Economic Development Activities: Overview of Eight Federal Programs
(Letter Report, 08/28/97, GAO/RCED-97-193).
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.
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.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-97-193
TITLE: Economic Development Activities: Overview of Eight Federal
Programs
DATE: 08/28/97
SUBJECT: Grants to states
Community development programs
Intergovernmental fiscal relations
Economically depressed areas
Economic development
Business assistance
Employment or training programs
Economic growth
Federal aid to states
Public works
IDENTIFIER: Dept. of Commerce Public Works and Development Facilities
Program
Community Development Block Grant
DOL Employment and Training Assistance for Dislocated
Workers Program
Community Services Block Grant
Clean Water State Revolving Fund
RDA Water and Waste Disposal Systems for Rural Communities
Program
DOT Surface Transportation Program
HUD Empowerment Zones and Enterprise Communities Program
Social Services Block Grant
USDA Rural Empowerment Zones and Enterprise Communities
Program
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Cover
================================================================ COVER
Report to Congressional Requesters
August 1997
ECONOMIC DEVELOPMENT ACTIVITIES -
OVERVIEW OF EIGHT FEDERAL PROGRAMS
GAO/RCED-97-193
Overview of Eight Federal Programs
(385658)
Abbreviations
=============================================================== ABBREV
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)
EZ -
EC -
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
Letter
=============================================================== LETTER
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 activities\1 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 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.
--------------------
\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.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Funds for the eight program we examined can be used for a variety of
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 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.
BACKGROUND
------------------------------------------------------------ Letter :2
Business incentives are inducements that state and local governments
can 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.
ECONOMIC DEVELOPMENT ACTIVITIES
OF THE EIGHT FEDERAL PROGRAMS
------------------------------------------------------------ Letter :3
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. An overview of each
program that describes the program's objectives and eligible
activities, the types of 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
DEVELOPMENT FACILITIES
PROGRAM
---------------------------------------------------------- Letter :3.1
-- Objectives, eligible activities, and types of funding provided:
EDA's Public Works and Development Facilities Program provides
grants for helping 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 DEVELOPMENT
BLOCK GRANT PROGRAM
---------------------------------------------------------- Letter :3.2
-- Objectives, eligible activities, and types of funding provided:
HUD's CDBG Program provides communities with grants for
activities that will benefit low- and moderate-income people,
prevent or eliminate slums or blight, or 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.
HUD'S AND AGRICULTURE'S
EMPOWERMENT ZONE AND
ENTERPRISE COMMUNITY PROGRAM
---------------------------------------------------------- Letter :3.3
-- Objectives, eligible activities, and types of funding provided:
The EZ/EC program is a 10-year program administered by HUD and
Agriculture that targets federal grants and provides tax and
regulatory relief for helping distressed urban and rural
communities overcome their economic and 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
TRAINING ASSISTANCE FOR
DISLOCATED WORKERS PROGRAM
---------------------------------------------------------- Letter :3.4
-- Objectives, eligible activities, and types of funding provided:
Labor's Employment and Training Assistance for Dislocated
Workers Program, authorized under title III of JTPA, as amended,
provides states and substate organizations with grants to help
dislocated workers qualify for and find new jobs. Dislocated
workers are those who have lost jobs because of 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.
--------------------
\3 Funds for the JTPA programs are provided on a program-year basis,
which runs from July 1 through June 30, annually.
HHS' COMMUNITY SERVICES
BLOCK GRANT PROGRAM
---------------------------------------------------------- Letter :3.5
-- Objectives, eligible activities, and types of funding provided:
HHS' CSBG Program provides states with grants to alleviate the
causes of poverty by helping low-income individuals and families
obtain adequate jobs, 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
REVOLVING FUND PROGRAM
---------------------------------------------------------- Letter :3.6
-- Objectives, eligible activities, and types of funding provided:
EPA's Clean 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 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.
--------------------
\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.
AGRICULTURE'S WATER AND
WASTE DISPOSAL PROGRAM
---------------------------------------------------------- Letter :3.7
-- Objectives, eligible activities, and types of funding provided:
The Water 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.
-- 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
TRANSPORTATION PROGRAM
---------------------------------------------------------- Letter :3.8
-- Objectives, eligible activities, and types of funding provided:
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.
-- Description of projects funded: In fiscal year 1996,
Transportation obligated\5 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.
--------------------
\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.
THREE PROGRAMS HAVE RELOCATION
RESTRICTIONS
------------------------------------------------------------ Letter :4
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. 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 DEVELOPMENT
FACILITIES PROGRAM'S
NONRELOCATION REQUIREMENT
---------------------------------------------------------- Letter :4.1
EDA's current regulations generally prohibit using Public Works and
Development Facilities grants to assist employers who transfer one or
more jobs from one commuting area to another.\6 EDA's nonrelocation
requirement is applicable only to firms relocating to EDA-funded
project 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 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.
--------------------
\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.
EMPLOYMENT AND TRAINING
ASSISTANCE FOR DISLOCATED
WORKERS PROGRAM'S
NONRELOCATION REQUIREMENT
---------------------------------------------------------- Letter :4.2
Section 141 of JTPA, as amended, prohibits using any JTPA funds to
encourage or induce a business to relocate if the relocation results
in the loss of employment for any employee at the business' original
location.\7 This section also provides that if a business relocates
and the relocation results in the loss of any employee's job at the
business' original location, JTPA funds cannot be used by the
relocating business for customized or skill training, on-the-job
training, or company-specific assessments of job 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.
--------------------
\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.
EZ/EC PROGRAM'S
NONRELOCATION REQUIREMENT
---------------------------------------------------------- Letter :4.3
The Omnibus Budget Reconciliation Act of 1993 provides that the
strategic plans prepared by EZs and ECs may not include any
assistance to relocate 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
NONRELOCATION REQUIREMENT
---------------------------------------------------------- Letter :4.4
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 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.
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.
PROCEDURES FOR ENSURING
COMPLIANCE WITH NONRELOCATION
REQUIREMENT
------------------------------------------------------------ Letter :5
To ensure compliance with its nonrelocation requirement, EDA relies
on assurances from applicants and certifications from businesses that
the businesses' relocation to project areas funded by Public Works
and Development Facilities grants will not result in the transfer of
jobs from other areas to the project area. Similarly, to document
compliance with 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
ENSURING COMPLIANCE WITH
PUBLIC WORKS AND DEVELOPMENT
FACILITIES PROGRAM'S
NONRELOCATION REQUIREMENT
---------------------------------------------------------- Letter :5.1
EDA's current regulations, which were adopted in October 1995,
provide that applicants for Public Works and Development Facilities
grants must 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 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 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 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
ENSURING COMPLIANCE WITH
EMPLOYMENT AND TRAINING
ASSISTANCE FOR DISLOCATED
WORKERS PROGRAM'S
NONRELOCATION REQUIREMENT
---------------------------------------------------------- Letter :5.2
Labor relies primarily on the states to ensure compliance with JTPA's
nonrelocation requirement. Labor's regulations require that as a
prerequisite to providing a new or expanding business with JTPA's
assistance for worker training, a standardized preaward review,
developed by the state, must be completed to verify that the business
is not relocating jobs from one labor market area to another. The
review is to be completed and documented jointly by the substate
grantee or other organization 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
PROCEDURES FOR ENSURING
COMPLIANCE WITH EZ/EC
PROGRAM'S NONRELOCATION
REQUIREMENT
---------------------------------------------------------- Letter :5.3
HUD and Agriculture have incorporated into their program regulations
the provision in the Omnibus Budget Reconciliation Act against using
EZs'/ECs' assistance to relocate businesses. As under the act, HUD's
and Agriculture's regulations prohibit the EZs' or ECs' strategic
plans from containing any language stating that assistance will be
provided for relocating businesses 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, 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.
--------------------
\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).
TYPES OF INCENTIVES AND ROLE
THEY MAY PLAY IN BUSINESS
RELOCATIONS
------------------------------------------------------------ Letter :6
Tax concessions, financial assistance, and other benefits may be used
by states and communities to attract and keep businesses. The extent
to which these incentives are paid by the federal government or by
state and local governments is difficult to ascertain. Local
economic development organizations may receive money from state
programs that commingle state and federal dollars. Even if the
ultimate source of the funding for business incentives is from state
or local governments, federal 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 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.
--------------------
\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).
\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).
AGENCY COMMENTS
------------------------------------------------------------ Letter :7
We provided Agriculture, Commerce, HHS, HUD, Labor, Transportation,
and 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 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 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.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8
To determine the economic development activities that eight major
federal programs fund for the benefit of states and communities, we
reviewed the 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 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.
--------------------
\15 The Catalog is a governmentwide compendium of federal programs,
projects, services, and activities that provide assistance and
benefits.
---------------------------------------------------------- Letter :8.1
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
THE EIGHT FEDERAL PROGRAMS
=========================================================== Appendix I
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.
PUBLIC WORKS AND DEVELOPMENT
FACILITIES PROGRAM
--------------------------------------------------------- Appendix I:1
The Public Works and Development Facilities Program, authorized by
title I of the Public Works and Economic Development Act of 1965, as
amended, is a key federal program for stimulating economic
development 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
------------------------------------------------------- Appendix I:1.1
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
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.
--------------------
\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.
PROJECT FUNDING
------------------------------------------------------- Appendix I:1.2
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 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 Grants in Fiscal
Year 1996 by Type of Project
Type of project Dollars Percent
------------------------------ ------------------ ------------------
Water and sewer systems $77,530,833 47.0
Industrial parks 26,056,723 15.8
Buildings-industrial/ 21,885,552 13.3
commercial
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.
--------------------
\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.
PROHIBITION AGAINST USING
PUBLIC WORKS AND DEVELOPMENT
FACILITIES GRANTS TO
RELOCATE BUSINESSES
------------------------------------------------------- Appendix I:1.3
Section 202 of the Public Works and Economic Development Act of 1965,
as amended, prohibits using EDA's financial assistance to assist
businesses in relocating from one area to another. Although this
section of the act pertains specifically to EDA's business
development assistance program, EDA has applied the nonrelocation
requirement to all of its financial assistance programs, including
Public Works and Development Facilities grants.
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 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.
--------------------
\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.
EDA'S PROCEDURES FOR
ENFORCING THE RELOCATION
PROHIBITION
------------------------------------------------------- Appendix I:1.4
EDA's current regulations require that applicants for Public Works
and Development Facilities grants must notify EDA of any employer
that will 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.
COMMUNITY DEVELOPMENT BLOCK
GRANT PROGRAM
--------------------------------------------------------- Appendix I:2
The primary objective of the CDBG Program is to develop viable urban
communities by providing decent housing and a suitable living
environment and by expanding economic opportunities, principally for
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.
--------------------
\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.
THE ENTITLEMENT COMMUNITIES
PROGRAM
------------------------------------------------------- Appendix I:2.1
The Entitlement Communities Program is the largest component of the
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;
-- 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 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
PROGRAMS
------------------------------------------------------- Appendix I:2.2
The State and Small Cities Programs receive approximately 30 percent
of 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.
CDBG FUNDING AND PROGRAM
RESULTS
------------------------------------------------------- Appendix I:2.3
According to the Director, HUD Office of Block Grant Assistance, CDBG
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
RELOCATING JOBS
------------------------------------------------------- Appendix I:2.4
While grantees are not prohibited from using CDBG Program funds to
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.
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.
EMPOWERMENT ZONE AND ENTERPRISE
COMMUNITY PROGRAM
--------------------------------------------------------- Appendix I:3
The EZ/EC Program targets federal grants to distressed urban and
rural communities for social services and community redevelopment and
provides tax and regulatory relief for attracting or retaining
businesses in 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.
PROGRAM INFORMATION
------------------------------------------------------- Appendix I:3.1
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 under $3 million of the EZ/EC
SSBG funds and qualified only for the tax-exempt bonds.
PROGRAM FUNDING AND RESULTS
------------------------------------------------------- Appendix I:3.2
As of June 30, 1997, of the $1 billion in total SSBG funds allocated
by HHS to 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
RESPONSIBILITIES
------------------------------------------------------- Appendix I:3.3
As stated above, HHS regulations provide states with maximum fiscal
and 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.
PROHIBITION AGAINST
RELOCATING BUSINESSES
------------------------------------------------------- Appendix I:3.4
The Omnibus Budget Reconciliation Act of 1993 states that the EZ/EC
area's 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.
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.
JOB TRAINING PARTNERSHIP ACT,
TITLE III, EMPLOYMENT AND
TRAINING ASSISTANCE FOR
DISLOCATED WORKERS
--------------------------------------------------------- Appendix I:4
The Job Training Partnership Act (JTPA), as amended, provides
employment and training services for economically disadvantaged
adults and youths, dislocated workers, and others who face
significant employment barriers in an attempt to move such
individuals to self-sustaining employment. Title III of the act,
administered by the Department of Labor's Office of Worker Retraining
and Adjustment Programs, provides states with grants to support state
and local training and employment assistance and other services to
eligible dislocated 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
------------------------------------------------------- Appendix I:4.1
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 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 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.
--------------------
\20 Any layoff of 50 or more individuals during a 30-day period may
be considered a substantial layoff.
NATIONAL RESERVE ACCOUNT
------------------------------------------------------- Appendix I:4.2
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 RESULTS
------------------------------------------------------- Appendix I:4.3
Funding for title III programs totaled approximately $1.2 billion for
program year 1995\21
($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 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 for Dislocated
Workers Program
Number of
Service received recipients
-------------------------------------------------- ------------------
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 jobs\a 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.
--------------------
\21 Funds for the JTPA programs are provided on a program year basis,
which runs from July 1 through June 30, annually.
PROHIBITION AGAINST USING
JTPA FUNDS TO RELOCATE
BUSINESSES
------------------------------------------------------- Appendix I:4.4
In 1992, section 141 of JTPA was amended to prohibit the use of any
funds provided under JTPA to encourage or induce the relocation of a
business\22 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.
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.
--------------------
\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.
LABOR'S PROCEDURES FOR
ENFORCING ITS NONRELOCATION
REQUIREMENT
------------------------------------------------------- Appendix I:4.5
The states are primarily responsible for overseeing the use of title
III funds, and Labor's regulations require the states to assure that
they will comply with all statutory and regulatory requirements of
the act. Furthermore, the regulations require that as a prerequisite
to providing 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.
COMMUNITY SERVICES BLOCK GRANT
PROGRAM
--------------------------------------------------------- Appendix I:5
The CSBG Program, established by the Omnibus Budget Reconciliation
Act of 1981, replaced the following three programs administered by
the 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
------------------------------------------------------- Appendix I:5.1
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 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 RESULTS
------------------------------------------------------- Appendix I:5.2
The Secretary of HHS may reserve between 0.5 and 1 percent of the
amount 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 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.
--------------------
\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.
NO RELOCATION PROHIBITION
------------------------------------------------------- Appendix I:5.3
The laws and regulations governing the CSBG Program are silent on
whether program funds may be used to relocate businesses.
CLEAN WATER STATE REVOLVING
FUND PROGRAM
--------------------------------------------------------- Appendix I:6
EPA serves as the leader of the nation's environmental policy and is
responsible for, among other things, providing state and local
agencies with technical and financial assistance for antipollution
activities. The Clean Water State Revolving Fund Program,
administered by EPA, is a key federal program for improving water
quality and protecting public health.
PROGRAM INFORMATION
------------------------------------------------------- Appendix I:6.1
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, 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.
--------------------
\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.
FUNDING FOR STATE REVOLVING
FUNDS
------------------------------------------------------- Appendix I:6.2
EPA annually allots funds appropriated by the Congress for
capitalization grants to the states, including Puerto Rico, generally
according to 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.
--------------------
\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.
NO RELOCATION PROHIBITION
------------------------------------------------------- Appendix I:6.3
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.
WATER AND WASTE DISPOSAL
PROGRAM
--------------------------------------------------------- Appendix I:7
Agriculture's Water and Waste Disposal Program provides loans and
grants to rural communities for funding water and waste disposal
facilities that will improve the quality of life and promote the
economic development of rural areas.
PROGRAM INFORMATION
------------------------------------------------------- Appendix I:7.1
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 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
RELOCATING BUSINESSES
------------------------------------------------------- Appendix I:7.2
While the laws and regulations governing the program place several
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 RESULTS
------------------------------------------------------- Appendix I:7.3
Over the last 5 years, funding for Agriculture's Water and Waste
Disposal 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.
SURFACE TRANSPORTATION PROGRAM
--------------------------------------------------------- Appendix I:8
The Surface Transportation Program (STP) is a grant program created
by the Intermodal Surface Transportation Efficiency Act of 1991
(ISTEA) to develop and improve the nation's surface transportation
facilities.
PROGRAM INFORMATION
------------------------------------------------------- Appendix I:8.1
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 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. 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.
--------------------
\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.
\28 A metropolitan planning organization is required for each
urbanized area with a population of over 50,000.
PROGRAM FUNDING AND RESULTS
------------------------------------------------------- Appendix I:8.2
Transportation apportions STP funds to the states on the basis of
historical 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 obligated\29 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 year 1997 varied from a low of approximately
$12.6 million for Massachusetts to a high of over $317 million for
California.
--------------------
\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.
NO RELOCATION PROHIBITION
------------------------------------------------------- Appendix I:8.3
The laws and regulations governing the STP are silent on whether
program funds may be used to relocate businesses.
(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
COMMERCE
=========================================================== Appendix I
The following are GAO's comments on the Department of Commerce's
letter dated July 28, 1997.
GAO'S COMMENTS
--------------------------------------------------------- Appendix I:9
1. We reviewed the suggested editing changes and incorporated them
into 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.
(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
=========================================================== Appendix I
(See figure in printed edition.)
The following are GAO's comments on the Department of Health and
Human Services' letter dated July 29, 1997.
GAO'S COMMENTS
-------------------------------------------------------- Appendix I:10
1. At the end of the report, we discuss HHS' position regarding a
policy 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.
(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
=========================================================== Appendix I
The following are GAO's comments on the Department of Housing and
Urban Development's letter dated July 25, 1997.
GAO'S COMMENTS
-------------------------------------------------------- Appendix I:11
1. In its enclosure, HUD provided suggested clarification regarding
the 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.
(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
LABOR
=========================================================== Appendix I
The following are GAO's comments on the Department of Labor's letter
dated July 21, 1997.
GAO'S COMMENTS
-------------------------------------------------------- Appendix I:12
1. At the end of our report, we discuss Labor's observation 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.
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. 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.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION
Austin Kelly
Erin Lansburgh
Sally Moino
Stan Ritchick
Rick Smith
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