Community Development: The Federal Empowerment Zone and Enterprise
Community Program (Testimony, 10/28/97, GAO/T-RCED-98-27).

This testimony focuses on the Empowerment Zone and Enterprise Community
program, which targets federal grants to distressed urban and rural
communities for redevelopment and social services and provides tax and
regulatory relief to attract businesses to distressed communities. GAO
discusses the (1) program's implementation in six urban empowerment
zones: Atlanta, Baltimore, Chicago, Detroit, New York, and
Philadelphia-Camden; (2) factors that program participants believe have
either helped or hindered efforts to carry out the program; and (3)
plans for evaluating the program.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-98-27
     TITLE:  Community Development: The Federal Empowerment Zone and 
             Enterprise Community Program
      DATE:  10/28/97
   SUBJECT:  Block grants
             Community development programs
             Strategic planning
             Economically depressed areas
             Federal/state relations
             Urban economic development
             Program evaluation
             Program management
IDENTIFIER:  Atlanta (GA)
             Baltimore (MD)
             Chicago (IL)
             Detroit (MI)
             New York (NY)
             Philadelphia (PA)
             Camden (NJ)
             HUD Empowerment Zones and Enterprise Communities Program
             Social Services Block Grant
             
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Cover
================================================================ COVER


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

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

COMMUNITY DEVELOPMENT - THE
FEDERAL EMPOWERMENT ZONE AND
ENTERPRISE COMMUNITY PROGRAM

Statement of Stanley J.  Czerwinski,
Associate Director, Housing and
Community Development Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-98-27

GAO/RCED-98-27T

The Federal EZ/EC Program

(385700)


Abbreviations
=============================================================== ABBREV

  EDI -
  EZ/EC -
  EC -
  EZ -
  HUD -
  HHS -
  OBRA -
  SSBG -

============================================================ Chapter 0

Madam Chairman and Members of the Subcommittee: 

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

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

In summary, we found the following: 

  -- All six of the urban EZs had met the criteria defined in the
     program's authorizing legislation, developed a strategic plan,
     signed an agreement with the Department of Housing and Urban
     Development (HUD) and their respective states for implementing
     the program, signed an agreement with their states for obtaining
     funds, drafted performance benchmarks, and established a
     governance structure.  However, the EZs differed in their
     geographic and demographic characteristics, reflecting the
     selection criteria in the authorizing legislation. 

  -- Many officials involved in implementing the program generally
     agreed on factors that had either helped or hindered their
     efforts.  For example, factors identified as helping the
     program's implementation included community representation
     within the governance structures and enhanced communication
     among stakeholders.  Similarly, factors identified as hindering
     the program's implementation included preexisting relationships
     among EZ stakeholders and pressure for quick results. 

  -- From the beginning, the Congress and HUD made evaluation plans
     an integral part of the EZ program by requiring each community
     to identify in its strategic plan the baselines, methods, and
     benchmarks for measuring the success of its plan.  However, the
     measures being used generally describe the amount of work that
     will be produced (outputs) rather than the results that are
     anticipated (outcomes). 


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


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

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

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

The Clinton administration announced the EZ/EC program in January
1994.  The federal government received over 500 nominations for the
program, including 290 nominations from urban communities.  On
December 21, 1994, the Secretaries of Housing and Agriculture
designated the EZs and ECs.\3 All of the designated communities will
receive federal assistance; however, as established by OBRA 1993, the
EZs are eligible for more assistance through grants and tax
incentives than the ECs. 

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


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

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


   STATUS OF THE PROGRAM IN THE
   SIX URBAN EZS
---------------------------------------------------------- Chapter 0:2

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

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

Each urban EZ also has planned diverse activities to meet its city's
unique needs.  All of them have planned activities to increase the
number of jobs in the EZ, improve the EZ's infrastructure, and
provide better support to families.  However, the specific activities
varied, reflecting decisions made within each EZ.  According to HUD,
the EZs had obligated over $170 million as of November 1996. 
However, the definition of obligations differed.  For example, one EZ
defined obligations as the amount of money that had been awarded
under contracts.  Another EZ defined obligations as the total value
of the projects that had been approved by the city council, only a
small part of which had been awarded under contracts.  As of
September 30, 1997, the six EZs had drawn down about $30 million from
the EZ/EC SSBG funds for administrative costs, as well as for
specific activities in the EZs. 


   PARTICIPANTS' VIEWS ON THE EZ
   PROGRAM
---------------------------------------------------------- Chapter 0:3

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

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

  -- community representation on the EZ governance boards,

  -- enhanced communication among stakeholders,

  -- assistance from HUD's contractors (called generalists),\4

  -- support from the city's mayor, and

  -- support from White House and cabinet-level officials. 

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

  -- difficulty in selecting an appropriate governance board
     structure,

  -- the additional layer of bureaucracy created by the state
     government's involvement,

  -- preexisting relationships among EZ stakeholders,

  -- pressure for quick results from the media,

  -- the lack of federal funding for initial administrative
     activities, and

  -- pressure for quick results from the public and private sectors. 


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


   PROGRAM EVALUATION EFFORTS
   COULD BE IMPROVED
---------------------------------------------------------- Chapter 0:4

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

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

At the time that we issued our December 1996 report, all six of the
urban EZs had prepared benchmarks that complied with HUD's guidelines
and described activities that they had planned to implement the
program.  In most cases, the benchmarks indicated how much work,
often referred to as an output, would be accomplished relative to a
baseline.  For example, a benchmark for one EZ stated that the EZ
would assist businesses and entrepreneurs in gaining access to
capital resources and technical assistance through the establishment
of a single facility called a one-stop capital shop.  The associated
baseline was that there was currently no one-stop capital shop to
promote business activity.  The performance measures for this
benchmark included the amount of money provided in commercial
lending, the number of loans made, the number of consultations
provided, and the number of people trained. 

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

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


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


   CONCLUSIONS
---------------------------------------------------------- Chapter 0:5

Concerns about the feasibility of establishing measurable outcomes
for programs are common among agencies facing this difficult task. 
However, because HUD and the EZs have made steady and commendable
progress in establishing an output-oriented process for evaluating
performance, they have an opportunity to build on their efforts by
incorporating measures that are more outcome-oriented.  Specifically,
HUD and the EZs could describe measurable outcomes for the program's
key principles and indicate how the outputs anticipated from one or
more benchmarks will help achieve those outcomes.  Unless they can
measure the EZs' progress in producing desired outcomes, HUD and the
EZs may have difficulty identifying activities that should be
duplicated at other locations.  In addition, HUD and the EZs may not
be able to describe the extent to which the program's activities are
helping to accomplish the program's mission. 


-------------------------------------------------------- Chapter 0:5.1

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


*** End of document. ***