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Economic development

The efficiency and effectiveness of fragmented economic development programs are unclear

Why Area Is Important

Economic development programs that are administered efficiently and effectively can contribute to the well-being of the nation's economy at the least cost to taxpayers. Absent a common definition for economic development, GAO has previously developed a list of nine activities most often associated with economic development. These activities include: planning and developing strategies for job creation and retention, developing new markets for existing products, building infrastructure by constructing roads and sewer systems to attract industry to undeveloped areas, and establishing business incubators to provide facilities for new businesses' operations.

GAO is currently examining 80 economic development programs at four agencies—the Departments of Commerce (Commerce), Housing and Urban Development (HUD), and Agriculture (USDA); and the Small Business Administration (SBA)—to assess potential for overlap in the design of the programs, the extent to which the four agencies collaborate to achieve common goals, and the extent to which the agencies have developed measures to determine the programs' effectiveness. Funding provided for these 80 programs in fiscal year 2010 amounted to $6.5 billion, of which about $3.2 billion was for economic development efforts, largely in the form of grants, loan guarantees, and direct loans. Some of these 80 programs can fund a variety of activities, including those focused on noneconomic development activities, such as rehabilitating housing and building community parks. This analysis presents the preliminary findings of GAO's ongoing work in conjunction with findings from its prior work.

What GAO Found

Preliminary results of GAO's ongoing work involving 80 economic development programs at four agencies—Commerce, HUD, SBA, and USDA—indicate that the design of each of these fragmented programs appears to overlap with that of at least one other program in terms of the economic development activities that they are authorized to fund. For example, as shown in the table below, the four agencies administer a total of 52 programs that can fund "entrepreneurial efforts," which includes helping businesses to develop business plans and identify funding sources.

Overlap and Fragmentation Among Selected Agencies Authorized to Fund Economic Development Activities

Programs by agency

Activity

Commerce

HUD

SBA

USDA

Total

Entrepreneurial efforts

9

12

19

12

52

Infrastructure

4

12

1

18

35

Plans and strategies

7

13

13

6

39

Commercial buildings

4

12

4

7

27

New markets

6

10

6

6

28

Telecommunications

3

11

2

10

26

Business incubators

5

12

-

3

20

Industrial parks

5

11

-

3

19

Tourism

5

10

-

4

19

Source: GAO

Note: Numbers of programs by agency do not total to 80 since an individual program may fund several activities.

GAO's prior work going back more than 10 years also identified potential overlap and fragmentation in economic development programs and found that many of the programs were differentiated by legislative or regulatory restrictions that targeted funding on the basis of characteristics such as geography, income levels, and population density (rural or urban).

While some of the 80 programs GAO is currently assessing fund several of the nine economic development activities, almost 60 percent of the programs (46 of 80) fund only one or two activities. These smaller, narrowly scoped programs appear to be the most likely to overlap because many of them can only fund the same limited types of activities. For example, narrowly scoped programs comprise 21 of the 52 programs that fund entrepreneurial efforts. Moreover, most of these 21 programs target similar geographic areas.

To address issues arising from potential overlap and fragmentation in economic development programs, GAO has previously identified collaborative practices agencies should consider implementing in order to maximize the performance and results of federal programs that share common outcomes. These practices include leveraging physical and administrative resources, establishing compatible policies and procedures, monitoring collaboration, and reinforcing agency accountability for collaborative efforts through strategic or annual performance plans. Preliminary findings from GAO's ongoing work show that Commerce, HUD, SBA, and USDA appear to have taken actions to implement some of the collaborative practices, such as defining and articulating common outcomes, for some of their related programs. However, the four agencies have offered little evidence so far that they have taken steps to develop compatible policies or procedures with other federal agencies or search for opportunities to leverage physical and administrative resources with their federal partners. Moreover, GAO is finding that most of the collaborative efforts performed by program staff on the front line that GAO has been able to assess to date have occurred only on a case-by-case basis. As a result, it appears that the agencies do not consistently monitor or evaluate these collaborative efforts in a way that allows them to identify areas for improvement. GAO reported in September 2008 that the main causes for limited agency collaboration include few incentives to collaborate and no guide for agencies to rely on for consistent and effective collaboration. In GAO's ongoing work, USDA and SBA officials also stated that certain statutory authorities may impede their ability to collaborate. In failing to find ways to collaborate more, agencies may miss opportunities to leverage each other's unique strengths to more effectively promote economic development, in addition to inefficiently using the taxpayer dollars set aside for that purpose.

In addition, a lack of information on program outcomes is a current and long-standing concern. This information is needed to determine whether this potential overlap and fragmentation is resulting in ineffective or inefficient programs. More specifically:

  • Commerce's Economic Development Administration (EDA), which administers eight of the programs GAO is currently reviewing, continues to rely on a potentially incomplete set of variables and self-reported data to assess the effectiveness of its grants. The incomplete set of variables that the agency relies on to estimate the effectiveness of EDA program grants may lead to inaccurate claims about program results, such as the number of jobs created. Moreover, EDA staff request documentation or conduct site visits to validate the self-reported data provided by grantees only in limited instances. GAO first reported on this issue in March 1999 and issued a subsequent report in October 2005. In response to a recommendation GAO made in 2005, EDA issued revised operational guidance in December 2006 that included a new methodology that regional offices are to use to calculate estimated jobs and private sector investment attributable to EDA projects. However, GAO's ongoing work found that the agency still primarily relies on grantee self-reported data and conducts a limited number of site visits to assess the accuracy of the data. While acknowledging these findings, EDA officials stated that they do employ other verification and validation methods in lieu of site visits. These methods include reviews to ensure the data are consistent with regional trends and statistical tests to identify outliers and anomalies. GAO plans to assess the quality and adequacy of these methods as part of its ongoing work.
  • The USDA's Office of Rural Development, which administers 31 of the programs GAO is reviewing, has yet to implement the USDA Inspector General's (IG) 2003 recommendation related to ensuring that data exist to measure the accomplishments of one of its largest rural business programs—the Business and Industry loan program, which cost approximately $53 million to administer in fiscal year 2010. USDA officials stated that they have recently taken steps to address the open recommendation, including requiring staff to record actual jobs created rather than estimated jobs created, but according to an IG official it is too early to tell whether their actions will fully address the recommendation.
  • HUD does not track long-term performance outcome measures for its Section 108 program because the agency continues to lack a reporting mechanism to capture how program funds are used, an issue the Office of Management and Budget (OMB) reported on in 2007. Moreover, OMB also found in 2007 that the program's impact and effectiveness in neighborhoods remained unknown.
  • SBA has not yet developed outcome measures that directly link to the mission of its Historically Underutilized Business Zones (HUBZone) program, nor has the agency implemented its plans to conduct an evaluation of the program based on variables tied to its goals. GAO reported in June 2008 that while SBA tracks a few performance measures, such as the number of small businesses approved to participate in the program, the measures do not directly link to the program's mission. While SBA continues to agree that evaluating program outcomes is important, to date the agency has not yet committed resources for such an evaluation.

Without quality data on program outcomes, these agencies lack key information that could help them better manage their programs. In addition, such information would enable congressional decision makers and others to make decisions to better realign resources, if necessary, and to identify opportunities for consolidating or eliminating some programs.

Actions Needed

Preliminary findings of ongoing GAO work have identified several areas that could benefit from continued attention.

  • Agencies need to further utilize promising practices for enhanced collaboration. GAO first made this recommendation to SBA and USDA in September 2008, but these agencies have taken only limited steps to fully address GAO's concerns. The actions that the four agencies should consider include seeking more opportunities for resource-sharing across economic development programs with shared outcomes, and identifying ways to leverage each program's strengths to improve their existing collaborative efforts. Continuing to explore the extent to which these agencies collaborate could help identify promising practices that may result in more effective and efficient delivery of economic development programs to distressed areas.
  • Agencies need to collect accurate and complete data on program outcomes and use the information to assess each program's effectiveness. In June 2008 GAO made a similar recommendation to SBA about its HUBZone program, but the agency has taken limited action thus far.

Additional work to assess progress in collaboration and evaluation could identify areas for improvement, consolidation, or elimination. Further, programs that are designed to target similar economic development activities, locations, and applicants may not be adding unique value, and more analysis is needed by the agencies and OMB to determine the actual amount of duplicative spending.

The above are actions that could be taken by agencies to address fragmentation and overlap, and increase program efficiencies across the multiple agencies, which support economic development efforts. However, given the long-standing nature of these issues, GAO also believes that increased attention and oversight by OMB and Congress are warranted to ensure needed actions are taken.

Framework for Analysis

The information contained in this analysis is based on the GAO products listed under the "Related GAO Products" tab, as well as GAO's ongoing work following up on the recommendations from those products, and the preliminary results of GAO's ongoing evaluation of economic development programs at four federal agencies. For the most recent work, GAO gathered new information related to, for example, program missions, targeted populations, and funding provided for the programs. The data on program funds were self-reported by agency officials. The data were determined to be sufficiently reliable for the purposes of this review. For this review, GAO focused on USDA, Commerce, HUD, and SBA. GAO met with officials from each of the agencies to discuss each of the programs and the program missions. Because SBA officials view all of their programs as being related to economic development, GAO included all SBA programs in this review. Using the Catalog of Federal Domestic Assistance and other agency documents, GAO identified 80 federal programs administered by the four agencies that could fund economic development activities. GAO did not include tax credit programs aimed at economic development in this review. For information on how tax programs can contribute to duplication, see the section of this report entitled "Periodic Reviews Could Help Identify Ineffective Tax Expenditures and Redundancies in Related Tax and Spending Programs."

Area Contact

For additional information about this area, contact William B. Shear at (202) 512-4325 or shearw@gao.gov.