEC's support listed in 26.405(e)(2)(C) should be stated in terms of the overall total support that the ILEC is eligible to receive as opposed to being based on the MPLS amount awarded for service in each exchange. PURA 56.023(g) and (i) state that the maximum amount of available support available to an ILEC is limited as a proportion of "the support that the company or cooperative is eligible to receive on December 31, 2016." The support that the affected ILECs will be eligible to receive on December 31, 2016 was awarded in Docket Nos. 40521 and 41097 as an MPLS amount awarded on an exchange-by-exchange basis. Accordingly, the commission interprets PURA 56.023(g) and (i) to limit the amount of support that may be awarded as a proportion of the exchange-specific MPLS amount awarded to each ILEC in each exchange as part of Docket Nos. 40521 and 41097. Accordingly, the commission declines to adopt any modifications to 26.405(e)(2)(C) and (D) based on this issue. The commission declines to adopt Consolidated and GVTC's proposal to modify 26.405(e)(1) to clarify that the MPLS will not be adjusted while the petition is still pending. The rule as adopted states that the MPLS adjustments calculated pursuant to 26.405(e) will not be imposed while the petition is pending. PURA 56.023(g) and (i) state that, until the commission issues a final order in the proceeding, the petitioning ILEC is entitled to receive the same amount of support the company or cooperative was eligible to receive on the date the company or cooperative filed the petition and that these provisions are reflected in 26.405(f)(2). Further, 26.405(e) states that the new MPLS amounts determined during the contested case proceeding will 39 TexReg 9998 December 19, 2014 Texas Register

not be effective until, at the earliest, the first disbursement following a commission order entered pursuant to 26.405(f)(2). Accordingly, the commission finds that the rule indicates that the support available to a petitioning ILEC will not be adjusted during the pendency of the contested case. The commission notes that the phrase "for which the commission has not determined that the ILEC ETP has a financial need for continued support" is used to describe exchanges served by an ILEC ETP that has filed a petition pursuant to 26.405(f)(1). Accordingly, the commission adopts this subsection as proposed. The commission agrees with CenturyLink, Windstream, Consolidated, and GVTC, which all commented that the commission should permit a petitioning ILEC to file the information required by 26.405(e)(2)(B) and (f)(1)(c) for a 12-month period ending with the most recently completed calendar quarter. Because ILECs' data is recorded on a quarterly basis, this proposal would permit ILECs to provide final accounting data at the time when the petition is filed. Further, requiring the submission for the most recently completed quarter, as opposed to an earlier quarter, ensures that the information provided is recent enough to be relevant for the purposes of implementing SB 583. Accordingly, the commission modifies 26.405(e)(2)(B) by deleting "twelve months" and instead inserting "twelve month period ending with the most recently completed calendar quarter" and adds a conforming modification to 26.405(f)(1)(C). AMA TechTel stated that reductions in support that result from the imposition of the 80% limitation should be allocated on a company-wide basis based on a density factor instead of imposing a flat percentage reduction in the MPLS amount for each exchange. The commission finds that, in some cases, it may be preferable for these reductions to be allocated based on a density factor because the revenues available to a competitive ETP, which may only operate in a portion of the ILEC's territory, may be significantly impacted depending on how the reductions are allocated. By contrast, such a modification would not significantly impact the revenues available to a petitioning ILEC, as the overall reduction in support would be the same. The commission agrees with the Coalition that there is no reason to determine as part of the rulemaking that an allocation of support reductions is appropriate. The commission finds that, instead of determining an allocation methodology as part of this rulemaking, it is preferable to retain the flexibility and discretion to determine, based on the facts of each contested case, whether consideration of various factors, including the impact on certain exchanges, warrants the implementation of an allocation methodology. The commission further retains the discretion and flexibility to devise an appropriate methodology based on the facts of each contested case. Accordingly, the commission deletes the phrase "the same proportion as" from 26.405(e)(2)(B) in order to clarify that the commission retains the discretion to either implement an allocation methodology or apply flat percentage reductions in the MPLS amounts available in supported exchanges. In order to clarify that the commission retains the discretion to consider any appropriate factor, the commission also inserts the following sentence in 26.405(e)(2)(B): "In establishing any reductions to the initial monthly per-line support amounts, the commission may consider any appropriate factor, including the residential line density per square mile of any affected exchanges." 26.405(f): Proceeding to Determine Financial Need and Amount of Support As indicated above, CenturyLink, Windstream, and GVTC proposed to amend 26.405(e)(2)(B) and (f)(1)(c) so that ILEC ETPs are allowed to file 12-months of expense data concluding with the most recently completed calendar quarter. The Coalition commented that the word "intrastate" should be inserted in 26.405(f) to clarify that all financial information required under the new rule would cover only the regulated intrastate component of ILECs' activities. The Coalition also proposed modifying 26.405(f)(1)(D) by moving the second and third sentences into a new subparagraph and by clarifying that a contested case will be initiated to determine "whether the ILEC ETP has a financial need for continued support" rather than to determine "the eligibility of the ILEC ETP to receive continued support." The Coalition further proposed that the rule should state that new MPLS amounts for each exchange shall be consistent with the findings regarding the ILEC ETP's financial needs. As part of its proposal that ILECs be required to submit information regarding actual revenues when showing financial need, the Coalition proposed modifying 26.405(f)(1)(A) to state that a petition shall include the most current actual expenses and revenue information but at a minimum shall include the revenue and expense information identified in 26.405(f)(1)(C). Further, CenturyLink recommended against the insertion of the word "intrastate" in 26.405(f). CenturyLink opposed the Coalition's proposal on the basis that it would complicate what is supposed to be an administratively efficient comparison by requiring that ILECs separate intrastate-specific costs from the overall expenses reflected in their regulatory books. CenturyLink also stated that, instead of the Coalition's proposal, the insertion of "total Texas regulated expenses" in 26.405(f) would better reflect the scope of the costs considered in Docket No. 18515, which did not require any allocation of expenses to the interstate and intrastate jurisdictions. Because support amounts were originally set in Docket No. 18515 to account for interstate expenses and revenues, it would be more accurate to include interstatespecific expenses in the present rulemaking. In addition, CenturyLink and Windstream commented that the list of expenses to be compared do not allow consideration of capital expenditures, which are also expenditures related to the provision of BLTS because they involve extension of the network to new customer or maintenance of existing facilities. The Coalition disagreed with CenturyLink and Windstream, stating that this concern is effectively addressed by the consideration of an ILEC's annual depreciation expense because depreciation is the appropriate mechanism to address the recovery of capital expenditures. The Coalition also commented that the proposed list of expenses to be compared found in 26.405(f)(1)(C) should not include categories-specifically, customer operations expense and corporate operations expense-that are not geographically-driven and are not likely to be higher in high-cost rural areas. The Coalition argued that the purpose of the TUSF is not to guarantee that every expense category is subsidized but, rather, is to assist in the recovery of the unusual cost of serving high-cost rural areas. The Coalition disagrees that these categories of expenses are appropriately used in the comparison used to set petitioning ILECs' new MPLS amounts. The Coalition also proposed including net plant in service as a category of expenses to be reported. The Coalition claimed that, without this category, the rule would not provide for the analysis of the extent to which ILECs' capital costs have already been recovered through depreciation. ADOPTED RULES December 19, 2014 39 TexReg 9999

Consolidated responded to the Coalition's comments, stating that customer operations expenses are frequently high per customer in rural areas. Consolidated stated for example that customer operations expenses may be increased if a service truck must be dispatched to particularly remote or rural areas. Consolidated also stated that the inclusion of net plant in service, as proposed by the Coalition, is poorly defined but likely corresponds to an ILEC's net rate base in service. Consolidated stated that the Coalition is likely requesting information that could be used to determine the ILECs' rates of return in the contested case proceedings. CenturyLink also responded to the Coalition's comments, stating that all relevant expenses should be compared regardless of whether they vary based on geographical factors. CenturyLink noted that the purpose of the TUSF is to assist in the costs of service in high-cost rural areas, not to defray the cost of only expenses that vary by geography. CenturyLink noted that customer operations expenses were considered by the commission for the purposes of setting support amounts as part of Docket No. 18515. CenturyLink also commented that the commission should not include net plant in service in the list of items to be reported. CenturyLink stated that this one-time snapshot of net plant is not reflective of the need for TUSF support in any given year and does not add value to the measure of the need for TUSF support contemplated by the proposed rule. CenturyLink stated that setting MPLS amounts based on current net plant could have the effect of discouraging investment by artificially and inaccurately limiting TUSF support due to an overemphasis on a single data point. Commission response As discussed above, the commission has determined that it is proper to ensure that the new MPLS amounts set for a petitioning ILEC do not permit the ILEC to receive TUSF support in excess of the sum of certain expenses that are attributable to the ILEC's supported exchanges. Subsection 26.405(f)(1)(C) of the adopted rule includes a list of expenses that must be provided with a petition to determine financial need for the purposes of permitting this comparison of support to expenses. The purpose of this list of expenses is to ensure that the TUSF is used to assist in the provision of BLTS in high-cost rural areas, but that excess TUSF revenue is not available to support an ILEC's efforts in exchanges where there is not a financial need for continued support. Subsection 26.405(f)(1)(C) also requires the disclosure of the total amounts of certain property categories, which are not used in the comparison of support to expenses, but are included to contextualize the reported expenses and permit intervenors and commission staff to better assess the validity of the ILEC's reported expenses. For the reasons discussed below, the commission adopts the list of expenses and property categories referred to in 26.405(f)(1)(B) and listed explicitly in 26.405(f)(1)(C) as set out in the proposed rule. The commission declines to adopt Windstream's and CenturyLink's proposal to permit consideration of an ILEC's recent capital expenditures when setting new MPLS amounts. As indicated by the Coalition, capital expenditures are recovered when the ILEC expenses depreciation to its capital property. The list of expenses to be compared already includes a category for depreciation. As such, it would be duplicative to consider capital expenditures that will be recovered through a future depreciation expense in addition to capital expenditures that have been recovered through depreciation expensed during the 12 months covered by the summary of expenses. Accordingly, the commission declines to insert a new capital expenditures category in addition to the existing depreciation category. In addition, the commission disagrees with the Coalition, that customer operations expenses and corporate operations expenses should not be used in the comparison used to set petitioning ILECs' new MPLS amounts because these expenses are not geographically driven and are not likely to be higher in high-cost rural areas. The commission notes that Consolidated commented that these expenses can increase in sparser exchanges if, for example, a service truck is dispatched to a rural area. Further, the commission agrees with CenturyLink that the purpose of the TUSF is to assist in the costs of providing service in high-cost rural areas and not to only defray those expenses that vary to a high degree based on geography. The commission finds that customer operations expenses and corporate operations expenses attributable to an ILECs' supported exchanges are relevant to the provision of BLTS in high-cost rural areas and that it is appropriate to consider them when setting the ILEC's new MPLS amounts. Furthermore, the commission disagrees with the Coalition, which stated that the list of expenses and property categories should include a requirement that a petitioning ILEC provide its total net plant in service. The Coalition claimed that this category permits the analysis of the extent to which ILECs' capital costs have already been recovered through depreciation. As stated above, reporting of the listed property categories is not required to permit the comparison of support to expenses used to set ILECs' new MPLS amounts, rather they are included to contextualize the reported expenses and permit intervenors and commission staff to better assess the validity of the ILEC's reported expenses. The commission agrees with CenturyLink that this property category represents a one-time snapshot that is not necessarily reflective of the need for TUSF support in any given year. As such, the commission finds that this property category is not necessarily useful for this purpose. However, nothing in the adopted rule should be construed to prevent the discovery of information that is shown by a party to be relevant to the determination of a particular ILEC's financial need for continued TUSF support in exchanges where there is no unsubsidized wireline voice competitor. The commission also declines to adopt the Coalition's proposal to modify 26.405(f) to indicate that the new MPLS amounts for each exchange served by a petitioning ILEC shall be consistent with the findings regarding the ILEC ETP's financial needs. As discussed above in detail, the commission notes that the determination of financial need and the setting of the new MPLS amounts represent two separate phases of the contested case proceeding, As discussed in more detail above, the commission adopts a methodology of setting the MPLS amounts for a petitioning ILEC based on a comparison of certain disbursements and expenses and declines to adopt the Coalition's proposal that the commission reach a fact-specific determination in each proceeding regarding the appropriate method to determine the new MPLS amounts for a petitioning ILEC. Consistent with this determination, the commission declines to adopt the Coalition's proposal to modify 26.405(f) on this basis. The commission agrees with several of the Coalition's proposed clarifying modifications to 26.405(f)(1)(D). Specifically, the Coalition proposed modifying 26.405(f) to state that a contested case will be initiated to determine "whether the ILEC ETP has a financial need for continued support" rather than to determine "the eligibility of the ILEC ETP to receive continued 39 TexReg 10000 December 19, 2014 Texas Register

support" and also proposed modifying 26.405(f)(1)(D) by moving the second and third sentences into a new subparagraph. The commission notes that PURA 56.023 permits an ILEC to "petition the commission to initiate a contested case proceeding as necessary to determine the eligibility of the company or cooperative to receive support" and that the proposed rule tracks PURA's language in this respect. However, the commission finds that the Coalition's proposed changes clarify the meaning of the adopted rule. Further, the commission finds that the Coalition's proposed modification to split 26.405(f)(1)(D) into two paragraphs reflects a better organization of provisions of that subsection. Accordingly, the commission adopts the Coalition's proposed clarifications, which creates a new subsection (f)(1)(e). The commission disagrees with the Coalition's comments that the word "intrastate" should be inserted in 26.405(f) to clarify that all financial information required under the new rule would cover only the regulated intrastate component of ILECs' activities. The commission notes that the revenue benchmark used to set ILECs' support in Docket No. 18515 incorporated a mixture of inter- and intrastate revenues. Further, the commission notes the difficulty of allocating certain expenses to each jurisdiction. For example, the Coalition does not discuss by what criteria the commission may determine the intrastate component of the depreciation of facilities used to provide both inter- and intrastate services. As such, the commission agrees with CenturyLink, which recommended against the insertion of the word "intrastate" in 26.405(f) on the basis that it would complicate what is supposed to be an administratively efficient comparison by requiring that ILECs separate intrastate-specific costs from the overall expenses reflected in their regulatory books. The commission adopts CenturyLink's proposal to insert "total Texas regulated expenses" in 26.405(f)(1)(C), which represents an appropriate measure of the ILEC's cost of providing service while also requiring information that is already readily available to a petitioning ILEC. 26.405(g): De-averaging of the support received by ILEC ETPs from the SRILEC USP The Coalition commented that the de-averaging methodology allows ILECs to arbitrarily redistribute TUSF support among their exchanges, effectively allowing ILECs to reset to a higher level the baseline support that they receive in some exchanges before the commission decides whether any financial need exists. The Coalition states that the de-averaging formula does not comport with SB 583's requirements because it has no linkage to a determination of financial need. The Coalition also stated the proposed de-averaging methodology's reliance on the ILEC's residential line count as opposed to the exchange's total number of residential lines could lead to an understatement of the density of exchanges in which most of the residential lines are served by competitors. The Coalition claimed that there is no reason to de-average the TUSF support available from the SRILEC USP to affected ILECs without a showing by the ILEC that de-averaging is supported by the ILEC's demonstration of financial need for continued support. The Coalition also stated that the de-averaging methodology's reliance on the petitioning ILEC's residential line density is problematic because exchanges in which competitors serve a large proportion of the lines will appear to be sparser than they actually are. The Coalition expressed concerns that this provision could result in an artificial increase in the amount of support available to an ILEC. The Coalition proposed modifying 26.405(g) by eliminating the de-averaging methodology that relies on residential line density categories and instead permitting the commission to reach a finding regarding the appropriate de-averaging amounts as part of the contested case regarding the petition to show financial need. TEXALTEL commented that it had not been provided with documentation explaining how the proposed proxy MPLS amounts were calculated. TEXALTEL stated that the real issue, however, is whether the de-averaging is performed before or after any support reductions are realized as a result of the financial need test. If the de-averaging is effective before the financial need test is implemented, then it could reduce the total support reductions imposed pursuant to the financial need test, but if de-averaging is effective after the financial need test is implemented, then de-averaging would be revenue neutral. TEXALTEL stated that imprecision in the de-averaging methodology is more acceptable in the latter scenario. Consolidated noted that the Coalition's alternative proposal for de-averaging sets forth no specific criteria or standards other than an open-ended proposal to consider the issue in a contested case proceeding. GVTC and Consolidated support the de-averaging process outlined in the proposed rule. As stated above, GVTC commented that the de-averaging methodology was determined using sound, data-driven processes. GVTC and Consolidated commented that it is appropriate to allow ILECs that receive support from the SRILEC USP to receive de-averaged support because of the historical circumstances of the SRILEC USP. Specifically, GVTC and Consolidated stated that, while the THCUSP support was awarded using company-specific and wire center-specific forward-looking cost models, SRILEC support was awarded using proxies to determine average levels of support on a company-wide basis. GVTC and Consolidated stated that the commission has never conducted a proceeding to examine exchange-specific characteristics or costs. Instead, GVTC and Consolidated stated that SRILEC USP support was cross-distributed because support was awarded on a company-wide basis, meaning that support nominally provided in denser exchanges was actually used to support service in less dense exchanges. Consolidated stated that de-averaging is therefore necessary in order for affected ILECs to adequately sustain universal service because competition has eroded significant portions of their "center city" markets, leaving less support for other areas where the cost of service is highest. GVTC and Consolidated stated that, as a result, SRILEC USP support should be de-averaged so that it is representative of the cost characteristics of each exchange and incorporates the costs of serving as the POLR. GVTC and Consolidated commented that the proposed rule's de-averaging mechanism reflected these concerns and comports with PURA 56.023. Commission response The commission disagrees with the Coalition, which commented that the de-averaging methodology would allow ILECs to arbitrarily redistribute TUSF support among their exchanges, effectively allowing ILECs to reset to a higher level the baseline support that they receive in some exchanges. The commission also disagrees with the concerns raised by TEXALTEL that if the de-averaging is effective before the financial need test is implemented, it could reduce the total support reductions imposed pursuant to the financial need test. The commission finds that the de-averaging methodology is not arbitrary and does not permit the arbitrary redistribution of support. Instead, as indicated by GVTC and as discussed above, the de-averaging methodology was determined using sound, ADOPTED RULES December 19, 2014 39 TexReg 10001

data-driven processes. First, data was gathered regarding the MPLS amounts determined for each exchange included in the commission's order in Docket No. 18515. Second, the most accurate housing unit density data from the time period examined in Docket No. 18515 was decided for each exchange. The MPLS amounts awarded in Docket No. 18515 were correlated to the housing unit density information for each exchange. Next, the weighted average of the MPLS for each of the density bands was determined. These weighted average MPLS amounts correspond to the proxy MPLS amounts in the proposed rule. Further, the commission finds that this re-allocation is appropriate in light of the historical circumstances of the SRILEC USP. As indicated by GVTC and Consolidated, the commission has never conducted a proceeding to examine exchange-specific characteristics or costs for ILECs that receive support from the SRILEC USP. Instead, SRILEC USP support was awarded on a company-wide basis, meaning that support nominally provided in denser exchanges has historically been used to support service in less-dense exchanges. De-averaging is therefore necessary in order for affected ILECs to adequately sustain universal service because competition has eroded significant portions of their "center city" markets, leaving less support for other areas where the cost of service is highest. The commission agrees with GVTC and Consolidated that, as a result, SRILEC USP support should be de-averaged so that it is representative of the cost characteristics of each exchange and incorporates the costs of serving as the POLR. The Coalition stated that the proposed 26.405(g) does not comport with SB 583's requirements. The commission disagrees and finds that the de-averaging provisions are explicitly authorized by SB 583's amendments to PURA 56.023 and 56.031. As indicated in the Publication, the new rule was proposed using the authority granted generally by PURA 14.002 and specifically by SB 583, which amended PURA 56.031 to allow the commission to adjust support from the SRILEC USP any time after September 1, 2007 as long as the commission considers the adequacy of basic rates to support universal service. SB 583 also added a new PURA 56.023(o), which states that, before January 1, 2020, "[n]otwithstanding the provisions of [PURA Chapter 56], the commission has no authority, except as provided by [this section] to reduce support provided to an incumbent local exchange company that is an electing company under Chapter 58 or 59 or is a cooperative that served greater than 31,000 access lines in this state on September 1, 2013" for support provided from the SRILEC USP. Accordingly, SB 583 explicitly grants the commission the authority to adjust the support available from the SRILEC USP as long as the commission considers the adequacy of basic rates to support universal service and, if the support is adjusted before January 1, 2020, as long as the adjustment does not result in a reduction of support to certain ILECs. The new rule's de-averaging provisions will adjust support from the SRILEC USP after September 1, 2007 and before January 1, 2020, but will not result in a reduction of the support available to requesting ILECs, complying with the timing provisions of SB 583. As required by PURA 56.031, the commission has also considered the adequacy of basic rates to support universal service. The application of the de-averaging process is revenue neutral, as there will not be a reduction of overall support and as rates will not be adjusted. Accordingly, the de-averaging process does not negatively impact the ILECs' ability to offer service throughout their territory based on their current rates and support amounts. Because the de-averaging provisions do not provide for the reduction of support available to a requesting ILEC and do not provide for the adjustment of an ILEC's basic rates, the commission finds that the new rule appropriately addresses the adequacy of basic rates to support universal service as required by PURA 56.031. The commission acknowledges the Coalition's concern that the de-averaging methodology's reliance on a petitioning ILEC's residential line density could be problematic because exchanges in which competitors serve a large proportion of customers could appear to be more sparsely populated than they actually are. The commission disagrees with the Coalition's contention that this provision could result in an artificial increase in the amount of support available to an ILEC. First, the commission notes that the de-averaging provision is revenue-neutral and cannot result in an increase in the overall support available to an ILEC before the application of the test to determine financial need. Second, in a situation like the one contemplated by the Coalition, this provision is as likely to negatively impact a petitioning ILEC as it is to benefit the ILEC. As such, it is likely that all support for an exchange will ultimately be eliminated by the application of the test to determine financial need if the rural nature of that exchange is overstated due to the presence of multiple competitors and if, as a result, the de-averaging methodology results in a higher amount of support being allocated to that exchange. As a result, a larger amount of TUSF support would be eliminated with respect to that exchange than if the ILEC's support had not been de-averaged. Accordingly, the commission finds that no modification to the adopted rule is necessary to address the Coalition's concerns regarding this issue. The commission agrees with GVTC and Consolidated, which commented that it is appropriate to allow ILECs that receive support from the SRILEC USP to receive de-averaged support because of the historical averaging of the support provided by the SRILEC USP. The commission finds that the de-averaging provision furthers the goals of universal service by ensuring the adequacy of support, in conjunction with ILECs' BLTS rates, to support the provision of BLTS in high-cost rural areas at reasonable rates. Accordingly, the proposed rule comports with the specific provisions of PURA Chapter 56 amended by SB 583. Finally, the commission disagrees with the modifications to 26.405(g) proposed by the Coalition, which stated that the proposed de-averaging methodology's reliance on the ILEC's residential line count as opposed to the exchange's total number of residential lines could lead to an understatement of the density of exchanges in which most of the residential lines are served by competitors. The de-averaging methodology is designed to use information accessible and verifiable by the requesting ILEC and that will not be subject to significant evidentiary issues. The Coalition's proposal to use the exchange's total number of residential lines would require the amalgamation of information from a variety of sources, and it is not clear that any benefit would be derived from undertaking this method. For the same reason, the commission declines to adopt the proposal that the commission determine the appropriate de-averaging methodology as part of the contested case proceeding, as proposed by the Coalition. The commission notes that the Coalition has not proposed criteria or guidelines to guide the commission in reaching this determination. All comments, including any not specifically referenced herein, were fully considered by the commission. In adopting these sections, the commission makes changes consistent with the above 39 TexReg 10002 December 19, 2014 Texas Register

discussion to clarify its intent and to correct nonsubstantive clerical errors. The amendments and new section are adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated 14.002 (West 2007 and Supp. 2014) (PURA), which provides the commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; and specifically, Senate Bill 583 which amended PURA 56.023, 56.024, 56.026, 56.031, and 56.032. Cross Reference to Statutes: Public Utility Regulatory Act 14.002, Senate Bill 583 which amended PURA 56.023, 56.024, 56.026, 56.031, and 56.032. 26.403. Texas High Cost Universal Service Plan (THCUSP). (a) Purpose. This section establishes guidelines for financial assistance to eligible telecommunications providers (ETPs) that serve the high cost rural areas of the state, other than study areas of small and rural incumbent local exchange companies (ILECs), so that basic local telecommunications service may be provided at reasonable rates in a competitively neutral manner. (b) Definitions. The following words and terms when used in this section shall have the following meaning unless the context clearly indicates otherwise: (1) Business line--the telecommunications facilities providing the communications channel that serves a single-line business customer's service address. For the purpose of this definition, a single-line business line is one to which multi-line hunting, trunking, or other special capabilities do not apply. (2) Eligible line--a residential line or a single-line business line over which an ETP provides the service supported by the THCUSP through its own facilities, purchase of unbundled network elements (UNEs), or a combination of its own facilities and purchase of UNEs. (3) Eligible telecommunications provider (ETP)--A telecommunications provider designated by the commission pursuant to 26.417 of this title (relating to Designation as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF)). (4) Residential line--the telecommunications facilities providing the communications channel that serves a residential customer's service address. For the purpose of this definition, a residential line is one to which multi-line hunting, trunking, or other special capabilities do not apply. (c) Application. This section applies to telecommunications providers that have been designated ETPs by the commission pursuant to 26.417 of this title. (d) Service to be supported by the THCUSP. The THCUSP shall support basic local telecommunications services provided by an ETP in high cost rural areas of the state. Local measured residential service, if chosen by the customer and offered by the ETP, shall also be supported. (1) Initial determination of the definition of basic local telecommunications service. Basic local telecommunications service shall consist of the following: (A) flat rate, single party residential and business local exchange telephone service, including primary directory listings; (B) tone dialing service; (C) access to operator services; (D) access to directory assistance services; (E) access to 911 service where provided by a local authority; (F) telecommunications relay service; (G) the ability to report service problems seven days a week; (H) availability of an annual local directory; (I) access to toll services; and (J) lifeline service. (2) Subsequent determinations. (A) Initiation of subsequent determinations. (i) The definition of the services to be supported by the THCUSP shall be reviewed by the commission every three years from September 1, 1999. (ii) The commission may initiate a review of the definition of the services to be supported on its own motion at any time. (B) Criteria to be considered in subsequent determinations. In evaluating whether services should be added to or deleted from the list of supported services, the commission may consider the following criteria: (i) the service is essential for participation in society; (ii) a substantial majority, 75% of residential customers, subscribe to the service; (iii) the benefits of adding the service outweigh the costs; and (iv) the availability of the service, or subscription levels, would not increase without universal service support. (e) Criteria for determining amount of support under THCUSP. The commission shall determine the amount of per-line support to be made available to ETPs in each eligible wire center. The amount of support available to each ETP shall be calculated using the base support amount as of the effective date of this section and applying the annual reductions as described in this subsection. As used in this subsection, "basic local telecommunications service" refers to services available to residential customers only, and "exchange" or "wire center" refer to regulated exchanges or wire centers only. (1) Determining base support amount available to ILEC ETPs. The initial annual base support amount for an ILEC ETP shall be the annualized monthly THCUSP support amount for the month preceding the effective date of this section, less the 2011 amount of support disbursed to the ILEC ETP from the federal universal service fund for High Cost Loop, High Cost Model, Safety Net Additive, and Safety Valve components of the frozen high-cost support as determined by the Universal Service Administration Company pursuant to 47 C.F.R. 54.312(a). The initial per-line monthly support amount for a wire center shall be the per-line support amount for the wire center for the month preceding the effective date of this section, less each wire center's pro rata share of one-twelfth of the 2011 amount of support disbursed to the ILEC ETP from the federal universal service fund for High Cost Loop, High Cost Model, Safety Net Additive, and Safety Valve components of the frozen high-cost support determined by the Universal Service Administration Company pursuant to 47 C.F.R 54.312(a). The initial annual base support amount shall be reduced annually as described in paragraph (3) of this subsection. (2) Determination of the reasonable rate. The reasonable rate for basic local telecommunications service shall be determined by ADOPTED RULES December 19, 2014 39 TexReg 10003

the commission in a contested case proceeding. To the extent that an ILEC ETP's existing rate for basic local telecommunications service in any wire center is less than the reasonable rate, the ILEC ETP may, over time, increase its rates for basic local telecommunications service to an amount not to exceed the reasonable rate. The increase to the existing rate shall not in any one year exceed an amount to be determined by the commission in the contested case proceeding. An ILEC ETP may, in its sole discretion, accelerate its THCUSP reduction in any year by as much as 10% and offset such reduction with a corresponding local rate increase in order to produce rounded rates. In no event shall any such acceleration obligate the ETP to reduce its THCUSP support in excess of the total reduction obligation initially calculated under paragraph (3) of this subsection. (3) Annual reductions to THCUSP base support and perline support recalculation. As part of the contested proceeding referenced in paragraph (2) of this subsection, each ILEC ETP shall, using line counts as of the end of the month preceding the effective date of this rule, calculate the amount of additional revenue that would result if the ILEC ETP were to charge the reasonable rate for basic local telecommunications service to all residential customers for those services where the price, or imputed price, are below the reasonable rate. Lines in exchanges for which an application for deregulation is pending as of June 1, 2012 shall not be included in this calculation. If the application for deregulation for any such exchanges subsequently is denied by the commission, the ILEC ETP shall, within 20 days of the final order denying such application, submit revised calculations including the lines in those exchanges for which the application for deregulation was denied. Without regard to whether an ILEC ETP increases its rates for basic local telecommunications service to the reasonable rate, the ILEC ETP's annual base support shall be reduced on January 1 of each year for four consecutive years, with the first reduction occurring on January 1, 2013. The ETP's annual base support amount shall be reduced by 25% of the additional revenue calculated pursuant to this paragraph in each year of the transition period. This reduction shall be accomplished by reducing support for each wire center served by the ETP proportionally. (4) Portability. The support amounts established pursuant to this section are applicable to all ETPs and are portable with the customer. (5) Limitation on availability of THCUSP support. (A) THCUSP support shall not be provided in a wire center in a deregulated market that has a population of at least 30,000. (B) An ILEC may receive support from the THCUSP for a wire center in a deregulated market that has a population of less than 30,000 only if the ILEC demonstrates to the commission that the ILEC needs the support to provide basic local telecommunications service at reasonable rates in the affected market. An ILEC may use evidence from outside the wire center at issue to make the demonstration. An ILEC may make the demonstration for a wire center before or after submitting a petition to deregulate the market in which the wire center is located. (6) Total Support Reduction Plan. Within 10 days of the effective date of this section, an ILEC may elect to participate in a Total Support Reduction Plan (TSRP) as prescribed in this subsection, by filing a notification of such participation with the commission. The TSRP would serve as an alternative to the reduction plan prescribed in paragraph (3) of this subsection. The TSRP will be implemented as follows: (A) For an ILEC making this election, the ILEC shall reduce its THCUSP funding in accordance with paragraph (3) of this subsection with the exception that THCUSP reductions due to exchange deregulation may be credited against the electing ILEC's annual reduction obligation in the calendar year immediately following such deregulation. (B) In no event shall an electing ILEC seek or receive THCUSP funding after January 1, 2017 even if it would otherwise be entitled to such funding as of this date. (f) Support Reduction. Subject to the provisions of 26.405(f)(3) of this title (relating to Financial Need for Continued Support), the commission shall adjust the support to be made available from the THCUSP according to the following criteria. (1) For each ILEC that is not electing under subsection (e)(6) of this section and that served greater than 31,000 access lines in this state on September 1, 2013, or a company or cooperative that is a successor to such an ILEC, the monthly per-line support that the ILEC is eligible to receive for each exchange on December 31, 2016 from the THCUSP is reduced: (A) on January 1, 2017, to 75 percent of the level of support the ILEC is eligible to receive on December 31, 2016; (B) on January 1, 2018, to 50 percent of the level of support the ILEC is eligible to receive on December 31, 2016; and (C) on January 1, 2019, to 25 percent of the level of support the ILEC is eligible to receive on December 31, 2016. (2) An ILEC subject to this subsection may file a petition to show financial need for continued support, pursuant to 26.405(f)(1) of this title, on or before January 1, 2019. (g) Reporting requirements. An ETP that receives support pursuant to this section shall report the following information: (1) Monthly reporting requirement. An ETP shall report the following to the TUSF administrator on a monthly basis: (A) the total number of eligible lines for which the ETP seeks TUSF support; and (B) a calculation of the base support computed in accordance with the requirements of subsection (d) of this section. (2) Quarterly filing requirements. An ETP shall file quarterly reports with the commission showing actual THCUSP receipts by study area. (A) Reports shall be filed electronically in the project number assigned by the commission's central records office no later than 3:00 p.m. on the 30th calendar day after the end of the calendar quarter reporting period. (B) Each ETP's reports shall be filed on an individual company basis; reports that aggregate the disbursements received by two or more ETPs will not be accepted as complying with the requirements of this paragraph. (C) All reports filed pursuant to paragraph (3) of this subsection shall be publicly available. (3) Annual reporting requirements. An ETP shall report annually to the TUSF administrator that it is qualified to participate in the THCUSP. (4) Other reporting requirements. An ETP shall report any other information that is required by the commission of the TUSF administrator, including and information necessary to assess contributions and disbursements from the TUSF. 26.404. Small and Rural Incumbent Local Exchange Company (ILEC) Universal Service Plan. 39 TexReg 10004 December 19, 2014 Texas Register

(a) Purpose. This section establishes guidelines for financial assistance to eligible telecommunications providers (ETPs) that provide service in the study areas of small and rural ILECs in the state so that basic local telecommunications service or its equivalent may be provided at reasonable rates in a competitively neutral manner. (b) Definitions. The following words and terms when used in this section shall have the following meaning unless the context clearly indicates otherwise: (1) Eligible line--a residential line or a single-line business line over which an ETP provides the service supported by the Small and Rural ILEC Universal Service Plan (SRILEC USP) through its own facilities, purchase of unbundled network elements (UNEs), or a combination of its own facilities and purchase of UNEs. (2) Eligible telecommunications provider (ETP)--A telecommunications provider designated by the commission pursuant to 26.417 of this title (relating to Designation as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF)). (3) Small incumbent local exchange company--an incumbent local exchange (ILEC) that qualifies as a "small local exchange company" as defined in the Public Utility Regulatory Act (PURA), 53.304(a)(1). (c) Application. (1) Small or rural ILECs. This section applies to small ILECs, as defined in subsection (b) of this section, and to rural ILECs, as defined in 26.5 of this title (relating to Definitions), that have been designated ETPs. (2) Other ETPs providing service in small or rural ILEC study areas. This section applies to telecommunications providers other than small or rural ILECs that provide service in small or rural ILEC study areas that have been designated ETPs. (d) Service to be supported by the Small and Rural ILEC Universal Service Plan. The Small and Rural ILEC Universal Service Plan shall support the provision by ETPs of basic local telecommunications service as defined in 26.403(d) of this title (relating to Texas High Cost Universal Service Plan (THCUSP)). (e) Criteria for determining amount of support under Small and Rural ILEC Universal Service Plan. The commission shall determine the amount of per-line support to be made available to ETPs in each eligible study area. The amount of support available to each ETP shall be calculated using the small and rural ILEC ETP base support amount and applying the annual reductions as described in this subsection. (1) Determining base support amount available to ETPs. The initial per-line monthly base support amount for a small or rural ILEC ETP shall be the per-line monthly support amount for each small or rural ILEC ETP study area as specified in Docket Number 18516, annualized by using the small or rural ILEC ETP access line count as of January 1, 2012. The initial per-line monthly base support amount shall be reduced as described in paragraph (3) of this subsection. (2) Determination of the reasonable rate. (A) The reasonable rate for basic local telecommunications service shall be determined by the commission in a contested case proceeding. An increase to an existing rate shall not in any one year exceed an amount to be determined by the commission in the contested case proceeding. (B) The length of the transition period applicable to the reduction in support calculated under paragraph (3) of this subsection shall be determined in the contested case proceeding. (3) Annual reductions to the Small and Rural ILEC Universal Service Plan per-line support. As part of the contested case proceeding referenced in paragraph (2) of this subsection, for each small or rural ILEC ETP, the commission shall calculate the amount of additional revenue, using the basic telecommunications service rate (the tariffed local service rate plus any additional charges for tone dialing services, mandatory expanded local calling service and mandatory extended area service) and the access line count as of September 1, 2013, would result if the small and rural ILEC ETP were to charge the reasonable rate for basic local telecommunications service to all residential customers. Without regard to whether a small or rural ILEC ETP increases its rates for basic local telecommunications service to the reasonable rate, the small or rural ILEC ETP's annual base support amount for each study area shall be reduced on January 1 of each year for four consecutive years, with the first reduction occurring on January 1, 2014. The small or rural ILEC ETP's annual base support amount shall be reduced by 25% of the additional revenue calculated pursuant to this paragraph in each year of the transition period, unless specified otherwise pursuant to paragraph (2)(B) of this subsection. This reduction shall be accomplished by reducing support for each study area proportionally. An ILEC ETP may, in its sole discretion, accelerate its SRILEC USP reduction in any year by as much as 10% and offset such reductions with a corresponding local rate increase in order to produce rounded rates. (f) Small and Rural ILEC Universal Service Plan support payments to ETPs. The TUSF administrator shall disburse monthly support payments to ETPs qualified to receive support pursuant to this section. (1) Payments to small or rural ILEC ETPs. The payment to each small or rural ILEC ETP shall be computed by multiplying the per-line amount established in subsection (e) of this section by the number of eligible lines served by the small or rural ILEC ETP for the month. (2) Payments to ETPs other than small or rural ILECs. The payment to each ETP other than a small or rural ILEC shall be computed by multiplying the per-line amount established in subsection (e) of this section for a given small or rural ILEC study area by the number of eligible lines served by the ETP in such study area for the month. (g) Support Reduction. Subject to the provisions of 26.405(f)(3) of this title (relating to Financial Need for Continued Support), the commission shall adjust the support to be made available from the SRILEC USP according to the following criteria. (1) For each ILEC ETP that is electing under PURA, Chapter 58 or 59 or a cooperative that served greater than 31,000 access lines in this state on September 1, 2013, or a company or cooperative that is a successor to such an ILEC, the monthly per-line support that the ILEC ETP is eligible to receive for each exchange on December 31, 2017 from the SRILEC USP is reduced: (A) on January 1, 2018, to 75 percent of the level of support the ILEC ETP is eligible to receive on December 31, 2017; (B) on January 1, 2019, to 50 percent of the level of support the ILEC ETP is eligible to receive on December 31, 2017; and (C) on January 1, 2020, to 25 percent of the level of support the ILEC ETP is eligible to receive on December 31, 2017. ADOPTED RULES December 19, 2014 39 TexReg 10005

(2) An ILEC ETP subject to this subsection may file a petition to show financial need for continued support, pursuant to 26.405(f)(1) of this title, on or before January 1, 2020. (h) Reporting requirements. An ETP eligible to receive support under this section shall report information as required by the commission and the TUSF administrator. (1) Monthly reporting requirement. An ETP shall report the following to the TUSF administrator on a monthly basis: (A) the total number of eligible lines for which the ETP seeks SRILEC USP support; and (B) a calculation of the base support computed in accordance with the requirements of subsection (e) of this section. (2) Quarterly filing requirements. An ETP shall file quarterly reports with the commission showing actual SRILEC USP receipts by study area. (A) Reports shall be filed electronically in the project number assigned by the commission's central records office no later than 3:00 p.m. on the 30th calendar day after the end of the calendar quarter reporting period. (B) Each ETP's reports shall be filed on an individual company basis; reports that aggregate the disbursements received by two or more ETPs will not be accepted as complying with the requirements of this paragraph. (C) All reports filed pursuant to paragraph (3) of this subsection shall be publicly available. (3) Annual reporting requirements. An ETP shall report annually to the TUSF administrator that it is qualified to participate in the Small and Rural ILEC Universal Service Plan. (4) Other reporting requirements. An ETP shall report any other information that is required by the commission or the TUSF administrator, including and information necessary to assess contributions and disbursements from the TUSF. 26.405. Financial Need for Continued Support. (a) Purpose. This section establishes criteria to demonstrate financial need for continued support for the provision of basic local telecommunications service under the Texas High Cost Universal Service Plan (THCUSP) and the Small and Rural Incumbent Local Exchange Company Universal Service Plan (SRILEC USP). This section also establishes the process by which the commission will evaluate petitions to show financial need and will set new monthly per-line support amounts. (b) Application. This section applies to an incumbent local exchange company (ILEC) that is subject to 26.403(f) of this title (relating to the Texas High Cost Universal Service Plan (THCUSP)) or 26.404(g) of this title (relating to the Small and Rural Incumbent Local Exchange Company (ILEC) Universal Service Plan). (c) Definitions. The following words and terms when used in this section shall have the following meaning unless the context clearly indicates otherwise: (1) Business line--the telecommunications facilities providing the communications channel that serves a single-line business customer's service address. For the purpose of this definition, a single-line business line is one to which multi-line hunting, trunking, or other special capabilities do not apply. (2) Eligible line--a residential line or a single-line business line over which an ETP provides the service supported by the THCUSP or SRILEC USP through its own facilities, purchase of unbundled network elements (UNEs), or a combination of its own facilities and purchase of UNEs. (3) Eligible telecommunications provider (ETP)--A telecommunications provider designated by the commission pursuant to 26.417 of this title (relating to Designation as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF)). (4) Residential line--the telecommunications facilities providing the communications channel that serves a residential customer's service address. For the purpose of this definition, a residential line is one to which multi-line hunting, trunking, or other special capabilities do not apply. (d) Determination of financial need. (1) Criteria to determine financial need. For each exchange that is served by an ILEC ETP filing a petition pursuant to subsection (f)(1) of this section, the commission shall determine whether an ILEC ETP has a financial need for continued support. An ILEC ETP has a financial need for continued support within an exchange if the exchange does not contain an unsubsidized wireline voice provider competitor as set forth in paragraph (2) of this subsection. (2) Establishing the existence of an unsubsidized wireline voice provider competitor. For the purposes of this section, an exchange contains an unsubsidized wireline voice provider competitor if the percentage of square miles served by an unsubsidized wireline voice provider competitor exceeds 75% of the square miles within the exchange. The commission shall determine whether an exchange contains an unsubsidized wireline voice provider competitor using the following criteria. (A) For the purposes of this section, an entity is an unsubsidized wireline voice provider competitor within an exchange if it: (i) does not receive THCUSP support, SRILEC USP support, Federal Communications Commission (FCC) Connect America Fund (CAF) support, or FCC Legacy High Cost support for service provided within that exchange; and (ii) offers basic local service or broadband service of 3 megabits per second down and 768 kilobits per second up using wireline-based technology using either its own facilities or a combination of its own facilities and purchased unbundled network elements (UNEs). (B) Using Version 7 of the National Broadband Map, the commission shall determine the census blocks served by an unsubsidized wireline voice provider competitor within a specific exchange and the total number of square miles represented by those census blocks using the following criteria. (i) The number of square miles served by an unsubsidized wireline voice provider competitor within an exchange shall be equal to the total square mileage covered by census blocks in the exchange in which an unsubsidized wireline voice provider competitor offers service to any customer or customers. (ii) The commission shall determine the percentage of square miles served by an unsubsidized wireline voice provider competitor within an exchange by dividing the number of square miles served by an unsubsidized wireline voice provider competitor within the exchange by the number of square miles within the exchange. (C) The data provided by the National Broadband Map creates a rebuttable presumption regarding the presence of an unsubsidized wireline voice provider competitor within a specific census 39 TexReg 10006 December 19, 2014 Texas Register

block. However, nothing in this rule is intended to preclude a party from providing evidence as to the accuracy of individual census block data within the National Broadband Map with regard to whether an un- subsidized wireline voice provider competitor offers service within a particular census block. (e) Criteria for determining amount of continued support. In a proceeding conducted pursuant to subsection (f) of this section, the commission shall set new monthly per-line support amounts for each exchange served by a petitioning ILEC ETP. The new monthly per- line support amounts shall be effective beginning with the first dis- bursement following a commission order entered pursuant to subsec- tion (f)(2) of this section, except that they shall not be effective earlier than January 1, 2017 for an exchange with service supported by the THCUSP or earlier than January 1, 2018 for an exchange with service supported by the SRILEC USP. (1) Exchanges in which the ILEC ETP does not have a fi- nancial need for continued support. For each exchange that is served by an ILEC ETP that has filed a petition pursuant to subsection (f)(1) of this section and for which the commission has not determined that the ILEC ETP has a financial need for continued support, the commission shall reduce the monthly per-line support amount to zero. For each ex- change that is served by an ILEC ETP that has filed a petition pursuant to subsection (f)(1) of this section and which is not included in the peti- tion, the commission shall reduce the monthly per-line support amount to zero. (2) Exchanges in which the ILEC ETP has a financial need for continued support. For each exchange that is served by an ILEC ETP that has filed a petition pursuant to subsection (f)(1) of this section and for which the commission has determined the ILEC ETP has a fi- nancial need for continued support, the commission shall set a monthly per-line support amount according to the following criteria. (A) The initial monthly per-line support amounts for each exchange shall be equal to: (i) the amount that the ILEC ETP was eligible to receive on December 31, 2016 for an ILEC ETP that receives support from the THCUSP; (ii) the amount that the ILEC ETP was eligible to receive on December 31, 2017 for an ILEC ETP that receives support from the SRILEC USP and that has not filed a request pursuant to subsection (g) of this section; or (iii) the new monthly per-line support amounts calculated pursuant to subsection (g) of this section for an ILEC ETP that has filed a request pursuant to subsection (g) of this section. (B) Initial monthly per-line support amounts for each exchange shall be reduced by the extent to which the disbursements re- ceived by an ILEC ETP from the THCUSP or SRILEC USP in the twelve month period ending with the most recently completed cal- endar quarter prior to the filing of a petition pursuant to subsection (f)(1) of this section are greater than 80% of the total amount of ex- penses reflected in the summary of expenses filed pursuant to subsec- tion (f)(1)(c) of this section. In establishing any reductions to the initial monthly per-line support amounts, the commission may consider any appropriate factor, including the residential line density per square mile of any affected exchanges. (C) For each exchange with service supported by the THCUSP, monthly per-line support shall not exceed: (i) the monthly per-line support that the ILEC ETP was eligible to receive on December 31, 2016, if the petition was filed before January 1, 2016; (ii) 75 percent of the monthly per-line support that the ILEC ETP was eligible to receive on December 31, 2016, if the petition was filed on or after January 1, 2016, and before January 1, 2017; (iii) 50 percent of the monthly per-line support the ILEC ETP was eligible to receive on December 31, 2016, if the petition was filed on or after January 1, 2017, and before January 1, 2018; or (iv) 25 percent of the monthly per-line support that the ILEC ETP was eligible to receive on December 31, 2016, if the petition was filed on or after January 1, 2018, and before January 1, 2019. (D) For each exchange with service supported by the SRILEC USP, monthly per-line support shall not exceed: (i) the monthly per-line support that the ILEC ETP was eligible to receive on December 31, 2017, if the petition was filed before January 1, 2017; (ii) 75 percent of the monthly per-line support that the ILEC ETP was eligible to receive on December 31, 2017, if the petition was filed on or after January 1, 2017, and before January 1, 2018; (iii) 50 percent of the monthly per-line support the ILEC ETP was eligible to receive on December 31, 2017, if the petition was filed on or after January 1, 2018, and before January 1, 2019; or (iv) 25 percent of the monthly per-line support that the ILEC ETP was eligible to receive on December 31, 2017, if the petition was filed on or after January 1, 2019, and before January 1, 2020. (E) An ILEC ETP may only be awarded continued support for the provision of service in exchanges with service that is eligible for support from the THCUSP or SRILEC USP at the time of filing of a petition pursuant to subsection (f)(1) of this section. (F) Portability of support. The support amounts established pursuant to this section are applicable to all ETPs and are portable with the customer. (f) Proceeding to Determine Financial Need and Amount of Support. (1) Petition to determine financial need. An ILEC ETP that is subject to 26.403(f) or 26.404(g) of this title may petition the commission to initiate a contested case proceeding to demonstrate that it has a financial need for continued support for the provision of basic local telecommunications service. (A) An ILEC ETP may only file one petition pursuant to this subsection. A petition filed pursuant to this subsection shall include the information necessary to reach the determinations specified in this subsection. (B) An ILEC ETP filing a petition pursuant to this subsection shall provide notice as required by the presiding officer pursuant to 22.55 of this title (relating to Notice in Other Proceedings). At a minimum, notice shall be published in the Texas Register. (C) A petition filed pursuant to this subsection shall include a summary of the following total Texas regulated expenses and property categories, including supporting workpapers, attributable to the ILEC ETP's exchanges with service supported by the THCUSP or SRILEC USP during the twelve month period ending with the most recently completed calendar quarter prior to the filing of the petition: (i) Plant-specific operations expense; ADOPTED RULES December 19, 2014 39 TexReg 10007

(ii) Plant non-specific operations expense; (iii) Customer operations expense; (iv) Corporate operations expense; (v) Depreciation and amortization expenses; (vi) Other operating expenses; (vii) Total telecom plant in service; (viii) Total property held for future use; and (ix) Total telecom plant under construction. (D) A summary filed pursuant to this subsection shall be filed publicly. Workpapers filed pursuant to this subsection may be filed publicly or under seal. (E) Upon receipt of a petition pursuant to this section, the commission shall initiate a contested case proceeding to determine whether the ILEC ETP has a financial need for continued support under this section for the exchanges identified in the petition. In the same proceeding, the commission shall set a new monthly per-line support amount for all exchanges served by the ILEC ETP. (2) The commission shall issue a final order in the proceeding not later than the 330th day after the date the petition is filed with the commission. Until the commission issues a final order on the proceeding, the ILEC ETP shall continue to receive the total amount of support it was eligible to receive on the date the ILEC ETP filed a petition under this subsection. (3) An ILEC ETP shall not be subject to 26.403(f) or 26.404(g) of this title after the commission issues a final order on the petition. (4) The ILEC ETP filing a petition pursuant to this subsection shall bear the burden of proof with respect to all issues that are in the scope of the proceeding. (g) De-averaging of the support received by ILEC ETPs from the SRILEC USP. On or before January 1, 2017, an ILEC ETP filing a petition pursuant to subsection (f)(1) of this section and that receives support from the SRILEC USP may include in its petition a request that the commission determine for each exchange served by the ILEC ETP new monthly per-line support amounts that the ILEC ETP will be eligible to receive on December 31, 2017. The new monthly per-line support amounts will be calculated using the following methodology. (1) The commission shall use per-line proxy support levels based on the following ranges of average residential line density per square mile within an individual exchange. These proxies are used specifically for the purpose of de-averaging and do not indicate a preference that support at these levels be provided from the SRILEC USP. Figure: 16 TAC 26.405(g)(1) (2) Using the per-line proxy support amount levels set forth in this subsection, the commission shall create a benchmark support amount for each exchange of a requesting ILEC ETP. The benchmark support amount for each individual supported exchange of a company or cooperative is calculated by multiplying the number of total eligible lines as of December 31, 2016 served by the ILEC ETP within each exchange by the corresponding proxy support amount for that individual exchange based on the average residential line density per square mile of the exchange as of December 31, 2016. (3) To the extent that the total sum of the benchmark support amounts for all of the supported exchanges of a company or cooperative is greater than or less than the targeted total support amount a company or cooperative would be eligible to receive on December 31, 2017 as a result of the final order in Docket No. 41097, the benchmark per-line support amount for each exchange shall be proportionally reduced or increased by the same percentage amount so that the total support amount a company or cooperative is eligible to receive on December 31, 2017, as a result of the final order in Docket No. 41097, is unaffected by the de-averaging process. (4) The per-line support amount that a company or cooperative is eligible to receive in a specific exchange on December 31, 2017, for purposes of a petition filed pursuant to subsection (f)(1) of this section, is the per-line support amount for each exchange determined through the de-averaging process set forth in this subsection. (h) Reporting requirements. An ILEC ETP that receives support pursuant to this section shall remain subject to the reporting requirements of 26.403(g) or 26.404(h) of this title. (i) Additional Financial Assistance. Nothing in this section shall be interpreted to prohibit an ILEC or cooperative that is not an electing company under Chapter 58, 59, or 65 of PURA to apply for Additional Financial Assistance pursuant to 26.408 of this title (relating to Additional Financial Assistance (AFA)). The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 1, 2014. TRD-201405703 Adriana A. Gonzales Rules Coordinator Public Utility Commission of Texas Effective date: December 21, 2014 Proposal publication date: June 20, 2014 For further information, please call: (512) 936-7223 TITLE 19. EDUCATION PART 7. STATE BOARD FOR EDUCATOR CERTIFICATION CHAPTER 233. CATEGORIES OF CLASSROOM TEACHING CERTIFICATES 19 TAC 233.1, 233.2, 233.6, 233.7, 233.13 The State Board for Educator Certification (SBEC) adopts amendments to 233.1, 233.2, 233.6, 233.7, and 233.13, concerning categories of classroom teaching certificates. The amendments are adopted without changes to the proposed text as published in the September 12, 2014, issue of the Texas Register (39 TexReg 7266) and will not be republished. The sections contain the current classroom teaching certificates by category, grade level, and subject areas. The adopted amendment to 19 TAC 233.2 adds new certificates for Core Subjects: Early Childhood-Grade 6 and Core Subjects: Grades 4-8 to be issued no earlier than January 1, 2015. The adopted amendments to 19 TAC 233.2, 233.6, and 233.7 add deadlines for completion and submission requirements for the last group of Generalist certificates the SBEC will issue. The adopted amendment to 19 TAC 233.13 removes language relating to expiration of certain sections of the rule and, instead, provides 39 TexReg 10008 December 19, 2014 Texas Register

deadlines for completion and submission requirements for the last group of Agricultural Science and Technology: Grades 6-12 and Business Education: Grades 6-12 certificates the SBEC will issue. The adopted amendments to 19 TAC 233.1 and 233.13 update administrative rule references. The Texas Education Code (TEC), 21.041(b)(1), authorizes the SBEC to propose rules that provide for the regulation of educators. Sections 233.1, General Authority; 233.2, Generalist; 233.6, Bilingual Education; 233.7, English as a Second Language; and 233.13, Career and Technical Education (Certificates not requiring experience and preparation in a skill area), address the source of general authority for 19 TAC Chapter 233, Categories of Classroom Teaching Certificates, and establish teaching assignment certificates for Generalist, Bilingual Education, English as a Second Language, and Career and Technical Education (Certificates not requiring experience and preparation in a skill area). The following changes provide new grade level certifications. In 19 TAC 233.1(h) and 233.13(c) and (d), language was amended to update cross-references to assignments for holders of the certificates in 19 TAC Chapter 233 that are codified in 19 TAC Chapter 231, Requirements for Public School Personnel Assignments. In addition, 19 TAC 233.13(e) and (g) were amended to remove provisions for expiration of those subsections of the rule and, instead, provide deadlines for completion and submission requirements for the last group of Agricultural Science and Technology: Grades 6-12 and Business Education: Grades 6-12 certificates the SBEC will issue. In 19 TAC 233.2, language was amended to establish new certificates for Core Subjects: Early Childhood-Grade 6 and Core Subjects: Grades 4-8. In addition, a deadline of August 31, 2017, for candidates to complete all requirements for issuance of the Generalist: Early Childhood-Grade 6 and Generalist: Grades 4-8 certificates and a deadline of October 30, 2017, for candidates and EPPs to submit completed applications to the TEA, were added. In 19 TAC 233.6(a) and (b) and 233.7(a) and (b), language was added to establish a deadline of August 31, 2017, for candidates to complete all requirements for issuance of the Bilingual Generalist: Early Childhood-Grade 6, Bilingual Generalist: Grades 4-8, English as a Second Language Generalist: Early Childhood-Grade 6, and English as a Second Language Generalist: Grades 4-8 certificates and a deadline of October 30, 2017, for candidates and EPPs to submit completed applications to the TEA. The adopted amendment to 19 TAC 233.2 also includes technical edits to update the section title and re-letter the subsections accordingly. The adopted amendments have no procedural and reporting implications. Also, the adopted amendments have no locally maintained paperwork requirements. There is no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, 2006.002, is required. No comments were received regarding the proposed amendments. The State Board of Education (SBOE) took no action on the review of the proposed amendments to 19 TAC 233.1, 233.2, 233.6, 233.7, and 233.13 at the November 21, 2014 SBOE meeting. The amendments are adopted under the Texas Education Code (TEC), 21.003(a), which states that a person may not be employed as a teacher, teacher intern or teacher trainee, librarian, educational aide, administrator, educational diagnostician, or school counselor by a school district unless the person holds an appropriate certificate or permit issued as provided by the TEC, Chapter 21, Subchapter B; 21.031(a), which states that the State Board for Educator Certification (SBEC) shall regulate and oversee all aspects of the certification, continuing education, and standards of conduct of public school educators; 21.031(b), which states that in proposing rules under the TEC, Chapter 21, Subchapter B, the SBEC shall ensure that all candidates for certification or renewal of certification demonstrate the knowledge and skills necessary to improve the performance of the diverse student population of this state; 21.041(b)(1), which requires the SBEC to propose rules that provide for the regulation of educators and the general administration of the TEC, Chapter 21, Subchapter B, in a manner consistent with the TEC, Chapter 21, Subchapter B; 21.041(b)(2), which requires the SBEC to propose rules that specify the classes of educator certificates to be issued, including emergency certificates; 21.041(b)(3), which requires the SBEC to propose rules that specify the period for which each class of educator certificate is valid; 21.041(b)(4), which requires the SBEC to propose rules that specify the requirements for the issuance and renewal of an educator certificate; 21.041(b)(6), which requires the SBEC to propose rules that provide for special or restricted certification of educators, including certification of instructors of American Sign Language; 21.048(a), which specifies that the board shall propose rules prescribing comprehensive examinations for each class of certificate issued by the board; 21.050(a), which states that a person who applies for a teaching certificate for which SBEC rules require a bachelor's degree must possess a bachelor's degree received with an academic major or interdisciplinary academic major, including reading, other than education, that is related to the curriculum as prescribed under TEC, Chapter 28, Subchapter A; 21.050(b), which states that the SBEC may not require more than 18 semester credit hours of education courses at the baccalaureate level for the granting of a teaching certificate; 21.050(c), which states that a person who receives a bachelor's degree required for a teaching certificate on the basis of higher education coursework completed while receiving an exemption from tuition and fees under the TEC, 54.363, may not be required to participate in any field experience or internship consisting of student teaching to receive a teaching certificate; and 22.0831(f), which authorizes the SBEC to propose rules to implement the national criminal history record information review of certified educators. The adopted amendments implement the TEC, 21.003(a), 21.031, 21.041(b)(1)-(4) and (6), 21.048(a), 21.050, and 22.0831(f). The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405867 ADOPTED RULES December 19, 2014 39 TexReg 10009

Cristina De La Fuente-Valadez Director, Rulemaking, Texas Education Agency State Board for Educator Certification Effective date: December 28, 2014 Proposal publication date: September 12, 2014 For further information, please call: (512) 475-1497 CHAPTER 249. DISCIPLINARY PROCEEDINGS, SANCTIONS, AND CONTESTED CASES SUBCHAPTER B. ENFORCEMENT ACTIONS AND GUIDELINES 19 TAC 249.15, 249.16 The State Board for Educator Certification (SBEC) adopts amendments to 249.15 and 249.16, concerning disciplinary proceedings, sanctions, and contested cases. The amendment to 249.15 is adopted with changes to the proposed text as published in the September 12, 2014, issue of the Texas Register (39 TexReg 7269). The amendment to 249.16 is adopted without changes to the proposed text as published in the September 12, 2014, issue of the Texas Register (39 TexReg 7269) and will not be republished. The sections establish provisions for disciplinary action by SBEC and eligibility of persons with criminal convictions for a certificate under Texas Occupations Code (TOC), Chapter 53. The adopted amendment to 19 TAC 249.15 conforms the section to the adopted amendments approved by the SBEC to 19 TAC Chapter 229, Accountability System for Educator Preparation Programs. The adopted amendment to 19 TAC 249.16 clarifies that multiple statutory provisions provide the basis for certification actions based on criminal history. Section 249.15 lists the various types of disciplinary actions that the SBEC may pursue against certified educators when satisfactory evidence exists. Section 249.16 provides the basis for certification actions based on criminal history respectively. Among other enumerated actions, 249.15 currently allows action to be taken by the SBEC when a certified educator has willfully or recklessly failed to provide information required to be provided by SBEC rule, including 19 TAC 229.3. The SBEC, at the August 2014 meeting, adopted changes to 19 TAC Chapter 229, Accountability System for Educator Preparation Programs, that removed the willfully or recklessly requirement when pursuing sanctions for failure to report required information. The adopted amendment to 19 TAC 249.15 removes in subsection (b)(7) the willfully or recklessly limitation when pursuing these types of actions to align with the adopted amendments to Chapter 229. In response to public comment, language in 249.15(b)(7) was amended to remove the phrase "SBEC rules, including, but not limited to,". In addition, references in subsection (b)(10) were updated to reflect adopted changes to 249.16. The adopted amendment also updates the rule wording from crimes to offenses to align with statutory language. The Texas Education Code (TEC), 21.058 and 21.060, and the TOC, 53.021, provide the SBEC authority to suspend, revoke, or disqualify the certification of an educator on the basis of a criminal conviction. Section 249.16 discusses these actions. In October 2007, an Attorney General opinion was requested by the commissioner of education regarding whether a rule the SBEC proposed relating to certification eligibility of persons with criminal convictions was preempted by the TEC, 21.060. Subsequently, Attorney General Opinion No. GA-0614, issued April 7, 2008, ruled that the two provisions are nonexclusive. As a result, the SBEC amended 19 TAC 249.16 in 2009 to include subsection (d) to reflect that grounds for disciplinary action or denial of licensure under the TOC, Chapter 53, were cumulative of grounds and remedies under the TEC, 21.060. Effective May 18, 2014, the SBEC last amended 19 TAC 249.16 to implement House Bill 798, 83rd Texas Legislature, Regular Session, 2013, which removed a licensing authority's power, under the TOC, to sanction or withhold certification for convictions of Class C misdemeanors unless the person is an applicant or holder of a license to possess a firearm and the misdemeanor crime was domestic violence as defined by 18 United States Code, 921. Class C misdemeanors are punishable only by a fine not to exceed $500. In discussions involving the most recent change to 249.16, it became clear that the section did not clearly differentiate between the varying sources of authority. The adopted amendment to 19 TAC 249.16 adds language clearly identifying the varying sources of authority under which the SBEC may pursue disciplinary actions based on criminal history, namely the TOC and the TEC. In addition, the adopted amendment removes language in subsection (a) regarding the requirement that an offense be directly related to the duties and responsibilities of the education profession because it is redundant of the adopted language that offers a more complete definition in subsection (c). The adopted amendment to subsection (b) provides better language indicating that it is limited to actions pursued under the TOC. The adopted amendment to subsection (c) defines which offenses directly relate to the duties and responsibilities of the education profession and changes references from crimes to offenses to match statutory language. The adopted amendment to subsection (d) provides clarifying language for how this subsection works in conjunction with adopted new subsection (f). The adopted amendment to subsection (f) provides clear notice that SBEC will follow the procedures and timelines set out by that provision when pursuing actions under the TEC, 21.058. The adopted amendment also updates the title to 249.16 to reference criminal history rather than criminal convictions to more accurately reflect the authorized bases for certification actions and to identify the TEC, Chapter 21, along with the TOC, Chapter 53, as authority for certification actions. The adopted amendments have no procedural and reporting implications. Also, the adopted amendments have no locally maintained paperwork requirements. There is no direct adverse economic impact for small businesses and microbusinesses; therefore, no regulatory flexibility analysis, specified in Texas Government Code, 2006.002, is required. The following comments were received regarding the proposed amendments. 39 TexReg 10010 December 19, 2014 Texas Register

Comment: The Texas Classroom Teachers Association (TCTA) and Texas State Teachers Association (TSTA) commented that the proposed amendment to 19 TAC 249.15(b)(7) (deleting "willfully and recklessly" to conform to changes adopted in Chapter 229) is overly broad and would extend to any submission of information rather than only the submissions contemplated in Chapter 229. The TCTA suggested removing the phrase "SBEC rules, including, but not limited to" to limit the conforming amendment to information submitted under Chapter 229. The TSTA suggested either not adopting the proposed change to 19 TAC 249.15(b)(7) or removing the subsection because 19 TAC 229.3 is self-executing. Board Response: The SBEC agreed that the intent of the proposed amendment to 19 TAC 249.15(b)(7) was to enact conforming changes to decisions made by the SBEC for 19 TAC Chapter 229, Accountability System for Educator Preparation Programs. The SBEC amended language in 19 TAC 249.15(b)(7) to remove the phrase "SBEC rules, including, but not limited to,". The State Board of Education (SBOE) took no action on the review of the proposed amendments to 19 TAC 249.15 and 249.16 at the November 21, 2014 SBOE meeting. The amendments are adopted under the Texas Education Code (TEC), 21.041(b)(1), which requires the State Board for Educator Certification (SBEC) to propose rules that provide for the regulation of educators and the general administration of the TEC, Chapter 21, Subchapter B, in a manner consistent with the TEC, Chapter 21, Subchapter B; 21.041(b)(7), which requires the SBEC to propose rules that provide for disciplinary proceedings, including the suspension or revocation of an educator certificate, as provided by the Texas Government Code, Chapter 2001; 21.041(b)(8), which requires the SBEC to propose rules that provide for the enforcement of an educator's code of ethics; 21.058(a) and (b), which provide for the revocation of educator certificates based on conviction of certain offenses; and 21.060, which allows the SBEC to suspend or revoke educator certificates based on conviction for certain offenses related to the duties and responsibilities of the education profession; and the Texas Occupations Code (TOC), 53.021, which provides licensing authorities, in this instance SBEC, the authority to revoke, suspend, or deny a license; and 53.025, which requires the SBEC to issue guidelines providing the reasons for determinations made by the SBEC pursuant to Chapter 53. The adopted amendments implement the TEC, 21.041(b)(1), (7), and (8), 21.058(a) and (b), and 21.060; and TOC, 53.021 and 53.025. 249.15. Disciplinary Action by State Board for Educator Certification. (a) Pursuant to this chapter, the State Board for Educator Certification (SBEC) may take any of the following actions: (1) place restrictions on the issuance, renewal, or holding of a certificate, either indefinitely or for a set term; (2) issue an inscribed or non-inscribed reprimand; (3) suspend a certificate for a set term or issue a probated suspension for a set term; (4) revoke or cancel, which includes accepting the surrender of, a certificate without opportunity for reapplication for a set term or permanently; or (5) impose any additional conditions or restrictions upon a certificate that the SBEC deems necessary to facilitate the rehabilitation and professional development of the educator or to protect students, parents of students, school personnel, or school officials. (b) The SBEC may take any of the actions listed in subsection (a) of this section based on satisfactory evidence that: (1) the person has conducted school or education activities in violation of law; (2) the person is unworthy to instruct or to supervise the youth of this state; (3) the person has violated a provision of the Educators' Code of Ethics; (4) the person has failed to report or has hindered the reporting of child abuse pursuant to the Texas Family Code, 261.001, or has failed to notify the SBEC under the circumstances and in the manner required by the Texas Education Code (TEC), 21.006, and 249.14(d) and (e) of this title (relating to Complaint, Required Reporting, and Investigation; Investigative Notice; Filing of Petition); (5) the person has abandoned a contract in violation of the TEC, 21.105(c), 21.160(c), or 21.210(c); (6) the person has failed to cooperate with the Texas Education Agency (TEA) in an investigation; (7) the person has failed to provide information required to be provided by 229.3 of this title (relating to Required Submissions of Information, Surveys, and Other Data); (8) the person has violated the security or integrity of any assessment required by the TEC, Chapter 39, Subchapter B, as described in subsection (g) of this section or has committed an act that is a departure from the test administration procedures established by the commissioner of education in Chapter 101 of this title (relating to Assessment); (9) the person has committed an act described in 249.14(h)(1) of this title, which constitutes sanctionable Priority 1 conduct, as follows: (A) any conduct constituting a felony criminal offense; (B) indecent exposure; (C) public lewdness; (D) (E) (F) child abuse and/or neglect; possession of a weapon on school property; drug offenses occurring on school property; (G) sale to or making alcohol or other drugs available to a student or minor; (H) sale, distribution, or display of harmful material to a student or minor; (I) (J) (K) certificate fraud; state assessment testing violations; deadly conduct; or (L) conduct that involves soliciting or engaging in sexual conduct or a romantic relationship with a student or minor; (10) the person has committed an act that would constitute an offense (without regard to whether there has been a criminal conviction) that is considered to relate directly to the duties and responsibilities of the education profession, as described in 249.16(c) of this title ADOPTED RULES December 19, 2014 39 TexReg 10011

(relating to Eligibility of Persons with Criminal History for a Certificate under Texas Occupations Code, Chapter 53, and Texas Education Code, Chapter 21). Such offenses indicate a threat to the health, safety, or welfare of a student or minor, parent of a student, fellow employee, or professional colleague; interfere with the orderly, efficient, or safe operation of a school district, campus, or activity; or indicate impaired ability or misrepresentation of qualifications to perform the functions of an educator and include, but are not limited to: (A) offenses involving moral turpitude; (B) offenses involving any form of sexual or physical abuse or neglect of a student or minor or other illegal conduct with a student or minor; (C) offenses involving any felony possession or conspiracy to possess, or any misdemeanor or felony transfer, sale, distribution, or conspiracy to transfer, sell, or distribute any controlled substance defined in the Texas Health and Safety Code, Chapter 481; (D) offenses involving school property or funds; (E) offenses involving any attempt by fraudulent or unauthorized means to obtain or alter any certificate or permit that would entitle any person to hold or obtain a position as an educator; (F) offenses occurring wholly or in part on school property or at a school-sponsored activity; or (DWI); or (G) felony offenses involving driving while intoxicated (11) the person has intentionally failed to comply with the reporting, notification, and confidentiality requirements specified in the Texas Code of Criminal Procedure, 15.27(a), relating to student arrests, detentions, and juvenile referrals for certain offenses. (c) The TEA staff may commence a contested case to take any of the actions listed in subsection (a) of this section by serving a petition to the certificate holder in accordance with this chapter describing the SBEC's intent to issue a sanction and specifying the legal and factual reasons for the sanction. The certificate holder shall have 30 calendar days to file an answer as provided in 249.27 of this title (relating to Answer). (d) Upon the failure of the certificate holder to file a written answer as required by this chapter, the TEA staff may file a request for the issuance of a default judgment from the SBEC imposing the proposed sanction in accordance with 249.35 of this title (relating to Disposition Prior to Hearing; Default). (e) If the certificate holder files a timely answer as provided in this section, the case will be referred to the State Office of Administrative Hearings (SOAH) for hearing in accordance with the SOAH rules; the Texas Government Code, Chapter 2001; and this chapter. (f) The provisions of this section are not exclusive and do not preclude consideration of other grounds or measures available by law to the SBEC or the TEA staff, including student loan default or child support arrears. The SBEC may request the Office of the Attorney General to pursue available civil, equitable, or other legal remedies to enforce an order or decision of the SBEC under this chapter. (g) The statewide assessment program as defined by the TEC, Chapter 39, Subchapter B, is a secure testing program. (1) Procedures for maintaining security shall be specified in the appropriate test administration materials. (2) Secure test materials must be accounted for before, during, and after each test administration. Only authorized personnel may have access to secure test materials. (3) The contents of each test booklet and answer document are confidential in accordance with the Texas Government Code, Chapter 551, and the Family Educational Rights and Privacy Act of 1974. Individual student performance results are confidential as specified under the TEC, 39.030(b). (4) Violation of security or confidential integrity of any test required by the TEC, Chapter 39, Subchapter B, shall be prohibited. A person who engages in conduct prohibited by this section may be subject to sanction of credentials, including any of the sanctions provided by subsection (a) of this section. (5) Charter school test administrators are not required to be certified; however, any irregularity in the administration of any test required by the TEC, Chapter 39, Subchapter B, would cause the charter itself to come under review by the commissioner of education for possible sanctions or revocation, as provided under the TEC, 12.115(a)(4). (6) Conduct that violates the security and confidential integrity of a test is evidenced by any departure from the test administration procedures established by the commissioner of education. Conduct of this nature may include, but is not limited to, the following acts and omissions: (A) viewing a test before, during, or after an assessment unless specifically authorized to do so; (B) duplicating secure examination materials; (C) disclosing the contents of any portion of a secure test; (D) providing, suggesting, or indicating to an examinee a response or answer to a secure test item or prompt; (E) changing or altering a response or answer of an examinee to a secure test item or prompt; (F) aiding or assisting an examinee with a response or answer to a secure test item or prompt; (G) fraudulently exempting or preventing a student from the administration of a required state assessment; (H) encouraging or assisting an individual to engage in the conduct described in paragraphs (1)-(7) of this subsection; or (I) failing to report to an appropriate authority that an individual has engaged in conduct outlined in paragraphs (1)-(8) of this subsection. (7) Any irregularities in test security or confidential integrity may also result in the invalidation of student results. (8) The superintendent and campus principal of each school district and chief administrative officer of each charter school and any private school administering the tests as allowed under the TEC, 39.033, shall develop procedures to ensure the security and confidential integrity of the tests specified in the TEC, Chapter 39, Subchapter B, and shall be responsible for notifying the TEA in writing of conduct that violates the security or confidential integrity of a test administered under the TEC, Chapter 39, Subchapter B. A person who fails to report such conduct as required by this subsection may be subject to any of the sanctions provided by subsection (a) of this section. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. 39 TexReg 10012 December 19, 2014 Texas Register

Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405869 Cristina De La Fuente-Valadez Director, Rulemaking, Texas Education Agency State Board for Educator Certification Effective date: December 28, 2014 Proposal publication date: September 12, 2014 For further information, please call: (512) 475-1497 TITLE 22. EXAMINING BOARDS PART 5. STATE BOARD OF DENTAL EXAMINERS CHAPTER 101. DENTAL LICENSURE 22 TAC 101.1 The Texas State Board of Dental Examiners adopts amendments to 101.1, relating to general qualifications for licensure. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6967). Amendments to 101.1 provide guidance in the interpretation of Tex. Occ. Code 260.001. The Board received no written comments regarding this amendment. Amendments to 101.1 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405870 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 426-7390 22 TAC 101.2 The Texas State Board of Dental Examiners adopts amendments to 101.2, relating to licensure by examination. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6968). Amendments to 101.2 remove the licensure by specialty examination process which is longer necessary since applicants can apply for licensure by credentials. The Board received no written comments regarding this amendment. Amendments to 101.2 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405871 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 22 TAC 101.3 The Texas State Board of Dental Examiners adopts amendments to 101.3, relating to licensure by credentials. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6969). Amendments to 101.3 specify the statutory authority for the practice duration provision set out in 101.3(a)(3)(A). The amendments are also intended to ensure that the rule language tracks the statutory language relating to licensure by credentials in Texas Occupations Code 256.101. The Board received no written comments regarding this amendment. Amendments to 101.3 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405872 ADOPTED RULES December 19, 2014 39 TexReg 10013

Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 22 TAC 101.4 The Texas State Board of Dental Examiners adopts amendments to 101.4, relating to temporary licensure by credentials. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6969). The purpose of the amendment to subsection (a)(4) is to conform the rule language to the language in Texas Occupations Code 256.101. The purpose of the amendment to subsection (b) is to provide that if a dentist who holds a temporary license by credentials leaves employment with a non-profit corporation that meets the requirements of 101.4 for employment with another nonprofit that meets the requirements of 101.4, the dentist is not required to file a new application for temporary licensure by credentials. The Board received no written comments regarding this amendment. Amendments to 101.4 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405873 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 22 TAC 101.12 The Texas State Board of Dental Examiners adopts new rule 101.12, relating to provisional licensing. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6970). This new rule restates the provisional licensing requirements found in Texas Occupations Code 256.1013. The Board received no written comments regarding this new rule. New 101.12 is adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405874 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 CHAPTER 102. FEES 22 TAC 102.1 The Texas State Board of Dental Examiners adopts amendments to 102.1, relating to the Board's fee schedule. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6970). The amendment provides a fee for a provisional license. The Board received no written comments regarding the rule amendment. Amendment to 102.1 is adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405875 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 CHAPTER 107. DENTAL BOARD PROCEDURES 39 TexReg 10014 December 19, 2014 Texas Register

SUBCHAPTER C. ADMINISTRATIVE PENALTIES 22 TAC 107.300 The Texas State Board of Dental Examiners adopts amendments to 107.300, relating to the registration of non-profit corporations authorized to hire dentists. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6972). The purpose of the amendments is to require that certified nonprofit health organizations must notify the Board of discontinuation of business. The Board received no written comments regarding the rule amendment. Amendments to 107.300 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405876 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 CHAPTER 108. PROFESSIONAL CONDUCT SUBCHAPTER A. PROFESSIONAL RESPONSIBILITY 22 TAC 108.4 The Texas State Board of Dental Examiners adopts amendments to 108.4, concerning names of dentists. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6972). The purpose of the amendments is to provide clarification for dentists who leave a practice for reasons other than death or retirement. The Board received no written comments regarding the rule amendment. Amendments to 108.4 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405878 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 SUBCHAPTER E. BUSINESS PROMOTION 22 TAC 108.52 The Texas State Board of Dental Examiners adopts amendments to 108.52, concerning names and responsibilities. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6973). The purpose of the amendments is to provide clarification for dentists who leave a practice for reasons other than death or retirement. The Board received no written comments regarding the rule amendment. Amendments to 108.52 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405879 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 CHAPTER 114. EXTENSION OF DUTIES OF AUXILIARY PERSONNEL--DENTAL ASSISTANTS 22 TAC 114.1 The Texas State Board of Dental Examiners adopts amendments to 114.1, concerning permitted duties of dental assistants. This rule is adopted without changes to the proposed ADOPTED RULES December 19, 2014 39 TexReg 10015

text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6976). The purpose of the amendments is to delete an erroneous definition of "irreversible." The Board received no written comments regarding the rule amendment. Amendments to 114.1 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405880 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 22 TAC 114.6 The Texas State Board of Dental Examiners adopts amendments to 114.6, concerning general qualifications for registration or certification. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6976). The purpose of the amendments is to provide that an applicant for dental assistant registration or certification must inform the Board of any disciplinary action taken against the applicant in this or any other jurisdiction. The amendments also set out the circumstances under which the Board may issue a conditional registration to an applicant for dental assistant registration or certification, and the factors the Board will consider in determining whether to issue a conditional registration or certification. The amendments also provide circumstances under which the Board may refuse to issue a dental assistant registration or certification to an applicant. The Board received no written comments regarding the rule amendment. Amendments to 114.6 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405881 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 CHAPTER 117. FACULTY AND STUDENTS IN ACCREDITED DENTAL SCHOOLS 22 TAC 117.2 The Texas State Board of Dental Examiners adopts amendments to 117.2, concerning dental faculty licensure. This rule is adopted without changes to the proposed text as published in the September 5, 2014, issue of the Texas Register (39 TexReg 6978). The purpose of the amendments is to conform the rule to the statutory language in Texas Occupations Code 267.003. The Board received no written comments regarding the rule amendment. Amendments to 117.2 are adopted under Texas Occupations Code 254.001(a). The Board interprets 254.001(a) to give the Board authority to adopt rules necessary to perform its duties and ensure compliance with state law relating to the practice of dentistry to protect the public health and safety. No other statutes, articles, or codes are affected by the rule. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 8, 2014. TRD-201405882 Nycia Deal General Counsel State Board of Dental Examiners Effective date: December 28, 2014 Proposal publication date: September 5, 2014 For further information, please call: (512) 475-0977 PART 24. TEXAS BOARD OF VETERINARY MEDICAL EXAMINERS CHAPTER 573. RULES OF PROFESSIONAL CONDUCT SUBCHAPTER B. SUPERVISION OF PERSONNEL 22 TAC 573.10 39 TexReg 10016 December 19, 2014 Texas Register

The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 573.10, concerning Supervision of Non-Veterinarians, without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7713). The adopted rule therefore will not be republished. The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 573.10, concerning Supervision of Non-Veterinarians. Rule 573.10 currently provides that veterinarians "should" delegate greater responsibility to a licensed veterinary technician than to an unlicensed person. However, 801.363 of the Texas Veterinary Licensing Act, Chapter 801 of the Texas Occupations Code, provides that veterinarians "may" delegate greater responsibility to licensed veterinary technicians. The Board proposes this amendment to conform to the statute and, thus, amend the word "should" in the rule to "may." The Board further adopts the amendment to the rule to clarify that if the exception for emergency care is followed, then that veterinarian is not in violation of 801.351 of the Texas Veterinary Licensing Act. The exception currently states that in an emergency situation, a veterinarian may, after determining the nature of the emergency and the condition of the animal, issue treatment directions to a non-veterinarian by means of telephone, electronic mail or messaging, radio, or facsimile communication. However, 801.351 of the Texas Veterinary Licensing Act requires that a veterinarian establish a veterinarian-client-patient relationship prior to practicing veterinary medicine. To establish such a relationship, the veterinarian must examine the animal. This amendment would clarify that the exception provided in the rule for emergency situations will not cause a veterinarian to violate 801.351 of the Veterinary Licensing Act. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; 801.151(b), which states that the Board may adopt rules of professional conduct appropriate to establish and maintain a high standard of integrity, skills, and practice in the veterinary medicine profession; 801.151(c), which states that the Board shall adopt rules to protect the public and regulate veterinary technicians; and 801.151(d), which states that the Board may adopt rules regarding the work of a person who works under the supervision of a veterinarian. This agency hereby certifies that the amendment has been reviewed by legal counsel and found to be within the agency's legal authority to adopt. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405714 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 22, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 SUBCHAPTER C. RESPONSIBILITIES TO CLIENTS 22 TAC 573.29 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 573.29, concerning Complaint Information and Notice to Clients, without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7715). The adopted rule therefore will not be republished. Rule 573.29 currently requires all licensees to provide an effective way to inform clients and other visitors to the premises, clinic or hospital of how to file complaints with the Board. The Board proposes this amendment to clarify that licensed veterinary technicians are not required to provide such information. As licensed veterinary technicians are assisting licensed veterinarians, the onus should be placed on the veterinarian to provide such information. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; 801.154(a), which states that the board by rule shall set fees in amounts that are reasonable and necessary so that the fees, in the aggregate, cover the costs of administering this chapter; and 801.161, which requires the Board to ensure that the public is able to interact with the Board on the Internet. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405715 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 22, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 SUBCHAPTER E. PRESCRIBING AND/OR DISPENSING MEDICATION 22 TAC 573.41 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 573.41, concerning Use of Prescription Drugs, without changes to the proposed text as published in ADOPTED RULES December 19, 2014 39 TexReg 10017

the September 26, 2014, issue of the Texas Register (39 TexReg 7716). The adopted rule therefore will not be republished. Rule 573.41 currently requires all licensees to adhere to the laws of the State of Texas, other states, or the United States. The Board adopts this amendment to clarify within 573.41, regarding prescription drugs, that a licensed veterinarian must comply with the laws of the State of Texas and the United States specifically concerning prescription drugs. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; 801.151(b), which states that the Board may adopt rules of professional conduct appropriate to establish and maintain a high standard of integrity, skills, and practice in the veterinary medicine profession; and 801.151(c), which states that the Board shall adopt rules to protect the public. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405758 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 22 TAC 573.43 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 573.43, concerning Controlled Substances Registration without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7716). The adopted rule therefore will not be republished. Rule 573.43 currently requires all licensees to adhere to the laws of the State of Texas, other states, or the United States. The Board adopts this amendment to clarify within 573.43, regarding controlled substances, that a licensed veterinarian must comply with the laws of the State of Texas and the United States specifically concerning controlled substances. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; 801.151(b), which states that the Board may adopt rules of professional conduct appropriate to establish and maintain a high standard of integrity, skills, and practice in the veterinary medicine profession; and 801.151(c), which states that the Board shall adopt rules to protect the public. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405759 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 SUBCHAPTER G. OTHER PROVISIONS 22 TAC 573.74 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 573.74, concerning Management Services Organizations in Veterinary Practice, without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7717). The adopted rule therefore will not be republished. Rule 573.74 currently provides that a veterinarian or group of veterinarians that contract with a management services organization shall make available for inspection by the Board copies of the contracts with the management services organizations. The Board adopts this amendment to clarify that the contract must be a written contract. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; 801.151(b), which states that the Board may adopt rules of professional conduct appropriate to establish and maintain a high standard of integrity, skills, and practice in the veterinary medicine profession; and 801.151(c), which states that the Board shall adopt rules to protect the public. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405760 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 22 TAC 573.76 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 573.76, concerning Notification 39 TexReg 10018 December 19, 2014 Texas Register

of Licensee Address, without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7719). The adopted rule therefore will not be republished. Rule 573.76 currently provides that a licensee who conducts a mobile practice with no fixed clinic location shall not be required to provide a physical business address. The Board adopts this amendment to delete this exception to better protect the public. Specifically, the Board must be able to properly inspect licensees for compliance to the law. Such inspection requires an accurate physical business address. A mobile practice licensee could simply list their residence as their business address as long as an address is available for Board investigators to inspect. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; 801.151(b), which states that the Board may adopt rules of professional conduct appropriate to establish and maintain a high standard of integrity, skills, and practice in the veterinary medicine profession; and 801.151(c), which states that the Board shall adopt rules to protect the public. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405761 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 CHAPTER 575. PRACTICE AND PROCEDURE 22 TAC 575.28 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 575.28, concerning Complaints--Investigations, without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7720). The adopted rule therefore will not be republished. Rule 575.28 currently provides the process and procedures for complaints. The Board adopts this amendment to clarify complaint procedures when the Board in the complainant. The amendments are not a change to policy or procedure. Specifically, the amendment provides that the correspondence the Board is usually required to send a complainant is not required when the complainant is actually the Board itself. The Board also adopts the amendment to clarify the timing of the Report of Investigation that is completed by the Board's staff to conform to the actual practice and to 575.29. The Report of Investigation is completed after the initial investigation is completed by the Board's investigators. The full investigation is not complete until after the later of an informal conference, a determination that no violation occurred or there is insufficient evidence to proceed, or an agreed order is signed. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; and 801.408, which states that the Board shall adopt rules setting out the procedures governing the informal disposition of a contested case. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405762 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 22 TAC 575.29 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 575.29, concerning Informal Conferences, without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7721). The adopted rule therefore will not be republished. Rule 575.29 currently permits the executive director or the director of enforcement to conduct an informal conference. It also requires the executive director to explain the purpose of the conference and the rights of the participants, lead the discussion of the allegations of the complaint, and explain possible courses of action at the conclusion of the conference. The Board adopts this amendment to also allow the general counsel to also conduct informal conferences. For clarity and consistency, the amendment also allows the director of enforcement and the general counsel to explain the purpose of the conference and the rights of the participants, lead the discussion of the allegations of the complaint, and explain possible courses of action at the conclusion of the conference. The Board further adopts the amendment to allow a licensee or complainant to provide evidence and comments to the enforcement committee at the time of the informal conference. That evidence and comments would become part of the investigation file and may be used within that case or in furtherance of a new case. This amendment is consistent with current policy. Rule 575.29 currently refers to the Board's informal proceeding as an "ISC." This terminology is not accurate and does not conform to terminology used within the Veterinary Licensing Act. The Board adopts this amendment to change the terminology to "informal conference" to conform to the language within the Veterinary Licensing Act and the Board Rules. ADOPTED RULES December 19, 2014 39 TexReg 10019

The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; 801.205, which states that the Board shall adopt rules relating to the investigation of complaints filed with the Board; and 801.408(a), which states that the Board shall adopt rules setting out the procedures governing the informal disposition of a contested case under 2001.056, Texas Government Code, and informal proceedings held in compliance with 2001.054, Texas Government Code. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405763 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 22 TAC 575.30 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 575.30, concerning Contested Case Hearing at SOAH, without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7723). The adopted rule therefore will not be republished. Rule 575.30 currently addresses the procedures for contested case hearings before the State Office of Administrative Hearings (SOAH) regarding licensees. However, the Board also has contested case hearings before SOAH for non-licensed individuals who are potentially in violation of the Texas Veterinary Licensing Act or the Board's Rules. The Board adopts this amendment to have the same procedures for contested cases against non-licensed individuals as for licensed individuals. The Board further adopts an amendment in keeping with the current practice of SOAH to allow the Administrative Law Judge at SOAH to enter an order dismissing a case on the basis of default and allowing the Board to informally dispose of a case when the individual that is the subject of the case fails to appear for the contested case hearing. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405764 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 22 TAC 575.281 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 575.281, concerning Complaints--Appeals, without changes to the proposed text as published in the September 26, 2014, issue of the Texas Register (39 TexReg 7724). The adopted rule therefore will not be republished. Rule 575.281 currently refers to the Board's informal proceeding as an "ISC." This terminology is not accurate and does not conform to terminology used within the Texas Veterinary Licensing Act, Chapter 801 of the Texas Occupations Code. The Board adopts this amendment to change the terminology to "informal conference" to conform to the language within the Veterinary Licensing Act and Board Rules. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; 801.151(b), which states that the Board may adopt rules of professional conduct appropriate to establish and maintain a high standard of integrity, skills, and practice in the veterinary medicine profession; and 801.151(c), which states that the Board shall adopt rules to protect the public. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405765 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 CHAPTER 577. GENERAL ADMINISTRATIVE DUTIES SUBCHAPTER B. STAFF 22 TAC 577.15 The Texas Board of Veterinary Medical Examiners (Board) adopts an amendment to 577.15, concerning Fee Schedule, without changes to the proposed text as published in the 39 TexReg 10020 December 19, 2014 Texas Register

September 26, 2014, issue of the Texas Register (39 TexReg 7725). The adopted rule therefore will not be republished. The Board adopts an amendment to 577.15 to add fees for equine dental provider licensees to cover the administrative costs associated with permitting renewals of licenses to occur on the Internet, through a third party vendor. The amendment increases fees for expired license renewals by $5. The amendment will be effective January 1, 2015. The Board did not receive any comments on the proposed amendment. The amendment is adopted under the authority of the Veterinary Licensing Act, Occupations Code, 801.151(a), which states that the Board may adopt rules necessary to administer the chapter; and 801.154(a), which states that the board by rule shall set fees in amounts that are reasonable and necessary so that the fees, in the aggregate, cover the costs of administering this chapter. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405766 Loris Jones Executive Assistant Texas Board of Veterinary Medical Examiners Effective date: December 23, 2014 Proposal publication date: September 26, 2014 For further information, please call: (512) 305-7563 TITLE 34. PUBLIC FINANCE PART 3. TEACHER RETIREMENT SYSTEM OF TEXAS CHAPTER 25. MEMBERSHIP CREDIT SUBCHAPTER A. SERVICE ELIGIBLE FOR MEMBERSHIP 34 TAC 25.1 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 25.1 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8176). The adopted amendments arise from TRS' four-year rule review of Chapter 25, Subchapter A, in Title 34, Part 3, of the Texas Administrative Code. Chapter 25 concerns membership credit, and Subchapter A defines employment for TRS eligibility purposes and establishes a standard for employment that is eligible for membership in TRS. Section 25.1 addresses the basic requirements for membership in TRS: employment for one-half or more of the standard full-time work load at a rate of pay comparable to the rate of compensation for others employed in similar positions for a period of four and one-half months or more. The adopted amendments clarify how TRS will count the time spent as an instructor in higher education in evaluating the position for TRS membership. Adopted amendments provide that the class must be taken for college credit and that on-line classes will be counted as two clock hours for every college or semester hour assigned to the class rather than two clock hours for every hour spent teaching in the classroom or lab. The adopted amendment for online classes is needed because many of the online classes do not require that instruction be provided at a set time or to a group for a specified period. Adopted amendments also clarify that the conversion ratio provided in 25.1(i) does not apply to continuing education classes, adult education classes, or classes taught to employees of companies. Instruction in those types of courses will be evaluated on the number of clock hours worked. Finally, the adopted amendments clarify the minimum number of hours employed in concurrent employment that will qualify the combined employment for membership in TRS. No comments were received on the rule proposal. Statutory Authority: The amendments are adopted under Texas Government Code 825.102, which authorizes the TRS Board of Trustees to adopt rules for eligibility for membership, the administration of the funds of the system, and the transaction of business of the board. Cross-Reference to Statute: The adopted amendments affect the following sections of the Texas Government Code 821.001(6), which defines "employee"; 822.001, which states the membership requirement; and 825.403, which addresses collection of member contributions. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405716 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 22, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER C. UNREPORTED SERVICE OR COMPENSATION 34 TAC 25.41-25.43, 25.45, 25.46 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 25.41-25.43, 25.45, and 25.46 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8181). The adopted amendments arise from TRS' four-year rule review of Chapter 25, Subchapter C, in Title 34, Part 3, of the Texas Administrative Code (TAC). Chapter 25 concerns membership credit, and Subchapter C establishes policies related to service or compensation a member's employer must report but did not. Section 25.41 clarifies the requirement that when it is discovered that contributions have not been made on membership eligible employment, the member must immediately begin making con- ADOPTED RULES December 19, 2014 39 TexReg 10021

tributions. The adopted amendments clarify that contributions owed but not paid in the current school year must be made. If the error is not corrected as required in recently adopted 34 TAC 25.28(g), relating to Payroll Report Dates and published in an earlier issue of the Texas Register, the member must pay the actuarial cost to purchase the unreported service and/or compensation. Section 25.42 concerns payment of benefits contingent on deposit. TRS adopts amendments to gain efficiencies in commencing benefit distributions. The adopted amendments allow TRS to begin a distribution before all deposits have been received if the compensation and deposits have been certified by the employer as due and payable. Section 25.43 concerns the fee on deposits for unreported service or compensation. Generally, a member must pay the actuarial cost of the increased benefits associated with the unreported service and/or compensation. However, in recently adopted 25.28(g), an employer may correct an error as authorized in 825.408 of the Government Code by complying with the requirements and paying the required deposits and interest, provided the error is corrected no later than the end of the school year following the school year in which the error occurred. The adopted amendments to 25.43 refer to the correction method adopted in 25.28(g) and make other non-substantive corrections to cites and recently adopted 34 TAC 25.303, relating to Calculation of Actuarial Cost for Purchase of Compensation Credit. Section 25.45 concerns verification of unreported compensation or service. The adopted amendments include a reference to recently adopted 25.28(g) that provides that the error be corrected in the school year in which the error occurred or no later than the end of the following school year by requesting the waiver authorized in 825.408 of the Government Code and paying the interest authorized in that section. Further, the adopted amendments to 25.45 address how errors discovered after retirement should be corrected. Adopted amendments also add a reference in this section to 34 TAC 25.26, which authorizes TRS to accept additional deposits after retirement, provided the requirements of 25.26 are met. Section 25.46 concerns determination of compensation subject to deposit and credit. This rule explains how deposits on unreported service will be calculated. The adopted amendments add a reference to adopted new 25.28(g), which allows an error to be corrected in the current school year or no later than the end of the school year following the year in which the error occurred by obtaining a waiver and submitting the corrected reports and all contributions and interest due. No comments were received on the rule proposals. Statutory Authority: The amendments to 25.41-25.43, 25.45, and 25.46 are adopted under 825.102 of the Government Code, which authorizes the TRS Board of Trustees to adopt rules for the administration of the funds of the retirement system and for the transaction of the business of the board. Cross-Reference to Statute: The adopted amendments affect 825.403 and 825.408 of the Government Code. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405726 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 22, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER E. MILITARY SERVICE 34 TAC 25.61, 25.64 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 25.61 and 25.64 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8183). The adopted amendments arise from TRS' four-year rule review of Chapter 25, Subchapter E, in Title 34, Part 3, of the Texas Administrative Code. Chapter 25 concerns membership credit, and Subchapter E establishes policies for an eligible member to purchase up to five years of military service credit in the system. Section 25.61 establishes a limit on the number of years of military service that may be purchased for service credit and the amount of military service that must be rendered each year in order to receive a year of service credit in TRS for that military service. The adopted amendments provide a more general requirement than the current standard that requires the member to serve a minimum of four and one-half months in a school year. The amended language provides that a person must serve an equivalent amount of military service as a member must serve in order to receive a year of service credit. Section 25.64 provides the details of how a crediting fee is added to the cost to purchase military service credit based on the amount of time between the date the military service is rendered and the date payment is received by TRS. The cost to purchase military service is established in 25.61 and is stated as the member contributions due on the full rate of annual compensation for the last school year of membership service that preceded the military duty. Section 25.64 further provides a crediting fee of 8 percent compounded annually for each year from the date the service is rendered until payment for the credit is received. The adopted amendments clarify that the military service credit must be purchased in the order the service is rendered so that the earliest year of military service credit is purchased first. No comments were received on the rule proposals. Statutory Authority: The amendments to 25.61 and 25.64 are adopted under 825.102 of the Government Code, which authorizes the TRS Board of Trustees to adopt rules for the administration of the funds of the retirement system and for the transaction of the business of the board. Cross-Reference to Statute: The adopted amendments affect Chapter 823, Subchapter D, of the Government Code, which provides for the establishment of military service credit with TRS. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. 39 TexReg 10022 December 19, 2014 Texas Register

Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405739 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Earliest possible date of adoption: December 22, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER F. VETERAN'S (USERRA) SERVICE CREDIT 34 TAC 25.74 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 25.74 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8184). The adopted amendments arise from TRS' four-year rule review of Chapter 25, Subchapter F, in Title 34, Part 3, of the Texas Administrative Code (TAC). Chapter 25 concerns membership credit, and Subchapter F establishes policies for an eligible member or retiree to purchase up to five years of eligible veteran's service credit in the retirement system or to establish compensation credit, in accordance with the requirements of the Uniformed Services Employment and Reemployment Rights Act (USERRA), the federal law protecting veterans' benefits upon re-employment or application for re-employment following active military duty. Section 25.74 establishes the cost to purchase USERRA service credit. The adopted amendments clarify that USERRA service credit, as in adopted amended 25.64 of TAC Title 34 relating to Crediting Fee for military service credit and published elsewhere in this issue, must be purchased in the order the service is rendered so that the earliest year of active military service is purchased first. No comments were received on the rule proposal. Statutory Authority: The amendments are adopted under 823.304 of the Government Code, which authorizes the Board to adopt rules in order to comply with the federal law relating to USERRA service credit, and 825.102 of the Government Code, which authorizes the board to adopt rules for eligibility for membership, the administration of the funds of the system, and the transaction of business of the board. Cross-Reference to Statute: The adopted amendments affect Chapter 823, Subchapter D, of the Government Code, which provides for the establishment of military service credit with TRS. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405740 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 22, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER G. PURCHASE OF CREDIT FOR OUT-OF-STATE SERVICE 34 TAC 25.81 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 25.81 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8185). The adopted amendments arise from TRS' four-year rule review of Chapter 25, Subchapter G, in Title 34, Part 3, of the Texas Administrative Code. Chapter 25 concerns membership credit, and Subchapter G establishes policies for eligible members to purchase up to 15 years of out-of-state service credit in the system. Section 25.81 addresses the type of service in an out-of-state public educational institution that is eligible for purchase. The rule currently requires that a member serve at least 90 days in the out-of-state public educational institution in order to establish an eligible year of service. The adopted amendments provide that a person must serve an equivalent amount of service in the outof-state public educational institution as a member must serve in order to receive a year of service credit. No comments were received on the rule proposal. Statutory Authority: The amendments are adopted under 825.102 of the Government Code, which authorizes the board to adopt rules for eligibility for membership the administration of the funds of the system, and the transaction of business of the board. Cross-Reference to Statute: The adopted amendments affect 823.401 of the Government Code, which concerns out-of-state service. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405745 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER J. CREDITABLE TIME AND SCHOOL YEAR 34 TAC 25.131, 25.135 ADOPTED RULES December 19, 2014 39 TexReg 10023

The Teacher Retirement System of Texas (TRS or system) adopts amendments to 25.131 and 25.135 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8186). The adopted amendments arise from TRS' four-year rule review of Chapter 25, Subchapter J, in Title 34, Part 3, of the Texas Administrative Code (TAC). Chapter 25 concerns membership credit, and Subchapter J establishes the amount of time a member must serve in a TRS-eligible position in order to receive a year of service credit. Section 25.131 provides that a member must serve at least 90 days or receive paid leave for at least 90 days in order to receive a year of service credit. The adopted amendments clarify that the member must not only work 90 days but must also receive pay for those 90 days in order to receive a year of service credit. Further, an additional adopted amendment will become effective on the first day of the 2015-2016 school year and provide an alternate standard for accruing a year of service credit for members who are regularly scheduled to work fewer than 5 days per week. The alternate standard for those members is 4 1/2 months; however, the member must serve at least 4 full calendar months during which the member must work at least 8 days, and an additional 5 days in either the preceding or following month(s). The adopted amendments also provide that a member may not receive a year of service credit before December 31 except in the year of retirement when a member may earn a full year of service credit by working the entire fall semester. Section 25.135 establishes the deadline for notifying TRS of service credit missing from the member's annual statement and verifying that service credit to TRS. Generally, the deadline for verifying the service credit is the last day of the fifth school year following the end of the school year in which the service was rendered. The adopted amendments to 25.135 add a reference to newly adopted 25.28(g) of TAC Title 34 relating to Payroll Report Dates. Adopted 25.28(g) was published in an earlier issue of the Texas Register and will establish an opportunity to correct unreported service or compensation in the same school year in which it was rendered or paid or no later than the end of the school year following the school year in which the service was rendered or the compensation was paid. In order to meet the requirements of adopted new 25.28(g), the member must notify TRS by May 31 of the error so that it can be corrected by the end of the school year as required. No comments were received on the rule proposals. Statutory Authority: The amendments are adopted under 823.002 of the Government Code, which authorizes the board to determine by rule the amount of service equivalent to a year of service credit, and 825.102 of the Government Code, which authorizes the board to adopt rules for eligibility for membership, the administration of the funds of the system, and the transaction of business of the board. Cross-Reference to Statute: The adopted amendments affect Chapter 824, Subchapter C, of the Government Code, concerning service retirement benefits. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. TRD-201405746 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER N. INSTALLMENT PAYMENTS 34 TAC 25.184 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 25.184 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8187). The adopted amendments arise from TRS' four-year rule review of Chapter 25, Subchapter N, in Title 34, Part 3, of the Texas Administrative Code. Chapter 25 concerns membership credit, and Subchapter N establishes policies for payment of special service credit through a monthly installment plan of up to 60 months or the number of years being purchased, whichever is less. Section 25.184 describes the circumstances that result in a refund for nonpayment when a member is purchasing service credit on an installment payment plan. The adopted amendments delete 25.184(b), which prohibits a member from utilizing an installment plan to purchase service credit for 3 years after a refund for nonpayment has been issued to a member. Experience with installment payment plans and technology have resolved any administrative concerns about the amount of work required to establish or re-establish an installment payment plan. The adopted amendments delete the prohibition from the TRS rules, but a legislative change is also required to 825.410(a) of the Government Code to remove the statutory prohibition. In the event the law is not changed, the statutory prohibition will continue to be enforced. No comments were received on the rule proposal. Statutory Authority: The amendments are adopted under 825.102, Government Code, which authorizes the board to adopt rules for the administration of the funds of the retirement system and for the transaction of the business of the board; and 825.410, Government Code, which authorizes the TRS Board of Trustees to adopt rules to implement that statute concerning payroll deductions or installment payments for special service credit. Cross-Reference to Statute: The adopted amendments affect 825.410, Government Code, providing for installment payments. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405747 Filed with the Office of the Secretary of State on December 3, 2014. 39 TexReg 10024 December 19, 2014 Texas Register

Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER P. CALCULATION OF FEES AND COSTS 34 TAC 25.302, 25.303 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 25.302 and 25.303 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8188). The adopted amendments arise from TRS' four-year rule review of Chapter 25, Subchapter P, in Title 34, Part 3, of the Texas Administrative Code. Chapter 25 concerns membership credit, and Subchapter P addresses the cost to purchase service credit or compensation credit and provides the actuarial cost factor tables to be used in calculating the cost. Section 25.302 addresses the cost and the cost factors for purchasing service credit based on the member's tier placement. In calculating the cost to purchase service credit that will make the member immediately eligible to retire, staff currently must estimate the salary for the current year. The adopted amendments authorize TRS to use the annual salary for the most recent year of service credit so that the process for issuing a bill for service credit may be automated. The adopted amendments also authorize the use of the member's age and service credit on September 1 of the year in which the bill is requested to avoid inequities in the cost of the service credit based on the date of the request. The TRS actuary has confirmed that the proposed changes will not result in additional cost to the pension fund. Section 25.303 provides the methodology for calculating the cost of purchasing compensation credit and the actuarial cost factors used in calculating the cost of the compensation credit. This section was adopted in June 2014. Adopted amendments eliminate 25.303(f). That subsection provided an additional actuarial factor to use in calculating the cost of compensation credit when a member had been grandfathered for the purpose of using a three-year salary average to calculate the member's retirement benefits. TRS has determined, however, that subsection (f) is not needed because the actuarial factor tables in 25.303, which remain intact, already take into account the differences in using a three-year versus five-year compensation average. The TRS actuary agrees that the elimination of 25.303(f) this subsection is appropriate. No comments were received on the rule proposals. Statutory Authority: The amendments are adopted under the following authorities: 825.102, Government Code, which authorizes the TRS Board of Trustees (board) to adopt rules for eligibility of membership, the administration of the funds of the retirement system, and for the transaction of the business of the board; 823.406, Government Code, which authorizes the board to adopt rules for the administration of this statute concerning the purchase of membership waiting period service credit; and 825.105, which requires the board to adopt rates and tables the board considers necessary for the retirement system. Cross-Reference to Statute: The adopted amendments affect the following statutes: 825.403, Government Code, providing for collection of member contributions and requiring the payment of actuarial cost to establish unreported service or compensation credit; and 825.105, Government Code, authorizing the board to adopt actuarial tables. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405748 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 CHAPTER 27. TERMINATION OF MEMBERSHIP AND REFUNDS 34 TAC 27.4, 27.6 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 27.4 and 27.6 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8189). The adopted amendments arise from TRS' four-year rule review of Chapter 27 in Title 34, Part 3, of the Texas Administrative Code. Chapter 27 concerns termination of membership and refunds. Section 27.4 establishes the requirement that a refund will not be made until the final deposit of contributions for the member is received from the last employer and posted to the member's account. The purpose of this rule was to prevent additional money from being submitted by the employer after the account was "closed" by TRS due to the termination of membership. With efficiencies anticipated as a result of the TRS Enterprise Application Modernization (TEAM) project, the adopted amendments will allow TRS to issue refunds more promptly. If additional deposits are received after the initial refund, a second refund will be made. The adopted amendments reorganize the rule and provide that a refund can be issued when the termination of employment is confirmed or when the final deposit is received. Section 27.6 regards the circumstances under which a member may reinstate a withdrawn account; however, the rule does not address the reinstatement of accounts terminated by absence from service, i.e., "escheated accounts." Currently, if a person with an escheated account returns to TRS membership, the escheated account is not re-activated until the member requests TRS to do so. Based on changes in processes considered in the TEAM project, the adopted amendments combine the accounts upon receipt of new member information from a TRS-covered employer. Adopted amendments also provide for the "activation" of the escheated account immediately upon return to TRS membership provided the former account was not refunded. This adopted change will result in more accurate annual statements and estimates of retirement benefits. No comments were received on the rule proposal. ADOPTED RULES December 19, 2014 39 TexReg 10025

Statutory Authority: The amendments are adopted under Texas Government Code, 825.102, which authorizes the Board of Trustees of the Teacher Retirement System to adopt rules for the administration of the funds of the retirement system and for the transaction of the business of the board. Cross-Reference to Statute: The adopted amendments affect Texas Government Code Chapter 822, Subchapter A, and Texas Government Code 823.501. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405749 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 CHAPTER 29. BENEFITS SUBCHAPTER A. RETIREMENT 34 TAC 29.15 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 29.15 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8190). The adopted amendments arise from TRS' four-year rule review of Chapter 29, Subchapter A, in Title 34, Part 3, of the Texas Administrative Code. Chapter 29 concerns benefits, and Subchapter A establishes policies related to service and disability retirement eligibility, the application process, the calculation of benefits, the payment plans available, and actuarial tables supporting the calculation of early age retirement reductions, optional payment plan reductions, and other benefits. Section 29.15 addresses the requirement that employment must terminate in order to establish eligibility for retirement. The rule further establishes when a contract for future employment may result in a determination that employment has not terminated and when retirement is revoked by returning to work with a TRS-covered employer in the first month following retirement. Experience with the requirement to observe the one full calendar month break in service reflects a basic misunderstanding regarding how TRS views working as a substitute in the month following retirement. The adopted amendments clarify that working as a substitute in the month following retirement is prohibited and will revoke retirement. No comments were received on the rule proposal. Statutory Authority: The amendments are adopted under Texas Government Code, 825.102, which authorizes the Board of Trustees of the Teacher Retirement System to adopt rules for the administration of the funds of the retirement system and for the transaction of the business of the board. Cross-Reference to Statute: The adopted amendments affect 824.002, Government Code, concerning effective date of retirement, and 824.005, Government Code, concerning revocation of retirement. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405750 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER D. PLAN LIMITATIONS 34 TAC 29.55 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 29.55 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8191). The adopted amendments arise from TRS' four-year rule review of Chapter 29, Subchapter D, in Title 34, Part 3, of the Texas Administrative Code. Chapter 29 concerns benefits, and Subchapter D addresses requirements for qualified plans established by the Internal Revenue Code (IRC). Section 29.55 describes the limits on voluntary contributions to the TRS pension plan for the purchase of service credit and the parameters authorized by the IRC for testing the amount of voluntary contributions against the member compensation in order to determine if the limits have been exceeded. At the recommendation of TRS' outside tax counsel, the adopted amendments add language in 29.55(a) to specifically reference 823.006 of the Government Code, regarding limits on annual contributions for the purchase of service credit, and to clarify that TRS can decline to allow a participant to make a contribution for the purchase of service credit if the amount of the contribution would exceed the limits established in 415 of the Internal Revenue Code. No comments were received on the rule proposal. Statutory Authority: The amendments are adopted under the following statutes: 823.006, Government Code, which authorizes the retirement system to limit the purchase of service credit to the extent required by applicable limits on the amount of annual contributions a participant may make to a qualified plan under Sections 401(a) and 415(c), Internal Revenue Code of 1986; and 825.102, Government Code, which authorizes the TRS Board of Trustees to adopt rules for the administration of the funds of the retirement system. Cross-Reference to Statute: The adopted amendments affect 825.506, which authorizes limitations on benefits and contributions in accordance with federal tax law. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. 39 TexReg 10026 December 19, 2014 Texas Register

Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405751 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 CHAPTER 31. EMPLOYMENT AFTER RETIREMENT SUBCHAPTER B. EMPLOYMENT AFTER SERVICE RETIREMENT 34 TAC 31.13-31.15 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 31.13-31.15 without changes to the adopted rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8192). The adopted amendments arise from TRS' four-year rule review of Chapter 31, Subchapter B, in Title 34, Part 3, of the Texas Administrative Code. Chapter 31 addresses the opportunities and limitations on employment with a TRS-covered employer after retirement and the limitations on the amount of compensation a disability retiree may receive from any source after retirement without forfeiting the disability retirement benefit. Subchapter B addresses employment after service retirement. Section 31.13 provides the requirements for working under the substitute service exception and clarifies that working as a substitute during the required one full calendar month break in service revokes retirement. Also, a retiree who is working as a substitute is not considered absent from service for the purpose of establishing the 12 month break in service required for full-time employment. The rule also clarifies that a retiree may combine work under the one-half time exception and under the substitute service exception in the same calendar month provided the retiree does not work more than half of the work days in that calendar month. Experience with this rule has revealed that many retirees and employers do not realize that the retiree may not work the one-half day that remains when working in a calendar month with an odd number of work days. The adopted amendments clarify that the retiree may not work the one-half day or any amount of additional time when dividing an odd number of work days in half to determine how many days the retiree may work in the combined employment. Section 31.14 provides clarification on how much a retiree may work under the one-half time exception without forfeiting the annuity for that month. The current rule provides that a retiree may work as much as the equivalent of four clock hours for every work day in the month. A work day is defined as every Monday through Friday in the month, without regard to whether the day is a holiday, the employer is open for business, or the retiree is scheduled to work each day. Currently, the rule provides special instructions for retirees employed as instructors in institutions of higher education and directs that the retiree must count every hour in the lab or classroom as two hours of work to take into consideration time spent preparing, grading, providing reviews, and performing similar duties. The adopted amendments clarify that, with regard to employment as an instructor with an institution of higher education, the classes must be taken for college credit in order for the instructor to utilize the 2-to-1 conversion ratio. The adopted amendments also clarify that online classes should be counted as two clock hours for every semester hour or college credit hour assigned to the class. Adult or continuing education classes would be counted hour for hour under the adopted amended rule. The adopted amendments to 31.14 incorporate adopted changes to 31.13 that address combining employment as a substitute and other employment in the same calendar month. Adopted amended 31.14 clarifies that, if a calendar month has an odd number of work days, the retiree may not work any part of the remaining one-half day after dividing the total number of days by 2 to determine how many days are "one-half" the working days in the month. Section 31.15 establishes the requirements for observing a break in service of 12 full, consecutive calendar months before returning to full-time employment for retirees who retired January 1, 2011 or after. This section provides that working as a substitute or under the one-half time exception is considered employment that interrupts the 12 month break in service and that paid leave is also considered employment that must be counted. The adopted, non-substantive amendments address typographical errors and inconsistent statutory cites. No comments were received on the rule proposals. Statutory Authority: The amendments are adopted under 824.601(f) of the Government Code, which authorizes TRS to adopt rules necessary for administering Chapter 824, Subchapter G, of the Government Code concerning loss of benefits on resumption of service, and 825.102 of the Government Code, which authorizes the board to adopt rules for eligibility for membership, the administration of the funds of the system, and the transaction of business of the board. Cross-Reference to Statute: The adopted amendments affect Chapter 824, Subchapter G, of the Government Code, concerning loss of benefits on resumption of service. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405752 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER C. EMPLOYMENT AFTER DISABILITY RETIREMENT 34 TAC 31.32 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 31.32 without changes to the proposed rule text as published in the October 17, 2014 issue of the Texas Register (39 TexReg 8194). The adopted amendments arise ADOPTED RULES December 19, 2014 39 TexReg 10027

from TRS' four-year rule review of Chapter 31, Subchapter C, in Title 34, Part 3, of the Texas Administrative Code. Chapter 31 addresses the opportunities and limitations on employment with a TRS-covered employer after retirement and the limitations on the amount of compensation a disability retiree may receive from any source after retirement without forfeiting the disability retirement benefit. Subchapter C addresses the exceptions to forfeiture of annuities for disability retirees who return to work with a TRS-covered employer. Section 31.32 establishes how much a disability retiree may work under the one-half time exception without forfeiting the annuity for that month. The current rule provides that a retiree may work as much as the equivalent of four clock hours for every work day in the month. A work day is defined as every Monday through Friday in the month, without regard to whether the day is a holiday, the employer is open for business, or the retiree is scheduled to work each day. However, disability retirees are also limited to working no more than 90 days in a school year. Currently, the rule provides special instructions for retirees employed as instructors in institutions of higher education. Under 31.32, the retiree must count every hour in the lab or classroom as two hours of work to take into consideration time spent preparing, grading, providing reviews, and performing similar duties. The adopted amendments clarify that, with regard to employment as an instructor with an institution of higher education, the classes must be taken for college credit in order for the instructor to utilize the 2-to-1 conversion ratio. The adopted amendments clarify that online classes should be counted as two clock hours for every semester hour or college credit hour assigned to the class. Adult or continuing education classes would be counted hour for hour under the adopted amended rule. The adopted amendments to 31.32 incorporate adopted changes like those made to 31.13, which are published elsewhere in this issue, that regard combining employment as a substitute and other employment in the same calendar month. Adopted amended 31.32 clarifies that, like amended 31.13, if a calendar month has an odd number of work days, the retiree may not work any part of the remaining one-half day after dividing the total number of days by 2 to determine how many days are "one-half" the working days in the month. No comments were received on the rule proposal. Statutory Authority: The amendments are adopted under 824.601(f) of the Government Code, which authorizes TRS to adopt rules necessary for administering Chapter 824, Subchapter G, of the Government Code concerning loss of benefits on resumption of service, and 825.102 of the Government Code, which authorizes the board to adopt rules for eligibility for membership, the administration of the funds of the system, and the transaction of business of the board. Cross-Reference to Statute: The adopted amendments affect Chapter 824, Subchapter G, of the Government Code. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405753 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 CHAPTER 39. PROOF OF AGE 34 TAC 39.1 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 39.1 without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8195). The adopted amendments arise from TRS' four-year rule review of Chapter 31 in Title 34, Part 3, of the Texas Administrative Code. Chapter 39 and the single rule in that chapter, 39.1, address the acceptable methods by which individuals may establish their dates of birth with TRS. The adopted amendments to 39.1 add a state issued driver license or ID and a U.S. or state issued military ID as acceptable documents for showing proof of date of birth. The adopted changes also give staff more discretion to determine other forms of acceptable proof of date of birth. No comments were received on the rule proposal. Statutory Authority: The amendments to 39.1 are adopted under 825.102, Government Code, which authorizes the TRS Board of Trustees (board) to adopt rules for the administration of the funds of the retirement system and for the transaction of the business of the board. Cross-Reference to Statute: No other laws are affected by these adopted changes. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405754 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 CHAPTER 41. HEALTH CARE AND INSURANCE PROGRAMS SUBCHAPTER A. RETIREE HEALTH CARE BENEFITS (TRS-CARE) 34 TAC 41.1, 41.2, 41.7, 41.10, 41.14 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 41.1, 41.2, 41.7, 41.10, and 41.14 without changes to the proposed rule text as published in the 39 TexReg 10028 December 19, 2014 Texas Register

October 17, 2014 issue of the Texas Register (39 TexReg 8196). The adopted amendments arise from TRS' four-year rule review of Chapter 41, Subchapter A, in Title 34, Part 3, of the Texas Administrative Code. Chapter 41 addresses the two health benefit programs (TRS-Care and TRS-ActiveCare) administered by TRS as trustee of them, as well as other group health benefits for school district employees. Subchapter A concerns TRS-Care. Section 41.1 concerns initial enrollment periods for the retiree health benefit program (TRS-Care). The adopted amendments to 41.1(f) clarify that retirees are allowed to add new spouses and new dependents during enrollment periods; however, due to state law provisions regarding dependents eligible to enroll in TRS-Care, surviving spouses are only allowed to add new dependents during enrollment periods. The revised language is consistent with current 41.1(e) and makes no substantive changes to existing TRS-Care operations or rules. Section 41.2 concerns additional enrollment opportunities. The adopted amendments delete the word "service" from the term "service retirees" in 41.2(a)(1)(A). According to the state law and TRS-Care practices, both service retirees and disability retirees are qualified to exercise the Age 65 Additional Enrollment Opportunity and are therefore considered to be "eligible participants" in TRS-Care. The adopted amendments also revise 41.2(a)(8) to clarify that, during an Age 65 Additional Enrollment Opportunity, individuals may not only add eligible dependents under TRS-Care but may also change their level of coverage. The term "exercise" is sufficiently broad to address both types of opportunities. Section 41.7 concerns effective date of coverage. Recent legislation has restricted the ability of individuals to enroll in the higher levels of coverage in TRS-Care until they reach the age of 62. The adopted amended subsection (b) clarifies that the rights under this subsection are subject to this new enrollment restriction. The adopted new language in subsection (d) provides that existing coverage for a surviving spouse and surviving dependent children will continue after the participant's death, without the need to submit an application to TRS-Care. The adopted amended subsection (i) provides the flexibility to accept other proof of Medicare Part A coverage. When making changes to coverage due to the acquisition of Medicare Part A, TRS-Care no longer requires receipt of a copy of a participant's or dependent's Medicare card. The adopted amended subsections (l) and (m) replace outdated language, more clearly stating that where TRS-Care has been paying primary to Medicare on claims associated with a participant with Medicare Part A coverage, TRS-Care may seek the recovery of overpaid funds paid by TRS-Care and may refund or credit any overpaid premium amounts to the participant to a maximum retroactive period of twelve months. This revised language does not alter current procedures of TRS-Care, nor does it make any substantive changes to existing rule provisions. The adopted amended section (n) replaces outdated language, more clearly providing that, if TRS-Care discovers that its records incorrectly reflect that a participant has Medicare Part A coverage when the participant actually does not have such coverage, TRS-Care may adjust its records and claims processing. Further, TRS-Care will contact the participant to discuss the cost of Medicare Part A coverage and will advise the participant of the financial consequences under TRS-Care if the participant does not obtain such coverage. The revised language provides the flexibility to accept proof of Medicare Part A coverage other than just the participant's Medicare card. Section 41.10 concerns eligibility to enroll in TRS-Care. The adopted amended 41.10(c)(1)(F) clarifies that in order to be considered for eligibility in TRS-Care, military service credit must be purchased and credited in the system. In contrast, USERRA service credit does not need to be purchased and may be used to meet eligibility requirements upon satisfactory proof to TRS. Section 41.14 concerns expulsion from TRS-Care for fraud. The adopted new language in subsection (b), concerning adjudicative hearings before the State Office of Administrative Hearings (SOAH), provides better clarity and/or greater flexibility to TRS in handling a petition for expulsion. The adopted changes to the "executive director" references are made for consistency between both the TRS-Care rules as well as TRS-ActiveCare rules. No comments were received on the rule proposals. Statutory Authority: The amendments to 41.1, 41.2, 41.7, 41.10, and 41.14 are adopted under the authority of 1575.052 of the Insurance Code, which authorizes the TRS Board of Trustees to adopt rules it considers reasonably necessary to implement and administer the TRS-Care program. Cross-Reference to Statute: The adopted amendments affect Chapter 1575 of the Insurance Code, which provides for the establishment and administration of TRS-Care. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405709 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 22, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER C. TEXAS SCHOOL EMPLOYEES GROUP HEALTH (TRS- ACTIVECARE) 34 TAC 41.30, 41.33, 41.34, 41.36-41.39, 41.50-41.52 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 41.30, 41.33, 41.34, 41.36-41.39, 41.50-41.52 without changes to the proposed rule text as published in the October 17, 2014 issue of the Texas Register (39 TexReg 8198). The adopted amendments arise from TRS' four-year rule review of Chapter 41, Subchapter C, in Title 34, Part 3, of the Texas Administrative Code. Chapter 41 addresses the two health benefit programs (TRS-Care and TRS-Active- Care) administered by TRS as trustee of them, as well as other group health benefits for school district employees. Subchapter C concerns TRS-ActiveCare. Section 41.30 concerns participation in TRS-ActiveCare. The adopted changes to the formatting of "executive director" make such references consistent between the TRS-Care and TRS-ActiveCare rules. ADOPTED RULES December 19, 2014 39 TexReg 10029

Section 41.33 concerns definitions that are applicable to TRS-ActiveCare. The adopted amendments to 41.33(1) and 41.33(1)(D)(iii) effectuate recent changes to state law that have an impact on age limits and the use of marital status as an element of eligibility as a dependent. The adopted amendments to 41.33(2) more accurately align the definition of a full-time employee with the operations of the retirement system and remove references to other rules that are no longer necessary. The amendments make no substantive changes to existing TRS-ActiveCare operations or rules. The adopted amendments to 41.33(5) also more accurately align the definition of a participating member with the operations of the retirement system. This definition now takes into consideration two possible situations: (1) an individual is working in a TRS-eligible position and is currently contributing to the retirement system during the entire year of service; and (2) an individual began the year working in a TRS-eligible position and contributing to the retirement system, but later during the same year, the individual's work hours drop to the point where he or she is no longer working in a TRS-eligible position. If the individual has already earned a year of service credit, he or she is required to continue making payments to the retirement system for the remainder of the school year. Adopted new 41.33(6)(B) more accurately aligns the definition of a part-time employee with the adopted amendments noted in 41.33(2) above concerning the definition of a full-time employee. The adopted amendments to 41.34(3) effectuates recent changes to state law that impact age limits under TRS-Active- Care. Section 41.36 concerns the enrollment periods for TRS-Active- Care. Section 41.37 concerns the effective date of coverage under TRS-ActiveCare. Section 41.39 concerns coverage under TRS-ActiveCare for individuals changing employers. In adopting the amendments to 41.36(i), the TRS Board of Trustees delegates authority to the executive director or a designee to establish open-enrollment periods for TRS-ActiveCare and to establish the conditions for enrollment during open-enrollment periods. The adopted amendments provide flexibility and reduce time and effort associated with the establishment of the annual enrollment periods. The resolution process will no longer be needed to establish open-enrollment periods. The adopted amendments to 41.37(c) and 41.39(d) are consistent with the adopted amendments to 41.36(i). Section 41.38 concerns the termination date of coverage under TRS-ActiveCare. The adopted amendments to 41.38(b) effectuate changes to state law. From a practical standpoint, the changes to state law and now to this rule have little if any impact upon the operations of TRS-ActiveCare. Section 41.50 concerns appeals relating to claims or other benefits under TRS-ActiveCare. Section 41.51 concerns appeals relating to eligibility under TRS-ActiveCare. Section 41.52 concerns expulsion from TRS-ActiveCare. Adopted changes to references regarding the "executive director" made in 41.50, 41.51 and 41.52 are made simply for the sake of consistency between the TRS-Care and TRS-ActiveCare rules. The adopted new language in 41.52 concerning petitions for expulsion for fraud mirrors existing and adopted language in 41.14, the TRS-Care rule that also addresses expulsion for fraud. These adopted changes provide greater flexibility to TRS in handling a petition for expulsion and result in consistent expulsion procedures for TRS-Care and TRS-ActiveCare. No comments were received on the rule proposals. Statutory Authority: The amendments to 41.30, 41.33, 41.34, 41.36-41.39, and 41.50-41.52 are adopted under the authority of 1579.052 of the Insurance Code, which authorizes the TRS Board of Trustees to adopt rules it considers necessary to implement and administer the TRS-ActiveCare program. Cross-Reference to Statute: The adopted amendments affect Chapter 1579 of the Insurance Code, which provides for the establishment and administration of TRS-ActiveCare. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405710 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 22, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 SUBCHAPTER D. COMPARABILITY OF GROUP HEALTH COVERAGES 34 TAC 41.91 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 41.91, concerning certification of insurance coverage, without changes to the proposed rule text as published in the October 17, 2014, issue of the Texas Register (39 TexReg 8202). The adopted amendments arise from TRS' four-year rule review of Chapter 41, Subchapter D, in Title 34, Part 3, of the Texas Administrative Code. Chapter 41 addresses the two health benefit programs (TRS-Care and TRS-ActiveCare) administered by TRS as trustee of them and the responsibilities of school districts that do not participate in the active employee health benefit plan (TRS-ActiveCare). Subchapter D contains one rule, 41.91, which deals with the responsibilities of school districts that do not participate in TRS-ActiveCare to determine the comparability of the health coverage offered to their respective employees. The rule was adopted under 22.004 of the Education Code, relating to group health benefits for school employees. Section 41.91 concerns the certification of insurance coverage offered to employees of school districts that do not participate in TRS-ActiveCare. The adopted amendment in 41.91(g) reformats the reference to the "executive director" for the sake of consistency between the TRS-Care rules and the TRS-Active- Care rules. The deleted language in 41.91(g)(2) is no longer needed in light of the legislative repeal of 22.004(e) of the Education Code, relating to compliance reporting by school districts and TRS under 22.004. No comments were received on the rule proposal. 39 TexReg 10030 December 19, 2014 Texas Register

Statutory Authority: The amendments to 41.91 are adopted under the authority of 22.004, Education Code, which requires the TRS Board of Trustees to adopt rules to determine whether a school district's group health coverage is comparable to the basic health coverage offered under TRS-ActiveCare (the Texas Employees Group Benefits Act in Chapter 1551 of the Insurance Code). Cross-Reference to Statute: No other laws are affected by this adoption. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 2, 2014. TRD-201405711 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 22, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 CHAPTER 47. QUALIFIED DOMESTIC RELATIONS ORDERS 34 TAC 47.10 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 47.10 without changes to the proposed rule text as published in the October 17, 2014 issue of the Texas Register (39 TexReg 8203). The adopted amendments arise from TRS' four-year rule review of Chapter 47 in Title 34, Part 3, of the Texas Administrative Code. Chapter 47 addresses the requirements and procedures applicable to domestic relations orders awarding a portion of TRS benefits to an alternate payee, most commonly as a division of community property in a divorce. Section 47.10 concerns the determination of whether an order is a Qualified Domestic Relations Order (QDRO). Section 47.10 provides the detailed requirements for determining the status of a domestic relations order as a qualified order. TRS received legislative authority to require that the order be in a form prescribed by TRS. The adopted amendments extend the effective date of the requirement to use the model order prescribed by TRS until January 1, 2015. No comments were received on the rule proposal. Statutory Authority: The amendments to 47.10 are adopted under Texas Government Code 804.003 and 804.005, which authorize TRS to adopt rules relating to QDROs, and 825.102, which authorizes the TRS Board of Trustees (board) to adopt rules for the administration of the funds of the retirement system and the transaction of business of the board. Cross-Reference to Statute: The adopted amendments to 47.10 affect Texas Government Code 804.003, which sets out the requirements for QDROs. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405755 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 CHAPTER 51. GENERAL ADMINISTRATION 34 TAC 51.5 The Teacher Retirement System of Texas (TRS or system) adopts amendments to 51.5 without changes to the proposed rule text as published in the October 17, 2014 issue of the Texas Register (39 TexReg 8204). The adopted amendments arise from TRS' four-year rule review of Chapter 51 in Title 34, Part 3, of the Texas Administrative Code. Chapter 51 addresses a number of administrative matters concerning benefits. Section 51.5 establishes the process to be used by employers to obtain a one-time waiver of the deadline imposed by 825.408, Government Code, for submitting contributions owed to TRS and the reports related to those contributions. Section 825.408 gives TRS discretion to grant such a waiver. The adopted amendments to rule 51.5 refer to the adopted amendments to 25.28 relating to Payroll Report Dates, which are published elsewhere in this issue, that authorize an employer to correct errors that occurred in the current school year as well as errors that occurred in the immediately preceding school year. The adopted amendments ensure consistent application of the authority in 25.28. No comments were received on the rule proposal. Statutory Authority: The amendments to 51.5 are adopted under 825.102, Government Code, which authorizes the Board of Trustees of the Teacher Retirement System to adopt rules for the administration of the funds of the retirement system and the transaction of the business of the Board. The amendments to 51.5 are also adopted under 825.408(a), Government Code, which authorizes TRS to grant a waiver of the deadline. Cross-Reference to Statute: No other laws are affected by these adopted changes. The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority. Filed with the Office of the Secretary of State on December 3, 2014. TRD-201405756 Brian K. Guthrie Executive Director Teacher Retirement System of Texas Effective date: December 23, 2014 Proposal publication date: October 17, 2014 For further information, please call: (512) 542-6438 ADOPTED RULES December 19, 2014 39 TexReg 10031