This hearing affords us a chance to review how ARC's programs respond to the economic development challenges facing rural communities and small towns in Ohio and across Appalachia. We hope it will also lay the groundwork for ARC's reauthorization early in the next Congress.
ARC Overview
Congress established the ARC in 1965 to bring roughly 400 counties in the 13-state Appalachian Region into the mainstream of the American economy, to make these 22 million people and their hundreds of communities contributors to, rather than drains on, the national resources. Through its flexible programs, ARC helps equip communities with the basic building blocks of economic development: a trained and educated workforce, basic infrastructure, local leadership and civic capacity, entrepreneurial local economies, and access to health care.
The Commission represents a unique partnership between the federal government and the 13 states we serve. The Federal Co-Chairman of ARC appointed by the President and confirmed by the Senate has one half of the votes on the commission and the 13 governors have the other half. No policy can be set or any money spent unless the federal representative and the governors reach agreement. The ARC model represents neither the dictation of policy from Washington nor the abdication of policy to the states; rather, it is a joint policymaking model that yields true collaboration.
The ARC story is one of substantial progress in giving Appalachia a full seat at the table of America prosperity. When we were created in the 1960s, 219 of our counties were economically distressed. Today that number has been cut roughly in half. Other indicators also show marked improvement: the infant mortality rate has been cut by two-thirds; the regional poverty rate has been cut in half; the per capita income gap between Appalachia and the U.S. has been narrowed; the percentage of adults with a high school education has doubled; and the percentage of Appalachian students completing high school now is slightly above the national average.
In more concrete terms, more than 840,000 Appalachians now have access to clean water and sanitation facilities through ARC grants; a network of more than 400 ARC-funded primary care health facilities has been completed; and ARC grants to revolving loan funds have assisted 1,234 small businesses in creating over 24,000 new jobs and saving 28,000 existing jobs. From any perspective, then, ARC's impact in Appalachia has been substantial.
Revitalization of the Agency
I am pleased to represent a President whose commitment to Appalachia and to ARC has been unwavering. The Clinton-Gore Administration has requested unprecedented levels of funding for the Commission's highway and non-highway programs. And the Congress, on a bipartisan basis, has responded by providing record funding for our highway system and strong support for our non-highway work. This same bipartisanship marked the 1998 reauthorization of ARC, the first in almost 20 years.
I am proud to say that we the ARC family of federal, state, and local partners, with great support from the Congress have reformed and revitalized the Commission. For example, in 1994 we made the decision, with your support as one of our Governors, to mark our 30th anniversary, not by having a celebration, but by taking a long, hard look at the region and at ourselves.
We spent a full year engaged in a strategic planning process for the Commission because we knew that the region and the world itself had changed profoundly in the past thirty years. We did not hire a consulting firm to do this plan; we did it ourselves, convening four interstate town meetings, listening to focus groups, commissioning research, holding consultations with experts, and hammering out a shared vision among the federal, state, and local partners.
The result of this planning effort was a new vision and mission for the ARC. We agreed that we must invest in five essential building blocks of economic development for Appalachia, and they are set forth in our five goals statements. All ARC projects must clearly advance at least one of these goals:
GOAL 1. Appalachian residents will have the skills and knowledge necessary to compete in the world economy in the 21st century. GOAL 2.Appalachian communities will have the physical infrastructure necessary for self-sustaining economic development and improved quality of life. GOAL 3.The people and organizations of Appalachia will have the vision and capacity to mobilize and work together for sustained economic progress and improvement of their communities. GOAL 4.Appalachian residents will have access to financial and technical resources to help build dynamic and self-sustaining local economies. GOAL 5.Appalachian residents will have access to affordable, quality health care.
In addition, the Commission launched special regional initiatives with dedicated multi-year funding. These initiatives address challenges which span the region and which can benefit from interstate approaches to solving problems and capitalizing on opportunities. These initiatives have emphasized telecommunications, export promotion, leadership development, and entrepreneurship. All have yielded impressive results.
In our 1998 reauthorization, Congress recognized the effectiveness of these revitalization efforts, incorporating a number of our internal reforms into our statute and, under the leadership of this Committee, giving us our first full-fledged reauthorization in almost 20 years. Taken together our own reforms and those reflected in our reauthorization have enabled the agency to renew its commitment to the Region and better seek to complete its job.
Distressed Counties
Just as impressive as these reforms have been to our program, however, has been the commitment of the Commission to target our resources to the areas of greatest need to our distressed counties. The Commission targets its resources in two fundamental ways: first, it sets aside funds for use exclusively in economically distressed counties; second, it restricts funding in counties that are performing at or near national economic norms.
Currently the Commission reserves 30 percent of its project dollars for use solely in the counties that are classified as economically distressed. In effect, states with no or few distressed counties voluntarily agree to allocate more resources to the distressed counties in other Appalachian states. While these funds can be used only in distressed counties, states may also use other ARC funds in the distressed counties. And they are doing so. During the past three fiscal years, states have consistently exceeded the 30 percent set-aside, spending about half of their total project funds on programs that benefit distressed counties. This means that about 50 percent of ARC project funds are being spent on programs to benefit the 11 percent of Appalachia's population living in distressed counties.
It should be noted, as well, that our definition of distress is a rigorous one. To qualify as distressed, a county must have unemployment and poverty rates that are at least 150% of the national averages and a per capita market income that is no more than two-thirds of the national average. These are clearly counties struggling with long-term, systemic economic difficulties.
Mr. Chairman, I think it also important to point out that many of Appalachia's counties, while not formally classified as distressed, are only a plant-closing away from becoming distressed. Their economies remain fragile, often lacking diversification. We informally refer to them as "at risk." Our states spend a significant portion of their funds on these counties as well.
At the other end of the economic spectrum are our counties that are performing at national averages on key economic indicators. Generally, those counties are precluded from receiving ARC project funds. They have no need for ARC's special assistance. In addition, counties that are approaching national economic norms are limited in the amount of project funding that they may get from ARC.
Taken together, the set aside for distressed counties and the limitations on funding projects in economically strong counties ensure that ARC's limited dollars go where the needs are greatest. We at the ARC have worked very hard on this targeting policy; and I am proud to say that there has never been a negative vote on these policies from a Federal Co-Chairman or from any of the states, some of whom are net "losers" in this allocation procedure. All have been willing to help the neediest of our counties.
Earlier this year the Appalachian Governors and I launched a regional outreach effort to craft an enhanced program for our distressed counties. This initiative follows an extensive review of ARC's existing policies and programs in distressed counties. To date we have had focus groups or town meetings in five of our states including a tri-state town meeting in Ironton last month and two other states plan to hold listening sessions later this month.
These meetings are designed to identify new strategies to help Appalachia's poorest communities become more competitive. While money is of course one of the issues, this process attempts to discover ways to achieve greater results within distressed counties with existing ARC dollars. At its October meeting in West Virginia, the Commission is expected to review a proposed strategic plan for distressed counties and make recommendations on how to implement the plan. We will keep your Committee informed as we create this enhanced program for distressed counties.
Economic Conditions in Appalachia
As our focus on distressed counties suggests, despite robust economic growth nationally, some communities have yet to share fully in the nation's unprecedented prosperity. Too many rural areas many of them here in Southeast Ohio still remain cut off by terrain and by history from the broad economic currents that are raising American standards of living.
Almost a fourth of the region's counties can be classified as economically distressed, suffering the debilitating effects of persistently high unemployment, low per capita income, and widespread poverty.
Structural changes in declining sectors such as coal mining, manufacturing, textiles, and agriculture exacerbated by globalization and technological change have hit Appalachia disproportionately hard, threatening to reverse the modest economic gains that many communities have made. A culture of economic dependency continues to impede the drive toward entrepreneurial innovation and risk-taking that is reshaping so much of the national economy, while a widening digital divide threatens to leave Appalachia's residents disconnected from the educational and e-commerce opportunities created by the technology revolution.
These trends are particularly evident in Southeastern Ohio, where 9 of the state's 29 counties are classified as economically distressed. Indeed, while much of the rest of the region has been moving forward, a combination of plant and mine closings and depressed agriculture prices has hit Appalachian Ohio hard. For example, six counties entered distressed status during the mid-1990s, as Ohio's counties have fallen further behind on national indicators.
Highways
From ARC's inception, highways have been central to the economic development of Appalachia. A region unconnected to the transportation grid of the nation cannot possibly participate fully in its economy. Because the interstate system had bypassed much of Appalachia, Congress authorized the Appalachian Development Highway System (ADHS), the only major highway system created primarily to foster economic development.
The ADHS consists of 3,025 miles, reaching across all 13 of our states. At the end of FY 1999, 81.2 percent of these miles were open to traffic or under construction. In Ohio, there are 201 miles authorized for ADHS construction, of which 161 are open to traffic. Changes adopted by the Commission in 1999, in response to the request of the State of Ohio, shifted mileage along Corridor C, creating a new Corridor C1. This will enable the ADHS to better meet the traffic needs of this part of Ohio. At the same time, the Commission's action reaffirmed that the planned Portsmouth Bypass remains a part of the system, linking central Ohio with Kentucky, Virginia, and North Carolina.
TEA-21 for the first time authorized funding for the ADHS out of the Highway Trust Fund, authorizing $450 million per year for work on the System. With this increased funding our states are making major progress toward completing the System. But we are also encountering some of the most difficult terrain, which results in higher construction costs. When it comes time for your Committee to write the next multi-year highway bill, we hope you will continue to provide substantial funding from the Highway Trust Fund, accelerating the day that the entire system will be completed. At current funding levels based on our last cost to complete estimate the entire system could be completed in a little less than two decades.
Two years ago we commissioned a study of the economic impact of the ADHS the first full-scale, rigorous assessment of the effectiveness of the system in contributing to economic growth. Conducted by Wilbur Smith Associates, a leading transportation consulting firm, the study examined 12 of our 26 corridors, focusing on those corridors that are largely complete and therefore should be contributing to job creation in the region.
The results are both dramatic and reassuring:
·Creating jobs. The report estimated that the 12 corridors had produced a net increase of 16,000 jobs by 1995 and projected a net increase of 42,000 new jobs by 2015. These jobs would not have been created without the ADHS. Only a portion of these were construction jobs attributable to the actual building of the corridors.
·Generating economic benefits. The report estimated that the total economic impact of the completed work on the 12 ADHS corridors at $5.48 billion from 1965-2005, without considering direct construction benefits. When construction benefits are included, the total impact rises to $6.9 billion over the same period. Each $1 of federal investment will yield $1.32 in economic impact benefits.
·Making travel easier, safer, and more cost-effective. The ADHS highway corridors are expected to produce travel efficiencies nationwide valued at $4.89 billion over the 1965-2025 period.
Area Development
While a network of modern highways is essential to Appalachia's economic growth, highways by themselves are not sufficient to enable many of the region's communities to prosper. Through a flexible approach that embraces basic infrastructure, jobs skills training, local leadership development, small business assistance, and improved health care, ARC offers Appalachia's communities the tools to create self-sustaining local economies. Through the years, including your tenure as Governor, Ohio has tapped the full range of these options. Ohio has been one of a handful of states to emphasize the use of ARC funds for jobs skills training and education.
ARC spends about two-thirds of its annual nonhighway budget on infrastructure and public works projects in the region. These typically include water and sewer systems, industrial parks, access roads, and business incubators.
We recently released the results of an outside evaluation of ARC's infrastructure projects. Examining a representative sample of projects, the study shows that these projects are creating more jobs than anticipated and are spurring significant economic activity across the region. Roughly three-fourths of the sampled projects with specific business or job-related goals either met or exceeded their projections.
The local impact of these ARC projects is dramatic: in 45 of the 65 counties for which measures could be developed, the report found that ARC infrastructure investments created jobs equaling at least 10 percent of all net employment growth in the counties between 1990 and 1996.
Other findings include the following:
·Private investment. The ARC projects have leveraged a total private sector investment of $3.075 billion, in a ratio of almost $107 to every dollar invested by ARC. When an unusually large project in the study is excluded from the analysis, the private sector investment is $1.675 billion, with a ratio of $58 to $1.
·Wages. The total $32.4 million in ARC support has led to $576.9 million of new wages annually for the jobs created by the projects. This has led to a net expansion of $950.3 million of personal income.
·Tax revenue. Each year the ARC projects are yielding $14.3 million of state income tax revenue, $13.9 million of state and local sales tax revenue, and $29.2 million in local property tax revenue. The annual property tax revenue alone almost equals the entire amount of the ARC investment.
"Bottoms Up" Approach
The secret to much of the success that this study documents can be found in the effectiveness of the region's 71 local development districts (LDDs), multi-county economic development planning agencies that work with local governments, non-profit organizations and the private sector to determine local economic development needs and priorities. For many communities, these LDDs are the principal source of professional guidance in crafting and implementing local economic development strategies. They are literally the first stop on a community's path to economic self-sufficiency.
Appalachian Ohio is served by three excellent LDDs the Ohio Valley Regional Development Commission, the Buckeye Hills Regional Development District, and the Ohio Mid-East Governments Association. These local groups, whose boards contain local elected officials and private sector representatives, are responsible for developing most of the projects that are submitted to ARC. This local orientation creates a genuine "bottoms up" approach that is the hallmark of ARC.
New Markets and Entrepreneurship
Appalachia's future economic vitality depends in large measure upon nurturing homegrown firms businesses that create jobs, increase local wealth, and ultimately reduce the region's need for outside subsidies. Unfortunately, due to Appalachia's longstanding dependence on extractive industries and branch plant manufacturing, the culture of entrepreneurship in the region is neither broad nor deep, and research findings suggest that there are many gaps in the infrastructure needed to support entrepreneurship.
Responding to these conditions, in 1998 the Commission launched a multi-year, $15 million initiative to build entrepeneurial economies across Appalachia. The initiative has focused on four essential components in building sustainable entrepreneurial economies: ·Entrepreneurial education and training ·Technical and managerial assistance to new and expanding businesses ·Developing entrepreneurial networks and sectors ·Improving access to debt and equity capital To guide its investments, ARC has relied upon working groups composed of regional practitioners, state partners, private sector investors, federal agencies, and foundations.
Some of the most exciting entrepreneurship work is taking place right here in Southeastern Ohio. The Appalachian Ohio Development Fund, a venture capital fund targeted to the needs of small businesses in this part of Ohio, is a creative response to the call for equity financing options. ACENet, led by June Holley, has earned a national reputation for its specialty foods incubator, benefitting both small businesses and agricultural producers in the Athens County area. And Junior Achievement, which has an active presence in Ohio, offers one of the premier programs for entrepreneurial education in our high schools.
So far our Entrepreneurship Initiative has funded 133 projects. The 25 projects that have been completed reported the creation of 198 new businesses and creation or retention of 539 jobs. The 108 on-going programs are projected to create 342 new businesses and create or retain 2,951 jobs.
ARC's entrepreneurship work complements the President's New Markets Initiative, which passed the House with a strong bipartisan majority late last month, and which we hope the Senate will consider in September. The first stop on the President's New Markets tour last summer was Appalachian Kentucky. Taken together, the New Markets Initiative and our Entrepreneurship Initiative can provide scores of Appalachian communities and businesses with new opportunities for private investment and locally based growth.
Advocacy and Collaboration
From its creation, ARC's unique federal-state partnership has had a mandate to be an advocate for the region. It has offered a platform for galvanizing other federal, state, and private sector efforts to move the region into the nation's economic mainstream. ARC works closely with other federal agencies to avoid duplication while helping ensure that these other federal programs respond effectively to the particular challenges that Appalachian communities face. It also seeks to leverage investment in the region by non-profit organizations and the private sector. Some recent actvities suggest the scope of this work.
·Transportation Summit. Building on their traditional highway partnership, ARC and the Department of Transportation last year jointly sponsored a regional summit on intermodal transportation and laid the groundwork for 10 ARC intermodal grants, including a joint Ohio-West Virginia-Kentucky project to capitalize on the potential of the Ohio River.
·EPA Brownfields. In July ARC and EPA entered into a memorandum of agreement designed to give Appalachia's communities a greater role in EPA's brownfields program. We are hoping this collaboration, which includes technical assistance workshops for local officials, will result in more brownfields cleanup funds flowing into our region.
·Kellogg Foundation. ARC and the W.K. Kellogg Foundation have teamed up for an unprecedented collaboration to harness technology in promoting community and economic development. Focused on Northwest Pennsylvania and Southeastern Ohio, in June this partnership resulted in Kellogg grants of $200,000 each to two community teams from those states. This money likely would not have gone to Appalachia if ARC had not taken the lead in promoting the region.
·First Union Bank. First Union Bank has been a key private sector participant in our entrepreneurship work. As a result of this involvement, last year First Union committed $5 million for small business lending and investment in Appalachia, and this year they will commit additional dollars for venture capital funds serving Appalachia.
·Diabetes Outreach. To help lower the risk of diabetes in Appalachia, which suffers from a disproportionately high incidence of diabetes, and reduce the likelihood of long-term complications of those already afflicted by this disease, the ARC and the Centers for Disease Control will collaborate on an educational outreach initiative. This pilot project will help local health educators conduct a range of diabetes prevention and control outreach programs.
Mr. Chairman, these activities suggest the broad mandate that ARC has to address the needs of Appalachia. The economic challenges facing Appalachia are difficult; they require a multi-faceted, comprehensive approach. With its renewed commitment to the region's most distressed areas, augmented by a special focus on entrepreneurship and private sector investment, ARC is positioned to help Appalachia's communities participate fully in the American economy of the 21st century. We look forward to working with you and the Committee in accomplishing this task.