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PURPOSE

BACKGROUND

WITNESSES

The Subcommittee will meet on Thursday, March 17, 2005 at 2:00 p.m. in room 2167 Rayburn House Office Building for a hearing on “The Administration’s Strengthening America’s Communities Initiative and its impact on economic development.”

In advance of the release of the Fiscal Year 2006 Budget, the Administration announced a new initiative entitled “Strengthening America’s Communities.” This new initiative proposes to consolidate a number of existing community and economic development grant programs into one new grant program housed at the Department of Commerce. The new grant program, which has yet to be named, would provide funds to state and local governments for a variety of eligible activities. While specific details about the new program have not yet been made public, some preliminary information about the program has been made public.

At present, there are some 35 economic and community development programs across the federal government. These 35 programs are a mixture of project specific grants, block grants to state and local governments, regional commissions, tax credits, and low interest loans. The 18 programs to be consolidated come from the Department of Housing and Urban Development (HUD), the Department of Agriculture (DOAg), the Department of the Treasury (Treasury), the Department of Health and Human Services (HHS), and the Department of Commerce (DOC).(see attachment A)

In total, all of these programs represent $16.2 billion in FY 2005 funding, and the Administration has included $15.5 billion for them in its FY 2006 budget. The 18 programs involved in the consolidation received approximately $5.1 billion in FY 2005, but the Administration has proposed cutting this to $3.71 billion for FY 2006, the first year of the program. The Administration’s budget included modest increases for many of the remaining 17 programs.

Of the 18 programs included in the consolidation, three programs make up a significant majority of the money, with Community Development Block Grants (CDBG), including Set-Asides representing the largest single dollar amount at $4.15 billion. The next two largest programs are Community Services Block Grants (offered by HHS), which received $642 million and the Economic Development Administration, which received $257 million. The remainder of the programs received less than $60 million in FY 2005.

The Administration has put forward four primary reasons for creating this new program, including the elimination of poor and under-performing programs, elimination of overlapping and duplicative programs, reprioritization of existing programs to focus on new goals and objectives, and streamlining of programs for ease of use by target communities. This proposal is based on an Office of Management and Budget (OMB) review of federal economic and community development programs which found that most were not accomplishing their intended results, could not demonstrate measurable success, or were specifically or generally duplicative of other programs.

In conducting its review, OMB used its Program Assessment Rating Tool (PART). The PART was developed to assess and improve program performance so that the Federal government can achieve better results. A PART review helps identify a program’s strengths and weaknesses to inform funding and management decisions aimed at making the program more effective. The PART looks at all factors that affect and reflect program performance including program purpose and design; performance measurement, evaluations, and strategic planning; program management; and program results. The PART ratings for those programs for which a review was completed is included in Attachment A. Of particular note is that none of the affected programs received an “effective” rating, and only two of the reviewed programs received a “moderately effective” rating.

There are two elements to the new grant program, the Strengthening America’s Communities Grant Program (SACGP) and the Economic Development Challenge Fund (EDCF). The SACGP would allocate resources to state and local governments to invest in distressed communities and regions to support a variety of community and economic development objectives; while the EDCF would operate as an incentive grant program to reward those communities achieving key goals.

The SACGP purports to build on the President’s Management Agenda to make these economic development programs more citizen centered, results oriented, market-based, and work to promote innovation through competition. These grants would be more narrowly targeted to distressed communities to assist them in transitioning to a 21st century economy, and be more closely attached to specific criteria that would ensure they achieve greater results for low-income persons and distressed areas.

The EDCF would operate as a bonus grant program focused on those communities that have taken steps to improve economic conditions and are fostering an environment that is pro-growth, including achieving educational improvement standards, lowering crime levels, and reducing regulatory barriers.

While the Administration has put forward general goals for the program, most of the details surrounding the eligibility requirements, basis for distribution of grants, applicable performance measures, eligible uses of funds, and transition plans for the consolidation have not yet been made public. According to statements made by Administration officials at stakeholder briefings and meetings with Committee staff, many of these details will be worked out with a Strengthening America’s Communities Advisory Committee that was announced by DOC through a notice in the Federal Register on February 25, 2005. The notice advises that the Advisory Committee is to be formed by March 11th, 2005, with a final report due to the Secretary of Commerce no later than May 31, 2005. It is expected that the Administration will submit a proposed legislative vehicle by the middle of the summer of 2005.

The Rural Business Enterprise Grant Program (RBEG) finances and facilitates development of small and emerging private business enterprises in areas with a population of less than 50,000. Funds are allocated to USDA state field offices by formula then distributed competitively based on specific criteria to public bodies, nonprofits and Indian tribes. Funds are pooled nationally at the end of the year. $39.68 million was appropriated to RBEG for FY 2005. According to PART, results for this program were not demonstrated.

The Rural Business Opportunity Grant (RBOG) program promotes sustainable economic development in rural communities with exceptional needs. Grants pay costs of economic planning for rural communities, technical assistance for rural businesses, or training for rural entrepreneurs or economic development officials. The $3 million appropriated for FY 2005 is awarded competitively. No PART assessment was completed for RBOG.

Economic Impact Grants (EIG) provide assistance for essential facilities to rural communities that are unable to provide basic services to their residents and have difficulty financing projects, with an emphasis on areas of high unemployment and outmigration. Ninety percent of funds are distributed by formula to USDA state offices and then distributed competitively to nonprofits. The remaining ten percent is held in reserve and typically distributed based on specific added criteria. $21 million was appropriated to EIG for FY 2005. No PART assessment was completed for the EIG program.

Rural Empowerment Zones and Enterprise Communities (REZ/EC) funds are distributed to afford communities opportunities for growth and revitalization. Original selection of REZ/EC was competitive. Funds are held at the National level, and REZ/EC make applications as needed each fiscal year. $12.5 million was appropriated for FY 2005. No PART assessment was completed for REZ/EC.

The Economic Development Administration (EDA) provides grants to economically distressed communities to generate new employment, help retain existing jobs and simulate industrial and commercial growth. Funds are awarded annually on a competitive basis to multi-county local development districts. EDA’s grant programs were appropriated $257.42 million for FY 2005. PART rated the EDA moderately effective.

The Community Services Block Grant (CSBG) provides grants to States, Territories and Indian Tribes for social services to reduce poverty and increase self-sufficiency. These services address employment, education, housing, emergencies, and health needs. The $642 million appropriated to CSBG for FY 2005 is distributed by formula to about 1,000 non-profit community action agencies. According to PART, results for this program were not demonstrated.

The Urban and Rural Community and Economic Development (CED) Program provides grants for projects that support employment and business ownership opportunities for low-income people through physical or commercial development. Grants are awarded competitively to community development corporations. $33 million was appropriated to CED for FY 2005. No PART assessment was completed.

Rural Community Facilities (RCF) support low-income rural communities in the development of affordable, safe water and wastewater treatment facilities. Grants are awarded competitively to private non-profit organizations. $7 million was appropriated to RCF for FY 2005. No PART assessment was completed.

Based on census data, the Community Development Block Grant (CDBG) provides annual grants to eligible cities, counties and states to fund activities aimed at the development of viable urban communities. Seventy percent of these funds go to the largest cities, while the remaining thirty percent is distributed to smaller cities and towns. For FY 2005, CDBG was appropriated over $4.15 billion. PART rated this program ineffective.

The National Community Development Initiative (NCDI) aims to build local systems that support housing, economic, and community development and increase the long-term viability of Community Development Corporations (CDCs). Funds are awarded primarily to two national intermediaries that assist CDCs, the Local Initiative Support Corporation (LISC) and Enterprise Foundation. $30 million was appropriated to NCDI for FY 2005. PART rated this program moderately effective.

Community Development Block Program Set-Asides (CDBG-SA) are granted to miscellaneous small programs including: historically black colleges and universities; Hispanic, native Alaskan, native Hawaiian, and tribal colleges; as well as community development work study programs. $302 million was appropriated to CDBG-SA for FY 2005. These funds are awarded competitively. PART rated this program ineffective.

The Brownfields Economic Development Initiative (BEDI) assists cities with the redevelopment of abandoned, idled and underused industrial and commercial facilities with expansion and redevelopment of real or perceived environmental contamination. The $24 million appropriated for FY 2005 is awarded competitively. No PART assessment was completed.

Rural Housing and Economic Development (RHED) provides for capacity building at the State and local level for rural housing and economic development and to support innovative housing and economic development activities in rural areas. RHED funds are awarded competitively to nonprofits and local governments. $24 million was appropriated to RHED for FY 2005. PART rated this program ineffective.

Urban Empowerment Zones Round II Grants (UEZ) combine federal grants, tax incentives, and partnerships with government, for-profit and non-profit entities, to expand businesses and create jobs, housing, and new economic opportunities. Original selection of Zones was competitive. Funds are now awarded equally among fifteen Round II zones. $10 million was appropriated to UEZ for FY 2005. No PART assessment was completed.

Community Development Loan Subsidy (CDLS) is a loan program with the same purposes as CDBG. Grantees pledge future CDLS appropriations as collateral for loans. The $6 million appropriated for FY 2005 is awarded as HUD receives applications.

The Community Development Financial Institutions program (CDFI) offers grants and technical assistance awards to build the capacity and coverage of CDFIs to provide credit, capital, and related services to otherwise underserved markets. CDFIs may be for-profit, non-profit, regulated and non-regulated, financial institutions. They include banks, credit unions, loan funds, and venture capital funds. The CDFI Program is available to CDFIs and entities proposing to become CDFIs. Awards are in the form of grants, loans, deposits, and equity investments. CDFI was appropriated $55.5 million for FY 2005. According to PART, this program’s results are adequate.

The Bank Enterprise Award program (BEA) offers awards to increase FDIC-insured institutions’ investments in community development and economic revitalization in distressed communities. BEA is a competitive grant program for financial institutions such as bank and thrifts that increase community development investments. $10 million was appropriated to BEA for FY 2005. According to PART, results for this program were not demonstrated.

The Community Development Financial Institutions – Native Initiatives program (CDF/NI) is functionally the same as CDFI, with a specific focus on Native American communities, including native Alaskans and native Hawaiians. However, the $4 million appropriated to CDF/NI for FY 2005 is dispersed on a first come, first serve basis. No PART assessment was completed.