oversight

Economic Development Activities: Overview of Eight Federal Programs

Published by the Government Accountability Office on 1997-08-28.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters




August 1997
                  ECONOMIC
                  DEVELOPMENT
                  ACTIVITIES
                  Overview of Eight Federal
                  Programs




GAO/RCED-97-193
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-276495

      August 28, 1997

      The Honorable Alfonse M. D’Amato
      The Honorable Edward M. Kennedy
      The Honorable Jeff Bingaman
      United States Senate

      The Honorable Martin T. Meehan
      The Honorable Christopher Shays
      The Honorable Bob Franks
      House of Representatives

      Incentives in the form of tax concessions, financial assistance, or other
      benefits represent a major tool available to states and localities to attract
      new businesses and improve their economic competitiveness. Federal
      loans and grants that are available to states and communities finance the
      types of activities that can be offered as incentives. Because the intent of
      many federal programs is economic development, including the creation
      of jobs, there is concern over the extent to which federal dollars are used
      to relocate jobs from one community to another.

      This report responds to your request that we provide you with the
      following: (1) What economic development activities1 can major federal
      programs fund for the benefit of states and communities? (2) What
      restrictions exist for using program funds to relocate existing businesses
      and jobs? (3) For those programs with restrictions, what procedures have
      federal agencies established to ensure compliance with the restrictions?
      (4) What types of incentives have states and communities used to attract
      businesses and what role may incentives play in a business’ decision to
      relocate?

      As agreed with your offices, we examined the following eight programs:
      the Economic Development Administration’s (EDA) Public Works and
      Development Facilities Program, within the Department of Commerce; the
      Community Development Block Grant (CDBG) Program, within the
      Department of Housing and Urban Development (HUD); the Employment
      and Training Assistance for Dislocated Workers Program, within the
      Department of Labor; the Community Services Block Grant (CSBG)
      Program, within the Department of Health and Human Services (HHS); the

      1
       Economic development activities, as used in this report, include projects and activities, such as those
      that provide roads, sewers, and industrial parks; job training; and other activities that are designed to
      (1) help communities expand and diversify their economies; (2) develop, expand, or rehabilitate public
      facilities; and (3) reduce unemployment and poverty.



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                   Clean Water State Revolving Fund Program, within the Environmental
                   Protection Agency (EPA); the Water and Waste Disposal Program, within
                   the Department of Agriculture; the Surface Transportation Program,
                   within the Department of Transportation; and the Empowerment Zone and
                   Enterprise Community (EZ/EC) Program, administered by Agriculture and
                   HUD and funded primarily by HHS’ Social Services Block Grant (SSBG)
                   Program. We selected these eight programs because they are large-dollar
                   programs, states and communities are the primary recipients of the
                   programs’ assistance, and the assistance provided by these programs is
                   generally accessible to all states.


                   Funds for the eight program we examined can be used for a variety of
Results in Brief   economic development activities. Three of the programs—the Economic
                   Development Administration’s Public Works and Development Facilities
                   Program, HUD’s Community Development Block Grant Program, and HUD’s
                   and Agriculture’s Empowerment Zone and Enterprise Community
                   Program—fund activities that focus primarily on the economic
                   development of distressed areas. Two of the programs—Labor’s
                   Employment and Training Assistance for Dislocated Workers Program and
                   HHS’ Community Services Block Grant Program—focus on improving the
                   economic viability of individuals by funding activities that help
                   unemployed individuals qualify for and find new jobs and help low-income
                   individuals and families obtain adequate jobs, education, nutrition, and
                   housing. The three remaining programs—EPA’s Clean Water State
                   Revolving Fund Program, Agriculture’s Water and Waste Disposal
                   Program, and Transportation’s Surface Transportation Program—fund
                   infrastructure projects in the form of wastewater treatment projects and
                   other water quality projects and highway, mass transit, or other
                   transportation projects where economic development of an area may be
                   an offshoot.

                   Of the eight programs, three have restrictions against using funds to
                   relocate jobs; four do not address the issue of using funds to relocate jobs;
                   and under one, legislation that would impose prohibitions against
                   relocating jobs is pending. The Economic Development Administration’s
                   regulations prohibit using Public Works and Development Facilities
                   Program grants to relocate jobs from one area to another. Among other
                   things, the Job Training Partnership Act (JTPA) of 1982 prohibits using
                   Labor’s Employment and Training Assistance for Dislocated Workers
                   Program grants or any other funds under the act to encourage or induce a
                   business to relocate if the relocation results in the loss of employment at



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the business’ original location. The Omnibus Budget Reconciliation Act of
1993, which established the Empowerment Zone and Enterprise
Community Program, specifies that the strategic plans for revitalizing
distressed areas not include any provisions to help relocate businesses
from non-Empowerment Zone and Enterprise Community areas if the
relocation increases unemployment in the area of the business’ original
location. Pending legislation would impose similar prohibitions against
relocating jobs under HUD’s Community Development Block Grant
Program.

Agencies responsible for programs with relocation restrictions rely on
various procedures to ensure compliance with the prohibitions. The
Economic Development Administration relies on assurances from
applicants and certifications from businesses benefiting from the
Economic Development Administration’s assistance that the businesses
will not transfer jobs from other areas to the project area. Similarly, Labor
requires that substate organizations awarding grants and businesses
complete preaward reviews to verify that businesses are not relocating
jobs from one labor market area to another. HUD and Agriculture rely on
their own determinations that strategic plans for the Empowerment Zones
and Enterprise Communities do not provide for the relocation of
businesses. In a November 1996 memorandum, HUD advised the Atlanta
Empowerment Zone that the law does not prohibit an empowerment zone
in the implementation stages of its plan from using Social Services Block
Grant funds to finance activities that may assist a business relocating to
the zone. However, HUD is withdrawing this memorandum. In the near
future, HUD plans to issue guidelines that will (1) clarify HUD’s position that
Social Services Block Grant funds should not be used to relocate jobs and
(2) outline HUD’s intent to withhold funds if empowerment zones or
enterprise communities do not comply with the policy.

States may use a variety of incentives, such as tax concessions, financial
assistance, and other benefits, to encourage economic development and
attract businesses. Also, when federal funds are used for an activity that
the state or community would have undertaken anyway, those federal
funds free up state money for some other activity, including incentives to
attract businesses. Studies have shown that when making decisions to
locate in a particular area, businesses consider a variety of factors, such as
workers’ productivity, the efficiency of transportation facilities, and the
community’s receptivity; incentives may or may not be a major factor in a
firm’s decision to locate to a particular area.




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             Business incentives are inducements that state and local governments can
Background   offer to attract or retain businesses and jobs. Incentives offered by state
             and local governments may be in the form of a direct payment to a
             business to locate or remain in a certain area. Or incentives may be less
             direct; for example, they can be in the form of exemptions from state and
             local taxes; loans on favorable terms, through industrial revenue bonds, or
             direct loans from state and local agencies; or state-subsidized job training.
             Over the past two decades, the variety of incentives offered by states and
             local governments has grown. One estimate by the state of Ohio shows
             that state and local governments annually spend billions of dollars to
             motivate businesses to relocate within their jurisdiction or to keep
             businesses from moving out.

             The use of incentives and their effectiveness and impact in luring
             businesses and jobs from one location to another have become the issue
             of much debate in recent years. Proponents of incentives maintain that
             they are a cost-effective way to promote economic development and that
             incentives have become a necessity because of the economic
             competitiveness that exists between regions and states. Proponents
             believe that business incentives have a positive effect on business-location
             decisions. On the other hand, opponents contend that relocating
             businesses from one area or state to another is a zero-sum game that, in
             the aggregate, creates little, if any, economic benefit. Opponents also
             contend that the dollars spent to provide incentives would be better used
             if applied to other services believed to be more important in economic
             development, such as improvements to the infrastructure and investments
             in human resources and education.

             Concern also exists that federal programs are being used and, in some
             cases, misused to provide incentives for luring businesses into relocating
             from one area to another. Federal programs provide state and local
             governments with loans and grants that can be used for transportation
             projects, waste treatment facilities, worker training, and other types of
             services that can be used as incentives. Newspaper articles have
             chronicled stories of how one community allegedly used federal funds to
             lure jobs from another community or how a community allegedly used
             federal funds to provide low-interest loans for retaining a business within
             its jurisdiction only to see the business move out of the community at a
             later date.




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                              The eight federal programs provide loans and grants that states,
Economic                      communities, and others can use for funding a variety of activities for
Development                   which the economic development of an area or of individuals is the
Activities of the Eight       intended or possible offshoot benefit. An overview of each program that
                              describes the program’s objectives and eligible activities, the types of
Federal Programs              funding provided, the entities eligible to receive program funding, the
                              funding provided in fiscal year 1996, and a description of projects funded
                              follows. Appendix I describes the programs in greater detail.


EDA’s Public Works and    •   Objectives, eligible activities, and types of funding provided: EDA’s Public
Development Facilities        Works and Development Facilities Program provides grants for helping
Program                       finance projects in distressed communities to attract new industry,
                              encourage business expansion, and generate long-term, private-sector
                              jobs. Grants can be used for a variety of projects, including water and
                              sewer systems serving primarily industrial and commercial users; access
                              roads and other industrial park infrastructure improvements; port
                              facilities; railroad sidings; tourism facilities; and vocational schools used
                              primarily to train unemployed and underemployed adults. Funds can be
                              used to acquire and develop land for these facilities and to construct,
                              rehabilitate, alter, or expand them. Projects must be located within an
                              EDA-designated redevelopment area.
                          •   Entities eligible to receive funding: States, cities, counties and other
                              political subdivisions, Indian tribes, commonwealths and territories, and
                              private and public nonprofit organizations representing redevelopment
                              areas are eligible to receive grants.
                          •   Funding provided in fiscal year 1996: Public Works and Development
                              Facilities grants normally cover up to 50 percent of a project’s cost; the
                              remainder of a project’s funding is provided by the grantee. In fiscal year
                              1996, EDA awarded 158 Public Works and Development Facilities grants
                              totaling $164.9 million.
                          •   Description of projects funded: The largest share of Public Works and
                              Development Facilities grant dollars awarded in fiscal year 1996—about
                              $77 million, or 47 percent—went for projects involving water and sewer
                              facilities. Other types of projects funded in fiscal year 1996 included
                              industrial parks, industrial buildings, streets and roads, harbor
                              development, and airports.


HUD’s Community           •   Objectives, eligible activities, and types of funding provided: HUD’s CDBG
Development Block Grant       Program provides communities with grants for activities that will benefit
Program                       low- and moderate-income people, prevent or eliminate slums or blight, or



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    meet urgent community development needs. CDBG funds can be used for a
    variety of activities, including to acquire, construct, or reconstruct public
    facilities, such as hospitals, nursing homes, and water and sewer facilities;
    provide new or expand existing crime prevention, child care, and other
    public services; rehabilitate housing; carry out special economic
    development projects, including the construction or reconstruction of
    commercial or industrial facilities; and provide community organizations
    with assistance for economic development and neighborhood
    revitalization projects.
•   Entities eligible to receive funding: The Entitlement Communities
    Program, which provides grants to large cities—those that are a central
    city of a metropolitan area or any other city within a metropolitan area
    that has a population of 50,000 or more—and to urban counties—counties
    within a metropolitan area with populations of 200,000 or more (excluding
    the population of metropolitan cities included therein)—and the State and
    Small Cities Programs, which provide states with grants for distribution to
    the smaller, nonentitled communities, are the major components of the
    CDBG Program.2 Grants are based on formulas that consider population, the
    extent of poverty, the extent of overcrowding, and the age of housing of
    the entitled community or state. Because low- and moderate-income
    persons are the principal beneficiaries of CDBG funds, at least 70 percent of
    CDBG expenditures must be for activities primarily benefiting such persons.
•   Funding provided in fiscal year 1996: Of the $4.6 billion in funds
    appropriated for the CDBG Program for fiscal year 1996, the Entitlement
    Communities and the State and Small Cities Programs together received
    about $4.4 billion.
•   Description of projects funded: HUD’s data for 1993—the most recent year
    for which complete data are available—show that housing rehabilitation
    was the most prominent activity funded by entitled communities,
    accounting for about 31 percent of the funds spent during the year. Water
    and sewer activities were the most prominent activity funded by
    nonentitled communities, accounting for about 29 percent of the funds
    spent during the year. CDBG funds were used for, among other things, 3,000
    projects to improve water, sewer, flood control, and drainage systems;
    3,700 projects to repair or maintain roads, bridges, and sidewalks; and
    over 8,200 projects to construct or rehabilitate public facilities, such as
    facilities for abused and neglected children and child care and
    senior-citizen centers. HUD estimates that about 115,000 jobs were created
    in 1993 through the CDBG Program.


    2
     Two states—Hawaii and New York—have elected neither to operate the CDBG State Program nor
    administer CDBG nonentitlement funds. HUD continues to administer the CDBG Small Cities Program
    and award competitive grants to nonentitlement communities in these states.



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HUD’s and Agriculture’s   •   Objectives, eligible activities, and types of funding provided: The EZ/EC
Empowerment Zone and          program is a 10-year program administered by HUD and Agriculture that
Enterprise Community          targets federal grants and provides tax and regulatory relief for helping
                              distressed urban and rural communities overcome their economic and
Program                       social problems. Funding for the EZ/EC Program is provided primarily by
                              HHS’ SSBG Program. EZs and ECs can use EZ/EC SSBG grants to fund a range of
                              economic and social development activities that are identified in their
                              strategic plans. The strategic plan, developed in conjunction with residents
                              and other stakeholders in the community, outlines the community’s vision
                              for revitalizing its distressed areas and the activities and projects planned
                              to accomplish this task. In addition to the EZ/EC SSBG funds, EZs can receive
                              special tax incentives and other assistance, while ECs qualify only for the
                              special tax incentives.
                          •   Entities eligible to receive funding: In December 1994, HUD and Agriculture
                              designated 104 communities as either EZs or ECs.
                          •   Funding provided before and during fiscal year 1996: In 1994 and 1995, HHS
                              allocated $100 million in EZ/EC SSBG grants for each of the 6 urban EZs,
                              $40 million for each of the 3 rural EZs, and just under $3 million for each of
                              the 95 urban and rural ECs for use over the 10-year life of the program. EZs
                              and ECs draw down EZ/EC SSBG funds through the state or their cognizant
                              state agency as needed for specific projects. As of June 30, 1997, EZs and
                              ECs had requested $119.9 million of the $1 billion in total SSBG funds
                              allocated by HHS.
                          •   Description of projects funded: Projects funded by urban EZs and ECs
                              include (1) a partnership in the Chicago EZ with a local college to prepare
                              students for the General Educational Development tests, (2) a
                              school-based program to reduce alcohol- and drug-related violence in the
                              Detroit EZ, and (3) buying sites for a supermarket and retail stores in the
                              Philadelphia EZ to create jobs for residents. Projects that rural EZs and ECs
                              plan to fund include (1) establishing family service centers in the Central
                              Savannah River Area EC in Georgia to provide recreation and leadership
                              classes for youth and adult literacy classes, (2) refurbishing retail business
                              facades in the City of Watsonville EC in California to improve the
                              downtown area, and (3) building and equipping four rural fire stations in
                              the Kentucky Highlands EZ.


Labor’s Employment and    •   Objectives, eligible activities, and types of funding provided: Labor’s
Training Assistance for       Employment and Training Assistance for Dislocated Workers Program,
Dislocated Workers            authorized under title III of JTPA, as amended, provides states and substate
                              organizations with grants to help dislocated workers qualify for and find
Program                       new jobs. Dislocated workers are those who have lost jobs because of



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                              mass layoffs or plant closings and include the long-term unemployed and
                              unemployed self-employed workers and those individuals who have been
                              laid off or notified of a layoff and who are unlikely to return to their
                              previous occupation or industry. State and substate grantees can tailor the
                              services for dislocated workers to meet participants’ needs. Services that
                              can be provided for dislocated workers include (1) retraining services,
                              including classroom and on-the-job training, basic and remedial education,
                              and instructions in English; (2) basic readjustment services, such as job
                              counseling, job placement assistance, labor market information, and
                              supportive services, including child care and commuting assistance; and
                              (3) needs-related payments to eligible dislocated workers who have
                              exhausted their unemployment compensation and who require such
                              assistance to participate in a job training program.
                          •   Entities eligible to receive funding: Eighty percent of the title III funds
                              provided for the Employment and Training Assistance for Dislocated
                              Workers Program are allotted to states on the basis of a formula that
                              considers the states’ unemployment levels. The remaining 20 percent of
                              funds are retained by Labor and used to provide assistance to territories,
                              to fund multistate projects, to provide assistance to workers dislocated by
                              natural disasters, and to supplement state grants when they are not
                              sufficient to provide services for workers dislocated by mass layoffs,
                              including those resulting from federal actions, such as reductions in
                              defense spending or compliance with Clean Air Act requirements.
                          •   Funding provided during fiscal year 1996: Of the approximately $1.09
                              billion in total Employment and Training Assistance for Dislocated
                              Workers Program grants for program year 1996,3 about $880 million was
                              allotted to the states and about $214 million was retained in reserve by
                              Labor.
                          •   Description of projects funded: Data provided by Labor show that during
                              program year 1995, the 268,000 individuals who completed training and
                              left the program received assistance through the Employment and
                              Training Assistance for Dislocated Workers Program, including about
                              125,000 who received basic readjustment services only, about 119,000 who
                              received occupational training, and about 78,000 who received supportive
                              services.


HHS’ Community Services   •   Objectives, eligible activities, and types of funding provided: HHS’ CSBG
Block Grant Program           Program provides states with grants to alleviate the causes of poverty by
                              helping low-income individuals and families obtain adequate jobs,

                              3
                               Funds for the JTPA programs are provided on a program-year basis, which runs from July 1 through
                              June 30, annually.



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                              education, and housing. CSBG funds can be used to provide (1) a range of
                              services and activities having a major impact on the causes of poverty;
                              (2) activities designed to assist low-income participants; (3) supplies,
                              services, and nutritious food on an emergency basis to counteract the
                              conditions of malnutrition among the poor; and (4) coordination and
                              linkage between governmental and other social services programs to
                              ensure the effective delivery of such services to low-income individuals.
                          •   Entities eligible to receive funding: CSBG funds are allocated to the states,
                              and the states must pass through at least 90 percent of the funds they
                              receive to locally based community action agencies that provide CSBG
                              services. The states may use the remaining funds for antipoverty projects
                              in the state and to administer the program.
                          •   Funding provided during fiscal year 1996: HHS provided states with
                              $389.6 million in CSBG funding for fiscal year 1996.
                          •   Description of projects funded: HHS’ data for fiscal year 1994—the latest
                              year for which complete data are available—show that CSBG funding
                              totaled $357.4 million and that the largest share of
                              funds—$98.4 million—was spent on activities to target and coordinate the
                              array of local services and programs available to combat poverty. About
                              $73.1 million was spent for emergency services, such as shelter and food
                              assistance; $43.8 million for nutrition programs; and $35.4 million and
                              $25.7 million, respectively, for education and employment activities.


EPA’s Clean Water State   •   Objectives, eligible activities, and types of funding provided: EPA’s Clean
Revolving Fund Program        Water State Revolving Fund Program provides the states, including Puerto
                              Rico, with annual funds to help capitalize revolving funds established by
                              the states to finance wastewater treatment facilities and other water
                              quality projects needed to improve water quality and protect public health.4
                              Grants are allotted to the states generally according to percentages
                              specified in the Clean Water Act. States must match grants at a rate of at
                              least $1 for every $5 received. States can use their revolving funds to
                              provide loans and other assistance (but not grants) for (1) constructing
                              publicly owned wastewater treatment facilities; (2) implementing
                              programs to control nonpoint sources of water pollution, such as
                              agricultural runoff; and (3) developing and implementing plans to
                              conserve and manage estuaries.
                          •   Entities eligible to receive funding: State, municipal, tribal, intermunicipal,
                              and interstate agencies are eligible for loans and other assistance for state
                              revolving funds. Individuals can also receive assistance for activities to

                              4
                               The District of Columbia, Virgin Islands, and other territories of the United States are not required to
                              establish revolving fund programs. The construction of wastewater treatment facilities in these
                              jurisdictions is funded by grants from EPA.



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                              control nonpoint sources of water pollution and to conserve and manage
                              estuaries. Wastewater treatment projects financed by the revolving funds
                              must be on the state-prepared project priority list. The list identifies and
                              ranks treatment facilities that the state expects to fund. Activities that a
                              state intends to fund to control nonpoint sources of water pollution and to
                              protect estuaries must be included in the state’s annual plan identifying
                              the state’s intended use of the fund.
                          •   Funding provided during fiscal year 1996: During fiscal year 1996, EPA
                              awarded about $1.7 billion in capitalization grants to the states. EPA
                              anticipates that grants to capitalize state revolving funds will continue
                              until 2004. According to the Director, EPA State Revolving Fund Branch,
                              wastewater treatment facilities account for about 95 percent of the dollars
                              in assistance provided by state revolving funds.
                          •   Description of projects funded: Data from EPA’s State Revolving Fund
                              Management Information System show that as of June 30, 1996, facilities
                              for the secondary treatment of wastewater represented about 50 percent
                              of the total projects funded by state revolving funds; other types of
                              projects included combined sewer overflow projects, facilities to handle
                              and treat sludge at water treatment plants, and projects to protect or
                              restore streams, wetlands, and estuaries.


Agriculture’s Water and   •   Objectives, eligible activities, and types of funding provided: The Water
Waste Disposal Program        and Waste Disposal Program provides loans and grants for rural
                              communities with populations of 10,000 or less to develop water and
                              waste disposal systems that will improve the quality of life and promote
                              economic development in rural areas. Assistance can be in the form of
                              direct loans and/or grants from Agriculture or loans from commercial
                              sources that are guaranteed against loss by Agriculture. Grants are
                              provided for reducing water and waste disposal costs to a reasonable level
                              for projects serving financially needy communities. Water and Waste
                              Disposal loans and grants may be used to construct, repair, improve,
                              expand, or modify rural water, sanitary sewage, solid waste disposal, and
                              storm wastewater disposal systems. Facilities that may be funded include
                              reservoirs, pipelines, wells, pumping stations, and sewer and storm sewer
                              systems. Funds can be used to acquire land and water rights and to pay
                              legal, engineering, and other fees associated with developing facilities.
                          •   Entities eligible to receive funding: Assistance is available to
                              municipalities, counties, Indian tribes, special purpose districts, and
                              nonprofit corporations. Applicants must be unable to obtain other
                              financing at reasonable rates and terms.




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                           •   Funding provided during fiscal year 1996: In fiscal year 1996, Agriculture
                               provided about $963 million in Water and Waste Disposal direct loans and
                               grants. In addition to the direct loans and grants, Agriculture also
                               guaranteed about $59 million in loans.
                           •   Description of projects funded: Of the $963 million obligated in fiscal year
                               1996, 617 direct loans worth about $389 million and 435 grants worth
                               about $198 million were provided for rural water projects. Agriculture also
                               provided 278 loans worth about $214 million and 233 grants worth about
                               $162 million for rural waste disposal projects.


Transportation’s Surface   •   Objectives, eligible activities, and types of funding provided:
Transportation Program         Transportation’s Surface Transportation Program (STP) provides states
                               with grants for a variety of highway, mass transit, pedestrian, bikeway, and
                               intermodal transportation projects. STP funds are apportioned on the basis
                               of historical federal funding that indirectly includes factors such as postal
                               route mileage, land area, and the urban and rural population of each state.
                               Each state must reserve 10 percent of its STP allotments for safety
                               construction activities, such as rail-highway grade crossings, and
                               10 percent for transportation enhancements, such as the control and
                               removal of outdoor advertising. Of the remaining funds, the state must
                               distribute 62.5 percent between urbanized areas that have populations
                               exceeding 200,000 and the remaining areas of the state in proportion to
                               their relative share of the state’s population. States can use the remaining
                               37.5 percent in any area of the state.
                           •   Entities eligible to receive funding: Localities, especially larger
                               communities, are given an unprecedented level of control to select the
                               surface transportation solutions that best fit their needs and preferences.
                               Projects that can be funded with STP grants include (1) highway and bridge
                               construction, reconstruction, and rehabilitation projects; (2) transit
                               projects, including publicly owned intracity or intercity bus terminals and
                               facilities; (3) car pool projects, corridor parking facilities, bicycle
                               transportation, and pedestrian walkways; (4) highway and transit safety
                               improvements, projects to mitigate hazards caused by wildlife, and
                               rail-highway grade crossings; and (5) capital and operating costs for traffic
                               monitoring, management, and control facilities and programs.
                           •   Funding provided during fiscal year 1996: Transportation apportioned
                               about $3.4 billion in STP funds to the states for fiscal year 1996.




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                          •   Description of projects funded: In fiscal year 1996, Transportation
                              obligated5 STP funds for a variety of activities, including $416.6 million for
                              safety construction activities, $426.9 million for transportation
                              enhancement projects, $1 billion for projects in urbanized areas with
                              populations exceeding 200,000, and $2.8 billion for state-discretionary
                              projects in any area of the states.


                              Three of the eight programs—the Public Works and Development
Three Programs Have           Facilities Program, the Employment and Training Assistance for
Relocation                    Dislocated Workers Program, and the EZ/EC Program—have restrictions
Restrictions                  against using program funds to relocate businesses if the relocations result
                              in the loss of jobs in other areas. In May 1997, the House of
                              Representatives passed legislation that would, among other things,
                              prohibit using HUD’s CDBG funds to relocate businesses if the relocation
                              results in plant closings or job losses in other areas where the business is
                              operating. As of August 1, 1997, this legislation was pending in the Senate.
                              A second bill that would also prohibit using CDBG funds to relocate jobs
                              was pending in the Senate at that time. The remaining four programs—HHS’
                              Community Services Block Grant Program, EPA’s Clean Water State
                              Revolving Fund Program, Agriculture’s Water and Waste Disposal
                              Program, and Transportation’s Surface Transportation Program—do not
                              address the issue of using program funds to relocate jobs.


Public Works and              EDA’s current regulations generally prohibit using Public Works and
Development Facilities        Development Facilities grants to assist employers who transfer one or
Program’s Nonrelocation       more jobs from one commuting area to another.6 EDA’s nonrelocation
                              requirement is applicable only to firms relocating to EDA-funded project
Requirement                   areas until the time that EDA approves a grant; EDA’s nonrelocation
                              requirement does not apply after the grant is approved. This change was
                              made in October 1995, when EDA revised its regulations. EDA’s 1995
                              revision to the regulations also allowed for exclusions from the
                              nonrelocation requirement for businesses that (1) relocate to the area
                              prior to the applicant’s request for EDA’s assistance; (2) have moved or will
                              move primarily for reasons that have no connection to EDA’s assistance;
                              (3) will expand employment in the area where the project is located

                              5
                               An obligation is a commitment by the Department of Transportation to pay, through reimbursement
                              to the states, the federal share of a project’s eligible costs. Funds obligated in fiscal year 1996
                              exceeded the funding apportioned in that year because federal-aid highway funds are available for use
                              (available for obligation) for more than 1 year.
                              6
                               EDA defines a commuting area as the distance that people travel to work in the locality of the project
                              receiving financial assistance from EDA.



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                            B-276495




                            substantially beyond employment in the area where the business was
                            originally located; (4) are relocating from technologically obsolete
                            facilities; (5) are expanding into the new area by adding a branch, affiliate,
                            or subsidiary while maintaining employment levels in the old areas; or
                            (6) are determined by EDA to be exempt from the requirement. Before the
                            October 1995 changes, EDA’s prohibition against relocating jobs applied for
                            a period of 48 months from the date when EDA awarded the grant, and the
                            nonrelocation requirement could be waived only with the written consent
                            of EDA’s Assistant Secretary.

                            EDA’s Acting Chief Counsel told us that several factors contributed to EDA’s
                            1995 changes to the nonrelocation requirement. This official told us that
                            EDA spent a great deal of time and effort monitoring projects funded by EDA
                            but found very few cases where businesses relocated jobs after EDA had
                            approved a grant. He said that as a result, EDA saw no need to continue
                            monitoring projects after funding was approved when such monitoring
                            was not needed and thus would consume valuable EDA resources that
                            could be used more effectively elsewhere.

                            In addition, EDA’s Acting Chief Counsel told us that the exclusion provision
                            enables EDA to better use Public Works and Development Facilities grants
                            to achieve their purpose of creating jobs in distressed area. He said that
                            firms may decide to relocate simply because the area where they are
                            located cannot accommodate planned expansion and growth. He said that
                            in the past, such firms, which are going to relocate anyway, could not
                            relocate to an EDA project site without penalty to the project grantee
                            because of the prohibitions in effect under the old regulations. However,
                            this official said that with the exclusion provision that EDA adopted in
                            October 1995, firms may decide to locate in distressed areas, where jobs
                            are needed, rather than move to an area that may not need the jobs as
                            much.


Employment and Training     Section 141 of JTPA, as amended, prohibits using any JTPA funds to
Assistance for Dislocated   encourage or induce a business to relocate if the relocation results in the
Workers Program’s           loss of employment for any employee at the business’ original location.7
                            This section also provides that if a business relocates and the relocation
Nonrelocation               results in the loss of any employee’s job at the business’ original location,
Requirement                 JTPA funds cannot be used by the relocating business for customized or
                            skill training, on-the-job training, or company-specific assessments of job

                            7
                             In addition to prohibiting the use of JTPA funds to encourage or induce businesses to relocate,
                            section 141 also prohibits using any JTPA funds for economic development and
                            employment-generating activities.



                            Page 13                                   GAO/RCED-97-193 Overview of Eight Federal Programs
                         B-276495




                         applicants or employees for the first 120 days after the business
                         commences operation at its new location. A relocating business is one that
                         moves any operation from a facility in one labor market to a new or
                         expanding facility in another market.

                         The Congress adopted these two prohibitions when it amended JTPA in
                         1992. Prior to the 1992 amendments, JTPA provided that funds could not be
                         used to help relocate establishments from one area to another unless the
                         Secretary determined that such relocations would not increase
                         unemployment in the area where the company was originally located. The
                         conference report on the 1992 amendments to JTPA do not explain
                         Congress’ rationale for these amendments. However, according to Labor’s
                         Employment and Training Administration, the 120-day provision was
                         added because the language in the legislation before 1992 was broad and
                         ambiguous and because it was difficult to determine whether there was an
                         impact on local unemployment.


EZ/EC Program’s          The Omnibus Budget Reconciliation Act of 1993 provides that the strategic
Nonrelocation            plans prepared by EZs and ECs may not include any assistance to relocate
Requirement              businesses into an EZ or EC if (1) the establishment of a new branch,
                         affiliate, or subsidiary will increase unemployment in the area of the
                         business’ original location or (2) there is reason to believe that the new
                         branch, affiliate, or subsidiary is being established with the intention of
                         closing down the operations of the existing business entity at its original
                         location or in any other area where the business is operating. The strategic
                         plan, which is developed with input from community stakeholders such as
                         residents, businesses, financial institutions, and local governments,
                         outlines how an EZ or EC plans to achieve its goal of revitalizing an area.
                         HUD and Agriculture have incorporated these relocation restrictions into
                         their implementing regulations.


CDBG Program’s Pending   Introduced in January 1997, the Housing Opportunity and Responsibility
Nonrelocation            Act of 1997 (H.R. 2) proposes to reform the nation’s public housing
Requirement              programs. A section in this legislation would prohibit using CDBG funds for
                         any activity that is intended or likely to facilitate the relocation or
                         expansion of any industrial or commercial plant, facility, or operation
                         from one area to another if the relocation or expansion will result in the
                         loss of employment in the area from which the relocation or expansion
                         occurs. On May 14, 1997, the House of Representatives passed H.R. 2. As
                         of August 1, 1997, the legislation was pending in the Senate.



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                           B-276495




                           In February 1997, the Prohibition of Incentives for Relocation Act (S.
                           300) was introduced in the Senate to specifically prohibit the use of CDBG
                           funds for relocating jobs. The legislation proposes that no CDBG funds can
                           be used for any activity that is intended or likely to facilitate the closing or
                           substantial reduction of operations of a plant at one location and the
                           relocation or expansion of the plant at another location. This
                           Congress—the 105th—was the third consecutive Congress in which this
                           legislation had been introduced. The legislation was first introduced in
                           1994 after a major corporation announced its plans to relocate 2,000 jobs
                           from a city in Wisconsin to other locations, including two areas that had
                           used community development funds to expand their operations. As of
                           August 1, 1997, this legislation was pending before the Senate Committee
                           on Banking, Housing and Urban Affairs.


                           To ensure compliance with its nonrelocation requirement, EDA relies on
Procedures for             assurances from applicants and certifications from businesses that the
Ensuring Compliance        businesses’ relocation to project areas funded by Public Works and
With Nonrelocation         Development Facilities grants will not result in the transfer of jobs from
                           other areas to the project area. Similarly, to document compliance with
Requirement                JTPA’s nonrelocation requirement, Labor’s regulations require that prior to
                           training workers for jobs in businesses, the substate grantees and
                           businesses complete preaward reviews to verify that the businesses are
                           not relocating jobs from one labor market to another. HUD and Agriculture
                           rely on their determinations that EZs’ and ECs’ strategic plans do not help
                           relocate businesses to ensure compliance with the Departments’
                           nonrelocation requirement.


EDA’s Procedures for       EDA’s current regulations, which were adopted in October 1995, provide
Ensuring Compliance With   that applicants for Public Works and Development Facilities grants must
Public Works and           notify EDA of any business that will benefit from the project funded with
                           the EDA grant. The regulations also require that each business identified by
Development Facilities     the applicant submit a nonrelocation certification to EDA as part of the
Program’s Nonrelocation    application package certifying that (1) the business does not intend to
Requirement                transfer one or more jobs (not persons) from other commuting areas to
                           the one where the project is located and (2) the business has not located
                           and will not locate to the project area before EDA’s approval of the grant in
                           order to avoid the restrictions of the nonrelocation certification. If a
                           business has already relocated jobs from another commuting area to the
                           commuting area where the project will be located or has plans to do so, it
                           must provide EDA with a full explanation so that EDA can determine if the



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                            B-276495




                            business qualifies for an exclusion from the nonrelocation requirement.
                            Under EDA’s regulations, EDA will determine compliance with the
                            nonrelocation requirement prior to its grant award on the basis of
                            information provided by the applicant during the project selection
                            process.


Labor’s Procedures for      Labor relies primarily on the states to ensure compliance with JTPA’s
Ensuring Compliance With    nonrelocation requirement. Labor’s regulations require that as a
Employment and Training     prerequisite to providing a new or expanding business with JTPA’s
                            assistance for worker training, a standardized preaward review, developed
Assistance for Dislocated   by the state, must be completed to verify that the business is not relocating
Workers Program’s           jobs from one labor market area to another. The review is to be completed
Nonrelocation               and documented jointly by the substate grantee or other organization
Requirement                 providing the job training assistance contracts and the business that is
                            providing the on-the-job training or for which other customized training is
                            being provided.

                            To assist the states in carrying out their preaward reviews, Labor’s
                            regulations identify the minimum information that such reviews should
                            cover, including the name under which the facility does business, the
                            name and address of the facility in the other area that is being closed or
                            from which business is being transferred, the nature of the products or the
                            business being transferred, the date that the new or expanded facility will
                            commence operation, and a statement from the employer about job losses
                            at the old location. Labor’s regulations require that the Secretary of Labor
                            investigate any alleged violations of the relocation prohibition but does
                            not require Labor’s periodic monitoring of state activities. In addition, the
                            regulations do not require that the states submit the preaward reviews to
                            Labor.


HUD’s and Agriculture’s     HUD and Agriculture have incorporated into their program regulations the
Procedures for Ensuring     provision in the Omnibus Budget Reconciliation Act against using EZs’/ECs’
Compliance With EZ/EC       assistance to relocate businesses. As under the act, HUD’s and Agriculture’s
                            regulations prohibit the EZs’ or ECs’ strategic plans from containing any
Program’s Nonrelocation     language stating that assistance will be provided for relocating businesses
Requirement                 from non-EZ or non-EC areas.

                            In a November 1996 memorandum from HUD to the Atlanta EZ, HUD advised
                            the EZ that after conferring with HHS, it was determined that the prohibition
                            in the law does not prohibit an EZ, during the implementation of its plan,



                            Page 16                        GAO/RCED-97-193 Overview of Eight Federal Programs
                      B-276495




                      from using EZ/EC SSBG funds to finance activities that may assist a business
                      relocating to the EZ. The memorandum went on to state that the section of
                      the act dealing with the nonrelocation prohibition relates to a business
                      relocation tactic included in a strategic plan submitted during the
                      application phase of the program and that the section says nothing about
                      actions that occur during implementation. The memorandum also stated
                      that the language in the act relating to business retention occurs in the
                      section of the act dealing with the designation of an area as an EZ or EC and
                      not in the portion of the act authorizing the use of EZ/EC SSBG funds.8

                      In our initial meeting with HUD officials to discuss this memorandum, the
                      Deputy Director, Office of Economic Development, told us that the
                      memorandum was prepared by his office following consultation with and
                      guidance from HHS. In a subsequent meeting, HUD’s Deputy Assistant
                      Secretary responsible for the program told us that the memorandum was
                      being withdrawn. This official also stated that it has always been HUD’s
                      position that EZ/EC SSBG funds should not be used to relocate jobs. This
                      official told us that HUD plans to issue guidance in the very near future that
                      will (1) clarify HUD’s position that EZ/EC SSBG funds should not be used to
                      relocate jobs and (2) outline HUD’s intent to withhold funds if EZs and ECs
                      do not comply with the policy.

                      In commenting on this report, HHS disagreed with HUD’s portrayal of the
                      role that HHS played in the development of the November 1996
                      memorandum to the Atlanta EZ. HHS stated that it did not provide HUD with
                      guidance stating that the statutory language would have an effect only
                      during the application process. Rather, HHS stated that HUD personnel
                      conferred with HHS staff and asked them to agree with HUD’s interpretation
                      of the statute. HHS stated that because HUD is the lead agency for the urban
                      EZ/EC program, HHS staff deferred to HUD on this policy decision.



                      Tax concessions, financial assistance, and other benefits may be used by
Types of Incentives   states and communities to attract and keep businesses. The extent to
and Role They May     which these incentives are paid by the federal government or by state and
Play in Business      local governments is difficult to ascertain. Local economic development
                      organizations may receive money from state programs that commingle
Relocations           state and federal dollars. Even if the ultimate source of the funding for
                      business incentives is from state or local governments, federal

                      8
                      For additional information on the implementation and oversight of the EZ/EC program, see Community
                      Development: Status of Urban Empowerment Zones (GAO/RCED-97-21, Dec. 20, 1996) and Rural
                      Development: New Approach to Empowering Communities Needs Refinement (GAO/RCED-97-75,
                      Mar. 31, 1997).



                      Page 17                                GAO/RCED-97-193 Overview of Eight Federal Programs
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expenditures may influence the level of incentives offered by state and
local governments. If federal funds are used for an activity that the state or
community would have undertaken anyway, money is freed up for states
or communities to use for such activities as the provision of business
relocation incentives.

The use of state and local incentives expanded during the late 1970s and
throughout the 1980s. However, the growth has slowed in the 1990s. The
National Association of State Development Agencies stated that in 1994,
over 500 different incentive programs were in use by states. A 1997 report
by the Council of State Governments shows that over 40 states now offer
tax and financial programs to create, retain, or lure jobs.9 But 32 states
plan to hold the line or cut spending over the next 5 years. These states
cited many reasons for not expanding their incentives, including a feeling
that (1) current levels were sufficient, hence, little marginal impact could
be expected from expanding the programs and (2) there was little payoff
from bidding wars between states to lure businesses. Also, some states
report a change in emphasis from attracting new firms to retaining existing
ones.

Many studies have examined the relationship between state and/or local
business incentives and changes in economic activity. Most early studies
found that incentives had little or no effect on an area’s economic
development. For instance, studies done in 1979 and 1983 found that state
business incentives had little influence on the stimulation of new business,
measured either by the number of firms or by the firm’s size.10 Wage rates,
energy costs, and the availability of skilled labor were all found to be more
important influences on the creation and expansion of business firms.

Later work has refined this conclusion. Incentives may produce an impact
in some industries, such as manufacturing.11 A 1991 study found that
manufacturing and capital-intensive industries are more affected by tax
considerations than are other businesses.12 Also, state and local business

9
  State Business Incentives: Trends and Options for the Future, The Council of State Governments
(1997).
10
 Dennis Carlton, “Why New Firms Locate Where They Do: An Econometric Model” in Interregional
Movements and Regional Growth, ed. W. Wheaton, Urban Institute (1979), and Dennis Carlton, “The
Location and Employment Choices of New Firms: An Econometric Model With Discrete and
Continuous Endogenous Variables,” The Review of Economics and Statistics (1983).
11
 For example, see “Does State Economic Development Spending Increase Manufacturing
Employment?” by C. De Bartolome and M. Spiegel in the Journal of Urban Economics (1997).
12
 Timothy J. Bartik, Who Benefits From State and Local Economic Development Policies? (Kalamazoo:
W. E. Upjohn Institute for Employment Research, 1991).



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                  policy may have stronger influences on where firms locate within a region.
                  The selection of a region for an investment may be driven by economic
                  criteria, such as the availability of labor and transportation and proximity
                  to markets, while the selection of a particular site within a region may be
                  influenced by the availability of incentives. A 1983 study, for instance,
                  found that property taxes were an important disincentive to firms
                  relocating within the Detroit metropolitan area.13 The magnitude of these
                  impacts and the set of industries for which they might occur is still the
                  subject of debate in academic publications.

                  Surveys of businesses, such as the Fortune Market Research Survey,14 also
                  find that relocation incentives are not the most important factors in plant
                  location decisions. The Fortune Market Research Survey ranks financing
                  inducements 15th in importance, far behind such factors as worker
                  productivity, efficient transportation, and the state or local government’s
                  attitude toward businesses. Both academic researchers and government
                  officials who administer economic development programs cite several
                  factors that may limit the effectiveness of business incentives. The value of
                  the incentives offered is often small in relation to the differences between
                  locations in the costs incurred by firms, such as labor and transportation
                  costs. Incentives may represent a zero-sum gain, in which the value of one
                  state’s incentives is offset by the incentives offered by competing states.
                  Finally, incentives offered to new businesses to locate in an area may give
                  them a competitive edge over existing businesses, thus causing a shift in
                  economic activity from established firms to new firms but causing little
                  change in a region’s overall economic activity.


                  We provided Agriculture, Commerce, HHS, HUD, Labor, Transportation, and
Agency Comments   EPA with a draft of this report for review and comment. Agriculture,
                  Transportation, and EPA informed us that they had no comments.
                  Commerce, HHS, HUD, and Labor provided us with written comments in
                  which they generally agreed with the report’s observations.

                  Commerce, however, took issue with a statement in our draft report that
                  EDA’s programs are among the federal programs that are frequently cited
                  as being used in incentive packages. Commerce pointed out that EDA is
                  unaware of any citations or complaints about its Public Works Program or


                  13
                   Alberta Charney, “Intraurban Manufacturing Location Decisions and Local Tax Differentials,” Journal
                  of Urban Economics (1983).
                  14
                    “Why Corporate America Moves Where,” Fortune Market Research Survey, New York Times, Inc.
                  (1982).



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any of its other programs being used for relocation purposes. The
statement in our draft report was based on discussions with associations
representing states and communities and was not meant to infer that
particular programs had been used to relocate jobs. As we note in our
report, incentive packages are used to attract new or expanding jobs to an
area, which is often the purpose of EDA’s assistance. However, because of
the concern and confusion that this statement has caused, we have deleted
it from our final report. Commerce also noted that it has requested
proposals for the development of a tool to evaluate state incentive
programs and recommendations on the appropriate federal role in
locational incentives. It expects the final report on this project in
June 1998.

HHS and HUD provided comments relevant to the section of the report that
discusses EZs/ECs and the use of SSBG funds for the relocation of jobs. HHS
took issue with HUD’s portrayal of the role that HHS played in the
development of the November 1996 memorandum that HUD sent to the
Atlanta EZ. In that memorandum, HUD advised Atlanta that the law does not
prohibit an EZ, during the implementation stages of its plan, from using
SSBG funds to relocate businesses to the EZ. HHS stated that the
memorandum implies that HHS provided HUD with guidance about
interpreting the statutory language to have an effect only during the
application process. HHS stated that HUD personnel conferred with HHS staff
and asked them to agree with HUD’s interpretation of the statute.
According to HHS, because HUD is the lead agency for the urban EZ/EC
program, HHS staff deferred to HUD on this policy decision. Because the
exact role that each agency played in developing this policy is unclear, we
have included language reflecting HHS’ position in the sections of the
report that discuss the November 1996 memorandum. In its comments,
HUD reiterated that it will soon issue guidance clarifying its policy on the
use of SSBG funds for the relocation of jobs and included the draft guidance
as an enclosure.

Labor pointed out that while our report deals with title III of JTPA and the
services that are available to eligible dislocated workers, section 141 of
JTPA deals with all training programs under the act, including those
involving disadvantaged youths and adults, migrant and seasonal farm
workers, Native Americans, and older Americans. We agree and make this
point in the report. The sections of our report that discuss the relocation
prohibition under section 141 of JTPA state specifically that this prohibition
applies to all funds provided under JTPA. Labor also commented that in
addition to the relocation prohibition, there is a prohibition against using



Page 20                        GAO/RCED-97-193 Overview of Eight Federal Programs
              B-276495




              JTPA funds for economic development or employment-generating activities
              and that it is important to put this into the context of the training services
              that are available to help dislocated workers return to the workforce. We
              agree with Labor and have added language to the report to reflect these
              prohibitions.

              Commerce, HUD, and Labor also included attachments/enclosures with
              clarifying language and technical corrections for their respective
              programs, which we incorporated into the report where appropriate. The
              written comments from Commerce, HHS, HUD, and Labor and our responses
              appear in appendixes II through V, respectively.


              To determine the economic development activities that eight major federal
Scope and     programs fund for the benefit of states and communities, we reviewed the
Methodology   1996 Catalog of Federal Domestic Assistance,15 program legislation and
              regulations, budget information, and annual and other program reports
              prepared by the agencies administering the programs and by others. We
              developed descriptive information for each program, including the
              program’s purpose and objectives, the type(s) of financial assistance
              provided, the entities that are eligible to receive program assistance, the
              types of projects and activities that can be funded, and the amount of
              assistance provided in fiscal year 1996.

              To determine (1) which programs have legislative or regulatory
              restrictions on using program funds to relocate existing businesses and
              jobs (2) for those programs with restrictions, the procedures that federal
              agencies have established to ensure that states and communities comply
              with such restrictions, we reviewed program legislation and regulations,
              congressional reports accompanying program legislation, agencies’
              operating procedures, and other documents relating to the relocation
              prohibitions. We discussed the restrictions and procedures with agency
              officials as well as how the restrictions and procedures have changed and
              the reasons for any changes. We did not assess whether states and
              communities are complying with these restrictions or the adequacy of
              agencies’ procedures in ensuring that program assistance is not used to
              relocate existing businesses and jobs.

              To obtain information on the nonfederal economic incentives available to
              states and communities to attract businesses and jobs, we (1) analyzed

              15
                 The Catalog is a governmentwide compendium of federal programs, projects, services, and activities
              that provide assistance and benefits.



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reports written by industry and government associations and
(2) interviewed industry experts. We summarized the types of state and
local incentives available and the role that incentives may play in a
business’ decision to relocate. We also discussed with industry experts the
issue of federal funds freeing up state funds and the impact that
state-provided incentives may have on a state’s ability to provide other
state services.

We conducted our work from January through July 1997 in accordance
with generally accepted government auditing standards.


As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 15 days from the
date of this report. At that time, we will send copies to the appropriate
congressional committees; the Secretaries of Agriculture, Commerce, HHS,
HUD, Labor, and Transportation and the Administrator, EPA; the Director,
Office of Management and Budget; and other interested parties. Copies
will be made available to others upon request.

If you have any questions, please call me at (202) 512-7632. Major
contributors to this report are listed in appendix VI.




Judy A. England-Joseph
Director, Housing and Community
  Development Issues




Page 22                        GAO/RCED-97-193 Overview of Eight Federal Programs
Page 23   GAO/RCED-97-193 Overview of Eight Federal Programs
Contents



Letter                                                                                               1


Appendix I                                                                                          26
                       Public Works and Development Facilities Program                              26
The Eight Federal      Community Development Block Grant Program                                    31
Programs               Empowerment Zone and Enterprise Community Program                            35
                       Job Training Partnership Act, Title III, Employment and Training             39
                         Assistance for Dislocated Workers
                       Community Services Block Grant Program                                       43
                       Clean Water State Revolving Fund Program                                     46
                       Water and Waste Disposal Program                                             48
                       Surface Transportation Program                                               50

Appendix II                                                                                         54
                       GAO’s Comments                                                               55
Comments From the
Department of
Commerce
Appendix III                                                                                        56
                       GAO’s Comments                                                               58
Comments From the
Department of Health
and Human Services
Appendix IV                                                                                         59
                       GAO’s Comments                                                               60
Comments From the
Department of
Housing and Urban
Development
Appendix V                                                                                          61
                       GAO’s Comments                                                               62
Comments From the
Department of Labor




                       Page 24                       GAO/RCED-97-193 Overview of Eight Federal Programs
                        Contents




Appendix VI                                                                                         64

Major Contributors to
This Report
Tables                  Table I.1: Distribution of EDA Public Works and Development                 28
                          Facilities Grants in Fiscal Year 1996 by Type of Project
                        Table I.2: Services Received Under the Employment and Training              42
                          Assistance for Dislocated Workers Program




                        Abbreviations

                        CDBG       Community Development Block Grant (Program)
                        CSBG       Community Services Block Grant (Program)
                        EDA        Economic Development Administration
                        EPA        Environmental Protection Agency
                        EZ/EC      Empowerment Zone and Enterprise Community (Program)
                        GAO        General Accounting Office
                        HHS        Department of Health and Human Services
                        HUD        Department of Housing and Urban Development
                        ISTEA      Intermodal Surface Transportation Efficiency Act of 1991
                        JTPA       Job Training Partnership Act
                        MSA        Metropolitan Statistical Area
                        OCS        Office of Community Services
                        OEDP       Overall Economic Development Program
                        SSBG       Social Services Block Grant
                        STIP       statewide transportation improvement program
                        STP        Surface Transportation Program
                        TIP        transportation improvement program


                        Page 25                      GAO/RCED-97-193 Overview of Eight Federal Programs
Appendix I

The Eight Federal Programs


                          This appendix provides information regarding the purpose and objectives,
                          type of assistance provided, eligible activities, flow of funds from federal
                          agencies to recipients, recipients’ role in project selection, amount of
                          assistance provided during fiscal year 1996, and types of projects funded
                          for each of the following programs:

                      •   The Department of Commerce’s Economic Development Administration’s
                          (EDA) Public Works and Development Facilities Program.
                      •   The Department of Housing and Urban Development’s (HUD) Community
                          Development Block Grant (CDBG) Program.
                      •   The Empowerment Zone and Enterprise Community (EZ/EC) Program,
                          administered by the Department of Agriculture and HUD and funded
                          primarily by HHS.
                      •   The Department of Labor’s Employment and Training Assistance for
                          Dislocated Workers Program.
                      •   The Department of Health and Human Services’ (HHS) Community Services
                          Block Grant (CSBG) Program.
                      •   The Environmental Protection Agency’s (EPA) Clean Water State Revolving
                          Fund Program.
                      •   Agriculture’s Water and Waste Disposal Program.
                      •   The Department of Transportation’s Surface Transportation Program.


                          The Public Works and Development Facilities Program, authorized by title
Public Works and          I of the Public Works and Economic Development Act of 1965, as
Development               amended, is a key federal program for stimulating economic development
Facilities Program        in distressed communities. Administered by the Department of
                          Commerce’s EDA, the program provides distressed communities with
                          grants to help attract new industry, encourage business expansion, and
                          generate long-term, private-sector jobs.


Program Information       Public Works and Development Facilities grants can be used to finance a
                          variety of projects including water and sewer systems serving primarily
                          industrial and commercial users, access roads and other infrastructure
                          improvements for industrial parks, port facilities, railroad sidings and
                          spurs, tourism facilities, and vocational schools. Grant funds can be used
                          to acquire and develop land for these facilities as well as to construct,
                          rehabilitate, alter, or expand them.

                          Projects funded with Public Works and Development Facilities grants
                          must fulfill a pressing need of the area and must (1) improve the



                          Page 26                        GAO/RCED-97-193 Overview of Eight Federal Programs
                  Appendix I
                  The Eight Federal Programs




                  opportunities to successfully establish or expand commercial plants or
                  facilities, (2) assist in creating additional long-term employment
                  opportunities, and (3) benefit the long-term unemployed and
                  underemployed and members of low-income families. Also, projects must
                  be located within an EDA-designated redevelopment area or economic
                  development center and must be consistent with the Overall Economic
                  Development Program (OEDP)16 approved by EDA for the area and have an
                  adequate local share of matching funds. States, cities, counties, and other
                  political subdivisions, Indian tribes, commonwealths and territories of the
                  United States, and private and public nonprofit organizations representing
                  redevelopment areas are eligible for Public Works and Development
                  Facilities grants. Corporations and associations organized for profit are
                  not eligible for grant assistance.

                  The first step in obtaining an EDA Public Works and Development Facilities
                  grant usually is for the applicant and community leaders to meet with an
                  Economic Development Representative or other appropriate EDA official to
                  explore the applicability of the proposed project for EDA funding. If the
                  proposed project appears to be feasible, the applicant will prepare a brief
                  project proposal, which is submitted to an EDA regional office for review. If
                  the regional office finds that the proposed project qualifies, it will notify
                  the applicant to submit a formal grant application to EDA. The application,
                  among other things, describes the project in detail, discusses how the
                  project will affect the economic development of the community, and
                  provides information on the project’s costs, its projected payroll, and the
                  amount of private capital to be invested. Submitting a formal application
                  to EDA does not guarantee that the project will be funded.

                  Public Works and Development Facilities grants normally cover up to
                  50 percent of the estimated cost of a project, and the remainder is
                  provided by local sources. Projects located in highly depressed areas may
                  receive a supplementary grant from EDA that brings the federal share of the
                  project up to 80 percent, while Indian tribes are eligible for up to
                  100-percent funding from EDA.


Project Funding   Funds appropriated for Public Works and Development Facilities grants in
                  fiscal year 1995 totaled $195 million and totaled $165.2 million in fiscal
                  1996 and fiscal 1997. In fiscal year 1995, EDA approved 182 Public Works

                  16
                     OEDPs are locally developed plans of action for EDA-designated redevelopment areas that describe
                  an area’s economic conditions and environment, examine its economic development opportunities,
                  and identify the types of improvements that are needed to promote the area’s economic progress and
                  improve community facilities and services.



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                                        and Development Facilities grants totaling $194.5 million and 158 grants
                                        totaling $164.9 million in fiscal 1996.17 Table I.1 shows the types of projects
                                        funded with grants made during fiscal year 1996.

Table I.1: Distribution of EDA Public
Works and Development Facilities        Type of project                                             Dollars                            Percent
Grants in Fiscal Year 1996 by Type of   Water and sewer systems                                $77,530,833                                 47.0
Project
                                        Industrial parks                                        26,056,723                                 15.8
                                        Buildings-industrial/
                                        commercial                                              21,885,552                                 13.3
                                        Street and roads                                        15,505,072                                      9.4
                                        Harbor development                                        9,479,895                                     5.8
                                        Buildings-public                                          5,650,000                                     3.4
                                        Education and training                                    3,395,000                                     2.1
                                        Airport improvements                                      1,783,000                                     1.1
                                        Recreation and tourism                                    1,375,000                                     0.8
                                        Area revival                                              1,150,000                                     0.7
                                        Health and medical                                        1,000,000                                     0.6
                                        Total                                                $164,811,075                                   100
                                        Source: EDA’s FY96 Public Works Project Analysis.



                                        EDA, as of mid-April 1997, had awarded 54 Public Works grants totaling
                                        $48.6 million for fiscal year 1997, which represented about 29 percent of
                                        the $165.2 million appropriated for Public Works and Development
                                        Facilities grants for fiscal 1997.


Prohibition Against Using               Section 202 of the Public Works and Economic Development Act of 1965,
Public Works and                        as amended, prohibits using EDA’s financial assistance to assist businesses
Development Facilities                  in relocating from one area to another. Although this section of the act
                                        pertains specifically to EDA’s business development assistance program,
Grants to Relocate                      EDA has applied the nonrelocation requirement to all of its financial
Businesses                              assistance programs, including Public Works and Development Facilities
                                        grants.




                                        17
                                          The fiscal year 1995 grant total includes about $20.4 million in EDA Public Works Impact Program
                                        grants, while the fiscal 1996 total includes about $5.3 million in such grants. This program provides
                                        grants for communities affected by large concentrations of low-income individuals, substantial
                                        unemployment levels, or the substantial out-migration of individuals in order to create immediate
                                        useful work (i.e., construction jobs) for unemployed and underemployed residents, and at the same
                                        time, provide a permanent development facility for the area.



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    EDA’s current regulations, adopted in October 1995, prohibit using Public
    Works and Development Facilities grants (and other EDA financial
    assistance) to assist employers who transfer one or more jobs from one
    commuting area to another.18 EDA’s regulations provide that the
    nonrelocation requirement shall not apply to businesses that

•   relocated to the area prior to the applicant’s request for EDA’s assistance;
•   have moved or will move into an area primarily for reasons that have no
    connection to EDA’s assistance;
•   will expand employment in the area where the project is located
    substantially beyond employment in the area where the business had been
    originally located;
•   are relocating from technologically obsolete facilities to be competitive;
•   are expanding into the new area by adding a branch, affiliate, or subsidiary
    while maintaining employment levels in the old area or areas; or
•   are determined by EDA to be exempt.

    Up until the time that EDA adopted its current regulations in October 1995,
    EDA’s prohibition against using Public Works and Development Facilities
    grants or other financial assistance to relocate jobs applied for a period of
    48 months from the date that EDA approved the grant or other assistance.
    In addition, the nonrelocation requirement could be waived only with the
    written consent of EDA’s Assistant Secretary, and EDA was required to
    terminate the financial assistance of any recipient found violating the
    nonrelocation requirement. And any recipient violating the requirement
    had to repay any financial assistance received from the date of the
    violation. According to EDA’s Director, Public Works Division, EDA adopted
    the 48-month period in the mid-1980s; before then, EDA’s nonrelocation
    requirement applied for a period of 2 years prior to EDA’s approval of
    financial assistance for a project, and no time limit existed afterward.

    The Federal Register notice announcing EDA’s revised regulations did not
    explain EDA’s rationale for the changes to its nonrelocation requirement.
    However, EDA’s Acting Chief Counsel told us that several factors
    contributed to the changes. He said that EDA spent a great deal of time and
    effort monitoring projects funded with Public Works and Development
    Facilities grants and other EDA assistance when the nonrelocation
    requirement applied for a period of 48 months after EDA approved financial
    assistance for a project. Yet, according to this official, EDA found very few
    cases where a business violated the nonrelocation requirement and

    18
      EDA defines a commuting area as the distance that people travel to work in the locality of the project
    receiving financial assistance from EDA.



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                           relocated jobs to the area where the project was located after EDA
                           approved financial assistance. He said that, as a result, EDA saw no need to
                           keep in place a requirement that would require EDA to monitor projects
                           after financial assistance had been approved, thus consuming dwindling
                           agency resources that EDA could use more effectively elsewhere.

                           The Acting Chief Counsel also told us that the exclusions from the
                           nonrelocation requirement allowed by the 1995 revision to EDA’s
                           regulations will help Public Works and Development Facilities grants to
                           achieve their goal of creating jobs in distressed area. He said that, often
                           times, firms that wish to expand their operations must relocate to another
                           area simply because the area where they are located cannot accommodate
                           expansion and growth. He said that such firms could not relocate to an
                           EDA-funded facility without a penalty to the project grantee under the old
                           regulations because of the relocation prohibition. However, he said that
                           the exclusion provision of EDA’s new regulations will enable firms to locate
                           to distressed areas where jobs are needed rather than have the firms
                           locate to an area that does not need the jobs as much.


EDA’s Procedures for       EDA’s current regulations require that applicants for Public Works and
Enforcing the Relocation   Development Facilities grants must notify EDA of any employer that will
Prohibition                benefit from an EDA grant. The regulations require that each business
                           identified by the applicant submit a nonrelocation certification to EDA as
                           part of the application package certifying that (1) the business does not
                           intend to transfer one or more jobs (not persons) from other commuting
                           areas to the one where the project is located and (2) the business has not
                           located and will not locate to the project area prior to EDA’s approval of the
                           grant in order to avoid the restrictions of the nonrelocation certification. If
                           a business already has relocated jobs from another commuting area or has
                           plans to do so, it must provide EDA with a full explanation so that EDA can
                           determine if the business qualifies for an exclusion from the nonrelocation
                           requirement. EDA’s regulations provide that EDA will determine compliance
                           with the nonrelocation requirement prior to its award of the grant on the
                           basis of information provided by the applicant during the project selection
                           process. EDA’s current regulations do not require applicants and businesses
                           to comply with EDA’s nonrelocation requirement after EDA approves a
                           grant.




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                          The primary objective of the CDBG Program is to develop viable urban
Community                 communities by providing decent housing and a suitable living
Development Block         environment and by expanding economic opportunities, principally for
Grant Program             persons of low and moderate income. Administered by HUD’s Office of
                          Community Planning and Development, the CDBG Program provides
                          communities with federal grants to assist them in funding local community
                          development needs. The Entitlement Communities Program, which
                          directly provides large cities and urban counties with grants, and the State
                          and Small Cities Programs, which provide states with grants for
                          distribution to smaller, nonentitled communities, are the major
                          components of the CDBG Program.19 The CDBG Program also provides
                          grants for certain populations, such as Historically Black Colleges and
                          Universities, and for assisting community development efforts in five
                          designated insular areas—American Samoa, Guam, the Northern Mariana
                          Islands, Palau, and the Virgin Islands. Activities funded by the CDBG
                          Program must meet at least one of three national objectives: benefit low-
                          and moderate-income persons; prevent or eliminate slums or blights; or
                          meet urgent community development needs.


The Entitlement           The Entitlement Communities Program is the largest component of the
Communities Program       CDBG Program, receiving about 70 percent of the funds appropriated each
                          year for the CDBG Program. Entitled communities are metropolitan cities
                          and urban counties that are (1) local municipal governments with 50,000
                          or more residents, (2) other jurisdictions designated as central cities of
                          Metropolitan Statistical Areas (MSAs), or (3) counties with populations of
                          over 200,000 in MSAs, excluding the populations of entitled cities within the
                          county boundaries. HUD allocates entitlement grants to the communities on
                          the basis of two statutory formulas that consider population, poverty, the
                          extent of overcrowding, and the age of housing. According to the Director,
                          HUD’s Office of Block Grant Assistance, 834 cities and 141 counties
                          qualified as entitled communities in fiscal year 1997.

                          Entitled communities develop their own programs and funding priorities
                          and can use CDBG grants for various activities, including to

                      •   acquire, construct, reconstruct, or rehabilitate public facilities, including
                          hospitals, nursing homes, halfway houses, battered spouse shelters, and
                          water and sewer facilities;


                          19
                           Two states—Hawaii and New York—have elected not to operate a CDBG State Program or
                          administer CDBG nonentitlement funds in their state. HUD continues to administer the Small Cities
                          Program and award competitive grants to nonentitlement communities in these states.



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•   preserve historical sites and remove architectural barriers in public
    facilities that restrict the movement of the handicapped and the elderly;
•   establish new or expand existing public services, including those involving
    employment, crime prevention, child care, health, drug abuse, education,
    and welfare;
•   rehabilitate housing and other publicly owned residential buildings;
•   provide direct assistance to expand home ownership opportunities for
    low- and moderate-income homebuyers, including subsidizing interest
    rates and acquiring guarantees for mortgage financing from private
    lenders;
•   carry out special economic development projects, including acquiring,
    constructing, and reconstructing commercial or industrial buildings and
    facilities, and providing loans, grants, loan guarantees, or other types of
    assistance to private for-profit businesses for activities to carry out an
    economic development project;
•   provide relocation assistance for individuals, families, and businesses
    displaced by CDBG activities; and
•   provide loans, grants, or other assistance to community-based
    development organizations to carry out community economic
    development, neighborhood revitalization, and energy conservation
    projects.

    In addition, a grantee may use up to 20 percent of a CDBG grant (plus
    program income) for planning and general administrative activities.
    Entitled communities may contract with local agencies or nonprofit
    organizations to carry out all or part of their programs. Because low- and
    moderate-income persons are the principal beneficiaries of CDBG funds, at
    least 70 percent of CDBG expenditures over a 1-, 2-, or 3-year period must
    be for activities that principally benefit such persons. CDBG funds may not
    be used for certain activities, including constructing or rehabilitating
    facilities used for religious activities, financing facilities or equipment used
    for political purposes, or constructing or rehabilitating facilities used for
    the general conduct of government business. In addition, purchasing
    fixtures, equipment, furnishings, or other personal property; providing
    subsistence payments to individuals for items such as food, housing,
    clothing, and utilities; or constructing new, permanent residential housing
    are also generally ineligible activities.

    Although CDBG grants are entitlements, entitled communities must submit
    a Consolidated Plan, including an annual action plan, to HUD in order to
    receive their grants. The Consolidated Plan, developed with the input of
    citizens and community groups, serves as an application for CDBG and



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                         other HUD formula grants and lays out the local priorities of the
                         community, as well as the 3- to 5-year strategy, that the community will
                         follow in implementing the various HUD programs. The annual action plan
                         provides the basis for assessing the performance and results of the CDBG
                         and other HUD-funded programs.


State and Small Cities   The State and Small Cities Programs receive approximately 30 percent of
Programs                 CDBG appropriations to support community development efforts in
                         communities that do not qualify for assistance under the Entitlement
                         Program. Communities eligible for CDBG funds under the State and Small
                         Cities Programs are (1) municipalities with fewer than 50,000 residents,
                         except designated central cities of MSAs, and (2) counties that are not
                         considered urban counties (generally those with populations of 200,000 or
                         less, excluding any entitled cities contained within the counties). HUD
                         allocates grants to the states using a similar statutory formula as used to
                         allocate entitlement grants.

                         The states, like entitled communities, must submit to HUD Consolidated
                         Plans that describe the states’ community development objectives and
                         method of distributing funding among eligible communities. Also, states
                         must annually submit to HUD Performance and Evaluation Reports that
                         include information on communities receiving CDBG funds, the amount of
                         their grants, the types and purpose of activities being funded, and the
                         national objectives being met by each activity. The states develop funding
                         priorities and criteria for selecting projects and awarding CDBG grants
                         exclusively to units of general local government that carry out community
                         development activities. The local governments are responsible for
                         considering local needs, preparing and submitting grant applications to the
                         state, carrying out funded activities, and complying with federal and state
                         requirements. The states are responsible for ensuring that recipient
                         communities comply with applicable state and federal laws and
                         requirements. As with the Entitlement Program, at least 70 percent of the
                         CDBG grant funds spent by communities under the State and Small Cities
                         Programs must be for activities that primarily benefit low- and
                         moderate-income people.

                         Nonentitled communities can fund the same types of activities as the
                         entitled communities. According to HUD’s Office of Block Grant Assistance,
                         approximately 3,000 small cities and counties in nonentitlement areas
                         receive grants each year.




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CDBG Funding and              According to the Director, HUD Office of Block Grant Assistance, CDBG
Program Results               Program appropriations totaled $4.6 billion in fiscal years 1995, 1996, and
                              1997. Of this amount, the Entitlement Communities Program and the State
                              and Small Cities Programs received $4.49 billion in fiscal year 1995,
                              $4.37 billion in fiscal 1996, and $4.31 billion in fiscal 1997.

                              According to HUD’s Office of Block Grant Assistance, housing
                              rehabilitation is the single most important activity funded by the
                              Entitlement Communities Program. Data provided by HUD’s Office of Block
                              Grant Assistance show that for 1993—the most recent year for which
                              complete community development data are available—housing
                              rehabilitation accounted for about 31 percent of the funds spent by
                              entitlement communities. Overall, housing rehabilitation and other
                              housing-related activities such as enforcement of housing codes and new
                              housing construction accounted for about 36 percent of the funds spent by
                              entitlement communities. For the State Program, the HUD data show that
                              water and sewer activities accounted for almost 29 percent of the total
                              funds spent for 1993, while economic development activities accounted
                              for about 20 percent and housing rehabilitation accounted for about
                              16 percent of the expenditures.

                              HUD’s fiscal year 1996 annual report on the CDBG Program shows that in
                              1993, the CDBG Program provided funding for thousands of public
                              improvement and service projects in entitled and nonentitled communities
                              including

                          •   3,000 projects that improved water, sewer flood control, and drainage
                              systems;
                          •   3,700 street improvement projects that helped communities to repair and
                              maintain roads, bridges, and sidewalks; and
                          •   over 8,200 projects to construct and rehabilitate public facilities, including
                              child care centers, facilities for abused and neglected children, youth and
                              senior centers, and other community buildings.

                              According to HUD’s Office of Block Grant Assistance, about 115,000 jobs
                              were created in 1993 through the CDBG Program.


No Prohibitions Against       While grantees are not prohibited from using CDBG Program funds to
Relocating Jobs               relocate jobs from one area to another, several efforts are under way in the
                              Congress to impose a nonrelocation requirement on the use of CDBG funds.




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                    Introduced in January 1997, the Housing Opportunity and Responsibility
                    Act of 1997 (H.R. 2) proposes to reform the nation’s public housing
                    programs. A section in this legislation proposes to amend the Housing and
                    Community Development Act of 1974 to prohibit the use of CDBG funds for
                    any activity that is intended or likely to facilitate the relocation or
                    expansion of any industrial or commercial plant, facility, or operation
                    from one area to another if the relocation or expansion will result in the
                    loss of employment in the area from which the relocation or expansion
                    occurs. The House of Representatives passed H.R. 2 on May 14, 1997, and
                    forwarded it to the Senate. As of August 1, 1997, H.R. 2 was pending before
                    the Senate Committee on Banking, Housing and Urban Affairs.

                    In February 1997, the Prohibition of Incentives for Relocation Act (S.
                    300) was introduced specifically to prohibit the use of CDBG funds to
                    relocate businesses. The legislation proposes that no CDBG funds can be
                    used for any activity that is intended or likely to facilitate the closing—or
                    the substantial reduction of operations of an industrial or commercial
                    plant at one location and the relocation—or the expansion of a plant at
                    another area. The 105th Congress was the third consecutive Congress in
                    which this legislation had been introduced. The first time that this
                    legislation was introduced was in 1994 after a major corporation
                    announced that it planned to relocate 2,000 jobs from a Midwest state to
                    other locations, including two areas that had used community
                    development funds to expand their operations. In commenting on the 1996
                    legislation, Senator Kohl from Wisconsin noted that the need to prohibit
                    using federal funds to relocate jobs is no less significant now than in 1994.
                    He referred to statements made by a Michigan state official that Michigan
                    would aggressively pursue Wisconsin companies to relocate to Michigan.
                    As of August 1, 1997, this legislation was also pending before the Senate
                    Committee on Banking, Housing and Urban Affairs.


                    The EZ/EC Program targets federal grants to distressed urban and rural
Empowerment Zone    communities for social services and community redevelopment and
and Enterprise      provides tax and regulatory relief for attracting or retaining businesses in
Community Program   these communities. The Omnibus Budget Reconciliation Act of 1993,
                    which established the EZ/EC Program, authorized the designation of 104
                    communities as either EZs or ECs. Federal funding for the EZs and ECs is
                    provided primarily through the Social Services Block Grant (SSBG)
                    Program, which is administered by HHS. In December 1994, the Secretaries
                    of HUD and Agriculture designated 104 EZs and ECs—6 urban EZs, 3 rural
                    EZs, 65 urban ECs, and 30 rural ECs.




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Program Information   The Omnibus Budget Reconciliation Act of 1993 established the EZ/EC
                      Program’s eligibility criteria, designation procedures, and benefits. The act
                      specified that an area could not be selected as an EZ or EC unless it (1) met
                      specific criteria for characteristics, such as geographic size and poverty
                      rate, and (2) prepared a strategic plan for implementing the program. The
                      strategic plan, developed in conjunction with residents, financial
                      institutions, and other stakeholders in the community, outlines an EZ’s or
                      EC’s vision for revitalizing its distressed areas and the activities and
                      projects planned to accomplish this task. The act also authorized the
                      Secretaries of HUD and Agriculture to designate the EZs and ECs in urban
                      and rural areas, respectively; set the length of the designation at 10 years;
                      required that nominations be made jointly by the local and state
                      governments; and authorized the Secretaries to prescribe any regulations
                      needed to carry out the program.

                      The 1993 act also amended title XX of the Social Security Act to authorize
                      the special use of SSBG funds for the EZ/EC Program. Historically, SSBG funds
                      could be used only for social service activities, such as programs to assist
                      and feed children. The use of SSBG funds was expanded to (1) cover a
                      range of economic and social development activities, including such things
                      as constructing child care facilities, initiating job training programs,
                      beginning 911 emergency response services, improving public facilities,
                      and providing drug and alcohol prevention and treatment programs, or
                      (2) be used in accordance with the strategic plan developed by the EZ or
                      EC. As with other SSBG funds, HHS grants the funds for the EZ/EC Program to
                      the states, which serve as fiscal intermediaries for the grants. HHS’
                      regulations covering block grants provide states with maximum fiscal and
                      administrative discretion. HHS encourages the states to carry out their EZ/EC
                      funding responsibilities with as few restrictions as possible under the law.
                      After the state grants the funds to the EZ or EC, it can draw down the funds
                      through the designated state agency for specific projects over the 10-year
                      life of the program.

                      In 1994 and 1995, HHS allocated $1 billion in SSBG funds to the 104 EZs and
                      ECs for use over the 10-year life of the program. Each urban EZ was
                      allocated $100 million and each rural EZ was allocated $40 million in EZ/EC
                      SSBG funds. In addition, a new category of tax-exempt financing—using
                      state and local bonds—was created to assist new businesses.
                      Furthermore, businesses located in the EZ would be eligible for (1) tax
                      credits on wages paid to employees who live in the EZ and (2) increased
                      deductions for depreciation. Each urban and rural EC was allocated just




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                      under $3 million of the EZ/EC SSBG funds and qualified only for the
                      tax-exempt bonds.


Program Funding and   As of June 30, 1997, of the $1 billion in total SSBG funds allocated by HHS to
Results               the EZs and ECs, $119.9 million had been drawn down to fund specific
                      projects.

                      According to HUD, 5 of the 6 urban EZs and 62 of the 65 urban ECs have
                      made progress in implementing the EZ/EC Program. The communities that
                      had reported little progress in implementing the program were warned
                      that they were at risk of decertification, which would terminate their EZ/EC
                      status. Some of the projects that have been funded include (1) the creation
                      of a partnership with a local college in the Chicago EZ to prepare students
                      for the General Educational Development tests, (2) the starting of a
                      school-based program designed to reduce alcohol- and drug-related
                      violence in the Detroit EZ, and (3) the buying of sites for a supermarket
                      and retail stores in hopes of creating jobs for residents in the Philadelphia
                      EZ.


                      According to Agriculture, rural communities’ implementation of the EZ/EC
                      Program has varied. All 33 rural EZs and ECs had established the basic
                      organizational structures and procedures necessary to implement their
                      strategic plans. In terms of implementing the specific projects contained in
                      these plans, some communities had made considerable progress, and
                      some had made very little. Some of the rural projects that the rural EZs/ECs
                      plan to fund include (1) establishing family service centers in the Central
                      Savannah River Area EC in Georgia to provide youth with recreation and
                      leadership classes and adult literacy classes, (2) improving the downtown
                      area in the City of Watsonville EC in California by refurbishing retail
                      businesses’ facades, and (3) building and equipping four rural fire stations
                      within the Kentucky Highlands EZ.


Program Oversight     As stated above, HHS regulations provide states with maximum fiscal and
Responsibilities      administrative discretion. While fiscal responsibility for the program lies
                      with HHS, HUD and Agriculture are assigned programmatic responsibilities
                      for the communities within their jurisdiction. As of June 1997, both HUD
                      and Agriculture had completed their initial reviews of their respective
                      EZs/ECs to evaluate each area’s progress toward achieving the goals that it
                      set out in its strategic plan.




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Prohibition Against     The Omnibus Budget Reconciliation Act of 1993 states that the EZ/EC area’s
Relocating Businesses   strategic plan may not include any assistance to relocate businesses into
                        an EZ/EC area unless (1) the establishment of a new branch, affiliate, or
                        subsidiary will not result in a decrease in employment in the area of
                        original location or in any other area where the existing business entity
                        conducts business operations or (2) there is no reason to believe that the
                        new branch, affiliate, or subsidiary is being established with the intention
                        of closing down the operations of the existing business entity in the area
                        of its original location or in any other area where the existing business
                        entity conducts business operations.

                        HUD and Agriculture have both incorporated this restriction against
                        assisting the relocation of businesses into their implementing regulations.
                        Like the act, HUD’s and Agriculture’s regulations prohibit the EZ’s or EC’s
                        strategic plan from containing any provisions for providing assistance to
                        relocate businesses if jobs are lost or expected to be lost because of the
                        relocation.

                        In a November 1996 memorandum from HUD to the Atlanta EZ, HUD advised
                        the EZ that after conferring with HHS, it was determined that the prohibition
                        in the law does not prohibit an EZ, in the implementation stages of its plan,
                        from using SSBG funds to finance activities that may assist a business
                        relocating to the EZ. The memorandum went on to say that the section of
                        the act dealing with the nonrelocation prohibition relates to a business
                        relocation tactic included in a strategic plan submitted during the
                        application phase of the program and that the section says nothing about
                        actions that occur during implementation. The memorandum also stated
                        that the language in the act relating to business retention occurs in the
                        section dealing with designation—not in the portion authorizing the use of
                        SSBG funds.


                        In our initial meeting with HUD officials to discuss this memorandum, the
                        Deputy Director, Office of Economic Development, told us that the
                        memorandum was prepared by his office following consultation with and
                        guidance from HHS. In a subsequent meeting, HUD’s Deputy Assistant
                        Secretary responsible for the EZ/EC Program told us that the memorandum
                        was being withdrawn. This official also stated that it has always been HUD’s
                        position that EZ/EC SSBG funds should not be used to relocate jobs. This
                        official told us that HUD plans to issue guidance in the very near future that
                        will (1) clarify HUD’s position that EZ/EC SSBG funds should not be used to
                        relocate jobs and (2) outline HUD’s intent to withhold funds if EZs and ECs
                        do not comply with the policy.



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                         In commenting on this report, HHS disagreed with HUD’s version of the role
                         that HHS played in the development of the November 1996 memorandum to
                         the Atlanta EZ. HHS stated that it did not provide HUD with guidance about
                         HUD’s policy of interpreting the statutory language to have an effect only
                         during the application process. Rather, HHS stated that HUD personnel
                         conferred with HHS staff and asked them to agree with HUD’s interpretation
                         of the statute. HHS stated that because HUD is the lead agency for the urban
                         EZ/EC program, HHS staff deferred to HUD on this policy decision.



                         The Job Training Partnership Act (JTPA), as amended, provides
Job Training             employment and training services for economically disadvantaged adults
Partnership Act, Title   and youths, dislocated workers, and others who face significant
III, Employment and      employment barriers in an attempt to move such individuals to
                         self-sustaining employment. Title III of the act, administered by the
Training Assistance      Department of Labor’s Office of Worker Retraining and Adjustment
for Dislocated           Programs, provides states with grants to support state and local training
                         and employment assistance and other services to eligible dislocated
Workers                  workers. Dislocated workers are (1) those who have lost their job because
                         of mass layoffs or plant closings, long-term unemployed persons, and
                         self-employed workers who have lost their job because of general
                         economic conditions or natural disasters as well as (2) those individuals
                         who have been laid off or notified of a layoff and who are unlikely to
                         return to their previous occupation or industry. Title III also provides
                         funds for federal activities and aid to specific groups of workers dislocated
                         because of mandates in the Clean Air Act and reductions in defense
                         spending.


State Grants             Under title III-A of the act, funds are allotted to the states in the form of
                         grants that are to be used to directly help eligible dislocated workers
                         return to work. Labor allots 80 percent of the title III funds provided for
                         Employment and Training Assistance for Dislocated Workers to the states
                         using the following distribution formula: one-third of the amount is based
                         on the relative number of unemployed individuals who reside in each state
                         as compared with the total number of unemployed individuals in all states;
                         one-third is based on the relative excess number (over 4.5 percent) of
                         unemployed individuals who reside in each state as compared with the
                         total excess number of unemployed in all the states; and one-third is based
                         on the relative number of individuals unemployed for 15 or more weeks
                         and who reside in each state as compared with the total number of such
                         individuals in all the states. In order to receive program funds, states must



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submit a detailed biennial plan to the Department of Labor describing the
programs and activities that will be assisted. The plan must also ensure
compliance with a variety of constraints and requirements specified in the
law.

The states allocate, by formula, JTPA title III funds to designated substate
areas, which are determined by the state’s governor. Each substate area
must have a designated substate grantee to administer the program and
receive funds. Examples of eligible substate grantees include private
industry councils, private nonprofit organizations, local government
offices, or community colleges. Each substate area is also required to
submit a plan similar to the state plan for review at the state level.

States may reserve up to 40 percent of the JTPA title III funds they receive
for Employment and Training Assistance for Dislocated Workers for state
activities, such as state administration and technical assistance of the
program, statewide projects, rapid response activities, coordination with
the unemployment compensation system, and basic readjustment and
retraining services. At least 50 percent of the funds received by the states
must be awarded immediately to substate areas. The formula used to
allocate the funds is determined by the governor of each state and should
be based on data on (1) insured unemployment, (2) unemployment
concentrations, (3) plant closings and mass layoffs, (4) declining
industries, (5) farmer-rancher economic hardships, and (6) long-term
unemployment. States may reserve an additional 10 percent of the funds
but must distribute these funds on the basis of the needs of substate
grantees within 9 months.

States and substate grantees can tailor the services they provide for
dislocated workers to meet participants’ needs. The substate grantees are
to use title III grants to directly aid dislocated workers by providing basic
readjustment services, retraining services, support services, needs-related
payments, relocation assistance, and rapid-response assistance. Basic
readjustment services include the development of individual readjustment
plans for program participants, job or career counseling, job placement
assistance, and labor market information. Retraining services include
classroom, occupational skills, and on-the-job training; out of area job
search; and basic skills and remedial education. Supportive services
include child care, commuting assistance, and financial and personal
counseling. Needs-related payments are funds provided for an eligible
dislocated worker who is unemployed and does not qualify or has ceased
to qualify for unemployment compensation and who requires such



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                           assistance to participate in a job training program. Relocation assistance is
                           the cost of relocating an eligible dislocated worker and family to another
                           location when there are no job opportunities in the worker’s occupation in
                           the area of residence but where the participant has accepted a job with a
                           reasonable expectation that it will be permanent. Rapid-response
                           assistance includes establishing on-site contact with an employer and
                           employee representatives within 48 hours after becoming aware of a
                           permanent closure or substantial layoff,20 providing financial and technical
                           advice, and disseminating information throughout the state on the
                           availability of services and activities carried out by the dislocated worker
                           unit or office.


National Reserve Account   Under title III-B of the act, the remaining 20 percent of Employment and
                           Training Assistance for Dislocated Workers funds provided under title III
                           are retained by Labor in a National Reserve Account. These funds are used
                           to provide assistance for territories; fund demonstration projects,
                           multistate projects, and industrywide projects; and provide assistance for
                           workers dislocated from their jobs as a result of natural disasters. In
                           addition, National Reserve Account funds may be granted to states or
                           other eligible entities to supplement formula grants provided for states
                           when state grants are not sufficient to provide services for dislocated
                           workers affected by mass layoffs, including those resulting from federal
                           actions, such as defense downsizing or compliance with the Clean Air Act.


Program Funding and        Funding for title III programs totaled approximately $1.2 billion for
Results                    program year 199521 ($983 million for state grants and $246 million for the
                           National Reserve Account). Funding decreased in program year 1996 to
                           approximately $1.09 billion ($880 million for state grants and $214 million
                           for the National Reserve Account). In program year 1997, funding
                           increased by about 18 percent to approximately $1.29 billion ($1.03 billion
                           for state grants and $252 million for the National Reserve Account). Funds
                           allotted to the states in program year 1997 ranged from a low of about
                           $815,000 for South Dakota to a high of almost $227 million for California.

                           According to Labor’s data, the 267,876 individuals who completed their
                           training and left the program during program year 1995 received the


                           20
                             Any layoff of 50 or more individuals during a 30-day period may be considered a substantial layoff.
                           21
                            Funds for the JTPA programs are provided on a program year basis, which runs from July 1 through
                           June 30, annually.



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                                         following services under the Employment and Training Assistance for
                                         Dislocated Workers Program during the program year:

Table I.2: Services Received Under the
Employment and Training Assistance       Service received                                                              Number of recipients
for Dislocated Workers Program           Basic readjustment services (only)                                                             125,058
                                         Occupational training                                                                          119,138
                                         On-the-job training                                                                              13,297
                                         Basic skills training                                                                            27,252
                                         Other training                                                                                    1,010
                                         Supportive services                                                                              78,466
                                         Needs-related payments                                                                            9,494
                                         Temporary disaster relief jobsa                                                                   1,238
                                         Relocation assistance                                                                             3,416
                                         a
                                          Temporary disaster relief jobs are those jobs authorized under National Reserve Account
                                         Disaster Grants to create temporary jobs for individuals who lost their jobs as a result of a natural
                                         disaster. The jobs created are primarily to clean up public properties.

                                         Source: Department of Labor.




Prohibition Against Using                In 1992, section 141 of JTPA was amended to prohibit the use of any funds
JTPA Funds to Relocate                   provided under JTPA to encourage or induce the relocation of a business22
Businesses                               if the relocation results in the loss of employment for any employee at the
                                         company’s original location. Prior to the 1992 amendments, the act stated
                                         that no funds may be used to assist in relocating establishments from one
                                         area to another unless the Secretary determines that such relocation will
                                         not increase unemployment in the area of the company’s original location
                                         or in any other area. The amendments also prohibit providing any JTPA
                                         assistance to a relocating business for customized or skill training, for
                                         on-the-job training, or for a company-specific assessment of job applicants
                                         or employees, if the relocation results in a loss of employment at the
                                         original site, until 120 days after operations begin at the new location. JTPA
                                         was further amended in 1992 to require the Secretary to investigate any
                                         alleged violations of the relocation prohibitions. If the Secretary
                                         determines that a violation has occurred, the state or substate area must
                                         repay twice the amount expended in creating the violation. In addition to
                                         prohibiting the use of JTPA funds to encourage or induce businesses to
                                         relocate, section 141 of JTPA also prohibits using JTPA funds for economic
                                         development and employment-generating activities.

                                         22
                                           Labor’s regulations define a relocating business as one that is moving any of its operations from a
                                         facility in one labor market to a new or expanding facility in another labor market.



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                         The conference report accompanying the 1992 amendments did not
                         explain why the act was amended to allow a relocating business to receive
                         JTPA assistance 120 days after operations commence at the new location.
                         With regard to the relocation prohibition, the conference report states only
                         that (1) the House bill amends the current law to prohibit the use of funds
                         for the relocation of any business establishment and (2) the conference
                         agreement requires the Secretary of Labor to investigate allegations that
                         JTPA funds have been improperly used and to determine whether a
                         violation occurred. According to Labor’s Employment and Training
                         Administration, the 120-day provision was added because the language in
                         the legislation before 1992 was broad and ambiguous and that it was
                         difficult to determine whether there was an impact on local
                         unemployment.


Labor’s Procedures for   The states are primarily responsible for overseeing the use of title III
Enforcing Its            funds, and Labor’s regulations require the states to assure that they will
Nonrelocation            comply with all statutory and regulatory requirements of the act.
                         Furthermore, the regulations require that as a prerequisite to providing
Requirement              JTPA assistance to a new or expanding business for worker training, the
                         substate area and the establishment must jointly document that
                         employment is not being relocated from another area. The substate area
                         and the establishment do this by completing a standardized preaward
                         review, which is developed by the state. To assist the states in carrying out
                         their preaward reviews, Labor’s regulations identify the minimum
                         information that such reviews should cover, including the name under
                         which the facility does business, the name and address of the facility in the
                         other area that is being closed or from which business is being transferred,
                         the nature of the products or the business being transferred, the date that
                         the new or expanded facility will commence operation, and a statement
                         from the employer about job losses at the old location. The states are not
                         required to submit the preaward reviews to Labor, and a Labor official
                         noted that such preaward reviews may be no more than the establishment
                         certifying to the state that no jobs have been relocated. Furthermore,
                         according to Labor’s Employment and Training Administration, even if a
                         business relocates and displaces workers at the original location,
                         assistance to train workers with JTPA funds can be provided 120 days after
                         a business begins operations at the new location.


                         The CSBG Program, established by the Omnibus Budget Reconciliation Act
Community Services       of 1981, replaced the following three programs administered by the
Block Grant Program

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                      Community Services Administration under the Economic Opportunity Act
                      of 1964: Community Action/Local Initiatives, Senior Opportunities and
                      Services, and Community Food and Nutrition.


Program Information   The CSBG Program, administered by HHS’ Office of Community Services
                      (OCS), is intended to alleviate the causes of poverty by helping needy
                      individuals obtain adequate jobs, education, and housing. Under this
                      program, states receive grants from HHS and are required to pass through
                      most of the funds to designated local entities, commonly known as
                      community action agencies. The community action agencies provide
                      services for low-income individuals and families. According to OCS
                      officials, there are about 980 community action agencies nationwide.

                      In order to receive CSBG funds, states are required to submit an annual plan
                      and application to HHS. The plan must describe the manner in which the
                      state will ensure compliance with the CSBG Act and the proposed use and
                      distribution of the block grant funds. The plan should also include the
                      state’s goals and objectives, information on the specific types of activities
                      it will support, and the criteria and method used for the distribution of
                      funds. In addition to this plan, the state’s application must include a
                      prior-year report that describes how the state met its goals and objectives
                      and information on the types of projects supported with the prior-year
                      CSBG funds. Furthermore, states must certify that CSBG funds will be used
                      to (1) provide a range of services and activities having a measurable and
                      potentially major impact on the causes of poverty; (2) provide activities
                      designed to assist low-income participants; (3) provide supplies, services,
                      and nutritious food on an emergency basis to counteract the conditions of
                      malnutrition among the poor; and (4) coordinate and establish linkages
                      between governmental and other social services programs to ensure the
                      effective delivery of such services to low-income individuals.

                      States are required to pass through at least 90 percent of their block grant
                      funds to locally based nonprofit community action agencies and may use
                      the remaining funds to, among other things, make discretionary grants to
                      nonprofit organizations for antipoverty projects and to cover
                      administrative costs at the state level. Prior to providing funds for the
                      community action agencies, states must obtain a community action plan
                      from the agencies that includes a community needs assessment and
                      descriptions of (1) the service delivery system, (2) how funding will be
                      coordinated with other public and private resources, and (3) outcome
                      measures to be used to monitor success in promoting self-sufficiency. The



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                      community action agencies and other eligible organizations may use the
                      funds for employment, education, housing, health, and self-sufficiency
                      activities. For example, community action agencies may provide job
                      counseling, child development classes, community garden projects, and
                      alcohol and drug abuse counseling. Community action agencies can also
                      use CSBG funds for economic development activities. But in a meeting with
                      the Director, OCS, and other OCS officials, we were told that pressure from
                      within the communities to provide social services would probably prevent
                      this.


Program Funding and   The Secretary of HHS may reserve between 0.5 and 1 percent of the amount
Results               appropriated for the CSBG Program for training, technical assistance,
                      planning, evaluation, and data collection activities. Such activities may be
                      carried out through grants, contracts, or cooperative agreements with
                      eligible entities or with organizations or associations whose membership
                      is composed of eligible entities or agencies that administer programs for
                      eligible entities. One-half of 1 percent of the amount appropriated is
                      apportioned on the basis of need among Guam, American Samoa, the
                      Virgin Islands, the Northern Mariana Islands, and the Trust Territory of the
                      Pacific Islands. Of the remaining amount, each state (excluding the above
                      but including the District of Columbia and the Commonwealth of Puerto
                      Rico) is allotted an amount that bears the same ratio as the amount that
                      the state received for fiscal year 1981 (under section 221 of the Economic
                      Opportunity Act of 1964) bore to the total amount received by all states for
                      fiscal year 1981 under section 221.

                      Funding totaled $389.6 million in fiscal years 1995 and 1996 and increased
                      to $478.3 million in fiscal 1997. In fiscal year 1997, grants provided for the
                      states ranged from a low of $1.9 million for Alaska to a high of
                      $43.6 million for California.

                      In fiscal year 1994, the community action agencies spent approximately
                      $357.4 million for a broad array of services.23 The largest share of the
                      spending—$98.4 million—was for “linkages” among the various programs
                      and services provided in the community. Linkage involves the
                      coordination among programs, facilities, and shared resources in the
                      community. The next largest category of spending—$73.1 million for
                      emergency services—includes assistance to meet immediate or urgent

                      23
                         The Community Services Block Grant Statistical Report for fiscal year 1994 was prepared by the
                      National Association for State Community Services Programs under a grant from HHS, as required by
                      section 683 of the Community Services Block Grant Amendments of 1994. At the time of our review,
                      the fiscal year 1994 report was the most recent report available.



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                            individual or family needs, such as shelter, clothing, and medical help.
                            Approximately $43.8 million was spent on nutrition programs, while
                            education and employment initiatives received $35.4 million and
                            $25.7 million, respectively. In addition, about $26 million was expended on
                            formalized self-sufficiency programs, and about $25.4 million was spent on
                            housing-related activities. Approximately $15.5 million was committed to
                            health-related programs, and $14.1 million was devoted to income
                            management programs.


No Relocation Prohibition   The laws and regulations governing the CSBG Program are silent on
                            whether program funds may be used to relocate businesses.


                            EPA serves as the leader of the nation’s environmental policy and is
Clean Water State           responsible for, among other things, providing state and local agencies
Revolving Fund              with technical and financial assistance for antipollution activities. The
Program                     Clean Water State Revolving Fund Program, administered by EPA, is a key
                            federal program for improving water quality and protecting public health.


Program Information         The Clean Water State Revolving Fund Program, established by the
                            Congress in 1987, provides that each state, including Puerto Rico, establish
                            revolving funds that would serve as independent and permanent sources
                            of financing for wastewater treatment facilities and other water quality
                            projects in the state.24 Under the program, EPA provides states with annual
                            grants to help capitalize the revolving funds. The states are required to
                            match federal capitalization grants at a rate of at least $1 for every $5 in
                            federal funds received by the state. All 50 states and Puerto Rico have
                            established state revolving funds. The Clean Water State Revolving Fund
                            Program replaced EPA’s Construction Grants Program, which provided
                            nonrepayable grants primarily for wastewater treatment facility
                            construction.

                            The Clean Water Act provides that states can use their revolving funds for
                            three activities: to finance the construction of publicly owned wastewater
                            treatment facilities; to implement programs to control nonpoint sources of
                            water pollution, such as agricultural, rural, and urban runoff; and to
                            develop and implement plans to conserve and manage estuaries. State,

                            24
                              The District of Columbia, Virgin Islands, and other territories are not required to establish revolving
                            funds, and EPA makes grants directly to these areas for the construction of wastewater treatment
                            facilities. EPA also earmarks funds for grants to Indian tribes and Alaska Native Villages for the
                            construction of wastewater treatment facilities.



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                    municipal, intermunicipal, and interstate agencies are eligible to receive
                    assistance from state revolving funds. Individuals are also eligible to
                    receive assistance to carry out activities to control nonpoint sources of
                    water pollution and to conserve and manage estuaries. States can use their
                    revolving funds to make loans and to provide other types of assistance,
                    such as refinancing local debt obligations to lower the cost of borrowing
                    for communities. State revolving funds cannot be used to provide grants.
                    According to EPA’s Director, State Revolving Fund Branch, wastewater
                    treatment facilities account for about 95 percent of the dollars in
                    assistance provided by state revolving funds.

                    The Clean Water Act requires that wastewater treatment projects funded
                    by a state revolving fund must be on the state-prepared project priority
                    list. The priority list identifies and ranks those treatment facilities that the
                    state expects to fund. The act also requires that activities that a state
                    intends to fund to control nonpoint sources of water pollution and to
                    protect estuaries must be identified in the state’s annual plan identifying
                    the state’s intended use of the fund.

                    According to the Director, EPA State Revolving Fund Branch, states must
                    base their decisions on which project to include on their priority lists on
                    public health and water quality factors, and the economic development of
                    an area should not be a factor in a state’s decision of whether to place a
                    project on its priority list. This official told us that the economic
                    development of an area can be taken into consideration when designing
                    the treatment project but that there are controls to ensure that a project’s
                    design allows only for reasonable growth.

                    Nevertheless, EPA recognizes that while wastewater treatment projects are
                    not funded solely to foster economic growth, the economic development
                    of an area often occurs as an offshoot of such projects. In its report on the
                    progress of the Clean Water State Revolving Fund Program issued in
                    January 1995, EPA noted how investments in environmental infrastructure
                    in the 1970s and 1980s to clean up the waterfronts in Cleveland,
                    Pittsburgh, Seattle, and a number of other areas across the country lead to
                    a revitalization of many of the major urban areas.


Funding for State   EPA annually allots funds appropriated by the Congress for capitalization
Revolving Funds     grants to the states, including Puerto Rico, generally according to




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                            percentages specified in the Clean Water Act.25 Each state has until the
                            end of the fiscal year after the fiscal year in which the grant funds are
                            appropriated to obligate its grant. Grants that are not obligated by the end
                            of the second fiscal year are to be reallotted by EPA among those states
                            that have obligated all of their grant funds within the first fiscal year.

                            The Congress began appropriating funds for capitalization grants in fiscal
                            year 1989. EPA’s data show that as of the end of May 1997, cumulative
                            capitalization grants awarded to the 50 states and Puerto Rico for their
                            revolving funds totaled about $13.6 billion.26 About $1.7 billion of this
                            amount represents fiscal year 1996 capitalization grants. EPA anticipates
                            that capitalization of the state revolving funds will continue until 2004.
                            According to EPA’s Acting Director, State Revolving Fund Branch, data
                            from EPA’s State Revolving Fund Management Information System show
                            that as of June 30, 1996, facilities for the secondary treatment of
                            wastewater accounted for about 50 percent of the total projects funded by
                            state revolving funds. Other projects funded by the funds included
                            combined sewer overflow projects, facilities to handle and treat sludge at
                            water treatment plants, and projects to protect or restore streams,
                            wetlands, and estuaries.


No Relocation Prohibition   While title VI of the Clean Water Act, which authorizes the Clean Water
                            State Revolving Fund Program, and EPA’s regulation governing the
                            program place several restrictions on the use of state revolving funds, they
                            are silent regarding the use of program funds for relocating businesses.
                            For example, the regulations allow state revolving funds to provide
                            assistance only for the publicly owned portion of treatment works, and a
                            revolving fund may not provide loans for the nonfederal share of the cost
                            of treatment projects that the recipient is receiving from EPA under other
                            authority.


                            Agriculture’s Water and Waste Disposal Program provides loans and
Water and Waste             grants to rural communities for funding water and waste disposal facilities
Disposal Program            that will improve the quality of life and promote the economic
                            development of rural areas.

                            25
                              The 1987 amendments specified percentages for the 50 states, the District of Columbia, and other
                            jurisdictions. As some of these other jurisdictions gained independence since 1987, they lost their
                            entitlement to funds, and their share of funds are allocated among the states and other jurisdictions
                            that remain eligible for funds.
                            26
                             About $1 billion of these awards included grant funds available to the states from EPA’s former
                            Construction Grants Program.



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Program Information   To be eligible for the Water and Waste Disposal Program, a rural
                      community must have a population of 10,000 people or fewer. Financial
                      assistance is provided in the form of direct loans and/or grants from
                      Agriculture or loans from commercial sources, a portion of which
                      Agriculture guarantees against loss. Applicants must be unable to obtain
                      financing from other sources at reasonable rates and terms. Grants are
                      primarily provided for reducing the water and waste disposal costs to a
                      reasonable level for users of the system. Entities eligible for Water and
                      Waste Disposal loans and grants are municipalities, counties, Indian tribes,
                      special purpose districts, and nonprofit corporations.

                      Water and Waste Disposal loans and grants may be used to construct,
                      repair, improve, expand, or modify rural water, sanitary sewage, solid
                      waste disposal, and storm wastewater disposal systems. Facilities that
                      may be funded include reservoirs, pipelines, wells, pumping stations,
                      sewer systems, storm sewer systems, and solid waste disposal equipment,
                      including garbage trucks, sanitary landfills, and incinerators. Funds can
                      also be used to acquire land and water rights; to pay legal, engineering,
                      and other fees associated with developing facilities; and to provide
                      training and technical assistance for, among other things, identifying and
                      evaluating solutions to water and waste disposal problems.

                      Agriculture allocates grant and loan funds to its state offices by a formula
                      that measures each state’s (1) percentage of the national rural population
                      (50 percent), (2) percentage of the national rural population with incomes
                      below the poverty line (25 percent), and (3) percentage of national
                      nonmetropolitan unemployment (25 percent). No one state may receive
                      more than 5 percent of the total funds available. The state offices then
                      make the funds available to their district offices to support rural water and
                      sewer projects proposed by local communities. All 50 states, Puerto Rico,
                      the U.S. Virgin Islands, and the Western Pacific territories are authorized
                      to receive funds. Before allocating the funds to the state offices,
                      Agriculture sets aside about 10 percent of both loan and grant funds as a
                      reserve for emergencies, cost overruns, and other unforeseen problems.

                      The type of assistance that Agriculture provides for the
                      community—either a loan or a combination of a loan and grant—depends
                      on each community’s financial situation. According to Agriculture’s
                      program regulations, grant funds are to be provided for projects serving
                      financially needy communities to reduce user charges to a reasonable
                      level. Agriculture headquarters officials consider a “reasonable” user
                      charge to be one that the community can afford. Agriculture’s state and



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                        district offices determine affordability on the basis of the (1) community’s
                        median household income or (2) user charges for similar systems in the
                        area. Agriculture has the discretion to decide which approach will be used
                        to determine the amount of grant funds provided. Communities may also
                        supplement Agriculture’s water and sewer funds with their own funds and
                        funds from other federal, state, or private sources.


Prohibition Against     While the laws and regulations governing the program place several
Relocating Businesses   restrictions on the use of the program funds, they do not address the use
                        of funds for relocating businesses. For example, funds may not be used for
                        building facilities that are not modest in design or cost, new combined
                        storm and sanitary sewer facilities, or part of the project costs normally
                        provided by a business or industrial user.


Program Funding and     Over the last 5 years, funding for Agriculture’s Water and Waste Disposal
Results                 Program has averaged about $1 billion per year. In fiscal year 1996,
                        Agriculture provided about $963 million in Water and Waste Disposal
                        direct loans and grants. Of that amount, 617 direct loans worth about
                        $389 million and 435 grants worth about $198 million were provided for
                        rural water projects. Agriculture also provided 278 direct loans worth
                        about $214 million and 233 grants worth about $162 million for rural waste
                        disposal projects. Agriculture also guaranteed about $59 million in loans
                        during fiscal year 1996.


                        The Surface Transportation Program (STP) is a grant program created by
Surface                 the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) to
Transportation          develop and improve the nation’s surface transportation facilities.
Program
Program Information     Administered by the Department of Transportation’s Federal Highway
                        Administration, STP provides grants that states and localities can use to
                        finance a variety of transportation-related projects. Except as noted
                        below, STP funds cannot be used on roads classified as local roads and
                        rural minor collectors.27 STP funds may be used for (1) construction,
                        reconstruction, rehabilitation, resurfacing, restoration, and operational
                        improvements of highways and bridges (including bridges on any public

                        27
                          The Department of Transportation uses a functional classification system to classify roads. Under
                        this system, rural minor collectors generally serve travel of primarily intracounty rather than statewide
                        importance. These routes collect traffic from local roads and provide service for small communities.



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road); (2) capital costs for transit projects eligible for assistance under the
Federal Transit Act and publicly owned intracity or intercity bus terminals
and facilities; (3) carpool projects, fringe and corridor parking facilities
and programs, and bicycle transportation and pedestrian walkways on any
public roads; (4) highway and transit safety improvements and programs,
hazard eliminations, projects to mitigate hazards caused by wildlife, and
railway-highway grade crossings on any public roads; (5) highway and
transit research and development and technology transfer programs;
(6) capital and operating costs for traffic monitoring, management, and
control facilities and programs; (7) surface transportation-planning
programs; (8) transportation enhancement activities; (9) transportation
control measures; (10) the development and establishment of management
systems; and (11) wetland mitigation efforts. For STP projects, the normal
federal share is 80 percent. When STP funds are used for interstate projects,
the federal share may be 90 percent. The federal share may be increased to
95 percent in states with large areas of public lands and up to 100 percent
for certain safety, traffic control, and carpool/vanpool projects.

ISTEA  established a requirement for a statewide planning process that takes
into consideration all modes of transportation. The
transportation-planning process must be carried out in cooperation with
metropolitan planning organizations (MPOs),28 Indian tribal governments,
transit operators, federal lands agencies, and environmental, resource, and
permit agencies. The states are required to generate a long-range
transportation plan that has a 20-year horizon and is based on realistic
projections of available resources. The plan must consider all modes of
surface transportation, and it must take into account a very wide range of
environmental impact, recreation, and other factors. In addition to the
long-range plan, the states are required to develop a statewide
transportation improvement program (STIP) that includes all transportation
projects that will receive federal transportation funding. The STIP must be
consistent with the long-range plan and expected funding. Like the states,
MPOs develop a long-range plan and a transportation improvement
program (TIP) for each metropolitan area. Among other things, the
long-range plan must include a financial plan and identify transportation
facilities that function as an integrated transportation system. The TIP is
developed in cooperation with the state and transit operators and must
include all transportation projects to be funded. The TIP must be updated
and approved at least every 2 years by the MPO and the state’s governor
and have a reasonable opportunity for public comment prior to approval.

28
 A metropolitan planning organization is required for each urbanized area with a population of over
50,000.



Page 51                                  GAO/RCED-97-193 Overview of Eight Federal Programs
                      Appendix I
                      The Eight Federal Programs




                      Furthermore, the TIP must include a priority list and a financial plan that
                      demonstrates how it can be implemented.

                      Under ISTEA and the new project selection system, the STP gives localities,
                      especially larger communities, an unprecedented level of control to select
                      the surface transportation solutions that best fit their needs and
                      preferences. Transportation projects are selected by the MPO in
                      consultation with the state in areas with populations of greater than
                      200,000; by the state, in cooperation with the MPO, in areas with
                      populations of between 50,000 and 200,000; and by the state, in
                      cooperation with affected local officials, in areas with populations of less
                      than 50,000.


Program Funding and   Transportation apportions STP funds to the states on the basis of historical
Results               federal highway funding that indirectly includes factors such as each
                      state’s postal route mileage, land area, and urban and rural population.
                      Each state must reserve 10 percent of the funds apportioned to it for
                      safety construction activities (such as hazard elimination and rail-highway
                      grade crossings) and 10 percent for transportation enhancements (such as
                      the preservation of abandoned transportation corridors and the control
                      and removal of outdoor advertising). Of the remaining funds, the state
                      must distribute 62.5 percent between urbanized areas that have
                      populations exceeding 200,000 and the remaining areas of the states in
                      proportion to their relative share of the state’s population. States retain
                      discretion over 37.5 percent of the remaining funds, which can be used in
                      any area of the state.

                      In fiscal year 1996, STP funds were obligated29 in the following manner:
                      $416.6 million for safety construction activities, $426.9 million for
                      transportation enhancements, $1 billion for urbanized areas with
                      populations exceeding 200,000, $569.4 million for areas with populations
                      of less than 200,000, $544.8 million for nonurban areas, and $2.8 billion for
                      state discretionary projects in any area of the state.

                      STP funds apportioned to the states by Transportation totaled
                      approximately $3.9 billion for fiscal year 1995, $3.4 billion for fiscal 1996,
                      and $3.9 billion for fiscal 1997. Individual state apportionments in fiscal


                      29
                        An obligation refers to Transportation’s commitment to pay, through reimbursement to the states,
                      the federal share of a project’s eligible costs. Funds obligated in fiscal year 1996 exceed the amount of
                      funds apportioned in that year because federal-aid highway funds are available for use (available for
                      obligation) for more than 1 year.



                      Page 52                                   GAO/RCED-97-193 Overview of Eight Federal Programs
                            Appendix I
                            The Eight Federal Programs




                            year 1997 varied from a low of approximately $12.6 million for
                            Massachusetts to a high of over $317 million for California.


No Relocation Prohibition   The laws and regulations governing the STP are silent on whether program
                            funds may be used to relocate businesses.




                            Page 53                       GAO/RCED-97-193 Overview of Eight Federal Programs
Appendix II

Comments From the Department of
Commerce

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.



See comment 2.


See comment 3.




                             Page 54   GAO/RCED-97-193 Overview of Eight Federal Programs
                 Appendix II
                 Comments From the Department of
                 Commerce




                 The following are GAO’s comments on the Department of Commerce’s
                 letter dated July 28, 1997.


                 1. We reviewed the suggested editing changes and incorporated them into
GAO’s Comments   the report where appropriate.

                 2. It was not our intent to infer that any particular federal program has
                 been used to lure jobs from one location to another. We deleted a
                 statement from our draft report regarding the citing of federal programs
                 used in incentive packages because of the concern and confusion it has
                 caused.

                 3. At the end of our report, we note that Commerce has requested
                 proposals for a research project that will (1) develop a tool to evaluate
                 state incentive programs and (2) make recommendations on the
                 appropriate federal role with regard to locational incentives. We also note
                 that Commerce expects the final report for the project to be completed by
                 June 1998.




                 Page 55                           GAO/RCED-97-193 Overview of Eight Federal Programs
Appendix III

Comments From the Department of Health
and Human Services

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




                             Page 56   GAO/RCED-97-193 Overview of Eight Federal Programs
                 Appendix III
                 Comments From the Department of Health
                 and Human Services




Now on p. 16.




See comment 1.




                 Page 57                          GAO/RCED-97-193 Overview of Eight Federal Programs
                 Appendix III
                 Comments From the Department of Health
                 and Human Services




                 The following are GAO’s comments on the Department of Health and
                 Human Services’ letter dated July 29, 1997.


                 1. At the end of the report, we discuss HHS’ position regarding a policy
GAO’s Comments   interpretation that HUD gave to the Atlanta EZ in a November 1996
                 memorandum. Because it is unclear as to the exact role that each agency
                 played in developing the policy, we revised the report to include HHS’
                 position in the report sections that discuss the memorandum; we did not
                 delete the phrase “after conferring with HHS” because it is contained in the
                 memorandum.




                 Page 58                          GAO/RCED-97-193 Overview of Eight Federal Programs
Appendix IV

Comments From the Department of Housing
and Urban Development

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.




See comment 2.




                             Page 59   GAO/RCED-97-193 Overview of Eight Federal Programs
                 Appendix IV
                 Comments From the Department of Housing
                 and Urban Development




                 The following are GAO’s comments on the Department of Housing and
                 Urban Development’s letter dated July 25, 1997.


                 1. In its enclosure, HUD provided suggested clarification regarding the
GAO’s Comments   definition of communities that are eligible to receive CDBG entitlement
                 funds, which we incorporated into the report where appropriate. We also
                 deleted a statement from the draft report regarding the citing of federal
                 programs used in incentive packages because of the concern and
                 confusion it caused. It was not our intent to infer that any particular
                 federal program has been used to lure jobs from one location to another.

                 2. At the end of our report, we discuss HUD’s intention to issue guidelines
                 clarifying its position on the use of SSBG funds for the relocation of jobs.
                 We also note that a draft of the guidelines was included as an attachment
                 to HUD’s comments.




                 Page 60                          GAO/RCED-97-193 Overview of Eight Federal Programs
Appendix V

Comments From the Department of Labor


Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.




See comment 2.




See comment 3.




                             Page 61   GAO/RCED-97-193 Overview of Eight Federal Programs
                 Appendix V
                 Comments From the Department of Labor




                 The following are GAO’s comments on the Department of Labor’s letter
                 dated July 21, 1997.


                 1. At the end of our report, we discuss Labor’s observation that while our
GAO’s Comments   report deals with title III of JTPA and the services that are available to
                 eligible dislocated workers, section 141 of JTPA deals with all training
                 programs under the act, including those involving disadvantaged youths
                 and adults, migrant and seasonal farm workers, Native Americans, and
                 older Americans. We agree and make this point in the report. The sections
                 of our report that discuss the relocation prohibition under section 141 of
                 JTPA state specifically that this prohibition applies to all funds provided
                 under JTPA.

                 2. At the end of our report, we also discuss Labor’s comment that, in
                 addition to the relocation prohibition, there is a prohibition against using
                 JTPA funds for economic development or employment-generating activities
                 and that it is important to put this into the context of the training services
                 that are available to help dislocated workers to return to the workforce.
                 We agree with Labor and have added language to our final report to reflect
                 these prohibitions.

                 3. In an attachment and in margin notes on a draft of our report, Labor
                 provided additional comments. This included updated statistics on the
                 number of individuals provided with training services under title III during
                 program year 1995, which we included in our final report. Labor also made
                 specific technical suggestions and observations to improve the clarity and
                 accuracy of information in the report regarding (1) individuals who qualify
                 as eligible dislocated workers under title III, (2) the two funding and
                 service schemes for eligible dislocated workers under title III,
                 (3) preaward reviews conducted by substate grantees and businesses to
                 ensure compliance with the nonrelocation requirement, and (4) the
                 responsibility of state and substate agencies for monitoring and ensuring
                 compliance with the JTPA relocation prohibition. We have incorporated
                 these changes in our final report where appropriate.

                 Labor also suggested that the section of the report that discusses the
                 different types of incentives and the role they may play in business
                 relocation mentions that JTPA funds cannot be commingled with other
                 federal or state funds and that JTPA includes a “maintenance of effort”
                 requirement that JTPA funds be used only for activities that are in addition
                 to those that would otherwise be available in the absence of such funds.



                 Page 62                          GAO/RCED-97-193 Overview of Eight Federal Programs
Appendix V
Comments From the Department of Labor




We did not include Labor’s suggested language because this section of our
report does not discuss any of the eight programs but is an overview
discussion of incentives and their general role in business relocation.




Page 63                          GAO/RCED-97-193 Overview of Eight Federal Programs
Appendix VI

Major Contributors to This Report


                       Austin Kelly
Resources,             Erin Lansburgh
Community, and         Sally Moino
Economic               Stan Ritchick
                       Rick Smith
Development Division




(385658)               Page 64          GAO/RCED-97-193 Overview of Eight Federal Programs
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