Federal Funding for the Rural EZ/EC Program Is Likely to Total Over $1 Billion

The federal funds invested in the rural EZ/EC program, including loans, grants, and forgone tax revenues, will far exceed the $208 million in EZ/EC SSBG funds allocated to the program. This estimate includes the EZ/EC SSBG funds, plus an estimated $428 million from tax incentives and about $600 million from USDA’s loan and grant programs. Most federal agencies had not estimated the amount of support they expect to invest in the rural EZs and ECs over the 10-year life of the program. USDA, however, indicated that it alone intends to provide about $246 million to rural EZs and ECs over the first 4 years through existing funding sources such as its Rural Business Enterprise Grant program and the Water and Waste Disposal Loan and Grant programs. If this funding level is maintained over the 10-year life of the program, an assumption that USDA officials consider a reasonable expectation, USDA will provide about $600 million to EZ/EC communities. EZs and ECs Vary in Their Progress Toward Implementing the Program

The 33 EZs and ECs have established the structures and procedures needed to implement their strategic plans. EZs and ECs Have Faced a Number of Difficulties in Implementing Their Plans

The rural EZs and ECs have experienced difficulties that have slowed their initial efforts, continue to impede their progress, or both. The difficulties were the short time frame allowed for applying to the program and the misinformation provided by officials at USDA headquarters about the program’s basic operations. While these difficulties have been or are in the process of being resolved, two other issues continue to be of concern. These issues are a lack of clarity about which standards the communities should follow for construction projects when using EZ/EC SSBG funds and the disparity between HHS’ verbal guidance and written guidance to the states on their responsibilities for releasing the EZ/EC SSBG funds to the communities for the EZ/EC program. They noted that the federal agencies involved faced organizational pressures as well. It is to carry out its responsibilities through site visits by USDA state coordinators and USDA headquarters’ reviews of the progress reports periodically submitted by the EZs and ECs. However, USDA cannot adequately fulfill its oversight responsibilities because it has not received complete progress reports from all of the USDA state coordinators or the EZs and ECs. Recommendations to the Secretary of Health and Human Services

To reduce confusion about the program’s guidance on the uses of and financial controls over the EZ/EC SSBG funds, the Secretary of Health and Human Services should direct the Assistant Secretary for Planning and Evaluation to (1) clarify which construction-related standards the EZs and ECs should follow in using the EZ/EC SSBG funds and (2) eliminate the conflicts between the Department’s verbal and written guidance on the states’ fiduciary responsibility for the EZ/EC SSBG funds. To review the status of the EZ/EC program’s implementation and identify the difficulties that communities have encountered, we talked with officials and obtained information at all 3 rural EZs, 5 of the 30 rural ECs, six states, and the two principal agencies, USDA and HHS. 2. 3. 4. 6. 7. 8. GAO Comments

1. 4. 9.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed selected aspects of the Department of Agriculture's (USDA) rural Empowerment Zone/Enterprise Community (EZ/EC) Program, focusing on: (1) the federal funding levels of the rural EZ/EC program over the 10-year life of the program; (2) the status of the implementation of the program; (3) the difficulties that the communities have encountered in implementing their plans; and (4) USDA's oversight of the program.

What GAO Found

GAO noted that: (1) it estimates that federal funding for the rural EZ/EC program will total more than $1 billion over the 10-year life of the program; (2) this amount includes the $208 million in EZ/EC funds from the Social Services Block Grant (SSBG) program and an estimated $428 million from tax incentives; (3) estimates for direct funding from federal, state, and local programs as well as private sources are not generally available; (4) however, one federal agency, USDA, reports that it plans to provide about $246 million to the rural EZs and ECs over the first 4 years alone and that its funding for the 10-year life of the program could reasonably be expected to reach $600 million; (5) the status of the communities' implementation of the EZ/EC program varies; (6) all 33 rural EZs and ECs have established the basic organizational structures and procedures necessary to implement their strategic plans; (7) in terms of implementing the projects contained in these plans, such as day care services, emergency 911 services, and job training, some communities have made considerable progress and some have made very little; (8) the rural EZs and ECs have experienced a number of difficulties that have slowed their initial efforts, continue to impede their progress, or both; (9) these difficulties include the short time frames provided for applying to the program and the initial misinformation provided by officials at USDA headquarters about the program's basic operations; (10) while some of these difficulties have been or are in the process of being resolved, two issues continue to be of concern; (11) these issues are a lack of clarity about which federal regulations are applicable to the construction projects funded by EZ/EC Social Services Block Grants, and the conflict between the verbal guidance and the written guidance that the Department of Health and Human Services (HHS) has provided to the states on their responsibilities for ensuring that funds are reasonably and prudently spent; (12) under the EZ/EC program, USDA is responsible for overseeing the progress of the rural EZs and ECs and USDA is to accomplish this oversight through reviews of the periodic reports submitted by the EZs and ECs and by site visits conducted by USDA field personnel, known as EZ/EC state coordinators; (13) however, USDA cannot adequately fulfill its oversight responsibilities because the EZs, the ECs, and the EZ/EC state coordinators do not provide USDA with complete and systematic progress reports; and (14) consequently, USDA lacks the basic management information for identifying problem areas.