oversight

The Distribution of Federal Economic Development Grants to Communities with High Rates of Poverty and Unemployment

Published by the Government Accountability Office on 2012-09-14.

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

United States Government Accountability Office
Washington, DC 20548




           September 14, 2012

           The Honorable Richard Durbin
           Chairman
           The Honorable Jerry Moran
           Ranking Member
           Subcommittee on Financial Services and General Government
           Committee on Appropriations
           United States Senate

           The Honorable Jo Ann Emerson
           Chairwoman
           The Honorable José E. Serrano
           Ranking Member
           Subcommittee on Financial Services and General Government
           Committee on Appropriations
           House of Representatives

           The Honorable Emanuel Cleaver, II
           Chairman
           Congressional Black Caucus
           House of Representatives

           Subject: The Distribution of Federal Economic Development Grants to Communities with
           High Rates of Poverty and Unemployment



           For decades the nation has faced the challenge of revitalizing its most economically
           distressed communities, which suffer from high levels of poverty and joblessness. To help
           poor communities, Congress appropriated $6.2 billion in fiscal year 2010 for community and
           economic development programs, largely in the form of grants, loan guarantees, and direct
           loans. In a 2011 report, we identified 80 programs that make funding available to
           communities to enhance local economic activity. 1 These activities include, but are not limited
           to, planning and developing strategies for job creation and retention, developing new
           markets for existing products, building infrastructure to attract industry to undeveloped
           areas, rehabilitating dilapidated housing, and establishing business incubators to provide
           facilities for new businesses’ operations, among others. But the extent to which federal
           economic development grant support is aligned with local economic conditions is less clear.


           1
            GAO, Economic Development Programs: Efficiency and Effectiveness of Fragmented Economic Development
           Programs Are Unclear, GAO-11-477R (Washington, D.C.: May 19, 2011). See enclosure IV for a list of related
           GAO reports.


                                                                                                    GAO-12-938R
To assist you in your fiscal year 2013 budget deliberations you asked us to provide data that
show the extent to which federal economic development grant funding is awarded to the
poorest communities. In consultation with your offices, we agreed to provide data that show
the distribution of community and economic development grant funds to cities and rural
counties with high rates of poverty and unemployment. This letter transmits information we
provided to your staff on May 5, July 23, and July 27, 2012. (See enclosure I for the
presentation slides.) Specifically, these slides describe the distribution of federal community
and economic development grant funding for (1) cities with high rates of poverty and
unemployment and how that compares with the distribution of economic development
funding to cities in general and (2) nonmetropolitan counties with high rates of poverty and
unemployment and how that compares to the distribution to counties in general.


The federal government supports community and economic development through grants,
loans, and tax expenditures. In addition to the $6.2 billion in grants and loans, the federal
government invested an even larger amount—$8.7 billion—in community and economic
development through tax expenditures in fiscal year 2010. 2 However, given your primary
interest in the distribution of federal grant funds to economically distressed communities, we
focused our work specifically on a selection of high dollar value community and economic
development grant programs that made funding available to cities and nonmetropolitan
counties. Four agencies administered these programs— the Departments of Commerce
(Commerce), Housing and Urban Development (HUD), and Agriculture (USDA), and the
Small Business Administration (SBA). (See enclosure II for a list of the selected economic
development grant programs.)


Our analysis included grant programs that use both competitive and formula award
procedures to channel funds to communities with high rates of poverty or to programs that
serve low and moderate income households. For example, USDA’s Rural Business
Opportunity grants program awards funds through a competitive process that gives priority
to projects that will provide services to economically distressed communities. By contrast,
HUD allocates Community Development Block Grant Program (CDBG) funds to
communities by using a formula which employs several variables--poverty, population, pre-
1940 housing, slow population growth and overcrowding. 3 Although poverty is one factor in
targeting funds to economically distressed communities, the CDBG program, which has the
most impact on our findings, is designed to target multiple dimensions of community need.


To determine the distribution of federal economic development grant funding for cities and
rural counties with various rates of poverty and unemployment, we combined information
from a number of sources including our previous work on community and economic


2
 Tax expenditures are preferential provisions in the tax code, such as exemptions and exclusions from taxation,
deductions, credits, deferral of tax liability, and preferential tax rates that result in forgone revenue for the federal
government. The revenue that the government forgoes is viewed by many analysts as spending channeled
through the tax system. See GAO, Limited Information on the Use and Effectiveness of Tax Expenditures Could
Be Mitigated through Congressional Attention. GAO-12-262 (Washington, D.C.: Feb. 29, 2012).
3
 Our analyses include $2.8 billion in CDBG/Entitlement Communities grants and $1.2 billion in CDBG/States
Program grants. Recipients of both programs may undertake a wide range of activities including economic
development, and improvements to community services and facilities.



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development programs, 4 agency-reported fiscal year 2010 obligation data, and economic
indicator data from the U.S. Bureau of the Census’ (Census) American Community Survey.
Given your interest in both urban and rural communities, we examined approximately 465
cities with populations exceeding 65,000 and 2,048 nonmetro counties. 5


To determine the amount of grant funding awarded to cities, we selected high-dollar grant
programs that made federal economic development grant funds available to cities, totaling
$2.3 billion in fiscal year 2010 obligations. To determine the amount of grant funding
awarded to nonmetro counties, we selected grant programs that made funding available to
rural locations, which totaled roughly $1.5 billion in fiscal year 2010 economic development
grant obligations. 6


To identify grant recipients in cities and related obligation amounts, we used fiscal year 2010
data from USAspending.gov (accessed Aug. 22, 2012), a publicly searchable database on
government spending. To identify obligation amounts and grant recipients in nonmetro
counties, we used the USDA Economic Research Service’s Federal Funds data set. We
assessed the reliability of these data by (1) performing electronic testing of required data
elements, (2) reviewing existing information about the data and the system that produced
them, and (3) interviewing agency officials knowledgeable about the data. We determined
the data were sufficiently reliable for the purposes of this report. We interviewed agency
officials from Commerce, HUD, SBA, and USDA about their data reliability procedures and
obtained obligation data to verify the obligation totals. To approximate economic need in a
given city or nonmetro county, we used poverty rates and unemployment rates from Census’
2010 American Community Survey and compared the distribution of economic development
grant funding for cities and nonmetro counties with different rates of poverty and
unemployment.


Finally, to focus our analysis on populations experiencing economic hardships, we
examined grant obligations relative to the number of persons in poverty and to unemployed
persons in the geographic areas in our analyses. While there are other valid ways to
measure the distribution of grant obligations, such as comparing obligations across
geographies on a per capita basis, we chose to compare funding amounts relative to
poverty populations and unemployed populations because of your interest in how
communities with high rates of poverty and unemployment fare with respect to federal

4
 GAO-11-477R and GAO, Economic Development: Multiple Federal Programs Fund Similar Economic
Development Activities, GAO/RCED/GGD-00-220 (Washington, D.C.: Sept. 29, 2000).
5
 The $2.3 billion amount represents economic development grant obligations for cities with populations over
65,000 and with both poverty and unemployment data available in the U.S. Census’ American Community
Survey 2010 1-year estimates. The $1.5 billion amount represents economic development grant obligations for
nonmetro counties with poverty and unemployment data available in the American Community Survey 5-year
estimates.
6
 Nonmetro counties are all areas outside metro counties. In this analysis, we use “rural" and "nonmetro"
interchangeably to refer to people and places outside of metro areas. Metro counties, as defined by the Office of
Management and Budget, include central counties containing one or more urbanized areas (i.e., areas with an
urban center with a population of 50,000 or more); outlying counties are included if economically tied to the core
counties as measured by work commuting.




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funding for community and economic development. In addition, many of the grant programs
we examined are designed to aid populations in need. For this reason we compare funding
across jurisdictions not on a per capita basis but on specific targeted populations with the
greatest need to show the relationship of the federal grant funding to such populations.
Although we singled out these populations for this analysis, it is important to note that the
benefits of economic development grant funding may accrue to the wider population.


We conducted our work from August 2011 to September 2012 in accordance with all
sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The
framework requires that we plan and perform the engagement to obtain sufficient and
appropriate evidence to meet our stated objectives and to discuss any limitations in our
work. We believe that the information and data obtained, and the analysis conducted,
provide a reasonable basis for any findings and conclusions in this product.


Summary


The distribution of grant funding per person in poverty in cities was not consistently aligned
with overall poverty rates. Most cities, with the exception of those cities with the highest
poverty rates, received roughly the same amount of economic development funding per
person living in poverty. Further, when we examined how grant funds are distributed to cities
based on their unemployment rates, we also found that some cities with higher
unemployment rates received less funding per unemployed person than other cities with
lower unemployment rates. However, we did find that a small number of cities (17 out of a
total of 465 cities) with the highest unemployment rates received funding that was roughly
40 percent higher than the average for unemployed populations in all cities.


Similarly, the distribution of grant funding per person in poverty to nonmetro counties was
not consistently aligned with overall poverty rates. Nonmetro counties with the lowest
poverty rates received more grant funding per person in poverty than counties with higher
poverty rates. Further, when we examined how grant funds were aligned with
unemployment rates in nonmetro counties, we found that counties with relatively low
unemployment rates (under 5 percent) received more funding per unemployed person than
counties with higher unemployment rates. Only those nonmetro counties with the highest
unemployment rates (over 20 percent) received higher funding per unemployed person.


When we compared the distribution of economic development funds awarded to nonmetro
counties with funding awarded to metro counties, we found that while metro counties
received more grant funds in total, nonmetro counties received a higher portion of grant
funding relative to the percentage of their population in poverty. Specifically, 20 percent of
the poverty population in this study lived in nonmetro counties, yet those counties received
29 percent of the total economic development grant funds. Thus, members of the poverty
population in nonmetro counties received more grant funding per capita than their
counterparts in metro counties.




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Finally, we identified a number of issues related to the characteristics of grant programs and
the availability of data that limit what we can say about the geographic distribution and
beneficiaries of the grant awards. First, the geographic information for the grant programs
we reviewed in USAspending.gov (accessed Aug. 22, 2012) corresponds to the address of
the primary grant recipient, which in some cases is not necessarily the location where the
services funded by the grant are delivered. For example, Commerce provides grants to
economic development organizations that may serve multiple cities. Therefore, the
geographic information might understate the true reach of the federal funds. But in some
cases, such as with the CDBG/Entitlement Communities program, the address of the
primary recipient is also where the grant funds are spent on economic development
activities because the funds are specifically awarded to support economic activities in that
community. In addition, the data we analyzed do not allow us to identify who benefits from
the economic activity supported by the grant. For example, we cannot tell who might have
received a job from a newly established business that received an economic development
grant designed to incubate new businesses in economically distressed communities. Finally,
because this analysis did not examine the outcomes of these federal investments we are
limited in what we can say about whether and how these grant programs improved local
economic conditions.


Agency Comments and Our Evaluation


We provided a draft of this correspondence to Commerce, HUD, USDA and SBA for review
and comment. Commerce and HUD provided written comments, which are presented in
enclosure III and IV, respectively. While both agencies generally agreed with our findings,
Commerce provided additional information on some of the data we used, and HUD
requested that we provide additional clarification on our methodology and results for
analyzing the distribution of economic development grant funds to communities. USDA and
SBA provided technical comments, which we have incorporated where appropriate.


Commerce noted that the fiscal year obligation amounts which we included in the draft’s
enclosure II differed from the actual fiscal year 2010 obligation amounts that Commerce has
for some programs. We agree that the numbers we had included in enclosure II may differ
from Commerce’s actual 2010 obligation amounts. This difference is due to the fact that we
obtained obligation data as of August 2011. While these were the most recent data that
provide federal grant obligations by county, agencies can later adjust the obligation
amounts. Although many of the differences are generally quite small, we have removed the
unadjusted award data from the table in enclosure II to prevent confusion with data that
have been more recently adjusted. 7


HUD commented that we should provide more information on the method of allocation for
each program so that readers understand variables that influence the allocation of funds to
economically distressed communities. Although we provide information about the methods
programs used to allocate funds to economically distressed communities, we agree that
additional information, particularly in regards to the CDBG program which has a major

7
 Appropriation data for these programs, which gives an indication of relative size of each program, is
provided in GAO-11-477R, 43-50.


5                                                                                    GAO-12-938R
impact on our analysis, could be beneficial. Accordingly, we have provided additional detail
about the CDBG program to clarify that poverty is one of several variables used to target
CDBG funds to economically distressed communities. HUD also noted that, because our
analysis focused on specific populations within communities rather than on the entire
community population, it was misleading to conclude that the distribution of grant funding to
communities was not consistently aligned with poverty and unemployment rates. We agree
and have clarified our language and added more detailed information to make it clearer that,
given congressional interest in the distribution of federal funds to populations experiencing
the greatest need, our findings reflect a per capita comparison based on the populations in
poverty and the unemployed as opposed to an overall per capita basis.


                        ***************************************************
We are sending copies of this report to the appropriate congressional committees and the
Secretaries of Commerce, HUD and USDA, and the Administrator of SBA. In addition, the
report is available at no charge on GAO’s Web site at http://www.gao.gov.


If you or your staff has questions regarding this report, please contact me at (202) 512-6806
or czerwinskis@gao.gov. Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this report. Individuals making key
contributions to this report include Laurel E. Beedon, Amy R. Bowser, Kathleen M. Drennan,
Gregory O. Dybalski, Luann M. Moy, Keith C. O’Brien, Carol L. Patey, Rebecca K. Rose,
Tind S. Ryen, Albert C. Sim and Michael Springer.




Stanley J. Czerwinski
Director
Strategic Issues



Enclosures—5




6                                                                             GAO-12-938R
Enclosure I: Briefing Slides




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Enclosure II: Selected Economic Development Programs


                                                                         Included in nonmetro    Included in city
Agency      Program                                                            county analysis          analysis
Commerce    Economic Adjustment Assistance                                                  ●                  ●
            Grants for Public Works & Economic Development
            Facilities                                                                      ●                  ●
            Trade Adjustment Assistance                                                     ●                  ●
            Community Trade Adjustment Assistance                                           ●
            Economic Development - Support for Planning
            Organizations                                                                   ●                  ●
            Economic Development - Technical Assistance                                     ●
            Minority Business Development Centers                                           ●
            Research and Evaluation Program                                                 ●
            Minority Business Opportunity Committee                                         ●
            Community Development Block Grants (CDBG)
HUD         /Entitlement Grants                                                             ●                  ●
            CDBG/State's Program                                                            ●
            Alaska Native/Native Hawaiian Institutions Assisting
            Communities                                                                     ●
            CDBG/Insular Area                                                               ●
            Sustainable Communities Regional Planning Grant
            Program                                                                         ●
SBA         Small Business Development Center                                                                  ●
            Microloan Demonstration Program                                                 ●                  ●
            Women's Business Ownership Assistance                                           ●                  ●
            Microenterprise Development Grants                                              ●
            Veterans Entrepreneurial Training and Counseling                                ●
            SCORE                                                                           ●
USDA        Water and Waste Disposal System for Rural Communities                           ●
            Community Facilities Loans and Grants                                           ●
            Rural Energy for America Program                                                ●
            Water and Waste Disposal Loans and Grants (Section
            306C)                                                                           ●
            Rural Business Enterprise Grants                                                ●
            Rural Cooperative Development Grants                                            ●
            Small Business Innovation Research                                              ●                  ●
            Technical Assistance and Training Grants                                        ●
            Rural Economic Development Loans and Grants                                     ●
            Assistance to High Energy Cost Rural Communities                                ●
            Rural Business Opportunity Grants                                               ●
            Public Television Station Digital Transition Grant Program                      ●
            Schools and Roads Grants to States                                              ●
            Solid Waste Management Grants                                                   ●
            Emergency Community Water Assistance Grants                                     ●
            State Bulk Fuel Revolving Fund Grants                                           ●


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                                                                                      Included in nonmetro           Included in city
Agency            Program                                                                   county analysis                 analysis
                  Rural Microentreprenuer Assistance Program                                                ●
                  Grant Program to Establish a Fund for Financing Water
                  and Wastewater Projects                                                                   ●
                  Schools and Roads Grants to Counties                                                      ●
                  Empowerment Zones Program                                                                 ●
                  Distant Learning and Telemedicine Loans and Grants                                        ●
Total                                                                                                      40                      9
Sources: U.S. Department of Agriculture and U.S. Department of Housing and Urban Development data and GAO-11-477R.

Note: Appropriation data for these programs, which gives an indication of relative size of each program, is provided in
GAO-11-477R, 43-50.




26                                                                                             GAO-12-938R
Enclosure III: Comments from the Department of Commerce




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Enclosure IV: Comments from the Department of Housing and Urban Development




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Enclosure V: Related GAO Products


Entrepreneurial Assistance: Opportunities Exist to Improve Program Collaboration, Data-Tracking,
and Performance Management. GAO-12-819. Washington, D.C.: August 23, 2012


Limited Information on the Use and Effectiveness of Tax Expenditures Could Be Mitigated through
Congressional Attention. GAO-12-262. Washington, D.C.: February 29, 2012.


Efficiency and Effectiveness of Fragmented Economic Development Programs Are Unclear.
GAO-11-477R. Washington, D.C.: May 19, 2011.


Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and
Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011.


Revitalization Programs: Empowerment Zones, Enterprise Communities, and Renewal Communities.
GAO-10-464R. Washington, D.C.: March 12, 2010.

Community Development: Federal Revitalization Programs Are Being Implemented, but Data on the Use of
Tax Benefits Are Limited. GAO-04-306. Washington, D.C.: March 5, 2004

Rural Economic Development: More Assurance Is Needed That Grant Funding
Information Is Accurately Reported. GAO-06-294. Washington, D.C.: February 24, 2006.


Economic Development: Multiple Federal Programs Fund Similar Economic Development Activities.
GAO/RCED/GGD-00-220. Washington, D.C.: September 29, 2000.




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