Economic Development Activities of the Eight Federal Programs

The eight federal programs provide loans and grants that states, communities, and others can use for funding a variety of activities for which the economic development of an area or of individuals is the intended or possible offshoot benefit. Three Programs Have Relocation Restrictions

Three of the eight programs—the Public Works and Development Facilities Program, the Employment and Training Assistance for Dislocated Workers Program, and the EZ/EC Program—have restrictions against using program funds to relocate businesses if the relocations result in the loss of jobs in other areas. 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. 2. Types of Incentives and Role They May Play in Business Relocations

Tax concessions, financial assistance, and other benefits may be used by states and communities to attract and keep businesses. 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. Most early studies found that incentives had little or no effect on an area’s economic development. 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 summarized the types of state and local incentives available and the role that incentives may play in a business’ decision to relocate. 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 Environmental Protection Agency’s (EPA) Clean Water State Revolving Fund Program. 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; 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. The plan must also ensure compliance with a variety of constraints and requirements specified in the law. 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. 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. GAO’s Comments

1. 3. Comments From the Department of Labor

The following are GAO’s comments on the Department of Labor’s letter dated July 21, 1997. 3.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the economic development activities of eight federal programs, focusing on: (1) the economic development activities that major federal programs fund for the benefit of states and communities; (2) restrictions for using program funds to relocate existing businesses and jobs; (3) procedures that federal agencies established to ensure compliance with the restrictions; and (4) types of incentives that states and communities have used to attract businesses and the role that incentives may play in a business's decision to relocate.

What GAO Found

GAO noted that: (1) funds for the eight programs GAO examined can be used for a variety of economic development activities; (2) three of the programs, the Economic Development Administration's Public Works and Development Facilities Program, the Department of Housing and Urban Development's (HUD) Community Development Block Grant Program, and HUD's and the Department of Agriculture's Empowerment Zone and Enterprise Community Program, fund activities that focus primarily on the economic development of distressed areas; (3) two of the programs, the Department of Labor's Employment and Training Assistance for Dislocated Workers Program and the Department of Health and Human Services' 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; (4) the three remaining programs, the Environmental Protection Agency's Clean Water State Revolving Fund Program, Agriculture's Water and Waste Disposal Program, and the Department of 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; (5) 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; (6) agencies responsible for programs with relocation restrictions rely on various procedures to ensure compliance with the prohibitions; (7) states may use a variety of incentives, such as tax concessions, financial assistance, and other benefits, to encourage economic development and attract businesses; (8) 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; and (9) 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 receptivity; incentives may or may not be a major factor in a firm's decision to locate to a particular area.