oversight

Community Development: The Federal Empowerment Zone and Enterprise Community Program

Published by the Government Accountability Office on 1997-10-28.

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

                   United States General Accounting Office

GAO                Testimony
                   Before the Subcommittee on Oversight, Committee on
                   Ways and Means, House of Representatives




For Release
on Delivery
Expected at
                   COMMUNITY
10 a.m. EST
Tuesday            DEVELOPMENT
October 28, 1997



                   The Federal Empowerment
                   Zone and Enterprise
                   Community Program
                   Statement of Stanley J. Czerwinski,
                   Associate Director, Housing and
                   Community Development Issues,
                   Resources, Community, and Economic
                   Development Division




GAO/T-RCED-98-27
    Madam Chairman and Members of the Subcommittee:

    We are pleased to be here today to discuss the Empowerment Zone and
    Enterprise Community (EZ/EC) program. This 10-year program is one of the
    most recent federal efforts to help our nation face the challenge of
    revitalizing its deteriorating urban and rural communities. The program
    targets federal grants to distressed urban and rural communities for
    community redevelopment and social services and provides tax and
    regulatory relief to attract or retain businesses in distressed communities.

    As you requested, our statement today is based primarily on our
    December 1996 report,1 which focuses on the six urban empowerment
    zones. That report discusses, among other things, (1) the status of the
    program’s implementation in the six urban empowerment zones, which
    are located in Atlanta, Baltimore, Chicago, Detroit, New York, and
    Philadelphia-Camden (a bistate zone); (2) the factors that program
    participants believe have either helped or hindered efforts to carry out the
    program; and (3) the plans for evaluating the program.

    In summary, we found the following:

•   All six of the urban EZs had met the criteria defined in the program’s
    authorizing legislation, developed a strategic plan, signed an agreement
    with the Department of Housing and Urban Development (HUD) and their
    respective states for implementing the program, signed an agreement with
    their states for obtaining funds, drafted performance benchmarks, and
    established a governance structure. However, the EZs differed in their
    geographic and demographic characteristics, reflecting the selection
    criteria in the authorizing legislation.
•   Many officials involved in implementing the program generally agreed on
    factors that had either helped or hindered their efforts. For example,
    factors identified as helping the program’s implementation included
    community representation within the governance structures and enhanced
    communication among stakeholders. Similarly, factors identified as
    hindering the program’s implementation included preexisting relationships
    among EZ stakeholders and pressure for quick results.
•   From the beginning, the Congress and HUD made evaluation plans an
    integral part of the EZ program by requiring each community to identify in
    its strategic plan the baselines, methods, and benchmarks for measuring
    the success of its plan. However, the measures being used generally


    1
     Community Development: Status of Urban Empowerment Zones (GAO/RCED-97-21, Dec. 20, 1996).



    Page 1                                      GAO/T-RCED-98-27 The Federal EZ/EC Program
             describe the amount of work that will be produced (outputs) rather than
             the results that are anticipated (outcomes).


             In August 1993, the Congress enacted the Omnibus Budget Reconciliation
Background   Act of 1993 (OBRA 1993, P.L. 103-66), which established the EZ/EC program.
             The act specified that an area to be selected for the program must meet
             specific criteria for characteristics such as geographic size and poverty
             rate and must prepare a strategic plan for implementing the program. The
             act also authorized the Secretary of Housing and Urban Development and
             the Secretary of Agriculture to designate the EZs and ECs in urban and rural
             areas, respectively; set the length of the designation at 10 years; and
             required that nominations be made jointly by the local and state
             governments.

             The act also amended title XX of the Social Security Act to authorize the
             special use of Social Services Block Grant (SSBG) funds for the EZ program.
             The use of SSBG funds was expanded to cover a range of economic and
             social development activities. Like other SSBG funds, the funds allotted for
             the EZ program are granted by the Department of Health and Human
             Services (HHS) to the state, which is fiscally responsible for the funds.2 HHS’
             regulations covering block grants (45 C.F.R. part 96) provide maximum
             fiscal and administrative discretion to the states and place full reliance on
             state law and procedures. HHS has encouraged the states to carry out their
             EZ funding responsibilities with as few restrictions as possible under the
             law. After the state grants the funds to the EZ or the city, the EZ can draw
             down the funds through the state for specific projects over the 10-year life
             of the program.

             The Clinton administration announced the EZ/EC program in January 1994.
             The federal government received over 500 nominations for the program,
             including 290 nominations from urban communities. On December 21,
             1994, the Secretaries of Housing and Agriculture designated the EZs and




             2
              SSBG typically funds state governments for social service activities. The amount of each state’s grant
             from HHS is based on an allotment formula specified in title XX of the Social Security Act.



             Page 2                                            GAO/T-RCED-98-27 The Federal EZ/EC Program
                        ECs.3All of the designated communities will receive federal assistance;
                        however, as established by OBRA 1993, the EZs are eligible for more
                        assistance through grants and tax incentives than the ECs.

                        After making the designations, HUD issued implementation guidelines
                        describing the EZ/EC program as one in which (1) solutions to community
                        problems are to originate from the neighborhood up rather than from
                        Washington down and (2) progress is to be based on performance
                        benchmarks established by the EZs and ECs, not on the amount of federal
                        money spent. The benchmarks are to measure the results of the activities
                        described in each EZ’s or EC’s strategic plan.


                        When we issued our December 1996 report, all six of the urban EZs had
Status of the Program   met the criteria defined in OBRA 1993, developed a strategic plan, signed an
in the Six Urban EZs    agreement with HUD and their respective states for implementing the
                        program, signed an agreement with their states for obtaining the EZ/EC SSBG
                        funds, drafted performance benchmarks, and established a governance
                        structure. However, the EZs differed in their geographic size, population,
                        and other demographic characteristics, reflecting the selection criteria. In
                        addition, the local governments had chosen different approaches to
                        implementing the EZ program. Atlanta, Baltimore, Detroit, New York, and
                        Camden had each established a nonprofit corporation to administer the
                        program, while Chicago and Philadelphia were operating through the city
                        government.

                        At the state level, the types of agencies involved and the requirements for
                        drawing down the EZ/EC SSBG funds differed. HHS awarded the funds to the
                        state agency that managed the regular SSBG program unless the state asked
                        HHS to transfer the responsibility to a state agency that dealt primarily with
                        economic development. Consequently, the funds for Atlanta and New York
                        pass through their state’s economic development agency, while the funds
                        for the other EZs pass through the state agency that manages the regular
                        SSBG program.

                        3
                         The Secretaries designated a total of 104 EZs and ECs—6 urban EZs, 3 rural EZs, 65 urban ECs, and 30
                        rural ECs. Each urban EZ was allocated $100 million, each rural EZ was allocated $40 million, and
                        each EC was allocated just under $3 million in EZ/EC SSBG funds for use over the 10-year life of the
                        program. In addition, businesses located in an EZ would be eligible for tax credits on wages paid to
                        employees who live in the EZ and increased deductions for depreciation. Both EZs and ECs could use
                        tax-exempt state and local bonds. HUD’s Secretary also designated six communities as Supplemental
                        Empowerment Zones and Enhanced Enterprise Communities. Unlike the other EZs and ECs, these
                        communities each received grants through HUD’s Economic Development Initiative (EDI). The
                        supplemental zones, located in Los Angeles and Cleveland, received EDI grants of $125 million and
                        $87 million, respectively. The enhanced communities, located in Oakland, Boston, Kansas City, and
                        Houston, each received EDI grants of $22 million. Except for Los Angeles, all of these communities
                        also received the $3 million in EZ/EC SSBG funds as ECs.



                        Page 3                                          GAO/T-RCED-98-27 The Federal EZ/EC Program
                             Each urban EZ also has planned diverse activities to meet its city’s unique
                             needs. All of them have planned activities to increase the number of jobs
                             in the EZ, improve the EZ’s infrastructure, and provide better support to
                             families. However, the specific activities varied, reflecting decisions made
                             within each EZ. According to HUD, the EZs had obligated over $170 million
                             as of November 1996. However, the definition of obligations differed. For
                             example, one EZ defined obligations as the amount of money that had been
                             awarded under contracts. Another EZ defined obligations as the total value
                             of the projects that had been approved by the city council, only a small
                             part of which had been awarded under contracts. As of September 30,
                             1997, the six EZs had drawn down about $30 million from the EZ/EC SSBG
                             funds for administrative costs, as well as for specific activities in the EZs.


                             We interviewed participants in the urban EZ program and asked them to
Participants’ Views on       identify what had and had not gone well in planning and implementing the
the EZ Program               program. Our interviews included EZ directors and governance board
                             members, state officials involved in drawing down the EZ/EC SSBG funds,
                             contractors who provided day-to-day assistance to the EZs, and HUD and
                             HHS employees. Subsequently, we surveyed 32 program participants,
                             including those we had already interviewed, and asked them to indicate
                             the extent to which a broad set of factors had helped or hindered the
                             program’s implementation. While the survey respondents’ views cannot be
                             generalized to the entire EZ/EC program, they are useful in understanding
                             how to improve the current EZ program.

                             In the 27 surveys that were returned to us, the following five factors were
                             identified by more than half of the survey respondents as having helped
                             them plan and implement the EZ program:

                         •   community representation on the EZ governance boards,
                         •   enhanced communication among stakeholders,
                         •   assistance from HUD’s contractors (called generalists),4
                         •   support from the city’s mayor, and
                         •   support from White House and cabinet-level officials.

                             Similarly, the following six factors were frequently identified by survey
                             respondents as having constrained their efforts to plan and implement the
                             EZ program:


                             4
                              Generalists were private-sector community development specialists who acted as liaisons to specific
                             communities within a geographical area. They provided the EZs and ECs with a single point of access
                             to various types of technical assistance, provided information about federal programs and
                             private-sector initiatives, and fostered community involvement in implementing strategic plans.



                             Page 4                                          GAO/T-RCED-98-27 The Federal EZ/EC Program
                     •   difficulty in selecting an appropriate governance board structure,
                     •   the additional layer of bureaucracy created by the state government’s
                         involvement,
                     •   preexisting relationships among EZ stakeholders,
                     •   pressure for quick results from the media,
                     •   the lack of federal funding for initial administrative activities, and
                     •   pressure for quick results from the public and private sectors.


                         From the beginning, the Congress and HUD have made evaluation plans an
Program Evaluation       integral part of the EZ program. OBRA 1993 required that each EZ applicant
Efforts Could Be         identify in its strategic plan the baselines, methods, and benchmarks for
Improved                 measuring the success of its plan and vision. In its application guidelines,
                         HUD amplified the act’s requirements by asking each urban applicant to
                         submit a strategic plan based on four principles: (1) creating economic
                         opportunity for the EZ’s residents, (2) creating sustainable community
                         development, (3) building broad participation among community-based
                         partners, and (4) describing a strategic vision for change in the
                         community. These guidelines also stated that the EZs’ performance would
                         be tracked in order to, among other things, “measure the impact of the
                         EZ/EC program so that we can learn what works.” According to HUD, these
                         four principles serve as the overall goals of the program.

                         Furthermore, HUD’s implementation guidelines required each EZ to
                         measure the results of its plan by defining benchmarks for each activity in
                         the plan. HUD intended to track performance by (1) requiring the EZs to
                         report periodically to HUD on their progress in accomplishing the
                         benchmarks established in their strategic plans and (2) commissioning
                         third-party evaluations of the program. HUD stated that information from
                         the progress reports that the EZs prepare would provide the raw material
                         for annual status reports to HUD and long-term evaluation reports.5 HUD
                         reviews information on the progress made in each EZ and EC to decide
                         whether to continue each community’s designation as an EZ or an EC.

                         At the time that we issued our December 1996 report, all six of the urban
                         EZs had prepared benchmarks that complied with HUD’s guidelines and
                         described activities that they had planned to implement the program. In
                         most cases, the benchmarks indicated how much work, often referred to

                         5
                          HUD’s Office of Community Planning and Development awarded a contract for the first annual status
                         reports on each EZ and the Office of Policy Development and Research awarded a separate contract
                         for long-term evaluations of the overall program. The first annual status report was publicly released in
                         March 1997. The two long-term evaluation reports are scheduled for completion on the program’s 5-
                         and 10-year anniversaries in 1999 and 2004.



                         Page 5                                            GAO/T-RCED-98-27 The Federal EZ/EC Program
              as an output, would be accomplished relative to a baseline. For example, a
              benchmark for one EZ stated that the EZ would assist businesses and
              entrepreneurs in gaining access to capital resources and technical
              assistance through the establishment of a single facility called a one-stop
              capital shop. The associated baseline was that there was currently no
              one-stop capital shop to promote business activity. The performance
              measures for this benchmark included the amount of money provided in
              commercial lending, the number of loans made, the number of
              consultations provided, and the number of people trained.

              Also by December 1996, HUD had (1) defined the four key principles, which
              serve as missions and goals for the EZs; (2) required baselines and
              performance measures for benchmarks in each EZ to help measure the EZ’s
              progress in achieving specific benchmarks; and (3) developed procedures
              for including performance measures in HUD’s decision-making process.
              However, the measures being used generally described the amount of
              work that would be produced (outputs) rather than the results that were
              anticipated (outcomes). For example, for the benchmark cited above, the
              EZ had not indicated how the outputs (the amount of money provided in
              commercial lending, the number of loans made, the number of
              consultations provided, and the number of people trained) would help to
              achieve the desired outcome (creating economic opportunity, the relevant
              key principle). To link the outputs to the outcome, the EZ could measure
              the extent to which accomplishing the benchmark increased the number
              of businesses located in the zone. Without identifying and measuring
              desired outcomes, HUD and the EZs may have difficulty determining how
              much progress the EZs are making toward accomplishing the program’s
              overall mission.

              HUD officials agreed that the performance measures used in the EZ program
              were output-oriented and believed that these were appropriate in the short
              term. They believed that the desired outcomes of the EZ program are
              subject to actions that cannot be controlled by the entities involved in
              managing this program. In addition, the impact of the EZ program on
              desired outcomes cannot be isolated from the impact of other events.
              Consequently, HUD believed that defining outcomes for the EZ program was
              not feasible.


              Concerns about the feasibility of establishing measurable outcomes for
Conclusions   programs are common among agencies facing this difficult task. However,
              because HUD and the EZs have made steady and commendable progress in



              Page 6                              GAO/T-RCED-98-27 The Federal EZ/EC Program
           establishing an output-oriented process for evaluating performance, they
           have an opportunity to build on their efforts by incorporating measures
           that are more outcome-oriented. Specifically, HUD and the EZs could
           describe measurable outcomes for the program’s key principles and
           indicate how the outputs anticipated from one or more benchmarks will
           help achieve those outcomes. Unless they can measure the EZs’ progress in
           producing desired outcomes, HUD and the EZs may have difficulty
           identifying activities that should be duplicated at other locations. In
           addition, HUD and the EZs may not be able to describe the extent to which
           the program’s activities are helping to accomplish the program’s mission.


           Madam Chairman, this concludes our prepared remarks. We will be
           pleased to respond to any questions that you or other Members of the
           Subcommittee might have.




(385700)   Page 7                             GAO/T-RCED-98-27 The Federal EZ/EC Program
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