Federal agencies  use different criteria as to what constitutes a rural area. Federal agencies and  regional commissions and authorities that administer financial assistance  programs are required to report quarterly to FAADS on the financial  assistance awards they make. As agreed with your office, we based our framework on our  prior work, a review of other research studies, and discussions with federal  officials and rural development groups. Further, computer software programs can now geocode federal  funding data below the county level. Due to data limitations that only  allowed us to identify subcounty level recipients for about half of the  funding, we chose to use a system developed in 2001 which relies on both  population and commuting patterns of census tracts to classify each county  as rural or urban based on the counties dominant commuting patterns. Although this approach does not fully resolve all the classification  problems inherent in county-based systems that are based on political  boundaries rather than demographic characteristics, it allowed us to  geocode most of the data and was most comparable to census population  data. As a result, the classifications are heavily skewed toward urban. Some use census tracts  (about 62,000) or other geographic areas smaller than counties (about  3,000) that can better reflect rural-urban differences. The Amount of Economic Development Funding Rural Areas Received Varied across Programs, Agencies, States, and Regions

The 86 economic development programs we identified that met one or  more of the criteria from our list of economic development activities  provided about $200 billion in funding to the 50 states and Washington, D.C.  for fiscal years 2002 through 2004. We found that for 44 of the 86 economic development programs included in  our analysis, the administering agencies either did not report any funding  data or reported incomplete or inaccurate data to FAADS during all or part  of fiscal years 2002 through 2004. Total obligations that were reported to  Census during those years for these programs were off by more than $11  billion, including obligations of about $4.5 billion for 19 programs (22  percent) that had not been reported at all, and a total of about $7 billion for  25 programs that was either over- or underreported. Even though the FAADS reporting requirement has been in place since  1982, for the agencies we reviewed, several factors affected the extent of  compliance with the FAADS requirements. These factors included:  a lack of controls and resources at Census to determine whether  agencies were actually submitting the data,       a lack of knowledge among program officials about the FAADS   poor oversight and coordination at the agencies responsible for  ensuring both compliance with the reporting requirement and the  accuracy of the data submitted. We found that  the amount of economic development funding provided to rural areas  varied widely by program, agency, state, and region. Scope and Methodology

To examine the share of federal economic development funds that support  rural areas today, we (1) developed a framework for identifying federal  economic development funding; (2) determined the most informative  classification system for differentiating between rural and urban areas; (3)  used the economic development framework and classification system to  identify rural areas and report the amount and share of economic  development funding these areas have received; and (4) examined federal  agencies’ reporting of economic development funds.
Why GAO Did This Study

GAO was asked to update its 1989 report on the distribution of economic development funding using newer tools now available for measuring the distribution of federal funds to rural areas. GAO agreed to (1) identify federal economic development programs, (2) determine the best way to identify rural areas for this report, (3) determine the amount and share of economic development funding that rural areas receive, and (4) discuss the way federal agencies report data on economic development funding.

What GAO Found

Based on prior GAO reports, other research studies, and information provided by federal program officials and external rural development groups, GAO developed a list of activities as criteria to identify economic development programs. This list included job creation, infrastructure development, and other activities that are generally acknowledged to directly affect overall economic growth. Using this list, GAO identified 86 federal programs in 10 federal agencies and 3 regional commissions and authorities that provide economic development funding. Because federal agencies use different criteria as to what constitutes rural, determining how much funding has targeted rural areas required determining which method of defining rural was the best for tracking funding. Classification systems that can track funding data at the census tract level or below can better differentiate between rural and urban areas because they better reflect the economic and social diversity than do county-based systems that are based on political boundaries. Because limitations in the data did not allow tracking all the funding data to local levels, GAO used a system that used population and commuting relationships to classify census tracts and then classify each county as rural or urban based on the county's dominant commuting pattern. The 86 programs in 2002-2004 provided approximately $200 billion in total economic development funding, about $150 billion of which could be tracked to the county level or below. However, the amount of funding provided to rural areas varied widely by program, agency, state, and region. These calculations were complicated by significant problems with the data from the programs that federal agencies were reporting to Census. Although all federal agencies are required to submit obligations data for their programs quarterly, 44 of the programs GAO analyzed did not report any data or reported incomplete or inaccurate data for all or part of fiscal years 2002, 2003, or 2004. As a result, the reported obligations were off by more than $11 billon. Further, some 19 programs provided no information on obligations of about $4.5 billion, and another 25 programs reported amounts that varied significantly from actual obligations. The FAADS reporting requirement has been in place since 1982. But a lack of knowledge among program officials about the requirement and poor oversight has affected compliance with it.