oversight

Observations Concerning the Local Public Works Program

Published by the Government Accountability Office on 1977-02-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                        CE’P-T,7- 48
                                                                  I                  _




REPORT OF THE
COMPTROLLER   GENERAL
OF THE UNITED STATES                                  llllllllllllllllllllllllllllllllllllll
                                                             LM100593




Observations Concerning The
Local Public Works Program

Economic Development Administration
Department of Commerce


This report summarizes information    on some
problems experienced in allocating funds and
selecting projects to be funded,   and on var-
ious alternatives  proposed to deal with these
problems.




CED-77-48                                        FEB.23,1977
                       Contents
                       -mm
                                                            Page
CHAPTER
  1       INTRODUCTION
              Public Works Employment Act
              Program Status
              Objective of Review
  2       PROCEDURESFOLLOWEDBY EDA IN
            ALLOCATING FUNDS AND SELECTING
            PROJECTS
              Allocations     Made to States
              Project    Selection   Process
              Project    Selection   Formula
              Final Selection
  3       PROBLEMSAND COMPLAINTS - WHAT
            CHANGESCAN BE MADE TO PROGRAM
            BEFOREADDITIONAL FUNDING IS
            MADE AVAILABLE FOR FISCAL
            YEAR 1977                                         9
              The 70-30 Provision                             9
                 Alternatives      proposed                  12
              Problems with Unempioyment Data                12
                 Gerrymandering       of project    areas    13
                 Alternatives      proposed                  14
                 Unemployment data reported          was
                    from different       sources and for
                    different     periods                    16
                 Alternatives      proposed                  16
                 Effect     of logarithms     on scoring     17
                 Alternative       proposed                  18
                 Indian unemployment data                    18
                 Alternative      proposed                   19
              Interrelationships         of Various
                 Proposals                                   19
               Relation     of Grant Amounts to
                  Community Size                             19
               Priorities      of Applicants  Were
                  Generally     Not Considered in
                  Selecting     Projects                     21
                  Alternatives      proposed                 22
               Agency Actions Taken to Simplify
                  the Regulations                            22
APPENDIX
         I        Planning allocations  announced by the
                    Economic Development Administration
                    on October 18, 1976                        24
    II            Comptroller General decision   of
                    February 17, 1977, (B-126652)
                    regarding allocation  of funds under
                    the local public works program             25
  III             Administration   and Department of
                    Commerce's Economic Development
                    Administration   policy determina-
                    tions and proposals    submitted   to
                    the Subcommittee on Economic
                    Development of the House Committee
                    on Public Works and Transportation
                    and the Subcommittee on Economic
                    Development of the Senate Committee
                    on Public Works on February 8, 1977        32
                               ABBREVIATIONS
BIA - Bureau of Indian         Affairs
BLS - Bureau of Labor Statistics
EDA - Economic Development           Administration
GAO - General     Accounting      Office
SESA - State    Employment Security            Agency
SMSA - Standard     Metropolitan         Statistical    Area
                              CHAPTER
                                   -- 1
                            INTRODUCTION
                            -----
PUBLIC \iORKS----em
-11            EMPLOYMENTACT
       The Public Works Employment Act of 1976 (Public           Law 94-369)
was enacted on July 22, 1976.        Title   I of the act authorizes
a local public works program under which the Secretary             of Com-
merce, acting through the Economic Development Administration
(EDA) r makes grants to States and local governments for 100 per-
cent of the cost of projects       to provide    (1) employment oppor-
tunities    in areas of high unemployment through construction             or
renovation    of useful public facilities      and (2) a stimulus       to
the national     economy.   On October 1, 1976, the Congress appro-
priated    $2 billion   to carry out the provisions     of title     I, up
to $10 million      of which was to be used for administrative
expenses.
      The act requires     the Secretary    of Commerce to prescribe
the rules,   regulations,     and procedures necessary to carry out
the program within      30 days after   enactment.   Proposed regula-
tions were published      in the Federal Register    on August 23, 1976,
and 30 days were allowed for comments by interested          parties.
      The proposed regulations    were inserted in the Congres-
sional Record on August 27, 1976, and were discussed        in
hearings held by the Subcommittee on State,     Justice,   Commerce,
the Judiciary   of the Senate Committee on Appropriations
and in joint   hearings held by the Subcommittee on Economic
Development and the Subcommittee on Investigations       an;7 Review
of the House Committee on Public Works and Transportation.
Several changes were made and on October 20, 1976, the
revised regulations    were published  in the Federal Register.
      Certain   other   key requirements    of the act are:
      --The SecreLary is to make a final          determination     with
         respect to each application        for a grant within      60 days
         after   hc: receives such application.        If the Secretary
         fails   to make a final    determination     within    the 60 days,
         the application      is considered    approved.     The Department
         established     October 26, 1976, as the first        date that
         applications     would be accepted.
      --Each applicant    is to give adequate       assurances that,     if
         funds are available,     on-site labor     can begin within     90
         days of project    approval.
      --Not less than one half of 1 percent or more than 12.5
         percent of all amounts appropriated    to carry,out
         title  I shall be granted for projects   within   any one
         State, except that in the case of Guam, Virgin

                                     1
        Islands, and American Samoa not less than one
        half of 1 percent in the aggregate shall be
        granted for projects  in all three jurisdictions.
       -If the national    unemployment rate equals or exceeds
         6.5 percent for the 3 most recent consecutive
         months, the Secretary    is required   to expedite
         and give priority   to applications    from State
         or local governments having unemployment
         rates for the 3 most recent consecutive       months in
         excess of the national     unemployment rate.
         Seventy percent of all amounts appropriated        to
         carry out the program is required      to be granted
         to projects  given this priority.
      --After     giving projects     the priority     just    stated,   the
         Secretary      is required   to give priority       to applications
         from State or local governments having unemployment
         rates for for the 3 most recent consecutive                months
         in excess of 6.5 percent,          but less than the
         national     unemployment rate.       Thirty    percent of all
         amounts appropriated       to carry out the program is to
         be granted to projects         having unemployment rates
         at or lower than the national           rate.
PROGRAMSTATUS
      In selecting     the projects,    EDA used a scoring system
that took into consideration         the number of unemployed workers
in the project     area, the severity     and duration    of unemploy-
ment, the relationship      of labor cost to total     project     cost,
and the level of income prevailing         in the project    area.
       Additional     points were given if the project      (1) exhibited
potential     for providing    long-term   benefits,   (2) was sponsored
by a general      purpose unit of local government as defined in
the regulations,       (3) was sponsored by a special purpose unit
of local government,        or (4) related   to existing   approved
plans and programs of a local community development or region-
al development nature,        or promoted or advanced longer range
plans and programs.
       On December 23, 1976, the Secretary        published    in the
Federal Register       a list   of about 2,000 applications      for about
$2 billion     of grants that had been selected       by EDA.
Those selected       were to receive a final    review before being
approved for funding.         EDA records showed that as of
December 27, 1976, about 25,000 applications            for about
$24 billion     had been received,     of which about 22,000 appli-
cations    for about    $20 billion   were scored (i.e.,    reviewed
and assigned a numerical grading value).


                                       2
OBJECTIVE OF REVIEW
      During January and February 1977, GAO received requests
from many flembers of Congress to review the local public
works program.     The principal    areas of concern cited in these
requests   related  to the policies     and procedures   followed    by
EDA in allocating    program resources     and selecting    projects
for funding.
       Also in January and February 1977, subcommittees              L/ in
both the House and the Senate held hearings on (1) the
implementation    of the program and (2) proposed legislation
which would amend the Public Works Employment Act of 1976
and authorize    additional   funds for the program.          During
the hearings a number of problems which occurred              in the
allocation    of funds and the selection       of projects      and possi-
ble alternative     solutions   to these problems were discussed.
Also, Department officials        testifying   before the subcommittees
urged that any additional       appropriations     authorized     for
fiscal    year 1977 be used to fund the backlog of applications
on hand.
     Accordingly, our review was directed  toward examining
some of the major problem areas and the alternatives  proposed
to deal with the problems.




L/   Subcommittee on Economic Development of the House Public
     Works and Transportation Committee and the Subcommittee
     on Economic Development of the Senate Committee on Public
     Works.


                                     3
                                CHAPTER 2
                                mm-...-
                           PROCEDURESFOLLOWED
                           -mm---      ---m
             BY EDA B------l--
                    IN ALLOCATING FUNDS AND SELECTING
                                                -I-
                               PROJECTS
                               -w--
ALLOCATIONS MADE TO STATES
----                 --
      According to the Economic Development Administration,
planning allocation   ceilings were established for each
State as follows:
       --Sixty-five      percent of the $1,980 million   1/ available
          for distribution,      or $1,287 million,  was allocated
          to the States on the basis of each State's         share of
          the number of unemployed in the Nation.        For example,
          if a State had 10 percent of the Nation's        unemployed
          workers,    it was allocated    10 percent of $1,287
          million,    or $128.7 million.
       --Thirty-five       percent of the $1,980 million,           or $693
          million,      was set aside for those States whose unemploy-
          ment rates exceeded the national             unemployment rate.
          There were 21 such States.           The distribution        was
          made to these States by (1) determining               the
          difference      between a State's     unemployment rate
          and the national       rate,    (2) multiplying     the number
          of unemployed workers in the State by this difference
          to determine the number of unemployed workers
          within     the State above that which would prevail              at
          the comparable national          unemployment rate,       (3) sum-
          ming the number of unemployed workers calculated
          in step 2 above for all States,            and (4) determining
          a State's      share of the $693 million        based on its
          share of the number of unemployed workers in the
          Nation as calculated         in step 3 above.
       --Adjustments      to the distribution      calculated    above
          were made to      insure that no State received less than
          one half of     1 percent    ($10 million)    or more than
          12.5 percent      ($250 million)    of the $2 billion,     as
          required   by   section   108(a) of the act.


A/   In accordance with the appropriation      act, $10 million   was
     deducted from the $2 billion      for administrative  expenses.
     Also $10 million     was deducted for American Samoa, Guam, and
     the virgin  Islands.


                                      4
      Also, EDA regulations   provide that 120 days after     the
planning allocations    were made,   EDA could make adjustments
as necessary to achieve the purposes of the act.
        On October 18, 1976, EDA announced the planning alloca-
tions for each State (see app. I) and that its regional
offices    would begin accepting applications for grant assis-
tance on October 26, 1976.
      In response to a request from Congressman Sidney R. Yates,
GAO reviewed the allocation   formula to determine whether it
complies with the act and found that it was legally   permissi-
ble (see app. II).
PROJECT SELECTION PROCESS
       In accordance with section 108 of the act, EDA regula-
tions provide that (1) 70 percent of all amounts appropriated
to carry out the act be allocated      to fund public work
projects   in areas of a State having an average unemployment
rate for the 3 most recent months above the average.
national   rate for the same period,     and that (2) 30 percent
go to projects    in areas with average unemployment rates
above 6.5 percent for the 3 most recent months, but
less than or equal to the average national        rate for the
same period.     Applications  from areas with average
unemployment rates equal to or below 6.5 percent will be
approved if necessary to meet the minimum funding level
required   for each State.
        Using a project       selection     formula,    EDA ranked the pro-
jects falling       within    the 70-percent       category separately
from those falling         within    the 30-percent      category    for each
State.      Thus, projects       from a State falling        within    the 70-
percent category competed against each other and those
falling     within   the 30-percent        category competed against
each other.        In this way the 70-30-percent            requirement
was mdintained       nationally,       although certain       adjustments
were necessary because in some States there were no appli-
cations     from areas which fell          within    the 30-percent      category.
       On receipt    of applications,    Regional Office personnel
are required      to perform a preliminary      screening  review to
determine whether (1) the project         is eligible,    (2) the
application    is properly     prepared,  and (3) all required
material    is provided.      This review is to be completed with-
in 5 days of the receipt         of the application.
PROJECT SELECTION FORMUL_A
-_1_1
        Once screened, the projects     are scored according     to a
project    selection   formula which considers    eight factors.
Four factors      are used to compute a basic score and four
additional     factors   are considered  which may increase the
basic score.
      The four   factors    making up the basic      score   are:
      1.   The number of unemployed        workers residing    in the
           project     area 1/ averaged    over the 3 most recent
           months for which data is        available.    This factor
           constitutes     30 percent of    a project's   basic score.?/
      2.   The average     rate of unemployment in the project
           area for the      3 most recent months for which data
           is available     at the time of application.
           This factor     constitutes   25 percent- of a proj-
           ect's basic     score.
      3.   The labor intensity        of the project;    i.e.,    the
           relation     of total   labor cost to total      project     cost.
           Project's     with labor costs that are less than
           10 percent of the total         cost are not eligible        because
           labor costs do not make up a sufficient             part of the
           total    costs,   and those with labor costs above
           80 percent are not eligible          because such projects
           are considered generally         to be "leaf raking"        or
           maintenance activities.          This factor    constitutes
           I-30 percent of a project's        basic score.
           Projects    with a labor intensity    factor    of 35 to
           80 percent receive the maximum score for this factor
           and those from 10 to 34 percent are scored according
           to their    respective   ratios of total    labor costs to
           total   project   costs.
      4.   The per capita     income in the applicant's political
           jurisdiction.      The per capita income data used is


A/ In accordance with sections      108(e) and (f) of the act,
   the project    area is defined without     regard to political
   boundaries and may be a portion       of a political   juris-
   diction    or may include adjoining    areas.
2/ Generally,    basic scores were calculated      on the basis of
   the relative    ranking of a factor.      See page 17 for an
   example explaining     how the score for the number of
   unemployed was determined.


                                      6
          that obtained for calendar year 1972 by the Census
          Bureau for the Department of the Treasury's
          General Revenue Sharing Program.    This factor    con-
          stitutes  1S pert%
                        --     of a project's  basic  score.
     A project's basic score will          be increased      if   the project
meets one or more of the following          criteria.
            --The project      will provide long term benefits           to
               the community.          A project's     basic score will
               be increased by -&--a   10 Dercent if it involves
               the construction          of or complete renovation
               of a public facility          and by 5 percent if
               it is to either         (1) provide newrecreational
               or cultural      facilities      or (2) rehabilitate
               existing    facilities.       The basic score is
               not increased for projects            involving   repairs
               which do not constitute            major renovations.
            --The project      is sponsored by a local government
               unit.   A project's   basic score is increased
               by -L--e
                    5 oercent if it is sponsored by either
               a general purpose unit of local government
               or a school district      and by 3 percent if it
               is sponsored by a special purpose unit
               of local government.
            --The project     relates    to an existing  approved
               plan for the community or region in which
               it is located.       A project's   basic score
               is increased by -w-m 5 percent if it meets this
               criteria.
FINAL SELECTION
I__----_y_-
       The data for projects      selected     for processing   was entered
into the computer by the regional          offices    and ranked according
to the prescribed     formula.     Once ranked, EDA regional       office
teams, made up of specialists         such as engineers and environ-
mentalists,    made indepth reviews of the highest ranked
projects--  an estimated     3,500 such reviews were made.
       The final   selection  of projects  was made by a selection
committee composed of EDA headquarters         and regional      officials.
The committee's     selection  of projects   from each State was
based primarily     on the ranking of projects     within     the
70-percent    category and within    the 30-percent    category.         However,
projects   which ranked below others were selected          in many cases
to avoid undue concentration      of funds in a particular           county or
city.
       To avoid concentrating      funds in a particular      county
or city,    EDA established    a so-called   “benchmark” based
on the relationship      between the number of unemployed
workers in a jurisdiction       and the number of unemployed
workers in the State or county.          That is, if 10 percent
of a State’s     unemployed workers resided in a county,
projects    would be selected    according to their      rank
until    the level of grants awarded in that county exceeded
10 percent of the State’s       planning allocation.        Once the
benchmark was exceeded, no additional         projects     would
normally be approved for that county.
      The projects selected were published   in the Federal
Register  on December 23, 1976, at which time the applicants
were put on notice that selection    did not constitute     final
approval as each project   was subject to further     review to
insure that it complied with all provisions     of the act.




                                    8
                               CHAPTER 3
                               ----a--
          PROBLEMS
          ------   AND COMPLAINTS--WHAT
                 -----       p-_LI------ CHANGESCAN
                     BE MADE TO PROGRAM
                     -p-L               BEFORE
                                      ----a
              ADDITIONAL FUNDING IS I------
              .----                   MADE AVAILABLE
                        FOR FISCAL YEAR 1977
                        _II_------
       In oversight   hearings on the implementation         of the
local public works program, the House and Senate Subcommit-
tees considered proposed legislation         which would authorize
additional   appropriations      for fiscal  year 1977.      A major
purpose of the hearings was to determine what,problems
occurred   in the allocation       of funds and selection     of
projects,   and what could be done to resolve the problems
before any additional       funds are made available      for fiscal
year 1977.
       In testifying      before the Subcommittees,     the Assistant
Secretary    for Economic Development suggested that it may
be preferable      that any new authorizations      and appropriations
for the program make maximum use of the backlog of applica-
tions.    Of the 22,000 applications        scored and ranked
by EDA, about 20,000 --totaling        about $18 billion--remain
unfunded.      There are a number of actions which could be
taken to resolve the major problems in allocating             funds
and selecting      projects    which would not require     the resubmis-
sion of applications.
THE 70-30 PROVISION
      One of the major criticisms    of the project     selection
process is that many of the projects      selected   for funding
were not from the areas with the severest        unemployment
problems.   One of the major reasons for this is that under
the 70-30 provision,     30 percent of the funds had to be set
aside for project    areas having unemployment rates at or
below the national    rate.
       Because the amount of funds applied for far exceeded
the funds available,    there were a great many unfunded pro-
jects in the 70-percent     category    that were located in areas
that had higher unemployment rates than those that were
funded in the 30-percent     category.       This is shown in the
schedule on page 11 for the States comprising          EDA's
Atlantic   Region.   (The Atlantic     Region States received
about 38 percent of the total       allocation.)     In reviewing
the schedule it should be remembered that projects           in
areas with the highest unemployment rates would not neces-
sarily   have been selected    if the 30 percent requirement

                                     9
was eliminated because of the other factors  considered
in the ranking formula and because of the benchmark
procedure used to avoid undue concentration.
       On February 8, 1977, the Director,          Office of Public
Works, EDA, transmitted        three documents to the House and
Senate Subcommittees.         (See app. III.)      One sets forth    EDA’s
and the Administration’s        policy determinations      and pro-
posals;     another discusses      the basis for the policy deter-
minations     and proposals;     and the third   is a draft    of
legislative      changes to implement the proposals.          EDA is
presently     testing   the effect    the implementation    of these
proposals     will have on the applications        received from six
States.




                                   10
                                                                                                      RANGE OF UNEMPLOYMENT
                                                                                                      ____-                       RATES                         OF
                                                                                                      LOCAL PUBLIC      WORKS PROJECTS                          IN
                                                                                                EDA'S-ATLANTICREGIONTPROJECT                                      CATEGORY




                                                                    _--__--__-~ 7" Oercfrt            CategG=              ----                                                                   33     Percent         Category                   ____
                                         ~__-~____---.         Selected                           _~------          Not           Selected                    -Selected                                 -__-
                                                                                                                                                              ----p-m-                                                 ____       _ Not   Selected
                                            Number                  Range      of unem-               Number                      Range    of      unem-           Number          Range    of         unem-             Number            Range      of     unem-
    State                                of projects                ployment       rates          G projects                      ployment         rates      of projects          ployment            rates          of projects          pllyment          rates

    Connecticut                                  22                        10.8-15.3                      293                           8.4-14.7                        11                 7.0-        7.6                   19                   6.6-       7.6
    District          of
        Cclumbia                                      7                      7.5-      7.5
    Delaware                                                                 7.6-11.3
                                                                             7.9-26.9                     296
                                                                                                             2;
                                                                                                                                        7.5-
                                                                                                                                        7.6-11.3
                                                                                                                                        7.6-17.8
                                                                                                                                                 7.5
                                                                                                                                                                   No?                    7.01
                                                                                                                                                                                          7.4-
                                                                                                                                                                                                       7.5
                                                                                                                                                                                                       7.7
                                                                                                                                                                                                                           Nonge

                                                                                                                                                                                                                             93
                                                                                                                                                                                                                                                  6.3:
                                                                                                                                                                                                                                                  5.3-
                                                                                                                                                                                                                                                             7.3
                                                                                                                                                                                                                                                             7.6
    Massachusetts                                279
    Maryland                                     20                          8.2-12.7                       61                          7.5-14.1                                          7.3.         7.7                  46                    6.6-       7.7
    Maine                                        10                          7.4-15.9a/                     93                          7.4-17.4&i                                        7.2-         7.7                  22                    6.6-       7.7
P   New Hampshire                                10                          7.8-11.6                           5                       7.9-     9.9                                      6.9-         7.0                 None
P
    New Jersey                                   34                        11.4-19.2                      914                           7.4-16.7                    24                    6.6-         7.8                   69                   6.6-       7.8
    New York                                    105                          8.4-13.2a/                1,271                            7 5-13.2+/                  75                    6.6-         7.7                 186                    6.6-       7.8
    Pennsylvania                                 43                          8.3-16.6                  1,065                            7.4-16.6                    25                    7.2-         7.6                 229                    6.6-       7.6
    Puerto        Rico                          122                        13.3-52.7                      504                           9.4-44.0                   None                                                    None
    Rhode       Island                           12                        10.1-11.9                        83                        10.0-11.9                       1                    7.6-        7.6                     5                  7.1-       7.6
    Virginia                                                                 8.9-21.1                     140                           7.7-21.1                      4                    7.3-        7.7                   94                   6.6-       7.7
    Virgin        Islands                          ;                         8.9-     8.9                                               8.9-       8.9             None                                                    None
    Vermont                                      19                          7.9-12.3                          4:                       7.!-11.6                      5                   7.0-         7.5                     9                  6.7-       7.0
    k!est    Virginia                            11                          8.0-21.1                          56                       7.6-21.1                      9                   7.1-         7.5                   25                   6.7-       7.5

    C'Projects              in   areas         reporting             extremely         high     unemployment               rates         which         GAO considered        unrepresentative                  were       eliminated        as    follows:

                                                                                  70 -----s_
                                                                                      Percent        Catecot-y               ______
                                         ---               -se-d--                                                  riot     Selerted
                                             Number                   Unemployment               -TIuiii-                     TJrG I@TCyment
     State                               of
                                         -____~projects                   rate                    ofprojects                         rdte

     Maine                                                                                          17 (one
                                                  4                        48.5                  applics,it)                           4b.5
    Maine                                      None                                                    3                               46.5
    New York                                      1                        60.0                        2                               60.0
Alternatives
-----            proposed
        One EDA and Administration     proposal   is to delete
section 108(d) of the act which required          the 70-30 percent
breakout of funds.      This alternative     would be the most
effective    in making sure that those project       areas with the
severest    unemployment problems receive assistance          since
they would be selected on the basis of their           relative
ranking.
      Another alternative       is to reduce the percent of funds
that would go to areas with unemployment rates below the
national   rate.    Legislation     has been introduced        in the
Senate (S. 427) that would amend the act to require                 a
85-15-percent    split;    this provision     would reduce by half
the amount of funds available          for areas with unemployment
rates below the national        rate.     Nevertheless,     with an
unfunded backlog      of about    16,000 applications       for about
$14.8 billion    in grants in the 70-percent           category,    this
method would not provide the fullest            assistance     possible
to those areas with the greatest           need in terms of
unemployment.
PROBLEMSWITH UNEMPLOYMENT
                        DATA
      Numerous, varied complaints      have been raised about the
labor statistics    available    for use in this program.   Some
of these complaints     stem  from the methodology used by the
Bureau of Labor Statistics       (BLS) in developing  the data.
GAO issued a report     to the Congress in May 19711/ on the use
of such data for EDA programs.
       BLS is taking action  to deal with some of the problems
concerning   the methodology used in compiling   unemployment
data; however, these actions are long range and therefore
will have no effect   on the applications   to be funded during
fiscal   year 1977.  For this reason, the problems relating     to
the methodology used by BLS are not addressed in this report.




           --a




L/More Reliable    Data Needed as a Basis for Providing
   Federal Assistance   to Economically  Distressed Areas
   (B-133782, May 10, 1971).

                                    12
       Other complaints stemmed from gerrymandering         project
area boundaries from which the unemployment data was
collected   and the use of different     sources and reporting
periods for the data.     Another related     problem resulted
from EDA's use of logarithms      rather than the absolute
number of unemployed workers in its project         selection
formula.
Gerrymandering   I_-of project
                         ------   areas

       In accordance with the act, an applicant        may include
the unemployment data for its own jurisdiction          as well as
adjoining    areas from which the labor force would be
drawn.    Since the number of unemployed and the rate of
unemployment account for 30 and 25 percent of a project's
basic score, respectively,      there is a significant      incentive
for jurisdictions     to gerrymander  their project     areas to
increase these factors.
        According to an EDA official,     internal    guidelines   were
established     which roughly specified     the maximum project
area size that EDA would accept.         A Standard Metropolitan
Statistical     Area (SMSA)i/,  a labor market area?/,        or a
county would normally be acceptable.           For those project
areas which crossed boundaries of SMSAs, labor market areas,
or counties,     the maximum size acceptable       was generally
limited     to an area which would not include more unemployed
workers than 100 times the anticipated          number of workers
to be employed in constructing        the project.
       Gerrymandering   resulted    in some areas being assisted
that had less severe unemployment problems than others
that were not assisted.        Another result      of gerrymandering
is that in some cases a relatively           wealthy suburb was
selected on the basis of the unemployment data of an
adjoining    city while the city      itself   received little    or no
assistance.




----

L/Generally   defined as a county or group of contiguous
   counties which contain at least one city of 50,000 persons
   or more or twin cities  with a combined population   of at
   least 50,000.
Z/BLS defines a labor market area         as one or more counties
   wherein 85 percent of the labor        force lives and works.

                                     13
        For example,        the City of Greenwich             Connecticut,        by
including       the unemployment        statistics        of a neighboring
city,     reported      an unemployment         rate of 7 percent            whereas
Greenwich’s        rate,    which when taken by itself,                 was less
than 4 percent.          The city’s     project     --costing        an estimated
$4.2 million,         or   about   10 percent       of   the   total      qrant
funds allocated          to Connecticut       --was    selected        although
Greenwich       had the second highest             per capita        income of any
applicant       in the State--$8,283.

        The Assistant           Secretary   for   Economic     Development,        in
his   testimony    to        the subcommittees,       stated    that:
       ‘I*     *   relatively
                    *              affluent     areas within        commuting
       distance       of economically        distressed      cities     were
       * * * able to include              the cities      in their     project
       areas.        Consequently      , the projects       submitted       by
       such places         often   scored higher        than city      projects,
       despite       our efforts       to avoid such situations             by
       including        the income level        of the applicant’s
       jurisdiction           as a factor     in the scoring        formula.

       “Although    the unemployed            residents      of the nearby
       cities    are likely      to obtain         some of the construction
       jobs generated       by such projects,             the long-term      bene-
       fits   of the project         will     in many cases accrue         to
       residents    of the jurisdiction              in which the project
       is located.       Moreover,        funding      such projects     can
       result    in assisting        jurisdictions          that are better
       able to finance        public      works improvements          on their
       own.”
Alternatives            proposed
                              --
       EDA and the Administration         are proposing     that sections
108(a)   and (f) of the act,      which permitted       gerrymandering,
be eliminated.     They propose      instead    that   unemployment
data be developed    on the basis       of the following       project
areas:

       1.          If the project       is to be located      in a city  with
                   50,000 or more residents,          then the maximum
                   unemployment      data that could be reported        by the
                   applicant    would be limited        to the unemployed
                   workers   residing      in the city.

       2.          For projects    that are not located      in such a
                   city,   the unemployment     data will  be based
                   on the entire     county,  except  that   the unemployment
                   data of any city      of 50,000 or more resi-
                   dents that    is located    in the county    would be
                   deducted.


                                            14
       Although this alternative     may help solve some of the
problems caused by gerrymandering,          it would not be a complete
solution.     This is   because  the cities     and towns below
50,000 population      would not report     their  own unemployment
data but rather    the data for the entire        county.     In some
counties,    small cities    and towns could report       higher
unemployment numbers than cities         of over 50,000 within
those counties.
       Further,    this alternative      would make no distinction
in the severity       of unemployment among the communities
in a county other than those with 50,000 or more residents
since all but the major cities           would report      the same
number of unemployed workers and unemployment rate.
Therefore,      if the project    selection     formula is revised as
proposed by EDA to consider only the number of unemployed,
the unemployment rate,         the per capita income, and the type of
government unit sponsoring          the project     (see p. 23 for a more
detailed    description    of the formula),        within    individual
counties    the only variable       for projects      submitted     by the same
types of government unit in communities with under 50,000
residents     will be the per capita income.             This would result
in selecting      many projects     based on per capita         income rather
than on severity       of unemployment problems to which the
program is directed.
       Also, smaller communities generally       have lower per capita
incomes (as well as lower living       costs).    Because of this,   in
those counties    with applications    received for several communi-
ties with under 50,000 residents,        the projects   of the smaller
communities would most likely       have the highest scores and
therefore    have the best chance of being selected.
       Another alternative      proposed by representatives            of various
government units-and       organizations       is to require     communities
to report    the actual unemployment statistics             in their
own jurisdictions     only.     An EDA official        told us that a dis-
advantage of this proposal         is that it would require          using more
than one source of unemployment data.               This is because BLS only
compiles data from counties          and cities     with populations      of
50,000 or over.      Another possible        disadvantage      of this
proposal is that rural areas might not receive a fair
share of assistance      because although unemployment numbers
and rates in rural communities           are generally      low, many
suffer   from severe underemployment problems.;/                Separate


L/According    to the Department of Labor, underemployed
   individuals   include those who are involuntarily     working
   less than full    time, working below their    skill capacity,
   or working full     time for less than poverty-level   incomes.

                                     15
allocations  could be made for rural and urban communities,
but this might further  complicate  an already complex
allocation  procedure.
Unemployment data reported     was
from different     sources and for
different   perliods
       For purposes of the act, unemployment data for the
3 most recent consecutive        months are to be used.      The
latest   unemployment data from the two primary sources used
for this data-- BLS and the State Employment Security
Agencies (SESAs) --were not seasonally          adjusted and usually
based on different     reporting    periods.     The BLS data used
was normally     for April,   May, and June 1976 while the SESA
data used was more current--usually          July, August, and
September 1976.      Because of this,      seasonal employment
patterns   affected   the unemployment data of some applicants.
       In many parts of the Nation employment tends to be
higher in the summer months than in the other months of
the year.    This is particularly     true in agricultural      areas
or areas with important      tourist  industries.    Applicants     from
such areas reporting    unemployment based on summer months
would report   lower figures     than would be the case if seasonally
adjusted data were available.
       Such differences     in the unemployment data could affect    a
project's   ranking.     Also, slight  variances    in the unemployment
rates could mean the difference       of a project    falling in the
top of the 30 percent category where it had a good chance for
selection   or in the bottom of the 70 percent category where,
in many States,      its chances for selection     would be remote.
       In accordance with the Office of Management and Budget
Circular    A-46, EDA required  applicants     to use BLS unemployment
data when it was available.       Applicants    designating project
areas for which BLS unemployment data was not available          were
to use SESA data.     Those applicants     using SESA data, if from
an area affected    by summer employment, would then generally
report   lower unemployment numbers and rates.
Alternatives   proposed
      EDA and the Administration    are proposing that section
108(c) of the act be amended to provide that applicants       use
the latest  available  (and uniform)   12-month average unem-
ployment data from BLS and, for Indian tribes,      the Depart-
ment of the Interior's    Bureau of Indian Affairs    (BIA).
This would eliminate   the seasonal employment effects;


                                  16
however,   data for a 12-month                                      period  does not reflect                         the
cyclical   unemployment  trends                                     to which the program     is                      directed
as closely    as does a 3-month                                     period.
       Another     alternative     discussed    in congressional     hearings
is that all       applicants     be required   to use the same 3-month
period    for reporting        unemployment   data.    Although  the use of
a uniform      3-month period      would not be as effective       in dealing                                                        ’
with seasonal        employment    variations     as a 12-month  period,      it
would appear to be an improvement             over the use of different
3-month     periods.

Effect  of
        ?-- logarithms
on scar inq

        Another      problem      frequently          mentioned        was that many larqe
cities,     where unemployment               problems        are reported         to be the
most severe,         received       little        or  no   funds     under    the   program.
Reportedly      ,  nearly     half       of  the     Nation’s       100  largest     cities--
including     Miami,       Florida;         Pittsburgh,          Pennsylvania;       Syracuse,
New York;      and Seattle,           Washington--are             in this     category.        One
of the contributing             factors         to this      situation      was that       EDA
converted      the absolute            number of unemployed              workers     residing
in project        areas to logarithms,                which had the effect             of
reducing     the relative           importance          of the unemployment            scores
of the large         urban areas.

          In developing        the scoring     factors     in the project        selection
formula        for the number of unemployed             in a project       area,     EDA
officials         were of the opinion        that    if this     factor    were based
on the absolute          number of unemployed           workers,      it would favor
large       urban areas and result         in a concentration            of projects.
Accordingly,          a decision    was made to use logarithms               to
facilitate         competition     among project        areas of various         sizes.

           The effect                the     use of logarithms       would                        have on scoring
three       projects                used     as examples    is illustrated                            below.

                                                 Unenploynent             score          Unemploycent          score      us~nq
                          N”nber        -usina
                                          ----       lorlarlthms
                                                       ----caleTi---.-i-i (note    a)    absolute
                                                                                         ----     Scaled numbers
                                                                                                    __ ----           (note
                                                                                                                  ~nai--        a)

                       unemployed
                       e-w--            Iooarlthn
                                        -1-----               scores
                                                              -----           scores
                                                                              ----               scores         scores
                                                                                                 -----          ---
Prolect
ProJect        AB         312,890
                          249,200           5.4953
                                            5.3965              100.0
                                                                 98.1             30.0             100.0            30.u
Prolect        L           17,930           4.2536                                29.4               79.6           23.6
                                                                  77.4            23.1                 5.7           1.7
G/‘Scaled           scores    are determlned         by trcatln?       the largest           number     as 100 ana each
    of tne          others    as a percentaqe           of the larqest;         i.e.,      uslnq    looarithns       ,
    prolects            D arid C woulJ       be scalc:i      as 98.1   and 77.4 , resnectively,                  and
    wl thout          loqar lthms       th?y  woul-l    !:je 79.6  and 5.7,       resnectlve1.d.            The sccl et+
    scores          are- then     multiplied       by the 33-oercent         weight        qlven    knls      factor
    in the          formula     to arrive      at the final        unemDloynent         score.




                                                                    17
Using logarithms,    the score      for project   A is only 1.3 times
that of project   C, whereas      in absolute numbers it is over 17
times as great.     The use of      logarithms   then would make
project  C competitive    with    project    A, depending on the
remaining factors    considered       in the project   selection
formula.
Alternative
me-.-          proposed
       An EDA official told us that although EDA plans to
eliminate   the use of logarithms,    no decision   has yet been
reached on whether it will     use the absolute    unemployment
numbers or use some other mathematical       technique  in place
of the logarithms.
Indian   unemployment--- data
      Indian tribes   applying for grants used unemployment
data supplied by BIA because BLS and SESA do not collect
data on Indian reservations.      This created a problem,
however, because BIA's unemployment data for Indian
reservations   is calculated   on different  bases than are
used by BLS and SESA.
       In testifying    in House and Senate hearings,     the
Assistant    Secretary    for Economic Development stated that
although the rates of unemployment are significantly
higher in Indian communities,        the differences  in the bases
used by BIA in compiling       unemployment data appear to
magnify the gap.       He said that because of this,    projects
submitted    by Indian tribes    received such high scores on the
basis    of unemployment rates that they generally      ranked
higher than those of other areas.
        Indian projects     selected   for grant awards nationally
totaled     about $61 million,      or 3 percent of the $2 billion
appropriated     for fiscal     year 1977.    In certain    States,
however, Indian tribes         were awarded an extremely      large
share of the total      State allocation      in proportion     to their
numbers.      For example, projects       for Indian tribes     reportedly
accounted for about 70 and 50 percent of the funds allocated
to the States of South Dakota and Montana, respectively.
       The major differences   between BIA unemployment data
and SESA data were in the definition       of unemployment and the
reporting   periods used.    BLS unemployment data includes all
those 16 years of age and over who are actively        seeking work,
are available    for work, and have no earnings.      BIA unemploy-
ment data can include all those not working whether they
are seeking work or not-- including     students  and housewives--
as well as those people already employed who desire
a different   job.

                                     18
     According to EDA officials,         the BIA unemployment
data used covered different      time    periods than either
BLS or SESA data.
Alternative   - proposed
                     -I
      Because BIA unemployment data is not comparable to
non-Indian  data, EDA and the Administration    are proposing
that the act be amended to require    a separate fund for
Indians of up to 2.5 percent of the amount appropriated.
Proposed legislation   (H.R. 11 and S. 427) also provides
for a 2.5 percent fund for Indian tribes.      According
to EDA, the fund would allow Indian projects      to com-
pete independently   of all other projects   in the Nation.
INTERRELATIONSHIPS
      -----        OF VARIOUS PROPOSALS
                                -II
      When contemplating        possible   changes to the local
public works program, the interrelationships               of the vari-
ous factors    involved     in the program must be considered.
For example, if the proposal           is adopted to eliminate
gerrymandering      of project     areas by requiring      each         ,
applicant-township,       city,    county,  etc.--to     use unemployment
data covering only the applicant's           jurisdiction,      then
the proposal to require         that BLS unemployment data
be used exclusively       would not be feasible         because BLS
does not collect      unemployment data for all small towns
and cities    in the Nation.
      This also holds true for so-called        "pockets of
poverty"    in inner cities.     If these areas are allowed to
submit their    own applications    for assistance,     then SESA
unemployment data must be used because BLS generally           does
not collect    unemployment data for sections       of cities.
RELATIGN OF GRANT AMOUNTS
TO COMMUNITYSIZE
       Although EDA regulations         impose a $5 million    limitation
on grants for individual         projects,     which may be waived under
certain    circumstances,    no provision       is made to relate    the
amount of the grants awarded to the population              or to the
number of unemployed workers residing              in small communities.
This has resulted      in criticism       about a number of small
communities being selected          to receive what are considered
inordinately     large grants.
      A frequently    cited example is the town of Mound Bayou,
Mississippi   which, with a 1973 population      of about    2,200,
received about 50 percent of the State's       total   allocation   of
$10 million.      There were a number of other cases where small
communities had large projects     selected  for funding.

                                    19
       As described on pages 7 and 8, EDA selected projects
according       to their  ranking until      a community's   benchmark
was exceeded.         Generally,    the benchmarks for counties
and large urban areas were determined             by applying the
percent of the State's           unemployed workers residing
in a county or urban area to the State's             planning alloca-
tion.     (In those instances where unemployment data
was not available,        population     data was used.)     For
example, if a county has 5 percent of the State's
unemployed, its benchmark would be 5 percent of the
State's     allocation.       County benchmarks were subdivided
among the smaller urban areas and towns on the basis
of the relationship         of unemployment in these areas
to the county as a whole.             The benchmark procedure does
not appear to work satisfactorily             for small communities.
This is because a city or a town would have one project
selected      if it scored high enough without         regard to
its benchmark.
       For example, although the City of Norton,
Massachusetts,      had a benchmark of only $19,065 (about
0.04 percent of the State's        allocation     of $52 million),
EDA selected     the $2 million    project    it applied for on
the basis of the project's        ranking.      Similarly,     EDA
selected   a $4.5 million     project   applied for by the
City of Thomaston, Connecticut,         which had a benchmark
of $99,553 (about 0.2 percent of the State's               allocation
of $48 million).
        Had benchmarks been adhered to more closely,          more
communities would have been able to participate            in
the program.       For example, in the State of Massachu-
setts the cumulative        benchmark amounts for the 33
communities selected        to receive grants totaled    about
$14.5 million,      whereas the grants to be awarded
these communities totaled         about $52.5 million,   a
difference    of $38 million.       In the State of
Connecticut     the cumulative     benchmark amounts for
29 communities      that were selected     to receive grants
totaled    about $20.7 million,      whereas the grants to
be awarded these communities totaled          about
$48.4 million,      a difference    of $27.7 million.
       EDA and the Administration    have not proposed
any changes to deal with this problem.       EDA officials
told us that although they were studying      the matter,
there is a question of whether it would be fair to
impose a grant limitation      on small communities on the
applications   they have already submitted.




                                     20
         During congressional     hearings,     an EDA regional
official      suggested that one way to deal with this
problem is to multiply        the benchmarks of small communi-
ties by a given factor        and require     that grants be limited
to this amount.        This proposal could be made more flexible
by varying the factor       according      to the population      of the
community and by granting         waivers,    where justified,
similar      to what is done for the $5 million        limitation.
Another somewhat similar         proposal discussed in congres-
sional hearings would be to set a maximum dollar                amount
based on a community's        population.
PRIORITIES OF APPLICANTS WERE
-up
GENERALLYNOT CONSIDEREDI_- IN
SELECTING
------    PROJECTS

       Under procedures     followed    in selecting  projects,
EDA was generally       unable to give consideration      to the
applicants'   priorities.        The only instances   in which an
applicant's   priorities      could be considered    was when it had
two or more projects       with tie scores.
        An official    of EDA stated that in the case of tie
scores among a single applicant's            projects,     EDA adhered
to that applicant's        priorities    whenever they were known.
He said that if EDA had no knowledge of the applicants'
priorities,       that project     or combination     of projects   that
exceeded the area's benchmark by the least amount was
selected.       For tied projects      submitted    by different    appli-
cants from the same area, EDA selected              the project   con-
sidered most desirable          in its own judgment.
     The overall     selection   process resulted    in a number
of complaints    from applicants     that projects   were selected
which they considered       less important   than others.
      Even in instances         where applicants             had projects     with
tie scores there were complaints                   that EDA failed       to
consider     the applicants'        priorities.            For example, a
representative     of the County of San Diego, California,
complained that of 25 projects                 for which grant applica-
tions were submitted,         the project            selected     was ranked
23rd on the county's         priority        list.       Further,    of the 10
county projects      that had tie scores,                there were 8 that
ranked above the one selected.                   The representative         said
that a county offer       to provide EDA with information                    on
the priorities     of the projects             was rejected.
     An EDA official  said that for those applicants   that
had projects with tie scores,   substitutions for selected


                                          21
projects    will be permitted            but that no additional             funds
will    be made available     to       finance   any additional           costs
involved.

        Another    problem      which makes it difficult                 to give
consideration        to local      priorities        is that     two or more
applicants      from the same community                may submit       grant
applications.          For example,         a city     government        as well
as another      governmental         unit     in the same city,            such as
a school      or fire    district,         could   submit    applications.
In such a case there may be conflicting                      priorities.

Alternatives ---    proposed

          EDA and the Administration            are proposing       that
applicants       be requested      to set priorities          for all
projects      and that wherever        possible,       only priority
projects      be funded.        In addition,       they are proposing        that
priority      be given     to projects       sponsored      by general    purpose
units      of local    governments      over all      other   units    of
governments,        but that a chief         executive      of the general
purpose      government      unit  could sponsor         a project     of a
special      purpose    government      unit    if it was a local
priority.

AGENCY ACTIONS TAKEN TO
SIMPLIFY
--       THE REGULATIONS
                 -II_-
        A number of complaints             have been voiced       about the
complexities       of EDA’s regulations             and operating      procedures
for the program.             A major concern        is whether    the complexi-
ties    permitted       individuals      who were most familiar           with
Federal      grant    programs      and requirements        to prepare     grant
applications        in a way that would make them more likely                    to
be approved.          In other      words,    “grantsmanship”       might    be a
key factor       in enhancing        a project’s      chances of being
selected.

       In recognition        of this    problem,     EDA and the Adminis-
tration      are proposing       that   there    be a clarification          and
simplification          of the program      so that     it could be more
easily      understood.        To help avoid confusion           and disagree-
ment of the major objective              of the act,       they are proposing
that     the act be amended to include              a statement      of purpose.
Further,       they indicated       that some of the proposals             they
made, such as the standardization                 of sources       of unemploy-
ment data and the elimination               of gerrymandered         project
areas,      would help simplify         the program.




                                            22
       Another major change they are proposing       to simplify
the program is to revise the project       selection   formula
by eliminating   the factors   concerning   the labor intensity
and long-term   benefits   of the projects    as well as their
relationship   to local plans.    The remaining factors
would be handled as described      in the following.
      1.   The project  area would be redefined  and a new
           unemployment rate computed for the new area.
           This factor would be worth 40 points.
      2.   The number of unemployed in the redefined
           project area would be worth 40 points.
      3.   The per capita income factor  would be
           deemphasized on the basis that it does not
           adequately consider  the cost of living  in the
           area.   This factor would be worth 10 points.
      4.   The government units categorized   as general
           purpose units and special purpose units                 (
           would be changed, with school districts    no
           longer classified  as a general purpose unit.
           General purpose units would receive 10 points,
           special purpose units would receive 5 points,
           and States would not receive any points.




                                  23
 APPENDIX I                                                                                                  APPENDIX I

                                             PLANNING ALLOCATIONS
                                     ANNOUNCED BY EDA ON OCTOBER 18,                       1976


EDA Region                                                          EDA Region

     State                                    Amount                   State                                            Amount

                                       (in     millions)                                                         (in     millions)

Atlantic:                                                           Southwestern:

     Connecticut                             $ 48.422                 Arkansas                                         $ 10.000
     Delaware                                  10.000                 Louisiana                                          25.468
     District     of Columbia                  10.000                 New Mexico                                         10.000
     Maine                                     10.000                 Oklahoma                                           16.493
     Maryland                                  20.167                 Texas                                              55.592
     Massachusetts                             52.323
     New Hampshire                             10.000                             Total                                $117.553
     New Jersey                               100.038
     New York                                 232.910               Rocky      Mountain:
     Pennsylvania                              83.385
     Puerto    Rico                           127.481                 Colorado                                         $ 12.612
     Rhode Island                              16.452                  Iowa                                              11.890
     Vermont                                   10.000                  Kansas                                            10.000
     Virginia                                  21.847                 /o;;;;l;i                                          19.497
     Virgin    Islands (note    a)              4.000                                                                    10.000
     West Virginia                             10.000                 Nebraska                                           10.000
                                                                      North Dakota                                       10.000
             Total                           $767.025                 South Dakota                                       10.000
                                                                      Utah                                               10.000
Southeastern:                                                         Wyoming                                            10.000

     Alabama                                 $ 18.439                             Total                                $113.999
     Florida                                  136.683
     Georgia                                   24.836               Western:
     Kentucky                                  15.228
     Mississippi                               10.000                 Alaska                                       $ 10.000
     North Carolina                            28.039                 American   Samoa (note            a)             3.000
     South Carolina                            13.454                 Arizona                                        13.214
     Tennessee                                 22.509                 California                                    250.000
                                                                      Guam (note a)                                    3.000
             Total                          $269.188                  Hawaii                                         10.000
                                                                      Idaho                                          10.000
Midwestern:                                                           Nevada                                         10.000
                                                                      Oregon                                         29.491
     Illinois                               $ ;p;;                    Washington                                     40.156
     Indiana
     Michigan                                 158:311                           Total
     Minnesota                                 16.831
     Ohio                                      59.578
     Wisconsin                                 21.741

             Total                          $343.374

a.     In accordance   with the      act,      American    Samoa,    Guam,        and the     Virgin   Islands   received
       a total   of $10 million.


                                                             24
                                                                                                             APPENDIX II
APPENDIX II




                               COMPTROLLER        GENERAL     OF THE     UNITED         STATES
                                                WASHINGTON.    DC.    20548



                                                                                          :$$&       B-126652
                                                                                          February     16,   1977
     The Honorable   Sidney          R. Yates
     House of Representatives

     Dear   Mr.    Yates:

              This refers       to your letter           enclosing         for our review         copies      of letters
     from you to several              executive       branch     officials        concerning        the manner in
     which the Department               of Commerce was planning                 to distribute         funds appro-
     priated      to carry      out the Local           Public     Works Capital          Development         Act of
     1976, Pub. L. No. 94-369                 (July     22, 1976),         title    I, 90 Stat.        999, 42 U.S.C.A.
     $5 6701 et seq.            You questioned           whether       the formula        by which the Economic
     Development         Administration          allocated       funds to the States              as planning
     ceilings       for project         approval      within     those States          conflicted        with    the Act.
     You asked that we review                 this matter        to determine          if the formula           adopted
     complies       with   the intent         of the law.

             Your letters       to the executive          branch    officials        expressed       doubts     as
     to the legality        of the administrative             decision        to allocate      title      I funds
     on the basis      of unemployment         statistics        for States       as opposed         to "project
     areas."      In addition      , you objected         to the Commerce Department's                  adoption
     of an allocation         formula   which gives          weight     to both rates        of unemployment
     and numerical       unemployment      figures,         as follows:

            “Subject      to program       administrative            costs and statutory
            minimum and maximum amounts                  allocated       to individual
            States      by the legislation,            65 percent        of the funds will
            be set aside         as planning       ceilings        for individual          States
            based on the share of unemployed                     workers     residing        in
            the State       of the total       national         unemployed;        35 percent
            of the funds will          be set aside           as planning        ceilings       to
             individual       States   based on the relative                severity       of
            unemployment         for each State          above the national             unemploy-
            ment rate."          (See 13 C.F.R.          5 316.8(b),        set forth       at
             41 Fed. Reg. 46421 (October                 20, 1976).)

      You expressed    the view that the allocation                           formula       should    be based      solely
      on relative   volume of unemployment.

             Based on our analysis        of the relevant    statutory        provisions,       set forth
      below,    it is our opinion      that neither     the State    allocation         framework     nor
      the "65-35"     formula  adopted      by the Commerce Department           constitutes       an
      abuse of administrative        discretion     under the Act.




                                                                 25
APPENDIX II                                                                                                  APPENDIX II


            In an effort         to stimulate       employment,          the Congress          enacted    title      I
   of Pub. L. No, 94-369,               which provides          for grants         to State or local             govern-
   ments for local            public    works projects.            Title      I authorizes          the Secretary
   of Commerce to make grants                 for 100 percent            Federal      funding       for construction,
   renovation,        or other        improvement       of local       public      works projects,           including
   projects       for which Federal           assistance        is authorized           by provisions          of law
   other      than the Act *, grants          increasing        the Federal          contribution       to a public
   works project          for which Federal           financial        assistance         is authorized          by other
   provisions        of law where such Federal                assistance         is immediately         available,
   but construction            has not been initiated              because       of lack of funding              for the
   non-Federal         share;      and grants      for all or any portion                 of either     the State
   or local       share     (but not both)         of the cost for any public                    works project
   authorized        by any State or local              law.      See generally,            sections    103-105        of
   the Act, 42 U.S.C.A.               $5 6702-6704.

           Section      108 of the Act, 42 U.S.C.A.     $ 6707, sets forth     criteria                           for
   grant    allocations       and priorities.  Subsection     108(a) provides:

                   “Not less than one-half               of 1 per centum or more than
           12 l/2 per centum of all amounts appropriated                           to carry     out
           this    title     shall      be granted      under this Act for local             public
           works projects            within    any one State,        except   tllat     in the
           case of Guam, Virgin              Islands,      and American      Samoa, not less
           than one-half           of 1 per centum in the aggregate                  shall   be
           granted       for such projects            in all   three    of these jurisdictions.”

   Subsection        108(d)     prcvides      that:

                      “Seventy     per centum of all amounts appropriated                      to
           carry       out this Act shall             be granted   for public        works
           projects         submitted      by State or local         governments        given
           priority         under clause        (1) of the first        sentence      of sub-
           section        (c) of this        section.       The remaining        30 per centum
           shall       be available        for public       works projects         submitted      by
           State       or local      governments        in other   classifications           of
           priority.”

   Subsection        108(c)     provides      in      pertinent        part   that:

                  “In making      grants     under this Act,      if for the three
           most recent      consecutive       months,    the national     unemployment
           rate is equal        to or exceeds       6 l/2 per centum,       the Secretary
           shall    (1) expedite       and give priority       to applications      sub-
           mitted     by States     or local     governments    having    unemployment




                                                                  26
APPENDIX II                                                                                                             APPENDIX II



     B-126652



               rates  for the three most recent              consecutive     months      in
               excess of the national          unemployment        rate and (2) shall
               give priority     thereafter       to applications         submitted      by
               States   or local    governments        having    unemployment       rates
               for the three most recent            consecutive       months in excess
               of 6 l/2 per centum,         but less than the national              unemploy-
               ment rate.    ;k 2 ;?'I

             Subsection       108(a),      supra,     constitutes,      in part,   an allocation      of funds
     to the States         (the minimum)         and, in part,      a limitation       on any State's
     entitlement        (the maximum).           Within      these extremes,     amounts may vary depending
     on the procedures           prescribed        by the Secretary        for approving     grant  applica-
     tions.      In this      regard,      section      107 of the Act, 42 U.S.C.A.          $ 6706, requires
     that:
               ".$< -2 f Such rules,             regulations,            and procedures           shall      assure
               that adequate            consideration             is given       to the relative             needs
               of various         sections         of the country.               The Secretary           shall
               consider       among other            factors         (1) the severity           and duration
               of unemployment              in proposed           project      areas,      (2) the income
               levels      and extent          of underemployment                in proposed          project
               area,     and (3) the extent                  to which proposed             projects        will
               contribute         to the reduction                of unemployment,              The Secretary
               shall     make a final           determination             with     respect      to each ap-
               plication        for a grant            submitted         to him under.this             Act not
               later     than the sixtieth                 day after        the date he receives                such
               application.             Failure        to make such final              determination            with-
               in such period            shall       be deemed to be an approval                      by the
               Secretary        of the grant             requested.           For purposes          of this
               section,       in considering               the extent        of unemployment             or under-
               employment,          the Secretary              shall    consider       the amount of
               unemployment           or underemployment                in the construction                and
               construction-related                  industries."

     Section       108(b)  requires              the Secretary    to          give priority           and preference        to
     public       works projects            of     local governments             in making         grants   under    the    Act.

              The above-quoted           statutory     provisions      establish,       for the most part,
     very general         criteria        to guide    the Secretary       in accepting        applications         for
     grants      and leave        him broad discretion           to determine      which projects           should
     receive      grants.         Furthermore,      the regulations         adopted     generally       reflect
     the factors        that the Act requires             the Secretary        consider     before      accepting      an
     application        for a grant.            See 13 C.F.R. 4 316.10.




                                                                   27
APPENDIX II                                                                                                     APPENDIX II




     B-126652




              With respect         to your first       point,      concerning        “project    area”    versus
     State     allocations,        there    is nothing       in the statute          or its legislative
     history       to preclude       use of State unemployment               figures      as the basic
     reference        point    for allocations.          In fact,       inclusion        of the maximum-
     minimum percentages,             by State,     specified        in section        108(a)   of the Act,
     suera*      implies     some congressional          recognition         that allocations         would be
     made on a State basis.

                We note that    13 C.F.R. $ 316.8,      which    establishes        the                    formula    by
     which      funds are allocated      to the States      as planning      ceilings                        for future
     project       approvals  within   the States,     provides     in part:

                         “(b)       State planning      ceilings.      Regional       offices   shall
                observe       with     respect   to each State      served     by it a ceiling
                on project         approval    recommendations.         The allocation        of funds
                to regions         and States     will   be made after       the funds have been
                apportioned          to EDA and will        be based on unemployment          data
                available         at that time.        EDA will    announce      the date on which
                the funds are apportioned               and the allocation          is made * * ‘+.

                        “(c)       It is to be understood                that the planning           ceiling
                assigned       to each State          is not to establish              ah entitlement             to
                any minimum level             of project        assistance       within       that State
                (unless      such is the statutory               maximum or minimum)              but is
                adopted      only     for the purpose           of furthering          the objective           of
                assuring       that adequate          consideration           is given      to the relative
                needs of various             sections       of the country.            Where the planning
                ceiling      calculated         on the formula           basis    is less than the
                statutory       minimum assured             for each State          the statutory
                minimum      shall      be the planning           ceiling,      and where the plan-
                ning ceiling          calculated         on the formula         basis     is greater         than
                the statutory          maximum for any State               the statutory         maximum
                shall     be the planning            ceiling.      * +: +:” (Emphasis            supplied.        )

     By use of the State planning            ceiling,    the Secretary        has attempted                           to
     satisfy     the requirement     that adequate       consideration        be given     to                     the
     relative      needs of various     sections      of the country.         As indicated                          above,
     there    is nothing     in the Act or in legislative             history    to indicate                          that
     State-by-State      allocations     in this manner are prohibited.




                                                                28
APPENDIX II                                                                                                     APPENDIX II



    B-126652



          Additionally,     the State    planning   ceilings    (within    the statutory
    minimums)     do not entitle     the States   to any funds.        The Secretary     may,
    upon reconsideration,        make adjustments     in the ceilings      necessary     to
    carry   out the purposes      of the Act.     13 C.F.R.  $ 316,8(d).

             With reference       to your second point,          concerning      the failure       to base
    allocation       amounts    solely    on each State’s         relative     number of unemployed
    persons,      former    Secretary     Richardson’s      letter       to you dated November        4,
    1976, explained         the rationale       underlying      the “65-35”       formula    adopted    by
    the Department’s         Economic     Development      Administration         (EDA) as follows:

                     “EDA considered          three     approaches           to developing        State
           planning       allocation        procedures.            The first        approach      was to
           base allocations             on a State’s         total       share of the Nation’s
           unemployed.            States    having      larger      numbers       of unemployed
           relative       to the Nation          would have greater               State    planning             *
           allocations,           although      the dollars         per unemployed           worker
           would be the same for all States                        (approximately           $260 per
           person)       with     the exception         of States         receiving       the minimum
           allocation.            However,      this    procedure         does not account           for
           the ‘severity           and duration’          of unemployment,             which is
           explicitly          stated     in the Act (Section                107) and is also
           supported        by the ‘70/30’           percent       distribution         requirement
           specified         in the Act.

                    “The second approach               was to base allocations                   solely    on
           severity        - - the degree         of unemployment             by State.          This
           approach        also has its drawbacks.                   Namely,       States      having
           small      to modest numbers             of unemployed           workers      but having
           high unemployment             rates     would      receive       disproportionately
           large      allocations,         whereas       States      having      modest      to large
           pools      of unemployed          labor     but lower unemployment                  rates
           would receive           disproportionately              low allocations.               Further,
           States       having     comparable         unemployment          rates     but different
           numbers of unemployed                workers      would have widely              divergent
           allocations          per unemployed           worker,

                   “EDA thus examined         a third      approach     thatattempts           to
           ‘straddle’     both the absolute           and severity        allocation
           procedures     and attain       a greater       degree of equity            (by
           accounting      for relative       distress)       and economic         efficiency
           (by selecting        projects     for areas having         large      pools      of un-
           employed    labor).         On grounds     of equity     and efficiency,              the
           following     points      were given      consideration:




                                                                29
APPENDIX II                                                                                                  APPENDIX II



     B-126652



                   - That large           pools of unemployed               labor      generally
                     would       include       a large number of unemployed
                     construction            workers       (particularly           skilled
                     workers)          to undertake         project       construction
                     activities.             Notably,        States      having      large
                     urban (metropolitan)                 areas generally              have
                     high unemployment               rates      and large         absolute
                     numbers         of unemployed          workers,         so that project
                      labor      requirements          potentially          could      be met
                      through        local     unemployed         labor      resources.

                   - That States       having       large numbers             of    unemployed
                     workers     would     tend to internalize                   the program's
                     expenditures,         creating      a multiplier               effect   and,
                     in short,      getting       more 'bang       for         the buck.'

                   - That the Act required                  explicit     consideration             of
                     distress   both in its               language      and in its          in-
                     clusion  of the '70/30'                 condition.

                    - That small areas having               relatively        high unemploy-
                      ment rates      should      be given        the opportunity         to
                      seek and secure          funds for useful            public   facilities.
                      Further,     such areas         should      be able to provide            most
                      of a project's         unskilled        labor    requirements          (which
                      generally     constitute         40 percent        of the total         man-
                      months of employment             generated       for the average
                      public    works project)           and some of the project's
                      skilled    labor     requirements.

                     "With    these considerations             in mind,      a procedure         was
            devised      whereby        35 percent    of the program's            funds would be
            distributed         proportionately         to States       having      unemployment
            rates      above the national           average;      the remaining          65 percent
            of the funds available               under the program           would be distributed
            to the States          based on their          share of the Nation's              unemployed,
            adjusting       for minimum and maximurn              State    allocations,          the
            program's       administrative          costs,     and mandatory         allocations        to
            the nation's          territories."

            For the reasons   stated              in the above-quoted               explanation,        it   appears
     to   us that  the EDA formula              gives   effect  to the             varied     statutory      criteria




                                                           30
APPENDIX II
                                                                          APPENDIX II


    B-126652



   and reflects   the reasonable exercise of administrative   discretion in
   implementing   the Act.   Therefore,  we believe that the formula is legally
   justified.




                                            Comptroller  General
                                            of the United States




                                         31
APPENDIX III                                                                                                 APPENDIX III


                                                 IJI’IITED      STATES        DEPARTrilENT              OF   COMrAERCE
                                                 Economic         Development          Administration
                                                 V.‘a;~:‘l~LOP, G c x230




  MEI~l@RA?JDUMFOR RICHARD GREER,
                   Professional Staff  Yerrtber
                   Subcommittee on Economic     Development
                                                                                                    _- ' /&,:     G2
  From                     George      T.    Karras,        Director                1% tl.        7, !'*
                           Office      of    Public        Works                             "

  Subject                  Continuation           of     the      Local        Public
                           Works Program



  Attached       are three        papers      which    we hope may be useful                   in
  developing        legislation          extending       the Local         Public      Works
  Capital      Development         and Investment            Act.       The first        paper
  entitled       "Recommendations             for Continuation             of the Local
  Public      Works Program"          briefly       sets     forth      Agency and
  Administration           policy     determinations             which     it is hoped
  the Congress         will     endorse.         The second         paper,      entitled
  "Policies        and Investment           Strategy       for Continuation              of
  the Local        Public     Works Program"           contains         a more detailed
  and technical          discussion         of the factors            that    formed       the
  basis     for the policy           determinations.               These are forwarded
  to you in accordance               with     the co.mmitment           of Secretary
  Kreps in her recent              testimony        before       your committee            that
  further      recommendations            would be forthcoming.

  Also attached     is a draft    of legislative       changes                                     to the
  Act which    we believe   would     permit    the cxtcnsion                                      and
  operation    of the Local    Public     Works program       in                                 the way
  recommended.

  Attachments




                                                        32
APPENDIX III                                                                                                          APPENDIX III

                                   /“T;:2                          LJ!‘flTED       STATES        DEPARTMENT               OF   CQMMERCE
                                                                   Economic          Oeuelopment        Admiiristration
                                            < ‘L            -      “I’;ls%ng:on.     0 c 2’5230
                                   $            -7
                                             s +/    l .d
                                       0
                                           “,r,, d l




     _"~FYCRAXDUM
       ..>.       FOR ROBERT PAiJL,                                 Staff  Director
                      Subcommittte                                  on Economic     Development

     From                     George              T.            Karras,        Director             -
                              Office              of            Public        Works -
                                                                                                 '* $2
     Subject                  Continuation  of                              the      L,ocal       Public
                              Works Program



     Attached       are three         papers      which we hope may be useful                     in
     developing        legislation           extending       the Local        Public      Works
     Capital      Development          and Investment            Act.      The first        paper
     entitled       "Recommendations              for Continuation            of the Local
     Public     Works Program"            briefly       sets forth         Agency and
     Administration            policy     determinations            which     it is hoped
     the Congress         will      endorse.         The second paper,             entitled
     "Policies       and Investment             Strategy       for Continuation             of
     the Local       Public       Works Program"           contains        a more detailed
     and technical          discussion          of the factors           that    formed       the
     basis     for the policy            determinations.              These are forwarded
     to you in accordance                with     the commitment           of Secretary
     Kreps in her recent               testimony       before       your committee            that
     further      recommendations             would be forthcoming.

     Also attached      is a draft    of legislative      changes                                                to the
     Act which we believe       would     permit   the extension                                                 and
     operation     of the Local    Public     Works program      in                                            the way
     rccozincnded.

     Attachments




                                                                    33
APPENDIX III                                                                              APPENDIX III




               RECOMMENDATIONS FOR CONTINUATION
               OF THE LOCAL PUBLIC WORKS PROGRAM

           The Administration,          through       the Economic            Development
  Administration,         has a number of recommendations                       for the
  Congress      to consider       in preparing          the     legislation         for the
  continuation        of the Local Public             Works (LPW) Program.
  Throughout       the recent       hearings      on the LPW nrogram,                 repre-
  sentatives        of the Congress         and the Administration,                   public
  interest      qroups,     local    government         officials         and others
  have identified         problems       associated         with the provisions
  and implementation           of the Local Public                Works Capital           Develop-
  ment and Investment            Act of 1976.           In her testimony,               the
  Secretary       of Commerce discussed             the Administration's                  general
  areas of concern          and indicated         that      specific        recommendations
  would be forthcoming.
          The Administration's        detailed     recommendations         are now
  contained     in the enclosed       paper,     "Policies     and Investment
  Strategies      for Continuation       of the Local Public          Works
  Program."       The paper is being transmitted             at this     time so
  that    the proposals       made can be considered         during    the development
  of the legislation.           It is believed       the Administration        and
  the Congress       share many of the same concerns              with the present
  LPW program,       and it is hoped that the proposals               made would
  resolve     many of the problems         causing     these concerns.
         The recommendations     include    both legislative       changes
  and revisions      to the Administrative      policies     and procedures.
  As an explanation       of the need for these changes,         this   paper
  will   describe    the policy  directions     which the Administration
  believes     should be taken for continuing-the          LPW program.
           There should         be a clarification            and simplification            of
  the program         so that       it can be more easily            understood.        There
  Kas been a great            deal of confusion           over several        aspects      of the
  LPW program.            The absence of any statement                 of purpose       in the
  original      Act has caused disagreement                  over the major objective
  of the program           and sometimes         resulted      in conflicting         expec-
  tations.        IS the major purpose               of the program         to fund new
  capital      improvements,           to create       immediate     direct     construction
  jobs through          labor-intensive          work, to assist          local    governments
  with severe         fiscal      problems,      to directly       reduce unemployment
  in areas suffering              high unemployment,           or to indirectly           reduce
  overall      unemployment?             An explicit      statement       and common under-
  standing      of the primary            goals of the LPW program              would provide
  a logical       rationale         for the regulations          and policies         adopted
  for implementing            the program.




                                            34
APPENDIX III                                                                             APPENDIX III



          Further,        there    was extensive         confusion     created     by the
 complex       procedures        developed       to score and rank projects.
 The scoring           formula     was complicated          not only by the number
 of factors          and the choices          applicants       had to make in sub-
 mitting       data,      but also by the obscure              ways in which scores
 were computed            for each factor.            The project      Scoring     and
 selection         procedures        should     be simplified      and standardized
 So that       the administration             of the program        is straightforward
 and more easily             understood       by all concerned.           As the paper
 describes,          it is proposed         that    the project       scoring     be based
 almost      entirely        on unemployment          and income factors          SO that
 projects        selections        would relate        to the distress         of the areaS.
          The standardization          of sources    of unemployment         data
 and the elimination            of gerrymandered       project     areas would
 require     legislative        changes.    The other       changes     in the
  scoring    procedure       would be administrative           but Should receive
 Congressional          support    &-I the form of Committee          report    langupge.
             The continuation        of the program      should    be carried     out
    efficiently       and expeditiously.         As an important       part   of the
    natIOna      economic      recovery     package,   the LPW program        should
    be implemented         expeditiously.       Assuming prompt       enactment     of
    the new legislation            and completion     of the appropriation
    process,     projects      should     be funded as quickly        as possible
    in order to take advantage              of this   year's    constraction
    season.
             one way of assuring            fast implementation              of the program
    is to limit        applications         for the next round to those which
    already       have been submitted.Limiting                 eligible        projects        to
    those      in the roughly        $22 billion        backlog       of applications
    not only would make sense from a practical                            administrative
    point     of view but also would be fair                   to the large number
    of present        applicants.         Communities         have made sizeable
    investments        to submit the nearly             23,000       unfunded        applications
    and it would be unwise to encourage                       more    such investments
    when it is known that              the rate of return              is low.        Further,
    applications         received      during    the    first      round should           represent
    those projects          which were most needed and ready to be imple-
    men ted.
            Limiting      the applications           to those which have been submitted
    already      could be done through            a legislative            provision         or through
    administrative          procedures       with Congressional              direction.
             The priorities         of localgovernments                 should      be met wherever
       ossible.       One of the previously              used scoring           factors       was
     t: ased on EDA's making a subjective                   determination            of the long-
     term benefits         of a project.          These judgments             in some cases
     resulted       in projects       being selected          which were not the priority
     of the applicant           and did not meet the area's                   most     pressing
     needs.



                                              35
    APPENDIX          III                                                                               APPENDIX               III


               Zn the continued                program,         local      officials         should        be given
       the opportunity              to identify           their      priorities          and needs,           and
      wherever        possible,           only priority             projects         should      be funded.
       In addition,           the needs of general                   units       of local        goverriment
       should     be given priority                  over those of all other                     units      Of
       guvernment.            However,         a mayor also should be able to indicate
      when a project              of a special             unit     of government             represents
       a local      priority.           As discussed            in the pa?er,            ConCresslonal
      concurrence           should be obtained                  on these proposed                Procedural
      changes.
              Further        LPW project            investments           should be more directly
     related       to the extent              of unemployment.                  The continuation               of
     the LPW program               should       assure       that only areas suffering                       from
     high unemployment                receive        funds within            each State.
     A provision          of the original                Act which appeared                 to be designed
     to spread the program                    funds throughout                a variety         of areas,
     actually        resulted          in an inequitable                distribution            of projects
     within      many states.               Having funds set aside for areas with
     unemployment            rates       below the national                 average       prohibited           raany
     areas suffering               from high unemployment                     from receiving             funds.
               It is recommended                 that the "70/30"                provision        be deleted            from
      the legislation               so that        investments           are made only in areas with the
      highest       numbers of unemployed                     and rates          of unemployment              within
      each state.             Further,         investment           decisions         should      be directly
      related       to the unemployment                   of standardized               project        areas so that
      the unemployment                data of each is not distorted.                             To accomplish
      this     uniformity,            the provisions              of the Act allowing                  gerrymandered
      project       areas should be eliminated.
               Previous         inequities           should       be corrected           and further            ones
      reduced       whenever          possible.           With the extremely                 larqe      number of
      applications            processed          within       a short time frame,                 it was inevitable
      that     some errors            would be made in the selection                           of projects           to
      be funded under the first                        round of the LPW program.                        While the
      number of projects                 which were erroneously                     excluded        from being
      funded was relatvely                   small,       it is only fair              to assure          that
      these projects              are now funded.              With Congressional                concurrence,
      such projects            would be given priority                      consideration.
            In addition       to correcting        inequities        caused by past pro-
     cedureal    discrepancies,         the legislation          for the continued
     program   should      be modified       to assure       that other        inequities
     are reduced       as much as possible.             Equity     should be strived
     for in distributing           funds within       a state      among the areas of
     high unemployment.          Equity    also should         be furthered        by the
     use of a standard          source    and time period          for unemployment
.    data.    Further!      standardized        project      areas separating            urban
     areas from their        counties      will    help achieve         equity     by having
     areas receive       funds in proportion            to their      unemployment.




                                                           36
APPENDIX III                                                                                   APPENDIX III



              Additional      inequities       occurred       because of the incom-
     parability         of unemployment        data for Indian             and non-Indian
     areas.        In certain      states    Indian      Tribes      received     an extremely
     large      share of funding          in proportion         to their      number of
     unemployed.          It is recommended           that the legislation             provide
     for a set-aside          allocation       for Indian         projects     so that         they
     would compete independently                 of all other projects              in the
     country.
                                     SUMMARY
     TO       accomplish   the above recommendations                         the   follpwing        legis-
     lative        changes must be made:
                .   Include     a statement       of     purpose.
                .   Eliminate      Section  108(d) which                    required      a 70/3O
                    breakout     of program   funds.
                .   Eliminate     Section    108(e)    and (f) which allowed.
                    applicants     to define     gerrymandered    project     areas.
                    Project    areas should      then be limited      to cities
                     of 50,000 or more or to the balance            of county
                    excluding      all cities      of 50,000   or more.
                .   Eliminate      the provisions       of Section       108(c)      which
                    enabled    applicants      to use unemployment           statistics
                    for the three most recent              consecutive      months from dif-
                    ferent    sources.      Instead      stipulate     that    the most
                    recent    12 month average         unemployment       statistics       from
                    Bureau of Labor Statistics               and Bureau of Indian
                    Affairs     information      supplied       to EDA.
                .   Establish     an Indian       set-aside.
      In addition      to legislative changes,                        the following     administra-
      tive  changes must be made to further                             implement   the above
      recommendations:
                .   Establish     December 23 as the deadline                            for eligibility
                    of applications      under the next round                          of the program.
                .   Establish      State    planning              targets      as was done       in
                    the first      round.
                a   Revise the scoring    formula     to include     numbers
                    of unemployed    (40 points),     unemployment      rate
                     (40 points),  per capita     income    (10 points)      and
                    type of government     (10, 5 or 0).
                .   Establish     benchmarks           for        project       areas to avoid
                    an undue     concentration               of     funds     in a State.




                                                  37
APPENDIX III                                                              APPENDIX III




        .   Establish    a set-aside       to correct   the few
            applications    that were erroneously          not selected
            due to procedural        discrepancies.




                                        38
APPENDIX III                                                                        APPENDIX III


                             Policies      and Investment   Strategy
                       for    Continuation       of the Local    Public
                                         Works Program


   I.   Introduction
        Now that nearly           all investments      have been made for the
        first    round of the Local Public             Works Program,         the Economic
        Development         Administration       has assessed      its experience
        and can             make recommendations         for improving        the
        administration          of the proposed       continuation       of the
        program.        Our recommendations         are based upon the premise
        that there        is the need to clarify           the purpose      of the
        program;       simplify      the project    selection      procedure;
        reduce inequities            to the extent     possible;      and expeditiously
        invest     additional        funds.
        We are aware that the two further                    investment        rounds
        proposed      for the LPW program             must be contained            in the-same
        authorizing         legislation.          We concur     with the approach
        of having       two separate          funding   rounds - one to immediately
        fund projects           for which applications            already      have been
        submitted       and another         for anexpanded        universe       of projects
        at a somewhat later              date.      A number of. significant             program
        changes could be made for the third                     round,      since     in
        many senses,          it can be treated         as a new program.               Round
        two is in many ways an extension                   of the first          round and,
        therefore,        fewer changes can or should                 be made.        The
        major focus of this              paper is Round II,           although       we also
        refer      to Round III.




                                                  39
                                                                                    APPENDIX III
APPENDIX III



    II.   Goals       and Objectives
          Some of the confusion      and varying    expectations    of the
          LPW Program have resulted       from the absence of any state-
          ment of purpose   or objectives      in the statute.      Following
          is a recommended    Statement     of Purpose    for the legislation
          for Round II.
               "The national         economy and the economies                  of many
               areas and regions           in this       country     continue        to exhibit
               levels     of distress        that are excessive               and, consequently,
               incompatible       with our goals as a Nation.                      This distress
               is reflected        in a variety          of ways, including              high un-
               employment      and inadequate            public     capital       stock.      The
               purpose      of this     legislation         is to address           such problems
               by establishing          a program        to provide         for the expeditious
               construction        of useful        public      works and development
               facilities      in these areas,
               Previous       experience         has demonstrated        that     local    and
               State     governments         in every section         of the country
               possess      the capability           to undertake       public      works
               projects       within      a very short       time span.         Experience
               has further         proven      that such projects          furnish      needed
               public     facilities         as well      as generating        employment.
               In many cases,           this     stimulus    and the employment
               generated        continue       beyond the period         of project        con-
               struction        and contribute          to the area's        long-term
               development.
               On the basis     of our knowledge         about public    works
               expenditures     and the needs of economically            disadvantaged
               areas and regions,         this legislation       has been developed
               to authorize     the immediate       funding    of local    and State
               government    public     works facilities       in accordance      with
               the following      objectives.
                  .     To provide      a countercyclical           stimulus       to the
                          national      economy.
                  .     To support   projects         in    areas   experiencing         high
                          unemployment.
                  .     To finance    projects      that      provide      immediate
                          employment     opportunities           and, whenever
                          possible,    provide      such      opportunities        for      the
                          unemployed.




                                               40
                                                                   APPENDIX III
APPENDIX III




           .      To assist   governments that are least able to
                    finance   such projects on their own.
           .      To fund projects that improve an area's capital
                    stock and are consistent with local decision-
                    makers' priorities  and local plans."

     Additional      objectives   may be included   for the Round III
     program.
                                                       8




                                            41
APPENDIX III                                                                         APPENDIX III




  III.   Policy       Directions
         There are a number of overriding      policy   assumptions
         which are the basis    for the recommendations      being                     made
         for the implementation     of Round II.
         A.       Simplification              of Administration
                  Wherever    possible,     the program    rules    and regulations
                  should be simplified          so that they cap be more easily
                  understood     by applicants,       the Congress,    and the
                  public    at large.
         B.       Efficiency         of Administration
                  The program         should be implemented      as efficiently      and
                  expeditiously           as possible, including      avoiding    an
                  increase      of    the demand and backlog      of applications
                  and reducing          the number of projects      funded.
         C.       Emphasis         on Local       Priorities
                  Wherever   possible,     local    officials     should     be given
                  the opportunity      to identify        and have funded      those
                  projects   which reflect       their      local priorities      and needs.
         D.       Direct       Relationship          Between      Investments   andunemplovment
                  The program     should     be administered       in such a way as
                  to assure     a more direct      relationship       between   invest-
                  ments and distress.          Investments      should be oriented
                  to areas with highest          numbers and rates         of unemployment
                  within    each state.
         E.       Reduction     of Inequities

                  Previous     inequities            should be reduced     or eliminated
                  wherever     possible.             As an example,   urban areas should          more
                  fully    benefit      from       the program    in proportion     to their
                  unemployment.




                                                               42
 APPENDIX III                                                                                       APPENDIX III



IV.   Legislative          Provisions
      In order        to meet the objectives        and carry      out the policies
      discussed         above,     the authorizing    legislation       for continuing
      the Local         Public     Works Program must be changed           from the
      original        legislation       on several  significant       points.     These
      changes       are identified        in this  section.       Other
      legislative          provisions     which have been proposed           from various
      sources       are also discussed.
      A.    Recommended            Changes      to    LPW Legislatidn
            1.      Eliminate         the    70/30     Breakout
                    Section     108(d)     of the Local Public    Works Capital
                    Development       and Investment      Act of 1976 requires
                    that    70% of all program        funds be expended    in areas
                    with unemployment         rates   above the national     rate and
                    that    the remaining       30% be expended   in areas with
                    unemployment       rates    in excess of 6 l/2% but below.
                    the national       rate.
                    Problem:      The allocation          of funds       within      each State,
                    and therefore       nationally,         according       to this        70/30
                    breakout     has resulted         in an inequitable            distribution
                    of projects.        In many cases,          projects        were selected
                    in areas with unemployment               rates     below the national
                    average,     while    many other        areas with rates             above the
                    national     average     received       no projectsas          the 70% money
                    had been exhausted.
                    The 70/30 breakout           frequently       resulted       in a compar-
                    atively    wealthy     suburb receiving            a project         under the
                    30% allocation        while     the highly       distressed          urban
                    area received       no funds since the State's                   70%
                    allocation      had been exhausted            by other       areas.

                    Recommendation:     Section    108(d)  should be deleted
                    so that  all areas within      a State would be competjlng
                    against  each other   and only those areas with the
                    highest  unemployment     would be funded.
                    Areas with unemployment    rates  below the national
                    average would be funded only if all other         projects
                    from areas above the national     average     had been
                    funded  in a State and the State's      planning   target  had
                    not been exhausted.     However,  areas with unemployment
                    rates  below 6 l/2% would be funded       only under
                    this        condition       in    a State       where      it   is     necessary
                    to-reach        the     minimum     statutory           expenditure.

                    It should  be noted that   the Senate bill                              calls
                    for an 85/15 breakout    on this provision.




                                                        43
APPENDIX III                                                                         APPENDIX III



     2.   Eliminate       Gerrymandered         Project     Areas

          Section    108(f)  of the Act permits      applicants     to
          use adjoining     areas for determining       the unemployment
          rate and number of unemployed        for project      areas
          which measure the need for their         project.
          Problem:         This provision            resulted       in much confusion
          and enabled          certain       areas to unfairly             capitalize       on
          the distress          of other        jurisdictions.             The applicants'
          ability      to define         their     own project         areas resulted
          in glaring         inequities         and confusion.             In some cases
          a city      defined       its project          area as its           boundaries
          assuming       its high unemployment                 was sufficient.            A
          small     town outside           the city        used the whole county
           (including        the city)         as its project          area.       The
          result      was that the small town ranked higher                            and was
          selected.          The loose project              area requirements
          encouraged         applicants         to determine          which areas would
          guarantee        high scores,           and permitted          large ptoject
          areas to be defined                which included           areas with high
          unemployment
            -     -             to the disadvantage               of those areas.
          Recommendation:              All gerrymandering              of project        areas
          should be prohibited.                   Therefore,        Section       108(f)    of
          the Act should be eliminated.                        Project       areas would
          then be limited             to cities          of 50,000 or more or to the
          balance      of county        excluding          all cities        of 50,000      or
          more.
     3.   Eliminate      "Pockets       of Poverty"        Provision
          Section       108(e)  of the Act permits       a project    applica-
          tion to be based on the unemployment               data of a
          community       or neighborhood     within   the applicantS
          jurisdiction,        except    that any project     so funded must
          either      benefit   or employ unemployed       residents    of the
          community       or neighborhood.
          Problem:     This section         sometimes     allowed    unusual      and
          seemingly     unfair    applications.          The "pocket     of
          poverty"    provision           could        make a city      eligible
          for funding      while    it was not necessarily           clear     how
          much or directly        the residents        of the neighborhood
          would benefit.         We have examined         possible    methods
          to tighten     the relationship          between     the project       and




                                              44
APPENDIX III                                                                      APPENDIX III



          proposed      beneficiaries        for these typesof          project
          areas for.Round           II, but the time element            of the
          selection      procedure      requires      the Agency to accept
          applicants'       assurances       without      in-depth     examination.
          In addition,        the unemployment          data available         for the
          communities       and neighborhoods           is not comparable           to
          Bureau of Labor Statistics               data.       Similar    to Section
          108(f),     this provision         encourages        an applicant       to
          gerrymander       a project      area within         its jurisdiction.
          Recommendation:       Section         108(e)     shpuld    be deleted
          from the legislation.
          While the deletion           of this       provision      will   result
          in some areas not being reached                    by     the program,
          it will    assure      that only places            with the highestunem-
          oloyment     will    receive       funds.      We realize      that     some
          otherwise     well-off       cities       do have significant
          pockets    of poverty        and unemployment.              However,     it    iS
          not realistic        to expect        this    counter-cyclical
          program    to address        all problems          of all places.
     4.   Revise    Unemployment        Statistics       Requirements
          Section   108(c)    specified       that   in making grants
          unemployment     statistics        be calculated    by using            the
          three most recent         consecutive     months.
          Problem:         The average        of the three most recent             months
          was not,      in    many instances,          a representative        picture
          of unemployment           in a community           and caused inequities
          in selection.           Section       108(c)   also enabled        applicants
          to use different            sources      of unemployment        data for
          different         (most recent)        time   periods.       This pro-
          vision    often      created      invalid     statistical       comparisons.
          Unemployment       data for the three most recent                months
          represented      seasonal       and temporary      fluctuations.
          Communities      with low unemployment            during     the summer,
          e.g.,     due to tourism,        and high unemployment           the rest
          of the year were penalized               due to the timing         of the
          program.      A 12-month        average     for all applications
          for a set period         of time (1976) would,            in effect,
          be seasonally        adjusted      data.      It would be a more
          realistic     estimate       of unemployment       in all communities.
          Recommendation:       The 12-month        averaqe     for 1976
          should be used as the estimate              ofunem?loYment       for
          Round II.      (Round III    statistics        should    be the most
          recent   12-month    average    available).          All references




                                                45
APPENDIX III                                                                  APPENDIX III



            to three most        recent   consecutive       months     in   Section
            108(c)  should       be deleted.
            All unemployment         data for county       and county     equiv-
            alents,     except    for Indian    reservations,       should be
            from the same source,           the Department     of Labor.
            Indian    tribes    should    use the latest      BIA data.
            Section     108(c)    which allows     applicants     to use
            alternate      sources    should be eliminated.

            N.B.   The data must be available'              from the Department
            of Labor and BIA by mid-March      at           the latest.
       5.   Establish      Indian     Tribe    Set-Aside
            Problem:
            In certain       States,     projects        submitted    by Indian
            tribes    took an extremely             large    share of the States'
            70% allocations           in proportion          to their    numbers
            of unemployed.           This problem         was exacerbated       by
            the fact     that BIA unemployment               and per capita      income
            data are not comparable               to non-Indian       data.
             Recommendation:         Establish       in the legislation         a 2-l/2%
            ($50 million)    set-aside       for   Indian  projects.
            The set-aside         would allow       Indian  projects     to
            compete     independently&all             other projects     in the
            Nation    for $50 million.            It has been estimated         that
            $30-40 million         will    be necessary     to allow     each
            Jndian    tribe      applicant     to receive     a project      or
            combination        of projects       which would exceed its bench-
            mark.     EDA would obtain           standard   12-month     unemploy-
            ment data from BIA to score and rank the projects.
            Selected      projects       would not be counted        against    any
            State allocation.




                                             46
APPENDIX III                                                                          APPENDIX III


 B.   Legislative       Provisions       to   be   Retained
      1.    Keep 100% Grant Rate.                 While there are valid
            reasons      for reducing          the LPW grant        rate
            and requiring         a local        share,    it is not
            avisable       to do so for the second round of
            the program.          First     the large        number of
            applications         on file       for consideration          have
            been submitted         for 100% financing.                It would   be
            impractical        to require         applicants      to redo
            their     projects     and to identify            and obtain
            sources      of local       funds.       Such a requirement
            would interfere          with the expeditiops               imple-
            mentation        of the Round II program.
            Recommendation:            The 100% grant         rate    should
            be maintained        for    Round II.
      2.    Continue      to treat        Puerto     Rico as a State.
            Puerto     Rico"s     original       allocation       of $123,000,000        *
            was not fully         expended       because     no projects
            were submitted          in the 30% category.             Questions
            have been raised             about Puerto       Rico's   capacity
            to absorb       it's    full     Round I allocation          and
            additional        funds under Round II.
            Recommendation:          We contend         that the questions
            about Puerto       Rico's     ability       to absorb      additional
            projects      are not valid.          Therefore,       the
            unexpended       Round I funds for Puerto              Rico
             (34 million)      should     be spent on additional               70%
            projects.        We also recommend            that the provision
            which treats       Puerto     Rico as a state          for purpose
            of this     act should      remain      intact.       We expect
            that Puerto       Rico's    Round II allocation             will
            be of the same magnitude              as Round I and that
            it can be invested          effectively          under our
            recommended       procedures.
      3.    Retain     the State Minimum Allocation               of l/2 of 1%
            of the Appropriation:               It has been proposed         that the min-
            imum StatEallocation            be raised       to 1%
             ($20,000,000).        We disagree        with this     proposal
            since increasing          the minimum would distort
            the State planning           target    formula     and effectively-
            discriminate      against        these areas where the
            need is greatest.            Looking     solely    at their    share and
            rate of unemployment,             many State's      would not even have a
            $10 million      allocation.
            Recommendation:            The present    l/2 of         1% minimum
            State allocation           should  be retained           for Round II.




                                              47
APPENDIX III                                                                          APPENDIX III



      C.   Reactions       to   Senate     Bill    *
           1.   Concurrences.        We agree with the general
                premise    of the Senate Bill           to distinguish
                a Round II and Round III            for the Local Public
                Works program.         Our comments are directed
                towards    specifics     for Round II of the program.
                Round III will       be briefly       discussed      at the
                end of this      paper.     In particular          we agree
                with the following         specific       provisions     of
                the Senate Bill.
                -      An Indian      allocation        will    be set-aside
                -      Applicants     will  be required           to up-date
                       project    cost data
                -      Undue concentration     will            be determined
                       taking into consideration                the grant
                       awards made in Round I
                -      $2 billion        for Round II and $2 billion
                       for Round III.            The authorization           should
                       be kept at these levels               because     this
                       program        is only one part of the Administration's
                       total      economic      recovery     package.       While more
                       funds could be absorbed               by local      public
                       works,       in the context         of the total       package,      this
                       is considered          an appropriate        amount for the Fed-
                       eral Government           toinvest      in countercyclical
                       public      works projects.           Furthermore,at          this
                       time     it is not possible           to estimate        the
                       inflationary         effects       of any additional          funds
                       and the capacity            of the construction            industry.
           2.   Disagreements.              We disagree    with the following
                provisions     of        the Senate Bill,      some of which
                are explained            in Section     IV A.

                -      Funds should not be divided      into areas
                       above the national    average  and areas below
                       according   to an 85/15 breakout     respectively.
                -      We agree with a December 23 deadline;        however
                       it should not be part of the legislation.
                       It would bemorehelpful       to receive direction
                       from the committee     in this  regard, as
                       discussed below.

*To date the House Bill      makes no changes in the provisions                          of the
LPW legislation  other    than increasing       the authorization.                      Therefore,
only the Senate Bill    is addressed      here.




                                                   48
APPENDIX III                                                                   APPENDIX III



          -    EDA will not require appliCZhntS       to update
               their own unemployment       data. EDA will
               itself  update    unemployment    data and
               revise project area definitions        according
               to the regulations       that are established.

              -EDA will not use the same project areas as ?
                previously   defined by the applicants.   Rather
                the project   area automatically  will be either
                the county where the project is located, a
                city of 50,000 or more if the,project     is'
                located in such, or the balance of county
                excluding   any cities of 50,000 or more if the
                project is located in a county with such
                primary cities.

          -    .The Youth Community Improvement Program
                (Title II) addresses a very real problem          '
               among the young people    of our nation today.
               The Administration's   economic  recovery package,
               recommends      a substantial          expansion      in the
               Federal    Governmentrs         youth employment          and
               training    programs.         It is recommended           that  the
               goal of reducing        vouth unemployment              would be
               more effectively        implemented         through      Titles
               III    and IV of the comprehensive               Employment
               and Training      Act.      (CETA).        The CETA prime
               sponsors    already     have a structure            in place
               for conducting       skill      training      and for creating
               jobs.




                                          49
                                                                                        APPENDIX III
APPENDIX III


   w.   Program       Policies
        In addition        to the legislative      changes discussed        above,
        the following         major programmatic      and administrative        policies
        are recommended         which would enable       more effective       adminis-
        tration     of the program.         These policies     include     State '
        planning      targets     and scoring    and selection      procedures.
        A.    State      Planning      Targets
                                                                   t
              The State planning          targets      were calculated         by a
              formula     which allocated         65% of the funds to all States
              according       to their    proportionate       number of unemployed
              and 35% of the funds to those States                   with unemployment
              rates     above the national          average   according      to relative
              severity.         This formula      worked equitably        for the
              majority      of States.       Therefore,     the formula        should be
              retained      intact     for Round II.
        B.    Deadline       for    Submission        of Applications
              Only 2,000 of the more than 25,000                            applications           originally
              received        were funded with the first                     $2 billion.             The
              large backlog           created        during      the first         round raises
              questions        about the advisability                   of inviting            more
              applications          and creating            a larger        demand.          To danrite
              additional         applications            would actually             increase       the burden
              on local        communities.             It would encourage                communities
              throughout         the country          to go to further                expenses       in vain
              as the rate of success will                      still      be low.          The applications
              EDA received          under the first              round represent               community
              priorities         and those that are ready to be implemented.
              Therefore,         a deadline          of December 23d 1976, should                        be
              established.            The December 23, 1976, date would allow
              all applications             initially         received        before        that date,
              even those returned                for deficiencies,               to be eligible
               for Round II.
              N.B.       It is recommended               that either         the Public          Works
                         Committee       give direction              for this         deadline       in
                         the Committee           report      and that EDA impose the
                         deadline       administratively,               or that it be in-
                         cluded     in the legislation.                   In either          case, an
                         exception        should be allowed               for those Statutory
                         minimun      states       which originally              submitted
                         only enough projects                to expend this              first     allo-
                         cation.
         C.     Scoring      Formula
               The scoring      formula      established      for the first      round was
               designed    to objectively           select  projects     from what was
               perceived     to be a huge demand.            The formula      inadvertently
               created   inequities        in the distribution         of funds and was
               too complicated        to be understood          by most people.        There-
               fore the scoring         formula      should   be revised     as explained
               below.


                                                        50
                                                                                               APPENDIX III
APPENDIX III


        1.   Factors             that   should be elixinated.                   The following
             factors             should    be eliminatsd    from             the formula:
                 I       Labor Intensity        - The labor         intensity      factor
                         was not an effective           discriminator          among projects.
                         Host projects       claimed      labor intensities           above
                         35 percent,      automatically         giving      them the maximum
                         score on this       factor.        Such a factor        would only
                         be meaningful       if priority       were to be given             to
                         renovation     projects.        However,        it has never been
                         an intention      of this      program       to emphasize        such
                         projects     over new construction.
                         Relationship        to Plans - Virtually        all applications
                         stated     that their     proiects    were related     to a plan.
                         Thus this      factor   was not an effective        discrim-
                         inator     among projects.         The Agency should make
                         consistency       to plans a finding       rather   than include
                         it as a scoring        factor.
                 .       Long-term         Benefits       - The determination                of long-
                         term benefits            required     difficult,           subjective
                         judgements         which were often              not consistent          with
                         local     priorities.           We assume that public                  works
                         projects,         a_ priori,      have long-term             benefits.
                         This was an administrative                   decision         to include
                         this    factor        in scoring.We         believe        the Agency
                         should     no# make a finding               as to a project's              long-
                         term benefits,            but should not attempt                 to rate
                         thez on the extent               of their        benefits.
        2.   Scoring     factors    to be used.   The scoring    factors
             sat     should    be included   in a selection   formula    are:
                     I

                 .       Unemployment          rate - The unemployment      rate of a
                         project   area,         as defined  in IV A2, will     measure
                         the severity          of unemployment.     The data will       be
                         supplied     by     the Department     of Labor  to EDA. This
                         factor   will       be worth 40 points     in the formula.
             .           Absolute     numbers of unemployed    - The numbers of
                         unemployed     in a project   area measures    the extent
                         of distress.       The data will   be supplied    by the
                         Department     of Labor to EDA, as well.       This factor
                         will   be worth    40 points.
             .           Per capita
                         -7                  income - The per capita                 income factor
                         provides         a basis        for discrimination            among PrOieCtS
                         within      a county.            However,      as it does not tak;
                         cost‘of       living       into account,           it   should     be de-
                         emL>hasized.            The per capita           income of the
                         applicant's           jurisdiction         (i.e.,     city,     county,
                         State)      will      be used and will             be worth     10 points.
APPENDIX III                                                                                     APPENDIX III


                    The statistics  will               be supplied          by EDA again
                    using 1972 Treasury                Department          data.
             .      Type of government                 - This factor              will       be revised
                    so that general              purpose          units      of local          govern-
                    ments will        receive          the maximum score                    (10 Points).
                    This would include                 city,       county,        and Indian           tribe
                    governments.             Special         purpose         units,        including
                    school     districts,            would receive               5 points        and
                    States      0 points.            In this way the priorities
                    of the chief           official          of the ldcal             unit      of govern-
                    ment will        be met.           However,          if the chief             executive
                    states     that      a project           sponsored          by a government
                    unit other         than his/her               own is a priority,                 EDA
                    could     select       that project              provided          the amount is .
                    acceptable         and the projects                 could then be tied.
                    While the general                purpose         unit of local              govern-
                    ment will        always have priority                      over a school
                    district,        port authority,                 sewer authority,
                    State,     etc.,       it is important                 to note that            a
                    mayor could bring                about the selection                     of such
                    an authority's              project        if it were considered
                    to be a local            priority.
                                          -----            _I ___              ._ .
                    9J.a.      ThelPublic           Works Committees'                    concurrence
                     with the assignment                  of these points                 should be
                     obtained,        particularly               regarding          school       districts.
       3.        Project      area definition       - Project    areas will       be
                 defined      according      to where the project        is located,
                 i.e.,     a city of 50,000 or balance           of county.        There-
                 fore,     State,    county     and special   purpose      unit project
                 areas will       be defined      by project   location,       not the
                 applicant's        address.


  0.   Selection          Procedure
        State planning        targets        are established           in accordance
       with each State's           proportionate            share of distress           in
       order     to equitably        distribute         the LPW funds throughout
        the country.        Similarly,           benchmarks       are developed         for
       countries       and primary         cities      within     counties      in order
        to avoid an undue concentration                     of funds in any one
       area within        a State.         A benchmark         represents       the level
       of funding       that an area could receive                   in proportion          to
       its share of the State's                 unemployment.            A benchmark        is
       not an allocation           and there         is no assurance          that an
       area will'receive           any or all of its benchmark.                      Rather,
       the benchmarks         are applied          to the high ranking             areas
       within      a State    as a way of determining                  when sufficient
       funding      has been given and we can move on to the next
       area.      This procedure          will     assure      that a primary         city
       does not receive          all of the funds for a county                     at the
       expense of the rest of the county                      and vice versa.




                                                       52
APPENDIX III                                                                        APPENDIX III


       The project        selection procedures must be clearly &is-
       tinguished       from the project        scoring    formula.       The
       scoring    factors      described      above are used to score and
       rank all projects          for a State.        The project      selection
       procedure      then applies        "benchmarks"     to the ranked         list
       in order to select           those projects       to be funded.
       Although     the project        area used for scoring         a project               *
       is sometimes        the same area as that used for determining
       a benchmark,        they can also be different            geographiaal
       areas and the two should              not be confused.
        1.       Benchmarks

             A county    benchmark      should be calculated      by dividing
             the county's     12-month      average    number of unemployed
             by the State's      average nlmrber of unemployed.           The
             dividend    is then multiplied          by the State planning
             target   and that     dollar     figure   is the benchmark.
             .     As necessary, a city or town benchmark                  will     6
                   calculated      in the same manner only the number of
                   unemployed      in the city      is divided      by the unemployed
                   in the county,         i.e.  the percent    unemployed         in
                   that county.         That percent      is multiplied         by the
                   county     benchmark.       When unemployment        data is not
                  available     population      is substituted        as a proxy.

             .      In counties    with cities       of over 50,000,        separate
                    benchmarks    will   be established        at the outset
                    for such primary       city    or cities     and the balance-
                    of-county.      Sub-benchmarks        will   be made for towns
                    or smaller    cities    within     a balance-of-county,
                    as necessary.
       2.   Relation      to First     Round.        The first        round benchmark
            will    be added to the second round benchmark.                             The
           worth      of the projects         already      funded        from the area
            will    then be subtracted            from this        @un to arrive at a
            residual      benchmark     against       which new projects               will
            be selectgd.
       3. 'Project       Location.     -A project's           location       will     deter-
            mine which benchmark            it should         be applied          against.
            Therefore,       a county or State project                  would count
            against      a local    benchmark.          It can be expected                that
            in some cases county government                     projects      may rank
            above city       government       projects        and use up a city's
            benchmark       before   any city        projects        are reached.            In
            such cases,         the Assistant        Secretary         should      have the
            discretion       to establish         how many county            projects
            should      be approved.       Normally         they would not exceed
            50% of the city's          benchmark.
             N.B.      Such discretionary           authority   should   be
             specially     given to the          Assistant    Secretary    in
             either     the legislation          or Committee     reports.
APPENDIX III                                                                      APPENDIX III


                                                                                           _......A
       4.    Tied Projects       with Tied Scores.    In many cases the choice
             of which tied       project       to select
                                                     will     be dictated          by the
             benchmark.        In cases where the   choice       is not clear,          the
             applicant     city    will    be required
                                                     to indicate           its priorities.
              In the extremely         rare event that different         applicants
             have tied     projects,       the Assistant  Secretary        should      have
             the discretion        to make equitable    judgments.
                                             . _a...-          ,
        5.   Exceeding    Benchmarks.    Normally,       benchmarks         will    only
             be exceeded     by the last  project      selected       for an area.
             In the case of tied projects,         the last        project       selected
             will  be the one which exceeds the benchmark                   by the
             least   amount.
             Only in        cases where it        is necessary    to expend a
             State's        planning  target        will benchmarks   be increased.



  E.   Set   Aside    for     Procedural       Discrepancies
       As a result       of the large     number of applications            pro-
       cessed and the subsequent            data processing       transactions,
       a certain       number of errors       were made.    Some of these
       errors     precluded      certain  projects    from being funded.
       While    the number of such projects           is relatively         small,
       it is only fair         to assure    that they are now funded.
       To accomplish        these corrections,      the following         is
       recommended.
        1.   The Regional      Offices   should          continue      to assess all
             selection    errors     and identify           projects     which should
             have been funded.

        2.   A cut-off  date should             be set    for   identifying     all
             Round I discrepancies.
        3.   2-1/2percentshould        be set aside from the Round II
             appropriation       to fund these projects    as well  as to
             cover errors       made in the second round.     It is estimated
             that    this will     be an adequate   amount for the
             Assistant      Secretary   to have for such purposes.
        4.   The Assistant         Secretary       should  be given the        authority              '
             for this   set       aside   in    the Committee    report.                              I
        5.   Only projects      which were not selected    due to an
             EDA error     would be eligible   for funding    under this
             set-aside.

       6.    Some projects         from the original       30% priority         group
             may be funded         under this   procedure.



                                           54
                                                                                                              APPENDIX III
APPENDIX III




     VI.       Administrative                 Assumptions
               A.       Breakout        of Appropriation
                        The $2 billion              for           Round    II         should        be divided      as
                        follows:
                           $10 million             - Administration

                           $50 million             - Set Aside for Procedural                               Corrections
                                                     at Assistant  Secretary's                              Discretion

                           $50 million             - Set Aside                  for     Indian~Allocation
                        $1.89      billion         - State           Planning             Targets
                                                                                                                    .
                   B.    Proposed            Timetable.

                         Assuming    that an appropriation                                 would be made by
                         April   1, 1977, the following                                 timetable  could be
                         adhered   to for implementing                                 Round II:

                                                   Proposed           Timetable
                                                      March
                                                      --                  April            May            June           --   Sept.
     Legislation          Enacted                             X
     Preliminary          Regulation5                     31
     Appropriation..........                                                      1
     EDA publishes            final
        Regulations..........                                                   15
     Cut-off      date for
        applicants           to provide
        su plemental             project                                        30
       in f ormation..........
     Project      selections
        finalized           by EDA.....                                                        31

     All     grant        offers
           approved         and mailed..                                                                     30

             Projects           start
           construction            ........               .                                                   l-----30




                                                                     55
APPENDIX III                                                                       APPENDIX III




        VII.   Considerations           for    Round     III
               Following    are several   suggestions       for Round III  of the
               Local Public     Works Program.      We will    work with the
               Public    Works Committee    to further     explore   these
               recommendations.
               -   Reduce the          grant    rate     to    80% and require          a local
                     share.
               -   Emphasize      long-term            economic     development         projects.
               -   Allow    submission  of new applications,                      but    control
                      the   number from any one area.
               -   Limit  the extent   to which                 a locality's       benchmark
                      can be exceeded.

               -   Consider      the     advisability          of including        non-profit
                   organizations          as eligible          applicants.




                                                 56
APPENDIX III                                                                                                        APPENDIX III




   secr1on         3.         Sectlms            102(a),                102(e),            rrla      108(f)         of        the          afore-
                                                                                                                                      ..
   said      Act        are        c'eleted      and        rhe         rerr.ainiLg               s-dsection             is         re-

   designated             'i3ccordingly.

   Sect50n         4.         Section           111    of         the        aforesaic‘             ict        is   znknaed                 to

  add     the      5033c;iing:

             "There           is      further         authorized                      to   be     appropriated                  an




                                                                        57
APPENDIX III        APPENDIX III




               58
APPENDIX III                                                                                                                                       APPENDIX III



                                                     EXFLXWTION  TO
        ;&NDMENTS                         TO LOCAL pUBLlC iGOX<S CAFITAL                                                      DEVELO?"ENT                   .WD
                                              INVESTPENT AC3 of 1476


                      Sec.           2 deletes                      from        Sec.         ICE(c)               local              governzients

        as     a source                     of        imemployment                     rates;              also              ci,irnges             "uneXplCy.-
        zent          data           of         the         mcst      recent              --t:?ree         a~onths”                  to         read      twelve
                                                                                                                                                         ----




               SYC-          3       delet.es                Sec.          108(d)           thrcugl~                   (f)        which            are


        CGnCerned                    with             the      70/30            split-,          as well                     as     the          basis      for
        en unex?l                cyment                 rate         in      a cor;tl;iunity                 Or          neighborhood

        or     of      an adjoining                            area.
                            . .

                     Sec.            4 provides                      authorization                         of      funds                  for     grants

        in     two         skases,                one each     for    Fy   '77 and '73 includes
                                                    ,--                             - -       ._. .
       a&inistrative                            and monitoring           expenses;       Indian       tribe'                                                          .
    -             _                         - _ -  -. -     ---___          --   ---    ._---                  --                                             -
       grants       -muld                    have a maximm            of 2 l/1% of the three
      - -                                     _       -.---        _.                               -      _--                                                    -
       p?ases.           -
     - -           --.    ._ .                                              __. _                      -        ..__                      - _ ..-

                      --         -


                     Sec.         5 adds                    a new Section                       112        which              prohibits

        the     issuance                     of        an injunction                       of        any          nature              against

        the     Secretary.




                                                                                    59
APPENDIX III                                                                                                                        APPENDIX III



                      ?CSSIBLE   ALTERNATE
              TO SEC. 4 of PROPCSED k'GiiI??~!NTS
   TO LOCAL PUBLIC WOXXS CA?ITAL    DZV.ZLOP.M.ENT AND INV3ST!-?ZNT
                           ACT of 1976


          Sec.           4.         Section              111      of         the          aforesaid           Act           is      amended

   to   read      as      r’olloiss:

               "Section                   111.           Yhere          is         autlhorized               to     be

               apprG$XiiSted                       nCr       to        exceed              $6,000,000,000                         for

               the        period                ending           SepteTher                   30,      1977        to        carry

               out        this            Act,          including                  adm.inistrative                     expenses.

               Not        to        exceed              2 1/2%          df         appropriations                      under

               this           aUthGri2atiGil                      shall             be       a-<zi:abie             to       Indian
                    *:
               fribes               ior         grants           under             this       Act.         There             is

               further               aut5orized                   to      be        appro>ria:ed                    s-zch

               amocnts               as         may 'be rsecessary                           after        fiscal             year

               1977           for         the      purgcse              of     monitoring,                    evaluating,

               and.clcsing                        out      the         program              authorized                 by        this

               Act."




                                                                  60
                                                                                                      APPENDIX III
APPENDIX III




             Tiis      amends         the      authorization                 sectjon       by    deleting

    $2 billion          and     changing              it    to       $6 billion;          also    includes

    2 l/2%       sot-aside            for      Indian           trikes,       and      a provision

    for   ixxi:oring            the         program         ai-;?r        1577.




                                                           61
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