Legislative Hearing on “The Reauthorization of the Appalachian Regional Commission and Legislative Proposals to Create Additional Regional Economic Development Authorities”

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CHAIRMAN'S OPENING STATEMENT

WITNESSES

PURPOSE

The Subcommittee on Economic Development, Public Buildings and Emergency Management will meet at 1 p.m. on Wednesday, July 12, 2006 in room 2253 Rayburn House Office Building to receive testimony on the progress of the Appalachian Regional Commission’s programs in preparation for reauthorization beginning in fiscal year 2007 The hearing will also include testimony on legislative proposals to create additional regional economic development authorities, including the Northeast Regional Development Commission, the Southeast Crescent Authority, and the Southwest Regional Border Authority.

BACKGROUND

Appalachian Regional Commission History

The Appalachian Regional Commission (ARC) was created by the Appalachian Regional Development Act of 1965 (P.L. 89-4) to address economic issues and social problems of the Appalachian region as a part of President Lyndon B. Johnson’s Great Society program. Historically, the Appalachian region has faced high levels of poverty and economic distress resulting from geographic isolation and inadequate infrastructure.

According to the ARC’s 2005 - 2010 Strategic Plan, its mission is to be a strategic partner and advocate for sustainable community and economic development in Appalachia. ARC’s programs affect 410 counties located in thirteen states including all of West Virginia and parts of Alabama, Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, and Virginia. The region encompasses nearly 200,000 square miles and 23 million people.

Over the past 40 years, ARC has significantly improved economic conditions in the Appalachian region. ARC’s accomplishments include: helping to reduce the region’s poverty rate by half, cutting the infant mortality rate by two-thirds, doubling the percentage of adults 25 and older with a high school diploma, 2,496 miles of new highway construction, providing water and sewer services to a significant number of households, and the creation of hundreds of thousands of new jobs. In the last five years alone, ARC- funded infrastructure projects have resulted in the creation or retention of 136,000 jobs, and over 183,000 households have the benefits of clean water and sanitation facilities.

ARC Structure

The structure of ARC is based on a federal-state-local partnership incorporating a strong relationship with both the public and private sectors. The ARC consists of 14 members, governors from each of the 13 member states and a federal co-chair, who is appointed by the President and confirmed by the Senate. The current federal co-chair is Anne B. Pope and the current state co-chair is Kentucky Governor Ernie Fletcher.

The federal co-chair and the governors share equally in making policy decisions, approving state development plans and allocating funds. Each governor is responsible for drafting a state development plan containing a list of specific projects to carry out ARC’s objectives within that state. Upon completion, the plans are submitted to the full Commission for review, and are subject to annual approval. Approval requires the agreement of the majority of the state members and the federal co-chair. Since all funding decisions are made jointly by the states and the federal government, ARC is cited as a model program for devolving funding decisions back to the states.

ARC uses a formula to allocate area development funds to the states. States submit projects for funding based on state development plans and local priorities. To be funded, a project must be part of the state plan and improve opportunities for employment, average level of income, or economic and social development of the area on a continuing basis. Project funding is based on review and approval of ARC staff and ultimately the approval of the federal co-chair.

ARC provides Appalachia with a mechanism for joint planning and development of regional priorities. The ARC focuses funding efforts on addressing these priorities by assisting and encouraging other public and private sector resources to address the region’s needs. Emphasis has been placed on funding projects related to highway and infrastructure development, business enterprise and human resources programs.

ARC’s 410 counties are divided into 72 local development districts (LDDs), which contain several counties. These entities assist in multi-county planning efforts and the development of projects for the district. LDDs work with member governments, local businesses and citizens to determine local needs and priorities and plan for and develop regional programs. Generally, LDDs strive to build local capacity and promote sustainable rural development through education and training programs including grant writing assistance and leadership training.

ARC Programs

ARC’s programs are divided into two categories, highways and area development. In FY 2005 each dollar of ARC funding leveraged $2.57 in other public funding and $8.46 in associated private funding. The highway program includes the Appalachian Development Highway System (ADHS) and a local access road program. Area development encompasses three general areas: physical development, human development and business development. ARC’s highway program is authorized and funded separately from the area development program.

Highways

The ADHS is a 3,090-mile road system designed to link Appalachia with the U.S. interstate system, and is the only highway system created by Congress to spur economic development. Studies have shown that most new jobs created in the region are located in areas contiguous with a highway corridor.

Since the enactment of TEA-21, ADHS funds have come from the Highway Trust Fund, which provides a predictable source of funding. Funding is authorized from the Highway Trust Fund at $470 million per year from 2005 through 2009. Currently, 2,496 miles have been completed and 136 miles are now under construction.

ARC predicts that the remaining mileage will be the most expensive to build. Estimates now place the cost of completing the system at $3.2 billion – nearly $2 billion more than the cumulative expenditure on the ADHS to date. Under the local access road program, states may use a portion of their annual highway allocation to develop access roads that serve industrial and commercial sites to create and retain jobs as well as provide access to recreational areas, educational facilities, health care facilities, residential areas, and timber access areas.

Area Development

In addition to ARC’s highway programs, it also administers programs to enhance area development. Funding for these programs is targeted to the region’s most economically distressed communities. Specifically, area development programs provide technical assistance and capacity building as well as improving telecommunications and information technology to foster sustainable economic development. ARC also invests in locally designed projects that address basic water and sewer infrastructure needs, business and entrepreneurial development, education and work force training, and improved health.

ARC annually reviews the economic status of the 410 member counties to determine which of four categories fits each county – distressed, transitional, competitive, or attainment. The evaluation is based on unemployment, per capita market income and poverty rate. A distressed county has a three-year unemployment rate that is at least 150% of the national average, a per capita market income of no more than two-thirds of the national average, and a poverty rate at least 150% of the national rate. In addition to being targeted for ARC’s programs, a distressed designation qualifies a county for 80% federal share for project grants, while counties designated as attainment are not eligible for ARC assistance. As of FY 2006, 77 counties qualified for the distressed designation.

The ARC focuses primarily on the economically disadvantaged counties of the region but identifies the other categories for the purpose of implementing grant policies. Transitional counties have one or more economic criteria below the national average but cannot be clearly classified as distressed. Competitive counties are at least at the national average on poverty and unemployment, and are at least 80% of the national average on income. Attainment counties are equal or better than national levels on all three indicators of economic status.

ARC Reauthorization

ARC’s current authorization will expire at the end of FY 2006. Expected issues for reauthorization include minor technical amendments and the statutory establishment of an additional county designation between distressed and transitional for those counties that have not fully achieved transitional status. This additional designation would include approximately 81 counties that barely fail to meet the distressed requirements and provide for up to 70% federal share for project grants. Information presented during the Subcommittee’s hearing will provide a basis for reauthorization of the ARC.

The President’s Budget requested $64.817 million for ARC’s community and economic development programs for fiscal year 2007, which represents level funding for the agency. The ARC was authorized for $92 million in FY 2006. ARC’s highway program is authorized and funded separately.

Other proposed Regional Economic Development Authorities

Many regions also experience high poverty, areas of significantly higher than-average unemployment rates, limited access to capital, low per capita personal income, and high job loss. These regions have expressed interest in regional economic development authorities, similar to the structure of the ARC, to provide funding for projects that stimulate economic development and promote the character and industries of the region while not supplanting existing institutions and programs that provide funding, such as the Economic Development Administration, state agencies, and local development organizations.

Northeastern Regional Development Commission

H.R. 1695, introduced on April 19, 2005, establishes the Northeast Regional Development Commission, composed of a Federal member appointed by the President with the advice and consent of the Senate and the Governors of each State in the region covered by the Commission who elect to participate. Proposals for the NRDC do not specify eligible counties or specific states in the Northeast. Similar language was proposed in the 108^th Congress.

H.R. 1695 requires the Commission to establish priorities and approve grants for economic development, assess the region's needs and capital assets, support local development districts or foster the creation of such districts, encourage private investment, and initiate a special resource study of the north woods of Maine. The bill also authorizes the Commission to give grants to States, local development districts, and public and nonprofit entities for approved projects.

Southeast Cresent Authority (SECA)

H.R. 20, introduced on January 4, 2005, establishes a SouthEast Crescent Authority for a seven state region that includes parts of the states of Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, and Virginia, totaling 448 counties with demonstrated levels of distress. Similar language was proposed in the 107^th and 108^th Congresses.

H.R. 20 directs SECA to perform various functions, including: formulating plans and programs to spur economic development, and approving grants to States and public and nonprofit entities toward that end; establishing priorities in a development plan for the region, supporting local development districts and creating them where they do not exist; and encouraging private investment in the region. The bill permits SECA to annually designate distressed counties and isolated areas of distress in nondistressed counties.

Southwest Regional Border Authority (SRBA)

H.R. 5742, introduced on June 29, 2006, establishes the Southwest Regional Border Authority for counties from the four-state region of Arizona, California, New Mexico, and Texas that fall within 150 miles of the US-Mexico Border. Similar language was proposed in the 107^th and 108^th Congresses.

The bill requires the development of plans and programs for the economic development of the Southwest border region. H.R. 5742 authorizes SRBA to approve grants for regional infrastructure development and improvement, technology development and deployment, community development and entrepreneurship, and education and workforce development. The bill permits SRBA, for purposes of grant assistance, to designate within the region distressed counties, economically strong counties, attainment counties, competitive counties, and isolated areas of distress.